Indonesia's Banking Sector: The Eight Bank Stocks to Watch For

Research Analyst

Ilvin Cornelis

Thematic (Sector/Industry)

Indonesia Banks / Thematic (Sector/Industry)

Jakarta Stock Exchange Composite Index (JCI INDEX)

The Otoritas Jasa Keuangan/OJK (The Financial Services Authority) in Indonesia releases data for the banking sector every month. This initial insight highlights our observation on the banking sector’s key metrics during January 2020 – June 2021, which should capture the developments of the banking sector since the beginning of the economic downturn.
The banking sector has received more deposits from customers during January 2020 – June 2021 (an average of +10% YoY in each month), while loan demand has just recently improved by 0.6% YoY in June 2021, after eight months of consecutive decline on YoY basis. The weak loan growth was mostly driven by the wholesale &amp; retail trade and the manufacturing industries (accounted for 33.2% of loans). Consequently, the LDR ratio has fallen to its lowest levels in June 2021 (at 80.1%), from around 92% in the first quarter of 2020. The last time LDR touched similar low level was ten years ago in 2011.
The NPL ratio has improved to 3.24% in June 2021, after peaking in the previous month at 3.35%. However, this latest figure is still much higher than the NPL ratio during the first quarter of 2020, at around 2.8%. The banking sector has consistently reported larger loan loss reserves in its balance sheet, tilting the loan loss coverage ratio to reach an all-time high of 186% in June 2021, from an around 162% at the beginning of 2020.
Under the current operating environment, the banking sector has placed more of its excess funds with the Central Bank (Bank Indonesia) and increased its holdings in less-risky securities. Moreover, the banking sector has managed to increase its capital base and improved its CAR to around 24% during March – June 2021, from around 22% in the first half of 2020.
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NIM has improved to 4.7% in June 2021, from its lowest levels in March 2020, at 4.3%. The improvement in NIM can be attributed mostly to the widening of net interest rate spread. Given the lower benchmark interest rate (3.5%) and shrinking LDR in the banking sector, the cost of funds has fallen faster than lending rates, causing the spread to widen.
We are positive about the outlook of Indonesia’s banking system given its resilience amid a difficult operating environment. We foresee profitability to improve and loan demand to pick up, as recovery takes place in the wholesale &amp; retail trade industry and the manufacturing industry, going forward.

The Otoritas Jasa Keuangan/OJK (The Financial Services Authority) in Indonesia releases data for the banking sector every month. This initial insight highlights our observation on the banking sector’s key metrics during January 2020 – June 2021, which should capture the developments of the banking sector since the beginning of the economic downturn.
The banking sector has received more deposits from customers during January 2020 – June 2021 (an average of +10% YoY in each month), while loan demand has just recently improved by 0.6% YoY in June 2021, after eight months of consecutive decline on YoY basis. The weak loan growth was mostly driven by the wholesale &amp; retail trade and the manufacturing industries (accounted for 33.2% of loans). Consequently, the LDR ratio has fallen to its lowest levels in June 2021 (at 80.1%), from around 92% in the first quarter of 2020. The last time LDR touched similar low level was ten years ago in 2011.
The NPL ratio has improved to 3.24% in June 2021, after peaking in the previous month at 3.35%. However, this latest figure is still much higher than the NPL ratio during the first quarter of 2020, at around 2.8%. The banking sector has consistently reported larger loan loss reserves in its balance sheet, tilting the loan loss coverage ratio to reach an all-time high of 186% in June 2021, from an around 162% at the beginning of 2020.
Under the current operating environment, the banking sector has placed more of its excess funds with the Central Bank (Bank Indonesia) and increased its holdings in less-risky securities. Moreover, the banking sector has managed to increase its capital base and improved its CAR to around 24% during March – June 2021, from around 22% in the first half of 2020.

NIM has improved to 4.7% in June 2021, from its lowest levels in March 2020, at 4.3%. The improvement in NIM can be attributed mostly to the widening of net interest rate spread. Given the lower benchmark interest rate (3.5%) and shrinking LDR in the banking sector, the cost of funds has fallen faster than lending rates, causing the spread to widen.
We are positive about the outlook of Indonesia’s banking system given its resilience amid a difficult operating environment. We foresee profitability to improve and loan demand to pick up, as recovery takes place in the wholesale &amp; retail trade industry and the manufacturing industry, going forward.

Indonesia’s Banking Sector: Data Shows Improvements (Positive)