Banks: Moderating FY24 growth, but intact fundamentals shall support high growth to resume in FY25 (OVERWEIGHT)

Stock Code	Last Price	Change	Change %
DSSA	50.900	2.650	5,49%
CTBN	5.300	450	9,28%
SMMA	15.800	400	2,60%
CUAN	8.875	350	4,11%
SINI	3.500	310	9,72%
BESS	1.495	240	19,12%
NICL	1.055	175	19,89%
SGRO	2.570	170	7,08%

Banks

Moderating FY24 growth, but intact fundamentals shall support high growth to resume in FY25

We expect a temporary deceleration in banks’ FY24 earnings growth, driven by slower loan growth, in-line with past trend in election year.
With NIM, CIR and CoC remain in check, and healthy asset quality, we expect big-4 banks’ to resume robust net profit growth in FY25.
We reinitiate the banking sector coverage with Overweight rating and BBCA as our top pick in FY24, followed by BMRI.

Expect moderating growth in FY24F, with potential re-acceleration in FY25

We project loan growth for the big-4 banks to moderate in FY24F to 8.8% from 10.7% in FY23F. Our expectation is predicated on 1) tight liquidity condition, 2) banks’ relatively high LDR and low secondary reserve ratio, and 3) election sentiment, especially in 1H24. Our liquidity tightening assumption is based on low M2 growth, gap between JIBOR and 7DRR rate, and tight mandatory reserve requirement. The slowing loan growth is inline with the trend in the past election years, and thus, we expect higher loan growth (11.1%) to resume post election.

NIM to remain robust driven by higher yield

We believe the big-4 banks shall remain well positioned in the market on the back of their pricing power and CASA franchise during rate hike (refer to p.17-20). Amid higher interest rate, BBNI has the biggest advantage since it has the highest portion (82%) of floating rate loan and BBCA has the advantage of having the highest CASA ratio of 80%. In view of the potential rate cut, which might come as soon as 2H24, BBRI will be the main beneficiaries as it has the lowest CASA ratio and highest fixed rate loans.

Healthy asset quality and steadily declining CIR to support LT growth

Despite our expectation for loan growth moderation, we believe the banks will continue to book decent net profit growth of 8.7% in FY24F (albeit normalizing from FY23F 21.6% yoy). We expect net profit growth will be supported by improvement in cost-to-income-ratio (at 32.3-43.8% vs. 31.8-43.0% in FY24F), partly reflecting growing use of mobile banking transactions, and stable provisions (at 0.5-1.3%), reflecting an overall healthy asset quality. These should allow the banks to resume high earnings growth in FY25 and beyond.

Reinitiate banking sector coverage with Overweight rating

Our initial banking sector universe includes the big 4 banks i.e., BBCA (Buy, TP Rp12,100), BBRI (non-rated), BMRI (Buy, TP Rp7,300), and BBNI (Buy, TP Rp7,100). We expect the moderation in loan growth and higher cost of fund to result in earnings growth to slow to 8.7% in FY24F, before it re-accelerates to 11.1% in FY25F. We derived our TP valuation from 5-year inverse COE GGM. Our top pick is BBCA given its higher liquidity, strong CASA, and potential higher ROE, followed by BMRI. Risks to our view are lower-than-expected loan growth and higher-than-expected CoF.

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