Mandiri Sekuritas Banking Sector: Bank Indonesia will issue regulation on PLR and its components

􀂄 It is reported that BI will issue regulation on Prime Lending Rate (PLR) and its components. This regulation aimed to reduce the prevailing high NIM recorded by most banks in Indonesia (look at the table below), which will then affect the bank’s overall profitability.
􀂄 There is no detail yet on the components to derive PLR since the discussion is still ongoing at the central bank. There is a possibility of several PLR to be announced, like PLR for corporate, retail, etc. Should this be true, it will increase transparency and will benefit the borrowers (and reduce the bank’s possibility to generate high NIM). However, we still believe the impact would be limited to banks with high exposure to micro as their customers are usually insensitive to interest rates and they usually do not have good access to information (particularly rural borrowers).
􀂄 Furthermore, we also believe that banks with high efficiency will be able to minimize the impact of lower NIM to their profitability (see table below for the Cost to Income Ratio for banks under coverage; please note however that these figures might be overstated as some banks reported significant gain from the selling of marketable securities during 1H10).
􀂄 We maintain our buy call for BRI for its strong exposure to rural customers through BRI ‘Kupedes’ micro loans.
Bank, NIM, CIR
Mandiri, 5.6%, 47.0%
BRI, 10.4%, 41.1%
BCA, 5.9%, 51.2%
BNI, 6.1%, 53.5%
Danamon, 11.8%, 51.3%
Panin, 5.4%, 35.8%
BTN, 6.1%, 57.9%