Banking - Bank Indonesia's rate cut ignites rally in big bank stocks

Banking - Bank Indonesia's rate cut ignites rally in big bank stocks The Jakarta Composite Index (JCI) surged 1.77% today, closing at 7,079.56, buoyed by Bank Indonesia's (BI) decision to cut its benchmark interest rate by 25 basis points to 5.75%. This monetary easing spurred a rally across sectors, with the financial sector leading the charge at 3.12% driven by a synchronized surge in shares of major Indonesian banks. Shares of leading lenders, including BBCA (2.89%), BBRI (7.63%), BMRI (6.48%), and BBNI (6.78%), experienced significant gains. This collective upward movement underscores the positive market sentiment surrounding the rate cut, which is expected to stimulate lending activity and bolster economic growth. (Source : Info Bank News) Comment : Bank Indonesia's rate cut, anticipated by the market, delivered a short-term confidence boost, evident in the one-day surge of large-cap bank stocks. This 25bps reduction aligns with our expectations for improved earnings performance in 2025, as outlined in our outlook ‘25F (published in Nov 24) and latest banking sector report on 31st Dec 2024. Within our coverage, we anticipate continued outperformance from BBCA, while BBRI is poised for sustained improvement in its cost of credit. BBNI is well-positioned to capitalize on the recent launch of its "Wondr" super app. BMRI's corporate segment remains a key driver, with provisions expected to remain low. We are closely monitoring the latest developments regarding BBTN's planned spin-off of its unit trust business. Finally, within the Islamic banking space, BRIS is favored due to its strong earnings trajectory and the substantial growth potential within the still largely untapped Indonesian Islamic finance market. We maintain an overweight stance on the banking sector, with BBCA and BMRI as our top picks. Within Islamic banking, BRIS remains our preferred choice.