Corporate Round-up / August 2018

Positioning for Better Growth

PT Bank Central Asia Tbk, a lender controlled by the Djarum Group, concluded a Rp 500 billion ($43.5 million) bond offering on July 2.

This fundraising from the debt market is important for the bank because the Financial Services Authority (OJK) requires lenders with systemic risks as large as BCA's to strengthen their equity and boost lending in Indonesia.

The debt paper issuance is part of the bank's larger plan to raise Rp 1 trillion over several years, with the proceeds used to fund its lending business.

As the largest privately owned lender in Indonesia with Rp 759.85 trillion in assets as of end of March this year, BCA indeed plays an important role in the country's financial sector.

The lender services close to 17.5 million customer accounts daily through 1,236 branches, 17,624 automated teller machines and nearly half a million electronic data capture machines, as well as online transactions.

The lender is in a sound financial position with a capital adequacy ratio of 23.6 percent as of the end of March – way above the 8 percent minimum requirement set by the central bank.

"It is already overcapitalized; there is actually no need to issue sub-debt again because it is costly," BCA president director Jahja Setiaatmadja said on July 9, as quoted by Investor Daily.

However, since the financial regulator requires a systemic lender such as BCA to strengthen its capital base to comply with the global banking regulatory framework under the Basel III accord, the lender will use the proceeds from the debt paper sale for business expansion.

The lender's chief was further quoted by GlobeAsia's sister publication as saying that BCA is currently finalizing its plan to acquire some smaller lenders and that it has already identified the banks targeted for takeovers. Other than this, the lender has budgeted Rp 4.5 trillion this year to boost its subsidiaries' capital.

"[The use of the bond proceeds] will be flexible. Depending on what we need, if used for an acquisition, we will not add [capital] to subsidiaries. As far as we know, subsidiaries don't need more injections, so we may allocate it there [for acquisitions]," he said.

Strong Q1 Balance Sheet

Already a banking stock favored by analysts, BCA maintained a solid performance in its first-quarter 2018 financial results. The bank's balance sheet showed strong growth, with net profit at Rp 5,508 trillion, representing a 10.4 percent increase from the corresponding period last year.

The bank's loan portfolio increased 15 percent year-on-year to Rp 470 trillion, while current accounts and savings accounts grew 11.3 percent to Rp 451 trillion. Corporate loans, commercial and small-medium enterprise loans, and consumer loans also grew at a healthy pace.

BCA booked a healthy nonperforming loan ratio of 1.5 percent, within the lender's risk-appetite limit, while the ratio of total allowance to NPL (loan-loss coverage) stood at 183.6 percent to provide a cushion against bad loans.

Jahja said in April that the lender is optimistic about its business in Indonesia and will continue to make use of available opportunities through prudent lending and preeminence in transaction banking.

He also noted that the lender will consistently adapt to information technology developments amid changing customer behavior. The lender, known as a transactional bank, has been relying on customer loyalty to support its third-party funding base.

In an equity research report in April, Panin Sekuritas, the brokerage arm of listed lender PT Bank Panin Tbk, maintained a "buy" recommendation for investors at a target price of Rp 25,000. BCA's shares, trading under the BBCA ticker symbol, closed at Rp 23,525 apiece on July 24, having risen 7 percent so far this year.

"Nice Loan Growth, Manageable Risk" was the headline of Panin Sekuritas's equity research report on BCA. The brokerage said it was upbeat about BCA stock's outlook, thanks to its fine asset quality, cost of funding lower than the industry average and strong liquidity, as well as strong client exposure in the commercial and consumer segments.

It said there will be many positive spillovers from the country's general development, including its hosting of this year's Asian Games, as well as next year's general and presidential elections. "BCA is our top pick in the banking sector, where the premium valuation justifies the company's strong performance, supported by the best asset quality in the banking sector."