July-20: BBCA strongest | Soft loan formation

In this report, we summarise our analysis of the latest monthly operational trends for banks

under our coverage. From an overall top down perspective, we have not seen signs of

improvement in terms of loan disbursement, as system loan still reported a weak sequential

trend of -0.3% MoM. Despite this, gradual earnings recovery continues to be observed among

our coverage, particularly for BBCA which became the best performer during the period; this

was driven by (a) normalising yield from Apr-May period, (b) broadly controlled opex, (c) low

provision recognition in July (we expect to accelerate for selective banks such as BBRI and

BBNI). Going forward, we believe the restructuring trend has peaked, NIM trend and loan

growth should recover.

System summary: No signs of loan disbursement

July month showed no signs of loan disbursement improving as system loan reported Rp5,536

tn (-0.3% MoM, -1.7% YTD, +1.0% YoY). This despite channeling of low-cost fund placement

from BI in July, does reflect business owners broadly remain cautious. However, we note that

government’s efforts to jumpstart the economy also include credit insurance scheme, which

operationally should be effective from close to 4Q20. July system deposit continued its growth

trend at Rp6,059 tn (+0.7% MoM, +4.4% YTD, +7.7% YoY) and still concentrated at Big-4,

therefore bringing system LDR to 91% (Big-4 at 84%) or down from Dec-19’s 97% (Big-4 at

90%) suggesting ample system liquidity. That coupled with a much steeper yield curve this year,

a restructuring trend that we believe has peaked and a better visibility on COVID-19 exit

strategy does suggest NIM should recover over the next twelve months unless the economy is

faced with another shock. Absent such shock, we think loan growth at +2%/+12% for

2020/21E CS assumption is reasonable.