PT bank negara - revised use this one pl - CLSA

BNI management presented to a full crowd. The story was very well-received.

This bank has many things going for it to be a great turnaround story. It has a CAR of 16% the highest in the industry. Its cost of funds is 2nd lowest after BCA. The brand recognition is high because it has been around since 1946. It is already the 4th largest bank in indonesia so there is scale. What the bank needs is a good management team who knows how to capitalize on these advantages. This is not a non-name, high cost tiny bank that is trying to make a breakthrough. The probability of success - with good leadership - is high.

The present core management team joined the bank in 2008. Since then they have halved the npl ratio, reduced cost/income ratio by more than 10%, and tripled the ROA. The trend is in the right direction and there is still room for improvement.

New management has impressive CVs. For eg the CEO was the former MD at Bank Danamon, the CFO was from Bank Mandiri, etc. They know how to run a bank. For eg they have removed the ability of area heads in provinces to aprove loans. They have consolidated back-office staff in a given city into one office leaving just the frontline staff at the branch. They are proactively attracting customers rather than wait for customers to come to them.

Management said that in 2011 their loan growth target is 15-18% vs industry's 23%. The reason is they want to build the infrastructure for a solid credit risk management system first - they want to get their money back! It is too easy to just give out loans and they do not want to repeat the mistake of their predecessors. The time to reap the rewards is in 2012, where they expect they can exceed industry growth and gain market share.

The stock is trading on PE 11x FY10 which is very attractive for a well-managed bank with plenty of low hanging fruit that could make an impact on the bottomline + potential to surprise on the upside. This is one of our top picks in Indonesia.