full report - bbtn

8/19/2019 Full Report - Bbtn

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PT MINNA PADI INVESTAMA

Member of Indonesia Stock Exchange

FULL REPORT

PT Bank Tabungan Negara (Persero), Tbk.

Mortgage Champion

11 March 2016

HIGHLIGHTS

It’s All about Collection. BTN has increasing

loan quality due to their effort to control the

assets. BTN managed to reduce to 2.11% Net

NPL in 2015 by start selling non-performing

assets before the collectability categorized as

loss

Interesting Interest Rate. As the portfolio

of BTN mostly are on mortgage loan, we

expect that lower interest rate will give the

Bank more mortgage loan. BTN has around

5% net interest margin and still have room to

cut around 50 Bps to improve more

mortgage loan growth around 20% in 2016

which is in line with the BI Rate outlook.

Unconventional Expansion. With more

portfolio weight on mortgage loan, the risk

would be high if in the case consumer buying

power for housing is deteriorating. BTN has

taken precaution to mitigate the risk by using

new business such as life insurance firm,

Mortgage Backed Security, and multi finance

subsidiary to reduce NPL and increase

income at the same time.

Initiate BUY. With current price at Rp. 1,650

per share, PBV ratio stands at 1.4x P/BV16.

We set our target price at Rp.1,845 which

translates to 0.96x PBV16 as well as 12% of

upside potential from the latest price.

Initiate Coverage BUY

Last Price (11 March 2016) 1,650

Target Price 1,845

52-Week Range 935-1,720

PBV 2016F 1.16x

Market Cap (Bio IDR) 17,550

Issued Shares (Mio Shares) 10,573.17

Shareholders List

Government 60.04%

Maryono 0%

Irman A. Zahiruddin 0.05%

Mansyur S. Nasution 0.00%

Sis Apik Wijayanto 0%

Public 39.91%

Frederik Rasali

+62 21 525 5555

[email protected]

FINANCIAL SUMMARY 2013A 2014A 2015A 2016F 2017F 2018FCASA Ratio 25.12% 24.31% 23.76% 23.95% 24.02% 22.45%

Coverage Ratio 28.13% 14.84% 22.21% 25.19% 21.42% 21.43%

PPOP Margin 24.71% 18.70% 23.71% 25.29% 23.17% 23.18%

Provision to PPOP 16.83% 33.30% 26.08% 24.51% 26.75% 26.75%

Net Interest Income 6.24% 5.30% 5.50% 5.26% 4.93% 4.54%

Capital Adequacy Ratio 17.84% 16.31% 19.65% 18.23% 16.67% 15.78%

Gross NPL 4.82% 4.88% 4.15% 3.96% 3.66% 3.59%

Return on Equity (ROE) 13.52% 8.81% 12.87% 13.62% 12.51% 11.67%

Return on Assets (ROA) 1.19% 0.77% 1.08% 1.13% 1.02% 0.96%

Price-to-Book Value (P/BV) 0.793 1.007 1.194 1.160 1.365 2.100

Source: BBTN, MPI Research


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INDUSTRY OUTLOOK

When we are talking about country’s growth, we would be thinking about the capital

needed for firms to grow with and we know that banks are the most common solution

for firms to look for capitals. Based on an IMF survey on Indonesia, economic outlook isseen growing around 5.4% this year. This means banking growth on average will also be

around 5%, just slightly below the GDP due to not all of Indonesian firms use 100% bank

loans to fund their businesses.

Exhibit 1: Indonesian Banking Performance Source: Otoritas Jasa Keuangan

Banking sector in 2015 was quite robust in terms of average Net Interest Margin (NIM)

although consumption was slowing down in Q4 2015. The average Net Interest Margin in

December stood at 5.39%, increasing gradually after four months of being stagnant at

5.32% (June 2015-September 2015).

Capital Adequacy Ratio (CAR) also improved from 21.01% to 21.39% from January 2015 to

December 2015, which means rising capital has offset Risk-Based Balanced Asset (ATMR)

where banks have more durability against risks. Average Loan-to-Deposit ratio reportedlystood at 92.11% at the end of 2015, suggesting that loan activities were picking up beyond

Bank Indonesia’s upper band of 92% set for banks with NPL above 5%. Third-party fund

growth has slowed down however, as lower BI rate has pushed investors to pick riskier

investment to gain better yield.

