Monday, June 27, 2011

Bank Rakyat – balancing growth, from Nick Cashmore

by CLSA Securities

After a decade more of deleveraging, Indonesian bank credit currently stands at 28% of GDP, against 130% for China. Indonesia’s low credit to GDP ratio means plenty of potential to leverage up the economy and doing some catch up.

Leveraging up the economy will translate into bank credit growth. Banks are still the best proxy for a reflating economy. And Indonesian banks are still the most profitable in Asia.

Bank Rakyat fits in nicely here. Nick Cashmore points out that BRI remains the most profitable Indonesian bank with the highest net interest margins and ROA amongst its peers. After a brief stint with corporate loans, BRI has refocused on its historical strength, the micro segment. And after growing the micro loan business by 40% YoY, the high yielding micro loans (23% yield) today amount to 1/3 of loan portfolio. BBRI has reduced payout ratio to 20% but will eventually need to raise capital through sub debt. NPL formation from the small and medium commercial segment amount to 13% of the bank’s total NPLs remains a concern. We remain positive on BBRI long term prospects.

Key points:

BBRI has the most extensive network with 7,043 distribution points. BBRI remains the world leader in micro loans

Micro loans generate yield of 23%. BBRI generates the widest NIM among peers at 9.6% as of 1Q11

BBRI has grown its loan book by 28% and deposits by 25% CAGR in the last five years. BBRI has the second largest market share of system deposits

Most of the deposits are expensive time deposits, BBRI’s CASA ratio has dropped from 70% to 55% in the last six years, clearly a potential risk to margin

One concern is with credit quality in the commercial and medium segment, now totaling a little over 13% of BRI’s total NPLs.

BBRI has one of the lowest CAR amongst peer. To help retain capital, payout ratio has been lowered to 20%  

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