Bank Central Asia (BBCA IJ, BUY, TP IDR12,000) Results Review - Daily Pack 29 April 2014

Good morning,

Bank Central Asia’s 1Q14 met expectations. Asset yields rose to offset upward pressure on CoF and NIMs expanded. Maximum TD rate was lifted further and we see it as a strategic move to protect liquidity as well as raise lending rates further to protect margins. Meanwhile, loan-to-CASA broke 100% for the first time while asset quality remained healthy. We take 1Q14 positively.

       1Q14 met expectations. Bank Central Asia booked IDR3.67trn of net earnings in 1Q14 (-6% q-o-q; 27% y-o-y) which represented 23% of our and consensus’ full-year estimates. Net interest income grew 4% qo-q (27% y-o-y) to lift 1Q14 net interest margin (NIM) higher by 13bps q-o-q or 50bps relative to 4Q13 and FY13 respectively. Asset yields increased 38bps q-o-q to offset upward pressure in cost of funds (CoF) of 28bps q-o-q. Costs rose 19% q-o-q (26% y-o-y) on seasonal bonus payment but net credit costs moderated to IDR342bn (-39% q-o-q; -13% y-o-y) or 42bps of loans (4Q13: 72bps).

       Mild pressure on liquidity and asset quality. Loans growth was moderated to 2% q-o-q; 20% y-o-y with most notable drop in consumer driven by slowdown in mortgage (flat q-o-q; 21% y-o-y). Its strategy to lift time deposit (TD) rate resulted in acceleration of TD growth to 31% y-o-y which outpaced current and savings deposits (CASA) growth of 6% y-o-y. Loan-to-CASA ratio hit 100% for the first time. Mild pressure on consumer non-performing loans (NPL) was seen but overall gross NPL ratio stayed superb at 0.5% with coverage ratio comfortable at 388%. As of Mar ’14, tier-1 and CAR sat at 16.8% and 17.7% respectively.

       Takeaways from analyst briefing. Starting from April ’14, the maximum TD rate was lifted from 7.5% to 9.25% for large deposits. Bank Central Asia suggested that 70% of its TD customers are below IDR2bn hence the rate adjustment will only impact 30% of its TD customers, or approximately 6% of total depositors. The TD rate adjustment should be seen as Bank Central Asia’s attempt to ‘test’ the market, protect liquidity and raise lending rates, which it plans to do by 50bps in the corporate and SME segments.  (Rocky Indrawan)

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Best regards,

RHB OSK Indonesia Research Institute

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