Bank Jabar Banten: Interim results review - expect changes in next few quarters (Tjandra) - BNP Paribas

* Bank BJB (BJBR IJ) reported net profit of IDR544b (flat y-y) in 1H11 (IDR284b net profit in 2Q11, +9% q-q). The results were in line with the consensus expectation. We do not see on the bank's operation which saw margin erosion compared to the same period last year, rising cost to income and rising problem loans.

* While net interest income increased 15% y-y to IDR1,465b in 1H11, NIM contracted to 6.8% from 8.2% in 1H10 due mainly to rising NPL to 2.4%, declining composition of CASA to 40% in June 2011 (44% in June 2010). The 24% loan growth was coming from micro loans (+54% y-y, currently 11% of total loans), commercial loans (+29% y-y, 17% of total loans) while consumer loan growth was only 17% y-y (72% of total loans).

* There is no major surprise on non-interest income while opex increased significantly due to the network expansion they are undergoing. As a provincial bank, BJBR is expanding their business to other provinces in major cities both in Java-Bali and outside.

* Despite rising NPL on y-y basis, this remained flat q-q at 2.4% with commercial segment contributed the most at 10.8% NPL level, mortgage at 7.4%, micro at 3.6%, and consumer loans at 0.1%. Coverage ratio was still more than 100%.

* There has been some changes in the management with the new president director and another director came on board. Their background is from Bank BNI and Bank Mandiri which is expected to make some positive changes to the bank. They will focus more on micro segment with higher return and they are not confident to increase exposure to consumer loans, which have been dominated by larger national banks. They also talked about international banking business with medium term focus to become a national bank by 2015. In order to keep the NPL low, centralised loan processing approval units will be in place. These changes will make BJBR a better bank however, implementation is the key and we may expect the new management to do the asset clean up first before implementing such changes. Thus one can expect some surprises like what has happened in other banks (BNII, BBNI, BMRI) when they did the restructuring.