Strategy Note /

5 of the fastest growing EM banks; lessons for the industry

  • We highlight five emerging market banks whose shares have risen by an average 170% year-to-date

  • These names are based in populous markets and are delivering strong top-line growth in higher-margin retail segments

  • Digital business models, strong shareholders and partners, and a focus on innovation are major common traits

5 of the fastest growing EM banks; lessons for the industry
Rahul Shah
Rahul Shah

Head of Financials Equity Research

Rohit Kumar
Rohit Kumar

Global Financials/Thematics

Tellimer Research
18 July 2021
Published byTellimer Research

We highlight five emerging market banks whose shares have comfortably outperformed their peers: Bank Jago, Banco Inter, IOB, Banco PAN and VIB.

Some shared qualities are supporting their strong performance:

  • An emphasis on digital business models is allowing these franchises to efficiently service their fast-growing client bases.

  • By focusing on higher-margin products within the retail segment, these firms can fund substantial in-house innovation and business development.

  • In addition, all the banks are based in populous markets, giving them long growth runways.

In this report, we profile each of these names and explore these common themes.

Year-to-date share price performance

Common themes

Focusing on digital business models

All the names on our list have made the strategic transition to digital, enabling broader reach at lower cost. Some of the names are well-advanced on this journey, such as Banco Inter, while others, such as IOB, are still transitioning.

Strong growth metrics

All five showcased banks are experiencing strong growth in customers and revenues, indicating that their core proposition is resonating with the target client base. Even though this growth is not universally translating into a higher bottom line, investors clearly like what they are seeing. Over the past year, Bank Jago has tripled its top line, VIB has doubled its online customer base, while IOB has grown its non-interest income by two-thirds.

Ownership matters

Most of the highlighted banks have strong anchor shareholders. For example, Japan’s Softbank is a strategic investor in Banco Inter, while Banco BTG Pactual and Caixa Participaçõe are key owners of Banco PAN. For IOB, the expectation of a reduction in government ownership is buoying sentiment.

Partnerships are key to developing the business

Partnerships can present opportunities to rapidly import expertise (concerning products or technology, for example) and/or to access a wider pool of potential customers. Bank Jago’s links with tech behemoth Gojek could in the future help it to expand across the ASEAN region.


These banks are actively working in the background to improve existing products, bring new ones to market or find new ways of attracting customers to their franchises. Banco PAN launched its digital banking account last year. VIB offers faster credit card approvals than its competitors.

Broadening the product range

Cross-selling additional products is an effective way to improve the return on customer-acquisition costs. Banco Inter is moving into e-commerce, for example, and we expect Bank Jago to grow its credit portfolio.

Technology investment

Given their adoption of digital models, these firms are placing a high importance on maintaining their technological advantage over peers. Both Banco Inter and VIB are focusing on Big Data, for example.

Retail focus

It is probably not a coincidence that all these firms have a strong focus on disrupting the retail banking space, whether it be through servicing individuals or small businesses. Increasing smartphone penetration and changes in customer behaviour are making it easier to digitally acquire such customers and product pricing in this segment is typically attractive. Tackling financial exclusion can accelerate these firms’ growth while also sidestepping the competition.

We note that many of these strategies are in line with those being applied by emerging market fintechs.

Valuations and performance

1. Bank Jago (Indonesia)

Year-to-date performance: +307% | market cap: US$15.2bn

Indonesia’s Bank Jago was formerly known as Bank Artos. It was acquired by Metamorfosis Ekosistem in 2019 and was subsequently renamed to reflect an ambition to become a completely digital bank. Gojek took a 22% stake in 2020, and earlier this year the company launched its life-centric digital banking app, Jago, which simplifies clients’ financial management.

Bank Jago has three key near-term objectives: 1) to strengthen its balance sheet and lift profitability; 2) to invest in technology; and 3) to forge collaborative partnerships.

To achieve these goals, the bank has conducted two rights issues to adequately recapitalise and has strengthened its senior management team by hiring top talent for various high-profile roles. In addition, the bank has built key partnerships, notably with Gojek, and plans to further expand its network.

The recent Gojek and Tokopedia merger, which will be a game-changer for the ASEAN tech ecosystem, should also benefit the bank by improving its customer reach.

During Q1 21, operating income rose three-fold to US$3,289mn. However, Bank Jago remains loss-making; the Q1 21 loss of US$2,965mn (up 50% yoy) resulted from operating expenses that doubled yoy, with the cost/income ratio at 182%. The bank is now extremely well capitalised, with equity of US$575mn (versus US$87mn in December 2020) and a capital adequacy ratio of 538%. Loans currently constitute just 15% of total assets, but this proportion is likely to increase as the business matures.

Indonesia is the largest and fastest-growing internet economy in Southeast Asia

Source: Company presentation

2. Banco Inter (Brazil)

Year-to-date performance: +154% | market cap: US$13.9bn

Banco Inter was established in 1994 as Intermedium Financeira with a focus on SME lending and payroll loans. The company launched its digital account in 2015 and shifted its focus to digital banking in 2017 with a change of name to Banco Inter. The bank has broadened its product portfolio in recent years to offer financial and non-financial products, including Day-to-Day Banking, Credit, Investments, Insurance, and Shopping. Softbank holds a 15% stake in the company.

