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Bank-only net profit rose +17.8% YoY in 2M23
Some of the banks we closely monitor have posted their bank-only 2M23 results, with a combined net profit of IDR 29.2tn (+17.8 YoY). The positive growth in net profit was mainly driven by the drop in provision expense to IDR 9.7tn (-23.2% YoY). Net interest income (NII) booked positive growth of +10.8% YoY, supported by loan growth which reached 9.5% as of Feb-23, while NIM was slightly down by -17bps MoM to 4.98% as of Feb-23, as some banks have started to raise their TD rates (50-75bps) since the beginning of the year. The banks posted a combined loan figure of IDR 3.8tn (+0.8% MoM, +9.5% YoY) as of Feb-23. The big banks remained the primary contributor to loan growth (+9.8% YoY), while loan growth in smaller banks was mainly driven by BDMN (+12.6% YoY), while BBTN and BNGA’s loan growth remained soft at +7.6% and +4.4%, respectively. It is worth noting that banking liquidity remained ample, with a combined LDR of 79.5% in Feb-23 (Jan23: 78.9%, Feb-22: 79.3%), as the combined deposits of the banks reached IDR 4.8tn (+0.0% MoM, +9.2% YoY). Notably, BBCA and BMRI recorded the highest PPOP growth among the big-4 banks under our coverage (+27.8% YoY and +15.0% YoY, respectively). Regarding earnings growth, BBNI booked the highest earnings growth among the banks under our coverage (+29.9% YoY), followed by BBCA (+29.0% YoY), BMRI (+23.0% YoY), and BBRI (+8.1% YoY).
Provision buffers
Most of the digital banks that we closely monitor have started to book positive earnings in 2M23, except for BANK, which still booked –IDR 34bn net loss in 2M23. It is worth noting that all these banks continued to build up provisions in Feb-23 (+77.5% MoM and +238.3% YoY) to increase their coverage ratio. Net interest income (NII) booked positive growth of +156% YoY, supported by loan growth which reached 188.9% as of Feb-23, while NIM fell by -325bps MoM to 10.8% as of Feb-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) became 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. Additionally, BBRI has a solid capital structure, with a CAR of 23.3% in 12M22. We also have a BUY rating for BMRI (BUY, IDR 13,200), 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.
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