Indonesia Banks:Scenario Analysis,BBNI Share Price Closest to Trough

Scenario analysis based on NIM and credit cost sensitivity — Bank shareprices are under pressure due to NPL and Intervention risks. In this note, we havecalculated trough share prices based on 1) elevated credit cost 2) lower lending/TDrates and 3) book value adjustment for restructured loans. BBNI’s share price has8% downside, BBRI 11% and BMRI 16%. BBCA downside of 30% is more due tomultiple compression. Valuations for BBRI/BBNI are now at -1std, BMRI at -0.5stdand BBCA +0.5std.

    Using 2017 for trough ROA/ROE — Key assumptions are 1) loan yield of 10% forBMRI/BBRI and 13.1% for BBRI, 2) time deposit cost at ten-year low (2012A) and3) credit cost of 2% (perpetual). Using the trough ROE, we have calculated targetP/B using historic mean forward ROE/PB, and applied this target P/B to 2016FBVPS.

    NIM impact of 30-40bps — Lower lending rates will be almost matched by lowerTD cost. Banks have guided that their current bank-only loan yield is c~10.5%, exc.

    high yield segments that have been exempted by OJK from single-digit lending ratecalculations. BBRI’s 13.1% loan yield is based on micro loan yield of 19% andremaining loans at 10%. Every 50bps in TD ~ 3-5% of share price.

    Credit cost at same level as 2015A NPL formation — BBRI/BBNI at 2% for2016/17F. BMRI at 2.5/2%, to incorporate probable kitchen-sinking in 2016F. BBCANPL formation in 2015 was 0.5%. For restructured loans, we have deducted 50% ofperforming restructured from the trough share price and added excess provisionallowance over NPLs. Every 50bps change in credit cost (perpetual) is 8/9% forBBCA/BBRI trough price and 13/14% for BMRI/BBNI.

    Citi base case — Our base-case target prices assume gradual economic recoveryfrom 2H 2016, supported by 1) infrastructure spending and 2) improved governmentfiscal position following a tax amnesty. The 2016/17F loan growth for the four largebanks is 14/15% with gr adually declining NIMs.