The Fix That Didn't Hold, and the Problem That Won't Stop
The H1 2018 post told a tidy story: Corporate Non-SoE's loan-mix NPL had improved for a second straight quarter (5.83% at Q1 to 5.38% at Q2), and the officially-reported Corporate segment's own income rebounded from a weak 7.9% Q1 margin to 12.9% in Q2 alone - both threads resolving cleanly in the same direction after a full quarter of divergence.
This quarter undoes it. Corporate Non-SoE's gross NPL jumped back to 5.80% at September 30, 2018 - almost exactly where it sat at Q1 (5.83%), erasing Q2's entire improvement in one reading. The officially-reported Corporate segment's own income confirms it wasn't noise: Q3-alone Corporate income fell to just Rp132,437M on Rp1,827,625M of Q3-alone total income, a 7.25% margin - below even Q1's 7.9%, and well below Q2's 12.9%. Whatever repaired Corporate's book in Q2 didn't hold into Q3.
Meanwhile Medium, the category that quietly overtook Corporate Non-SoE as BRI's worst-performing loan-mix bucket last quarter, kept getting worse: its gross NPL climbed from 6.02% at Q2 to 6.96% at Q31 - a fresh high for this series - while its loan book grew just 1.9% year-over-year, again the slowest of any category BRI discloses. The gap between BRI's two worst categories, which was 0.64 percentage points at Q2 (6.02% Medium vs. 5.38% Corporate), widened to 1.16 points this quarter (6.96% vs. 5.80%) as one deteriorated further and the other reversed backward toward it.
It isn't all bad news in the same direction, though. Subsidiaries, the one segment whose Q2 moved the wrong way while Corporate improved, swung back hard in Q3: standalone Q3 income of Rp255,350M on Rp1,101,904M of total income, a 23.2% margin - more than double Q2's weak 10.0% and the segment's best quarter this series has recorded. Corporate's unwind and Subsidiaries' rebound are close to a mirror image of what happened the quarter before, in reverse - see Five Segments, One Reversed below.
Consolidated net income attributable to owners grew 14.5% year-over-year for the nine months (Rp23,471,537M vs Rp20,508,121M), the fastest pace in this series since FY2017, with operating income growing faster still at 21.3% - a genuinely strong quarter at the consolidated level even as two of the five segments moved backward underneath it.
1 This quarter's own comparative column restates 1H 2018 Medium NPL at 6.02%, a few basis points below the 6.11% the H1 2018 post reported from that quarter's own investor presentation - a small restatement, not large enough to change the trend, but worth flagging since it's the same category that's already drawn scrutiny in this series.
The Prescription
BRI should stop describing Corporate Non-SoE's asset-quality moves as resolved after a single good quarter - Q2's improvement looked like the two-quarter recovery the H1 2018 post described, and it evaporated in the very next filing. A category that's swung from 5.83% to 5.38% to 5.80% in three consecutive quarters isn't "fixed" or "broken," it's volatile, and BRI's own materials should say so rather than letting each quarter's reading imply a settled trend. The bank clearly has the granular data - the loan-mix table itself proves it - so publishing three data points without a sentence acknowledging the whiplash is a disclosure choice, the same gap three straight posts have now flagged about this exact category.
What BRI should stop doing: treating Medium as a stable, low-priority book. It's now BRI's single worst-performing loan-mix category for a second straight quarter, its NPL has climbed in three of the last four readings (7.88%→5.42%→4.87%→6.02%→6.96%, allowing for the Q1 2018 re-segmentation break), and its own loan growth (1.9% YoY) is the slowest of any category - meaning the deterioration isn't diluted by portfolio growth the way a faster-growing book's NPL problems sometimes are. A category BRI is barely growing, and hasn't been able to stabilize the credit quality of, deserves the same explicit management attention Corporate Non-SoE has now drawn across three consecutive posts in this series - not silence.
