Bank Mandiri needs higher NPL buffer, warns analysts

NPLs rose despite strong 12% growth.

Bank Mandiri's FY15 net profit of IDR20.3t (+2.3% 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. 

Here's more from Maybank Kim Eng:

Improving Underlying Performance…
Loans grew 12.2% YoY, with corporate lending now at 33% 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% from 5.6% in 3Q15.

Aggressive restructuring in 2Q-3Q15 brought down NPLs to 2.6% by end- 2015 from its 2.8% peak at end-3Q15. This was followed by rising coverage to 145% from 136% as BMRI maintains conservative provisioning.

…But NPL Risks in 2016…
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% YoY growth and huge write-offs in 2015.

Hence, we maintain our 3% NPL assumption for end-2016, at the upper end of management’s forecast range. Our 4% YoY EPS-growth forecast is unchanged.