Bank Tabungan Negara Earning adjustment on higher problem loans

Bank Tabungan Negara: Earning adjustment on higher problem loans (BBTN, Rp1,340, Buy, TP: Rp1,700)

We lowered our TP by 19% to Rp1,700 based on 1.5x P/BV 2013 after factoring higher NPL level post the 1Q13 results that resulted in a13.8% cut in our 2013 earnings forecast. For every 0.5% increase in NPL from the base case of 3.0% in 2013, net earnings will be cut by a further 10.2%.

NPL level remains stubbornly high. BTN saw its NPL level increasing to 4.8% in March 2013 from 4.1% in December 2012 and 3.2% in March 2012. This is the highest NPL since mid-2007 when it was 4.84%. Loan-loss coverage ratio has been on the decline as well, currently at 25% compared with 41% a year ago. However, given the rising value of collaterals there is little concern over such low coverage ratio here.

Most of the rising NPL in subsidized housing loans. Part of the reason for the rising NPL is the subsidized housing loans, which make up 30.5% of total loans in March 2013, in particular the interest only balloon payment loans (IOBP), amounting to Rp6t (7% of total loans) with the NPL level of 8%, according to the management.  The loans were made in 2008-2010 through a government program to help people to own a house by paying interest only for three years, after which they have to start pay.

Management’s NPL target is below 3%. During the last analyst meeting the management indicated its target to bring NPL level to below 3% by the year-end and hence we use this guideline instead of our earlier expectation of 2.5%.  The 3% level is higher than the 2.1% expected during the FY12 result analyst meeting which makes us doubtful if they can achieve the target.

Earnings cut with lower TP of Rp1,700. Based on our new forecast, which is 13.8% lower than the previous expectation for 2013, we calculate that for every 50-bp additional NPL, assuming the same coverage ratio of 38%, we have to cut net earnings by 10.2%. The new TP is based on 1.5x P/BV 2013F using the GGM model with ROE of 15.2%, COE of 12.5% and growth rate of 7.25%.

for Indonesia Market Summaries 16 May 2013

Bank Tabungan Negara in first quarter of 2013 results is below expectations

Bank Tabungan Negara - 1Q13 results below expectations (Rp1,690; Buy; TP Rp2,100)

The Rp334bn net profit, +7% YoY, account for 20% of consensus and 19% of our full year earnings. This is mainly due to rising provisioning charges and operating expenses.

NIM declined to 5.0% in 1Q13 from 5.1% in 1Q12 but showed improvement from the 4.9% recorded in 4Q12. The support came from 29% Y-Y loan growth. Housing loans increased 27% Y-Y while no-housing loans were up 42% Y-Y. Of the housing loans, the non-subsidized loans increased 51% Y-Y and the subsidized loans a mere 3% Y-Y. Of the non-housing loans, consumer lending reported a 56% Y-Y increase while commercial loans +39% Y-Y.   

NPL was still high at 4.77% in March 2013 with housing loans NPL at 4.6% (3.1% in Mar 12 and 3.9% in Dec 12) and non-housing NPL at 5.8% (4.1% in Mar 12 and 5.1% and 3.9% in Dec 12). To Indonesia Market Summaries, the management indicated that February 2013 saw the peak of the NPL and this has started to improve in Mar with the expectation to continue improving going forward through a more efforts in visiting the customers for loan payment. The problem is concentrated in the interest only balloon payment (IOBP) subsidized housing loans, current outstanding Rp6tr (23% of total subsidized housing loans, 7% of total loans), which were given in 2008-10 for which the customers only had to pay the interest in the first few years and thereafter had to pay both principal and interest based on market rate (11-12%pa). The NPL in this type of loans reached 8% as compared to the other subsidized housing loans at less than 2%. 

As a result of rising NPL, the bank had to increase their provisioning charges leading to the weak net earnings.

We anticipate further improvement in asset quality given the efforts by the bank and based on the Rp1.8tr net profit the stock is trading at 1.5x P/BV 2013F. Maintain our Buy with TP of Rp2,100 based on 1.9x P/BV 2013F

Bank Tabungan Negara - FY12 results in line with expectations

• BTN reported Rp1,364bn net profit for 2012, which are in line with our and the market expectations. Despite the rising NPL the bank was able to keep operating expenses low leading to the 22% y-y earnings growth and improved ROE.
• The 25% y-y net interest income growth was supported by 28% y-y loan growth (+6% q-q) which came from housing loans (+26% y-y, 86% of total loans) and non-housing loans (+44% y-y, 14% of total loans). Of the housing loans, non-subsidized housing loans posted the hiighest growth rate of 57% y-y while the subsidized housing loans saw a 1% y-y contraction due to slow realisation in the first half of 2012 as well as the inavailability of low cost housing of more than 36sqm, which is now allowed again. This condition was normalised in 4Q12 when the disbursement of subsidized housing loans quadrupled to Rp2.8tr compared to those in 3Q12 and should be sustainable in the future. The average loans for subsidized housing loans is estimated at Rp65m while for the non-subsidized is around Rp200-300m.
• On the liability side, total deposits increased 30% y-y leading to LDR of 101% (103% in 2011) but loan to funding (including bonds) is around 93%% vs. 94% in 2011. Of the total deposits, CASA deposits still account for 42% with the plan to increase it to 50-55% in five years time.
• Asset quality deteriorated with NPL increased to 4.1% in December 2012 from 3.7% in September 2012. This is understandable as the new management team, which was appointed in December wants to clean up the bank in accordance to the prudential banking practice. Most of the NPL  increase was in the subsidized housing loans (31% of total loans) which saw the level rose to 5.0% from 3.6% in September while the NPL level in the non0-subsidized housing loans declined to 2.9% from 3.0% over the same period. It is indicated that the increase was mostly on administrative issues, which are to be corrected within 3-6 months. Due to rising NPL the bank had to set aside more provisioning charges and we estimate they wrote off around Rp155bn in 4Q12, the highest quarterly write off so far.
• Cost to income ratio declined to 61% in 2012 from 63% in 2011 despite the additional 116 outlets, mostly the low-cost cash outlets in the housing area to collect funding (that is why they can achieve 30% growth in deposits). CAR improved thanks to the recent rights issue of Rp1.9tr.
• Going forward, the new management plans to increase total loans by 28% in 2013, mostly on the non-subsidized housing loans; deposit growth of 30%; NPL to decline to 2.1% and increase fee income. NIM is expected to decline due to competition. The earnings consensus for 2013 is around Rp1.7tr and at this level the counter is trading at 1.4x P/BV 2013.