NPLs will stay at 3.7% this year.
According to Maybank Kim Eng, Bank Mandiri's (BMRI’s) loan quality is the weakest amongst the big banks, but its credit cost should continue to decline as we believe NPLs peaked at 4% in 1Q17.
Credit costs have been a major drag on ROE. Whilst it still needs to build up coverage to be on par with peers, decelerating provisions should be sufficient to raise profits by 23% YoY in 2018E.
Here's more from Maybank Kim Eng:
We expect NPLs to stay at 3.7% by YE17 before falling to 3.4% next year and 3.1% In FY19E.
NPL coverage remains low compared to peers and BMRI’s historical average, indicating high provisions might linger to cover for NPLs and potential write-offs.
The bank is likely to build higher NPL coverage slowly to reduce earnings pressure.
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