— Indonesia Banks: Rising lending activities in 2H09
We raise our loan growth expectation to 13% from 11% for 2009; mostly will be realised in 2H. Problem loans are still rising to the peak but at a slower rate while capital raising is out of the way for now. OVERWEIGHT the sector with top picks: BNI (TP IDR2,250), BRI (TP IDR8,000) and BCA (TP IDR4,250).
— Bank Central Asia: Sustainable profitability
— Bank Panin: Back to commercial lending
Rising lending activities in 2H09
More positive outlook
There are more positive outlook for the banking industry now given that: 1) inflation is on a downward trend and interest rates are declining; 2) strengthening and stabilizing IDR; 3) loan activities to improve in 2H09, and 4) problem loans are still rising but at slower-than-expected rate. Higher loan growth in 2H09 – raise to 13% y-y With an improving economic outlook, banks are in the process of raising
their loan growth, especially when the interim results are out already. The central bank, based on the banks’ yearly plan, expects 15-16% loan growth in 2009 while we were going for 11%. We are changing our loan growth, based on the eight banks, to 13% for the year but this is based on the stronger local currency of IDR10,000 from IDR12,000/USD by end 2009. It might increase further by 1-2 ppt if we stick to the original exchange rate assumptions.
NPL has yet to peak but at slower rate
We expect industry NPL to rise in 2Q09 but at a slower pace. Unconfirmed data has it that NPL increased to 4.6% in April from 4.5% in March while we expect the level in our bank universe to reach close to 6% before starting to come down toward the average of 4.3% by the yearend and further to 3.6% by 2010. There is still no major issue pertaining to the coverage ratio that has been more than 100% since 2007.
Earnings upgrade
We are raising our earnings forecasts by an average of 6% for 2009 and 5% for 2010 mainly due to higher loan growth and lower NPL expectation. The highest increase is seen in BBNI (+19% in 2009 and +2% in 2010) given its low earnings base and high NPL level.
OVERWEIGHT the sector
Based on the industry better outlook we now rate the banking sector as OVERWEIGHT. While the sector is trading at an average 2009E of 2.4x compared to the Asian banks’ 1.7x, Indonesian banks ROE is 50% higher than the regional average. Our stock picks are changed to BNI (TP IDR2,250), BRI (IDR8,000) and BCA (TP IDR4,250) given their
attractive valuation and strong profitability.
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