New BI regulation heralds as positive for domestic banks - Deutsche Bank

Plans to regulate export monies and forex borrowing could be positive for domestic banks

Soon the central bank ('BI') will require monies obtained from exports to be repatriated. In addition, BI is also putting limits on FX denominated debts issued by indonesian corporations. The proposals are aimed at "strengthening" the country's forex reserves which is so far standing at US$125bn, providing support for rupiah stability ‐ hence reducing risks of capital reversals.

We view that the new regulation should be positive for the Indonesian banking sector. Not only that this will support the already ample liqudity in the system, but it will also encourage domestic loan growth, especially for Rupiah‐based lending (which has grown 20.6% yoy ‐ lower than the overall loan growth of 23.0%). As of Jun‐11, the estimated excess liquidity remains plentiful at 22% of total loans outstanding. As most of the liquidity is concentrated in major banks, they are more likely to maintain a strong lending appetite.

We retain our overweight call for sector and we view that the main beneficiaries from the new regulation are those banks with strong deposit franchises. This bodes well with our top picks such as BBNI, BBRI, BMRI and BBCA.