BAHANA Beacon – The Spotlight 15 June 2009

Banking Sector Update Overweight

(unchanged)

Teguh Hartanto
Email: teguh.hartanto@bahana.co.id
Phone: +6221 250 5081 ext. 3610

Moving forward
Table 1. Ratings and target prices
Loan activities to start picking up in the following quarters
Recom. Price TP Yield
We expect lending activities to pick up in the following quarters as banks (IDR) (IDR) (%)
relocate their funds on the back of reduced credit risk along with the falling BBRI BUY 6,300 7,800 2.8
interest rate, improved liquidity in the market and continued decline in yield BMRI BUY 3,300 4,000 2.7
on less risky government securities. Supported by better than expected BBNI BUY 1,740 2,100 0.5
BDMN BUY 4,325 5,200 2.1
economic outlook and strong demand for corporate loans, we believe that our
BBCA HOLD 3,850 4,150 2.6
10% y-y loan growth estimate should be achievable by end-2009, in spite of BBKP HOLD 360 370 5.4
4M09 actual loan contraction of -1.6% ytd for the whole banking sector. Source: Companies and Bahana estimates

Moreover, we expect recovery in consumer spending power to create demand

Table 2. Valuation: P/E
for durable consumer products, following a trough in 1Q09. EPS growth (%)
P/E (x)
Strong net interest income in 2Q09 2008 2009F 2010F 2009F 2010F
BBRI 13.0 12.0 10.2 8.7 16.9
225bps ytd drop in the benchmark BI rate to 7.00% in June 2009 has not
BMRI 13.0 12.1 10.7 7.5 12.5
been accompanied by lower lending rates, which only experienced less than BBNI 21.7 11.5 7.4 88.5 56.4
70bps decline to 13.49% ytd. This sticky loan pricing and lower third party BDMN 23.6 18.0 13.0 31.2 38.5
funding costs (3M deposit rate -172bps ytd) has led to continued widening in BBCA 16.4 15.1 12.7 9.1 18.8
banks’ interest rate spread, which reached 6.43% in early June 2009 from BBKP 5.6 7.3 6.3 (23.4) 16.2
Avg. 16.0 13.6 11.2 17.9 22.5
5.38% at end December 2008 (chart 4). This suggests that banks would
Source : Companies and Bahana estimates
experience a relatively strong net interest income in 2Q09.
Table 3. Valuation: P/BV
Better than expected NPLs to bring back confidence
P/BV ROAA ROAE
The sector’s gross NPL inched up 10bps over the past two months, touching (x) (%) (%)
4.6% at end April 2009 vis-à-vis 4.5% at end March 2009 (chart 11). 2008 2009F 2010F 2010F 2010F
However, we expect NPLs to be well contained below the central bank’s BBRI 3.5 2.9 2.5 2.7 26.4
estimate of 7.0%. This should bring confidence and pave the way for banks BMRI 2.3 2.0 1.8 1.7 17.8
BBNI 1.7 1.5 1.4 1.7 19.7
to start lending out their excess funding and reduce exposure in the low
BDMN 3.4 2.4 2.2 2.2 17.6
yielding government securities (SBIs). BBCA 4.1 3.5 3.0 2.6 25.2
Slower than expected decline in NIM BBKP 1.0 0.9 0.8 0.8 13.8
Avg. 3.2 2.7 2.3 2.3 22.4
On a negative note, consistent declines in SBI rates and government yields Source : Companies and Bahana estimates
are causing lower NIMs. This, time lag in adjusting loan pricings and slight
contraction in 1H09 loan growth may lower NIMs by 10-30bps q-q in 2Q09. Chart 1. Relative share price performances
(%) (%)

However, this is better than expectations. The slower than expected declines 80.0 80.0

in NIMs were caused by time lag in adjusting loan pricings, improvements in

70.0 70.0

60.0 60.0

third party deposits along with lower interest rates, which are skewed 50.0 50.0

towards low-cost core deposits (charts 5 & 6). In 2H09, the shift in earnings 40.0 40.0

assets portfolio towards higher yielding loans should help banks to continue 30.0 30.0

growing their net interest incomes amid further declines in NIMs. 20.0 20.0

10.0 10.0

Sector Overweight with BDMN as our longer-term top pick 0.0 0.0

Overall we expect big banks to book promising earnings going forward on the (10.0) (10.0)

back of the industry’s positive operating outlook. This should bring about (20.0)
6/12/2008 8/3/2008 9/24/2008 11/15/2008 1/6/2009 2/27/2009 4/20/2009
(20.0)
6/11/2009

BBCA IJ relative to JCI (RHS) BDMN IJ relative to JCI (RHS) BBRI IJ relative to JCI (RHS)

continued positive sentiment towards the sector and should allow for further BMRI IJ relative to JCI (RHS)
JCI Index
BBNI IJ relative to JCI (RHS) BBKP IJ relative to JCI (RHS)

