BRI may miss micro loan growth target amidst asset quality concerns

Micro loans were down 0.9% quarter-on-quarter in Q2.

Bank Rakyat Indonesia (BRI) is expected to benefit from upcoming rate cuts, but the micro segment’s asset quality outlook will remain under pressure.

The bank may miss its target for micro loans of mid-single digit growth in 2024.

“Given that loan officers’ KPIs are now more focused on asset quality, there is a possibility that the bank might miss its target as micro loans growth is slowing down faster than expected,” said UOB Kay Hian analyst Posmarito Pakpahan.

As of June, micro loans were down 0.9% quarter-on-quarter (QoQ), bringing micro loans to a 5.7% year-on-year (YoY) growth.

BRI’s asset quality has improved in the second quarter, supported by the harvest season and lower prices of groceries.

However, the low-middle income class’ purchasing power remains weak.

Micro, small, and medium enterprise (MSME) loan growth continues to decelerate, with a 5.1% You growth in July versus the 8.9% You growth in January 2024.

On the upside, the strong non-interest income will support BRI’s 2024 earnings growth. NII grew 33% YoY as of the end of second quarter, thanks to dividend income from subsidiaries, high single-digit fee income, and strong recovery in income.