Analysts have suggested that in spite of global and domestic pressures on the Jakarta Composite Index (JCI), investors could start accumulating banking stocks with large market capitalization, listed under the LQ45.

“This may be a great time to ‘buy on weakness’ for shares that have fallen sharply, such as from the banking and mining sectors,” Kresna Sekuritas analyst Robertus Yanuar Hardy recently said.

He named several bank stocks that have shown promising financial performance, including Bank Rakyat Indonesia (BRI), Bank Mandiri (BMRI), Bank Negara Indonesia (BNI) and Bank Central Asia (BCA).

The JCI, the main gauge of the Indonesia Stock Exchange (IDX), has in the past several weeks been affected by mounting external pressure as the market waits for the Federal Open Market Committee (FOMC) meeting on Wednesday, during which the United States Federal Reserve is expected to raise its benchmark rate by 25 basis points.

Escalating concerns from the market stem not only from the possible rate hike, but also from the recent rupiah depreciation.

The currency strengthened by 0.12 percent to Rp 13,748 per US dollar on Tuesday evening from the previous session on Monday. However, the figure is still far from its fundamental value at between Rp 13,200 and Rp 13,300. Indonesia’s trade deficit for three consecutive months also inspired the pessimistic outlook.

As a result, nearly all sectors on the bourse were hit by negative sentiments, including the banking sector. The JCI dropped by 0.73 percent to 6,243.58 in Tuesday’s trading session, marking a decline of six consecutive days.

However, Robertus pointed out that the JCI might rebound after more companies release their 2017 financial reports by the end of March, and announce dividend payments by April and May.

Based on published 2017 annual reports, banks categorized under the BUKU IV category, namely those with a core capital of more than Rp 30 trillion (US$2.1 billion), booked a total net profit of Rp 86.58 trillion in 2017, up 25.76 percent from a year earlier.

BRI booked the highest profit of Rp 28.46 trillion, up 10.52 percent year-on-year (yoy); followed by BCA, whose net profit rose by 13.1 percent yoy to Rp 23.3 trillion.

Bank Mandiri came in third place, pocketing Rp 20 trillion in net profit, up significantly by 53.1 percent yoy, while BNI ranked fourth with a 20.1 percent surge in profit to Rp 13.62 trillion.

Nevertheless, these increases occurred against the backdrop of sluggish loan disbursement. Last year, the local banking industry grappled with a tepid credit growth of 8.2 percent, less than the initial target of 10 percent set by the central bank.

This year, Bank Indonesia (BI) expects credit disbursement to expand by 10 to 12 percent.

Koneksi Kapital research head Alfred Nainggolan said BI’s projection indicated a positive view over potential improvements in credit disbursement.

“Banking stocks have gained considerably from December 2017 to February 2018,” he said. “However, the potential of credit growth has been challenged by the Fed policy and credit growth of 7.4 percent in January.”

Amid uncertainty, Alfred recommended BMRI due to its relatively cheap valuation and better non-performing loan (NPL) ratio, which may continue in 2018. He also suggested BMRI with a target price of Rp 10,650 and price-to-book value (PBV) at 2.5x this year.

Meanwhile, Valbury Sekuritas Indonesia’s vice president of research and analysis, Nico Omer, said the banking sector would still be promising in the long term, although the weakening global economy might drag down the index as well. Of all the banks, BCA stocks were the most solid as the lender was prudent and had a very low NPL ratio.

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