Earnings growth of listed banks likely to decline
Earnings growth of listed banks likely to decline
JAKARTA (JP): The growth rate of earnings at 22 banks listed on the Jakarta Stock Exchange (JSX) is likely to decline this year but no sharp fluctuations in share prices are expected.
An analyst from W.I. Carr Indonesia told The Jakarta Post on Friday that Bank Indonesia's moves to increase the reserve requirement from 2 percent to 3 percent, which will come into effect on Feb. 1, and to gradually raise the capital adequacy ratio, will hinder the expansion of banking loans.
"But all these unfavorable conditions have been reflected in the prevailing prices because the market had anticipated those regulations," he said.
The analyst, who preferred anonymity, observed that in the long term, the market will see a stronger performance of the listed banks if they try to be more prudent by complying with the regulations.
"I think this year should be viewed as the right time for banks to consolidate their own strength -- to curb credit expansion and to better understand the message behind the regulations. By so doing we will have a more prudent banking system in the country," he said.
He said what happened in the last five years, in which many banks booked impressive growth in loans, was not a sound development.
"I don't think that they also grew in quality. The main concern now is not on the potential decrease in the growth of the loans but on the potential bad loans behind the fantastic growth. That is why banks are not attractive enough for investors with a long-term investment strategy even when their price earning ratios are already low," he contended.
Poor management
He saw the banking system in the country as poorly managed.
The analyst therefore commended the central bank's measures because the moves will not only reduce credit expansion but also normalize the banking system or bring back banks into the right direction.
"Then, we will see most banks become stronger within three to four years," he said.
"But I am still worried about one thing. How can the central bank control a bank's lending to companies belonging to its own business group?" he said.
A director of Sigma Research, Jasso Winarto, also hailed the central bank's efforts to curb credit expansion and pointed out the lack of transparency among listed banks as a barrier for a better performance.
Jasso told the Post that despite the positive performance of most listed banks, with estimated per share earnings ranging from Rp 129 (for Indovest Bank) to Rp 608 (for Bank Internasional Indonesia), the share prices in the sector were undervalued last year.
He said that while the JSX Composite Index closed nine points higher last year, the banking sector index was estimated to close 15 percent lower.
"Our research estimated the average price earning ratio of bank stocks to have decreased from 12.4 times in 1994 to 7.8 times in 1995," he said.
The price earning ratios of Bank Danamon, Bank Internasional Indonesia, Bank Papan Sejahtera, Bank Tiara, BDNI and Lippo Bank in 1995 were estimated at between 10 times and 12 times.
The five banks with the lowest price earning ratio were Bank Umum Nasional (4.1 times), Bank Rama (4.3), Bank Mashill (4.6), Bank Duta (5.1) and Bank PDFCI (5.4).
"It was very different from the performance in 1994, whereby 16 banks had price earning ratios ranging between 10 times and 28 times and the other six with ratios of between seven times and nine times.
Jasso predicted the growth of banks' earnings this year to be lower than last year when the net earnings of the 22 listed banks were estimated to grow by 32 percent to approximately Rp 1.1 trillion from Rp 858.1 billion in 1994. (08)