Page | 1 | PHILLIP SECURITIES INDONESIA MCI (P) 019/11/2014_0013 Ref. No.: INDO2014_0015 Bank Negara Indonesia (BBNI ID) The fourth largest bank in Indonesia with strong financial ratios INDONESIA | BANKING | INITIATION 16 December 2014 Company Overview Bank Negara Indonesia (“BNI”) is the first wholly-owned state bank as well as the fourth largest bank in Indonesia, with total assets of IDR 388.2 trillion and 26,100 employees. Currently has more than 1,700 outlets across the archipelago services 14 million customers, as well as 6 overseas offices in Singapore, Hong Kong, Tokyo, Osaka, London and New York, more than 1,600 correspondent banks in 104 countries, and 13,370 ATMs throughout the country. BNI also serves its customers through 42,000 EDC, as well as through Internet banking and SMS banking. Has 10 subsidiaries that support the provision of one stop financial service, including banking products, insurance, financing, capital, and remittance. Initiate with “ACCUMULATE” with TP of IDR 7,025. Investment Merits Strong financial ratios BNI is the only domestic bank to have consistently increased and maintained higher ROE and ROA since FY08. BNI has reduced its NPL by over 55% since FY08, more than any of its peers. Amid high interest rate environment, BNI could maintain its NIM at 6.1% level and low NPL ratio of 2.2% in 3Q14. The fourth largest commercial bank in Indonesia BNI is now the fourth largest Indonesian lender by asset size, loans, and customer deposits. As of August 2014, BNI booked a total asset of IDR 380 trillion with market share of 7.3% or the fourth largest among its peers in Indonesia. Local bank with the largest network of overseas branches BNI is the only domestic bank in Indonesia with overseas branches as well as one of the most extensive distribution platforms in the country. In 3Q14, BNI strengthened its international loan up to 41.4% yoy to IDR 9.8 trillion compared to IDR 6.9 trillion in 3Q13, contributing 3.7% to BNI’s total loan. Steady loans and funding growth BNI booked a steady and double-digit loan growth of 12.9%, 19%, 22%, and 24% respectively in FY10-13. In line with loan growth, BNI also successfully maintain its third party funds to grow at the double-digit 19%, 11.4%, and 13.3% respectively in FY11-13 amid the tight competition among banks to obtain third party funds. Strong fee based income and low cost funding BNI’s net fee and commision income grew 11.3%, 18.8%, and 26.8% respectively in FY11-13, driven by developing consumer payment transaction and cash management services. BNI is also one of the banks with the lowest cost of funds in Indonesia, at 3.2% in 3Q14, lower than its peers such as Mandiri with 3.9% and BRI with 4.3%. ACCUMULATE CMP IDR 6,000 TARGET IDR 7,025 (+17.1%) COMPANY DATA O/S SHARES (BN) : 18.65 MARKET CAP (IDR TN) : 111.89 MARKET CAP (USDBN) : 9.00 52 - WK HI/LO (IDR) : 3,660/6,300 3M AVG. VOLUME (MN SHARES): 22.27 PAR VALUE (IDR) : 500 SHARE HOLDING PATTERN, % GOVERNMENT : 60% PUBLIC & OTHERS : 40% PRICE VS. JCI 80 90 100 110 120 130 140 150 160 Dec-13 Mar-14 Jun-14 Sep-14 Dec-1 BBNI IJ JCI Rebased Source: Phillip Securities Indonesia Research KEY FINANCIALS IDR bn FY14E FY15E FY16E FY17E Int. Income 20,937 23,301 26,171 28,694 EBIT 12,384 13,952 15,649 17,088 Net Profit 9,856 11,053 12,496 13,715 EPS, IDR 529 593 670 736 PER, x 11.35 10.12 8.95 8.16 P/BV, x 2.05 1.80 1.57 1.39 ROE, % 18.1 17.7 17.6 17.0 Loan/Debt (%) 84.3 86.3 87.6 87.7 Source: Phillip Securities Indonesia Research Est. Valuation Method: P/BV Valuation Analyst Phillip Research Team (+65 6531 1240) [email protected]
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Source: Bloomberg, PSI Research Est.*Forward multiples and yields are based on current price and historical multiples andyields are based on historical prices
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Banking Industry in Indonesia
Slower Economic Growth in Indonesia
Statistic Indonesia announced that economic growth in Indonesia
reached 5.01% yoy in 3Q14. This result was slightly below analysts’
forecast and implies that the slowing trend of economic expansion in
Southest Asia’s largest economy continues. Since FY11, GDP growth has
been declining amid global and domestic economy declines. The 5.01%
point GDP growth in 3Q14 was the slowest quarterly growth pace in 5
years.