Source : Bloomberg
re-rating. Our sector’s target prices are based on 2010 P/BV of 2.7x, or a
10% discount to the sector’s 18M peak valuation of 3.0x. We retain sector
Overweight with BDMN as our top pick over the longer run due to a recent
rights issue which brought CAR to 23%. This is followed by BBRI, BBNI and
BMRI while BBCA and BBKP are HOLDs due to limited upside.
Disclosure: Bahana Securities does and seeks to do business with companies covered in its research reports. Investors should consider this report as only a single factor
in making their investment decision.
Please see the important disclaimer information on the back of this report
 BAHANA Beacon – The Spotlight
Chart 2. Regional PBV vs ROA
High ROA justifies premium on
2.5 INA
P/BV valuation of the

Avg. PBV: 1.5x

2.0 Indonesian banks
1.5 IND THD C HN
MLY
ROA (%)

PHP
1.0 Avg. ROA: 0.9% HKG
SGD
AUS
0.5 KOR

0.0 JPN
0.0 0.2 0.4 TWN
0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8
(0.5)

(1.0)

PBV (x)

Source: Bloomberg, Bahana

Chart 3. Regional PER vs EPS growth

30.0 Indonesian banks’ EPS is
25.0 INA HKG projected to grow over 20% y-
20.0 y in 2010
KOR C HN
15.0 IND PHP SGD
EPS growth

10.0 Avg. EPS growth: 10.9% THD MLY

5.0 AUS
Avg. PER: 11.9x

0.0
0.0 5.0 10.0 15.0 20.0 25.0
(5.0)

(10.0) JPN

(15.0)

PER

Source: Bloomberg, Bahana

Chart 4. Interest rate spread

18.0
(%) (%)
16.0
Widening interest rate spread
16.06
16.0
15.60
15.20 14.59
15.83
14.98 14.16 13.92 14.0
to 6.43% in early June 2009
14.0
12.75 12.50
13.80
13.12 12.80 13.49
12.0 vis-à-vis 5.38% at end 2009
12.0 9.75
10.34 10.40 8.50 9.25 10.0
8.25 8.00 8.50
10.0 7.43 8.81 7.75
7.34 7.50 8.0
7.45
8.0 6.53 7.04 7.03 8.78 8.32
6.24 6.25 7.25 6.0
6.0 7.06

4.0 4.0
9.36 8.95 8.06 5.72 5.43 6.18 6.35 6.09 5.78 5.38 5.60 6.43
2.0 2.0

0.0 0.0
Mar- Jun- S D Mar- Jun- S D Mar- Jun- S D Mar- Jun- S D Mar- Jun- S D Mar- Apr-
04 04 ep- ec- 05 05 ep- ec- 06 06 ep- ec- 07 07 ep- ec- 08 08 ep- ec- 09 09
04 04 05 05 06 06 07 07 08 08

Spread (RHS) 3m Deposit rate Lending rate BI rate

Source: BI

Chart 5. NIMs versus spread

6.0
(%)
5.90 5.88
(%)
16.0
Continued drop in NIMs has
5.83 5.80
5.8 5.75
5.63
5.76 5.70
5.65 5.66 14.0
alarmed banks to relocate
5.6 5.50
12.0 their earnings assets portfolios
5.4
9.36 10.0
8.95
5.2 8.06
8.0
5.0 6.18 6.35 6.09 6.43
5.72 5.43 5.78 5.38 5.60 6.0
4.8
4.0
4.6

4.4 2.0

4.2 0.0
Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Apr-
04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09

Spread (RHS) NIM

Source: BI

PT Bahana Securities – Equity Research – Banking Sector Update 2

 BAHANA Beacon – The Spotlight
Chart 6. Deposit breakdown
1,400
(IDRt)
58%
The proportion of core
56% 56%

54%
55% 56% 55%
56%
55%
56%
56% deposits to total deposits
1,200 54% 54%
52% 52%
53% 53%
52%
53% 54% appears to have bottomed
52%
1,000
50% 50% 52% at 52% last March
49%

939
49% 50%

929

929
800

867

856

857
844

842
825
808
48%

757

748
727
600

687
672

667
665

659
46%

643
626

628
615
605
600
592
577
577
563
565
557

559
542

547
538

519

44%
516
505

400
473

454
421

422
408

411
402

42%
200
40%

- 38%
Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Apr-
04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09

C ore deposits Time deposits % core deposits to total deposits (RHS)

Source: Companies and Bahana estimates

Chart 7. SBI breakdown

580
(IDRt)
200
Increased liquidity flows
562
560
542 542
551
547 551 pushed SBI to IDR562t
539 535
534
540
520
527 526 (+6.8% ytd) at end May 2009
150
512
520
498 499
500
483
476
480 100

