Malayan Banking - BII records sequentially lower earnings in 1QFY15 HOLD, 30 Apr 2015

Malayan Banking Bhd’s (Maybank) 78.98%-owned Indonesian subsidiary, PT Bank Internasional Indonesia Tbk’s (BII) has reported a net earnings of Rp255.6bil in 1QFY15. This signifies a net earnings decrease of 28.4% QoQ, due mainly to higher loan loss provisioning.

We estimate BII to have contributed 4.1% of total group net earnings in 1QFY15 (4QFY14: 5.2%), based on our forecasts. Loans fell 6.9% QoQ, due mainly to slower global banking portfolio. This is in line with its earlier articulated shift in strategy to re-profile its loan portfolio especially in the Global Banking segment, to ensure that the distribution of risks is in line with its risk appetite. Deposit grew 2.1% QoQ, thus easing off LDR to 97.4% in 1QFY15 from 106.9% in 4QFY14. 

The company reported a net interest margin (NIM) of 4.85% in 1QFY15. This represents a 30bps QoQ drop, based on our estimated NIM of 5.15% in 4QFY14. This is likely to be partly contributed by the slower loans growth. Gross NPL ratio increased to 2.80% in 1QFY15, from 2.23% in 4QFY14, indicating a corresponding 16.8% QoQ rise in absolute gross NPL based on our estimates.

The company said that as a precaution to the current economic condition and to ensure prudent banking practices, the bank has set aside loan loss provisions of Rp426bil in 1QFY15 (4QFY14: Rp328bil). The higher loan loss provision thus translates into higher credit costs of 162bps in 1QFY15 from 122bps in 4QFY14. 

Based on BII’s 1QFY15’s press release and latest results trend, we conclude that earnings may remain muted ahead. Maintain HOLD on Maybank.

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