16 November 2018


Headwind From The Hawkish


Highlight of 9M18 Results: In-Line with Estimations
As we see from 9M18 results, our banks universe (BBCA, BBNI, BBRI, BMRI, BBTN, and BNGA) is
mostly in-line with our estimate. Loan disbursement was a little bit aggressive if it is compared
to third party funds growth, which loan growth of our banks universe (except BNGA) was above
banking system in 9M18. Corporate loan was the main driver of loan growth, especially in trade,
manufacture, and also construction. Meanwhile, third party funds growth was slow which led to
LDR to spike up near its upper limit (except BBCA). We think that this results has already
reflected at current price for most our banks universe.

Will Liquidity Tighten?
Loan growth in 9M18 reached 12.69% YoY, whereas Third-Party Funds growth was slower at
6.60% YoY (vs. 11.69% YoY in 9M17). Even so, tightening liquidity can also be noted from
banking system LDR, which is slowly rising up to 93.39% (9M18) compared to 89.1% in January
2018. Banks is not only competitive in maintain its liquidity with other banks, but also with debt
securities that is issued by the government to refinance its debt that reaches due date or to
funding government program which is targeted until FY19F. Therefore, BBCA is leading from
the liquidity side with LFR at ~80%, compare to its peers.

Stable Asset Quality with Exchange Rate Risk
During 9M18, banks could maintain the asset quality that was shown in NPL gross banking
system at 2.66% (vs 2.93% in 9M17), as well as bank in our universe. However, we assess that
there will be an increase in loan risk in the foreseeable future, especially related to the volatility
of the Rupiah exchange rate, which up FY18E is projected to remain at >IDR14,500.

NEUTRAL Outlook with TOP PICKS: BBCA (BUY, TP: IDR27,200)
We conclude that loan disbursement had been improved and strong capital have been a
positive catalyst for banks in FY18E/FY19F. New weighting for LQ45 and IDX30 index will incur
capital inflow, especially once it is started. However, the volatility of Rupiah with external
conditions that weigh down the economy and also threats asset quality, the downward trend in
NIM, as well as tighten liquidity, has become risk-sharing for banks. Therefore, we recommend
NEUTRAL for the banking sector, with BBCA (BUY, TP: IDR27,200) as our top picks with its
big chunks of liquidity and CASA. Thereafter, BBNI (BUY, TP: IDR8,700) as relatively cheap
valuation compared to its peers, BBTN (BUY, TP: IDR3,000), BBRI (HOLD, TP: IDR3,600),
BMRI (HOLD, TP: IDR7,200), and BNGA (BUY; IDR1,160) as selected stocks.

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