The lowering of BI rate early in 2016 from 7.25% to 7.00% has pushed the banking sector

to decrease their loan and deposit interest rates as well. While this will put pressure on

NIM in the future, lower interest rate is expected to lead to more consumption. More

consumption means more consumer credit in which in this case will directly affect banks

focusing on credit cards, mortgage and vehicle loans (Kredit Kendaraan Bermotor). Banksindirectly affected will be those who channel credit to the retail sector. NIM is seen around

4.9% to 5.1% but we would say that the total frequency of credit will increase by 10% on

average as big banks may give more credits and this is seen offsetting the downside of

the decline in NIM.

Indonesian banking assets are mostly have no significant differences, in fact the portion

of total third party funds is now channeled by banks to more credits assets (92.16% of

total third party funds on December 2015 versus 88.29% on average from January 2015

– November 2015) rather than focusing on non-credit assets such as treasury gains from

foreign exchange trades or gains from securities available for trade (see Exhibit 2)

Performance Indicator Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Capital Adequacy Ratio (%) 21.01 21.26 20.98 20.79 20.51 20.28 20.78 20.73 20.62 21.05 21.33 21.39

Core Capital Ratio to ATMR (%) 18.75 18.99 18.40 18.19 17.98 17.75 18.21 18.19 18.14 18.54 18.85 19.00

Return on Assets Ratio (%) 2.82 2.51 2.69 2.53 2.45 2.29 2.27 2.30 2.31 2.30 2.33 2.32

Operating Expenses / Operating Income (%) 82.15 81.59 79.49 79.94 80.42 81.40 81.39 81.46 81.82 81.11 81.62 81.49

Net Interest Margin Ratio (%) 4.24 4.06 5.30 5.30 5.33 5.32 5.32 5.32 5.32 5.34 5.35 5.39

Loan to Deposit Ratio (%) 88.48 88.26 87.58 87.94 88.72 88.46 88.50 88.81 88.54 89.74 90.47 92.11

Liquid Assets Ratio (%) 16.88 17.35 18.74 18.16 17.26 17.35 17.03 16.87 17.56 16.69 16.44 16.70


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The composition of third party funds portion also saw a significant change in December

2015 where the total current saving has increased from 28% on average from January to

November 2015 to 31% in December 2015 while demand deposit fell from 18% on

average from January 2015 to November 2015 to 16% in December 2015. Time deposit

remained constant at 42% in December 2015. The increase in savings means that more

customers are expecting to spend more rather than put their money in demand deposit

and time deposit accounts.

Exhibit 2: Indonesian Banking Asset Growth Source: Otoritas Jasa Keuangan

Exhibit 3: Indonesian Bank Funding Portion Source: Otoritas Jasa Keuangan

Total credit channeled in November 2015 reached 2,952 trillion rupiah, an increase of 106

trillion rupiah from November 2015. Commercial banks are focusing on retail credit as

much as 27% of total credit while processing industry took as much as 25.75%. It is

forecast that the retail credit will grow larger in line with consumption as BI ratedecreased by 50 basis points. The credit for construction will also increase as the

government launched its housing project called “1 Juta Rumah Jokowi” and a lot of other

infrastructure projects such as toll road and power plant. We may also need to pay a

closer look on banks that channel credit to retail, construction, household and financials.

Rp0

Rp1,000,000

Rp2,000,000

Rp3,000,000

Rp4,000,000

Rp5,000,000

Rp6,000,000

Rp7,000,000

Jan Feb Mar Apr Mei Jun Jul Aug Sep Oct Nov Dec

2015

Asset Credit Third Party Funds


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Exhibit 4: Credit Channeling as of December 2015 Source: Otoritas Jasa Keuangan

This year, total credit to be channeled is predicted to grow by 14%, which will give us

3,244.4 trillion rupiah by 2016. The breakdown can be seen on Exhibit 5.

Exhibit 5: Predicted Credit Channeling for 2016 Source: Otoritas Jasa Keuangan

Based on the various government stimulus packages and Bank Indonesia’s recent rate

decision, we expect that the retail business will get a boost due to lower deposit rate

(down from 7.5% to 7%). More people may also put more of their savings to riskier

investments and spending as investing in time deposit seems to become less attractive.

In turn, this will lead to more consumption.

