Bank-only net profit rose +17.5% YoY in 5M23
Some of the banks we closely monitor have posted their bank-only 5M23 results, with a combined net profit of IDR 71.5tn (+17.5% YoY). The positive growth in net profit was mainly driven by the drop in provision expense to IDR 26.4tn (-10.3% YoY). Despite some banks (BBCA and BBRI) booking softer MoM performance in May-23 post-Ramadan/Eid festivities, the average net interest income (NII) still grew by 1.9% YoY, supported by loan growth which reached 9.2% in May-23, while NIM remained flattish at 5.06%. Those banks posted a combined loan figure of IDR 3.9tn (+2.1% MoM, +9.2% YoY) as of May-23. It is worth noting that banking liquidity remained ample, with a combined LDR of 82.3% in May-23 (Apr-23: 81.2%, May-22: 80.9%), as the combined deposits of the banks reached IDR 4.8tn (+0.7% MoM, +7.3% YoY). It is important to note that BBRI's soft monthly performance was primarily due to one-time expenses (accumulated salary adjustments over the past four months, as well as some accounting adjustments) and the increase in CoF. In May-23, BBCA reported a decline in MoM net profit due to the decline in non-interest income (lower fair value of financial assets). On a cumulative basis, however, BNGA recorded the highest net profit growth of 36.3% YoY in 5M23, followed by BBCA (34.7%), BMRI (18.8%), BBNI (15.1%), BBTN (8.1%), and BBRI (5.1%).
Digital banks continue to book lower NIM
Digital banks under our coverage posted mixed results in 5M23; ARTO and AGRO booked positive earnings, while BBYB and BANK posted negative results. All these banks booked lower provisions on a monthly basis as they had front-loaded their provisions in the previous month, but still booked higher provisions on a cumulative basis in 5M23 (+208.4%). Regarding their income, the banks managed to post substantial net interest income (NII) growth of +121.4% YoY, supported by loan growth which reached 132.9% as of May-23; however, their NIM fell further by -291bps MoM to 10.8% as of May-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. We keep BBNI (BUY, IDR 12,700) and BBRI (BUY, IDR 6,200) as 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.