Digital Banking And Rising Middle Class Will Transform Markets

Key Takeaways

• Ongoing digital ecosystem expansion and a high retail deposit base will support structurally superior net interest margins and long-term earnings potential.
  
• Dominance in microfinance and MSME lending, together with specialized risk management, positions BRI for sustained high growth and profitability over competitors.
  
• Structural headwinds from asset quality, market saturation, outdated cost base, sectoral concentration, and digital disruption threaten future revenue growth and profitability.

Catalysts

Provides various banking products and services in Indonesia and internationally.

• Analyst consensus expects improved asset quality to reduce credit costs, but aggressive front-loading of provisions in early 2025, swift resolution of pandemic-era loans, and a sharp decline in special mention loans position BRI for a rapid rebound in net profit and a sharp normalization of net margins from mid-2025 onward.
  
• While consensus sees lower cost of funds from 2025 rate cuts modestly lifting net interest margin, a structurally higher CASA ratio enabled by digital ecosystem expansion and aggressive migration to retail deposits could result in net interest margins that persist well above peer averages for several years, boosting long-term earnings power.
  
• The accelerating adoption of BRI's digital banking platforms (including BRImo and AgenBRILink) is unlocking significant operating leverage, allowing for scalable client acquisition at lower marginal cost; this dynamic should compress the cost-to-income ratio and structurally enhance return on equity.
  
• Indonesia's surging middle class and ongoing financial inclusion drive provide a powerful multi-year runway for micro, SME, and consumer lending well beyond current guidance, setting up the potential for a sustained double-digit growth rate in gross loans and revenues.
  
• BRI's deepening dominance in microfinance, combined with specialized risk management, enables outsized participation in the rapid expansion of MSMEs and rural enterprises-a segment where BRI already commands strong pricing power-supporting structurally superior lending yields and long-term profitability versus peers.

Bank Rakyat Indonesia (Persero) Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Bank Rakyat 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 Rakyat Indonesia (Persero)'s revenue will grow by 30.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 43.7% today to 26.8% in 3 years time.
• The bullish analysts expect earnings to reach IDR 78636.3 billion (and earnings per share of IDR 547.71) by about July 2028, up from IDR 57942.6 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 15.9x on those 2028 earnings, up from 9.9x today. This future PE is lower than the current PE for the ID Banks industry at 18.5x.
• Analysts expect the number of shares outstanding to decline by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.23%, as per the Simply Wall St company report.

Bank Rakyat Indonesia (Persero) Future Earnings Per Share Growth

Risks

• Persistent asset quality issues in the micro and small business loan segment-including high special mention loan (SML) and non-performing loan (NPL) ratios, along with elevated write-offs and reliance on recoveries-indicate ongoing credit risk that could suppress net interest income and weigh on net profit growth in the coming years.
  
• Slower growth and even contraction in micro and small business loans, which have traditionally been BRI's core segment, signals demographic headwinds and market saturation. This could hinder BRI's ability to sustain historical levels of loan growth and revenue expansion going forward.
  
• The bank's high operating costs, largely due to a sizeable legacy branch network and increased hiring, risk constraining improvements in the cost-to-income ratio. Rising expenses may limit future net margin expansion, especially as digital-first competitors intensify pricing pressure across the industry.
  
• BRI's concentrated exposure to agricultural, FMCG, and mining sectors through its corporate portfolio exposes it to sectoral shocks and the risk of tighter global ESG standards, potentially increasing provisioning, compliance expenses, and threatening lending revenues if capital flows shift away from these industries.
  
• Continued digital disruption from fintechs and digital-only banks, coupled with slower adoption of advanced digital banking solutions at BRI, may accelerate customer attrition and result in structural revenue stagnation, eroding market share and pressuring long-term earnings growth.

Valuation

• The assumed bullish price target for Bank Rakyat Indonesia (Persero) is IDR5892.32, which represents two standard deviations above the consensus price target of IDR4749.62. This valuation is based on what can be assumed as the expectations of Bank Rakyat 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 IDR6300.0, and the most bearish reporting a price target of just IDR3600.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be IDR293013.7 billion, earnings will come to IDR78636.3 billion, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 12.2%.
• Given the current share price of IDR3800.0, the bullish analyst price target of IDR5892.32 is 35.5% 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.