Banking Loans grew 22% y-o-y in 2010 - DBS Vickers

Bank Indonesia (BI) has released the Dec 2010 banking stats.

2010 loan growth came in at 22%, which was spot on with our target. Loan growth was driven by working capital loans, which grew 25% y-o-y, followed by consumption loans at 23%. Investment loans (corporate loans) grew by 17% as we understand that corporates largely raised funds from the corporate debt market, which made it challenging for banks to book bigger ticket loans. Property loans grew by 13% and we believe the top players for mortgage loans are still BBCA, BMRI and CIMB Niaga. BBTN remains the key player in the subsidised mortgage market.

Deposits grew 19%, while loan-to-deposit ratio stood at 75% (2009: 73%). We believe the strongest deposit franchise still remains with BBCA while BMRI is catching up very quickly in terms of being the largest transactional bank in Indonesia . Note that BI will implement the loan-to-deposit rule of 78-100% by Mar-11.

NIM increased to 5.74% from 5.56% a year ago. We believe a large portion of the increase arose from lower cost of funds as the top 14 banks were urged to lower time deposit rates to a 7% cap from Nov-09. Average lending rates were lower from a year ago with consumption lending rates declining the fastest by 2%pts (working capital loans declined by 88bps; investment loans declined by 69bps) but the impact to NIM was largely negated by lower cost of funds. There was some distortion in the NIM for banks as they implemented the PSAK 50/55.

NPL ratio eased to 2.5% from 3.3% a year ago while absolute NPLs declined by 5% y-o-y.

Total CAR was a tad lower at 17.2% (2009: 17.4%) as banks included operational risks in the capital ratio calculations. At 17.2%, the Indonesia banks remain well capitalized vs. ASEAN bank peers. Note that CAR ratio for Dec 10 does not include the impact of the rights issue for BBNI and BMRI.

Our top pick for Indonesia banks is BBRI (Buy, TP Rp6,950) for its resilient micro lending business. We recently upgraded BMRI (Buy, TP Rp7,100) and BBCA (Buy, TP Rp7,100) on valuation reasons. In addition, these banks would also benefit in a rising interest rate environment.