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Danareksa Equity Snapshot - Banking Sector Januari 2018
January 09, 2018 15:42

Banking

Rise and Shine

The expectation of higher consumer spending in the pre-election year and substantial government-infrastructure projects are two key drivers for a pick-up in loans growth this year. In addition, we expect limited downside on assets quality considerations as most banks have already undertaken aggressive loans restructuring and conservatively employed a higher LLC ratio in the past two years. This will provide more room for lower credit costs in FY18F in our view. All in all, 13.5% loans growth and 174bps credit cost expectations for our banking universe should translate into 16% net profits growth and a decent ROAE of 16.1%. BBRI and BBTN are our top picks in the sector. OVERWEIGHT.

Expect a pick-up in loans growth. Given its proxy to economic health, the banking sector still faced some challenges in 2017 to push loans growth amid the rather modest GDP growth pace. This is reflected in the 11.5% yoy loans growth as of September 2017. However, we expect loans growth in 2018 to be higher at 13.5% in our banking universe, still mainly driven by lending for the development of government infrastructure projects. Consumer loans, meanwhile, should gain momentum – driven by mortgages in our view. 

Minimal downside risk on assets quality considerations. After the lifting of the relaxation policy in August 2017 and stable commodity prices, we foresee no major downside risk on assets quality going forward. Credit costs already declined to 197bps in 9M17 with a higher LLC ratio of 151.4%. As such, we project 174bps credit costs for FY18F. Assuming a 2.4% gross NPLs ratio, the LLC ratio should stand at a modest level of 150.3% as of December 2018F.

Stable NIM outlook. The recent 50bps policy rate cuts should provide more room for banks to lower their TD rates. Lending rates should follow with a six months lag-time. In addition, the government’s request for lower lending rates for several infrastructure projects also creates more pressure. As such, the NIM is expected to touch 6.5% with around a 12bps dip in the assets yield to 9.5% and 6bps reduction in the blended CoF in FY18F.

OVERWEIGHT: BBRI and BBTN as our top picks. We maintain our positive view on the sector given the expected acceleration in loans growth and less pressure on assets quality. Our top picks are: 1) BBRI given its resilient micro lending business - should translate into superior NIM - along with its potentially higher fee-income contribution, and 2) BBTN given its strong focus on mortgages - should translate into predictable credit costs and net profits.

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