460 44.0 44.5 45.2 46.4 47.0 47.7 48.9

49.4 51.1 51.8 49.4 50.4 50.8 50.0 49.7 50.1 51.3
440
50
420
56.0 55.5 54.8 53.6 53.0 52.3 50.6 48.9 48.2 50.6 49.6 49.2 50.0 50.3 51.1 49.9 48.7
400

380 0
Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09

Banks (RHS) Non-bank (RHS) Government securities (LHS)

Source: BI

Chart 8. Real M2 growth

% y-y %
Increase in real M2 growth has
40.0 12.4 14.0
12.3
11.1 12.0
not been accompanied by loan
35.0 10.0 31.6
29.5 growth in the past few months
30.0 8.3 10.0
24.5 25.6 24.3
22.7 25.5 8.0
25.0 21.8 20.8
19.4 6.0
20.0 6.0
14.0 14.1 4.0
15.0
3.6 2.0
10.0 2.2 2.7
1.7 1.2 0.0
5.0 (0.7) (2.0)
0.0 (4.0)
Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Apr-
04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09
Credit growth (LHS) Real M2 (RHS)
Source: BI

Chart 9. Loan growth

(IDRt) (%) Loans posted +20.2% y-y
1,600 40.0
1,354 growth in April 2009 but
1,400 1,342
1,190 1,332
contracted 1.6% ytd
1,200 1,046 30.0
25.6 31.6
1,000 24.5 22.7 29.4
904
21.8 833 25.5
730 757 24.3
800 20.0
664 20.8
595 19.4
600 529
14.0 14.1
400 10.0

200

0 0.0
Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Apr-
04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09

Loan (LHS) Loan growth (RHS)

Source: BI

PT Bahana Securities – Equity Research – Banking Sector Update 3

 BAHANA Beacon – The Spotlight
Chart 10. LDR
(%) (%) Accelerated growth in third
200.0 40.0
31.6
party funding lowered LDR to
29.4
160.0 25.6 25.5 24.3
30.0 74.8% at end April 2009 vis-à-
21.8 22.7
24.5
15.6
19.4 20.8
20.0
vis 77.2% at end 2008
14.1 21.8 20.2
120.0
17.1 17.4 16.0
7.8 16.0 14.7 10.0
10.8 14.0 14.1
80.0 8.4
0.0

40.0 57.9 61.8 65.7 64.7 64.8 64.7 66.7 69.2 76.6 77.2 75.1 74.8
-10.0

0.0 -20.0
Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Apr-
04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09

LDR (LHS) Loan growth (RHS) Deposit growth (RHS)

Source: BI

Chart 11. NPL and its coverage

(%) (%) Gross NPLs inched up by only
20 140
125.9 10 bps m-m to 4.6% at end
116.7
16 102.2
120
April 2009
113.9 116.2
92.4 100

12 89.7 71.3 69.1 88.4 80

82.2
7.9 8.3 8.8
7.5 60
8 7.0
6.4
5.8
4.6 4.1 3.8 4.5 4.6 40
4
20

0 0
Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Apr-
04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09

Gross NPL (LHS) NPL C overage (RHS)

Source: BI

Chart 12. Comparative loan growth

(IDRb)
200,000
We expect some 10-12%
loan growth in 2009
195,378

180,000
181,166
176,878
174,498

160,000
166,211
161,108

140,000

120,000
126,318

121,889
112,784

111,555

100,000
108,829
107,272

80,000
73,587

60,000
66,898

63,317

40,000

20,000
BMRI BBRI BBC A BBNI BDMN

Loans at end Dec 2008 Loans at end Mar 2009 Loans at end Dec 2009

Source: Companies and Bahana estimates

Chart 13. Comparative loan breakdown

(IDRb)
180,000
176,878
166,211 200%
BMRI’s and BBCA's loan
160,000 180% portfolios are skewed
140,000
111,555
160% towards corporate loans
120,000 107,272
140%
100,000
120%
80,000 63,317
100%
60,000 12 20 15
47 80%
40,000 38 57
39 51 60%
20,000

0 35 40%
49 27
(20,000) 42 34 20%
18 15
(40,000) 0%
BMRI BBRI BBC A BBNI BDMN

% corporate to total loans % commercial/SME to total loans

% retail to total loans Loans at end March 20009

Source: Companies and Bahana estimates

PT Bahana Securities – Equity Research – Banking Sector Update 4

 BAHANA Beacon – The Spotlight
Chart 14. Industry loan growth target
(IDRb)
1,600,000
BI has set 15% y-y loan
1,557,100 growth target in 2009
1,550,000

