Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

Mitsubishi UFJ Financial (MUFG) / Equity Bottom-Up

Mitsubishi UFJ Financial (MUFG) (8306 JP)

Interim results for <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-group" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a>highlighted the fragility of the profit contribution from several of the group’s recent overseas acquisitions, and the increasing reliance on equity-accounted profits from <a href="https://www.smartkarma.com/entities/morgan-stanley" target="_blank" data-smartkarma-citation="entities:1122:1" rel="noopener">Morgan Stanley (MS US)</a> to keep group earnings up.  Rising credit costs were by far the largest headwinds to group profitability, with 1H FY3/2021 credit costs rising to an annualized 48bps: far exceeding the group’s 21bps in credit costs for the whole of FY3/2020.Buying megabank shares is always a 'crowded trade' at the best of times.  While there often seems to be little difference in share price performance between MUFG and mega-rival <a href="https://www.smartkarma.com/entities/sumitomo-mitsui-financial-group-inc" target="_blank" data-smartkarma-citation="entities:217:1" rel="noopener">Sumitomo Mitsui Financial Group (8316 JP)</a>, on balance we prefer the latter for the group’s tighter discipline and more stable profits ‘track record’.

Interim results for Mitsubishi UFJ Financial (MUFG) (8306 JP)highlighted the fragility of the profit contribution from several of the group’s recent overseas acquisitions, and the increasing reliance on equity-accounted profits from Morgan Stanley (MS US) to keep group earnings up.  Rising credit costs were by far the largest headwinds to group profitability, with 1H FY3/2021 credit costs rising to an annualized 48bps: far exceeding the group’s 21bps in credit costs for the whole of FY3/2020.Buying megabank shares is always a 'crowded trade' at the best of times.  While there often seems to be little difference in share price performance between MUFG and mega-rival Sumitomo Mitsui Financial Group (8316 JP), on balance we prefer the latter for the group’s tighter discipline and more stable profits ‘track record’.

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

*Islamic Banking Merger In Indonesia: Bank Rakyat Indonesia’s (BBRI.IJ) Islamic banking subsidiary, Bank BRI Syariah (BRIS.IJ) announced that it had signed a conditional merger agreement related to the proposed merger with two other Indonesian state bank Islamic banking subsidiaries including Bank Mandiri Syah (BMRI.IJ) [BSM] and Bank BNI Syariah (BBNI.IJ) [BNIS]; and*National Champion To Compete Globally: Sharia-compliance is regarded as the foundation of Islamic banking. With the largest Muslim population globally at 228 mn, it would make sense that Indonesia should have a national champion which is sharia-compliant. In the case of Indonesia, there are currently 14 sharia-compliant commercial bank with IDR 353 tn (USD 24 bn) in assets or about 4.2% of system-wide assets.  The proposed merger would create a new entity with over INR 200 bn – which could place it amongst the world’s largest global competitors for Islamic finance. We’d also anticipate the development global sukuk (Islamic debt) underwriting for local Indonesian companies.

*Islamic Banking Merger In Indonesia: Bank Rakyat Indonesia’s (BBRI.IJ) Islamic banking subsidiary, Bank BRI Syariah (BRIS.IJ) announced that it had signed a conditional merger agreement related to the proposed merger with two other Indonesian state bank Islamic banking subsidiaries including Bank Mandiri Syah (BMRI.IJ) [BSM] and Bank BNI Syariah (BBNI.IJ) [BNIS]; and*National Champion To Compete Globally: Sharia-compliance is regarded as the foundation of Islamic banking. With the largest Muslim population globally at 228 mn, it would make sense that Indonesia should have a national champion which is sharia-compliant. In the case of Indonesia, there are currently 14 sharia-compliant commercial bank with IDR 353 tn (USD 24 bn) in assets or about 4.2% of system-wide assets.  The proposed merger would create a new entity with over INR 200 bn – which could place it amongst the world’s largest global competitors for Islamic finance. We’d also anticipate the development global sukuk (Islamic debt) underwriting for local Indonesian companies. 

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

There are vast differences with how <a href="https://www.smartkarma.com/entities/bank-central-asia-tbk-pt" target="_blank" data-smartkarma-citation="entities:440:1" rel="noopener">Bank Central Asia (BBCA IJ)</a> and <a href="https://www.smartkarma.com/entities/bank-danamon-indonesia-tbk-pt" target="_blank" data-smartkarma-citation="entities:135:1" rel="noopener">Bank Danamon Indonesia (BDMN IJ)</a> are faring in the current environment. Much of this will be due balance sheet structure, and especially liability distribution. But there are other factors that support profitability at BCA well beyond its loan or deposit mix: operating costs. BCA is typically considered one of the best-managed banks in Asia or the world and the contrast to domestic peer BDMI may be another reminder.

There are vast differences with how Bank Central Asia (BBCA IJ) and Bank Danamon Indonesia (BDMN IJ) are faring in the current environment. Much of this will be due balance sheet structure, and especially liability distribution. But there are other factors that support profitability at BCA well beyond its loan or deposit mix: operating costs. BCA is typically considered one of the best-managed banks in Asia or the world and the contrast to domestic peer BDMI may be another reminder. 

