Why we can't expect much from Bank Rakyat Indonesia's net interest income growth until 2014

Awaiting the delayed effect of BRI's 2011 revitalization programme.

According to Maybank Kim Eng, since late 2011 BRI conducted a revitalization programme in which it add thousands of loan officers for the micro segment. These new recruits will have three months in-class training followed by nine months on-the-job training on their first year joining BRI. 

Here's more from Maybank Kim Eng:

On the second year, they will be placed in one of BRI’s 7,000 outlets (BRI unit, Teras BRI, and Mobile Teras) and required to have 80 new micro customers, mostly KUR. There is no requirement on loan size during this period.

However, from the third year onwards, the bank targets each officer to keep an average loan  size of IDR20m per additional customer. Maximum productivity per employee will be reached in 4-5 years, by when each will be handling 400 micro customers.

This explains why it is not until 2014, when employee productivity in micro lending increases significantly, that we expect BRI’s net interest income growth to accelerate and translate to stronger profit growth.

Loan writebacks will still play an important role in 2013. For FY13F, we raise our earnings by 9% to IDR19.8t assuming the bank can book 7% YoY growth in net interest income, 50% loan writebacks from last year’s IDR4.4t writeoffs, and maintain NPLs at ~2%.

The higher interest income in FY13F will be driven by 22% YoY credit growth across all segments. This will also ease NIM pressure that we think will come from intensifying competition in deposit raising.

We expect CoF to increase along with our estimated 50bp rise in benchmark rates to 6.25% by YE13. Coupled with growth in interest earnings asset (IEA), these in turn will drag NIM to 8% in FY13F from 8.4% in FY12.

As high rate of loan writebacks will still play an important part in BRI’s net profit growth, we make no changes to our TP of IDR8,500/share (10.3x FY13F PER; 2.5x 2013F PBV) despite our upgrade of BRI’s FY13F profit forecast.