Bank-only net profit rose +17.1% YoY in 8M23
Some of the banks we closely monitor have posted their bank-only 8M23 results, with a combined net profit of IDR 120.0tn (+17.1% YoY). The positive bottom line growth was mainly driven by the drop in provision expense to IDR 36.9tn (-16.1% YoY). The average net interest income (NII) went up +6.5% YoY, supported by loan growth, which reached 10.7% in Aug-23, while NIM remained flattish at 5.08%. Those banks posted a combined loan figure of IDR4,083tn (+1% MoM, +10.7% YoY) as of Aug-23. It is worth noting that banking liquidity remained ample, with a combined LDR of 83.9% in Aug-23 (Jul-23: 83.5%, Aug-22: 81.8%), as the combined deposits of the banks reached IDR 4,866tn (+1.0% MoM, +10.7% YoY). It is important to note that BBNI's NII fell by 13.5% MoM due to the high base in the prior month from the one-time interest income from the partial facility repayment from LAR debtors. However, they were able to maintain loan growth momentum in Aug-23.
Flattish mom loan growth for digital banks in Aug-23.
Digital banks under our coverage posted mixed results in 8M23; 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 +56.4% YoY, supported by loan growth, which reached 17.4% as of Jul-23; however, their NIM was relatively stable at 10.2% in Aug-23. Those banks’ provision expense MoM trend was quite mixed, though they posted higher cumulative provision expense in 8M23 (+62.4% YoY). It is worth highlighting that ARTO and AGRO booked lower net interest income MoM due to the negative MoM loan growth in Aug-23.
OVERWEIGHT on the sector, with BMRI and BBNI as our top picks
We maintain our Overweight rating for the sector due to its robust performance, particularly in comparison to other sectors. System liquidity remains adequate, and we may see an increase in fiscal expenditure in 2H23, leading to a rise in M2 and, ultimately, in loan growth in 2H23. Our pecking order is as follows: BMRI (IDR 7,000/share), BBNI (IDR 11,500/share), BBRI (IDR 6,400/share), and BBCA (IDR 10,500/share). We chose BMRI as our top pick, mainly due to 1) Adequate coverage, 2) strong loan growth but with continuous improvement in asset quality, and 3) NIM expansion due to strong CASA. Downside risks: slower economic growth than anticipated, weaker NIM and loan growth than expected, and higher cost of credit.