Bank Central Asia’s Strong Loan Growth Fuels Profit Surge in 2024

Date: 26 September 2024
Broker Name: UOB Kay Hian

Strong Loan Growth and Profitability

Bank Central Asia (BBCA) reported a 13.5% year-on-year (yoy) increase in net profit for the first eight months of 2024, amounting to Rp36 trillion. This growth was driven by several factors, including robust loan growth, net interest margin (NIM) expansion, controlled operating expenses (opex), and reduced provision expenses. The strong net profit growth was in line with the broker’s and market expectations, covering 66% and 67% of their respective full-year profit estimates. Looking at the monthly trend, BBCA’s net profit in August 2024 grew by 22% yoy, although it declined by 6.4% month-on-month (mom). The bank’s performance in 3Q24 is expected to surpass that of 2Q24.

Loan Growth and Asset Quality

BBCA experienced a significant 15.6% yoy loan growth as of August 2024, an improvement from the 14.5% recorded in July 2024. With year-to-date (YTD) loan growth standing at 7.0%, BBCA is well on track to achieve its 2024 loan growth target of 9-10%. Furthermore, the bank’s asset quality remains strong, with a credit cost (CoC) of less than 30 basis points (bp) in 8M24. Despite the low CoC, BBCA’s loan loss reserve was high at 4%, exceeding the pre-pandemic levels (2.5% in 2019). As of June 2024, the loans-at-risk (LaR) ratio stood at 6.3%, with a LaR coverage of 71.2%. The bank is expected to maintain a CoC of 30-40bp in 2024-2025, supported by strong coverage and solid asset quality.

NIM Improvement and Cost Efficiency

BBCA’s NIM improved by 20bp yoy in 8M24, though it remained stable compared to the 5.8% recorded in 6M24. This improvement was attributed to a slight increase in yield and a marginally lower cost of funds (CoF). BBCA’s low loan-to-deposit ratio (LDR) of 76.5% in August 2024 (up from 68.8% in August 2023) allowed the bank to focus on raising its LDR while reducing time deposits by 3.6% yoy, further lowering CoF.

Additionally, BBCA maintained a low cost-to-income ratio (CIR) of 30.7% in 8M24, down from 33.4% in 8M23, thanks to its focus on digitalization, which has improved operational efficiency. Most of BBCA’s transactions are conducted through digital channels like mobile and internet banking, which contributed to this cost efficiency.

Flexibility in Managing NIM During Rate Cycles

Despite its assets being more sensitive to interest rate changes than its deposits, BBCA is expected to manage its NIM effectively during interest rate cut cycles. With its ample liquidity, the bank has the flexibility to optimize its low LDR and increase the proportion of loans to total earning assets, thus improving yield. On the funding side, BBCA can reprice its deposit products, particularly given its ability to offer one of the lowest deposit rates in the industry.

No Earnings Revision

Given that BBCA’s 8M24 net profit met expectations, the broker has not revised its earnings estimates for the year. The bank is expected to achieve a 12.1% net profit growth for the full year of 2024. BBCA’s 3Q24 financial results are expected to be published in October 2024.

Risks and Valuation

The primary risks for BBCA include adverse macroeconomic developments, currency instability, and geopolitical uncertainties, all of which could negatively affect asset quality, NIM, and loan growth. However, the broker maintains a “BUY” rating on BBCA with a target price of Rp12,000, based on the Gordon Growth Model, which assumes a return on equity (ROE) of 21.5%, growth of 8%, and a cost of equity of 10.7%. BBCA’s superior asset quality, LaR ratio, and high LaR coverage, combined with its strong ROE of 24.8% in 1H24, reinforce its position as one of the top-performing banks in the industry.

BBCA’s CAR ratio stood at 27.8%, further highlighting its financial strength. Additionally, the bank’s market share in savings increased to 20.2% in August 2024, up from 19.7% in December 2023, showcasing its competitive edge in securing low-cost funding.