Banks
3Q24 preview: Gradual improvement in liquidity and strong loan growth to drive earnings
- We expect the banks to deliver 7-23% and 5-21% net profit growth in 3Q24 and 9M24, driven by strong loan growth and resilient NIM.
- Amid high loan demand, flat LPS rate, and still tight liquidity, we expect a meaningful CoF improvement in 1Q25.
- Maintain Overweight rating on the banking sector, underpinned by solid growth, bottoming liquidity, and still robust asset quality.
Earnings growth is supported by strong loan growth and resilient NIM
We expect the banks under coverage, excluding BTPS, to deliver solid net profit growth in 9M24F. We project BRIS to achieve the highest net profit growth at 21.1% yoy, followed by BBCA (+13.5% yoy), BMRI (+5.8% yoy), and BBNI (+5.1% yoy). In contrast, we forecast BTPS to report a 21.2% yoy decline in net profit due to our anticipation of higher qoq CoC and lower NIM. Similarly, aside from BTPS, we expect the banks to record positive net profit growth in 3Q24, as we anticipate earnings to be supported by higher loan growth and slight improvements in margins across the banks.
ST liquidity remained tight, expect more meaningful liquidity in 1Q25
Although BI reduced its benchmark rate by 25bps in Sep24, LPS has maintained its guarantee interest rates at 4.25%. This rate is effective from 1st Oct24 to 31st Jan25. We note that the banking sector’s average 1-month TD rate remains consistently below the LPS rate. Amid the current resilient demand for loans, we expect the banks’ CoF improvement to be gradual until the end of FY24. We expect the more meaningful impact to CoF in 1Q25 (see our report here).
BBCA: the only bank with an underweight position
In Sep24, local funds’ position in BBCA was 8.2%, below its monthly weighting of 9.0%. Other banks have seen their positions in an Overweight category, with BMRI, BBNI, and BRIS at 0.3%, 1.4%, and 0.7%, respectively. Although BBRI appears to be heavily underweight, this is primarily due to the increased weighting caused by the share price rally in recent months. However, as the 4Q24 rebalancing approaches, BBRI’s weighting was adjusted to 8.7%, bringing the latest fund position to Neutral.
Maintain Overweight, with BBCA remaining as our top pick
On the back of better liquidity, higher NIM, and still robust asset quality, we maintain our Overweight rating on the banking sector. While BBRI (Not Rated) and BBNI (Buy, TP: Rp8,200) ought to benefit more from lower CoF in FY25F, we still favor BBCA (Buy, TP: Rp12,400) given its cheaper valuation (using inverse 5-year CoE), superior deposit franchise and robust asset quality for LT benefits and underweight position in local funds. Risks to our view are delayed rate cut and deteriorating asset quality.
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