Indonesia Banking Industry Update : Non Performing Loan Is Heading Up
Rising NPL, insufficient CAR and lower loan growth are visible major challenges for Indonesia banks this year. Despite those problems, the market gave higher valuation for Indonesia banking stocks at estimated FY 2009 PBV (based on Bloomberg estimates) at 1.73x, higher than Global banking industry estimated PBV of 1.04x or Asia Pasific banking industry PBV estimate at 1.49x. The valuation is fair, in our view, since Indonesia banking is secured from troubled sub prime mortgages derivatives which attacked almost all those banking mammoth around the world.
Rising NPL in 1H09 remains the main concerns in banking stocks, hence we recommend BDMN and BBRI as our Top Picks, due to the high yielding business and manageable NPL ratio. Both banks involve in a high yielding earning assets, i.e., mass retail and consumer business, which in the current interest rate trending down, would manage to book higher earning asset yield compare to industry. At the same time, BBRI and BDMN secured the NPL ratio (2.8% and 2.3% respectively) relatively lower than the industry level (4% in 2008). We prefer to keep a distance with corporate loan generating banks such as BBCA, BMRI and BBNI to prevent surprise NPL event in the 2009.
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