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Fundamental View
AS OF 17 Aug 2022- Bank Rakyat Indonesia (BRI) is rated Baa2 (sta)/ BBB- (sta)/ BBB- (sta), the same level as Indonesia sovereign rating. As the second largest state-owned bank in Indonesia by assets with a 53.19% Indonesian government ownership, we expect a very high likelihood of government support in times of need.
- BRI’s credit strength had been its very high margins (>8%; rose further after consolidating Pegadaian and PNM) and capital buffers (>20% CET 1 ratio) which are ahead of its country peers and among the highest in APAC.
- The bank has a leading franchise in the country’s micro and small commercial segments with a long operating track record, well managed credit costs and that has in turn helped to support its high margins.
Business Description
AS OF 17 Aug 2022- The history of Bank Rakyat Indonesia can be traced back to 1895. It is now the second largest bank in Indonesia by assets.
- BRI was listed on the Jakarta Stock Exchange in 1992, now the Indonesia Stock Exchange in 2003. The Indonesian government held a 53.2% stake in the bank as of end-June 2022. Foreign investors hold 36.3% of the bank's shares and domestic investors 10.5%.
- Its core business focus is the micro, small & medium enterprises (MSME) segment, which now account for about two-thirds of its total loan book.
Risk & Catalysts
AS OF 17 Aug 2022- BRI’s high exposure to micro (~42% of loans) and small commercial loans (21%) will lead to higher credit costs compared to its peers but the bank is more than compensated by the higher margins generated.
- COVID-19 impact will be played out in the medium term and BRI will start seeing higher NPLs on its balance sheets towards 2023 when regulatory forbearance measures end. Its loan book is predominantly to micro and small commercial loans which have been disproportionately impacted by the pandemic crisis; a bumpy landing is possible when forbearance measures are unwound but we are more than comfortable with the credit given its very high capital buffers.
- We expect the telegraphed RRR hikes and impending rate increases to pose a moderate pressure on Indonesian banks’ margins as funding costs rise while lending yields will be stickier due to banks’ caution on potential AQ implication and a softer growth outlook.
Key Metrics
AS OF 17 Aug 2022| IDR bn | 1H22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| PPP ROA | 5.8% | 4.7% | 4.2% | 4.8% | 4.9% |
| ROA | 3.0% | 1.9% | 1.2% | 2.5% | 2.7% |
| ROE | 17.4% | 12.0% | 8.6% | 17.7% | 18.5% |
| Equity/Assets | 17.1% | 17.2% | 14.1% | 14.6% | 14.1% |
| CET1 Ratio | 24.1% | 26.2% | 20.1% | 21.7% | 20.2% |
| NPL Ratio | 3.26% | 3.00% | 2.88% | 2.80% | 2.27% |
| Provisions/Loans | 3.26% | 3.47% | 3.43% | 2.47% | 2.27% |
| LDR | 97% | 92% | 91% | 88% | 88% |
CreditSights View
AS OF 28 Apr 2023BRI has become the 2nd largest bank in Indonesia by assets, having been overtaken by Bank Mandiri after the latter’s sharia business consolidation. About 48% of its consolidated loan book consists of micro loans and another 19% of small commercial loans, leading to its higher Loan at Risk (LaR) at ~16% of its loan book. While we do not expect a high slippage rate from the LaR book, BRI and its country banking peers have the highest capital ratios in the region (23.9% CET1 ratio for BRI) and are therefore in the position to absorb losses. We like BRI because of its very strong profitability and capital. Spreads are relatively tight but the duration is short. We maintain our M/P reco.
Recommendation Reviewed: April 28, 2023
Recommendation Changed: July 08, 2022
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