Indonesian Bank, A Conversation with BI, CLSA

Given the regulatory issues currently overshadowing the Indonesian
banks, we held a conference call with the central bank (BI) to get more
color. Our conversation with Dr. Perry, a BI Director, confirmed that BI is
not targeting to lower NIM or profitability of banks. BI expects banks to
lower their lending rates in response to BI rate cuts. We are maintaining
our view on Indo banks and reiterate our Buy call on BBRI due to its high
NIM and ROAE.

Conference Call with the Central Bank (BI)
 Given the backdrop of the regulatory issues currently overshadowing Indonesian
banks, we held a conference call with Bank Indonesia.
 BI expects lower lending rates as BI believes that banks are currently too slow in
responding to its policy rates changes. After 100 bps in BI rate cuts, commercial
banks have yet to cut lending rates.
 Dr. Perry Warjiyo, a Director at BI, gave us more colour on the regulatory issues
facing the commercial banks and discussed BI’s strategy to supervise them.
BI is not targeting NIM or profitability of Indo banks
 The conversation with Dr. Perry confirmed that BI is not targeting to lower NIM or
profitability of Indo banks. BI wants to make sure that banks respond well to any
changes in its policy rate.
 BI expects lower lending rates in response to BI rate cuts. BI intends to stimulate
the economy amid the global economic slowdown through lower bank lending rates.
 Lower lending rate targets should be incorporated in the banks’ annual business
plans, to be monitored by BI quarterly.
Our forecast on Indonesians banks is maintained
 We maintain our view that NIM contraction of up to 40bps is likely, mainly driven
by competition and lower yields on earning assets other than loans.
 We expect banks to be able to increase fee based income and improve efficiency to
maintain strong profitability, thus offsetting some of the NIM compression.
Less pressure on the sector
 Pressure arising from regulatory risk seems to be softening after this call. BI seems
to have all the measures in place to ensure that their projected economic growth
will be met and inflation will remain in check.
 At this juncture, we maintain our buy call on BBRI. BBRI is well positioned due to its strong micro franchise which allows it to maintain high NIMs and profitability.

Download file : Conversation with BI