Equity Analysis /
Indonesia

ID : Banks - The call for larger KUR is a double-edged sword for BRI

    CGS-CIMB
    12 April 2021
    Published byCGS-CIMB

    President Joko Widodo has instructed the Coordinating Ministry of Economic Affairs to increase the upper limit ceiling of subsidised micro loans, or micro KUR, from Rp50m to Rp100m. This should lend support to the government’s target to increase MSME loan contribution to 30% of total bank loans by 2024 from some 19% as of 2020. While the higher KUR ticket size is likely to help BRI achieve its goal to increase micro loan contribution to 45% by 2025 vs. 40% by end-2020, it may also cannibalise its core micro loan product, Kupedes. The latter typically has an average ticket size of Rp50m-55m. While the cannibalisation will likely hurt yield, impact on earnings will be more muted given the government guarantee, which makes KUR a lower risk proposition compared to Kupedes. Aggregate banks’ share prices outperformed the JCI by 0.3% along with the narrowing UST10-2Y yield spread. UST 10Y yield declined by 6bp wow (+14bp mom) to 1.72% last week. The Indonesian government 10Y bond yield also edged lower by 25bp wow to 6.7% (-35bp mom). Rp/US$ remained under pressure, depreciating by c.0.3% wow to Rp14,565, which is the weakest since Nov 20. Rp lost 1.1% mom in Mar and 3.7% YTD to US$. Reiterate Overweight on the banking sector.