Indonesian Lenders Stand Out on Capital, Lag Behind on Liquidity, Risk Profile


JANUARY 08, 2015

Jakarta. Indonesian lenders stand out among their regional rivals as having some of the highest levels of capital, but lag behind on liquidity, risk profile and business diversification, a recent Morgan Stanley report shows.

The US equity brokerage giant released a score card comparing five Southeast Asian countries: Indonesia, Singapore, Malaysia, the Philippines and Thailand.

In the report dated Monday, it said Indonesian banks led in capital health, earnings per share growth and valuation.

Morgan Stanley said Indonesian banks also stood out as having some of the highest levels of capital, followed by the banks in Thailand, the Philippines and Singapore.

“Capital is increasingly an issue for Asean banks. Whilst slower loan growth and continued strong returns should result in more cash being available for investors, regulators, globally, are asking banks to set aside more capital,” the report said.

“Asean’s small, relatively open banking systems cannot buck this trend,” it added.

Morgan Stanley Asia analysts Nick Lord, Mulya Chandra, Edward Goh and Daniel R. Ng contributed to the report.

Morgan Stanley said Indonesia’s top lenders, including Bank Mandiri, Bank Central Asia and Bank Rakyat Indonesia, had high level of capitals far beyond the required level as set by regulators.

One a scale of one to five, the brokerage gave Indonesian banks a score of one for capital health.

A score of one is considered the best by Morgan Stanley, while five is the least favored performance.

Singapore scored a four, Malaysia five and the Philippines three in the score for capital health.

However, in terms of liquidity and business, which measures diversification of lenders’ business — primarily loans — Morgan Stanley gave a score of four to Indonesian lenders. The highest score went to the Philippines, followed by Malaysia and Singapore.

Meanwhile, for the business mix criteria, Singapore led, followed by Thailand and the Philippines.

“Our overall outlook for Asean banks for 2015 remains subdued. In our view, the strong earnings growth we experienced from 2010-2013 is unlikely to be repeated as loan growth is expected to be more measured. This is partly because banks continue to face liquidity constraints, and we are unlikely to see this improve in a strong dollar environment,” Morgan Stanley said.

Specifically for Indonesia, loan growth is forecast to slightly accelerate this year, growing by 15.4 percent this year compared to the 14.1 percent forecast for last year, according to Morgan Stanley.

“Although this is still well below the 17.1 percent to 21 percent growth rates experienced from 2012 to 2013, it is the second-highest level of growth within Asean after the Philippines,” Morgan Stanley said.