CLSA Chindonesia rising middle class, banks to benefit

Our Astra guru Wilianto noted that none of his domestic helpers (apparently he has many) has a bank account. They feel that it is troublesome to take money from ATM and costly to maintain. Motorcycle parking charge of Rp1000 or bus fare to ATM discourage them to go to the banks. Bank charges Rp10,000/month administration fees. At 3% interest rate (2.4% net of tax) one needs to have at least Rp5m (USD550) minimum balance to cover the admin cost. Most of them don't have Rp5mn balance as they buy farm land or cattle in the village when have enough extra money (after mobile spending, motorcycle credit installment, and of course … after buying cigarettes).

In our fresh “CLSA Mr & Mrs Asia special report, Moving Up the J-Curves” (ask me if you want a copy), we lay the case for China, India and Indonesia’s (Chindonesia) consumer sectors to exhibit J-curve hypergrowth over the next five to 10 years on rising incomes and a propensity to consume and take risks.

One interesting stats of the power of rising middle class to consume here is that Blackberry sell more devices in Indonesia than anywhere in Asia. We now have 3m+ users Vs 60m worldwide. Just surpassed Australia and on track to be the biggest blackberry market in the world by 2012/2013. And yet we dont have even have an official RIM distributor here showing that the potential for this market is still very much underestimated by multinationals.

We estimate that the middle class makes up 19% of Asia ex-Japan’s population, and that should rise to 30% in five years, or an 11% Cagr. The aggregate number of those in the region’s middle class will increase from 570m currently to 945m by 2015. Chindonesia will represent 90% of the 375m increment. This is a really huge number of people to open bank accounts and to go consume in the next few years.

Clearly one of the most direct beneficiaries of rising middle class will be the banks. We are often asked why Indonesia banks are so profitable generating the highest ROE and NIMs.

This is the reason why:
This is a SELLERs (the bank being the seller) market! While it is true NIMS and ROEs won't remain sky high forever but the sweet spot to generate supersized returns is still massive as rising income would provide the cheap capital funding (opening new accounts) for banks to lend and expand. We are still far far away until the day it would be a BUYERs market.

Some thoughts on Daniel Tabbush's piece from today pertaining to Indo:
Deposits to GDP stands at 33.8% in Indonesia
Credit to GDP in Indonesia is only 55% of the level in India and 20% of the level in China
Consumer credit to GDP is only 47% and 88% of the level of penetration China and India are at.
Looking at 2010 estimates across CL's universe it is evident why over 12 months Indo banks have outperformed their peers by nearly 40%, with ROE's and ROA's at 52% and 93% above the universe's average based on 2010 estimate, EPS growth 12% higher and on average CAR's 11% higher.

Our top picks: BCA, Mandiri and BBTN