Despite lower margins, BRI’s net profits surge almost 27 percent

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PT Bank Rakyat Indonesia (BRI), the nation’s most profitable bank and the second-largest by assets, saw its margin under pressure, but cost efficiencies and fee-based income helped lift the bank’s net profits in the second quarter of this year.

The lender, most commonly known as BRI, posted Rp 8.6 trillion (US$911.6 million) in net profits in the April-June period, up 26.8 percent from the same quarter a year ago, it announced on Friday. BRI saw its lending grow 14.7 percent to Rp 265.8 trillion in outstanding loans, almost half of the overall commercial banking sector’s 28 percent loan growth, according to Bank Indonesia (BI).

“A significant increase in fee-based income, lower cost of funds and loan growth have pushed up net profits,” BRI president director Sofyan Basir told a press briefing. “Hopefully, loan growth in the future can improve even further, because historically, demand for loans from July to October is much higher compared with the beginning of the year.”

The cost-to-income ratio dropped to 61.8 percent in the second quarter from 69.4 percent in the same quarter last year, indicating that BRI has managed to be more cost efficient while still expanding its income.

The net interest margin (NIM), which is the difference between lending rates charged to customers for credit and interest rates banks must pay to customers’ deposits stored at the banks, dropped to 8.49 percent in the second quarter from 9.88 percent in the same quarter a year ago — resulting in flat net interest income growth of 3.1 percent to Rp 17.15 trillion.

Sofyan said to offset lower margins, BRI would boost its credit volume. Retail and micro lending dominate BRI’s loan portfolio, at 39.6 percent and 31.7 percent, respectively, while loans to state-owned enterprises account for 14.9 percent. The remaining 13.8 percent of BRI’s portfolio is made up of corporate and middle segment loans, according to the bank’s second quarter data.

“If we look to the conditions in the future, it seems to be very difficult to maintain double digit [NIM]. On one hand, high NIM attracts competitors to benefit, and we don’t want our segment to be taken away. Our strategy is to lower the NIM so that competitors think twice before entering the [micro banking] business,” said BRI finance director Achmad Baiquni, citing a target to maintain a stable NIM until year-end.

Despite lower-than-average loan growth and pressures on margins, bad loans also declined. The gross non-performing loan (NPL) ratio eased to 2.38 percent in the April-June period this year from 3.64 percent in the same period last year, well below the central bank’s 5 percent threshold.

“Our CAR [capital adequacy ratio] was at 16 percent, so there’s no intention to issue bonds because we feel that our capital position is still secure to extend credit in the future,” Sofyan said.

BRI’s loan-to-deposit ratio (LDR) also dropped significantly to 82.1 percent in the second quarter this year from 90.2 percent in the same quarter in 2011, as deposits outpaced new loans, rising almost 26 percent to Rp 294.6 trillion — indicating sufficient liquidity to help expand credit in the future.

The bank is also considering a move to use internal cash to acquire two securities houses to start growing underwriting and brokerage business lines as the village-friendly lender expands its presence in big cities.

Shares in BRI soared following the announcement, trading at Rp 6,700 apiece at 2:20 p.m. Jakarta time, 5.5 percent higher than the previous day.