Bahana Securities downgraded lender Bank Danamon to “reduce” from “hold”, citing earnings pressure due to lower margins and additional provisioning and delay in an acquisition deal.
“Going forward, we believe that margin pressure will persist on the back of higher blended cost of funds and intensifying competition in mass market loans,” analyst Teguh Hartanto said in a note on Friday.
The research house also said the delay in an acquisition deal due to pending approval from the central bank has resulted in uncertainties in the outlook on Danamon.
Last month, DBS Group Holdings said it could review its planned acquisition of a stake in Danamon if the Singapore lender was allowed to buy only a 40 percent share.
“Unfortunately, this has become a controversy issue as BI recently revamped regulation on acquisition, limiting ownership of financial institutions in a bank up to 40 percent, implying share acquisitions of more than 40 percent must be transacted through several stages, subject to BI’s reviews on healthiness and GCG rating,” Hartanto said.
Bahana also slashed its target price on Danamon’s shares to Rp 4,500 from Rp 5,800 and said the company’s weak second-quarter earnings prompted the research house to lower its mass-market loan growth estimates for 2013 and 2014 by 13 and 17 percent, respectively.
The lender’s shares dropped 1.75 percent to Rp 5,600. The broader index was up 0.37 percent.