Equity Analysis /
Indonesia

ID : Banks -

    CGS-CIMB
    19 April 2021
    Published by

    Due to the pandemic, Indonesia government debt rose by 7.7% pts of GDP to 25.1% at end-20, as state budget deficit ballooned to Rp956tr (6.1% of GDP). We expect public debt to GDP to be at c.41-42% of GDP by end-21F before subsiding as budget deficit is projected to revert to <3% of GDP by 2023. As part of the ‘burden sharing’ policy, Bank Indonesia’s government bond holdings increased by c.4% pts to 15% of total assets by end-2020, accounting for c.12% of total tradeable bonds vs. banks’ 36%, buffering impact from foreign investors’ decline by 39% to 25%. Banks’ bond holdings more than doubled to 15% of their assets by end-20. As bond pricing came under pressure from steepening yield curve, banks’ PLs will be impacted too. With the Indo 10-year govt bond yield up 61bp YTD following 118bp yoy decline in 2020, 1Q21 results shall reflect some of the mark-to-market losses. This may reverse in subsequent quarters, in our view. We expect banks to hold government bonds for longer given the ample liquidity they now enjoy. Aggregate banks’ share prices underperformed the JCI by 0.4%, despite narrowing of US Treasury 10Y-2Y yield spread. US Treasury 10-year yield was -8bp wow (-13bp mom), while Indonesian government 10-year bond yield was +3bp wow, though -28bp mom. Rp/US$ stablilised at Rp14,565, after depreciating 1.1% mom, 3.7% YTD. Stay Overweight.