Ciptadana BBNI - Strong ’09 results

Maintain BUY on BNI
We maintain BUY on BBNI with target price of Rp2,500/share. The bank still managed to deliver high net income growth in FY09. Net income grew Rp103% in FY09 to Rp2.4 trillion, slightly below our FY’09 net income expectation of Rp2.6 trillion. Net interest income grew 12.3% in FY09 to Rp11.3 trillion, below our expectation of Rp11.9 trillion. We expect the bank will continue to realize high net income growth in FY10 as we expect net income will grow more than 40% in this year.

Capital may be a constraint
Insufficient capital could be a problem for BBNI to expand its loan book optimally. FY09 CAR was 14.1% but Tier-1 CAR was at a restricting level of 10.3%. This is the major reason why BBNI it is not too aggressive for projecting its FY10 loan growth, in our view. The bank is only expecting 14-17% of loan growth in FY10 despite its relatively low LDR of 64%.

Subdebt and rights issue
For boosting its capital, BBNI has plan to issue subdebt or rights issue this year. For the subdebt, the plan is for a US$300 million of US dollar subdebt issuance in 2010. The BI regulation that required the bank to get permission from BI before paying its subdebt obligation is a major problem for the plan. BBNI is still trying to resolve this. The second option is the rights issue pf Rp3-4 trillion, which is better in our view. However, the need to obtain permission from the legislative body (DPR) is a major risk for delay.

New accounting rules impact
BBNI management do not see that the new accounting rules that will impact the bank provisioning policy will have a significant impact for the bank book value in FY10. The new accounting rules that will be implemented in first quarter this year will shift the bank provisioning policy from cushion building to loan impairment.