1,500,000
28 25
1,450,000

1,400,000
1,354,000
1,350,000 1,342,000
47

1,300,000

1,250,000

1,200,000 % corporate to total loans at end March 2009

Loans at end Loans at end Loans at end % commercial/SME to total loans at end March 2009
Dec 2008 Mar 2009 Dec 2009
% retail to total loans at end March 2009

Source: Companies and Bahana estimates

Chart 15. Comparative earnings asset breakdown

240,000
(IDRb)
77 77
(%)
80
BBRI’s and BDMN's loans
70
denominated by earnings
65
200,000
59 57
asset portfolios
60
176,878

160,000
166,211

50

120,000 40
125,224

111,555
107,272

30
80,000
80,034

20
63,317
61,287

40,000
50,643

19,376

10

0 0
BMRI BBRI BBC A BBNI BDMN

Loans at end March 2009 Other earnings assets % loans to earnings assets

Source: Companies and Bahana estimates

Chart 16. Comparative government bonds breakdown

120,000
(IDRb)
75
(%)
80
Falling rates to adversely
70
impact BMRI's high
85,525

100,000
exposure of variable
55 60
80,000
53
coupon government bonds
50

60,000 40
31,690

27 30
40,000
19,622
16,094

16,054

20
11,484

7,112

20,000
6,307
5,279
2,850

10
3

0 0
BMRI BBRI BBC A BBNI BDMN

Fixed coupon Variable coupon % fixed coupon to government bonds

Source: Companies and Bahana estimates

Chart 17. Comparative deposit breakdown

(IDRb)
200,000 74
(%)
80
BBCA carries strong deposit
180,000
70
franchise relative to other
160,000 57 59 banks
54 60
155,744

155,498

140,000
50
120,000
119,573
116,304

100,000 40

80,000
88,924

25 30
84,068

76,100

60,000
20
54,969
53,959

40,000
18,776

10
20,000

0 0
BMRI BBRI BBC A BBNI BDMN

C ore deposits at end March 2009 Time deposits % core deposits to total deposits

Source: Companies and Bahana estimates

PT Bahana Securities – Equity Research – Banking Sector Update 5

 BAHANA Beacon – The Spotlight
Chart 18. Industry deposit breakdown
(IDRb)
2,500,000
52% of third party funding
was derived from core
2,107,664
deposit while the balance
2,000,000
1,753,292 1,786,156 stemmed from TDs

1,500,000
48
52

1,000,000

500,000

0 % core deposits to total deposits at end March

Deposits at end Deposits at end Deposits at end 2009
December 2008 March 2009 December 2009 % time deposits to total deposits at end March
2009

Source: Companies and Bahana estimates

Chart 19. Comparative LDR

100
(%0
BBRI's LDR is running at
90 86 slightly above the
82
80 75 industry’s average while
70 65
68
BDMN’s is well supported
60
51
by funds raised via the
50 recent rights issue
40

30

20

10

0
BMRI BBRI BBCA BBNI BDMN Ave ind

BMRI BBRI BBCA BBNI BDMN Ave ind

Source: Companies and Bahana estimates

Chart 20. Comparative gross NPL

12.0
(%) 192 (%)
200
BBCA recorded the lowest
180 gross NPL and highest
10.0
146 160 coverage ratio amongst its
8.0
140 peers
117 118 116
106 120
5.9 5.6
6.0 100
4.5 80
4.0
3.2 60
2.9

40
2.0 1.6
20

0.0 0
BMRI BBRI BBC A BBNI BDMN Ave ind

% gross NPL at end March 2009 % NPL coverage ratio

Source: Companies and Bahana estimates

Chart 21. Comparative target prices

(IDR)
9,000
Recent upgrades in target
8,000
8,000
prices
7,800

7,000 6,600

6,000

5,000 5,200
4,100
4,000 4,000 4,150
4,220 4,250
3,000 2,300

2,000 2,100
2,250
1,000 1,750 1,700
1,000
0
BMRI BBRI BBC A BBNI BDMN

Low High Bahana

Source: Companies and Bahana estimates

PT Bahana Securities – Equity Research – Banking Sector Update 6

 BAHANA Beacon – The Spotlight

PT Bahana Securities – Equity Research – Banking Sector Update 7

 BAHANA Securities

Research (62 21 250 5735/ 250 5081)

Harry Su Head of Research ext 3600
harry.su@bahana.co.id Strategy, Telecommunications, Consumer,

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teguh.hartanto@bahana.co.id Banks, Property

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andry@bahana.co.id

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achmad.syafriel@bahana.co.id Plantation, Metal Mining

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andhika@bahana.co.id Cement, Property, Construction

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katherine@bahana.co.id Coal Mining

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alfi.fadhliyah@bahana.co.id

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tjokro@bahana.co.id

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haselinda@bahana.co.id

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