Bank Tabungan Negara (BBTN IJ; Sell; TP IDR1,100) Results Review: That Familiar Feeling

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Bank Tabungan Negara (BBTN IJ; Sell; TP IDR1,100) Results Review: That Familiar Feeling

Bank Tabungan Negara’s 1Q14 was underwhelming, as NIM contracted while credit costs jumped, precipitated by further deterioration in credit quality. NPL restructuring and recovery efforts are yielding minimal results so far and loans growth continues to moderate. The Housing Ministry’s decision to increase subsidised homes selling prices is positive for supply. Maintain Sell, with acquisition the major risk to our negative call.

¨       A poor start. Bank Tabungan Negara’s 1Q14 net earnings of IDR341bn (-32% q-o-q; 2% y-o-y) made up a mere 20%/21% of consensus and our full-year earnings estimates. Precipitated by soaring non-performing loans (NPL), provisions were the major earnings drag as it rose sharply to IDR244bn (+127% q-o-q; +363% y-o-y). Net interest income contracted 5% q-o-q (13% y-o-y) as cost of funds (CoF) jumped 79bps q-o-q to 6.1% while asset yields only booked 27bps sequential growth. Consequentially, net interest margin (NIM) dived 51bps q-o-q to 4.8%. Its quarterly annualised ROAE of 11.9% was the lowest since its IPO.

¨       Corrosion of asset quality continues. Gross NPL ratio rose to 4.7% after a seasonally low 4Q, with both housing and non-housing loans NPL ratios remaining under pressure at 4.4% and 7.3% respectively. By comparison, 4Q13 housing and non-housing loans NPL ratios stood at 3.8% and 5.6% respectively. Restructuring and recovery efforts have yielded limited results, with IDR138bn out of the IDR1.2trn target of asset sale in 2014, as the manpower required was only fully assembled in April. Bank Tabungan Negara’s expectation of 2.6% gross NPL ratio by year-end could be overly optimistic. NPL coverage ratio remained low at 28%.

¨       Pressure on NIM to persist. Loans growth continued to moderate (2% q-o-q; 20% y-o-y) especially in the non-housing segment (13% of total loans; 11% y-o-y) but deposit growth remained below that of loans (17% y-o-y). Thus, loan-to-deposit ratio (LDR) remained elevated at 101% and downward pressure on NIM is expected to continue.

¨       Housing Ministry reported to be raising the selling price caps of subsidized homes. It will reportedly rise by an average of 34%. At the same time, borrowers’ maximum income thresholds will also be raised. This should be a positive for the supply of subsidised home units.

Best regards,

RHB OSK Indonesia Research Institute

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