8.64%

0.30%

4.58%

25.75%

3.37%5.86%

26.84%

2.91%

6.01%

5.58%

6.26%

0.44%

0.28%0.73% 1.96% 0.09%0.00% 0.41%

Agriculture

Fishery

Mining

Processing Industry

Electricity, Gas and Water

Construction

Retail

Food Provision

Logistic and Communication

Financials

Business Services and Ownership

Government


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ECONOMIC OUTLOOK

Economic Growth

Exhibit 6: Indonesia GDP Growth (Y/Y) Source: Bank Indonesia

Indonesia GDP managed to beat the market expectation in the final quarter of 2015,

rising by 5.04% vs. 4.74% in prior quarter. Government spending played its part in terms

of infrastructure construction and also investment from foreign direct investment. What

actually pushed the economy were the consumption and the balance of trade at the end

of the day. Consumer confidence index was also getting better in January 2016 when it

reached 112.6 according to a survey conducted by Bank Indonesia. On exhibit 7 the

Consumer Confidence Index is displayed in blue line and it has been in an uptrend since

October 2015 and in January 2016 the robust confidence level was influenced by further

fuel price cut and electricity tariff.

4.72%

4.67%

4.74%

5.04%

4.40%

4.50%

4.60%

4.70%

4.80%

4.90%

5.00%

5.10%

Q 1 2 0 1 5 Q 2 2 0 1 5 Q 3 2 0 1 5 Q 4 2 0 1 5


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The consumer confidence index shows an increase on December 2015 when it reached

112.6, up from 100 at September 2015 according to BI data, which gives us the idea that

retail business will have more activities and will need loans to grow their businesses

further. Total loan growth is seen to be around 17% this year while the portion of loans

for the retail sector is expected to stand at 30.8%.

Exhibit 7: Consumer Confidence Index as of January 2016 Source: Bank Indonesia


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COMPANY OVERVIEW

Brief Company Profile

Bank Tabungan Negara which is famous with the abbreviation BTN has been operationalfrom 1950. BTN focuses on mortgage loan channeling with the largest market share

around 30% compared to other banks that mainly channels mortgage loan. BTN was

publicly listed back in 2009. Prior going public in the same year, BTN managed to create

Asset backed security as mortgage bond securitization namely KIK-EBA which is the first

mortgage security in Indonesia, since then BTN upgrade the banking business into more

non-conventional way. In 2012 BTN has released right issue and managed to get 2.12

Trillion Rupiah with the goal to maintain capital quality and increase credit capacity. In

2013 BTN has fully integrated to focus on securing their market share by increasing loan

quality, reducing non-performing loan and focus more on the transaction process.

BTN’s efforts to become global bank with three transformational steps that can be

categorized as:

1. Survival Period

Transformation 1 called “Survival Period” (2013 – 2015) where BTN maintain current

condition by protecting current market condition, create a predictable change,

financial capital driven and dominance the market by size.

2. Digital Banking Period

Transformation 2 called “Digital Banking Period” (2015- - 2019) in which BTN focuses

more on dominance by speed in transaction and process through technology and willfocus more on human capital driven.

3. Global-playership Period

Transformation 3 called “Global Playership Periods” (2020 – 2025) focuses more on

size and speed through network to face global free trade while BTN will continuously

change to fulfill global demand. In this level focuses more on human and financial

capital driven.

Exhibit 8: BBTN Transitional Plan Source: BBTN


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Nowadays, BTN focuses on the transaction service by improving the IT quality such as E-

Banking, EDC payment, E-Cash, Mobile Banking, Vending Machine and digital offices.

These efforts are in line with BTN’s transformation plan number 2 to improve speed,

technology and human capital driven.

Human Capital

Talking about the focus of BTN in human capital, the management team in BTN are

experienced in Banking with astounding achievement and have solid team that can

support the business. BTN has setup robust organizational structure where the retail and

commercial banking are separated to focus more on each business. All of the position

are monitored by independent audit committee to ensure all of the management and

staff are comply with the company goal.

