BBRI posted its Jul-24 bank-only results, which showed decent improvement in the bank’s fundamentals despite muted earnings. We believe that the worst is over for BBRI, and that moving onwards the bank will show operational improvements.

BBRI further slowed micro growth toward ~4.6% y-y, down from ~7% y-y in Jun24. The decline was expected given slower micro deposit growth. We believe this is positive, as it is in line with the bank’s target to improve its asset quality. BBRI’s management has targeted a write-off of approximately IDR40tn for FY24, and in 1H24 it wrote off approximately IDR20tn. Within the total write-off, micro loans is about half. At the moment; BBRI’s management aims to stabilize profits on a y-y basis. So, in the event that core profits and PPOP are strong, the bank would have flexibility to spend more on CoC – in line with our thesis that the bank is moving to improve its asset quality. At the moment, BBRI has not changed its CoC guidance of -3.0% for FY24 despite the fact that YTD Jul24 CoC is about ~3.4%, this means that there is room for improvement in bottom line in 2H24.

We are also seeing improvements in the micro segment, as micro deposit growth also improved to 3% y-y in Jul24 (vs 1.7% in Jun24). This signifies improvement in micro segment purchasing power.

Based on the Indonesia government’s latest 2025 budget, we think there will potentially be less exposure to KURs for BBRI (and hence more commercial-based Kupedes micro loans). This should be positive for the bank, in our view, as Kupedes ROAAs are generally higher than KUR ROAAs. And when combined with likely eased downgrade/write-off risks over the next 12 months, we expect reduced earnings risks for BBRI. In addition, expectations of BI cutting interest rate and issuing fewer SRBI should enable BBRI to register lower funding costs (and hence potentially better NIM trends or at least minimizing NIM risks). On the back of the above-mentioned attributes, we reiterateour Buy rating on the stock. The stock’s relative underperformance over the past three years vs other large-cap bank peers may also represent limited downside risk.

Results summary

Headline July-24-only profit reached IDR3.2tn (-50% m-m; -31% y-y), bringing YTD July-24 profit to IDR31.4tn (+2% y-y), which is largely in line with our FY24 projection (taking into account consolidated numbers).

At the operating level, the bank’s headline July-24 NII of IDR9.3tn showed minor improvement (+0% m-m; +2% y-y). Fortunately, funding costs appear to have stabilized on a m-m basis, with headline May-24 CoF standing at 3.5% (flat m-m; +70bp y-y). Hence, NIM stabilized, as it stood at 6.4% (flat bp m-m; -50bp y-y). Still, in our view, the fact that funding costs have stabilized should pave way for better operating results.

Headline PPOP for July-24 was IDR7.6tn (-20% m-m; +2% y-y), bringing YTD July-24 PPOP to IDR62.5tn (+18% y-y). The decline in monthly PPOP was due to a one-off jump in personnel expenses to reflect adjustment in TER (Tariff Effective Rates) as well as impairment of financial assets. In our opinion, the bank still needs to keep its credit costs (CoC) elevated to beef up its Loan-Loss-Reserve (LLR) to accommodate excess lending in the micro segment done in the past, particularly during 2023 (when micro loan growth was well above micro deposit growth). The increase in CoC is necessary to accommodate some micro loan downgrades, in our view. This resulted in CoC of 3.7% for July-24 (bringing YTD July-24 CoC to 3.4% – well above current management guidance of <3.0% for FY24; this suggests that 2H24 CoC could dip below 3.0%). The bank’s prudent approach has led to LLR of 6.5% (a slight increase from Jun-24, but still down 70bp y-y). Still, among major banks, BBRI has kept the highest LLR – suggesting limited earnings risks going into 2025F, we believe. 

In recent months the stock has been under pressure – down 23% YTD. Post results, we see limited earnings risks, and thus we think share price downside should also be limited.

Fig. 3: BBRI - NIM trend

Fig. 4: BBRI - CoF %

Fig. 5: BBRI - CoC vs Est WO %

Fig. 6: BBRI - Y-Y Growth trends %

Fig. 7: BBRI - 12MMA Loan vs NII growth %

Fig. 8: BBRI - NII trend IDRbn

Fig. 9: BBRI - CoC %

Fig. 10: BBRI - PPOP trend IDRbn

Fig. 11: BBRI - Profit trend IDRbn

Fig. 12: BBRI - ROAA %

Fig. 13: BBRI - ROAE %