Bank Central Asia: Driving Growth with Strong CASA and Ample Liquidity
UOB Kay Hian
October 10, 2024
Bank Central Asia (BBCA), Indonesia’s largest private bank, continues to solidify its leadership position in the country’s banking sector, leveraging a strong CASA (Current Account and Savings Account) franchise, ample liquidity, and strategic lending growth. With a focus on transactional banking and a disciplined approach to managing interest rate sensitivity, BBCA is well-positioned for sustained growth, even amidst challenging economic conditions.
CASA Strength and Low Funding Costs
BBCA remains the largest transactional bank in Indonesia, supported by a solid infrastructure that has enabled the bank to grow its market share in low-cost funding. As of August 2024, BBCA’s CASA market share increased to 17.3%, up from 16.8% in December 2023. CASA accounts for a substantial 80% of the bank’s total deposits, with savings accounts alone comprising 50% of the deposit base. This strong CASA franchise helps BBCA maintain a low cost of funds, a key competitive advantage in a rising interest rate environment.
Additionally, BBCA’s CASA to loan ratio stood at an impressive 107% in August 2024, underscoring the bank’s ability to manage its funding structure efficiently while supporting robust loan growth. BBCA’s dominance in CASA translates into a low cost of funds (CoF), making the bank less sensitive to interest rate fluctuations compared to its peers.
Impact of Government Spending and Economic Outlook
BBCA expects Indonesia’s GDP growth to accelerate in 2025 due to increased government spending. Historically, there has been a slowdown in economic activity during the transition period between governments. However, BBCA believes that fiscal stimulus in the form of more aggressive government spending will help counterbalance this trend, boosting economic activity and driving demand for banking services.
Despite Indonesia entering a rate-cutting cycle, BBCA remains cautious, anticipating that aggressive government spending may lead to increased competition for funding. Nevertheless, the bank is well-prepared to navigate this environment with its strong liquidity position and CASA-dominated funding base.
Loan Growth and Strategic Focus on SMEs
BBCA continues to exhibit solid loan growth across its key segments. In August 2024, loan growth reached 15.6% year-on-year, up from 14.5% in July 2024. The bank remains confident in achieving its full-year loan growth target of 9-10% for 2024, with corporate and consumer loans serving as the primary drivers of growth.
The bank is also focusing on the SME (Small and Medium Enterprises) segment, which it sees as a key driver of loan growth in the coming years. As of June 2024, SME loans grew by 12.7% year-on-year, representing 13.5% of the bank’s total loans. BBCA’s SME borrowers are typically CASA customers, which ensures manageable credit risk for the bank. The number of SME customers remains relatively small, but BBCA sees significant room for growth in this segment, further bolstered by its strong liquidity position.
Net Interest Margin (NIM) Management and Ample Liquidity
BBCA’s assets are more sensitive to interest rate changes than its deposits, which could lead to some compression in net interest margin (NIM) as interest rates decline. However, BBCA has ample flexibility to manage its NIM due to its strong liquidity and CASA-dominated funding. Management expects loan volume growth to help offset any margin compression, particularly as the bank focuses on optimizing its low loan-to-deposit ratio (LDR), which stood at 76.5% in August 2024.
BBCA’s robust capital adequacy ratio (CAR) and low credit cost position the bank well to take on more risk and grow its loans in a disciplined manner. The bank plans to increase its LDR to 80% by capitalizing on its ample liquidity. Furthermore, BBCA’s ability to reprice its deposit products, offering the lowest deposit rates in the industry, provides additional support for NIM management.
Financial Outlook
BBCA reported strong financial results for the first eight months of 2024, with net profit growing by 13.5% year-on-year, in line with market expectations. The bank’s performance was driven by solid loan growth, NIM expansion, controlled operating expenses, and lower provision expenses. BBCA’s management expects to deliver a 12.1% net profit growth for the full year, reflecting the bank’s ability to navigate a challenging economic environment while maintaining strong profitability.
Conclusion
Bank Central Asia’s leadership in Indonesia’s banking sector is underpinned by its robust CASA franchise, strong liquidity, and disciplined approach to managing interest rate sensitivity. With a strategic focus on loan growth, particularly in the SME segment, and a cautious yet optimistic outlook on the economic environment, BBCA is well-positioned to deliver sustained growth and profitability in the coming years. Investors looking for exposure to Indonesia’s banking sector should consider BBCA a top choice, given its proven track record and solid financial fundamentals.
UOB Kay Hian
October 10, 2024
