BRI pre-tax profit to surge by 98%

Rendi A. Witular, The Jakarta Post, Jakarta

State-owned Bank Rakyat Indonesia, the country's largest microfinancing bank, said on Monday it was expecting to book a pre-tax profit of Rp 2.9 trillion (US$341 million) at the end of this year, up by around 98 percent from last year.

BRI's corporate secretary Rochidayat Taepur told The Jakarta Post the increase would mostly be attributable to the surge in loan interest, which was estimated to contribute around 75 percent to the bank's total interest revenue.

The remaining interest revenue would be from the government's recapitalization bonds, he said.

Today, BRI is still holding around Rp 29 trillion in recapitalization bonds.

"We expect revenue from loan interest, rather than from recapitalization bonds, will boost our profit higher this year," said Rochidayat.

He said that the bank's operating income was estimated at more than Rp 7.5 trillion this year.

Last year, the country's fourth largest bank, booked an operating income of Rp 7.07 trillion and a pre-tax profit of Rp 1.46 trillion.

BRI has been regarded by many analysts as the strongest state- owned lender, thanks to its focus on extending loans to small businesspeople, mostly farmers. Of the bank's Rp 43.6 trillion in outstanding loans, as of June this year, 91.62 percent were channeled to micro-scale, small-scale and medium-scale enterprises.

Such loans have proven to carry little risk of default compared to loan exposure to large corporations. Small businesses are regarded as being more conscientious in repaying debts than large businesses.

As a result, BRI currently has the highest return on equity (ROE) in the banking industry at 45.6 percent, almost twice the return booked by other banks on average.

The government, which holds 100 percent of BRI's shares, is currently in the process of selling part of its ownership in the bank, via the initial public offering (IPO) scheme.

The government is expected to generate around Rp 4.17 trillion in proceeds from the selling of 4.76 billion shares, or 40.5 percent of total shares, at Rp 875 per share.

The bank is in the process of offering its shares to retail investors from Nov. 3 to Nov. 5. The shares will be listed on the Jakarta Stock Exchange and Surabaya Stock Exchange on Nov. 10.

According to Rochidayat, the bank will allocate around 45.9 percent of its 4.76 billion shares to domestic investors, while the remaining 54.1 will go to foreign investors.

The share offer has received a warm reception from domestic investors, prompting speculations that the bank might increase the portion of shares for locals.

However, Rochidayat explained that BRI decided to allocate a larger portion to foreigners because the bank's management was afraid that domestic investors would use the shares for speculation at the local bourse, undermining the price of the shares.

"From other IPO processes that we have observed, domestic investors tend to buy shares for speculation and for short term investment. Thus, we prefer foreign investors as they buy the shares for long-term investment," said Rochidayat.

For the 45.9 percent shares offered to domestic investors, BRI will allocate 5 percent to retail investors, 5 percent to the bank's customers, 10 percent to the bank's employees and the remaining 25.9 percent to institutional investors, he said.