Banking - Banking credit quality is starting to show signs of improvement

Banking - Banking credit quality is starting to show signs of improvement The shadow of worsening banking credit quality is slowly starting to dissipate. This is reflected in data related to industrial credit quality, which has experienced a decline. Data from the Financial Services Authority (OJK) notes that credit quality, as reflected in net NPL, appears to be decreasing. The banking industry's net NPL as of May 2024 was at 0.79% and the previous month at 0.81%. However, it is important to realise that this position is not lower compared to the end of 2023 or the position of the same month in the previous year. Banking net NPL in December 2023 was at the level of 0.71%, while the position in May 2023 was at the level of 0.77%. On the other hand, credit quality, as indicated by the Loan at Risk (LaR) ratio, shows better data. Banking LAR as of May 2024 was at 10.75%, better than the previous month, which reached 11.4%. Not only that, banking LaR in that period was much better compared to the position in December 2023 and May 2023. In detail, banking LaR in that period reached 10.94% and 13.38%. (Source : Kontan) Comment : We believe the steady asset quality will remain intact. This will have a positive have a positive impact on credit costs and healthy earnings growth. Our main concern still lies with banking NIM. We expect a stronger repricing yield adjustment coupled with stable loan demand and without any hiccups to risk metrics, which could help banks under our radar record 2024 NIM at a similar level as 2023. Maintain your OW stance on banking with BBRI and BBNI as your top picks.