Banking - Asset quality improves, banks cut provisions

Banking - Asset quality improves, banks cut provisions The soaring cost of funds due to high interest rates has forced banks to implement efficiency strategies to keep financial performance growing. One of the efforts made is to reduce impairment costs or provisions in line with improvements in asset quality. This is reflected in bank provision costs as of July 2024, which on average recorded a decline. This condition also allows bank operational expenses to decrease and increases bank profits. (Source : Kontan) Comment : Managing NPL will be a crucial point, especially in the tight liquidity and high interest environment. Despite all the continuing uncertainty, we still believe that the overall macro and interest rate outlook will remain suitable to manage loan growth and nonperforming loans. As such, provisions are likely to continue arriving at low figures and thus will support banking's earnings growth. Maintain our overweight stance for banking, with BBRI and BBNI as our picks.