Banco Inter product portfolio

Source: Banco Inter

Banco Inter is among the first Brazilian banking institutions to connect to WhatsApp Payments, which is being gradually rolled out in the country; we think this holds great potential. The company has been innovating in various areas including Big Data, Backoffice Automation, API Microservices and Gateways.

Banco Inter has a customer base of 10mn in digital banking, 1.5mn in investech and 370k in insurtech. The average revenue per user is cUS$40 while the customer acquisition cost stands at cUS$5.5. The recently launched e-commerce platform (Inter Shop) is growing very strongly and as of Q1 21 had 315 partner sellers with a gross merchandise value (GMV) of US$134mn, versus just US$8mn in Q1 2020. During Q1 2021, Banco Inter’s net revenues doubled yoy to US$96mn and it posted a profit of US$4.2mn, versus a net loss of US$1.7mn in Q1 2020.

3. Indian Overseas Bank

Year-to-date performance: +135% | market cap: US$6.4bn

Indian Overseas Bank (IOB), founded in 1969, is a public sector bank with 23,579 employees and 3,217 branches across India and a presence in Singapore, Hong Kong, Sri Lanka, and Thailand. The bank has 39mn active customers and is focused on enhancing its digital capabilities. As per recent news reports, the government has intentions to privatise the bank, which appears to be the major trigger for the sharp ytd stock price increase.

IOB has taken various digital banking initiatives which include: i) end-to-end digital gold lending; ii) enabling SME loan application/tracking on its website; iii) 96% of personal loans are processed through digital channels; iv) an internet banking application with 10 regional languages; and v) IOB Pay – a merchant payments solution.

During FY 2021 (March y/end), IOB posted a considerable improvement in financial performance. Its net profit clocked in at US$112mn compared to a net loss of US$1,216mn in the preceding year. The improvement came on the back of 68% yoy higher non-interest income, while interest income also rose 11%. The bank’s asset quality improved with the NPLs ratio declining by 3pts to 14.8%, the cost of risk fell by 5.3pts to 3.6% and the provision coverage ratio rose to 90% versus 87% in FY2020. Operating cost efficiency also improved, with the cost/ income ratio declining 11pts to 48.5%. 

4. Banco PAN (Brazil)

Year-to-date performance: +161% | market cap: US$5.8bn

Banco PAN is a mid-sized Bazilian financial institution that focuses on payroll lending, auto loans, credit cards and insurance sales. It is owned by two of the largest financial groups in Brazil: Banco BTG Pactual and Caixa Participações. The bank has 2,497 employees and 60 service branches in Brazil's major cities, but is also active elsewhere via its digital platforms.

Banco PAN has two main segments, Consumer Finance and Banking. In Consumer Finance, PAN offers several credit products, such as payroll-deductible loans, vehicle financing and personal credit. The Banking segment has four major areas of activity: i) Transactional Bank (digital accounts, credit cards, overdrafts and payment through PIX, the instant payment system by Central Bank of Brazil); ii) Insurance; iii) Savings (Poupa PAN); and iv) Acquiring (complete banking solutions for small businesses)

Banco PAN product portfolio

Source: Company presentation

Banco PAN’s recent focus has been on its digital account, which has been well-received since its launch in early 2020. The bank had a total of 10mn customers at Q1 2021, out of which 6mn are in the banking segment (378% yoy growth, largely due to strong customer demand for the digital account). The consumer finance loan book rose 21% yoy in Q1 2021 to US$6bn; around half of this portfolio is in payroll lending, while a further 42% is in vehicle financing.

Banco PAN banking customers

During Q1 2021, Banco PAN’s revenues grew by 33% to US$225mn, the bank enjoyed a strong net interest margin of 18.6%, while the credit risk cost was 3.1%, compared to 3.8% in Q1 2020. Net income rose 11% to US$38mn with an adjusted ROE of 20.3% (excluding legacy items from 2005-10, like high-cost deposit certificates and tax surplus).

5. Vietnam International Bank

Year-to-date performance: +91% | market cap: US$3.0bn

Vietnam International Bank (VIB) was incorporated in 1996 and is a leading retail bank in Vietnam with strong digital capabilities. The bank has been awarded Digital Bank of the Year and Best Retail Digital Banking Experience for the past four years at Asian financial magazine The Asset's Triple A Awards.

VIB is continuously innovating in the areas of digital banking and card solutions. For example, in 2020, VIB successfully applied AI and Big Data technologies, along with modern processes such as e-KYC and e-Signature, into the credit card approval and issuance process. This resulted in a record low approval time of 15-30 minutes, which is significantly faster than the industry standard. VIB has also partnered with Grab to offer promotional services to VIB’s customers.

These innovative solutions have resulted in strong growth for VIB’s digital banking KPIs. In 2020, the number of MyVIB digital app users increased 300% yoy, taking the total number of bank customers to 3mn. The number of active users grew 103% while the number of online transactions rose 110%. During Q1 2021, total operating income rose 53% yoy while profits grew at an even stronger rate of 68%, taking annualised ROE to 31.0%.