ARTO The Sharia Unit "Recovered" - By Shrinking Its Loan Book Nearly 60%

Two Open Questions, Two Disappointing Answers

The H1 2023 post left two things hanging: would the Sharia Business Unit's first-ever quarterly loss (an implied ~Rp8.3 billion in Q2 2023) turn out to be a one-off, and would the conventional bank's implied best-ever quarter (~Rp31.4 billion) prove repeatable. Nine-month 2023 figures answer both, and neither answer is the clean story the headline suggests.

Bank Jago's 9M 2023 net income reached Rp50,294 million, up 23.9% YoY from Rp40,573 million. Subtracting the already-disclosed H1 2023 figure (Rp40,516 million) implies Q3 2023 standalone net income of roughly Rp9,778 million - a real profit, but less than half of the implied Rp23,012 million the bank earned in Q2 alone (H1's Rp40,516 million minus Q1's already-disclosed Rp17,504 million).

The Sharia unit's own 9M 2023 net income was Rp29,354 million, against Rp26,953 million already disclosed for H1 2023 - implying a standalone Q3 2023 Sharia net income of approximately Rp2,401 million. That's a genuine recovery from Q2's loss. But the Sharia unit didn't get healthier - it got smaller. Sharia financing (gross) fell from Rp2,202,599 million at 31 December 2022 to Rp904,678 million at 30 September 2023, a decline of 58.9% in nine months. Sharia total assets fell 45.1% over the same window, from Rp2,403,009 million to Rp1,320,084 million, and the unit's own disclosed ratios confirm the retreat: its return on assets collapsed from 11.53% (Sep 2022) to 2.00% (Sep 2023), and its Financing to Deposit Ratio^» nearly halved, from 226.80% to 112.00%. A shrinking book with fewer bad loans left in it will naturally show a better NPF ratio too - Sharia gross NPF eased from 4.21% to 3.30% - which is exactly the kind of improvement that looks encouraging in isolation and looks different once the denominator collapsing is accounted for.

Backing out the conventional bank's own implied result the same way: 9M 2023 total net income (Rp50,294 million) minus the Sharia unit's Rp29,354 million leaves Rp20,940 million attributable to the conventional business - up from H1's implied Rp13,563 million, meaning the conventional bank's own Q3 2023 standalone profit was approximately Rp7,377 million, down sharply from Q2's implied Rp31.4 billion. Q2 2023 wasn't the start of a trend; it was the best quarter in a still-thin run.

The Prescription

Bank Jago should keep the two things actually compounding well this quarter: total customer deposits grew 24.5% in nine months to Rp10,304,764 million, with the CASA^» mix improving to 73.2% (from 69% at FY2022), and gross NPL^» fell to a new backfill-best 1.15% even as the loan book grew - a bank funding itself more cheaply while lending more carefully is the actual foundation this business needs. What it should stop doing is presenting a shrinking Sharia book's improved ratios without the context of why they improved. Every Sharia metric this quarter - NPF, ROA, FDR - moved in a direction that reads as recovery, but each is a ratio with a denominator that fell by roughly half; a reader comparing this quarter's Sharia disclosures against FY2022's without also checking the absolute financing balance would reasonably conclude the unit turned itself around, when what actually happened is closer to a managed wind-down. If the bank has decided to deliberately shrink the Sharia unit - a defensible strategic choice, since two years of its own results show a unit whose earnings swing from best-quarter-in-the-bank to worst-quarter-in-the-bank with little warning - it should say so plainly instead of letting improved ratios imply organic recovery.

Key Financial Metrics

9M 2023 vs. 9M 2022 - PT Bank Jago Tbk

FX: IDR 15,474 = USD 1 (28 September 2023 close, nearest trading day to period-end). The published statements for this period report the Bank on a standalone basis only - Bank Jago has no consolidated subsidiaries, so this is the same reporting scope prior posts in this backfill have used.

Metric	9M 2023 (IDR)	9M 2023 (USD)	9M 2022 (IDR)	YoY
Net interest and Sharia income ("Net Revenue" equivalent)	Rp1,209,242M	~$78.15M	Rp983,843M	✅ +22.9%
Provision for impairment losses	-Rp348,440M	-~$22.52M	-Rp265,662M	⚠️ +31.2%, tracking loan book growth
Operating income	Rp62,735M	~$4.05M	Rp48,251M	✅ +30.0%
Income before income tax	Rp69,997M	~$4.52M	Rp52,349M	✅ +33.7%
Deferred tax expense	-Rp19,703M	-~$1.27M	-Rp11,776M	+67.3%, an expense both periods
Net income for the period	Rp50,294M	~$3.25M	Rp40,573M	✅ +23.9% - but Q3 standalone was less than half of Q2's implied size, see above
Earnings per share (full amount, basic and diluted)	Rp3.63	~$0.0002	Rp2.93	✅ +23.9%

Operating income (the bank's own regulatory-format figure, netting impairment losses against revenue) is the closest equivalent measure for a bank; Adjusted EBITDA and free cash flow aren't included, consistent with the rest of this backfill.

