BCA and Bank Rakyat on the move, banking regulation - CLSA

Despite early comments from Bernanke speaking on the hill that the Fed would take action if needed (watch out for QE3, gold price rallied to record high), worries over Congress failing to raise the debt ceiling brought out sellers into the close last night.

And big day for banks in the US today; JP Morgan will report before the open. Market is talking about Dimon's commentary. He will likely rail against the politicians/regulators and talk about just how tough the bank business is in this environment. His outlook will be depressing.

In contrast to this, Indonesian banks clearly stand out. As discussed in our Extreme banking report recently (let me know if you would like to receive a copy), Indonesian banks hold fairly unique positions.

The story in the banking sector here is about expansion. Limited credit penetration, low leverage ratios, and high internally generated capital will support strong expansion.

Indonesia’s GDP-per-capita growth and ROA combined is greater than the rest of the region. With limited overlap of banks’ specialization, extreme ROAs can persist. We remain Overweight on Indonesian banks.

Domestically, it is worth pointing out that it is also interesting to note that Indonesian banks are getting more and more creative. For example:

1. Bank Rakyat (BBRI IJ) sets up a booth in our office complex’s courtyard in promotion of their gold investment (paid in installment up to 180 months with 15% down payment) and pawning products (under their Syariah Islamic unit). Free music is added to the mix and the booth certainly attracted crowd.

We also found out that BBRI recently launched a competitive mortgage product recently, with competitively low interest rates. For customers who are willing to take a mortgage with a relatively short tenure (5-years), the rate will be as low as 7.25% p.a. capped for five years, with a down payment of 20%.

2. BCA (BBCA IJ) has signed a deal that makes it the preferred bank of Nahdlatul Ulama in a move expected to boost its lending business with the country’s largest Islamic organization (70mn members nationwide). Smart move because BBCA does not have meaningful presence in rural areas, stronghold of Nahdlatul Ulama. This will potentially allow BBCA to build rural franchise without having to rely too much on physical presence.

On a separate note, as highlighted by Dewi from CLSA Jakarta research team, BBCA is also going to launch special mortgage program just before Hari Raya holiday. Interest rate could be as low as 7.5% for 1-2 years tenor. Definitely very competitive and highlight BBCA's new management aggressiveness