Mandiri Sekuritas Banking sector: No worries

Bank Indonesia has just released data on commercial banks as of Jun10. Except for deposit rates which trended up, other indicators remained strong with loans growing by 18.8% yoy and NPL falling to 3.0% in Jun10. Meanwhile, even though some state banks saw increasing NPLs, we expect this to improve in the forthcoming quarters, justifying our ! overweigh t stance on the sector. BBRI remains to be our top picks.

Loans remained strong... Commercial banks reported strong loan growth of 9.0% qoq in 2Q10 bringing total loan growth to 18.8% yoy. Rupiah loans posted higher growth of 21.5% yoy vs. 5.0% yoy for forex-denominated loans. Of the total loans, investment loans posted the highest growth of 25.2% yoy followed by consumer loans (+ 25.0% yoy). This showed that investment climate has improved (which will increase the capacity in the economy) and consumer demand remained strong. The breakdown by sector showed that the highest growth stemmed from social services (i.e. school and hospitals) and minin! g sector. We expect loans to grow by 20.0% yoy for FY10F with consumer loans still posting the highest growth of between 20-25% yoy.

… and NPLs improved. In contrast to some large banks which posted increasing NPLs, NPLs for commercial banks improved to 3.0% as of end Jun10 from 3.4% at end Mar10. This trend also was seen on NPLs from SME segment, which fell from 3.3% at end Mar10 to 2.8% at end Jun10. Looking at these figures, there should be no worries on commercial banks’ performance in Indonesia. We, in fa! ct, expect NPLs from banks under our coverage to fall to 2.9% at end Dec10 from 3.5% in Jun10.

However, deposit rates has trended up. However, the one-month time deposit rate has showed an increasing trend from 5.6% in Mar10 to 6.6% in Jun10 compared with a decline in average 1 month SBI rate from 6.4% to 6.3%, respectively. We believe this was partly triggered by strong loan growth during the quarter. We expect such rate to sustain toward the end of the year as our economist also projected an increase of 50bps in SBI rates in 4Q10.

Maintain BBRI as our top picks. Among banks under our coverage, we maintain BBRI as our top picks. We still like BBRI as it continues to record strong NIM and ROAE.