Release date: November 2, 2018
  • Aggregate 9M18 net profit of Rp74.5tr (+15% yoy) was in line, with the exception of BBTN. BMRI and BBRI had the strongest earnings growth.
  • NIM improved qoq despite concerns over funding costs. BBNI and BBTN were the only two banks that posted double-digit NII growth.
  • Loans were robust at 16% yoy in 3Q18, stronger than deposits (11% yoy). Asset quality still showed improvement. Maintain OW; BBNI is our top pick.

Most banks in line with consensus, only BBTN missed
The aggregate banks’ 9M18 net profit of Rp74.5tr (+15% yoy/+12% qoq) were in line with expectations. Only BBTN missed amid a jump in its CoC. Most banks’ profit growth was driven by decent PPOP and lower CoC. BBRI (+20% yoy) and BBRI (+18% yoy) had the strongest net profit growth in 9M18.

High single-digit growth in NII as strong loans offset by flat NIM
NII grew by 7% yoy in 9M18 (+5% qoq), as strong loan growth was offset by slightly lower NIM (6.3% in 9M18 from 6.4% in 9M17). BBTN (+15% yoy) and BBNI (+11% yoy) saw the strongest yoy in NII growth. On a qoq basis, NIM improved to 6.5% in 3Q18 from 6.2% in 2Q18/1Q18.

Decent PPOP growth while provisions continued to trend down
PPOP grew 9% yoy (+4% qoq), supported by non-interest income (+16% yoy/+4% qoq) – recoveries (+30% yoy) and treasury income (+26% yoy) saw strong growth. Provisions were 9% lower yoy (-4% qoq) amid improving asset quality, except for BBTN (due to IFRS 9 implementation). CoC improved to 1.7% in 9M18 (2.1% in 9M17).

Corporate was the main driver for loan growth
Loans grew by 16% yoy (+3% qoq) in 3Q18, driven by corporate (+21% yoy/+3% qoq), micro (+19% yoy/+5% qoq), and small segments (+17% yoy/+5% qoq). BBTN (+19% yoy) was the strongest, while BBRI/BBCA/BBNI all grew 16-17% yoy. Robust growth in corporate (faster repricing) and small/micro (higher yield) should be supportive of NIM.

Rising LDR, though liquidity still manageable
LDR rose to 93% in 3Q18 from 89% in 3Q17 (93% in 9M17) – BBRI/BMRI had the highest LDRs of 96%/94% in 3Q, but BBCA had the largest delta increase (+760bp yoy). We think this could lead to higher COF in 4Q, as most banks will be competing for liquidity.TD picked up qoq (+6% qoq/+8% yoy), outpacing CASA (+1% qoq/+13% yoy).

Maintain Overweight
The sector has performed in line with the JCI YTD, trading at 2.1x 2019 P/BV (10-year avg: 2.3x P/BV). BBNI is our top pick. Catalysts are better NIMs and loan growth. Main risk is higher bond yield.


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