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)