Indonesian Banking Sector - YTD Oct-24 summary

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YTD Oct-24 summary

Major Indonesia banks (BBCA/BMRI/BBRI/BBNI) have published their bank-only Oct-24 results, which broadly showed some earnings stability (and thus improved earnings visibility). Specifically, asset yields have improved whilst funding costs have stabilized (although liquidity in the banking system stays tight). Indeed, the average monthly cost of funding (CoF) of these major banks has been hovering at ~2.6% (p.a.). With stable funding costs, we expect more stable net interest margins (NIMs) for these banks, which would make better core earnings visibility (i.e. PPOP). And alongside potential maturing of some SRBIs in 4Q24F (approximately ~IDR16tr), we anticipate some liquidity injection in the banking sector. Combined with lBI’s likely stable rates, we think the funding costs of major banks could remain stable. As of Oct-24, the average monthly NIM of major banks continued to show a stable trajectory of 5.4%, up from the low of 5.0/5.1% in Feb-2024/Apr-2024. These should provide some FY25F earnings improvement for these banks, thereby reducing downside risks. If stable funding costs are sustained and considering the loan growth trajectory, NII growth would improve (and thus better earnings trends without having to drive down cost of credit [CoC]).

Based on the results of these major banks, BBCA continues to be our preferred banking stock. BBCA has continued to see superior loan growth (primarily driven by its corporate customers as well as better funding costs, particularly for saving deposits). Indeed, YTD Oct-24, BBCA (and BMRI) has demonstrated most visible growth in saving deposits. These reflect its successful strategy to capture business downward value chains with low funding costs.

We also think that BBRI may see its earnings bottom out (despite credit costs remaining elevated). The bank has also kept a prudent provisioning approach to reduce credit risks at its mass-market (micro) segment as well as bringing down micro loan growth to a healthy mid-single digit percentage. A key challenge for BBRI is extremely slow deposit growth at its micro / ultra micro customer base. Our assessment suggests that much of these could be due to leakages in deposits whereby after loan disbursements, BBRI’s micro borrowers may have to pay their obligations (for working capital purposes) which resulted into deposit outflow. Thus, the key challenge for BBRI would be how to capture upward-value chains of its micro ecosystems, which in our opinion may require the bank to expand its corporate loan exposures. So far, we have seen early signs of micro deposit growth recovering at BBRI.

Summary of YTD Oct-2024 results

Below is a summary of major banks’ YTD Oct-24 results. While we still see largely tight liquidity in the banking system, we have seen a more stable funding cost trend (hence NIMs). While still in early days, we think near-term funding costs could remain largely unchanged, and these could become near-term earnings drivers for banks.

1. YTD Oct-24 net interest income from major banks +3% y-y

• BBCA +9% y-y (for the first time BBCA delivered highest bank-only profit)

• BMRI +5% y-y

• BBRI +2% y-y

• BBNI -5% y-y

2. YTD Oct-24 PPOP from major banks +10% y-y

• BBRI +15% y-y

• BBCA +12% y-y

• BMRI +7% y-y

• BBNI -3% y-y

3. YTD Oct-24 CoC for major banks at 1.5% (+10bp y-y)

• BBRI CoC of 3.2% (+60bp y-y) — as BBRI continued to write off NPLs in small and/or micro segments

• BBNI CoC of 1.0% (-30bp y-y)

• BMRI CoC of 0.7% (flat y-y)

• BBCA CoC of 0.2% (-20bp y-y)

4. YTD Oct-24 implied risk-adj NIM for major banks at 4.3%

• BBCA 6.3% (+80bp y-y) as NIM @ 6.0% (+40bp y-y)

• BMRI 4.0% (-40bp y-y) as NIM @ 4.7% (-20bp y-y)

• BBRI 4.1% (-110bp y-y) as NIM @ 6.3% (-10bp y-y)

• BBNI 3.5% (flat y-y) as NIM @ 4.4% (+10bp y-y) due to improved loan pricing

5. YTD Oct-24 profits for major banks +8% y-y

• BBCA +15% y-y

• BMRI +6% y-y

• BBRI +5% y-y

• BBNI +4% y-y

On balance sheet, loan growth was up +13% y-y; +10% YTD Oct-24; for BMRI +21% y-y / +16% YTD Oct-24; for BBCA +14% y-y / +9% YTD Oct-24; for BBRI +6% y-y / +7% YTD Oct-24; for BBNI +9% y-y / +5% YTD Oct-24. In terms of LLR, BBRI maintained at ~6.2% (down from 6.7% in Dec-23), followed by BBNI at ~5.6% (6.8%), BBCA at ~3.9% (4.2%) and BMRI at ~3.2% (3.9%).

On deposits, overall deposits were up 7% y-y / +1% YTD Oct-24; for BMRI +13% y-y / +7% YTD; for BBRI +7% (+1%); for BBCA +2% (+1%); and for BBNI +3% (-6%). A closer examination shows that the more important Saving Deposits (than Current Account or Time deposits) still recorded healthy growth of +7% y-y (+5% YTD Oct-24) with BMRI posting the highest growth of +13% y-y (+9%) / BBCA +5% (+5%) / BBNI +9% (+4%) / BBRI +4% (+1%). These explain that among the major banks, BBCA / BMRI / BBRI show the most stable NIMs. Headline LDR for these banks remained at 90.5% in Oct-24 (a slight uptick from 84.1% in Dec-2023).

Valuations and risks

BBCA — We derive our TP of IDR13,200 using DuPont analysis with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 0.8x and a CAR-adjusted ROAE of 24.5%. Our TP implies 5.4x FY25F P/B (vs current price valuation of 4.2x) and 26.9x FY25F P/E (vs current price valuation of 21.0x). Risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

BMRI — We derive our TP of IDR8,450 using DuPont methodology. Key parameters are a risk-free rate of 6.5%, an equity risk premium of 7.8%, a CAR-adjusted ROAE of 19.8% and beta of 1.03x. We have also used 2025F book as reference. Our TP implies a 2.5x FY25F P/B and a 12.4x FY25F P/E – compared to current price valuations of a 2.1x and a 10.6x, respectively. Key downside risks are worse-than-expected macroeconomic trends, government intervention, tight liquidity competition, and higher credit cost and opex growth.

BBRI — We derive our TP of IDR6,300 using DuPont analysis with a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 10.0%, beta 0.8x, and a CAR-adjusted ROAE of 18.0%. We have also used 2025F book as reference. The implied multiples at our TP would be 2.9x 2025F book and 14.8x 2025F earnings (compared to current multiples of 2.1x and 11.1x, respectively). The key risks to our view are worsening of macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition, which could increase funding costs, worsening credit quality which would raise credit costs, and higher opex.

BBNI — We derive our TP of IDR6,600 based on a DuPont analysis, assuming a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 8.5%, beta 1.0x and a CAR-adjusted ROAE of 16.5%. We also use 2025F book as reference. The implied multiples at our TP are 1.4x 2025F book and 10.7x 2025F earnings (compared to current multiples of 1.2x and 9.3x, respectively). Key risks to our view are worsening macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition (which would increase funding cost), and worsening credit quality (which would raise credit costs), and higher opex.