Here's what kept Bank Central Asia's asset quality from deteriorating

It has strong risk management.

Maybank Kim Eng's recent conference with management leaves us assured that its cautious deposit raising, flexibility in adjusting lending rates and strong risk management will lead to stock outperformance.

Here's more from Maybank Kim Eng:

BCA surprised the market by lifting its 1-month time deposit (TD) rate by another 75bp to 5.75% this month on top of the 150bp increase to 5% in May 2013. As major rival to other banks, BCA’s attempt to recoup market share has increased market competition for deposit taking.

BCA’s initial target was to raise IDR10t. However, within two months it had added IDR3-4t new TDs and overtook its competitors to secure credit funding as the sector’s LDR was rising to 91%.

We estimate that BCA’s CoF increased by 30bp from 1Q13 position of 1.8%. BCA has one of the lowest base lending rates among the big players and can therefore pass on cost increases to its creditors.

Hence, the 50bp increase in lending rates was expected. BCA’s ability to pass on increases in funding costs should result in less NIM pressure on the bank.

BCA’s strong risk management has protected it from asset quality deterioration. Its 20% loan growth will be focused on existing customers with proven track records and strong repayment capabilities.

We also take comfort in the bank’s ample buffer against a spike in provision for NPL, which currently stands at 0.4% with over 400% coverage.