Banking Sector Outlook

Waiting for faster loan growth

Banking industry loan growth in Indonesia has been slowing down since 2014 until today. Apparently it was caused by the loan growth which fell down to 11.5% YoY from 21.8% YoY in 2013. As of July 2015, bank’s loan growth declined considerably to 9.8% YoY. Considered it’s not only because of the already stretched LDR of 89.3% but also because of the weak loan demand, especially since 2015. We believe that in the level of loan growth in 2016 will depend on economic growth in general, confidence from each bank regarding its asset quality, and BI monetary policy.

NPL could decrease, albeit at a slow pace

NPL level has been creeping up from 1.7% in 2012 to 2.8% as of August 2015. It is quickly concluded that NPL could be at its peak on August 2015. The possible peak of NPL level in August can be attributed to more lenient requirement to restructure loans that has been introduced by OJK to help banks improving their asset quality.

The case of government intervention

Government’s tendency to interfere in pricing mechanism is one of the most prominent fear factors for investors. Many are worrying about the possibility of government to directly put a maximum lending rate (or deposit rate) cap. In regards to subsidized KUR, rate can be lowered to 9% in 2016, but from our conversation with BBRI’s management, government will add the subsidy allocation, so effectively BBRI still enjoy real lending rate of 19% from KUR.

Some banks have offered attractive dividend yield

The recent market price correction of banks has actually rendered the opportunity to snatch banks’ shares with attractive dividend yield. Regional bank such as BJBR and BJTM currently trade with dividend yield of more than 9% while BBRI in more “normal” times only yields below 2%.