14 Mei 2020
Banking Sector Update 14 May 2020
Striving in the Winding Road
Credit Growth Remains Sluggish in FY20E
Loan growth continues to show a slowing trend until Dec-2019, reaching IDR5,616.99 trillion (+6.08% YoY), lower than Nov-2019 at 7.05% YoY. Moreover, third party funds was also grew by 6.54% YoY. Financial statement release in FY19 recorded loan distribution of big banks within our universe grew by 8.34% YoY while BMRI and BBCA recorded 10.79% YoY and 9.06% YoY respectively. We consider that loan growth of the banking sector in FY20E will be in a modest pace at 5.24%-8.54% YoY due to: 1) Global economic uncertainty; 2) Sluggish business condition along with Covid-19 outbreak and temporary shutdowns on activity; 3) Tightening liquidity with FY19 LDR of SOE banks stood at ~94%; 4) Potential increases in NPL mostly came from SOEs and tourism sector. As of Feb-2020, the latest OJKs data also indicated slower loan growth at 5.93% YoY.
Tightening in Asset Quality: Banks wary of Covid-19 impact on NPL levels
The quality of banking assets has not shown improvement, especially in SOE banks. OJK recorded the gross NPL of national banks in Dec-2019 increased at the level of 2.52% (vs 2.36% in Dec-2018). We see the potential increase in NPL, especially came from textile, pharmaceutical, hospitality and tourism industry, commodity sector amid the sluggish business and investment climate, mainly due to Covid-19 outbreak. We believe NPL ratio expected to rise at around 2.70%-3.00% level in FY20E. Moreover, IFRS09 adoption has the potential to reduce CAR (100-300bps) and increase the provision. This leaves BBTN with the widest room for adjustment, with a potential decrease in CAR at 280bps and Equity ~20% in FY20E. Meanwhile, risk mitigation and strategies through restructuring, provisioning and write-offs are needed in order to maintain the quality of banking assets.
Rate Cut and QE Program is expected to support the Economy
We expect that the growth prospects of banking business will be more positive after the political year in 2019. Furthermore, 7DRR BI rate cut in Feb-2020 by 25bps to 4.75% is expected to increase consumption activity. We appreciate that this policy supports relatively lower costs for businesses to increase investment activities and domestic production. Therefore, we estimate the average net profit growth for our bank universe in FY20E/FY21F at 0.95% YoY/8.27% YoY respectively. BI has also pumped close to IDR386 trillion in additional liquidity (QE) into the local market since Jan-Apr 2020 to prop up the economy and preparing to inject IDR166 trillion more in the next few months. The OJK stated that 88 banks had provided 3.88 million debtors with credit restructuring worth IDR336.97 trillion following the issuance of OJK Regulation No.11/2020, which instructs financial institutions to provide relief for borrowers affected by the Covid-19 outbreak.
NEUTRAL Recommendation with Top Picks: BBCA, BBRI dan BBNI
We believe that the banking sector is still attractive which contributed the most to the JCI at 38.69% of total market capitalization. Nevertheless, the sluggish business condition due to Covid-19, implementation of IFRS09 and the technology disruption still become the main challenges. We maintain a Neutral recommendation for the banking sector with a lower estimate and our top picks goes to: 1) BBCA (BUY; TP: IDR28,400); 2) BBRI (BUY; TP: IDR3,200); 3) BBNI (BUY; TP: IDR4,300); 4) BMRI (BUY; TP:IDR5,100).
Disclaimer On
BBCA,
BBRI,
BBNI,
BMRI
