- Malayan Banking Bhd’s (Maybank) 78.98%-owned Indonesian subsidiary, PT Bank Maybank Indonesia Tbk (BII) (formerly PT Bank Internasional Indonesia Tbk) registered a rebound in quarterly net earnings of 54.0% QoQ to Rp204.1bil in 3QFY15, but this is on the back of a low base in net earnings of Rp132.6bil in 2QFY15 (-48.1% QoQ). The improvement was on the back of better revenue. This translates into net earnings contribution of 3.5% to group net earnings in 3QFY15 (2QFY15: 2.3%), based on our estimates.

- BII recorded an annualised loans growth of 9.9% QoQ in 3QFY15, higher than the annualised rate of 9.1% in 2QFY14 based on our estimates. Annualised deposit growth was 10.7% in 3QFY15 vs. 9.1% in 2QFY15. This means stable loan-to-deposit ratio (LDR) of 103.9% in 3QFY15, against 104.4% in 1QFY15.

- The company said net interest margin (NIM) improved to 4.82% in the 9MFY15, from 4.63% in 9MFY14. This indicates a net interest margin (NIM) of 5.00% in 3QFY15, which is significantly better than the 4.61% NIM rate in 2QFY15. The company said the better NIM was achieved through the bank’s discipline in loan pricing and active funding management.

- Gross non-performing loan (NPL) ratio however continued to rise to 4.34% in 3QFY15, from 3.48% in 2QFY15. We estimate that gross NPL has risen by 36.5% on a QoQ basis in 3QFY15, with the pace of increase accelerating from 2QFY15’s 28.1% QoQ increase. The company said it remains cautious over loan quality as businesses are still impacted by the current economic slowdown, and weakening of the Rupiah. The company said it continued managing down exposures from certain corporate accounts that had led to increase in NPL level. It further said that it has actively carried out restructuring of those accounts and expect to see improvements in the coming months.

- Loan loss provisioning was raised by 15.0% QoQ to Rp604.8bil in 3QFY15, from Rp526bil in 2QFY15, leading to credit costs of 215bps in 3QFY15, from 198bps in 2QFY15. Despite this, we estimate that loan loss cover slipped marginally to 42.3% in 3QFY15, from 44.5% in 2QFY15, due to a larger rise in the NPL base.

- While NIM is positive, we think that, based on latest results, there are no signs yet of a turnaround for BII’s asset quality trend yet. We maintain HOLD on Maybank.

Source: AmeSecurities Research - 2 Nov 2015