The big Indonesian banks that are listed on the Indonesia Stock Exchange (IDX) have seen their shares surge so far in 2017. Moreover, their share performance is expected to retain this momentum in the second half of 2017. Among the big banks Bank Danamon Indonesia is leading the race. Its shares have surged 34.77 percent so far this year, followed by Bank Rakyat Indonesia (+27.62 percent), Bank Negara Indonesia (+26.70 percent), Bank Mandiri (+16.85 percent), and Bank Central Asia (+18.39 percent).
Among the sectoral indices on the Indonesia Stock Exchange, the finance sector is the best performer so far in 2017, having surged 17.92 percent since the start of the year. Several factors are causing this momentum in Indonesia's banking sector.
Firstly, the non-performing loan (NPL) ratio in the banking sector has remained stable since the start of the year. Indonesia's gross NPL ratio stood at 3.07 percent in the January-April 2017 period. Although this figure is higher than the 2.93 percent one year ago, there exists optimism that accelerating economic growth, generally higher commodity prices, and banks being more selective in terms of new credit disbursement improves the quality of assets in Indonesia's banking sector.
Secondly, credit growth seems to rise in Indonesia, albeit banks remain careful when selecting new corporate or individual clients. For example, consumer credit in Indonesia rose 13.41 percent (y/y) in the January-May 2017 period to IDR 1,285 trillion. Between 2013 and 2016 consumer credit growth had been on a declining trend.
Thirdly, the central bank of Indonesia is committed to keep its benchmark interest rate low, hence encouraging companies and individuals to seek credit to finance spending and investment (as they can enjoy cheaper borrowing costs), while saving becomes less attractive as it brings smaller returns when interest rates are low. However, Bank Indonesia seems unwilling to lower its key rate below 4.75 percent. In fact, considering looming further monetary tightening in the USA, there are serious chances that Bank Indonesia will hike its key rate later this year by 0.25 or 0.50 percent.
Fourthly, Indonesia's recent ratings upgrade by Standard & Poor's (into investment grade) makes it easier for Indonesian banks to seek loans from abroad as the cost of fund becomes lower.
Stock Quote Bank Danamon Indonesia - BDMN:
Stock Quote Bank Negara Indonesia - BBNI:
Stock Quote Bank Central Asia - BBCA:
Stock Quote Bank Rakyat Indonesia -BBRI:
Comparison Share Performance Four Aforementioned Banks:
BDMN = Bank Danamon Indonesia
BBNI = Bank Negara Indonesia (BNI)
BBCA = Bank Central Asia (BCA)
BBRI = Bank Rakyat Indonesia (BRI)
* normalized stocks, 1 January 2017 = 100