NISP BBCA Higher Provision in 4Q08 was Offset by Lower Tax Rate

BCA booked a net profit of Rp5.78tn in 2008, up by 28.7% YoY from Rp4.49tn booked in 2007. The increase in net profit was attributable to the 29% YoY increase in net interest income, 35.7% YoY increase in non interest income, as well as benefit from 5% income tax reduction as a listed company with more than 40% free float. Thus, despite significantly higher provision charges of Rp1.74tn in 2008, the net profit was only slightly above our estimate at 105.3% of our forecast of Rp5.48tn amid lower tax rate.
• Net interest income rose by 29.0% YoY to Rp12.36tn on the back of strong 36.9% YoY loan growth to Rp112.78tn, higher assets yield, as well as an improvement in funding mix with low cost fund of 74.7% in 2008 from 73.3% in 2007. Non interest income rose by 35.7% YoY amid increases in fees and commission as well as forex gain, especially in 4Q08 when rupiah depreciated significantly.
• NIM expanded to 6.6% from 6.1% on improvement in earnings asset composition as well as higher asset yield from higher interest rate environment.
• On a quarterly basis, net profit rose by 13.1% QoQ to Rp1.78tn in 4Q08 mainly on higher net interest income and non interest income (with significant contribution from forex gain), as well as lower tax rate of only 11% that brought down the overall tax rate for the full year to 25%. This was despite a significant jump in provision charges to Rp1.12tn in 4Q08 alone as the bank conservatively anticipated deterioration in its loan quality. The bank was eligible for the 5% tax reduction given its more than 40% free float, and booked the benefit in 4Q08.
• The increase in net interest income was a result of 6.9% QoQ loan growth as well as NIM expansion on the back of rising earnings assets yields while funding cost remained relatively sticky due to the bank’s strong funding franchise.
• In the mean time, the strong 36.9% YoY loan growth in 2008 was led by corporate segment (+42.3% YoY to Rp45.95tn) as it was benefited from high demand due to offshore illiquidity amid global credit crunch. In addition, consumer segment booked slightly stronger 47.8% YoY growth to Rp21.0tn, but from a lower base.
• Going forward, we expect a slower loan growth in 2009F, possibly in mid-teens figure as the bank to remain selective and cautious amid weaker economy and global crisis.
• We are currently in the process of revising our estimate to take into account the actual 2008 results as well as the 5% income tax reduction benefit.
• The bank is undoubtedly among the most resilient during the current difficult time given its strong funding franchise and ample liquidity. Nevertheless, the declining interest rate trend will negatively affect the bank given its higher proportion of floating earnings assets despite the gradual phase given the imbalance liquidity in the banking system. In addition, the bank’s valuation is rich at 2009F P/BV 2.8x and PER of 11.8x, thus we maintain our Hold recommendation.