Exhibit 9: Organization Chart Source: BBTN


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Board of Commissioners

Exhibit 10: Board of Commissioners Source: BBTN

Board of Directors

Exhibit 11: Board of Directors Source: BBTN

Exhibit 12: Ownership Structure Source: BBTN

Name Position

Chandra M HazahPresident

Commissioner

Kamaruddin SjamIndependent

Commissioner

Catherinawati HadimanIndependent

Commissioner

Arie CoerniadiIndependent

Commissioner

Sumiyati CommissionerCurrent Commissioner in PT. Jiwasraya and Head of Financial Education and Training Agency (BPPK), Indonesia

Finance Ministry. Former Head of Financial Planing Bureau, Secretary General Ministry of Finance

Fajar Harry Sampurno CommissionerDeputy of Mining , Strategic Industry and Media in Indonesia Ministry of State Owned Enterprise. Former

President Director of PT. Dahana and PT. Industri Kapal Indonesia

Lucky Fathul Aziz H CommissionerDeputy Commissioner Strategic Management 1B OJK. Former Head of Repesentative Bank Indonesia Region VI

West Java and Head of Bank Indonesia Representative New York

Board of Commissioners

Experience

Also president commissioner in PT. PLN (Perusahaan Listrik Negara), former President of KPK (Anti Corruption

Commissioner)Former member of DPR Commissioner XI. President Commissioner of PT. Lanang Bersatu, and Director of BPKP

(Financial Oversight Agencies and Development)

President Director of PT. Diaspora Saraswati Gemilang. Former Deputy Director of CIMB Niaga and Director of

Corporate Banking at Bank Niaga

CFO in PT. Sarana Global Indonesia. Former Vice President in NISP securities, Group Head Vice President of

National Restructuring Bank

Name Position

Maryono President Director

Irman A Zahidruddin

Managing Director

for Funding and

Distribution

Mansyur S Nasution

Managing Director

for Mortgage &

Consumer

Lending

Iman Nugroho Soeko Director

Oni Febriarto R Director

Sis Apik Wijayanto Director

Adi Setianto Director

DirectorSulis Osdoko

Previously as Network and Service Director and Treasury and Financial Institution Director of Bank BNI

7 years in BTN. Formerly as Consumer Group Director of Bank Permata, Director at GE Capital, Director GE Astra

Fiannce, Director Card Area Citibank NA - Indonesia Timur

Former Executive Vice President - Coordinator Consumer Finance Bank Mandiri and Head of Corporate

Secretary Group Bank Mandiri

Previously as Chief Executive and Head of Bank Mandiri Europe Limited

Previously as Head of Small and Micro Lending Division and Branch Manager for branch office BTN Ciputat

Previously as Regional II Head for Bank BRI and as Branch Manager for Bank BRI Yogyakarta

Previously as Head of Retail Funding & Service Division, Head of Consumer Funding & Service Division and Head

of Information and Communication Technology in BTN

Board of Directors

Experience

Former President Director at Bank Mutiara, Head of Network Group Bank Mandiri Jakarta, Head Regional 1 of

Bank Mandiri Medan


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Company Highlights

Superb Loan Management

BBTN is actively engage to reduce their gross Non-performing loan (NPL) from an average

of 4.03% from December 2012 to December 2014 into 3.42% in December 2015 where inthe December 2014 gross NPL reached 4.01% through focusing on collection. For the Net

NPL which mean only count the credit loss can be reduced from 2.76% at December 2014

to 2.11% at December 2015. And we found out the spread between gross and net NPL

are increasing every year from 0.52% in December 2011 to 1.25% in December 2014 and

1.31% in 2015 which mean that the portion of credit loss decreases more in each year.

Exhibit 13: BBTN’s Gross NPL vs. Net NPL Source: BBTN

Pre-emptive Strike

Talking about BTN loan quality, BTN has great policy regarding to loan collectability. Every

time BTN found a doubtful account, BTN will try to push the borrower from higher

collectability level to become one level lower within 3 months this will reduce the credit

risk acquired by BTN regarding to the borrower. To make sure the lead time between

assets acquired by BTN that expected to become collectability 5 or loss, BTN started to

offer the collateral when the loan turns into collectability 3 in which by the time if the loan

reached collectability 5. With collateral sold, BTN can write off the doubtful account withminimum bad debt expense which later on will save provision by 1% of total credit at

least. The coverage ratio of BTN now stand at 43.14% in December 2015 as the provision

increased from 33.77% in December 2014 where provision on earning asset increased by

30.55% to 2,064 Billion Rupiah in December 2015 and 1,581 Billion Rupiah in 2014 and

NPL is falling as shown in exhibit 13.

