Bank Rakyat Indonesia (BRI) is a state-owned bank that went public in 2003. The ownership composition consists of the Indonesian government (56.75 percent), foreign investors (37.77 percent) and domestic investors (6.48 percent). BRI is the second largest bank in Indonesia in terms of assets, and has been most profitable bank in Indonesia since 2005. It also has the largest network and customers base in the country, with more than 6,800 outlets spread across Indonesia, 67,000 employees and more than 33 million accounts.
BRI has been performing very well: total assets grew sustainably by 26.54 percent compound annual growth rate (CAGR) for the last five years and reached $35.65bn by September 2010. Earning assets dominated 90.6 percent of total assets. Loans, contributing 74.7 percent of total earning assets, grew strongly by 28.44 percent (five year CAGR), maintaining BRI’s position as the largest bank in loan disbursement in Indonesia. This growth has not been achieved by sacrificing loan quality however, as non-performing loans have continued at a manageable four percent.
On the funding side, the growth in deposits has kept up with loan growth, increasing by 27.21 percent (five year CAGR). This helps BRI achieve an optimum loan to deposit ratio between 85 and 90 percent.
To maintain high growth momentum, BRI employs organic growth, through new outlets opening, and inorganic growth, through acquisition. Last year BRI opened 1,114 outlets to accelerate business growth and plans to open 700 new outlets in 2011. The bank has also been in the process of acquiring a small agricultural bank to enhance its position in agriculture and small businesses.
Profitability, among other factors, makes BRI attractive from an investment perspective. Along with sustainable growth and manageable asset quality, high ROE level (after tax ROE 28 percent) and high ROA level (2.86 percent) are key investment thesis. These achievements are supported by high net interest margin (9.4 percent), high asset quality, growing fee-based income and improved efficiency (cost efficiency ratio decline to 41.36 percent). BRI has a unique business model through its microfinance, small and consumer loans, which contribute almost 76 percent of total loan portfolio. This portfolio composition is able to maintain high NIM.
The profitability of microfinance
The uniqueness of BRI’s microfinance business has made the bank’s position different from its competitors. BRI’s presence in every district in Indonesia – supported by more than 4,600 micro outlets – helps it provide effective and efficient microfinance services. An aggressive strategy of opening new micro outlets has helped BRI capture huge market potential, making it one of the world’s biggest and the most profitable microfinance businesses. The bank’s micro loans have been sustainably growing at a compound annual growth rate of 24.11 percent.
Since 2009 BRI has applied a new strategy to strengthen its microfinance segment, by establishing Teras BRI, a sub-micro outlet in the traditional market. Most traders in the traditional market are self-employed businessmen who have limited spare time to perform banking transactions. Instead of waiting for traders to visit Teras, BRI officers equipped with electronic data-capture devices pro-actively visit the traders to provide regular banking services. By getting closer to prospective customers in the traditional market, BRI can acquire traders both as depositors and borrowers easily.
Currently, BRI has 377 Teras and plans to open another 400 new Teras in 2011. There are still many opportunities to expand the business as there are more than 12,000 traditional markets in Indonesia. Simplicity, accessibility and sustainability are the key success factors in the microfinance business. Micro-loans represent 29 percent of BRI’s total loan portfolio.
To share its experience in the microfinance business with other institutions from all over the world, BRI founded a Microfinance International Cooperation. Since its inception, 6,000 VVIPs, including policy makers, central and commercial bankers, donor agencies and academics from 55 countries have visited BRI for microfinance training.
Developing the urban segment
In the urban segment BRI has strengthened its presence by opening conventional channels, including branches, sub branches and cash-outlets; as well as electronic channels including ATMs, electronic data capture, internet banking and mobile banking. To increase the level of services and speed up the consumer loan process, the bank has opened consumer loan centres in 14 big cities. Product and feature development, such as Brizzi (BRI’s prepaid card) and Britama Junio (a saving product for children and teenagers) also play important roles in expanding the urban segment. The bank has also established priority banking services to capture high net work individuals.
In addition to regular consumer loan products, BRI has a niche market in salary-based loans. This multi-purpose consumer loan product is designed primarily for civil servants, teachers and SOE employees.
Nationwide network distributions and service quality are some important factors to maintain and expand this niche market. The favourable economic environment – where domestic consumption dominates more than 50 percent of GDP – combined with the characteristics of government employment – such as very low turnover, annual salary increases and an increasing number of government employees – support salary-based loan expansion. Consumer loans comprise 21 percent of BRI’s total loan portfolio.
Strengthening wholesale segment
In institutional business, BRI participates in a treasury single account of government budget and acquires minimum 70 percent of money flow from the government budget. The bank has established an institutional business division dedicated to capturing the business opportunity with institutions and organisations. Low cost fund and fee-based income are the ultimate goals in this segment; services include salary crediting and cash management.
Aligned with the institutional business expansion strategy, BRI has changed its strategy in the corporate loan segment by focusing on financing SOE/government projects and corporate business that have a link with micro and small businesses. The main objectives of financing SOE/government project is to save capital due to lower risk weight of SOE exposure ranging from 0 percent to 50 percent. More importantly, financing corporate businesses that link with small businesses will create trickle down effects to BRI’s microfinance segment.
BRI realises that to expand business and maintain sustainable growth it needs not only good strategies but also good corporate governance (GCG). BRI intensely applies GCG implementation embodied in the whole organisation and information disclosure in accordance with prevailing rules and regulations. Related with the GCG and information disclosure implementation, BRI was granted a 2009 Annual Report Award. The bank has internally assessed its GCG implementation, covering the matters as governed by regulations, with the qualified result of ‘Very Good.’
To ensure GCG is well implemented, BRI has established compliance, internal audit and risk management structures and committees of the board of commissioners and of the board of directors. The Audit Committee, Nomination and Remuneration Committee and Risk Management Supervisory Committee are of the board of commissioners, while the Asset and Liability Committee, Risk Management Committee, Credit Committee, Technology and Information System Steering Committee, Credit Policy Committee and Human Resources Policy Committee are of the board of directors.
In order to enhance the quality of GCG, a whistleblower system has been implemented to assist employees and stakeholders in preventing fraud and corruption. This is intended to transform a traditional culture of silence into a culture of transparency. The bank ensures the whistleblower’s identity is kept secret and provides necessary protection.
In terms of information disclosure, BRI ensures that material information is promptly disclosed. BRI upholds equal treatment policy in delivering the information. Communication with investors, fund managers and analysts is conducted throughout the year via email and company visits, as well as by quarterly analyst meetings. Other activities for communicating BRI’s financial performance and business prospect include conference calls and field visits – especially to the bank’s micro outlets. BRI regularly attends road shows and conferences organised by leading securities companies in Jakarta and global financial centres in Asia, Europe and the US. In 2010 BRI communicated with 473 investors through 199 company visits, 29 field visits, 28 conference calls and nine roadshows.
BRI believes support from communities is one of the prerequisites of the company’s success and sustainable growth. The implementation of partnership programmes and community development programmes cannot be separated from the long-term strategy of sustainable business growth. For example the Financing for Empowerment programme is designed for micro and small enterprises, including cooperatives (which may have a feasible business but do not qualify for a commercial loan as they are not yet bankable) to enhance their productivity.
BRI Cares is a community development programme aimed at empowering communities surrounding BRI’s operational areas to have a better living. In implementing this programme BRI focuses on natural disaster relief, renovation and rebuilding of places of worship, public health, education, public facilities and environmental conservation.