BBRI: Growing micro business
Lower lending rates to attract higher demand
The Indonesian government is keeping its promise of providing affordable
productive loans by cutting interest rates on “Kredit Usaha Rakyat”
(KUR) to 9% in 2016. To a limited extent, we expect the new KUR to
cannibalize banks’ non-subsidized lending products, including the micro
credit offered by BBRI
at 16-28% interest rates. However, margin
pressure in BBRI should be offset by its rising KUR volume, which could
also act as a source of low-cost deposits for the bank. Maintain BBRI as
our Top BUY with TP of IDR13,000 (12.4x FY16 P/E, 2.4x P/BV).
Lower KUR rate to help spur demand
Government is ready to unleash IDR10t in interest rates subsidy on KUR
for 2016 as part of its effort to boost Indonesia’s flagging economic
growth. The subsidy is nearly seven times what was spent in 2015. This in
turn will allow for 3ppt cheaper lending rates this year and is expected
to generate higher demand especially from the micro business people.
The total loan disbursement target is IDR100t vs. IDR23t achieved last
Non-subsidized loans might start to weaken
In 2015 we did not see any cannibalization in BBRI’s nonsubsidized micro
lending despite the 7ppt KUR rate cut. But things could be different this
time around as the interest rate gap becomes very wide. The shift,
however, will be limited by the strict requirement in KUR and to the
amount of loans available for disbursement.
Margin to remain strong on higher volume
Being the major player in the micro business, BBRI is set to cover 67% of
the 2016 KUR target. So despite the possibly slowing demand for its
higher yield products, we expect NIM to remain close to 8% vs. sector
average of 5.3%. Furthermore, the bank’s excellent risk control in the
segment should allow BBRI to keep provisioning to a minimum and
translate its superior NIM to an attractive 21% ROE.