2.75%

4.09% 4.05%

4.01%

3.42%

2.23%

3.12%3.04%

2.76%

2.11%2.00%

2.50%

3.00%

3.50%

4.00%

Dec - 11 Dec - 12 Dec - 13 Dec - 14 Dec - 15

Gross Vs. Net NPL

Gross NPL Net NPL


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Focus Made Easy

BTN loan portfolio will overweigh the non-subsidized mortgage loans as the mortgage

loan rate from BTN is seen lower from the average since BI rate cut from 7.5% to 7% in

early 2016. With upward property sales outlook in 2016 after BI cut the rate, it is expected

that housing loan in BTN will grow around 27% from 2015, giving nominal total loan of

Rp.158.2 trillion Rupiah in 2016, increasing from Rp.124.9 trillion Rupiah in 2015. By

focusing more on housing loan, BTN can get a certain business model that cannot be

done by other banks that has spread out loan portfolio among all sectors. BTN has

worked with developers and property agencies to improve the credit channeling. We can

see that the growth of housing loan portfolio is much higher than the non-housing loans

and this was resulted by business sector focus.

Mostly BTN’s mortgage valued at Rp200 – 300 million per unit. This customer segment

mostly earns Rp 72 – 360 Million per year and mostly are first time home buyers. In

addition, this segment is forecasted to grow from 74 Million people in 2012 to 141 million

people in 2020.

Jokowi’s One Million Housing is aiming at providing housing for the low income segment

through BTN’s mortgage business. The project will give boost to BTN in 2017.

Exhibit 14: BBTN Loan Portfolio Source: BBTN, MPI Research

Interest Rate Sensitive

BTN to focus more on providing cheap mortgage for medium to low market segment.

This market segment is very sensitive towards their cash flow, therefore interest rate level

will influence the market segment decision whether to get mortgage loan or not. It is a

good news for the bank as BTN is one of the leading mortgage loan providers. With

decision from BI to cut rate by 50 basis points from 7.5% to 7.0% in 2016, this means that

BTN can give cheaper mortgage rate. Currently BTN also provides mortgage loan at 6.6%

for non-subsidized mortgage loan and 5% for subsidized mortgage loan in early 2016 to

boost the mortgage loan. Right now, BTN normal mortgage rate stays at 9.6% - 10.6%

which varies across different fixed rate period. If BTN to cut another 0.5% interest rate,

we expect total mortgage loan growth will reach around 20%. BTN focuses more on

improving CASA as the demand for deposit will be the main source of the bank’s low cost

of fund, while time deposit will be reduced by portion in the future as lower BI rate will

Rp. % Rp. % Rp. % Rp. % Rp. % Rp. %

Housing Loans 87,005 87 102,614 89 124,927 90 158,168 91 191,383 93 214,349 94

Subsidized Mortgages 28,429 28 34,347 30 43,527 31 52,232 30 49,759 24 45,013 20

Non-Subsidized Mortgages 39,548 39 45,601 39 53,567 39 73,092 42 95,691 46 109,318 48

Other Housing Loans 7,198 7 8,179 7 8,934 6 10,542 6 17,224 8 27,865 12

Construction Loan 11,829 12 14,486 13 18,900 14 22,302 13 28,707 14 32,152 14

Non-Housing Loans 13,463 13 13,302 11 14,029 10 14,871 9 15,316 7 13,785 6

Consumer Loan 2,597 3 2,916 3 3,839 3 4,858 3 9,190 4 4,824 2

Commercial Loan 10,865 11 10,386 9 10,190 7 10,013 6 6,126 3 8,960 4

31-12-18 F

BTN Loan Composition (in Billion Rupiah)

Loan Type31-12-13 A 31-12-14 A 31-12-15 A 31-12-16 F 31-12-17 F


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eventually decrease the demand for time deposit. CASA in FY 2015 has reached 47.56%

increases from FY 2014 45.81%.

Exhibit 15: BBTN Deposit Mix Source: BBTN

Competitive Interest Rate

What makes us believe that BTN can hold the biggest market share at 30% for mortgage

loan is that BTN mortgage rate is very competitive compared to other banks. BTN has the

lowest 1 year fix rate period and BTN can serve 25 years of mortgage while other banksare mostly only 20 years. Although banking service is still hold by BCA, but BTN now has

increased their investment to create more convenient transaction by improving IT system

and create strategic outlet location. Customers in middle to low income segment are the

most price sensitive segment in which they are looking for the lowest total monthly

payment and transaction cost with benefits for additional value of the loan.

