Highlights

• Strong loan growth, but earnings conversion remained modest. Loan growth accelerated to 28.4% yoy in Jul 26, supported by both private wholesale and faster-growing SOE lending, while NII growth lagged at 14.1% yoy.
   
• Liquidity improved, at higher cost. Reported LDR declined to 85.5% in Jul 26, interest expense rose 17.8% mom (30.4% yoy), with estimated ex-SAL LDR at 91-92%, suggesting that the improvement in liquidity came with higher funding costs and continued reliance on government liquidity.
   
• Maintain HOLD with an unchanged target price of Rp4,150. BBNI’s increasing exposure to SOEs and government programmes warrants closer attention to future returns, although undemanding valuation and improving macro/policy sentiment could provide near-term upside.

Analysis

• 7M26: Operating earnings remained resilient, while funding pressure persisted into July. Bank Negara Indonesia’s (BBNI) 7M26 bank-only pre-provision operating profit (PPOP) grew 13.6% yoy, supported by 14.1% and 10.9% yoy growth in net interest income (NII) and non-interest income, while net profit rose a more modest 5.5% yoy as provisions remained elevated. Funding pressure continued into July, with interest expense rising 17.8% mom compared with a 6.5% of interest income growth, resulting in NII declining 2.3% mom. Encouragingly, asset quality continued to improve, with management reporting loan at risk (LaR) of 7.85% (Jul 25: 10.94%). Hence, the earnings picture remains relatively resilient, but the key focus is on the ability to defend margins amid higher funding costs.
   
• Loan growth remained exceptionally strong, but earnings conversion continued to lag. Loans grew 28.4% yoy (9.8% ytd) in July, accelerating from 24.4% yoy in June. Management highlighted private large corporate and enterprise loan growth of 26% yoy/13% ytd respectively, suggesting broader support for loan growth beyond policy-related lending. Nevertheless, SOE lending continued to expand at a significantly faster pace, rising 63.2% yoy in 1H26 and increasing its share of total loans to 20.4%. More importantly, NII growth of 14.1% yoy remains well below the loan growth, consistent with the yield dilution highlighted in 2Q26 as the loan mix shifted towards wholesale and SOE exposures.
   
• Slower loan growth should ease funding needs, but NIM recovery may take time. With management maintaining its 8-10% 2026 loan growth guidance, we expect volume growth to moderate substantially in 2H26, reducing incremental funding requirements. However, elevated funding costs have prompted management to cut its 2026 NIM guidance to 3.3-3.5% from 3.5-3.8%. Asset repricing should gradually provide support, but the pace of margin recovery will depend on whether asset yields can catch up with funding costs.