Market coming on too hot with 5M24 earnings

Two weeks ahead of banking earnings season, market was roaring along with excessively hot bank earnings, particularly for BBRI: 5M24 bank-only earnings revealed overly hot BBRI PPOP, marking 17% YoY in 5M24, topping BBCA at 10% and BMRI with 5%. While we still do not count BBNI numbers, its 5M24 PPOP came in at -4% YoY. The strong BBRI PPOP numbers derived from its non-interest income (instead of its core business). Net interest income growth at BBRI only came in at around 6% YoY, just below BBCA at around 7% and BMRI at 6%.

BBCA still reigns as king in 1H24

Undisputedly, BBCA still dominates the banking industry in 5M24, as their funding outperformed all the competition. With only an incremental IDR516 bn in its interest expenses, they can generate IDR2.5 tn additional net interest income, or around 4.85x leverage from their funding cost. But if we look at BBRI, they need IDR7.0 tn of funding to generate IDR9.0 tn of extra interest income. We conclude that BBRI was working too hard to generate interest income, while we are aware that the consumer purchasing power environment is faint. BMRI came second, with 1.39 of leverage for its funding in 5M24. Meanwhile, BBNI numbers are also not really efficient, with only around 0.40x of funding.

SOE banks severely challenged, compared to BCA

SOE banks continue to push loan growth despite liqudity challenges; this will likely endure through 2H as they are trying so hard to push loan yields, offseting weakness in lower mass segment. However, this exercise will come at a steep level, as we still do not see any improvement in liquidity or opex growth continuing for BBRI, thus troubling banks later on. In terms of provisioning, we see no significant improvement, and with the rate of loan growth they are pursuing, they will need to add more. Therefore, we predict banks will likely only grow at a moderate level, and we assess earnings deceleration persisting. Market has not yet fully priced in decelerating earnings growth at BBRI & BMRI. This said, BMRI is in a superior place compared to BBRI. We still prefer BBCA compared to other SOE banks, and we remain NEUTRAL on BMRI and BBNI. we fear BBRI's share price has not yet fully bottomed out: the end of June rally was deceptive.

Banking Sector - Not-So-Convincing 5M24

Banking Sector - Not-So-Convincing 5M24

Mardy Sutanto

02 July 2024 - 03.50pm

Banking Sector - Not-So-Convincing 5M24

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