INDONESIA BANKS Report: “Will the real competition please stand up?”–Overweight - Credit Suisse

Report- Buy BMRI, BBNI then BBRI, BTPN, Hold BBCA!

Teddy reiterate Overweight Bank Sector as Indonesia Banks remain most profitable globally. At the backdrop of competition for domestic deposits and remained fluid global liquidity, we continue to favour Banks with funding franchise (preferably high low-cost CASA) and low LDR (Figure 5 page 2), followed by Banks with high earnings yield (high NIM) (Figure 22 page 11), therefore we reiterate BUY BMRI, BBNI then BBRI, BTPN, while Hold BBCA due to fair-valuation!

· Teddy Oetomo (Report attached): Where is the real competition? We believe that the real competition in the Indonesian banking system is on the funding rather than the lending market (as shown by Figure 2). That means investors should position themselves on banks that either currently have excess funding or those with an ability to compete for funding to support their future growth.

· Tight and may get tighter. Tight funding means deposit rates are stickier on the way down. We foresee potential for even higher demand for loans if Indonesia moves into a higher investment cycle. In addition, the central bank’s LDR target policy resulted in tighter liquidity rather than promoting loan growth. High loan demand, combined with tight liquidity, will add up to higher competition for deposits in the future.

· Two types of winners. The first category winners out of the high loan demand and tight liquidity conditions are banks with low LDR and high CASA, namely, BMRI, BBNI and BBCA. The second category winners are banks with high lending rates and NIMs, which allow these banks to be more competitive in securing deposits to fund their loan growth. This category includes BBRI and BTPN.

· Initiations. We initiate coverage on Bank Tabungan Pensiun Nasional (BTPN.JK) at OUTPERFORM with a target price of Rp3700/share and Bank Jabar Banten (BJBR.JK) at NEUTRAL with a target price of Rp1320/share.