Bank Central Asia - Changing in lending attitude; Maintain BUY - Deutsche Bank

BCA shares have done well +20% YTD (and is +15% relative to the index).
Yet, despite this strong performance and its premium valuations, we retain our BUY rating on the stock. We believe that the bank's current valuations are warranted given BCA's strong fundamental outlook.

We argue that BCA will increasingly utilise its balance sheet strength to "restructure" its asset base (ie shifting its earnings assets from low-yielding into higher-yielding loan portfolio). Also, recent changes at the top management may have accelerated such balance sheet change in the bank, in our view.

Specifically in the consumer loan segments, 1Q11 loan growth have been at 36% yoy (ahead of consolidated loan growth of 25%). Loan growth are still focussed into its existing deposit customers to ensure quality. After all, out of approximately 9 million deposit customers, only 53,000 clients are BCA's mortgage customers.

In recent development, we understand BCA is "proactively" offering a TOP UP programme to its existing mortgage customers using the same property as collaterals. Interest rate offered are similar to existing mortgage rates of 9.5%. Essentially, this will lower lending rates for consumer loans. While this may not be substantial to the bank's overall earnings, this is an evidence of the bank's change in lending attitude (and in turn should suggest limited earnings risks). Combined with continued cost efficiency efforts, these should help keeping the bank's high profitability.