Sector Overview
Indonesia’s banking sector is poised for both challenges and growth opportunities in 2025. Despite headwinds such as rate cut uncertainties, tighter liquidity, and evolving government policies, Bank Central Asia (BBCA) and Bank Syariah Indonesia (BRIS) are expected to lead the charge with double-digit earnings growth. Meanwhile, Bank Negara Indonesia (BBNI), Bank Mandiri (BMRI), and Bank Rakyat Indonesia (BBRI) are projected to post low-to-mid single-digit growth rates. The combined net profit of these major banks grew 7.6% year-on-year (YoY) as of 11M24, showcasing resilience amid a challenging economic environment.
Bank Central Asia (BBCA)
BBCA remains a standout performer, consistently demonstrating resilience even in a high cost-of-fund (CoF) environment. With its net interest margin (NIM) expanding amid tighter liquidity, BBCA posted a robust 14.3% YoY net profit growth in 11M24. The bank’s low loan-to-deposit ratio (LDR) and strong current account and savings account (CASA) franchise provide it with significant flexibility to manage NIM, even during uncertain rate cut scenarios.
BBCA’s strategic focus on strong capital, solid asset quality, and efficient operating expense (opex) control positions it well for sustained growth. The bank is also trading at a premium, reflecting its consistent performance over the years. Investors are encouraged to consider BBCA as a “Buy” with a target price of Rp12,000, up from its current price of Rp9,525.
Bank Syariah Indonesia (BRIS)
BRIS is emerging as a growth leader in Indonesia’s Syariah banking space, recording the highest net profit growth among peers at 21.5% YoY in 11M24. This stellar performance is attributed to strong loan growth (+16.8% YoY), robust non-interest income, and lower credit costs (CoC). Key drivers of BRIS’s future growth include its Hajj Wadiah savings accounts, the gold financing business, and a recent partnership with Prudential that is expected to boost income over the coming years.
However, challenges remain, particularly in managing CoC, which stood at an elevated 3.2% in 11M24 due to MSME asset quality concerns. Despite these hurdles, BRIS’s overall prospects remain strong, with a recommended “Buy” rating and a target price of Rp3,400, up from its current price of Rp2,670.
Bank Mandiri (BMRI)
BMRI has exhibited impressive loan growth of 22.7% YoY, the highest among its peers, as of November 2024. The bank’s strategic focus on digital adoption through platforms like LIVIN and KOPRA has strengthened its funding base and recurring income streams. Additionally, its strong underwriting capabilities across retail and wholesale segments are expected to drive sustained growth.
Asset quality remains a key strength for BMRI, with net non-performing loan (NPL) formation lower than peers like BBNI and BBRI. The bank is well-positioned to maintain its growth trajectory, earning a “Buy” recommendation with a target price of Rp8,120, compared to its current price of Rp5,400.
Bank Rakyat Indonesia (BBRI)
BBRI has faced a slowdown in loan growth, decelerating to 5.0% YoY in November 2024 from 10.8% YoY in June 2024. Asset quality remains a concern, with elevated credit costs and weaker recovery income anticipated in 2025. Despite management’s efforts to reduce CoC, challenges in the MSME segment persist, which could hinder significant improvements.
Nonetheless, BBRI remains a critical player in Indonesia’s banking sector with a “Buy” recommendation at a target price of Rp5,600, up from its current price of Rp3,800. Investors should be cautious of potential downside risks related to asset quality and recovery income.
Bank Negara Indonesia (BBNI)
BBNI has shown moderate performance, with loan growth of 11.0% YoY as of November 2024. However, its high LDR, the highest among the Big Four banks, places it under pressure in a tight liquidity and high-rate environment. Most of its loans are at managed-floating rates, allowing BBNI to pass on CoF increases to its loan yields.
While BBNI’s strategic position ensures its relevance, it faces challenges in adapting to evolving market conditions. The bank retains a “Buy” recommendation with a target price of Rp6,560, compared to its current price of Rp4,130.
Risks and Challenges
Despite the optimistic outlook for several banks, the sector faces notable risks, including uncertainties over rate cuts, tighter liquidity, weaker purchasing power, and intense competition in funding and loan markets. Government policies and potential changes in the top management of state-owned enterprises (SoEs) could further impact banks’ strategies and earnings growth.
Valuation and Recommendation
The Indonesian banking sector is currently trading close to -1 standard deviation (SD) of its five-year historical forward price-to-book (P/B) average, presenting attractive entry points for investors. The recommended stock picks for 2025 include BBCA, BRIS, and BMRI, given their strong growth prospects and strategic positioning.
