- Malayan Banking Bhd’s (Maybank) 78.98%-owned Indonesian subsidiary, PT Bank Internasional Indonesia Tbk’s (BII) reported another 48.1% QoQ drop in quarterly net earnings to Rp132.6bil, almost half of its 1QFY15’s Rp255.6bil (1QFY15: -28.4% QoQ), again due mainly to higher loan loss provisioning. Thus, BII’s contribution to total group earnings is now estimated to have dropped to 2.7% in 2QFY15, from 4.4% ofearnings in 1QFY15 (4QFY14: 5.2%), based on our forecasts.

- Loans picked up with a 9.8% QoQ growth in 2QFY15, which helped to counter the QoQ contraction of 6.9% seen in 1QFY15, thus taking the half year growth to 2.2%. The company said business banking and retail banking continued to be the main growth drivers as global banking strengthened its focus on re-profiling the bank's corporate portfolio, and realigning business with redefined risk appetite toward higher credit quality corporate to improve asset quality.

- Deposit growth was 2.0% QoQ in 2QFY15, similar to 1QFY15’s 2.1% QoQ. This led to a significantly higher LDR of 104.4% in 1QFY15, if compared to 97.4% in 1QFY15.

- The company reported a net interest margin (NIM) of 4.73% in 1HFY15, thus implying a QoQ softening in NIM to 4.61% in 2QFY15, from 4.85% in 1QFY15. We believe this is likely due to higher deposit costs.

- Gross NPL ratio continued the upward trend to 3.48% in 2QFY15, from 2.80% in 1QFY15 (4QFY14: 2.23%), which the company indicated is due to challenging business environment and weakened domestic economy. We estimate that gross NPL has risen by 24.3% on a QoQ basis.

- Loan loss provisioning also consequently increased by 22.9% QoQ to Rp526bil in 2QFY15, from Rp428bil in 1QFY15, leading to a much higher credit costs of 198bps in 2QFY15 from an already elevated level of 162bps in 1QFY15. The company said it remains cautious over loan quality as businesses, especially its corporate portfolio in Global Banking, are still impacted by the current economic slowdown, and weakening of the Rupiah.The company further added that as a precaution given the current economic conditions and to ensure prudent banking practices, the bank booked higher provisions expenses of Rp952bil in 1HFY15 compared to Rp703bil in 1HFY14.

- We think that, based on latest results, there are no signs yet of a turnaround for BII. We maintain HOLD on Maybank.

Source: AmeSecurities Research - 3 Aug 2015