Bank Rakyat Indonesia, Visit Note: Maintaining Guidance, Citi

 Overcorrected to 2std below mean with price -23% (YTD) — The market has, in our
opinion, over reacted to weak micro loan growth considering 1) its strong network that
can be energized to revive micro loans, 2) strong CASA growth that continues to
support earning asset growth at low costs, and 3) declining NPLs supporting lower
credit cost. While 2012F may remain relatively subdued, BBRI’s franchise is robust
enough to deliver 25% pa book value growth. Our 2012F base case assumed a 50bps
decline in loan yield and another 100bps decline will impact earnings by 16%.

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.

Indonesia Banks Big Picture, 1Q12 Performance Shows Strong Trends,Citi

 BMRI and mid-sized banks deliver better results — Indonesian banks maintained
their YoY growth momentum in 1Q12 as balance sheets continued to strengthen. Net
profit growth for 8 banks (NP +13% reported and +25% ex Garuda write-back in 1Q11)
was driven by loan growth, and lower deposit rates and credit costs. Of the big banks,
BMRI’s revenue growth was the strongest, whereas BBRI continued to lag. Smaller
banks also benefitted from lower deposit costs. BMRI and BBNI remain our top Buys
and BBCA is still our top Sell. BBNI’s 1Q results are due later this month, in which we
expect moderating growth at the operating level due to slower loan growth.

PT Bank Mandiri Tbk, 1Q results: 29% loan growth, seeking a solution to variable bond holdings, JP Morgan

BMRI’s 1Q profit came in at Rp3.4T, in line with our estimate and slightly
ahead of consensus. We see moves to reduce variable bond exposure as a
positive, but wonder whether it is premature to price upside on that count
into the stock price; hence, we maintain our Dec-12 Rp7,250 PT.

 Healthy results: At Rp3.4T, BMRI’s 1Q FY11 PAT was up 10% q/q
and came in 4% ahead of our estimate. Adjusted for one-off recoveries
last year, PAT grew by 39% y/y. Growth was driven by volumes – loans
grew by 29% y/y (in line with JPME), while margins (NIM 5.65%) have
been rangebound over the past five quarters. As 1Q PAT was 25% of
FY12E consensus, it might result in mild upside to estimates.

BTPN, Productive bank, CLSA

BTPN is one of the few banks with a unique value proposition. After its
successful story in the micro segment, the bank is now entering the
“productive poor” segment, which also offers superb margin. This effort
will support the bank’s sustainable growth. We like the bank’s strong
management and strategy serving a very niche market. We reinitiate the
stock with an outperform recommendation.

Bank Mandiri, Saved by retail, CLSA

While the lower yield on VR bonds may continue weighing on the bank’s
performance this year, a better loan mix and funding composition will
compensate for it, in our view. Against this backdrop (which we believe is
more external than internal), we like the bank’s consistent efforts to grow
its retail segment and strengthen its deposit franchise. We therefore
maintain our outperform call on the bank despite heightened regulatory
risk which may put pressure on the bank’s LT ROE, similar to other banks
in the system.

Bank Danamon, Acquisition in the offing, CLSA

Fullerton Financial Holdings, a unit of Temasek, has entered into a share
agreement with DBS Group Holdings to sell its subsidiary Asia Financial’s
stake in BDMN to DBS. In addition, DBS will offer cash for the minorities,
at Rp7,000/share which is attractive in our view. We therefore prefer to
sell BDMN at a price close to Rp7,000/share and will review our price
target and recommendation accordingly after BDMN’s trading reopens.

Indonesia Banks, Reserve Requirement Hike: Ample liquidity but Opportunity Cost, Citi

 Bottom-line impact of 2-3% — Bank Indonesia’s (BI) intention to use higher Reserve
Requirment (RR) to combat inflation looks to reduce large banks’ profits by 2-3%
(annualized). Rate hikes on the other hand, favor large, liquid banks. The impact
assumes 300bps hike (same as in Nov 2010) with zero payment. This is the worst case
scenario as BI opted to pay 2.5% on the 300bps increase of Nov 10 (remaining 5% of
Primary Reserves @ 0%). January-end local currency deposits are Rp2319trn and, if
BI does opt for +3% @ 0%, will absorb liquidity of Rp70trn and save BI Rp2.1trn.