Exhibit 16: Non-Promotional Mortgage List Source: BBTN, BBCA, BBRI, BBNI, BNGA

Expansionary business model

As a bank that focuses on long term mortgage loan, using conventional banking business

model would give a very high risk because longer loan age with uncertain economic

condition. BTN has the longest mortgage loan at 25 years compared to other banks. Withlong term bonds issued by BTN have an average maturity of 7 to 10 years, this creates

maturity mismatch, however BTN has increased the fee based income since 2014 where

BTN manage to create 496 Billion IDR versus FY 2013 only 31 Billion IDR. It turns out the

fee based income is pretty successful to cover up borrowing cost as fund borrowing

interest in FY 2015 reached 516 Billion IDR, Fee based income in FY 2015 has reached 596

Billion IDR (+20.2% YoY).

BTN was the first bank to create a mortgage backed security (MBS) in Indonesia

back in February 2009 named as kontrak investasi kolektif – efek beragun aset (KIK EBA).

Until 2015 BTN has created seven mortgage backed security with total Rp. 5.46 Trillion intotal value. With this kind of security, BTN expect to diversify the source of fund and also

Deposits FY2011 FY2012 FY2013 FY2014 FY2015 y.o.y

Current Account 13.15 13.27 19.12 23.23 30.88 32.93%

Savings Account 14.82 21.54 24.24 25.55 29.87 16.93%

Time Deposits 34.01 45.88 52.86 57.7 66.99 16.10%

Total 61.97 80.69 96.21 106.48 127.75 19.97%

BTN deposit mix In Tillion

Bank Name Rate

BTN 9.60%

BCA 10.25%BRI 10.25%

BNI 10.75%

CIMB Niaga 9.75%

Normal Mortgage Rate Comparison

Additional Service

25 years mortgage period, 1 year fixed rate, life insurance and fire insurance

Fastest process, lowest floating rate, can withdraw mortgagelowest downpayment

longest fixed rate for 5 years compared to other banks

No fee for late payment (terms and condition apply)


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fee-based income. This product also enables BTN to mitigate risk and increase its credit

capacity. The first mortgage backed security gained idAA rating from Pefindo, AA (idn)

rating from Fitch Ratings and from Moody’s with three different ratings from categories

Baa3 for bank deposits, D for bank financial strength, while Ba2 for baseline credit

assessment.

Exhibit 17: Mortgage-Backed Securities Source: BBTN

Other than creating robust fee-based income, BTN in 2016 is planning to create two

subsidiaries that are focused in increasing profitability and reducing the default risk at

the same time. There will be a life insurance business where BBTN will be partnering with

JASINDO. The focus of this subsidiary will be on bundling life insurance sales with

property. The second subsidiary will be a multi finance company focusing more on

collection for BTN loan. The aim of this subsidiary is to reduce the NPL of BBTN’s main

business. The multi finance business is also meant to enable credit loan for economicsegment that have fluctuative income such as peddler, food hawker, and others. Thus,

the subsidiaries that will be created by BTN will contribute profit by enabling the BTN to

provide more loans as well as reducing both risk and total NPL ratio.

Strong Banking Network

BTN has established robust network to give better service in both credit and funding

services. BTN has made one of the biggest mutual agreements with PT Pos Indonesia in

order to reach retail customers all around Indonesia. Post offices mainly help BTN to gain

more third-party funding from saving accounts. Services that Pos Indonesia provide

include opening of saving account, deposit, withdrawal, mortgage payment and schooltuition payment. There are 2,951 post offices around Indonesia with BTN’s product

No. Securitization Nominal Transaction date Maturity

TOTAL 5,655,867,096,127

8 EBA SP 1 / SPBTN1 200,000,000,041 27-Nov-15 7-Mar-22

6 KIK EBA 6 / DBTN04 1,000,000,005,941 20-Dec-13 26-Feb-22

7 KIK EBA 7 / DBTN05 1,500,000,001,615 28-Nov-14 7-Sep-25

4 KIK EBA 4 / DBTN02 703,450,414,156 16-Nov-11 27-Feb-21

5 KIK EBA 5 / DBTN03 1,000,000,005,997 12-Dec-12 7-Jan-23

2 KIK EBA 2 / DSMF02 391,305,329,159 10-Nov-09 10-Dec-19

3 KIK EBA 3 / DBTN01 750,000,230,717 27-Dec-10 27-Sep-19

BTN Securitization

1 KIK EBA 1 / DSMF01 111,111,108,501 11-Feb-09 10-Jan-18


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“eBataraPos” for saving account. So far, the total number of accounts opened in

eBataraPos has reached 2,094,909 and its total value reached Rp2.09 Trillion as of

September 2015.

