Beranda

RESEARCH

Company Update

26 Januari 2021

Banking Sector Update 26 January 2021

BANKING SECTOR UPDATES

 

A Gradual Recovery: Indo Banks will regain its stride in 2021

 

FY20E performance may have broadly bottomed out

  •  According to OJK, Indonesia’s total loans was only stood at IDR5,480.27 trillion (-0,47% YoY) in 10M20, primarily due to a lower working capital loan (-2.19% YoY) and consumer segment (0.09% YoY) affected by Covid-19 pandemic.
  •  Third-party funds significantly grew by 12.82% YoY in 10M20 (vs 6.29% YoY in 10M19) along with higher CASA level.
  •  Based on 11M20 unconsolidated-report, loan growth in our bank universe remains flat at 1.06% YoY, led by BBNI and BBRI were only able to record a single-digit growth.
  •  However, we believe the worst is over for Indonesia's banking sector in FY20, given a low base effect with the deepest decline in earnings reaching -35% YoY. We expect FY21E earnings should gradually pick up as vaccines are likely successfully distributed, so the country could resume normal activities and hasten economic recovery.

 

Gradual recovery in FY21E post downturn, supported by monetary and macro-prudential policy

Going forward, we believe that Indonesia's banking performance recovery will take place in FY21E, supported by government’s various policies, including:

  •  BI will maintain its loose monetary policy stance and keep its benchmark interest rate low, which is predicted to be at the level of 3.50% -3.75% in FY21E.
  •  The placement of National Economic Recovery funds (PEN) at IDR67 trillion and higher proposed budget for Covid-19 handling of IDR IDR403.9 trillion in FY21E  should be effective in encouraging loan distribution, especially in the MSME segment.
  •  OJK extends banking loans restructuring period until March-2022 in order to reduce the potential of higher NPL.
  •  We expect that additional demand and economic acceleration as a domino effect of the Omnibus law should also have a positive impact on the banking industry.

 

Deterioration in asset quality and earnings headwinds are still lingering

  •  The quality of banking assets has not yet shown any improvement with the gross NPL of national banks in 11M20 increased to 3.14% (vs 2.77% in 11M19).
  •  The risk of higher NPLs will remain the main focus throughout FY21E, with the gross NPL of national banks in the range of 2.7%-3.0%.
  •  We expect better performance in banking sector to continue in the short term, translated to higher ROE at the level of 7% -15% in FY21E.
  •  We believe that NIM has already bottomed-out in FY20 and should start to recover at 5.02% level.
  •  We maintain our FY21E net profit estimate for our banking universe to pick up by 20%-40% YoY on the back of 7%-9% YoY loan growth and 50bps-100bps lower cost of credit, in line with government's projection.

 

Overweight Outlook on the back of better earnings quality

We upgrade our call from Neutral to Overweight on banking sector. We believe better earnings quality should come from banking sector (which contributes a large proportion of JCI Index), spurred by better liquidity condition from easing policies as well as escalating government capex spending.  We are also seeing on banks which implemented an Environmental, Social and Governance (ESG) commitments in meaningful ways as institutional investors express greater interest and expectations regarding conduct and disclosures that fall into the spectrum of ESG. Our main top picks are: 1) BBCA (BUY, TP: Rp38,000); 2) BBNI (BUY, TP: Rp8,100); 3) BBRI (BUY, TP: Rp5,100); 4) BMRI (BUY, TP: Rp8,400).

 

Disclaimer On

BBCA, BBNI, BBRI, BMRI

Back Download PDF
Copyright © 2021 MNC Sekuritas. All Right Reserved. A Member of MNC Group