Light at the End of the Tunnel
Loan Disbursement Started to Pick Up in 3Q21
• Loan disbursement started to flip out into a positive territory in June-21. Credit expansion was seen throughout 3Q21. As of Sep-21, Indonesia banking loans rose by 2.21% YoY. However, the growth remained below its 5-year average of 7%.
• The downtrend in Covid-19 daily cases along with easing in social restriction helped banking credit to recover gradually. Based on the types, consumption credit drove the loan disbursement with the growth of 2.8% YoY in Aug-21, whereas investment credit plunged and working capital credit slightly increased.
• Credit remained dominated by big banks (BUKU IV) which grew 7.7% YoY in Aug-21. Furthermore, we noted BUKU II and III credit disbursement dropped 4% YoY & 9% YoY respectively. It is also worth noted that credit improved in all sectors even in transportation and service related sectors that prone to mobility restriction.
Ample Liquidity & Better NIM
• TPF grew 7.69% YoY in Sep-21 (vs 8.81% YoY in Aug-21). Despite the slowing growth, ample liquidity persisted in banking sectors as reflected in LDR at 79% in Aug-21 (vs 90% based on 5-year average figure). • Growing TPF was attributable to CASA growth. Saving accounts grew 12.9% YoY, while TD rose by 3.2% YoY in Aug-21 causing CoF to lower.
• Loan yields showed a decline to below 9% in Aug-21 in line with monetary policy transmission. In total, BI has cut 150 bps in benchmark interest rate.
• Along with BI 7-DRR rate cut, interest rates across loan types downed. This translated into ~130 bps lower in investment loan interest rates ; ~121 bps dropped in working capital loan interest rate and ~74 bps decline in consumption loan interest rate.
• However, we observed a more aggressive downtrend in TD rates. As of Aug-21 TD rates inched down more than 220 bps across all maturities.
• Lower TD rates and strengthening CASA improved banking NIM. Banking sector NIM bounced back throughout 2021. NIM was recorded at 4.64% in Aug-21, the highest figure since Jun-20.
Big Banks Earning Jumped
• The big banks bottom line recorded double digit growth in 9M21 with BBNI (+79.3% YoY); BMRI (+37.5% YoY); BBRI (+36.4% YoY) and BBCA (+15.8% YoY). The big 4 banks interest expenses dropped significantly in 9M21 bolstering NII and NIM.
• We see a notable decline in BBCA’s provision expense along with improvement in asset quality. On the other hand BBCA managed to have lower Opex, helping bank to book higher net profit.
• BBRI’s net profit slightly impacted by its subsidiary of Bank Raya (AGRO) booking a net loss of IDR1.8tn during transformation period into a digital bank.
• At the same time, BBRI’s 13.3% YoY higher in Opex was impacted by PNM & Pegadaian high CIR. However high NIM of PNM and Pegadaian also boosted BBRI’s NIM (5.8% in 9M20 vs 6.9% in 9M21).
• BBNI’s earning jump was primarily attributable to : 1) 19.3% YoY higher in Non-II; 2) moderate growth of Opex and 3) relatively flat provision expenses.
• BMRI successfully managed its asset quality to improve as reflected on its lower NPL (3.3% in 9M20 vs 3.0% in 9M21). Despite lowering NPL, BMRI reported the highest Opex increase compared to other peers.
Outlook & Recommendation : OVERWEIGHT
We believe that 4% YoY increase of loans disbursement in FY21 is achievable driven by credit demand and supply recovery in 4Q21. We still see the room for banks CoF to lower further in the rest of 2021 driven by : 1) strengthening CASA position and 2) lowering funding rates. We rated overweight on banking sector on the back of positive outlook in 4Q21. We reiterated BUY for BBRI (TP IDR4,800); BMRI (TP IDR8,400) BBNI (TP IDR7,800) and call HOLD for BBCA (TP IDR7,200).
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