Balance sheet metric	Sep 2023 (IDR)	Sep 2023 (USD)	Dec 2022 (IDR)	Change since FY2022
Total Assets	Rp19,126,581M	~$1,236.05M	Rp16,965,295M	✅ +12.7%
Loans and Sharia financing (net)	Rp10,574,880M	~$683.40M	Rp9,157,817M	✅ +15.5%
Total customer deposits (current, savings, time)	Rp10,304,764M	~$665.94M	Rp8,274,385M	✅ +24.5%
Total Liabilities	Rp10,792,568M	~$697.46M	Rp8,701,538M	+24.0%, tracking balance sheet growth
Total Equity	Rp8,334,013M	~$538.58M	Rp8,263,757M	+0.9%, still essentially flat

The number worth remembering isn't "net income up 23.9%" - it's that both halves of the story this backfill has tracked since Q1 2022 moved the wrong way this quarter: the conventional bank's implied best-ever quarter didn't repeat, and the Sharia unit's return to profit came with a financing book that's roughly half the size it was nine months ago.

Key Operational Metrics

Ratios below are sourced from PT Bank Jago Tbk's own published financial ratios (30 September 2023 vs 30 September 2022, unless stated otherwise) and its "9M 2023 Results Update" investor presentation (October 2023).

• CASA ratio^»: 73.2% (Sep 2023, calculated from Rp7,543,567M current + savings deposits ÷ Rp10,304,764M total deposits, matching the investor presentation's rounded "73%") vs. 71% (Jun 2023, per the H1 2023 post) vs. 69% (Dec 2022) - a third straight quarter of improvement.
• Loan-to-Deposit Ratio^»: 105.33% (Sep 2023, per the bank's own filed ratios) vs. 111% (Jun 2023, per the H1 2023 post) vs. 114% (FY2022) - continuing to ease as deposit growth keeps outrunning loan growth.
• NIM^»: 9.97% (Sep 2023, per the bank's own filed ratios) vs. 10.47% (Sep 2022) vs. 10.5% (H1 2023) - drifting lower for a second straight period as the funding mix shifts toward costlier deposits.
• NPL^»: 1.15% gross / 0.14% net (Sep 2023, per the bank's own filed ratios) vs. 1.20%/0.19% (Jun 2023, per the H1 2023 post) vs. 1.82%/0.55% (Dec 2022) - both ratios improved for a third straight quarter, a new backfill-best.
• CAR^»: 71.33% (Sep 2023, per the bank's own filed ratios) vs. 72.83% (Jun 2023) vs. 82.75% (Dec 2022) - still falling every quarter as capital gets deployed into risk-weighted loans, still more than 7x OJK's 10% minimum requirement.
• ROE^» / ROA^»: 0.94% / 0.50% (9M 2023, per the bank's own filed ratios) vs. 0.71%/0.50% (9M 2022) - ROE improved YoY, ROA flat, both still far below what the ~3.4x book-value premium (see Target Valuation Range) would imply is sustainable.
• Cost-to-Income^»: 69.43% (Sep 2023, per the bank's own filed ratios) vs. 69.76% (Sep 2022) vs. 67% (Jun 2023, per the H1 2023 post) - a slight YoY improvement but a step back from H1's efficiency level.
• Cost of Funds (period-end, per the investor presentation): 2.9% (9M 2023) vs. 2.8% (9M 2022) vs. 2.9% (FY2022).
• Related-party loan concentration: 3.96% of the total loan book (Sep 2023, Rp430,347M against Rp10,870,961M gross loans and Sharia financing) vs. 3.65% (Jun 2023, per the H1 2023 post) - up from Jun 2023, and this quarter's filed statements report only the aggregate figure, not the borrower-level breakdown (BFI Finance, Trimegah Sekuritas) Q2 2023's post found had been restored - a second instance of this backfill's borrower-level disclosure appearing in one quarter and disappearing the next, first flagged in Q1 2023.
• Undrawn loan commitments: Rp3,187,114M (Sep 2023: Rp2,146,013M committed + Rp1,041,101M uncommitted) vs. Rp1,578,886M (Dec 2022, per the FY2022 post) - up 101.9% in nine months, more than doubling.
• KYC-verified digital banking and lending customers: "9.2+ million," per the October 2023 investor presentation, up from 8.3+ million at Jun 2023.
• Headcount and branch network: not disclosed in this quarter's filed statements or presentation, after Jun 2023's statements had reported 494 employees - a disclosure that appeared for one quarter and then dropped again.

