Banking Sector - Indonesia bank visits reaffirm sector’s resilience Overweight

- Company visits to Indonesia’s BRI and BNI. From on our company visits to top local banks, PT Bank Negara Indonesia Tbk (BNI) and PT Bank Rakyat Indonesia Tbk (BRI), we gather that the industry remains optimistic about loans growth likely to be 25% for 2012, and forecast to sustain at circa 20% 2013F.  

- Not much impact from lower LTV for consumer loans. Industry players hint that the requirement for borrowers to place higher deposit amounts for consumer loans (which came into effect from mid-2012), has not had much impact in terms of mortgage and auto loans. The banks hinted that the impact to mortgage loans growth is likely around circa -3pt. This is  minimal considering that overall mortgage loans growth was still growing at robust rate of 46% in 1H12, from >50% in 2011. Thus, from recent trends, industry mortgage loans growth remains resilient. 

- Ciputra reaffirms positive outlook for property market. From our company visit to one of the top property developers, PT Ciputra Development Tbk (Ciputra), the company hinted that demand remains strong. Normally only about 50% of its buyers require bank financing. An estimated 15% pay cash upfront for the properties, while the remaining 35% of buyers sought short-term financing of two years or less.   

- BRI’s main forte is in the smaller micro financing  segment. BRI’s forte is mainly in the smaller micro financing segment, which grew 7.7% QoQ in 2Q and made up 32% of total loans in 2Q. BRI believe its main strength is in financing micro borrowers who focus on trading daily necessities, in rural commodities. Its gross NPL ratio for this segment is only 1.34%, with the worst levels being circa 6% during the 1997 Asian financial crisis and 2% during the 2008-2009 slowdown. The gross lending yield for this segment is 22% to 30%. Overall BRI stands out for its high NIM of circa 8% to 9%.   

- BNI is mainly in corporate loans. BNI is strong in corporate loans (35% of total loans) (including infrastructure loans) with the other small-and-mid corporate segments comprising 37% of its total loan book. Thus, consumer loans made up only 20% of its total loans. BNI’s costs of customer funding continued to drop to 3.0% in 1H2012 from 3.5% in 2011. It believes that the bigger four banks has a greater franchise advantage in attracting cheaper deposits given general public perception that these are bigger and thus, safer, then the smaller banks. 

- Big four banks are thriving. Overall we get the sense that the big four banks (Mandiri, BRI, BCA and BNI) are thriving in Indonesia and continued to benefit from entrenched  position in terms of deposit-taking franchise, branch network and consumer perception. CIMB Niaga is now ranked 5^th  and is thus just a notch below the big four. We maintain our overweight rating on Malaysian banks.   

Source: AmeSecurities