- Malayan Banking Bhd’s (Maybank) 78.98%-owned Indonesian subsidiary, PT Bank Internasional Indonesia Tbk (BII), recorded a 7% QoQ rise in net earnings in 4QFY13, mainly on account of lower overhead costs. Total net earnings for FY13 rose by 28% YoY, largely due to lower loan loss provision. We estimate net earnings contribution of 6.6% to the group in FY13, unchanged from FY12’s 6.6%.

- Loans growth remained high at 26% YoY in FY13, with strong growth across all segments. Business banking loans (35% of total loans) was the strongest at 30%, while retail loans (35% of total loans) rose by 27% and global banking expanded by 21% YoY. Deposit growth was also strong at 25% YoY, attributed to improved branch productivity. NIM was reported at 5.20% for FY13 – a 53bps YoY drop from 5.20% for FY12. Looking ahead, the company expects to experience further NIM compression, as the company is strategically withholding some of the cost of fund increases from being passed on to certain buckets of loans segments. This is because it foresees some of these loans to remain healthy at the current lending rates but they may not be so at higher rates.

- There were increases in overall gross impaired loans by 45.5% QoQ and 64.0% YoY. This caused the gross impaired loans ratio to rise to 2.85% in 4QFY13 from 2.18% in 3QFY13. The increase came from a few large corporate accounts, with some exposed to the commodity segment, mineral exports ban (unless processed in Indonesia), and structured trade financing arising from cash flow impact of Rupiah depreciation.

- We estimate credit costs at 86bps for 4QFY13 (3QFY13: 117bps). The lower provisioning in 4Q is attributed to upfront over-conservative provisioning in the beginning of the year, which the company has to now reverse following audit directives. On a YoY basis, credit costs is at 90bps in FY13 vs. 155bps in FY12, which we believe is due to the tapering of loan loss provisioning for the two-wheeler auto segment. Loan loss coverage is alluded to be at about 60%, attributed to high collaterals (mostly land and buildings) attached to the impaired loans. The company is hopeful of maintaining asset quality but hinted that there may be some uncertainties ahead. The uncertainties are in the mining and commodity segments, as well as the upcoming election.

- The company is targeting loans growth of 17% for FY14 - above the industry’s estimated 15% to 17% - and ROE (based on Tier 1) of 15%. The company alluded that credit costs may be at ~85bps for FY14. BII remains optimistic in terms of loans growth prospects for consumer financing and business banking. Maintain HOLD on Maybank. 

Source: AmeSecurities