Indonesia's Expanding Middle Class Will Spark A Digital Banking Shift

Key Takeaways

• Strong digital transformation and asset quality position the bank to structurally boost fee income, margins, and outpace competitors in revenue growth.
  
• Expansion into retail and SME segments, combined with robust capital and ESG leadership, supports long-term market share gains and diversified profitability.
  
• Rising digital competition, shrinking margins, asset quality risks, policy-driven mandates, and lagging digital transformation threaten BNI's growth, profitability, and competitive edge.

Catalysts

Provides various banking products and services in Indonesia, rest of Asia, New York, and Europe.

• Analyst consensus expects strong growth from the corporate and consumer loan focus, but with Indonesia's GDP growth outpacing peers and BNI's exceptional asset quality, these segments are likely to compound at rates well above 12 percent, driving outsized revenue and earnings acceleration over the next several years.
  
• While analysts broadly point to digital transformation as supporting growth and margins, BNI's industry-leading digital adoption-with over 6.8 million app users and savings deposits growing by double digits-positions the bank to not only lower cost of funds substantially but structurally boost fee-based income and net margins faster than peers.
  
• The expansion of Indonesia's middle class and increasing financial inclusion efforts will significantly grow BNI's untapped retail and SME customer base, unlocking multi-year gains in low-cost deposit inflow and loan demand, directly fueling top-line growth.
  
• BNI's robust capital position, with a 20 percent pro-forma capital adequacy ratio and high reserve coverage, provides unmatched capacity to capture market share organically and through acquisition, supporting long-term above-peer balance sheet and earnings expansion.
  
• Ongoing sector-wide regulatory reforms and BNI's early investment in green and ESG-linked financing will allow the bank to dominate high-margin, fast-growing sustainable lending segments, further diversifying revenue and boosting long-term profitability.

Bank Negara Indonesia (Persero) Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Bank Negara Indonesia (Persero) compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Bank Negara Indonesia (Persero)'s revenue will grow by 21.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 41.5% today to 33.5% in 3 years time.
• The bullish analysts expect earnings to reach IDR 30065.2 billion (and earnings per share of IDR 807.66) by about August 2028, up from IDR 20866.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 11.3x on those 2028 earnings, up from 7.4x today. This future PE is lower than the current PE for the ID Banks industry at 15.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.42%, as per the Simply Wall St company report.

Bank Negara Indonesia (Persero) Future Earnings Per Share Growth

Risks

• Accelerating competition from fintechs and nonbank digital players may erode BNI's customer base and limit deposit and fee income growth, as reflected by the company's heavy investment in digital platforms that are still in early stages and may take years to offset mounting margin pressures, ultimately putting net interest income and fee revenue at risk.
  
• There is ongoing net interest margin compression, with the bank reporting a decline from 4.8 percent in 2022 to 4.2 percent in 2024 due in part to slower money supply growth and industry-wide funding cost pressures, which threatens profitability and future earnings growth if this trend persists.
  
• BNI's asset quality, while presently stable, remains exposed to legacy non-performing loans and increasing NPLs in consumer segments like credit cards and auto loans, meaning that rising credit costs could weigh on future net income if macroeconomic challenges persist or worsen.
  
• The predominance of corporate, SOEs, and consumer lending makes BNI vulnerable to policy-driven lending mandates as a state-owned bank, which may prioritize government objectives over profit maximization, potentially leading to lower long-term earnings consistency and suboptimal capital allocation.
  
• Shifts in consumer preferences towards fully digital or ecosystem-based banking services, led by tech giants and agile fintechs, may outpace BNI's digital transformation if execution falters, leading to loss of relevance among younger, digital-first customers and suppressing future revenue and growth.

Valuation

• The assumed bullish price target for Bank Negara Indonesia (Persero) is IDR6100.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Bank Negara Indonesia (Persero)'s future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of IDR6100.0, and the most bearish reporting a price target of just IDR3500.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be IDR89694.0 billion, earnings will come to IDR30065.2 billion, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 14.4%.
• Given the current share price of IDR4120.0, the bullish analyst price target of IDR6100.0 is 32.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.