Key Financial Metrics
9M 2018 vs. 9M 2017 (P&L, consolidated), and Sep 2018 vs. Dec 2017 / Jun 2018 (balance sheet, consolidated)
FX: approximately IDR 14,902 = USD 1, the approximate Bank Indonesia JISDOR reference rate around September 28, 2018 (not disclosed in this filing itself).
| Metric | 9M 2018 (IDR) | 9M 2018 (USD) | 9M 2017 (IDR) | YoY |
|---|---|---|---|---|
| Interest, Sharia and Premium Income, net ("Net Revenue" equivalent) | Rp58,527,727M | ~$3,929M | Rp54,414,371M | ✅ +7.6% |
| Other Operating Income | Rp16,207,952M | ~$1,088M | Rp13,694,596M | ✅ +18.3% |
| Total Other Operating Expenses | Rp30,972,013M | ~$2,078M | Rp27,754,449M | ⚠️ +11.6% |
| Operating Income | Rp29,894,767M | ~$2,006M | Rp24,641,705M | ✅ +21.3% |
| Net Income (attributable to owners) | Rp23,471,537M | ~$1,575M | Rp20,508,121M | ✅ +14.5% |
| Total Comprehensive Income (attributable to owners) | Rp19,282,227M | ~$1,294M | Rp22,091,739M | ⚠️ -12.7%¹ |
| EPS (basic, nine-month, consolidated) | Rp192.02 | ~$0.0129 | Rp167.77 | ✅ +14.5% |
¹ A continuation of the bond-portfolio mark-to-market swing the H1 2018 post flagged for the half: this period's other comprehensive income carries a Rp5,771,928M unrealized loss on available-for-sale securities and Government Recapitalization Bonds (before tax), against a Rp2,095,485M gain in the year-ago period - the securities book's own valuation move as Indonesian bond yields kept rising through the third quarter, not an operating result.
| Balance sheet metric | Sep 2018 (IDR) | Sep 2018 (USD) | Dec 2017 (IDR) | vs Dec'17 | Jun 2018 (IDR) | QoQ |
|---|---|---|---|---|---|---|
| Total Assets | Rp1,183,364,135M | ~$79.41B | Rp1,126,248,442M | ✅ +5.1% | Rp1,153,228,286M | ✅ +2.6% |
| Loans (gross, incl. sharia financing and finance lease) | Rp808,903,759M | ~$54.28B | Rp739,336,520M | ✅ +9.4% | Rp794,295,617M | ✅ +1.8% |
| Total Deposits (Demand + Savings + Time) | Rp872,740,587M | ~$58.57B | Rp841,656,450M | ✅ +3.7% | Rp837,993,962M | ✅ +4.1% |
| Total Liabilities | Rp1,007,964,724M | ~$67.64B | Rp958,900,948M | ⚠️ +5.1% | Rp986,548,641M | ➖ +2.2% |
| Total Equity (attributable to owners) | Rp173,301,604M | ~$11.63B | Rp166,748,817M | ✅ +3.9% | Rp164,746,126M | ✅ +5.2% |
| Total Cash and Cash Equivalents (per cash flow statement) | Rp139,811,890M | ~$9.38B | Rp186,410,433M | ⚠️ -25.0% | Rp153,856,121M | ⚠️ -9.1% |
Total cash kept falling for a third straight quarter - down 9.1% QoQ on top of Q1's 5.9% and Q2's 12.3% declines, now a cumulative 25.0% drop since year-end - as loan growth (+9.4% since Dec 2017) continued to outpace deposit growth (+3.7% since Dec 2017). The gap is narrower than H1's read (loans +7.4% vs. deposits -0.4% at that point), since deposits actually grew this quarter rather than contracting, but loans are still growing faster and the multi-quarter cash decline hasn't reversed.
Net income grew 14.5% for the nine months - the fastest pace this series has recorded since FY2017 - but underneath that headline, Corporate Non-SoE's Q2 asset-quality improvement fully reversed while Medium's kept deteriorating, widening the gap between BRI's two worst loan-mix categories (see The Fix That Didn't Hold, and the Problem That Won't Stop above).
Key Operational Metrics
Bank-only, per BRI's own investor presentation, unless stated
- CASA»: 58.15% (Bank, Sep 2018) vs 59.51% (Bank, Jun 2018) and 56.98% (Bank, Sep 2017) - down QoQ but still up YoY, a pullback from Q2's strong reading rather than a reversal of the year's improving trend.
