Banking Sector - Pressures continue intact, amid solid 1Q24 and 4M24 inline results

KBVS Update
Thursday, 6 June 2024

Banking – Pressures continue intact, amid solid 1Q24 and 4M24 inline results
(Maintain Overweight)

* In all, 4M24 results largely came in in line with KBVS and street expectation at a run-rate of 28.7%/29.7%. We might still witness a higher top line figure in the upcoming quarters, backed by steady loan growth and higher EA yield.

* A higher cost of funds is unavoidable, especially with the impact of the latest +25 bps benchmark rate hike. The main catalyst is banks’ ability to maintain solid deposits mixed with a lesser corporate/wholesale segment and a better retail portion.

* Among the banks under our coverage, several have revised their key metrics and performance guidance. BBRI has revised down its cost of credit guidance, while BMRI has revised down its NIM guidance. It is worth noting that average provisions (excl. BBRI) recorded an improvement of 14.7% yoy and an average of 6.2% if we include BBRI.

* We try to measure banks under our coverage's ‘24F earnings growth resiliency. Our worst-case scenario revealed that six banks under our radar's ‘24F earnings could drop to an average of 3.1% yoy vs. 11.4% yoy of our base case scenario. It is worth noting that assuming all banks under our radar top line and provisions will improve stronger than our base scenario ‘24F, the average worst-case bank earnings scenario will be closer than to our base case ‘24F earnings.

* Regardless of all the mixed catalysts and drawbacks, the silence of YTD bank capital gains has made Indo banking remain attractive, in our view. All six banks still arrive at the buy rec. zone, even using our simple GGM worst-case scenario.

Regards,
Akhmad Nurcahyadi - KBVS Research