Bank Rakyat Indonesia ($BBRI) has just released its financial report which gives many investors goosebumps. In January 2025, BBRI recorded a net profit (bank only) of 2 trillion rupiah, down drastically by -58% YoY and -58% MoM. Why is that? Let’s peel it off!

Why is BRI’s Net Profit in Free Fall?

According to the report, the two main factors that led to this decline in profits include:

• Provision Expenses: Provision expenses jumped to 5.6 trillion rupiah, a significant increase compared to 2 trillion rupiah in January 2024. This reflects the pressure on the increasingly high credit costs.
• Net Interest Margin (NIM): NIM also plunged to the level of 6.15%, lower than the previous year which was at 6.63%.

The Bigger Picture

In this month’s earnings call, BBRI’s management hinted at the potential for one-time adjustments that may occur due to modification losses and front-loading provisions that could affect NIM and credit costs throughout the first half of 2025. While expectations of a decline in NIM and a surge in provisioning costs were predictable, the market’s reaction was quite surprising.

Market Reaction and Stock Decline

BBRI shares decreased by -7.4% in trading that day, Friday (28/2). It is the market’s response to perceived poor performance outcomes. In the phone call, the management also mentioned that of the total provision expense of 5.6 trillion rupiah, around 2 trillion rupiah is a systematic provision, while 3.5 trillion rupiah is an additional from management related to credit restructuring risks, especially for the Kupedes program (credit for the micro sector).

Future Projections

According to management, although the provision expense will be reduced in the coming months, the guidance for credit costs in the range of 300-320 bps in FY25F includes the cost of the management overlay. Performance projections rely heavily on several key factors such as credit growth and the completion of restructuring.

BBRI Dividends and Stock Valuation

In addition to focusing on financial performance, the management team also discussed the potential dividend payout ratio (DPR) for the 2024 financial year which is estimated at 85%, higher than the previous year at 80%. With 85% of the DPR ready, the final dividend is expected to reach 204 rupiah per share, which means the dividend yield reaches 6.1% based on the latest closing price of 3,360 rupiah.

Conclusion

So, if you’re an investor, stay vigilant! The recovery of BBRI’s performance in the next few months is something that needs to be observed. Despite the challenges and risks, BBRI’s share price is currently trading at its lowest valuation since the Covid-19 pandemic, providing opportunities but also risks. Are you sure you’re ready to take the next step in this uncertain market?