Indonesia Banks (Overweight) Sector Update: Exploring Java

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Indonesia Banks (Overweight) Sector Update: Exploring Java

We recently travelled across Java to see how various banks are progressing. Buoyed by resilient local GDP growth, most banks expect loans growth across the island to remain robust this year. While Bank Tabungan Negara grapples with contracting NIMs, rising NPL and a shortfall in resources, Bank Mandiri’s aggressive micro loans growth may warrant caution. We are impressed by the progress of Bank Rakyat Indonesia’s micro business.

¨        Dropping in on Java. During our Java excursion, we visited Bandung, Semarang, DI Yogyakarta and Surabaya, and were given the opportunity to meet representatives from Bank Mandiri, Bank Rakyat Indonesia, Bank Tabungan, Bank BJB and Bank Negara Indonesia. Bank Mandiri and Bank Negara Indonesia provided comprehensive overviews on their regional businesses while our visits to Bank Rakyat Indonesia and Bank Tabungan Negara focused on the banks’ micro and housing segments respectively.

¨       Optimism on local business to support loans growth. Despite the variance in provincial profiles, Java has proven to be resilient, booking GDP growth that is stronger than the nationwide numbers. For 2014, most bank representatives said their loans growth targets in Java are higher than their nationwide projections, as business loans growth is expected to remain resilient. However, consumer loans growth is expected to moderate. Bank Negara Indonesia expects credit growth across Java to exceed 20% y-o-y. Bank Mandiri and Bank Rakyat Indonesia aim to maintain strong micro loans growth, although we are more comfortable with the latter’s credit quality prospects. Meanwhile, Bank BJB’s consolidation of its micro business is underway although we expect growth to remain muted. As for Bank Tabungan Negara, loans growth looks set to slow down on inferior pricing, a shortage of housing supply and a shortfall in resources.

¨       Liquidity remains tight. The major banks have a formidable low-cost customer deposit base in Java whereas Bank BJB and Bank Tabungan Negara face challenges in growing customer deposits. We gather that the special time-deposit (TD) rates offered by banks that are not the top four players remain elevated, and the banks’ indication of customer deposit growth for 2014 suggest still-intense competition for funding.

¨       OVERWEIGHT. We still prefer big banks over small ones. Our top BUYs are Bank Rakyat Indonesia and Bank BJB among the big- and small-cap banking counters respectively.

Best regards,

RHB OSK Indonesia Research Institute

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