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Bank-only aggregate net profit rose +5.5% YoY in 4M24
Some of the banks on our watch have posted their bank-only 4M24 results, with a combined net profit of IDR 61.2tn (+5.5% YoY). The positive growth in net profit was mainly driven by the drop in provision expense to IDR 23.1tn (-7.4% YoY). However, all those banks booked some MoM drops in Apr-24 during Eid festivities, as the need for funding increased during the month, leading to lower NIM (-4bps on average). The average net interest income (NII) still grew 0.4% YoY, supported by loan growth (15.3% in Apr-24). As of Apr-24, banks on our watchlist had posted aggregate loan figure of IDR 4,472tn (+1.2% MoM, +15.3% YoY). It is worth noting that the combined LDR rose to 84.4% in Apr-24 (Mar-24: 84.1%, Apr-24: 81.2%), as the total deposits of the banks reached IDR 5,301tn (+0.7% MoM, +11.0% YoY). On a cumulative basis, BBCA continued to record the highest net profit growth of 11.6% YoY in 4M24, followed by BNGA (5.9%), BBTN (5.2%), BBRI (4.5%), BMRI (2.7%), and BBNI (1.6%).
NIM to remain under pressure in 2H24 on tight liquidity
We downgraded our average earnings growth forecast for banks under our coverage to 5.6% in FY24 (prev: 9.5%) and 9.9% in FY25 (prev: 10.6%) due to lower margins, as we expect tight liquidity in the banking system to continue into 2H24F due to slower deposit growth and expansionary loan growth mode while the system is experiencing continued high mandatory reserve requirements as well as crowding out effect partly due to government bond issuances. Therefore, we downgraded our NIM assumptions by 14bps on average. We also raised our CoC assumptions for banks under our coverage by 10bps, mainly for BBRI, given that the bank wrote off IDR 5tn worth of Covid-era micro-restructured loans and made one-time provisions for WIKA amounting to IDR 1.5tn. However, we maintain our loan growth target for this year at 11.2% and 11.3% for 2025.
OVERWEIGHT on the sector, with BMRI and BBCA as our top picks
We maintain our OVERWEIGHT rating on the sector, as we believe that the SOE banks are oversold (BBRI: -21.2% YTD and BBNI: -15.1% YTD), and earnings downgrades for this year have been largely priced in by the market. At the moment, we prefer banks with high CASA ratio, as they will continue to enjoy lower cost of funds amidst the above mentioned tightening liquidity conditions; thus, BMRI (BUY, IDR 7,400) and BBCA (BUY, IDR 10,800) are our top picks within the banking sector. BMRI has been seeing improvements in cost of funds since the beginning of this year, mainly supported by growth in its CASA (+15.7% YoY as of Apr-24), due to the ongoing digitalization (Livin app) and branch transformation (greater automation). Meanwhile, BBCA will continue to be the major beneficiary in the event of a higher-than-expected spike in BI rate, as it has the highest CASA ratio under our coverage (81%) and the ability to slowly reprice its TD downwards by a total of 100bps since Aug-23 with minimal net outflow. Downside risks: slower economic growth than anticipated, which might lead to lower loan growth, weaker-than-expected NIM and higher cost of credit.
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