The Stock Erases Its Rally

Bank Jago's shares closed at approximately Rp2,020 on 29 September 2023 (the nearest trading day to period-end), down 36.5% from Rp3,180 three months earlier - giving back most of the prior quarter's 31.4% gain and stopping the five-quarter losing streak the stock had just broken from becoming a two-quarter recovery. No stock split has occurred at any point since the company's IPO, so Rp2,020 is the actual nominal price quoted on the IDX at the time. The stock is down 69.4% YoY (from Rp6,600 at 30 September 2022) and 88.7% from its all-time backfill high of Rp17,950 in July 2021.

The reversal lines up with this quarter's own numbers the same way Q2's rally lined up with its numbers: the conventional bank's implied profit collapsed to a fraction of Q2's size, the Sharia unit's return to profit came with a shrinking book, and cost-to-income ticked up rather than down for the first time in three quarters. A market that priced in Q2's blowout quarter as the new normal had reason to reprice once Q3 showed it wasn't.

Beyond the Usual

A "normalized" profit figure strips out stock-option costs that are themselves growing fast

The investor presentation reports both a "reported" and a "normalized" pre-tax profit for each quarter, with the difference explained as stock-option cost from the Management Employee Stock Option Program^» (MESOP) this backfill first flagged in the H1 2023 post. That cost nearly tripled sequentially - from Rp5 billion in Q2 2023 to Rp14 billion in Q3 2023 - and stripping it out turns Q3's reported PBT of Rp18 billion into a "normalized" Rp32 billion, roughly 78% higher. A cost that's compounding this quickly deserves scrutiny before being waved off as a non-cash add-back every quarter; it's real dilution and real economic cost to existing shareholders, even if it doesn't touch book value the way the presentation's framing implies.

The financing-to-deposit collapse is the cleanest single number showing the Sharia unit shrank, not recovered

The Sharia Business Unit's own disclosed FDR^» - its financing book measured against its deposit base - fell from 226.80% at September 2022 to 112.00% at September 2023, a near-halving. Against the Dec 2022 balance sheet, the unit's own deposit base (wadiah savings plus profit-sharing investment funds) also fell - from Rp1,183,782M to Rp807,740M, down 31.8% in nine months - but financing shrank even faster (58.9% over the same window), which is why the ratio between them nearly halved instead of holding steady. A unit whose financing book is shrinking faster than its funding base is a unit being wound down, not one regaining its footing - see above for the full context.

Committed loan facilities grew twice as fast as the loan book they're meant to seed

Undrawn loan commitments more than doubled in nine months (Rp1,578,886M to Rp3,187,114M, +101.9%, see above), while the actual loan and Sharia financing book (net) grew only 15.5% over the same period. Extended-but-undrawn commitments growing this much faster than drawn balances is consistent with the bank signing up new ecosystem/partnership lending relationships faster than borrowers are actually pulling down the facilities - a leading indicator worth checking against next quarter's loan growth to see whether it converts.

Target Valuation Range

Market cap Rp27.99 trillion (~$1.81 billion), ~3.36x P/B, ~417x P/E. Bottom line: still overvalued on both an earnings and a book basis, but the multiple compressed sharply this quarter - and entirely because the price fell, not because the business got cheaper on fundamentals.

Bank Jago's shares closed at approximately Rp2,020 on 29 September 2023, down 36.5% from Rp3,180 three months earlier (see above). At 13,856,250,000 shares outstanding (unchanged since the March 2021 rights issue, and unchanged again this quarter based on flat issued/paid-in capital of Rp1,385,625M), that implies a market capitalization of approximately Rp27.99 trillion (~$1.81 billion).

Market cap → book value	Q3 2023
Share price (period-end)	Rp2,020
Shares outstanding	13,856,250,000
Market capitalization	Rp27.99 trillion (~$1.81 billion)
Total equity (book value)	Rp8,334,013M
Book value per share	Rp601.46

Peer-multiple sanity check	Q2 2023	Q3 2023	Change
P/B	5.30x	3.36x	down
P/E	545x	417x	down

P/B^»: ~3.36x, using book value^» per share of Rp601.46 (Rp8,334,013M total equity ÷ 13,856,250,000 shares) - a new backfill-low multiple, down from ~5.30x three months ago, since the 36.5% price decline this quarter far outran the 0.9% growth in book value. P/E^»: annualizing 9M 2023 EPS of Rp3.63 (×4/3) gives Rp4.84, for an implied multiple of roughly 417x - improved from Q2's ~545x, but still too thin an earnings base to support a real earnings multiple, and the improvement is again a price effect (the stock got cheaper) rather than earnings catching up to the price. A full DCF still isn't appropriate, for the same reason every prior post in this backfill has given: the conventional bank has produced one strong quarter in over two years, didn't repeat it, and the Sharia unit's return to profit rode a shrinking book rather than a genuine turnaround. The peer-multiple read stays the honest one - and this quarter it moved favorably only because the stock sold off, not because either half of the business proved its Q2 result was sustainable.

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