Externally, economic expansion in Indonesia has been limited by
sluggish global economy. With China’s economy growing at a relatively
low pace, global demand for Indonesian commodities has declined
sharply. In 3Q14, exports declined by 0.7% yoy. Furthermore, the
slowdown in exports was also partly caused by the controversial ban on
mineral ore exports which was implemented by the Indonesian
government in January 2014.
Indonesia’s quarterly GDP growth FY09-14 (annual % change)
4.6
5.996.45 6.29 6.03
5.224.37
6.29 6.52 6.365.89
5.124.31
5.816.49 6.16
5.625.01
4.58
6.81 6.56.11 5.78
0
1
2
3
4
5
6
7
2009 2010 2011 2012 2013 2014
1Q 2Q 3Q 4Q
Source: Statistics Indonesia, PSI Research
According to the Bank Indonesia, inflation may reach around 7.5% yoy
by FY14 as a result of higher subsidized fuel prices. In 4Q14, subsidized
fuel prices (gasoline and diesel) were raised more than 30% in an
attempt to reallocate government funds to more productive sectors as
well as to curb the country’s wide current account deficit. However, the
Bank Indonesia projects the IDR 2,000/liter fuel price hike will add
another 2.5% of Indonesian inflation to 7.5-8% for FY14.
The Bank Indonesia immediately responded to the fuel price hike by
raising its key interest rate by 25 basis points to 7.75%, for the first
time in 12 months. The higher interest environment in Indonesia led to
slower credit growth of 14% in 3Q14 versus 2013’s 21.4% pace.
However, the liquidity condition in banking sector has relatively eased,
proved by a decrease in the loan to deposit (LDR) ratio of 89.13% in
3Q14, compared to above 92% level in the previous month.
Indonesian economy grew 5.01% yoy in 3Q14, the slowest quarterly growth pace in 5 years.
Subsidized fuel prices were raised by more than 30% in 4Q14. In response, BI raised its key interest rate to 7.75%.
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Indonesia’s Economic Growth Accelerates in 2015
According to the Asian Development Bank (ADB), Indonesian economy is
expected to pick up in FY15 as external demand improves and the new
government’s reform agenda takes hold. The ADB expects a growth
pace of 5.5% in FY15. Optimism over the new Joko Widodo (Jokowi)-led
administration brings new hope that can trigger investment growth.
Jokowi has been the market-favorite in the 2014 election.
Higher global economic growth forecast of 4% in FY15 compared to
3.4% in FY14 will encourage optimism over Indonesian economic growth
in FY15. Global trade, which is forecast to grow 5.3% in FY15 compared
to 4% in FY14, will encourage export performance to increase 4.4% in
FY15 compared to 1.4% in FY14. Due to enhanced certainty about
investment and employment programs of the new government,
investments in Indonesia are expected to grow by 5.5% or higher than
the 5.2% point growth projected in FY14.
Furthermore, the reallocation of fuel subsidies to finance infrastructure
development as well as various other productive activities (healthcare
and education) will improve the central government’s fiscal space in
term of nurturing stronger and more sustainable GDP growth. As such,
Bank Indonesia also estimates that Indonesia’s economic growth will
return to 5.5% yoy in FY15 and higher in the medium-long term.
Meanwhile, we have conservative view regarding the value of the Rupiah
(IDR). The average IDR rate is estimated to depreciate at IDR
12,600/USD range in FY15.
Despite positive impacts thanks to easing current account deficit, risks
poses by U.S. tappering off and possible increase in U.S. interest rates
will most likely lead to another round of capital outflows from the stock
and financial markets of emerging markets, including Indonesia. This is
because Indonesia’s 5.5% growth target will be highly dependent on
global economic growth, the acceleration of infrastructure development
in Indonesia, as well as government budget.
Banking Outlook in 2015
In line with economic growth forecast of 5.5% in FY15, the Bank
Indonesia sees loan growth between 15-17% next year, higher than
13-15% in FY14, while total deposits is expected to grow 11-13% in
FY15, or higher than 10-12% in FY14. We expect a slower loan growth
in the 1Q15 following the key interest rate hike at the end of FY14. The
Bank Indonesia increased key interest rate by 25 basis point to 7.75%
in 4Q14 to anticipate higher inflation after fuel price hike by Indonesian
government. We see a high chance of key interest rate hike in 2015 to
8.00% along with possible increase in U.S. Fed funds rates.
