Small Indonesian banks lead APAC peers in Q3 total stock returns

Small Indonesian banks continued to lead their Asia-Pacific peers in logging the highest total stock returns in the three months ended Sept. 30, as new regulatory capital requirements help fuel hopes about bank deals in the Southeast Asian country.

Jakarta-headquartered PT Bank Neo Commerce Tbk and PT Allo Bank Indonesia Tbk topped the list of 15 best-performing Asia-Pacific bank stocks during the third quarter, with total returns of 236.59% and 212.15%, respectively, according to data compiled by S&P Global Market Intelligence. Five other Indonesian banks — PT Bank Ganesha Tbk, PT Bank Sinarmas Tbk, PT Bank Bumi Arta Tbk, PT Bank Oke Indonesia Tbk and PT Bank Mestika Dharma Tbk — also made it to the list. Among the seven banks, only Bank Sinarmas boasted a market capitalization of more than $1 billion.

"The small banks in Indonesia face some regulation changes, particularly the increase of minimum [Tier 1] capital," said Yulinda Hartanto, analyst at PT CGS-CIMB Sekuritas Indonesia. "As a result, there's a lot of M&A going on toward this small bank [segment]. We think this has created some speculations in the street [as to] who are going to be the buyers for these small banks."

The changes, announced in March 2020, require local banks to have Tier 1 capital of at least 3 trillion rupiah by end-2022, according to the Indonesia's Financial Services Authority. The requirement will be enforced in phases, and banks will need to have at least 2 trillion rupiah by the end of 2021. The move is part of the regulator's efforts to help consolidate the industry.

The Indonesian economy is slowly reopening, with COVID-19 cases subsiding from a peak in July. The government has shifted from national-level restrictions to region-specific restrictions and extended the deadline for restructured loans by a year to March 2023.

"Our base case assumes there will not be any strict lockdown implementation in the future," Hartanto said. "Additionally, the latest [community restrictions] implementation did not [have much] impact on banks' revenue."

Several Indonesian lenders were also among the worst-performing bank stocks in Asia-Pacific, with PT Bank JTrust Indonesia Tbk and PT Bank Mayapada Internasional Tbk logging negative returns of 70.29% and 55.52%, respectively. Another Indonesian lender on the ranking list, PT Bank Ina Perdana Tbk, logged total negative returns of 33.99%.

The list of 15 worst-performing bank stocks included five from India — Ujjivan Small Finance Bank Ltd., Bank of India Ltd., The South Indian Bank Ltd., Central Bank of India and Bank of Maharashtra — three each from Vietnam and China, and one from South Korea.

As of Oct. 6, US$1 was equivalent to 14,244 Indonesian rupiah.