BANKING SECTOR OVERWEIGHT. BBCA blitzkrieg with shock mortgage rate cut. Equity Research

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1 Equity Research BANKING SECTOR Sector Updates BCAS Vignette BBCA blitzkrieg with shock mortgage rate cut BBCA goes to war with record-low mortgage rate introduction BBCA seems ready to go to war over high mortgage rates by announcing a record-low promotiol mortgage rate, at a 6.00% fixed-rate for the first 2 years (capped at 6.88% for the next years), in light of its 60 th anniversary on 20 Feb-1. Present mortgage competition is intense, with rates offered at high single-digits (promotiol) to low double-digits (non-promotiol). Yet, our channel check infers none could offer a more attractive deal vs. BBCA for: lower mortgage rate, longer promotiol mortgage tenor, lower floating-rate cap, faster loan turround, and marketing program consistency; Exhibits 2-. Extending market share in higher risk-adjusted return segment The ratiole of BBCA s move is to deploy excess liquidity into higher riskadjusted return segment, in our view. About 1% of idle funds in its earnings asset were placed in secondary reserves (with.1% yield), marketable securities (.%), and gov't bonds (6.%) as of Sep-16. One may argue BBCA s aggressive campaign is a negative-carry to its NIM and thus, its profitability. However, a promotiol mortgage rate at % is higher than average idle funds placement yield. Also, a mortgage loan is a more efficient use of capital (% RWA) with low net credit cost (low-risk debtor s profile and high collateralized asset), implying ROA/ROE stability. In general, we expect BBCA to grow market share domince in the medium to long term. Not all banks created equal; defensive attributes needed to compete As this low-yield business requires defensive attributes i.e. solid funding strength (low CoF and longer funding duration) and good cost control to keep bottom-line stay sound, not every bank would be able to compete in this segment without risking market share. Only a few banks (i.e. BMRI, BBNI) are strong contenders against BBCA. We note BBCA clearly endures as the strongest with low-sector LDR (8.%), low-sector CoF (2.0%), second-low cost-income (2.1%), low-sector credit cost (1.0%) and NPL (Sep-16: 1.%), but sustaining second-high ROE (20.6%) Dec-16 uudited bank-only. What s next to expect? Our recent note (here) relays 201F sector s loan volume to outweigh pricing in a steady and low-rate milieu. We expect loan competition to grow more challenging in search of high-quality clients. Most banks target consumer loan (notably mortgage and payrolls) this year as loan growth driver; we view YoY growth for mortgage at 1% above total loan s 1%. As the real mortgage competition just began, only a few banks (i.e. BBCA, BMRI, BBNI) will be able to defend/grow their mortgage market share. More, 201F sector s NIM fall of 0bp YoY, on lower asset spread, is assumed already. Reiterate OVERWEIGHT. Exhibit 1. Promotiol mortgage loan marketing PRICE PERFORMANCE 6,000 2,000 8,000,000 OVERWEIGHT Source: Bloomberg, BCA Sekuritas MARKET DATA Previous Call: Unchanged February 201 Igor Nyoman Putra igor.putra@bcasekuritas.co.id ext 18 0,000 Jan-16 Apr-16 Jul-16 Oct-16.BCASBANK JCI Rebase as of 2-Feb-1 YTD 1M M 12M Absolute -0.2% -0.2% 1.% 18.1% JCI Return 1.1% 1.1% -1.% 1.8% Relative -1.2% -1.2% 2.% 2.% Source: Bloomberg, BCA Sekuritas Source: Bank Central Asia, CNN Indonesia, BCA Sekuritas

