- Malayan Banking Bhd’s (Maybank) 78.98%-owned Indonesian subsidiary, PT Bank Internasional Indonesia Tbk’s (BII) net earnings declined 86.8% QoQ in 3QFY14, mainly due to heightened loan loss provisioning costs. We estimate that BII contributed 0.3% to total group net earnings in 3QFY14 (2QFY14: 2.4%).

- We estimate loans growth to be softer at -1.2% QoQ in 3Q. This is likely due to a shift in its strategy, as the company said it has decided to re-profile its loan portfolio especially in the Global Banking segment, to ensure that the distribution of risks is in line with its risk appetite. Its focus on client re-segmentation, which has been implemented early this year, included greater focus on the top tier local corporations and state-owned enterprises. BII said Global Banking client re-segmentation showed encouraging results and is expected to be the driver for the bank’s cash management and annuity fee business.

- Deposit also contracted by 2.2% QoQ. We estimate higher LDR of 103.3% in 3QFY14 (2QFY14: 102.2%). BII said the company will continue to diversify its funding profile and focus on more stable funding by prioritising low cost CASA growth and leveraging the latest call from OJK to cap rate of time deposits.

- The company said net interest margin (NIM) continued to be affected by the tight liquidity situation experienced by the banking industry, leading to increased cost of funds. We estimate cost of time deposits to have increased by 50bps-80bps for the average 9MFY14, compared to average 6MFY14. NIM was reported at 4.63% for the 9MFY14 period. We estimate NIM to have declined to 4.39% in 3QFY14, from an estimated 5.47% in 2QFY14.

- Gross NPL ratio has stabilised to 2.55% in 3QFY14, if compared to 2.68% in 2QFY14. Gross impaired loans balance is estimated to have declined by 6.0% QoQ, following a large increase of 36.7% QoQ in the previous 2Q. However, loan loss provision almost doubled to Rp761bil in 3QFY14 from Rp367bil in 2QFY14, leading to a jump in credit costs to an estimated 283bps in 3QFY14 from 139bps in 2QFY14.

- The company said impact from the restructuring of the bank’s Structured Trade and Commodity Finance (STCF) portfolio combined with business downturn experienced by customers due to the current market condition have been the main reasons for the increase in the bank’s provisions. BII’s 3Q results indicate it is still undergoing a consolidation phase. We maintain HOLD on Maybank.

Source: AmeSecurities