10M23 Bank-Only Results

Bank-only net profit rose +18.3% YoY in 10M23

Some of the banks we closely monitor have posted their bank-only 10M23 results, with a combined net profit of IDR 152.0tn (+18.3% YoY). The positive bottom line growth was mainly driven by the drop in provision expense to IDR 45.1tn (-22.8% YoY). The average net interest income (NII) went up +8.2% YoY, supported by loan growth, which reached 11.2% in Oct-23, while NIM fell slightly by 7bps MoM to 4.96%. By the end of Oct-23, those banks had booked a combined loan figure of IDR 4,196tn (+1.1% MoM, +11.2% YoY). It is worth noting that banking liquidity remained ample, with a combined LDR of 85.0% in Oct-23 (Sep-23: 84.1%, Oct-22: 79.1%), as the combined deposits of the banks reached IDR 4,937tn (+0.0% MoM, +8.0% YoY). It is important to note that BBRI's NII fell by 14.1% MoM due to the high-base effect from the previous month (mainly due to KUR subsidy accrual from 1H23 that was received in Sep-23).

Digital banks continue to build provision buffers

Digital banks under our coverage posted mixed results in 10M23; ARTO and AGRO booked positive earnings, while BBYB and BANK still posted negative results. Regarding their income, those banks managed to post net interest income (NII) growth of +48.5% YoY, supported by loan growth, which reached 13.2% as of Oct-23; however, their NIM was relatively stable at 10.3% in Oct-23. Those banks’ provision expense MoM trend was quite mixed, though they posted higher cumulative provision expense in 10M23 (+70.0% YoY).

OVERWEIGHT on the sector, with BMRI and BBNI as our top picks

We maintain our Overweight rating for the sector due to the robust 10M23 performance. Our pecking order remains the same as last month’s: BMRI (IDR 7,200/share), BBNI (IDR 5,800/share), BBRI (IDR 6,100/share), and BBCA (IDR 10,500/share). We chose BMRI as our top pick, mainly due to 1) adequate coverage ratio, 2) strong loan growth but with continuous improvement in asset quality, and 3) NIM expansion due to strong CASA. BBNI’s management will continue improving its risk management system, and we believe it will continue to increase market share amongst Indonesia’s top tier 1 corporates. Downside risks: slower economic growth than anticipated, weaker NIM and loan growth than expected, and higher cost of credit.