Conservative during election year

Conservative on loan growth in 2024F. BBCA delivered strong loan growth in FY23 (+13.9% YoY), supported by SME (+16.0% YoY), corporate (+15.0% YoY), and consumer segments (+14.8% YoY). Going into 2024F, the bank targets slower loan growth of 9-10%, given the possibility of slower demand for corporate investment loans during an election year. However, consumer loans and small and medium-sized enterprise (SME) loans are expected to experience double-digit growth in 2024F. We expect the SME loan facility’s utilization rate to improve further in 2024F, and even exceed its pre-Covid level (64%).

NIM to slightly improve amidst liquidity tightening. BBCA booked a NIM of 5.6% in 4Q23 (+10bps QoQ), with an FY23 NIM of 5.5% (+20bps YoY), driven mainly by loan yield repricing and the changes in its portfolio mix, which now mainly targets higher-yielding assets. BBCA expects NIM to range between 5.5%-5.6% in 2024F, as it still has the ability to reprice loans further at the start of this year, and the bank may reduce its TD rate by the end of the year in expectation of a 50bps Fed rate cut 2H24. It is worth highlighting that the bank still has very ample liquidity. Despite the increase in LDR to 70.2% in 4Q23 (vs. 67.4% in 3Q23 and 65.2% in 4Q22), BBCA intends to progressively improve LDR to above its pre-pandemic level of 80%.

Continuous LAR improvement. On the asset quality side, we have seen continuous improvements in BBCA’s LAR ratio over the past year. LAR came in at 6.9% in Dec-23 vs. 7.9% in 3Q23 and 10.4% in Dec-22, and the bank expects its LAR to continue to improve (2024F target: <5%). In line with the improvement in LAR ratio, BBCA was able to lower cost of credit (CoC) to 30bps in FY23 vs. 70bps in FY22, and to target a CoC of 30-40bps in FY24. Even though it plans to grow its SME segment going forward, we believe BBCA will be able to maintain loan quality, as the bank will be very selective in giving out new SME loans, and most of them will be disbursed to existing CASA depositors.

Maintain BUY rating and TP of IDR 10,800 based on 5x PBV. We continue to view BBCA favorably, considering its low credit risk and the fact that it is one of the best liability franchises in Asia as reflected by above-average FY23 ROAE of 21.0% (Sector: 19.2%). However, in our view, its valuation is quite expensive (BBCA is currently trading at premiums to historical valuations (PBV: +1.5 SD). We maintain our BUY rating for BBCA and TP of IDR 10,800/share, implying 2024F PBV of 5.0x. Downside risks: Worse-than-expected NPL downgrade and lower NIM.