Higher costs and deteriorating loans slow BRI’s profit growth

Cost of capital rose 144 basis points in Q1.

Whilst Bank Rakyat Indonesia (BRI) saw net profit rise in Q1, growth will be dampened by rising bad loans and cost of capital (COC).

Bank Rakyat Indonesia (BRI)’s strong loan growth and lower operational expenses helped drive net profit to rise 2.5% to IDR15.98t, its latest financial results showed.

Net interest margin (NIM) was stable at 7.84% due to changes in asset (loan) mix. Loan yield jumped 68 basis points (b) in Q1 compared to the same period in 2023, compensating for the impact of a 92bp increase in cost of fund (CoF) over the same period of comparison.

However, non-performing loans (NPL: 3.1%) and cost of capital (3.83%) were higher than expected, as the asset quality of the bank’s micro and small segments worsened over the quarter, noted UOB Kay Hian in a report.

COC notably jumped 144 bp during the period.

NPLs rose from 2.9% as loans at risk increased to IDR166.2t in March 2024 from IDR157.9t in end 2023.

COVID-19 restructured loans, rising inflation rate, and low government spending are negatively impacting the micro and small segments’ asset quality, noted UOB Kay Hian analyst Posmarito Pakpahan in a report.

Notably, the NPL of the micro segment increased to 2.69% in March 2024, from just 2.2% in March 23. This asset quality deterioration was unexpected, leading to the increase in credit cost.

Pakpahan and UOBKH have cut its 2024 and 2025 net profit estimates on the back of expected elevated costs.

“We cut our 2024 [and] 2025 net profit estimates by 4.8% and 7.2% respectively as we cut our NIM assumption and raise our COC assumption,” Pakpahan said.

UOBKH further lowered its NIM assumption by 20 bp, and raised its COC assumption by 50 bp. 

“We expect the  bank to book IDR23.3t in net profit with a recovery rate of over 50%. Overall, with the new assumption, we forecast the bank to deliver a 6.9% net profit growth in 2024, NPL of 3.1%  and NPL coverage of 197%,” Pakpahan said.