Signs of Recovery: Loan Growth Back to Double Digits in 5M17
There was some improvement from the banking sector by May 2017 which loans grew from around 8% YoY in 5M16 to 10.39% YoY in 5M17. Government infrastructure projects were the main driver for loan disbursement, with infrastructure and construction loans boosted through May 2017. Meanwhile, NPL gross was still around 3%, but slightly lower than it was in April 2017. This indicates that the banking sector is improving, along with domestic economic recovery: GDP growth is forecasted to reach 5.1% - 5.3% in FY17E.
Investment Risk Concern: Will the Era of Financial Transparency Pull Out Liquidity?
Recently, Perppu No.1/2017 was issued, as an implication of the ‘Automatic Exchange of Information’ (AEoI)Agreement. Banks are obliged to disclose customer deposits worth more than Rp1 bn to the Tax Ministry. There was some concern about its impact on banks’ liquidity, as customers will probably switch their account to an offshore bank. Meanwhile, S&P and Moody’s recent rating upgrade will attract capital inflows, along with lower 10-year bond yield (as well as lower country risk). We foresee the impact of open customer information will be offset by S&P and Moody’s ratings regarding banks’ liquidity.
OVERWEIGHT Outlook: Selective BUY on Big Banks (BBCA and BBNI) and Conviction BUY on Mid-Caps (BNLI and BNGA)
We call OVERWEIGHT for banking sector, along with economic growth, S&P and Moody’s upgraded rating, also better asset quality. Our top picks are BBCA (BUY, TP: Rp19,750) and BBNI (BUY, TP: Rp7,400). BBCA will benefit from its low-cost funding and strong fee-based income, while BBNI will pick its sweet fruit from government infrastructure projects. Meanwhile, attractive potential from mid-caps comes from BNLI (BUY, TP: Rp860) and BNGA (BUY, TP: Rp1,470). The catalyst for BNLI is the recovery of asset quality, refinement on the bottom line, and stakeholder support. With its upgrade to BUKU IV, BNGA will enhance its banking capacity and robust net income in 1Q17.
