Bank Mandiri needs higher NPL buffer
Bank Mandiri's FY15 net profit of IDR20.3t (+2.3 percent YoY) meets Maybank Kim Eng's previous forecast of IDR19.8t.
Asset quality improved after aggressive loan restructuring in 2Q-3Q15. But risks of higher NPLs remain. The government is also calling for lower lending rates to speed up Indonesia's economic recovery.
Loans grew 12.2 percent YoY, with corporate lending now at 33 percent of its portfolio. Combined with rising CASA on the back of its wholesale deposits and recovery in a single account, NIM inched up to 5.9 percent from 5.6 percent in 3Q15. Aggressive restructuring in 2Q-3Q15 brought down NPLs to 2.6 percent by end- 2015 from its 2.8 percent peak at end-3Q15. This was followed by rising coverage to 145 percent from 136 percent as BMRI maintains conservative provisioning.
We think the higher NPL buffer is necessary as BMRI still faces asset quality risks, especially in its commercial segment. NPLs here rose despite strong 12 percent YoY growth and huge write-offs in 2015. Hence, we maintain our 3 percent NPL assumption for end-2016, at the upper end of management's forecast range. Our 4 percent YoY EPS-growth forecast is unchanged.