Bank-only net profit rose +19.9% YoY in 4M23
Some of the banks we closely monitor have posted their bank-only 4M23 results, with a combined net profit of IDR57.9tn (+19.9% YoY). The positive growth in net profit was mainly driven by the drop in provision expense to IDR20.4tn (-14.6% YoY). Despite booking softer performance in April-23 due to Ramadan/Eid festivities, those banks managed to book positive net interest income (NII) growth of +8.1% YoY, supported by loan growth which reached 7.4% as of Apr-23, while NIM remained flattish at 5.05% as of Apr-23. Those banks posted a combined loan figure of IDR 3.8tn (+0.1% MoM, +7.4% YoY) as of Apr-23. It is worth noting that banking liquidity remained ample, with a combined LDR of 81.2% in Apr-23 (Mar-23: 81.1%, Apr-22: 80.4%), as the combined deposits of the banks reached IDR 4.8tn (-0.1% MoM, +6.3% YoY). BBCA and BMRI recorded the highest PPOP growth among the big-4 banks under our coverage (+32.0% YoY and +15.2% YoY, respectively). Regarding earnings growth, BBCA booked the highest earnings growth among the banks under our coverage (+34.4% YoY), followed by BMRI (+21.6% YoY), BBRI (+18.1% YoY), and BBNI (+14.9% YoY).
Digital banks continue to build up provision buffers
Digital banks under our coverage posted mixed results in 4M23; ARTO and AGRO booked positive earnings, while BBYB and BANK posted negative results. All these banks continued to build up provisions in Apr-23 (+19.4% MoM and +230.0% YoY) to increase their coverage ratio. Regarding their income, the banks managed to post substantial net interest income (NII) growth of +133% YoY, supported by loan growth which reached 145.1% as of Apr-23; however, their NIM fell by -291bps MoM to 11.1% as of Apr-23, as the impact of rate hikes is more severe on them than on larger banks.
OVERWEIGHT on the sector, with BBNI and BBRI as our top picks
We reiterate our OVERWEIGHT rating on the sector, as we 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 +12.4% in 2023F. We still prefer big banks to smaller banks, as they will continue to lead the banking sector’s loan growth, and they will be able to enjoy a lower cost of funds amidst tightening liquidity conditions. BBNI (BUY, IDR 12,700) and BBRI (BUY, IDR 6,200) remain our top picks in the banking sector. BBNI has done impressive internal revamps, which should lead to better asset quality, and we believe the valuation gap to its closest peer (BMRI) should become narrower. BBRI should be able to book double-digit loan growth in 2023F, aided by the Kupedes program, which will result in a higher NIM despite some pressure from CoF. We also have a BUY rating for BMRI (BUY, IDR 6,600), while BBCA (BUY, IDR 10,300) has a solid outlook in 2023F. Downside risks: slower economic growth than anticipated, weaker NIM and loan growth than expected, and higher cost of credit.