Indonesia Bank State-owned banks to lower dividend payout - DBS Vickers

Dividend payouts to be lowered to fund growth and boost capital. Jakarta Post reported today that dividend payouts for state banks will be reduced. The State-Owned Enterprises Ministry is finalizing its plans to reduce dividend payout ratio for state banks to boost capitalization and lending. Four state banks –
BMRI, BBRI, BBNI and BBTN have filed recommendations to the ministry. BBRI requested that its dividend payout ratio to be reduced to 10% from 35%, other banks have different recommendations. The plans would be finalized before the state banks
begin their respective annual shareholders meetings in May. This quote came from State-Owned Enterprises Minister Mustafa Abubakar..

Positive move for state owned banks. We see this as a positive move for the state owned banks. Rather than making cash calls via rights issues or tapping on the
sub-debt market, lower dividend payout would be a cheaper alternative to fund growth. Dec-10 CAR ratios for the 4 state-owned banks are as follows:
BMRI – 13.5% (post rights CAR will increase to 18%), BBRI – 13.8%, BBNI – 18.6% and BBTN – 16.7%. Of all the state-owned banks, BBRI’s CAR ratio is the lowest and hence justifies their request for a lower dividend payout to boost capital for further growth, in our opinion. If BBRI successfully lowers its dividend
payout to 10%, it might not need to raise the much anticipated sub debt in 2H11.

BBRI (Buy, TP Rp7,700) remains our top pick. BBRI remains our top pick among the Indonesian banks under our coverage. While NIM is likely to trend down as cost of funds may rise in view of a tighter liquidity environment and as inflation mounts, we remain confident that BBRI’s micro lending business model remains resilient. We believe its high yielding micro loans will ensure earnings growth exceeding 15%
over the next three years. In addition, BBRI’s President Director, Sofyan Basyir stated that BBRI’s 1Q11 net profit could reach Rp4trn, which is 86% higher than
the previous corresponding quarter. He also mentioned that BBRI’s disbursed loans would rise by 22% in 1Q11, much higher than 18% growth in credits for the same period last year. We have a Buy call for BBRI with a TP of Rp7,700.