Digital Transformation And Financial Inclusion Will Reshape Indonesia's Banking Landscape

Key Takeaways

• Superior digital risk controls and rising low-cost deposits position BRI for accelerated profit growth, with improved margins and earnings outpacing market expectations.
  
• Expansion into underserved segments and leveraging subsidiary synergies could drive long-term revenue growth, higher non-interest income, and market-leading returns.
  
• Declining core micro lending, rising credit losses, operational inefficiencies, digital competition, and stricter regulation all threaten sustained profitability and loan growth.

Catalysts

Provides various banking products and services in Indonesia and internationally.

• Analyst consensus expects improving asset quality and lower NPLs to gradually lift margins and ROE, but this likely underestimates the combined impact of enhanced digital credit scoring, more rigorous risk controls, and the normalization of loan loss reserves from historically elevated levels; as BRI's NPL ratio and cost of credit revert toward pre-pandemic norms, a significant positive swing in net income could unfold faster and with more magnitude than the street anticipates.
  
• While analysts broadly cite potential net interest margin recovery from lower rates, they may be overlooking the structural shift underway: BRI is seeing double-digit growth in CASA, a high and rising CASA ratio, and robust deposit inflows from both retail and wholesale-providing a platform for BRI to lock in sustainably lower funding costs, boost net interest margins well above peers, and support outperformance on earnings.
  
• BRI is uniquely positioned to unlock outsized growth by capturing the massive potential of Indonesia's unbanked and underbanked population through an expanding digital ecosystem (including BRImo and AgenBRILink), which should dramatically accelerate new customer acquisition, low-cost deposit growth, and high-margin lending, priming the bank for multi-year double-digit revenue growth.
  
• The transformation and synergies between BRI subsidiaries (especially Pegadaian in gold-backed lending and PNM in ultra-micro lending) are only just beginning to scale; increased cross-selling, integration, and penetration of rural and informal markets could substantially lift fee income, non-interest revenue, and drive meaningfully higher group ROE.
  
• Recent and forthcoming government policy initiatives (such as village cooperative programs and sustained MSME support, backed by large-scale fiscal outlays and credit guarantees) will funnel subsidized capital at near-zero risk to BRI and amplify core lending growth without downside to capital quality, positioning the bank to deliver sector-leading loan growth and above-consensus profitability.

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 30.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 42.4% today to 25.0% in 3 years time.
• The bullish analysts expect earnings to reach IDR 74858.7 billion (and earnings per share of IDR 540.73) by about September 2028, up from IDR 56729.7 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 15.4x on those 2028 earnings, up from 10.3x today. This future PE is lower than the current PE for the ID Banks industry at 16.3x.
• 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 12.33%, as per the Simply Wall St company report.

Bank Rakyat Indonesia (Persero) Future Earnings Per Share Growth

Risks

• The continued decline and stagnation in micro lending-BRI's core segment-is attributed to macroeconomic headwinds, weakening purchasing power, and demographic shifts, posing a significant risk to long-term loan growth and constraining future revenues.
  
• The persistent pressure on asset quality in the micro and SME segments, alongside elevated non-performing loans and frequent write-offs, suggests a potential for ongoing credit losses, which could adversely impact net margins and earnings.
  
• Heavy investments in branch infrastructure and a high cost-to-income ratio signal limited operational efficiency improvements, creating a structural drag on profitability and suppressing long-term net margins.
  
• Competition from digital banks and fintechs is accelerating, and although BRI is making progress in digitalization, the bank acknowledges it lags leading challengers in customer experience and digital uptake, risking attrition of younger and more profitable clients and ultimately affecting revenue growth.
  
• Increasing regulatory requirements, such as higher provisioning and tighter capital standards, combined with sector-wide margin compression and potential industry consolidation, may further pressure BRI's net interest income and restrict earnings potential over time.

Valuation

• The assumed bullish price target for Bank Rakyat Indonesia (Persero) is IDR5400.0, which is the highest price target estimate amongst analysts. 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 IDR5400.0, and the most bearish reporting a price target of just IDR3340.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be IDR299612.5 billion, earnings will come to IDR74858.7 billion, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 12.3%.
• Given the current share price of IDR3880.0, the bullish analyst price target of IDR5400.0 is 28.1% 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.