But we are positive that the 5.5% economic growth forecast will
encourage loan growth in the long term. Better use of government funds
from fuel consumption to infrastructure development will lead to lower
logistic costs. Moreover, along with improving economy in the US and
Japan, as well as signs of economic recoveries in Europe, China, and
We expect loans to grow 15-17% in FY15, in line with economic growth.
Infrastructure development will create more sustainable GDP growth of 5.5% in FY15.
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India, it is expected that the global economy will improve in FY15 to
support future growth of Indonesian economy.
In addition, major lenders also expect positive demand for syndicated
loans from infrastructure sector next year, as President Jokowi envisions
more project developments to boost Indonesia’s economy. According to
Bloomberg’s Global Syndicated Loans League Tables, as many as 20
international banks and financial institutions acted as Indonesia’s
mandated arrangers as of September 2014 for 42 syndicated-loan deals
with a total volume of USD 14.56 billion, increased by 30.23% from USD
11.18 billion last year. However, the non-performing loan (NPL) level is
estimated to rise in the beginning of FY15, along with an increase of BI
rate. We expect higher loan risks in FY15, but it will likely to remain
below 3% or better than 3.8% NPL rate in FY08-09.
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Investment Thesis
The fourth largest commercial bank in Indonesia
BNI is now the fourth largest Indonesian lender by asset size, loans, and
customer deposits. As of August 2014, BNI booked a total asset of IDR
380 trillion with market share of 7.3%, making it the fourth largest
among peers in Indonesia. BNI also recorded total loans of IDR 157
trillion (7.1% market share) and total customer deposits of IDR 293
trillion (7.6% market share) in the same period, which is the fourth
largest after BRI, Mandiri, and BCA.
The top 10 largest bank in Indonesia in terms of assets, loans,
and customer deposits as of August 2014
Source: Bank Indonesia, PSI Research
Has a solid liquidity position and asset quality
BNI’s liquidity was well maintained within the range set by Bank
Indonesia, with LDR of 85.7% in 3Q14, an increase compared with
84.7% a year earlier as a result of higher loan growth compared to
growth in third party deposits. Despite high interest rate environment,
BNI could maintain its NIM at 6.1% level and low NPL ratio of 2.2% in
3Q14. This shows that BNI has no difficulty in liquidity position and its
asset quality.
Strong financial ratios
BNI is the only domestic bank to have consistently increased and
maintained higher ROE since FY08, and its emphasis on quality growth
has led to a 400% rise in ROA during the same seven year period.
Meanwhile, the bank has reduced its NPL by over 55% since FY08, more
than any of its peers, and has significantly improved its coverage ratio
as well. BNI also boasts one of the strongest and low LDR banks, with
ROA and ROE have been maintained at consistently improving trajectory
under the stewardship of a focused and commited management team.
In 3Q14, BNI booked LDR of 85.7%, lower than industry’s 90.6%.
Local bank with the largest network of overseas branches
BNI is the only domestic banks in Indonesia with overseas branches.
The bank has overseas offices in Singapore, Hong Kong, Tokyo, Osaka,
London and New York, and 6 overseas ATM (4 ATMs in HongKong and 2
ATMs in Singapore). BNI also has one of the most extensive distribution
platforms in the country. In 3Q14, BNI strengthened its international
BNI has overseas offices in Singapore, Hong Kong, Tokyo, Osaka, London, and New York.
BNI boasts one of the strongest, low-cost funding-based and low LDR banks, with ROA and ROE have been maintained at consistently improving trajectory.
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loans to up to 41.4% yoy to IDR 9.8 trillion, compared to IDR 6.9 trillion
in 3Q13, contributin 3.7% of BNI’s total loan.
Steady loans and funding growth
BNI booked steady and double-digit loan growths of 12.9%, 19%, 22%,
and 24% respectively in FY10-13. Despite slowdown of global economy
in FY13, BNI managed to increase its loans to grow by more than 24%,
above banking sector average of 21.6%. In line with loan growth, BNI
also successfully maintained its third party funds to grow at double-digit
pace of 19%, 11.4%, and 13.3%, respectively in FY11-13 amid tight
competitions among banks to secure third party funds.
Strong fee-based income and low-cost funding
BNI’s net fee and commision income grew 11.3%, 18.8%, and 26.8%
respectively in FY11-13, driven by developing consumer payment
transactions and cash management services. These fee-based income
contribute 14% to BNI’s total income in FY13. BNI is also one of the
banks with the lowest cost of funds in Indonesia, with 3.2% CoF in
3Q14, up 31.3% compared to 2.3% in 3Q13. This is lower compared to
its peers such as Mandiri with 3.9% CoF and BRI with 4.3% CoF.
