Bank Mandiri: Weaker earnings lead into slower growth and potentially lower dividend
- BMRI’s 2Q25 earnings came in at IDR11.2tn (-14.7% y/y, -18.9% y/y), below consensus but in line with ours
- Earnings miss was primarily driven by higher-than-expected OPEX post audits
- Weaker-than-expected earnings could lead to slower loan growth and ultimately lower dividends; we cut FY25F/FY26F earnings estimates by 5% and 3%
- Maintain HOLD with TP of IDR3,900
Additionally, following the audit, interest income recognition was adjusted to reflect the average yield for floating-rate mortgages, consistent with the treatment applied to BTN. Excluding this adjustment, 1H25 NIM of 4.92% would have seen an additional compression of approximately 5-7bps.
Management guidance revision. Management revised its FY25F guidance in several key areas. Loan growth is now expected at 8%-10% y/y (previously 10%-12%; 1H25: 11.0% y/y), citing softer loan demand. This revised outlook also incorporates IDR55tn in additional liquidity from the MoF. On margins, NIM guidance was lowered to 4.8-5.0% (previously 5.0%-5.2%; 1H25: 4.92%) on the back of expected loan yield compression following rate cuts, especially in the corporate segment. Management also assumes that BI would further reduce rates to 4.25% by end-FY25F.
On asset quality, CoC guidance was revised down to 80-100bps (previously 100-120bps; 1H25: 77bps), reflecting continued improvement as highlighted by zero net NPL formation in the corporate segment, which remains the bank’s largest loan exposure.
Detailed performance notes:
Bank-only NIM steady at 4.63% despite upward pressure on funding costs. This stability was supported by an increase in loan yields due to changes in interest income recognition on mortgages. Overall loan yield rose 22bps q/q to 7.86% in 2Q25. The consumer segment was the primary driver, with yields increasing 170bps q/q to 9.9%. The corporate segment also saw a modest improvement, with yields up 20bps q/q to 6.9%, although it remained slightly compressed compared to 4Q24 (7.0%).
On the funding side, blended CoF rose 12bps q/q to 2.9%, while CoF for TPF increased by the same margin to 2.5%. The rise in overall funding cost was primarily driven by a 36bps q/q increase in TD CoF, which reached 4.56% in 2Q25 as the bank continues to grow TD balances to support liquidity. In contrast, CA and SA CoF remained relatively stable on a q/q basis.
Loan growth beginning to moderate. Loan growth began to moderate in FY25F amid weakening overall demand. In 1H25, Bank Mandiri’s loans grew 11.0% y/y and 1.8% YTD, prompting management to revise down their FY25F loan growth guidance to 8-10% (prev. 10-12%). The corporate segment grew 9.8% y/y – slightly below the bank-wide average – while the commercial segment posted strong growth at 17.5% y/y. Micro loans rose 11.5% y/y, and subsidiaries contributed a 11.3% y/y growth. In contrast, SME and micro lending remained more subdued with growths of 3.2% y/y and 6.0% y/y, respectively.
Within the consumer segment, growth was more mixed. Mortgage lending continued to expand at a solid pace, rising 13.7% y/y despite ongoing concerns in the sector. Credit card loans also showed strong momentum, growing 15.9% y/y. Meanwhile, auto loans declined by a sharp 11.8% y/y, reflecting Bank Mandiri’s continued reduction in exposure to the segment over the past year.
Asset quality pristine, but coverage ratios weakened. Bank Mandiri reported a lower CoC of 77bps in 1H25, leading management to revise down their FY25F CoC guidance to 80-100bps (prev. 100-120bps). Overall NPL ratio remained stable at 1.1% in 2Q25. However, coverage metrics showed some deterioration. NPL coverage declined to 246% (1Q25: 265%; 2Q24: 293%), while LLR at the bank-only level decreased to 2.9% in 2Q25, indicating a thinner buffer to absorb potential credit losses.
Earnings changes and valuation. Following Bank Mandiri’s weaker-than-expected 2Q25 results, we revised down our earnings forecasts for FY25F/FY26F by 5%/3% to IDR49.7tr/IDR48.8tr, respectively. Our earnings forecast is below the consensus’ mainly on lower interest income due to lower yield and slower loan growth assumptions amid capital constraint.
These adjustments primarily reflect the higher-than-anticipated increase in operating expenses as well as the likelihood of lower loan yields ahead, driven by both rate cuts and a more conservative asset mix. Although asset quality remains sound and loan growth still outpace peers in several segments, we see the combined impact of rising OPEX and margin compression as incrementally negative for near-term profitability and capital generation.
We maintain our HOLD rating with an unchanged TP of IDR3,900 due to our relatively minor earnings revisions. Our valuation is based on the Gordon Growth Model (GGM), which continues to be our preferred method given the bank’s dividend-paying track record and structural earnings stability. We apply a CoE of 15.0% and a long-term growth rate of 9%, both unchanged from our prior assumptions. However, we have slightly lowered our ROE assumption to 15.7% (from 16.0%) to reflect the more challenging operating environment and reduced dividend disbursement, particularly as capital buffers begin to compress.
The revised ROE incorporates the lower earnings base and reflects our more measured outlook on profitability, as structural cost pressures and tighter interest margins may limit upside in the near term. Additionally, the capital constraint to disburse dividend hammered potential ROE rerating as the bank needs to maintain their capital base.
Our TP of IDR3,900 implies a FY26F P/BV multiple of 1.1x, which is at -1SD of its 10-years average P/BV. We view as fair given the adjusted ROE profile and slowing capital regeneration. While the bank retains long-term strategic advantages, including a scalable funding base and strong brand equity, we believe current valuations already reflect most of these strengths. As such, we see limited near-term upside potential and recommend investors remain on the sidelines pending greater clarity on OPEX normalisation and margin stabilisation.
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