7M23 Bank-Only Results

Bank-only net profit rose +18.7% YoY in 7M23
Some of the banks we closely monitor have posted their bank-only 7M23 results, with a combined net profit of IDR 105.6tn (+18.7% YoY). The positive bottom line growth was mainly driven by the drop in provision expense to IDR 26.8tn (-22.5% YoY). The average net interest income (NII) went up +6.5% YoY, supported by loan growth, which reached 9.7% in Jul-23, while NIM remained flattish at 5.06%. Those banks posted a combined loan figure of IDR 4.0tn (+0.9% MoM, +9.7% YoY) as of Jul-23. It is worth noting that banking liquidity remained ample, with a combined LDR of 83.5% in Jul-23 (Jun-23: 82.4%, Jul-22: 82.2%), as the combined deposits of the banks reached IDR 4.8tn (-0.5% MoM, +8.0% YoY). It is important to note that we saw a MoM pick-up in BBNI performance after its rather weak 2Q23 results on the back of strong NII expansion (+14.0% MoM and +3.8% YoY), which led to NIM expansion (+19bps MoM) in Jul-23. Among the Big-4 banks, BBRI booked the biggest MoM drop in earnings (-25.1% MoM) due to the decline in non-interest income, and a recovery from provisioning in the previous month.
Another decline in digital banks’ NIM

Digital banks under our coverage posted mixed results in 7M23; ARTO and AGRO booked more positive earnings, while BBYB and BANK still posted negative results. Regarding their income, those banks managed to post substantial net interest income (NII) growth of +104.8% YoY, supported by loan growth, which reached 94.5% as of Jul-23; however, their NIM fell further by -262bps MoM to 10.2% as of Jul-23, as the impact of rate hikes is more severe on them than on larger banks. Those banks’ provision expense MoM trend was quite mixed, though they posted higher cumulative provision expense in 7M23 (+174.5% YoY).

OVERWEIGHT on the sector, with BMRI and BBNI as our top picks
We maintain our Overweight rating for the sector due to its robust performance, particularly in comparison to other sectors. System liquidity remains adequate, and we may see an increase in fiscal expenditure in 2H23, leading to a rise in M2 and, ultimately, in loan growth in 2H23. We also believe that the banks under our coverage can absorb the potential risks of higher NPLs, and NIM could still improve in 2023F, especially for the big banks in the middle of an elevated interest rate environment, paving the way for an earnings growth of +14.8% in 2023F. Our pecking order is as follows: BMRI (IDR 7,000/share), BBNI (IDR 11,500/share), BBRI (IDR 6,400/share), and BBCA (IDR 10,500/share). We chose BMRI as our top pick, mainly due to 1) Adequate coverage, 2) strong loan growth and continuous improvement in asset quality, and 3) NIM expansion due to strong CASA. Downside risks: slower economic growth than anticipated, weaker NIM and loan growth than expected, and higher cost of credit.