BBCA Loans are growing again. So is bad debt.

The Recovery's Fine Print

BCA's Q1 2016 post ended on a genuine tension: loans had contracted 3.6% quarter-on-quarter even as the bank's cheap CASA^» funding base kept growing - a bank pulling back on lending just as Indonesia's economy softened. This quarter answers half of that question directly: loans grew back 3.6% QoQ, essentially reversing the prior quarter's pullback in percentage terms. BCA's own materials attribute part of the rebound to "increased demand during Idul Fitri" - the Muslim holiday that fell in early July 2016, a genuine, recurring seasonal driver of Indonesian consumer and business credit demand, not a one-off explanation invented for this quarter.

But the loan book didn't come back for free. The gross NPL^» ratio nearly doubled year-over-year, from 0.7% to 1.4%, and the provisioning cushion against those bad loans thinned considerably, from 292.7% to 193.0% coverage. A bank that resumes lending in the same quarter its bad-debt ratio doubles is either being appropriately opportunistic about a recovering pipeline, or growing back into loans it should have stayed cautious about - the numbers here can say which direction asset quality is moving, but not yet which explanation is right.

This is BCA's Q2 2016 report (period ended June 30, 2016, results presented to analysts July 20, 2016) - Bank Indonesia had cut its policy rate to 6.50% by June, and Indonesia's headline inflation had fallen to 3.5% from 7.3% a year earlier, a considerably calmer macro backdrop than the one framing the Q1 report.

The Prescription

BCA should treat its mortgage book as the template for growing back into the rest of its loan portfolio, not just as one more line in the mix: mortgage NPLs sit at just 0.6% even as the book-wide gross NPL ratio has climbed to 1.4%, and mortgages already carry the bank's tightest underwriting discipline. If BCA wants to keep growing loans now that the Q1 pullback has reversed, that discipline - not just the growth rate - is what should be exported into corporate and SME lending, where the bulk of this quarter's NPL deterioration almost certainly sits.

What it should stop doing: presenting a loan-book recovery as an unambiguous win when it arrived in the same quarter the NPL ratio nearly doubled and provisioning coverage fell by a third. A reader has to go digging in a ratio table to find that trade-off; growth and asset-quality trend should be discussed together in the same breath, not headlined separately with the harder number left for whoever reads far enough.

Key Financial Metrics

Q2 2016 vs. Q2 2015 (P&L, standalone quarter), and Jun 2016 vs. Mar 2016 (balance sheet) - consolidated

FX: IDR 13,212.50 = USD 1 (June 30, 2016 close, Bank Indonesia reference rate).

Standalone-quarter P&L figures below are derived by subtracting the already-published Q1 2016 figures (see the Q1 2016 post) from this filing's six-month cumulative totals - BCA's interim financial statement reports year-to-date, not discrete-quarter, P&L. Both years' Q2 figures are derived the same way, so the year-over-year comparison is apples-to-apples even though neither number is a directly-quoted line in the filing.

Metric	Q2 2016 (IDR)	Q2 2016 (USD)	Q2 2015 (IDR)	YoY
Net Interest Income ("Net Revenue" equivalent)	Rp9,989,844M	~$756M	Rp8,684,536M	✅ +15.0%
Non-interest operating income	Rp2,686,760M	~$203M	Rp3,970,496M	⚠️ -32.3%
Non-interest operating expense	Rp6,282,596M	~$476M	Rp6,979,861M	✅ -10.0%
Pre-tax income ("Operating Income" equivalent)	Rp6,394,008M	~$484M	Rp5,675,171M	✅ +12.7%
Net Income	Rp5,067,683M	~$384M	Rp4,489,225M	✅ +12.9%
EPS	Rp205	~$0.0155	Rp181	✅ +13.3%

Balance sheet metric	Jun 2016 (IDR)	Jun 2016 (USD)	Mar 2016 (IDR)	QoQ
Total Assets	Rp626,176,157M	~$47.4B	Rp603,426,590M	✅ +3.8%
Loans (Kredit)	Rp387,042,400M	~$29.3B	Rp373,732,274M	✅ +3.6%
Total Deposits	Rp490,557,993M	~$37.1B	Rp470,391,419M	✅ +4.3%
Total Liabilities	Rp522,643,461M	~$39.6B	Rp502,407,384M	➖ +4.0%
Total Equity	Rp103,532,696M	~$7.8B	Rp101,019,206M	✅ +2.5%

The non-interest operating income line above is down sharply YoY under the filed statement's own broad definition - but BCA's own investor deck reports the opposite trend under a narrower definition of the same concept (see Beyond the Usual below for why both numbers are genuine).

Equity grew a much more modest 2.5% QoQ this quarter, compared to the 12.7% QoQ jump in Q1 - that prior quarter's growth was heavily inflated by a one-off other-comprehensive-income gain from securities revaluation, which didn't repeat at anywhere near the same scale this quarter. BCA also paid out Rp2,588,776M in cash dividends during the first half of 2016 (per the cash flow statement), which further explains why equity growth slowed even as net income kept climbing.

A loan book recovering and an NPL ratio doubling in the same quarter isn't a contradiction - it's the two sides of the same decision to start lending again.