BNI, Expanding capacity, CLSA

Thanks to an improvement in asset quality and strong recovery from its
written-off assets, BBNI managed to record strong net profit growth of
42% YoY in FY11. Coupled with the better asset quality trend, we expect
the bank to record higher pre-impairment profit (PPOP) this year on the
back of lower cost of funds and stronger fee based income. The bank
continues to expand aggressively in the consumer segment where it is
taking market share and building up capacity. Maintain outperform.

Indonesian Banks, Possible tightening, CLSA

Bank Indonesia is considering increasing the reserve requirement (RR)
for Indo banks in response to high inflationary pressure from the planned
fuel price hike. This is an Indonesian-specific issue as other countries in
the region are easing instead of tightening. We estimate minimal impact
from a 100 bps increase in RR for banks under CLSA coverage due to the
current excess liquidity and low yield from FASBI. Moreover, the system’s
liquidity is still abundant. We maintain our BUY call on BBRI and BBNI.

BRI, Focusing on loan quality, CLSA

BBRI reported strong net profit growth of 31.5% YoY for FY11, 10%
above consensus estimates, thanks to low impairment expenses and high
recovery from written off assets. The bank claimed to be in consolidation
period last year causing its loans growth (17% YoY) to be below the
industry’s 25% YoY. We are projecting higher pre-impairment profit this
year on the back of higher loan growth and further improvement in asset
quality. We upgrade our 2012CL by 10.5% and maintained our TP at
Rp8,500/share. BUY.

Indonesia banks Sector, Strongest to prevail, Credit Suisse

Weak sentiment, good timing. Currently, the sentiment on Indonesian bank

stocks appears soft—even for the large banks. Large banks’ variable rate

marketable security holdings during the current low government bond yield

environment suggest that 1Q12 results may be weak. For large banks, we

expect their 2H12 earnings to be stronger than 1H12’s, as we believe current

government bond yields may not be sustainable given: (1) inflation may have

troughed and (2) the current level of government bond yields reflects the

abnormal, yet temporary, demand after Indonesia was upgraded to investment

grade. Thus, we advise long-term investors to accumulate large banks.

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.

Bank Danamon, Auto Margin Crunch, CLSA

BDMN’s FY11 results were in line with our and consensus expectations. In
our view, the issues for the bank remain the same: (1) lower yields from
car/motor financing unit Adira Finance (ADMF) due to competition and a
change in portfolio mix, (2) high cost of funds due to high LDR and weak
funding franchise and (3) an un-exploited mass market segment. BDMN
has an opportunity to regain its strong position in the wet market
segment thus reducing its reliance on vehicle loans while improving its
margins. We maintain our underperform call on the counter.

Indonesian bank, Sector Outook, CLSA

Manageable risk
Regulatory risks have overshadowed the Indonesian banks. While Bank
Indonesia (BI) has discussed measures on normalizing spreads, we
believe implementation will be challenging. During our talks with BI, it
became clear that their goal is to create higher efficiency in the banking
system. Intensive discussions between BI and banks are being carried
out and we expect banks to have time and room to maintain profitability.
We maintain our view that contraction in margins will be minimal and
reiterate our BUY call on BBRI.

Bank Mandiri (Persero) (BMRI.JK), Bond Yield and Key Takeaways from Analyst Day, Citi

Bank Mandiri (Persero) (BMRI.JK)
Bond Yields and Key Takeaways from Analyst Day
 3M yields at record low — In today’s auction, 3M Tbill yields declined to a record low
of 1.69% (prev. 1.92%). Against our base case of 4% for 2012, a sustained low yield
could impact earnings by 10%. If bond yields remain low, they could overshadow the
progress made by the bank in building and expanding its business.