| JAKARTA, July 21
JAKARTA, July 21 Shares of Indonesian banks may
be forced off their record highs this week when they report
second-quarter earnings that could show the impact of tight
funding conditions and slowing loan growth in the economy.
Banking shares have outperformed the Jakarta stock exchange
over the past couple of months, riding on expectations
that reform-minded Jakarta Governor Joko "Jokowi" Widodo's will
be elected president, and that will boost growth and consumer
demand in Southeast Asia's largest economy.
The election commission is expected to announce the winner
of the July 9 vote on Tuesday. An aide to Jokowi's rival
Prabowo Subianto has said the ex-general will not accept the
result due to alleged cheating.
As of Friday, shares of PT Bank Central Asia, the
largest bank by market capitalisation, were up 21 percent this
year while PT Bank Rakyat Indonesia had gained 60
percent and PT Bank Mandiri 35 percent.
But the fall in the shares of PT Bank Danamon Tbk,
a mid-sized lender, after reporting on Thursday a 25 percent
decline in net income for the first half, seems a foretaste of
what is to come. Other banks report earnings this week.
"We might see some selloff, particularly when second quarter
results start coming in," said Salman Ali, a banking analyst
with Citigroup in Jakarta.
Ali said the rally in banking stocks was "mostly
election-driven" and that banks will see their cost of funds
rise as funding gets tighter.
"I am assuming 15 to 16 percent the loan growth over the
next two years. Based on that, I don't see much upside from this
The central bank, too, expects loan growth will drop to a
15-17 percent pace this year, much below average growth levels
of 20 percent the past three years. Loan growth was 21 percent
NET FOREIGN BUYING
Bank Danamon's shares fell 3.4 percent on Friday. The bank's
cost of funds increased 14 percent in the first half of 2014,
while net interest margin fell to 8.4 percent from 9.9 last
In spite of uncertainty over the presidential election,
foreigners have stepped up their buying of Indonesian stocks in
2014. The index is up 20 percent this year, and
foreigners have invested a net 56 trillion rupiah ($4.8 billion)
so far. The financial sector has risen 27 percent, stock
exchange data showed.
"Stocks of the big banks are the most liquid and they are
the proxy of the economy," said Laksono Widodo, a director at
Mandiri Sekuritas. "These massive funds coming into the country
are buying into these stocks still."
Indonesian bank shares are relatively expensive. Bank
Central Asia trades at a price-to-earnings ratio of 20.1 times,
higher than the average 16.5 for the stock market.
Alvin Pattisahusiwa, a director at PT Manulife Aset
Manajemen Indonesia, said Indonesian banks offer much better
earnings growth compared to banks elsewhere in the region. He
said that despite a slowing economy, bank earnings could grow by
about 10 percent, compared with a regional average of 3 percent.
So over the next three years, Indonesian banks should be
"still more attractive compared to regional banks", he said. The
Indonesian asset-management unit of Manulife Finance Corp.
has about 47 trillion rupiah under management.
($1 = 11,570 rupiah)
(Editing by Vidya Ranganathan and Richard Borsuk)