Date: 27th September 2024
Broker: UOB Kay Hian
Company Overview
Bank Negara Indonesia (BBNI) is a state-owned bank in Indonesia, primarily focused on corporate and small-medium enterprise (SME) loans. The bank is listed on the Indonesian Stock Exchange under the ticker BBNI IJ.
Loan Growth Outlook
BBNI experienced a loan growth deceleration to 9.0% in August 2024, but the bank remains optimistic about achieving its full-year target of 10-12% loan growth for 2024. This recovery is expected to continue in 2H24, driven by better liquidity and higher demand, particularly in lower-risk segments like corporate, mortgage, and personal loans. The bank has also raised its loan growth guidance for 2024 by 100 basis points, indicating stronger expectations for next year.
NIM (Net Interest Margin) Improvement
BBNI’s management expects stable NIM of 4% in 2H24. However, UOB Kay Hian sees room for further improvement due to lower cost of funds (CoF), supported by:
- Rate cuts by Bank Indonesia
- Liquidity incentives under the KLM policy, allowing banks to optimize their balance sheets
- Lower issuance of Bank Indonesia Rupiah Securities (SRBI), which should ease competition for funding.
With 68.9% of deposits in current and time accounts, BBNI’s CoF is expected to benefit significantly from rate cuts.
Savings Growth and Digital Initiatives
BBNI’s savings account growth accelerated to 7.3% year-over-year in August 2024, up from 5.2% in July. The bank attributes this improvement to the launch of its digital banking platform, Wondr, in July 2024. BBNI plans to roll out a digital cash management app by the end of 2024, further enhancing its digital offerings. With a dedicated in-house IT team of nearly 1,000 employees, the bank expects its cost-to-income ratio (CIR) to drop to 38-39% by 2028, reflecting operational efficiencies driven by digitalization.
Asset Quality and Cost Control
BBNI has made significant improvements in its asset quality, following several years of restructuring. The non-performing loan (NPL) ratio declined to 2.0% in June 2024, down from 2.5% a year earlier. The bank expects further improvements, with NPL ratios potentially dropping to 1.0-1.5% by 2028. Credit cost (CoC) remained stable at 1.0% in 2Q24, and management anticipates continued stability for the rest of the year, supported by robust asset quality and high loan loss coverage.
2H24 Earnings Growth Expectations
BBNI reported an unconsolidated net profit of Rp 14 trillion for the first eight months of 2024, representing 4.4% year-over-year growth. This performance was driven by 9% loan growth and a 26.7% reduction in provision expenses. The bank is on track to achieve its full-year earnings targets, with a projected 5.2% net profit growth for FY24.
Risks from Management Changes
The potential for management changes poses some risks to BBNI’s future outlook. Local media has reported that the new Indonesian government may implement organizational restructuring within state-owned enterprises (SOEs), including banks like BBNI. Such changes could impact the bank’s management focus and strategic direction, possibly affecting its earnings growth.
Financial Performance and Forecasts
For FY24, UOB Kay Hian expects BBNI’s net interest income to reach Rp 41.745 trillion, supported by strong loan growth and a stable NIM. The bank’s net profit is forecasted to grow by 5.2% year-over-year, reaching Rp 21.997 trillion. UOB Kay Hian also projects BBNI’s net profit to increase to Rp 26.812 trillion by FY26, with continued improvements in CoF and loan growth.
Valuation and Recommendation
UOB Kay Hian maintains a “BUY” rating on BBNI with a target price of Rp 6,560, based on a fair price-to-book (P/B) ratio of 1.4x. The valuation is supported by assumptions of 15% return on equity (ROE), 12.1% cost of equity, and long-term growth of 5%. The bank’s focus on digital banking and cost control, coupled with improvements in asset quality, positions it well for future growth. BBNI’s NPL ratio is expected to further decline to 1.0-1.5% by 2028, while the new digital platform, Wondr, should help boost current account savings accounts (CASA) stickiness and fee income.
Share Price Catalysts
Key catalysts for BBNI’s share price include:
- Continued improvement in NIM due to lower CoF
- Strong loan growth in 2H24 and beyond
- Enhanced profitability from digital banking initiatives and operational efficiencies
Risks
Potential risks to BBNI’s outlook include adverse macroeconomic developments, further rate hikes, liquidity tightening, geopolitical issues, worsening asset quality, and higher expenses. The possibility of management changes within Indonesia’s state-owned enterprises may also impact the bank’s strategic direction.