Key Operational Metrics

• CASA ratio: 77.7% (Giro Rp120,372,942M + Tabungan Rp260,903,308M, against total deposits of Rp490,557,993M) - up from 76.9% in Q1, still among the highest of any Indonesian bank.
• Loan-to-deposit ratio: 78.9% (Rp387,042,400M loans / Rp490,557,993M deposits) - essentially flat from Q1's 79.5%.
• ROE (annualized from this quarter): ~19.8% (Q2 net income × 4, divided by average of Jun 2016 and Mar 2016 equity) - down slightly from Q1's ~18.9%-to-19% range on a comparable basis, still healthy.
• ROA (annualized from this quarter): ~3.3% (same annualization method against average total assets).
• NPL ratio - gross: 1.4% (Jun 2016) vs. 0.7% (Jun 2015) - nearly doubled YoY. This wasn't disclosed at all in Q1's filing (a bare regulatory balance sheet/P&L with no ratio table); this quarter's presentation deck is the first source in this series to include it.
• NPL ratio - net: 0.4% (Jun 2016) vs. 0.2% (Jun 2015).
• Provision/NPL coverage: 193.0% (Jun 2016) vs. 292.7% (Jun 2015) - down sharply, though still comfortably above 100%, meaning provisions still exceed non-performing loans outright.
• CAR^» (capital adequacy, credit + market + operational risk): 20.3% (Jun 2016) vs. 19.0% (Jun 2015) - improved, giving the bank more capital buffer even as loan quality softened.

Beyond the Usual

Bad debt nearly doubled the same quarter the loan book recovered

The gross NPL ratio rose from 0.7% (Jun 2015) to 1.4% (Jun 2016), net NPL from 0.2% to 0.4%, and provisioning coverage fell from 292.7% to 193.0% over the same year - a real deterioration in asset quality, arriving in the same quarter the loan book resumed growing after Q1's contraction. Coverage well above 100% means this isn't alarming yet, but it's the natural question a reader should ask: did growth come back partly at the cost of underwriting discipline, or is this simply where a normalizing NPL ratio was always headed after an unusually clean prior year?

The filed statement and the investor deck tell opposite stories about non-interest income

The filed financial statement's own "non-interest operating income" line is down 32.3% YoY this half (see Key Financial Metrics) - but that filing line also bundles in impairment-loss recoveries and equity-method income alongside fee and trading revenue. BCA's own investor presentation, using a narrower "Non Interest Income" definition (fees, trading gains, and similar, excluding those other items), reports the opposite: up 17.1% YoY over the same six months. Both figures are genuine and correctly sourced from BCA's own materials - they're just measuring different things, a reconciliation quirk between two of the company's own disclosures rather than a comment on how the business is actually performing.

Idul Fitri as a recurring, not one-off, driver of this quarter's loan demand

BCA's own materials credit part of this quarter's business-loan growth to "increased demand during Idul Fitri," which fell in early July 2016. This is a genuinely recurring seasonal pattern for Indonesian bank lending around Ramadan and Idul Fitri, not a company-specific one-off - worth remembering when comparing this quarter's growth rate to a quarter that doesn't straddle the holiday.

Earning-asset growth is leaning on bonds and securities as much as loans

Government bond holdings grew 36.3% YoY and marketable securities 44.9% YoY - both faster than the 11.5% YoY growth in loans - the same securities-over-lending capital-allocation tendency flagged last quarter, still showing up even in a quarter where the loan book itself recovered.

Cost of funds keeps falling, cushioning margins through a rate-cutting cycle

Cost of funds fell 49 basis points YoY even as Bank Indonesia cut its policy rate through 1H16, helping net interest margin hold at a healthy ~7.0%. This is the CASA thesis playing out directly - BCA's deposit base keeps repricing down faster than its earning assets, a structural advantage rather than a one-off.

Also checked this quarter, nothing further notable found: dilution/pledge data, promoter actions, fraud/scandal exposure, management churn, and regulatory developments specific to 2Q16.

Target Valuation Range

P/E of ~17.2x and P/B of ~3.18x, implying a market cap of ~Rp328,528B (~$24.86B) - still richly valued, similar to last quarter, and still only justified if BCA keeps compounding equity at a high-teens ROE. This quarter's doubling NPL ratio is exactly the kind of crack that valuation can't absorb for long if it keeps widening.

BCA's shares closed at approximately Rp13,325 on June 30, 2016 (public market price on the Indonesia Stock Exchange; converted from BCA's post-split share count and adjusted for the company's later 1:5 stock split in October 2021, since price data pulled today for this period reflects that split retroactively) - essentially flat from Rp13,300 at the end of Q1.

Market cap → book value	Q2 2016
Share price (period-end)	Rp13,325
Shares outstanding	24,655,010,000
Market capitalization	Rp328,528B (~$24.86B)
Book value (owners' equity)	Rp103,273B (~$7.82B)
P/B	~3.18x

P/E and P/B	Q1 2016	Q2 2016	Change
EPS (trailing)	Rp732 (annualized)	Rp773 (TTM)	✅ up
P/E	~18.2x	~17.2x	✅ down
Book value per share	~Rp4,097	Rp4,189	✅ +2.2%
P/B	~3.25x	~3.18x	✅ down

Both multiples sit close to last quarter's - modestly cheaper, consistent with earnings growing faster than the flat share price over the quarter. The same logic from last quarter still applies: an annualized ROE near 19-20% is high enough to arithmetically justify trading above book value, but the multiple is a bet that this ROE - and the asset quality behind it - holds up. This quarter's NPL trend is the first real data point suggesting that bet is not yet fully de-risked.

Share price moved a moderate +14.9% from Rp2,320 (Jul 2014, split-adjusted) to Rp2,665 (Jun 2016, split-adjusted) over the trailing two years, with a roughly 17% peak-to-trough drawdown along the way (Mar 2015 peak to Sep 2015 trough) - similar to last quarter's read, not the kind of dislocation that needs its own section.

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