CLSA Banking Sector’s Earnings

Banking sector’s earnings:

BBCA, BBRI, and BMRI published FY08 results. The results highlight the strength of BBCA’s franchise. BBCA low cost funding was still up 6% QoQ despite price was for time deposits in 4Q08. While BBCA’s TD grew sharply in 4Q08 (+18% QoQ), its cost of funds remained flat at 3.6% (the lowest in the banking sector).

On the contrary, both BMRI and BBRI saw their NIM down in 4Q08, mainly from increase in funding costs (BMRI is less affected due to forex fee income and cost control).

It is worth noting that BBRI’s net profit was supported by Rp476bn non-operating income + provisions were down (despite rising NPL). This suggests lower quality earnings, in our view.

Bank Central Asia (BBCA IJ); building a fortress, by Nicolaos Oentung (pls see report attached)

Our bank analyst Nicolaos Oentung looked at BBCA FY08 results and see that the latest set of results reflect the strength of its underlying franchise and prudent banking policies.

The fact that BBCA management has ruled out any capital raising alone makes the stock very interesting. BBCA is one of our dominator stocks. Maintain OPF rating with TP of Rp2,800.

BCA results – building a fortress

FY08 net profit: Rp5.8tn, +29% YoY and above our expectations
4Q08 net profit: Rp1.8tn, +13% QoQ and 57% YoY

Key highlights:
1) NIM expanded to all time high of 7.2% in 4Q08.
2) Cost of funds stable at 3.6% despite price war and lowest cost structure in industry.
3) Operating cost under control, which help drive pre-provision profit up 24% QoQ and 95% YoY.
4) BCA also book much higher provisions in anticipation for NPL with coverage reaching 408%.
5) Asset quality remains very high with gross NPL down to 0.6%.

BRI (BBRI IJ) results – less than meets the eye
· FY08 net profit: Rp5.9tn, +23% YoY and at first glance in-line with our expectations.
· 4Q08 net profit: Rp1.7tn, +21% QoQ and +41% YoY

A few areas of concern:
1) NIM was down by 110bp in 4Q08 mainly from sharp increase in funding cost.
2) Negative operating leverage with opex up 42% QoQ.
3) Provisions down despite NPL ticking up with LLR to loans and NPL. coverage down from 5.7% in 3Q08 to 5.0% and from 200% to 177%
4) Net profit supported by Rp476bn non-operating income

Mandiri (BMRI IJ) results – delivering the goods
· FY08 net profit: Rp5.3tn, +22% YoY and slightly above our expectations.
· 4Q08 net profit: Rp1.35tn, flat QoQ and +16% YoY
· NIM was down slightly due to higher funding cost, but strong fee income especially from forex and decent cost control still delivered pre-provision profit growth of 13% QoQ
· Provisions was down despite higher NPL, but Mandiri was able to keep LLR-to-loans and NPL coverage ratio stable at 6.8% and 139% respectively