Bank Tabungan Negara Standing tall - DBS Vickers

• Fears of BI rate hike impact on BBTN excessive, as liquidity facility ensures low funding costs
• Other expansion plans on track
• Reiterate Buy and Rp2,500 TP

BI rate hike impact cushioned by low cost of funds from liquidity facility. While BI rate hikes would certainly affect BBTN, the liquidity facility will ensure a source of low-cost
funds (of 0.5%). Our sensitivity analysis shows that for every 25 bps rise in BI rates, BBTN’s NIM would narrow by 4bps and net profit would drop by 2%. Separately, the Ministry of Housing (MoH) will allocate another Rp3.6 trillion liquidity facility to BBTN in FY11 subject to Parliamentary approval (expected by Apr-11), beating last year’s Rp2.7trn allocation (of which BBTN has only utilized Rp600 billion) at the same cost of 0.5%. The rest of the facility will be utilized in FY11. This will ensure BBTN’s cost of funds remain low, while NIM should be sustainable at 5.3-5.6%.

Expansion plans on track. We understand BBTN’s cash outlets did well in 2010, securing up to Rp600 billion of deposits, of which 70% are current and savings accounts (CASA). The post office tie-ups is also doing well, having raised up to Rp500 billion of deposits in 2010. BBTN also plans to grow its non-housing loans (commercial and SMEs; no corporate loans) given that it has sufficient excess funding, helped by the liquidity facility, and targets to grow those loans to 15% of its loan book over the next 3-4 years. These loans generate higher lending yields, which will ensure BBTN’s NIM remains on an uptrend.

Reiterate Buy and Rp2,500 TP. Short-term pressure on BBTN’s share price offers an opportunity to increase exposure in Indonesia’s largest mortgage lender with a niche in subsidized mortgage loans. The liquidity facility at 0.5% funding cost will insulate BBTN from rate hike shocks. Our Rp2,500 TP implies 80% upside from the current share price.