Indonesia Banks - Bottoming margins

Bottoming margins

Based on recent bank-only performance data from major Indonesian banks, we expect margin compression in 2026F to be limited compared to 4Q25 levels. While 2026 margins will likely remain below the full-year 2025 average, we believe the earnings impact should be modest and largely in line with current market expectations.

In this note, we focus on bank-only margins given the recent declines in risk-free earnings asset yields (e.g. SRBIs and/or government bonds). In recent months, we have witnessed a slight decline in banks’ margins with more noticeable decline at BBNI (BBNI IJ, Buy) and BMRI (BMRI IJ, Buy)(in part due to their more FX loan exposures) than BBCA (BBCA IJ, Buy)and BBRI (BBRI IJ, Buy).

Broadly, we believe yields for risk-free earnings assets are near or at the bottom already. Meanwhile, liquidity for IDR and possibly USD could improve (or at least not worsen), we think. This would mean that funding costs for banks are less likely to go up, suggesting that upcoming bank-only 4Q25 margins for these banks probably indicate bottoming margins.

From the recent SRBI issuances, we have noticed that blended yields have risen from a low of 4.66% in recent weeks to the latest issuance (5 Dec 2025) at 5.00%. With USD deposit rates currently hovering around 4.0% at these major SOE banks, we think it is unlikely that BI rates (and thus SRBI rates) would see any meaningful decline in 2026F. This should give us more confidence with respect to our earnings projections for 2026F for these major banks.

Refer to charts below for more details on bank-only margin trends and SRBI blended yields.

Going into 2026F, we also anticipate firmer loan growth across banks with sector average growth to be between 9% and 11% in 2026 (slight improvement from 2025’s 8-10%). Granted there are still macroeconomic uncertainties, business-related loan demand in 2026F should improve compared to 2025. Lending rates in 2026 should also be near bottom levels from 3Q25 numbers, we believe.

Consequently, into 2026F, we anticipate positive developments in banks’ TSR. Generally, we expect average TSR of 32-52% for these banks. Granted these TSRs for these major banks are still driven by dividend, we still see a reversal in profitability (from profit declines for SOE banks in 2025 to positive profit trends in 2026).

Based on the above, BBCA (BBCA IJ, Buy) and BMRI (BMRI IJ, Buy) are our preferred banking stocks, followed by BBNI (BBNI IJ, Buy) / BRIS (BRIS IJ, Buy). For BBRI (BBRI IJ, Buy), one specific risk for the stock may relate to blended yields for KUR loan portfolio. We think given the recent declines in risk-free yields (BI and SRBI rates) as well as limited interest subsidy in the budget, it is unlikely for the government to lower its interest rate subsidy for newly disbursed KUR loans in 2026F and onwards (compared to existing / prior ones).

Valuations and risks

BBCA – We derive our TP of IDR12,300 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 CARadjusted ROAE of 24.5%. Our TP implies 5.4x FY25F P/B (vs 3.9x currently) and 26.7x FY25F P/E (vs 19.3x currently). Risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

BMRI – We derive our TP of IDR6,000 using DuPont analysis, with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 1.09x and a CARadjusted ROAE of 18.5%. Our TP implies 1.9x FY25F P/B (vs 1.6x currently) and 10.4x FY25F P/E (vs 7.8x currently). Risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

BBRI – We derive our TP of IDR5,000 using DuPont analysis, with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 0.85x and a CARadjusted ROAE of 18.0%. Our TP implies 2.3x 2025F P/B (vs 1.9x currently) and 12.5x 2025F P/E (vs 11.3x currently). Risks are worsening 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. Changes in management may affect the bank’s write-off policies and thus, credit costs. This would ultimately affect the bank’s near-term earnings, in our view.

BBNI – We derive our TP of IDR5,500 using DuPont analysis, with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 1.04x and a CAR-adjusted ROAE of 16.0%. Our TP implies 1.2x FY25F P/B (vs 1.0x currently) and 9.7x FY25F P/E (vs 7.7x currently). Key risks are worsening macroeconomic trends, tighter liquidity competition, and/or higher credit costs and opex growth.

BRIS – We derive our TP of IDR3,250 using DuPont analysis, with key parameters including: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 1.2x and a CAR-adjusted ROAE of 18.0%. Our TP implies 2.9x FY25F P/B (vs 2.4x currently) and 19.4x FY25F P/E (vs 16.2x currently). Risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general.

GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.

This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

RESTRICTIONS ON DISTRIBUTION

By accepting this report, the recipient hereof represents and warrants that you are entitled to receive such report in accordance with the restrictions and agrees to be bound by the limitations contained herein. Neither this report nor any copy hereof may be distributed except in compliance with applicable Indonesian capital market laws and regulations.

Research Analysts

Erwin Wijaya (erwin.wijaya@verdhana.id)

Tags: BANKS, Indonesia Banks, Erwin Wijaya

Indonesia Banks - Bottoming margins

Bottoming margins

Fig. 1: Blended SRBI yield

Fig. 2: Major banks’ 12MMA NIM

Fig. 3: EPS 2024-26F

Fig. 4: TSR 2026F

Research Analysts

yudi Administrator

Bank Central Asia BBCA IJ - Buy - Solid YTD Jul-24 results

Bank Rakyat Indonesia -BBRI IJ- Buy - Towards more commercial micro

Bank Negara Indonesia BBNI IJ - Buy - Operating 1H24 results were below

Bank Rakyat Indonesia -BBRI IJ- Buy - YTD Jul-24 bank only results - steady progress

Bank Rakyat Indonesia -BBRI IJ- Buy - ROAE uptrend on positive micro trends

Bank Central Asia -BBCA IJ- Buy - Steady growth reiterate Buy new TP IDR13200

Indonesia Banks - Bottoming margins

Fig. 1: Blended SRBI yield

Fig. 2: Major banks’ 12MMA NIM

Fig. 3: EPS 2024-26F

Fig. 4: TSR 2026F

Related Books

Password

Embed Code

Report Issue

Site Languages