- Loan-to-deposit ratio (LDR)»: 93.15% (Bank, Sep 2018) vs 95.27% (Bank, Jun 2018) and 90.39% (Bank, Sep 2017) - eased back from Q2's stretched reading as bank-only deposits (+4.1% QoQ) grew faster than loans (+1.8% QoQ) this quarter, still above management's own target band and above the year-ago quarter.
- Net Interest Margin (NIM)»: 7.61% (Bank, Sep 2018) vs 7.64% (Bank, Jun 2018) and 8.01% (Bank, Sep 2017) - essentially flat QoQ, continuing the gradual multi-year compression this series has tracked since 2015.
- ROA» (before tax): 3.60% (Bank, Sep 2018) vs 3.37% (Bank, Jun 2018) and 3.34% (Bank, Sep 2017) - up on both counts.
- ROE» (Tier 1): 20.10% (Bank, Sep 2018) vs 19.33% (Bank, Jun 2018) and 19.27% (Bank, Sep 2017) - up on both counts, the best reading since Q4 2017.
- CAR» (Total, Bank): 21.02% (Sep 2018) vs 20.13% (Jun 2018) and 22.17% (Sep 2017) - the first quarterly increase in three quarters, reversing two straight declines. Tier 1 CAR rose to 19.97% from 19.14%. See Beyond the Usual below for what drove the rebuild.
- NPL ratio - gross (Bank): 2.46% (Sep 2018) vs 2.33% (Jun 2018) and 2.23% (Sep 2017) ⚠️ - worse on both counts, a fresh high for this series.
- NPL ratio - net (Bank): 1.16% (Sep 2018) vs 1.10% (Jun 2018) and 1.06% (Sep 2017) ⚠️ - also worse on both counts.
- Cost-to-income (Opex/Opr. Income, bank-only): 69.12% (Bank, Sep 2018) vs 70.50% (Bank, Jun 2018) and 72.07% (Bank, Sep 2017) - improved on both counts, the best reading this series has recorded.
- Loan-mix NPL by category (re-segmented basis): Micro 1.25%, Consumer 1.25%, Small Commercial 3.84%, Medium 6.96%, Corporate Non-SoE 5.80%, SoE 1.10% (all Bank, Sep 2018, per BRI's investor presentation, on the same restated size thresholds introduced at Q1 2018). Medium remains BRI's worst-performing loan-mix category by a widening margin - see The Fix That Didn't Hold, and the Problem That Won't Stop above. SoE, still the smallest and cleanest category in absolute terms, more than doubled from 0.44% to 1.10% - worth watching, though the base is tiny.
- Segment income (Micro/Retail/Corporate/Others/Subsidiaries): available this quarter - see Five Segments, One Reversed below.
- Geographic segment: Indonesia, USA, Hong Kong, Singapore, and Timor Leste - see Beyond the Usual below for a material, unexplained swing in Timor Leste's reported balance sheet.
Five Segments, One Reversed
BRI reports five operating segments: Micro, Retail, Corporate, Others (mainly treasury and non-lending activities), and Subsidiaries - distinct from the loan-mix NPL categories discussed above. This filing's segment note carries only a full-year FY2017 comparative column, not a genuine nine-month prior-year figure, so the read below is against FY2017's full-year run-rate rather than a same-period comparison - the same limitation the Q1 2018 post flagged for its own snapshot.
Micro remains BRI's largest segment by income: Rp34,719,359M total income and Rp12,349,891M income for the nine months, a 35.6% net margin, running at 78.9% of FY2017's full-year income - modestly ahead of a clean nine-month pace (75%). Q3-alone income of Rp4,869,278M on Rp11,842,883M total income was a 41.1% margin - Micro's strongest single quarter this series has recorded.
Retail posted Rp26,635,449M total income and Rp7,158,020M income for the nine months, a 26.9% net margin, running at 79.8% of FY2017's full-year total. Q3-alone income was Rp2,221,012M on Rp9,473,490M total income, a 23.4% margin - down from H1's 28.8%, the segment's softest quarter of the year so far.
Corporate posted Rp5,518,115M total income and Rp522,045M income for the nine months, a 9.5% net margin - almost identical to FY2017's own 9.5% full-year margin, but only because a strong H1 (10.6% margin, per the H1 2018 post) was dragged back down by a weak Q3 alone (7.25% margin, see above).