Indonesia Banks – Vastly Differing Tales

*Lower Costs and Under-Provisioning Support Result: Bank Central Asia’ (BBCA.IJ) [BCA] reported 2Q20 earnings results of IDR of 5.7 bn, declining IDR 924 mn (14.0%) linked quarter – and missing consensus forecasts. However, if we exclude securities gains we find that core operating results actually improved linked quarter by IDR 1.3 bn (30.2%) to IDR 5.8 bn. While BCA was – like most banks around the word – was ravaged by credit weakness, the story for the quarter is management’s ability to quickly rein-in costs; and*Accelerating Credit Risk Supported By Lower Reserves: BCA’s NPLs increased IDR 2.5 bn (26.5%) linked quarter, and amount to 2.09% of total loans – up 18 bp over the period. 2020 guidance, however, remains unchanged at between 2.5-2.7%.NPL recognition of loans within the restructuring process/moratorium are throwing a wrench into BCA’s forecasts, however. As it stands, reserves were bled against both total loans and NPLs linked quarter (seemingly not taking potential losses of its forecast moratorium book into account) declined 25 bp and 45.3%, respectively, to 2.05% and 99.1%.

*Lower Costs and Under-Provisioning Support Result: Bank Central Asia’ (BBCA.IJ) [BCA] reported 2Q20 earnings results of IDR of 5.7 bn, declining IDR 924 mn (14.0%) linked quarter – and missing consensus forecasts. However, if we exclude securities gains we find that core operating results actually improved linked quarter by IDR 1.3 bn (30.2%) to IDR 5.8 bn. While BCA was – like most banks around the word – was ravaged by credit weakness, the story for the quarter is management’s ability to quickly rein-in costs; and*Accelerating Credit Risk Supported By Lower Reserves: BCA’s NPLs increased IDR 2.5 bn (26.5%) linked quarter, and amount to 2.09% of total loans – up 18 bp over the period. 2020 guidance, however, remains unchanged at between 2.5-2.7%.NPL recognition of loans within the restructuring process/moratorium are throwing a wrench into BCA’s forecasts, however. As it stands, reserves were bled against both total loans and NPLs linked quarter (seemingly not taking potential losses of its forecast moratorium book into account) declined 25 bp and 45.3%, respectively, to 2.05% and 99.1%.

Bank Central Asia – Hunkering Down Is Not Helping

We all know that banks in Indonesia have the best margins and best ROAs of all banks in the region. This is largely due to the limited level of competition, specialized nature of these banks, an under-penetrated system and excellent demographics. Where recovery metrics are strong across most all regions, banks should seem a meaningful delta in profit, perhaps in 2Q20 or later during 2H20.  One way of considering where the most marginal gains can be made is by looking at where the greatest loss was, where the greatest decline in ROA was.

We all know that banks in Indonesia have the best margins and best ROAs of all banks in the region. This is largely due to the limited level of competition, specialized nature of these banks, an under-penetrated system and excellent demographics. Where recovery metrics are strong across most all regions, banks should seem a meaningful delta in profit, perhaps in 2Q20 or later during 2H20.  One way of considering where the most marginal gains can be made is by looking at where the greatest loss was, where the greatest decline in ROA was.

Indonesia

PT Bank Danamon Indonesia Tbk is an Indonesian financial institution that provides a wide range of banking services, including consumer banking, wealth management, and various credit products for individual and corporate customers. The bank offers services such as savings, loans, fund transfers, and Sharia banking. It is headquartered in Jakarta, Indonesia, and was established in 1956.

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Bank Danamon Indonesia (BDMN IJ)

MUFG (8306 JP): Wavering in the Ranks

Interim results for MUFG (8306 JP) highlighted the fragility of the profit contribution from some of its recent overseas acquisitions, with credit...

J. Brian Waterhouse

Indonesia Banks – Vastly Differing Tales

There are vast differences with how Bank Central Asia (BBCA IJ) and Bank Danamon Indonesia (BDMN IJ) Bank Danamon are faring in the current...

Daniel Tabbush

Bank Central Asia – Hunkering Down Is Not Helping

*Lower Costs and Under-Provisioning Support Result: Bank Central Asia’ (BBCA.IJ) [BCA] reported 2Q20 earnings results of IDR of 5.7 bn, declining...

Thomas J. Monaco

BCA – Most ROA to Claw Back

We all know that banks in Indonesia have the best margins and best ROAs of all banks in the region. This is largely due to the limited level of...

Daniel Tabbush

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MUFG (8306 JP): Wavering in the Ranks

Interim results for MUFG (8306 JP) highlighted the fragility of the profit contribution from some of its recent overseas acquisitions, with credit...

J. Brian Waterhouse

Bank BNI – Sharing Sharia

Merger Of Indonesia's SOE Bank Sharia Complaint Subsidiaries Creates National Champion With Designs On Being Globally Competitive

Thomas J. Monaco

Indonesia Banks – Vastly Differing Tales

There are vast differences with how Bank Central Asia (BBCA IJ) and Bank Danamon Indonesia (BDMN IJ) Bank Danamon are faring in the current...

Daniel Tabbush

Bank Central Asia – Hunkering Down Is Not Helping

*Lower Costs and Under-Provisioning Support Result: Bank Central Asia’ (BBCA.IJ) [BCA] reported 2Q20 earnings results of IDR of 5.7 bn, declining...

Thomas J. Monaco

BCA – Most ROA to Claw Back

We all know that banks in Indonesia have the best margins and best ROAs of all banks in the region. This is largely due to the limited level of...

Daniel Tabbush