Earnings were boosted by higher interest income and lower interest expense.
Bank Central Asia started the year on a strong note after profits rose 8% YoY to $791.09m (Rp11.4t) in the first half of the year, according to UOB Kay Hian, on the back of higher interest income and lower interest expense.
Interest expense fell 12% YoY whilst strong lending in the past six months boosted interest income, pushing pre-provision operating profit up by 5% YoY and 14% QoQ.
Loans rose 14% YoY in H1 2018 led by corporate lending (19%), commercial loans (15%), and consumer loans (6%). Such strong lending, however, is not set to weigh in on the bank’s asset quality due to a number of reasons.
“First, its NPL ratio is one of the lowest in the industry. The bank rarely had aggressive write-offs. Its collateral value to loan requirement is among the highest in the industry. BBCA has among the highest asset-quality customers from the corporate to consumer segments in the market,” said analyst Alexander Margaronis.
Here’s more from UOB Kay Hian:
Asset quality remained solid with NPL ratio coming down 10bp to 1.4% qoq in 2Q18. NPL formation in the corporate sector improved with NPL falling 40bp to 1% in 2Q18. BBCA recorded Rp638b in provisions (-7% yoy) but this is Rp450b higher than in 1Q18 as NPL in the consumer segment rose 20bp to 1.4% and higher special mention loans ratio grew qoq. NPL balance stood at Rp7.1t as at endJun 18, or down Rp150b (-2%) qoq.
NIM dropped 10bp to 6% in 2Q18, mostly due to earnings asset yield declining 3bp qoq. The impact was moderately offset by slightly lower cost of funds by 2bp at 1.73%. Going forward, BBCA’s cost of funds could start rising as time deposits rates rise but this will be offset by higher lending rates.
Year-to-date, the bank has outperformed the JCI index by 6% vs -18%, -16% and -23% for BMRI, BBRI and BBNI respectively. The question now is whether BBCA can sustain such price and operating performances. Considering the NIM and ROE pressures as well as tighter competition, we think the bank is fairly priced at the moment and we see limited upside compared with peers.
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