Others posted Rp4,632,390M total income and Rp2,883,871M income for the nine months (62.3% margin), still BRI's highest-margin segment, consistent with its non-lending treasury and securities business. The nine-month margin is above H1's 58.3% because Q3 alone ran even richer, at a 69.6% margin (Rp1,135,628M income on Rp1,631,890M total income) - Others is already at 92.4% of FY2017's full-year income with a quarter still to go.
Subsidiaries posted Rp3,230,366M total income and Rp634,014M income for the nine months (19.6% margin) - already 110.2% of all of FY2017's full-year income, the only segment to have already exceeded its prior full year with a quarter still to go. The nine-month blend hides a genuinely lopsided path: a strong Q1, a weak Q2 (10.0% margin, per the H1 2018 post), and a strong Q3 alone (23.2% margin, see above).
Ranked by nine-month income as a share of FY2017's full-year total: Subsidiaries leads at 110.2%, followed by Others (92.4%), Retail (79.8%), Micro (78.9%), and Corporate trailing at 71.1% - Corporate is now the clear laggard on this measure, a direct consequence of its Q3 reversal, after H1's snapshot had shown a far more evenly-paced set of segments.
Beyond the Usual
Capital ratios rebuilt as retained profit outpaced risk-weighted asset growth
Bank-only Total CAR rose from 20.13% at Q2 2018 to 21.02% at Q3 2018 - the first quarterly increase in three quarters, following two straight declines the Q1 2018 and H1 2018 posts each documented, for two different reasons (a dividend payout, then market-risk RWA growth outpacing capital). Per the filing's own capital-adequacy note (Parent Entity basis), total regulatory capital grew 5.0% quarter-over-quarter (Rp157,411,267M to Rp165,259,878M) while total risk-weighted assets grew just 0.5% (Rp782,131,078M to Rp786,046,516M) - a near-total stall in RWA growth after H1's market-risk-driven spike, combined with a genuine capital rebuild from retained Q3 profit. This is the boring, organic kind of capital recovery, not a revaluation or reclassification artifact.
Timor Leste's reported total assets fell 82% in one quarter, with no explanation in either filing
BRI's geographic segment note showed Timor Leste total assets at Rp3,745,730M as of June 30, 2018 - a figure this series' own H1 2018 post confirmed directly from that quarter's filed statement. This filing's equivalent September 30, 2018 figure is Rp680,247M - a decline of roughly 82% in a single quarter, alongside a nearly identical drop in Timor Leste's reported liabilities (Rp3,808,097M to Rp679,520M). Neither filing's notes offer any explanation for a swing this size in a segment that had been growing steadily since its first disclosure at FY2017. Timor Leste's own income before tax for the branch stayed positive and grew over the same window (Rp3,070M for H1 to Rp9,268M for the nine months), so the branch wasn't reporting a loss - only its balance-sheet footprint moved sharply, and unexplained. Worth confirming in the next quarter's filing whether this was a one-off reclassification or a genuine contraction in the branch's book.
Litigation allowance growth stopped entirely in Q3
BRI's pending-litigation allowance, which grew every quarter this series has tracked (3.4% at Q1 2018, 5.4% at Q2 2018), held exactly flat this quarter at Rp1,058,041M - the same balance reported at June 30, 2018. The nine-month growth against Dec 2017's Rp971,354M base is still 8.9%, but all of that growth happened in the first half; Q3 added nothing to the provision.
The MESOP share program kept amortizing on schedule
The MESOP employee share-compensation program first disclosed at H1 2018 continued amortizing: the "Compensation Provision of Bonus Shares" equity line grew from Rp212,667M at June 30 to Rp319,000M at September 30, a 50.0% quarter-over-quarter increase, tracking toward the program's completion no later than March 31, 2020.
Three new technology and card-issuance contracts, including BRI's first GPN-specific procurement
This filing's significant-agreements note discloses three genuinely new contracts signed this quarter: a one-year Enterprise Service Bus procurement with PT Mitra Integrasi Informatika (Rp44,499M, signed August 31, 2018) for BRI Single Middleware; a PC workstation procurement with PT Bismacindo Perkasa (Rp38,761M, signed September 7, 2018) covering 4,620 units; and a Simpedes chip/ATM/debit card procurement with PT Cipta Srigati Lestari (Rp38,119M, signed August 13, 2018) for cards bearing the GPN logo - Indonesia's national payment gateway standard rolled out through 2018, and the first GPN-specific procurement this series has recorded in BRI's own filings.
