Indonesian banks, Results lacking momentum, Macquarie

Event
 1Q12 results wrap for banks under coverage except for BNI, which has yet to
report its results.

Impact
 Overall impression: Headline net profit growth in 1Q12 was in-line with our
estimates, up 13% YoY and up 22% if we exclude Garuda recovery at
Mandiri. Pre-provision profit, however, was weaker than expected (mainly in
large banks) from a combination of NIM and cost pressure. Loan-loss
provisions, which were much lower than expected, were the main driver for inline
profit growth. We would rank the results from best to worst as follows:
BTPN, Panin, Mandiri, BCA, Danamon, Bank BJB, and BRI.


 What was good: Loan growth was generally better than expected, averaging
25% YoY, with the exception of BRI. The major surprise in loan growth was
Mandiri, up 30% YoY and significantly above the bank’s target of 20-22%.
BRI, on the other hand, was still struggling to grow loans mainly from on-going
consolidation in the small commercial segment coupled with intensifying
competition. Asset quality trends were also generally good with new NPL
formation stable QoQ and down on a YoY basis.

 What was bad: The NIM and cost-to-income ratios were generally weaker
than expected. NIM pressure was mainly due to declining asset yields rather
than higher cost of funds. Hence, banks that experience worsening NIM
trends are the ones with highly liquid balance sheets and/or hold instruments
linked to short-term rates such as BCA and Mandiri. Operating cost pressure
was more problematic for Mandiri, BRI, and Bank BJB with worsening cost-toincome
ratios, while the remaining banks managed to hold cost-to-income
relatively stable.
 What was interesting: We thought Mandiri’s results was the most interesting
given the bank has been much more aggressive than usual in both growing
loans and reducing deposits to help sustain NIM. The effect of low FASBI
(deposits at BI) rates – which have been cut aggressively since 4Q11 – is now
being felt as banks with excess liquidity feel the need to grow loans or face
NIM compression. The casualty of large banks reducing excess liquidity was
partly seen at Bank BJB, which saw its deposits grow by 38% QoQ despite
the bank continuing to reduce deposit rates.

Outlook
 Market reaction to the results was neutral for BCA, Danamon, Panin, and
BTPN, positive for Mandiri, and negative for BRI and Bank BJB. Judging from
the quality of 1Q12 results, driven by very low provisioning, we believe
stronger execution in core business (loans, fee income, NIM, and cost
efficiency) will be key drivers in subsequent quarters to sustain profit growth.

 Our preferred picks are banks that have strong deposit franchises, proven
track records of managing cost-to-income ratios, and reasonable valuations:
BRI and Mandiri.

Download file : Macquarie Indonesian Banks