Exhibit 18: BTN Total Service Outlet Source: BBTN

2009 2010 2011 2012 2013 2014 9m 2015

Regional Office - 1 2 3 3 3 3

Branch Office 61 63 65 65 65 65 65

Subsidiary Branch 204 214 218 223 223 223 223

Cash Office - 111 316 415 479 479 479

Syariah Outlet 21 26 39 50 50 50 50

Priority Outlet - 1 7 13 23 34 37

Total Outlet 286 416 647 769 843 854 857

Pos Indonesia Office 2,045 2,661 2,738 2,922 2,922 2,951 2,951

ATM 528 745 1,181 1,404 1,504 1,830 1,830 Employees 4,340 5,312 6,337 7,142 8,011 8,582 8,814

BTN Total Service Outlet


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VALUATION

Exhibit 19: Key Ratios Source: BBTN, MPI Research

Asset quality

What makes BTN interesting is that coverage ratio will increase to 25.19% in 2016, whilethe outlook for 2018 is that coverage ratio will decrease to 21.43%. Based on the current

information we expect that banking will have tighter competition in the future, leading to

higher cost of fund.

Gross NPL will decrease to 3.96% in 2016 and gradually getting lower to 3.59% in 2018 as

the subsidiary that predicted to start operating in this 2016 will help to control the NPL

and collection of credit loan.

LDR in the other hand will stay high as the bank has a long term credit period at 20 – 25

years on average, compared to other banks which only 5 – 15 years loan period whichcause BTN loan to deposit ratio (LDR) remains above 100%. This LDR may worry the

investor in the case the loan will not getting paid, then the deposit can’t cover up the loan

loss. In this case, we would clarify that BTN has substantial fee-based income and good

asset handling as the customer get into collectability category of 3, the asset will be taken

and started to be offered by BTN to other potential buyer. In conclusion the recoverability

of the asset and liquidity is expected to remain manageable.

Capital adequacy ratio predicted to decrease to 18.23% in 2016 as the bank gives more

credit, so the risk weighted asset will increase and predicted to be 15.78% in 2018. As long

as the CAR stays above 8%, the bank is considered to have enough capital to support themain banking activity towards the risk.

104.13% 107.68% 107.36% 105.22% 103.79% 102.62%

12.54% 14.87% 15.19% 13.22% 12.06% 10.95%

25.12% 24.31% 23.76% 23.95% 24.02% 22.45%

28.13% 14.84% 22.21% 25.19% 21.42% 21.43%

24.71% 18.70% 23.71% 25.29% 23.17% 23.18%

16.83% 33.30% 26.08% 24.51% 26.75% 26.75%

49.36% 59.24% 56.42% 55.44% 57.98% 57.96%

6.24% 5.30% 5.50% 5.26% 4.93% 4.54%

17.84% 16.31% 19.65% 18.23% 16.67% 15.78%

4.82% 4.88% 4.15% 3.96% 3.66% 3.59%

23.46% 11.57% 20.23% 21.50% 18.63% 14.63%

26.19% 42.05% 12.59% 15.00% 14.50% 17.20%

13.52% 8.81% 12.87% 13.62% 12.51% 11.67%

1.19% 0.77% 1.08% 1.13% 1.02% 0.96%

Rp1,097 Rp1,197 Rp1,361 Rp1,591 Rp1,818 Rp2,059

0.793 1.007 1.194 1.160 1.365 2.100

Rp870 Rp1,205 Rp1,625 Rp1,846 Rp2,482 Rp4,323

2018F

Loan to Deposit Ratio (LDR)

Return on Equity (ROE)

Key Ratios 2013 A 2014 A 2015 A 2016F

Coverage Ratio

Special Mention

PPOP Margin

Cost of Fund

Net Interest Income

Capital Adequacy Ratio

Third Party Fund Growth

Provision to PPOP

2017F

Book Value Per Share

Latest Price

P/BV

Dividend Pay Out Ratio

Gross NPL

CASA Ratio

Return on Assets (ROA)


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Current account and saving account ratio (CASA) predicted to grow to 23.95% in 2016 and

peaked at 24.02% in 2017 while decreasing to 22.45% in 2018 as we assume the

competition is getting harder, pushing BTN to offer higher deposit rate before they can

give more credit for profitability.