SoE loan-mix NPL more than doubled, off a tiny base
SoE loan-mix NPL, still BRI's smallest and cleanest category by loan volume, more than doubled from 0.44% at Q2 2018 to 1.10% at Q3 2018. The relative jump is large, but the absolute level remains far below every other category (Micro and Consumer both sit at 1.25%), so this reads as a small book's ratio moving on a thin denominator rather than a genuine credit-quality signal worth escalating yet.
Target Valuation Range
P/E ~10.97x, P/B ~2.02x - still cheap relative to its own recent history and to BBCA, but both multiples expanded this quarter as the share price recovered faster than the underlying loan book's credit quality did.
BRI's share price closed around Rp2,864 on September 28, 2018 (the last trading session of the quarter) - up 10.9% from the H1 2018 post's Rp2,582 close, recovering part of Q2's sharp decline, and up 3.1% from Rp2,777 a year earlier2. The stock climbed through July and August (Rp2,791, then Rp2,891) before easing slightly in September - a partial rebound in the broader emerging-market currency environment that drove Q2's selloff, though the Rupiah itself stayed weak, closing the quarter near Rp14,900/USD versus roughly Rp14,400/USD at the end of Q2.
2 BRI's most recent stock split (5-for-1) took effect in November 2017, before this quarter and every prior quarter in this series - no further split adjustment is needed for the prices quoted here.
Shares outstanding remain 123,345,810,000 issued, of which 1,108,590,000 sit in treasury (122,237,220,000 outstanding) - unchanged from every prior post in this series.
| Market cap → enterprise value | 9M 2018 |
|---|---|
| Share price (period-end) | Rp2,864 |
| Shares outstanding | 122,237,220,000 |
| Market capitalization | ~Rp350,087B (~$23.49B) |
| Total liabilities | Rp1,007,965B |
| Less: cash and equivalents | Rp139,812B |
| Enterprise value | ~Rp1,218,240B (~$81.75B) |
Total equity attributable to owners (book value) is Rp173,302B, giving the P/B ~2.02x used below.
Trailing-twelve-month EPS is approximately Rp261.18 (FY2017's Rp236.93, minus 9M 2017's Rp167.77, plus this period's Rp192.02), giving a P/E» of ~10.97x against the Rp2,864 close.
| Peer-multiple sanity check | H1 2018 | 9M 2018 | Change |
|---|---|---|---|
| P/E» | ~10.37x | ~10.97x | ⚠️ up - price recovery outpaced trailing-earnings growth this quarter |
| P/B» | ~1.92x | ~2.02x | ⚠️ up |
Both multiples expanded together this quarter - the opposite of H1's clean compression - almost entirely on the price recovery rather than any change in the underlying earnings or book-value trajectory. A same-period peer read is available again: BBCA's Q3 2018 post reported ROE of 18.42% against BRI's 20.10% (Tier 1), NIM of 6.07% against BRI's 7.61%, and gross NPL of 1.44% against BRI's 2.46% (both bank-only) - the same higher-margin/higher-return/higher-delinquency trade-off this series has tracked all year, with BRI's own NPL now further from BCA's than it's been all year. BCA's P/E of ~23.8x against BRI's ~10.97x puts the gap at roughly 2.17x, wider than Q2's ~2.1x and the widest this series has recorded.
A full DCF still isn't included here for the same reason the H1 2018 post gave: this quarter's own loan-mix table shows BRI's worst-performing category can reverse and re-reverse within two consecutive quarters, which isn't a stable base for multi-year credit-quality assumptions. The peer-multiple read above, alongside Beyond the Usual, is the honest valuation lens for this quarter - and on that lens, BRI remains meaningfully cheaper than BCA on every multiple, even as this quarter's price recovery narrowed some of that gap in absolute share-price terms while the earnings multiple gap between the two banks actually widened.
PT Bank Rakyat Indonesia (Persero) Tbk's interim consolidated financial statements as of September 30, 2018 and for the nine-month period then ended (unaudited, with review report), together with its 9M 2018 investor presentation.