2 Exhibit 2. Promotiol mortgage program (as of 2-Feb-1) Promotiol mortgage program Bank Program Fixed rate Period (year) Floating rate cap Promo period Remarks BBCA I (fix) Min deposits placement I (cap) at x of installment II (fix) Min deposits placement Until 28-Apr-1 II (cap) at 2x of installment III (fix) No deposits minimum III (cap) placement requirement BNGA I.0 12M BI rate + II M BI rate + Jan - 28 Feb '1 BBNI Required mortgage tenor I 8.0 Jan - 1 Mar '1 at least year Current floating rate stands at 1.% BMRI I (fix) Priority and payroll Until 28-Feb-1 I (cap) customers BBRI I II III Feb - 1 Mar '1 IV PNBN I II III.8 1 Feb - 1 Mar '1 IV 8.68 NISP I.99 II 8.2 Source: BCA Sekuritas channel checks Current floating rate stands at 1% Exhibit. Non-promotiol mortgage program (as of 2-Feb-1) Non-promotiol mortgage program Max tenor Turround Bank Program Fixed rate Fixed (year) Floating rate cap (year) (days) Remarks BBCA I II III IV BNGA I II III 8.0 NISP I.99 2 II 8.2 PNBN I (fix).80 1 Current floating I (cap) rate stands at II % BMRI I II BBNI I Current floating 20 1 II.0 2 rate 1.% BBRI I (fix) I (cap) BNLI I BBTN I Loan<IDR200mn 2-1 II Loan>IDR200mn Mandiri I Syariah II III Source: BCA Sekuritas channel checks 2

3 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-1 Jun-1 Sep-1 Dec-1 Mar-1 Jun-1 Sep-1 Dec-1 Mar-1 Jun-1 Sep-1 Dec-1 Mar-16 Jun-16 Sep-16 Exhibit. Mortgage market share and loan mix (Q16; **Q16) Market share 9 8 BBTN* BBCA BBNI** BMRI BNGA BBRI** BJBR Source: Companies data, BCA Sekuritas * Unsubsidized mortgage; ** Q16 Loan mix 1 1 BBTN s mortgage business is a given from the govt and has the lowest targeted market segment among others; BBCA retains its mortgage market share domince Exhibit. Mortgage NPL vs. total NPL (Q16; **Q16) Mortgage NPL Bank NPL BBCA sustains its high-quality franchise with both NPLs the lowest among others BBCA BNGA BBTN* BBNI** BJBR BMRI BBRI** Source: Companies data, BCA Sekuritas * Unsubsidized mortgage; ** Q Exhibit 6. BBCA earnings asset yield movement Secondary reserves Marketable securities 11 Loans Government bonds Aggressive campaign is not a negative-carry since promotiol mortgage rate are mostly higher than these idle funds (ex. loan) yield that are sitting in earnings asset Fixed-rate mortgage should bode well for loan yield given declining interest rate outlook structurally Source: Bank Central Asia, BCA Sekuritas

4 Exhibit. Promotiol mortgage loan marketing by BBCA Source: Bank Central Asia, BCA Sekuritas Exhibit 8. Summarized Indonesia banks promotiol mortgage rate Source: CNN Indonesia, BCA Sekuritas

5 Teguh Hartanto Director of Equity, ext: 129 RESEARCH DIVISION Darmawan Halim Arga Samudro Igor Nyoman Putra Head of Research, ext: 168 FI Alyst, ext: 181 Equity Alyst, ext: 18 Strategy, Automotive, Heavy Equipment FI Strategies & Macroeconomist Banking, Industrial Estate Jennifer Frederika Yapply Aditya Eka Prakasa Johanes Prasetia Equity Alyst, ext: 19 Equity Alyst, ext: 182 Equity Alyst, ext: 18 Cigarettes, Consumer, Health Care Telco, Coal, Metal Mining Retail, Poultry Michael Ramba Nyoman Widita Prabawa Achmad Yaki Yamani Equity Alyst, ext: 18 Equity Alyst, ext: 180 Technical Alyst, ext: 186 Construction, Property Residential Cement, Plantation, Oil & Gas Technical Alyst Yuni Pratiwi Research Assistant, ext: 18 EQUITY CAPITAL MARKET DIVISION Ermawati Agusti Erman Head of Institutiol Sales, ext: 19 Haslienda Santoso Jodikin Arief Iskandar Equity Capital Market, ext: 1 Sales Trader, ext: 16 Institutiol Dealer, ext: 16 haslienda.rifman@bcasekuritas.co.id santoso@bcasekuritas.co.id arief.iskandar@bcasekuritas.co.id DISCLAIMER By receiving this research report ("Report"), you confirm that: (i) you have previously requested PT BCA Sekuritas to deliver this Report to you and you are legally entitled to receive the Report in accordance with Indonesian prevailing laws and regulations, and (ii) you have fully read, understood and agreed to be bound by and comply with the terms of this Report as set out below. 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