BNI is one of the banks with the lowest cost of funds in Indonesia.
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Risk Factor
Credit risk
Credit is the primary financial risk in the banking system. How a bank
selects and manages its credit risk is critically important to its
performance over time, and capital depletion through loan losses has
been proximate cause of most institution failures. BNI has been
successful in managing and containing credit risks. With its loan portfolio
growing by 14.1%, its Non-Performing Loan ratio remained flat at 2.2%.
The bank increased its non-performing loan provision coverage to 129%
in 3Q14.
Liquidity risk
The possibility for higher interest rate in the U.S. would result in
increased liquidity pressure in Indonesia. As a result, liquidity
management becomes an important issue for banks. Historically, BNI
does not have any issue with liquidity. The lender has planned and been
able to maintain balanced third party funds and loan growth to ensure
healthy and ideal liquidity level. In 3Q14, BNI successfully maintained its
LDR at 85.7%, in line with its target range of 85-87% for FY14.
Market risk
Market risk is the risk of loss due to adverse volatility of the market
against BNI’s financial assets and liabilities. Market risk in the banking
industry consists of interest rate risk, foreign exchange risk, and global
market risk.
1. Interest rate risk
Key interest rate is the most important issue for banking industry, as
BI rate increase has direct impacts to both lending and deposit
interest rates, which at the end affects real sectors. Higher lending
rates would potentially slow down loan growths, as well as increase
cost of funds. Interest rate risk also arise from BNI’s financial
instruments which have possibilities of changes in interest rates that
affect its future cash flows or fair value of the financial instruments,
such as placement with other banks and BI, marketable securities,
bills, government bonds, securities issued, and borrowings. At the
end of FY14, Bank Indonesia increased its benchmark interest rate by
25 bps to 7.75%, lower than 175 bps increase in FY13. As such, BNI’s
interest rate risk remained stable this year. We expect BI to maintain
key interest rate at 7.75-8% in FY15.
2. Foreign exchange risk
Foreign currency risk not only encourages Bank Indonesia to lift its
benchmark interest rate, but also effects banks’ consolidated financial
assets, liabilities and administrative accounts in foreign currencies. In
the first 11 months of 2014, IDR depreciated 1.4% against the USD,
compared to 21% depreciation in FY13. For 2015, we expect further
depreciation of the Rupiah.
As a bank, BNI faces credit risk, liquidity risk, market risk (including interest rate risk, foreign exchange risk, global market risk), and operational risks.
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3. Global market risk
The economic slowdown in global markets, especially in China and
India as Indonesia’s top importers, could have negative impacts on
Indonesian banking industry. Slower demand from export markets
could reduce revenue growth in real sector, which in turn could slow
loan growth in the banking sector. Indonesia’s export value declined
by 2.21% yoy to USD 15.35 billion in October 2014, bringing current
account deficit to up to USD 270.3 million. Coupled with global
economic slowdown, several local factors such as rising inflation and
gradual increase in electricity tariffs will also weigh on Indonesia’s
economic growth.
Operational risk
Bank Indonesia (BI) said Indonesia needs to merge banks so that the
country’s lenders could compete in ASEAN region. Commission XI
overseeing financial affairs at the House of Representatives also
supports mergers between state-owned banks. This merger plan would
negatively effect BNI, since it would more likely be taken over by Bank
Mandiri. Banks that becomes unnaturally large would have more
complex financial and operational system. As a result, the system
becomes more fragile. If the two banks merged and became a larger
bank, the government will have to set aside a huge sum of money for
bailout funds if this huge lender were to collapse.
Investment Correlation
The correlation between BNI’s stock price and the Jakarta Composite
Index (JCI) has been 76.5% positive over the past 12 months. Among
Indonesian banks, BNI’s share price movement has higher correlation
with the JCI compared to the average banking sector correlation of
68.5%.
BNI’s share price movement among banking sector companies
and its correlation with the Jakarta Composite Index (JCI) over
the past 12 months
Source: Bloomberg, PSI Research
BNI’s share price movement has 76.5% positive correlation with the JCI over the past 12 months.
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Financial Review and Forecast
Loan Growth
Loans represent the largest component (65.67%) of BNI’s assets in
3Q14, growing by 14.1% from IDR 234.91 trillion in 3Q13 to IDR 267.94
trillion in 3Q14. We expect BNI to record a loan growth of 16% to IDR
277.59 trillion for FY14, in line with BNI’s loan growth target of 14-17%
this year, compared to IDR 250.64 trillion in FY13. BNI’s loans
performance until 3Q14 has represented 96.5% of our loans estimation,
hence we believe BNI will achieve our loan growth estimation this year.
