CLSA BBRI

Bank update from Nico
Bank Rakyat (BBRI IJ) - FY08 net profit Rp5.5tn, +15% YoY

Net profit was in-line with management growth target of 10-15%. Loans grew by 43% YoY with 80% consisting of small, micro, and SME. LDR was stable compared to 3Q08 at 86%. BRI also plans to issue US$300mn sub-debt in 2H09 to boost capital for balance sheet growth.The bank targets loans growth of 20-25% in 2009. CAR now stood at 13.5%.

Comment: Net profit was slightly below our and consensus estimates of Rp5.8tn, which we attribute to slower loans growth in 4Q08 and higher provisions for loan losses. With relatively ambitious loan targets of 20-25% this year, capital is likely to be a constraint especially if we include operational risk charge starting in Jan 2010. We estimate US$300mn sub-debt issue to raise BRI’s CAR by 220bp to 15.4% but will be completely offset by additional operational risk charge. Key risk is if market conditions worsen in 2H09 when BRI tries to issue its sub-debt.