Solid Earnings on the Cards Amid Challenges
Key Takeaways:
▪️The national banking system faces ongoing liquidity constraints expected to extend until at least 2Q24. Despite a calibrated series of interest rate hikes in response to rising USD rates, hopes are pinned on improved liquidity following a potential reduction in FFR.
▪️The Big 4 banks experienced robust growth in loans, time deposits, and Net Interest Income (NII) during Oct-23. We estimate loans to grow by 9%-10% in FY24E. Projecting a conservative estimate for the upcoming fiscal year, historical trends suggest a temporary slowdown in loan growth, with optimism for a resurgence in 2H24 as elections conclude and monetary policy eases.
▪️Banks are expected to show strong performance in FY24E, defying expectations of moderated loan growth. The resilience is attributed to higher NIM and cost efficiency. Projections include a 6% expansion in the Big 4 banks' NIM in FY24F and a potential reduction in the blended cost of funds.
▪️We maintain an "Overweight" rating on the banking sector. Top picks include BBCA, benefiting from NIM expansion; BMRI, driven by strong loan growth; and BRIS, favored for its strategic position in the government's agenda to boost the Sharia economy. Risks include a slower-than-expected economic recovery and rising NPL due to slower economic growth.
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