In line with our expectation for a slower loan growth of 15.5% in the
banking industry in FY15, we assume BNI’s loans to grow at the similar
level. Considering the lender’s historical loan growth which stood above
industry average over the last 2 years, we surmise a 15.5% loan growth
as attainable in FY15. However, we are positive on growing demands for
syndicated loans from infrastructure sector next year, since BNI
participated in the government’s infrastructure fund pool with USD 234
million investment.
BNI’s total loan composition in 3Q14 and its 8 sector focus in
business banking
Source: Company
BNI loans were mainly disbursed to corporate segment, representing
44% of its total loans, followed by consumer segment which comprises
18.2% of total loans. With respect to loan growth during 3Q14, loan
declines in the small segment are attributed to the upgrading of some
small segment debtors to become middle segment customers. The
upgrade indicates that BNI has successfully helped business customers
to grow. The small business segment that now meets the criteria for
middle debtors amounts to IDR 38.3 trillion.
BNI has recorded loan of IDR 268 trillion until 3Q14 or 96.5% of our loan estimate of IDR 278 trillion in FY14.
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Deposit Growth
Customer deposits consisting of current accounts, savings, and time
deposits, represented the largest component (88.1%) of BNI’s liabilities
in 3Q14. Total customer deposits stood at IDR 308.33 trillion in 3Q14,
up by 11.9% from IDR 275.63 trillion in the same period in FY13. Based
on funding compositions, total funds from time deposits represented
38% of total customer deposits of IDR 117.12 trillion, while CASA
increased IDR 3 trillion or 1.6% yoy whereas CASA ratio decreased to
62% versus 68% in 3Q13.
We expect BNI to book customer deposit growth of 11.6% and 13% in
FY14 and FY15, respectively. With 3Q14 achievement of IDR 308.33
trillion, BNI has reached 94.7% of our customer deposit estimation for
FY14 of IDR 325.73 trillion. CASA only grew 1.6% yoy in 3Q14 or below
our estimation of 6.9% for FY14, while time deposits have grown
significantly by 32.8% or higher than our estimation of 21.8%.
However, these high-cost funds have increased BNI’s cost of funds to
3.2% in 3Q14, while we estimated 2.4% cost of funds in FY14.
BNI’s total customer deposits by type, by currencies, and by cost
Source: Company
Interest Rate Forecast
In line with our key interest rate assumption, we forecast average
interest rate for loans and deposits at 8.5% and 2.5% for FY14, flat
enough compared to FY13. We expect only small changes of 25 basis
points increase in our interest rate forecast for FY15. Based on
management’s guidance, BNI plans to maintain its interest rates to
avoid slower loan growth and higher cost of funds. After BI raised its
benchmark interest rate by 25 bps at the end of FY14, BNI does not
have any plan to adjust its interest rate.
BNI recorded customer deposits of IDR 308.33 trillion in 3Q14 or 94.7% of our estimation of IDR 325.73 trillion in FY14, with composition of 38% customer deposits and 62% CASA.
We forecast interest rates for loans and deposits to average at 8.5% and 2.5% in FY14, and expect only small changes of 25 bps for FY15.
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Earnings Forecast
We forecast BNI’s earnings by estimating banking industry’s loan size
compared to GDP growth and the key interest rate. We believe a 15.5%
loan growth is feasible in FY15 due to improving economic growth and
better strategies from BNI. Considering historical loan growth of 19%,
22%, and 24% respectively in FY11, FY12, and FY13, we surmise a
15.5% loan growth as attainable in FY15.
FY15 management guidance:
(1) Maintain NIM at the same level of 6%.
(2) Loan growth: 16.5-17.5% from FY14’s forecast of IDR 278
trillion.
(3) Maintain LDR at a comfortable level of 85-90%.
(4) Expanding its business by setting up a joint venture with
Sumitomo through BNI Life, building 76 new branch offices, and
adding new branches for BNI Syariah with a total investment of
IDR 500 billion.
(5) Branchless banking targets 3,000 agents to increase BNI’s
efficiency as well as to decrease its cost to income ratio.
(6) Focus on corporate loans and support the government’s program.
Based on our assumption, interest income is projected to grow 12.4%
CAGR in FY15-19F while net profit is forecast to rise by 14.9% CAGR
over the same period. We believe our key interest rate estimates to be
conservative and earnings forecast to be attainable with BNI’s continued
efforts to improve operational efficiency.
Interest income and net profit forecast for FY14-19F
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