Citigroup Bank Jabar Banten - Analyzed Non-Rated Snapshot

 Company Overview — BJBR is the 17th largest Indonesia bank (Dec 09 Assets) with June 2010 assets of USD4.5bn equivalent. It was listed in July 2010 (USD160mn IPO) and has 24% free float (value is c~USD379mn). The main shareholders are Provincial /Municipal Governments of West Java and Banten.
 Business Strategy — BJBR is evolving from a payroll-based bank (both deposits and lending to employees of its main shareholders to a more diversified bank with a focus on expanding Micro and SME (MSME) segment. It has 1.25mn customers including 0.45mn borrowing customers. Target is to grow loans and deposits by 20% pa and be amongst the 10 largest banks in Indonesia. This will be through aggressive bank branch expansion and a wider range of products and services. Share of MSME loans will be increased from 25% to 35%. Has re-branded itself as Bank BJB and spun off Shariah bank for better management focus.
 Industry Overview — The two key attractions of Indonesia banks are: 1) low penetration with a Deposit-to-GDP ratio of < 35%; and 2) One of the highest ROAs and ROEs in the region, driven by wide margins. Historic loan and deposit growth has averaged 20% pa and 15% pa, respectively. The Regulator, Bank Indonesia (BI) has adopted tightening monetary policy by raising its Reserve Requirement from 7.5% to 10.5%, but is yet to raise rates.
 Competitive Analysis — BTPN is another bank aiming to expand from its niche (pensioners) to micro lending. Incumbents in this segment are BBRI (rural now moving into urban areas) and BDMN (urban and semi urban areas). BJBR will face competition from these players. Micro loans have been growing at 30% pa (since Dec 07). Competition for deposits though will be intense as the sector LDR, is 87%, excluding BBCA, BMRI and BBNI.
 Recent Results — Net Profit is up 37% y-o-y in 1H CY10, supported by 25% Gross Income growth and only 4% operating cost increase. Pre-Provision profit growth of
43% was diluted by higher credit cost. Focus in 1H CY10 was more on deposit growth (+40% over 6/09) than loans (+16% over 6/09).
 Strengths — 1) Rising asset yields due to improving asset mix; 2) support of main shareholders with increasing budget allocation; 3) low admin costs; 4) strong understanding of market; and 5) Low LDR and 6) High Capital Adequacy. Weaknesses — 1) Small branch network with limited retail deposit franchise, 2) geographically concentrated business 3) Need to learn micro business dynamics 4) low lending rates for payroll loans and 5) balance sheet mismatch with 56% of assets of >1 yr maturity and 87% of liabilities of <3M maturity.