Big Indonesian banks' earnings to grow by up to 20% by 2020

Healthy loan expansion will boost earnings.

The earnings of Indonesia's top four banks is expected to grow 15-20% by 2020 as lenders cash in on the robust expansion of their loan portfolios, according to UOB Kay Hian. 

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To increase sector loan growth to the 11-13% range by 2020 from 10-20% in 2019, the central bank expects lenders to lower lending rates in order to meet targets. This translates to additional loans of RP660-770t YoY, from the current RP500t. 

"Higher loan growth should be able to eliminate any downward pressure in lending rate, and thus result into accelerating interest income. Amongst the big 4 banks, we like SOE banks because they are more aggressive in pursuing loans during a rate cut cycle," Raphon Prima, analyst at UOB Kay Hian, said in a report. 

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Total loans from the big four banks rose by 13% YoY in the first half of the year, higher than the industry average of 10%. Loan contribution from the big four hit 52% in 1H19, from 45% in 2014. 

Of the big four, Prima is betting on BBNI after it posed the highest growth. Moreover, the analyst believes that BBNI’s exposure in corporate loans gives the lender significant room to pursue high growth in a short time.