Profitability

What makes a firm interesting to invest is the ability to give profitability to the

shareholders. In the case of banking, we would use net interest income as the indicator

of profitability. Net interest income predicted to be at 5.26%, while the outlook of the NIM

will gradually decrease over three years period to 4.73%.

The pre-provision operation profit predicted around 25% in 2016 while in the long run

the pre-provision operating profit will be around 27% as the cost can be lowered but

result in higher provision at the same time. High pre-provision operating profit means

that the bank is actually making profit from operation despite the provision.

Although both ROA and ROE are expected to fall, we would like to highlight that the total

asset and equity growth in 2016 will be significantly higher. The challenge towards these

metrics will be related to net interest margin outlook that is seen to be tighter as BI rate

outlook is still seen going downward. What makes the bank gives more profit is in terms

of nominal return and we assume that in 2018 the banking environment may not be the

same. ROA and ROE in 2016 predicted to be 1.13% and 13.62%, respectively, increasing

from 2015 and later in 2018 will decline to 0.96% for ROA and 11.67% for ROE.

Cost of fund is the direct cost of lending which must be the focus on determining bank

profitability. Cost of fund seen to be rising as competition in banking will rise in 2016 and

onward. The calculation is using assumption that the banking condition in Indonesia until

2018 will be the same as current condition and taking MEA into account is expected to

make cost of fund in 2016 is 55.44% and up further to 57.96% in 2018.

RISKS TO OUR VIEWSince BTN has more than 70% of their loan portfolio on mortgage, we should focus more

on mortgage growth in Indonesia. As the mortgage loan slows down, the bank will greatly

suffer in terms of total loan can be given to the market. Loan payment for mortgage canbe influenced by the housing price outlook. As the price is going up and interest rate of

BI outlook going up, borrower will find the loan payment more expensive which

eventually will raise concern over credit default.

BTN has more than just traditional banking strategy. BTN actively engages in bond

securitization and creates new business units to support the core activity of the bank

which has the risk of failure in the investment of new business or bond securitization

which will burden the core activity of BTN

Government and BI regulation may influence the profitability and cost structure of thebanking industry in Indonesia, including that of BTN.


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Head OfficeEquity Tower 11th Floor, SCBD Lot 9

Jl. Jend. Sudirman Kav. 52-53

Jakarta Selatan – IndonesiaTel. +62 21 525 5555

Fax. +62 21 527 1527

Branches

Jakarta

Ruko Plaza Intercon,Taman Kebon Jeruk Blok A 15-16,

Lantai 2,

Intercon

Jakarta Barat 11630

Tel. +62-21-8257-5555

Fax. +62-21-584-1839

Surabaya

Spazio Office Tower 2nd

FloorKompleks Graha Festival Kav. 3

Graha Famili

Jl Mayjen Yono Sewoyo

Surabaya 60225

Tel. +62-31-9900-1000

Fax. +62-31-9900-1001

Solo

Jl. Monginsidi No. 27 A/B Solo

Tel. +62-271-635470

Fax. +62-271-663935

Semarang

Jl. Sriwijaya No.8A

Semarang 50257

Tel. +62-24-8411555

Fax. +62-24-8313032

Bandung

Jl. Veteran 42 Bandung 40112

Tel. +62-22-4216-555

Fax. +62-22-4203-100

DISCLAIMER

This research report is prepared by PT MINNA PADI INVESTAMA Tbk. for information purposes

only and is not to be used or considered as an offer or the solicitation of an offer to sell or to

buy or subscribe for securities or other financial instruments. The report has been prepared

without regard to individual financial circumstance, need or objective of person to receive it.

The securities discussed in this report may not be suitable for all investors. The appropriateness

of any particular investment or strategy whether opined on or referred to in this report or

otherwise will depend on an investor’s individual circumstance and objective and should be

independently evaluated and confirmed by such investor, and, if appropriate, with his

professional advisers independently before adoption or implementation (either as is or varied).

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