CIMB Sector Update - Banks - Third, after the second

Maintain OVERWEIGHT on Indonesian banks. Basel III’s higher capital requirements, especially Tier 1, should not make much of a difference for Indonesian banks, in our opinion, since the bulk of their capital is already in the form of Tier 1. All banks in our universe have capital ratios that exceed the minimum requirements of Basel III. Yet, even before Basel III was announced, some had already planned to raise equity in anticipation of future loan growth. BNI and Mandiri were two such banks, with rights issues in the pipeline. Rakyat appears to need new capital too, based on our simulations. In the meantime, major banks with sturdier Tier-1 capital, such as Danamon and BTN, which are our top picks in the sector from this capital angle, should stand out, thanks to their successful rounds of equity-raising last year. No change to our earnings forecasts and target prices.