KimEng Bank Central Asia: NPL back on track, HOLD

Strong deposit franchise remains..
With its competitors starting to reduce Rupiah time-deposit rate on request from Bank Indonesia, BCA managed to expand its deposit franchise beyond our estimate by posting 11.8% YTD increase in 9M09. We believe this upward trend in third party fund will continue, bringing the number to a new height of Rp240.3b by YE09 and further to Rp265.3b by YE10. The expansion will not come at higher cost, providing the bank with high liquidity at an estimated low CoF of 3.7% in 2009 and down to 3.4% in 2010F. This progress, however, will not be accompanied by the lending side as proven by rising amount of unused loan facilities.

..but with shortcoming on loan book
Being one of the big banks that suffer from negative loan growth in early 2009, BCA has just managed to bring its balance back at par with YE08 position to Rp112.7b by 9M09. Taking this slower-than-expected progress into account, we cut our YE09 loan book forecast down from Rp129.7b to Rp121.8b, now implying 5.2% YoY net increase. Included in our assumption is acceleration in loan withdrawal approaching year-end, commonly made by companies for tax purpose. We expect BCA’s lending growth to hover around 15% YoY from 2010F onwards on the back of economic recovery. We also estimated a lower benchmark interest rate at an average of 7% in 2010F vs. 7.5% in 2009, which should boost appetite for loan.

Maintain HOLD, TP at Rp4,040/share
We expect BCA’s consumer lending, which is continuously on the rise, to provide a soft buffer on the bank’s yield. In addition, its tight credit approval will result in low NPL, hence lower provisioning expense. Our earnings forecast for 2009 and 2010F is increased by an average of 10% to around Rp6.8t as provision expense is projected to decline from Rp3.0t (1.6% NPL) to Rp2.6t (1.1% NPL), respectively. Thus, we raised our TP for BCA to Rp4,040/share with HOLD recommendation. It implies 11.7% downside potential from current price at 2010F PER of 14.6x and PBV of 3.3x.