Bank Negara Indonesia (BBNI IJ) FY18 results: Largely in-line
In-line FY18 results. Bank Negara Indonesia (BNI) reported a relatively in-line results with FY18 net profit stood at IDR15,015bn (+10.3% YoY) vs our and consensus of IDR15,348bn and IDR15,408bn, respectively. BNI’s results were supported by resilient business expansion, manageable operating expenses, and lower credit cost.
Loan growth beating the target. BNI’s total loan reached IDR512,778bn at end 2018, a 16.2% increase from a year before. The growth was slightly higher than the bank’s target of between 13% and 15% YoY. Major driver for the expansion came from the corporate segment - both SOEs (+31.6% YoY) and private enterprises (+12.9% YoY), followed by small segment (+17.0% YoY), and consumer segment (+11.6% YoY) particularly from payroll loans (+34.2% YoY). Meanwhile, the medium segment, which is still struggle with bad loans problem, grew by just 6.4% YoY. For this year, BNI targets the same growth target of between 13%-15% YoY.
Manageable loan quality. NPL ratio further improved to 1.9% at end 2018, compared to 2.0% at end September 2018 and lower than the management guidance of around 2.2%. The decline in NPL ratio was due to lending expansion, while in term of value, total bad loans was relatively stable. The ratio of total loans at risk to total loans also improved to 7.9% from 9.9% a year before. Top contributors to the NPLs including mining and manufacture sectors. Loan loss coverage was at adequate level of 152.9%. With manageable loan quality, BNI was able to bring down credit cost to 1.4%, in line with its initial target. For FY19F, the bank expects NPL ratio to be at around 2.0%. It also expects minimal impact from the application of tighter provisioning rule to adhere to IFRS 9 with impact to CAR at just between 20-40 bps.
Stable margin over the quarter. FY18 NIM was at 5.3%, relatively stable compared to 9M18 and 20 bps lower than a year before. The decline over the year was mostly due to lower lending yield (-30 bps YoY). Fortunately, BNI managed to bring down its funding cost also by 20 bps YoY, thanks to funding structure improvement where CASA portion rose to 64.8% from 63.1% at end 2017. Until the end of 2018, total third-party funds rose 12.1% YoY, where current account grew by 18.2% YoY and savings grew by 13.0% YoY, while time deposits just increased by only 6.7% YoY. BNI cited its effort in utilizing its position as state bank to gather cheap funding from other SOEs as the major reason for the funding structure improvement. Going forward, BNI expects to have a balanced lending and funding expansion with targeted LDR of around 90% level. The balanced expansion is aimed to preserve the bank’s marginMaintain BUY amid stable performance. With on-track performance and healthy fundamentals, in addition to its ability to utilize its franchise to support its expansion, we maintain our BUY recommendation on BBNI. BBNI’s FY19F P/E of 10.1x was still considerably lower than closest peer such as BMRI which has similar profitability level but traded at higher FY19F P/E of 13.3x.
