Banking Sector - Another solid monthly result

Indo banking sector continues to record solid loan growth, while our stocks universe posted strong average earnings growth both in 5M23 and May ‘23. We expect earnings to remain solid in the following quarters, aside from our expectation that benchmark rates will remain flattish. We might see a steady loan demand appetite and loan yield to continue backup 2023’s NIM to arrive within market expectations. What’s more, despite the ongoing global uncertainty, we think the recent improvement in asset quality should serve as a solid foundation to enter the 3Q23 period. Maintain our Overweight stance, with BBRI and BBNI as top picks. Improving loan demand Amidst the ongoing global uncertainty, the domestic loan demand appetite remains steady and recorded better growth at 9.39% yoy in May ‘23 vs 8.08% yoy in Apr ’23. The improving loan growth was mainly driven by the investment credit segment which grew 12.69% yoy. As the economic recovery resiliency likely to persist, we view Indo banking sector loans potentially to reach double digit growth underpinned by solid working capital loans, continuing appetite on consumer loan demand and stable investment credit segment. We expect banking sector loan growth could arrive within the range of 9%-10%, while banks under our coverage average growth is around 9.79% yoy (OJK and Bank Indonesia guidance is at 10%-12%). Acceptable softened deposits growth On the top right side of the balance sheet, TPF grew slower by 6.55% yoy to IDR8,007 tn and yet we do not think that it would lead to any shortage of funds as we believe liquidity will remain ample. With the expectation of a motionless benchmark rate in the following months, we might see transmission rate hikes to banks’ cost of funds likely to be limited and thus at the same time could resulting to a better loan demand which at the end will benefit banks NIM. We expect banks under our coverage to note TPF growth at around 7.4%yoy in ‘23F. Continuing well managed 5M23 earnings growth Our banks stock universe earnings recorded another strong growth of 20.0% yoy in May ‘23 vs 21.3% yoy in Apr ‘23. Likewise in cumulative basis, whereas net profit grew by 44.8% yoy and 7.0% MoM. Of the total, BRIS leads the earnings performance board with 38.1% yoy growth (5M23) amounting IDR2.33 tn followed by BBCA. Yet, compared with the previous cumulative period of 4M23, BBNI and BBCA are the only two of the banks under our coverage which recorded a stable improvement by 32bps and 19bps, respectively. Higher achievement vs 4M23 to ‘23F number Despite banks monthly financial performances are based on bank only figures, we tried to measure the impact of 5M23 earnings to its ‘23F numbers. As such, the percentage of 5M23 achievement to ‘23F figures will represents higher probability of full year performance, since bank only amount is usually smaller to its consolidation numbers. Of the total average of 40.1% (5M23 to ‘23F), BRIS stood at the top with 45.7%, followed by BBCA and BBNI. Worth noting that 40.1% achievement in 5M23 is around 749bps higher vs 4M23 to ‘23F. We forecast bank under our coverage to record an average earnings growth of 12.3% yoy this year. A sharp drop on yoy growth of 340bps seems acceptable due to high based effect growth on the back of strong recovery momentum post Covid. Maintain our Overweight stance Following the May ‘23 and 5M23 result, we expect Jun ‘23 and 1H23 numbers will continue to be strong and thus will become as a solid start to enter 3Q23 periods. Risks to our call: a) lower-thanexpected loan growth, NIM, loan yield, b) credit cost spikes, c) higher inflation, slowing economic activity, rising bond yield d) deteriorating AQ and e) worsen global banking collapse