Banking - The decline in banking NIM may continue if credit interest does not increase

Banking - The decline in banking NIM may continue if credit interest does not increase The banking industry now seems to be faced with a dilemma. High benchmark interest rates present this industry with two choices: increasing credit interest or allowing interest charges to eat away at the Net Interest Margin (NIM) obtained by banks. Data from the Financial Services Authority (OJK) notes that the NIM of the banking industry is currently experiencing a correction trend until March 2024, which is at the level of 4.59%. In the same period as the previous year, banking NIM was still at the level of 4.77%. (Source: Kontan) Comment : The higher cost of funds is inevitable and thus will jeopardize NIM. Room for loan repricing yield is wider, especially with the latest +25bps benchmark rate increase. Nevertheless, we also expect a mild NPL hiccup after the new loan rate is implemented, as some segments will tend to be more sensitive with a higher loan yield. As such, we think other earnings assets will play a crucial role in overall topline growth. Lastly, manageable asset quality will have a significant impact on making provisions to stay low and thus will drive earnings to record better growth, in our view. Maintain the OW stance for the banking sector, with BBRI and BBNI as our top picks.