Recovery of loan demand in the second half of 2017 will be a positive sentiment for banking stocks. This condition is supported by a consistent increase in commodity prices that make industry players able to settle NPL and expand business. Accelerating infrastructure development also provides opportunities for banks to finance the sector.
Henry Wibowo, Acting Head of Research and Strategy at Bahana Sekuritas, said that banking credit in 2017 is expected to grow by nine to ten percent as demand for consumer and corporate loans will increase. At the end of July 2017, credit grew by 8.2 percent over the same period last year, which is slightly higher than in June 2017 of 7.7 percent. The non-performing loan (NPL) ratio also improved from 3.18 percent as of June 2017 to three percent in July 2017.
“Along with the increasing demand for credit and decline in NPLs, the cost of provisioning or banking provision is smaller so that the banking industry’s net profit will improve by the end of this year,” said Henry. Credit demand in 2018 is estimated to be higher than in 2017, as the corporation is anticipating campaigns for the General Election.
Based on data from the Financial Services Authority (FSA), consumption credit per July 2017 grew by ten percent yoy with 28 percent of total credit. Working capital credit grew by 8.1 percent yoy to 47 percent of total loans. Meanwhile, investment loan only rose by 6.4 percent yoy to 25 percent.
Henry said that earnings per share (EPS) of banking stocks in the next 12 months will grow by 16 percent, higher than the overall market growth of 12 to 14 percent. Bahana recommended BUY for Bank Mandiri Tbk (BMRI) with target of IDR 8.125 per share and Bank Rakyat Indonesia Tbk (BBRI) with target of IDR 17,000 per share. For medium-scale banks, Bahana recommended BUY for Bank CIMB Niaga Tbk (BNGA) and Bank Pan Indonesia Tbk (PNBN) with target price of IDR 1,600 and IDR 1,400 respectively. (*)