Bank Mandiri to propose a 10-20% special dividend for 2016

That’s on top of its 30% regular payout ratio.

BMRI’s CEO recently announced a 10-20% 2016 special dividend, on top of its 30% regular payout ratio will be proposed at the Mar-17 AGM. This strategy is being taken by BMRI to optimise its 22% CAR by 9M16.

“We believe the government will approve this plan as it should strengthen the country’s budget. The same strategy is likely to be applied in 2017F as management is targeting ROE improvement towards 18% by 2020. Hence, we raised our dividend payout assumption from 30% to 45% and 40% for 2016-17F, respectively,” says Maybank Kim Eng.

Here’s more from Maybank Kim Eng:

At the same time we cut our cost of capital (CoC) assumption by 25bps to 2.6% for 2017F vs. 3.7% in 2016, assuming declining new NPL formation, as indicated by BMRI’s declining amount of loans downgraded to NPLs after being restructured in 2H16 vs. 1H16. The trend should be sustainable as BMRI reverted to using a stricter restructuring requirement compared to the one that is currently applicable under OJK leniency policy.

The combined effect of higher dividends and lower CoC to our estimates are: 1) 20-40bps lower CAR for 2016-17F, but still sufficient to support medium-term loan growth of ~11% YoY 2) 10-80bps higher ROE in 2016- 17F, respectively and 3) ~100bps higher dividend yield based on the current price.