Bank Central Asia's 1Q17 net profit up 10.7% to US$368m

But growth was achieved at the expense of declining NPL coverage.

Net profit of Bank Central Asia (BBCA) for 1Q17 was IDR4.9t (US$368m) (+10.7% YoY), according to Maybank Kim Eng.

"Although earnings were in line with our estimate, NIM, NPLs and coverage weakened. NIM dropped by 50bps from the YE16 level to 6.3% in 1Q17 as BBCA continues to reprice down its loan despite the stable benchmark rates since 4Q16. In terms of funding, BBCA had to raise its TD rates to prevent losing market share, which caused ~10bps increase in CoF."

Here's more from Maybank Kim Eng:

NPL reached 1.5% once more in 1Q17 after easing back to 1.3% by YE16. The increase was driven mostly by the downgrade of a ~IDR500b (~US$37m)loan for one listed company in the transportation sector.

According to BBCA, NPLs could go up further to ~1.75% in 2Q17 should there be no significant improvement in the economy. Special-mention loans also bounced back to 2% in 1Q17 from 1.5% by YE16, driven by a single account to property group.

Despite the declining asset quality, management decided to scale back on provisioning, which allowed net profit to grow 10.7% YoY. However, it was achieved at the expense of declining NPL coverage (from 229% in 2016 to 203% by 1Q17). Should NPLs reach 2%, which is the upper range of management’s comfortable level, we think NPL coverage could slip further towards 150%.