Credis Suisse Indonesia Banks Sector - Less liquid than meets the eye

● We published a new report, Less liquid than meets the eye, on 14 September, examining the rising investment risks on Indonesia banks sector. We believe that the sector is less liquid than meets the eye.

● Excluding the three most liquid banks, the LDR stands at 88%, the second highest in the region, and could reach 95% in the next 12 months. Excluding the three most liquid banks, the average LDR of seven of the ten largest banks could reach 99% in 2011.

● Given Bank Indonesia’s recent move to tighten liquidity by raising primary reserve requirements, coupled with limited excess liquidity, we see the risk of higher competition for funds. We cut our FY11E and FY12E earnings for Indonesia’s banks by 7.5% and 16.8%, respectively.

● Banks with a low LDR and a high low-cost deposit franchise are less vulnerable to higher competition for funds. Our preferences for Indonesia banks sector is in the following order: BMRI, BBNI, BBRI, BBCA, BDMN and PNBN.