Digital Banks

Equity Research
Digital Banks
Thursday,27 October 2022
OVERWEIGHT Digital Banks

<Initiation> Joining the bandwagon of the digitalization economy
ARTO relative to JCI Index Digital banking is here to stay in Indonesia with the potential to make
xxxx headway in the country’s banking industry. We believe the depreciation in
share prices YTD reflects the weakening appetite in the tech-related sector
and slow-down in global liquidity leaving the intrinsic value of the banks to
be seen. We initiate coverage on the sector with an Overweight view with
ARTO as our top pick.
High appetite for digital lending in Indonesia’s unbanked population. We note

that digital lending in Indonesia has a lot of untapped potential as seen in Google
SEA E-conomy data which shows that Indonesia’s share of BNPL payments stands
at 4.0% (SEA average: 2.7%), the highest in the region. This is in contrast to the
share of credit card payments where Indonesia’s figure is the lowest in the region
at 4.9% (SEA average: 11.9%). We believe digital banks are here to stay since they
have the potential to exploit opportunities in Indonesia's traditional banking
BBYB relative to JCI Index system.
xxxx
Potential increase in digital banking adoption. Of the total banking/financial app
users, 91 percent of the respondents have a mobile banking application, 84 percent
have an e-wallet, and 33 percent have a digital banking application. We believe the
numbers are related to the duration of the technology available to customers, i.e.
mobile banking as the first available app followed by e-wallet and digital banking
as the latest. As people get accustomed to the new technology, we believe the
adoption of digital banking apps will grow in the future from its low base.
More perceived as tech rather than bank. Based on our research, we found that
the share price movements of Indonesia’s digital banks were more correlated to
the IDX Tech, cryptocurrencies, and global liquidity rather than the share prices of
conventional banks. With uncertainty surrounding high-risk investments, the
Source : Bloomberg
unconventional valuation method, and high liquidity now gone, we advise
investors to take a step back and gain a better understanding of what the digital
banks have to offer fundamentally. We found that deposits growth is strongly
connected to the share price performance.
Severely underperforming, negative sentiment has been priced in. We note that
the digital banking sector has significantly underperformed the JCI by 41% YTD with
ARTO and BBYB posting more than 60% share price declines. We believe the
depreciation in share prices YTD reflects the weakening appetite in the tech-
related sector and slow-down in global liquidity leaving the intrinsic value of
the banks to be seen.
Overweight with ARTO as our top pick. We currently have two stocks in our digital
banking universe. We have a BUY call on Bank Jago (ARTO) as we believe the bank
is ready to capture growth and has prudently managed its risk. Meanwhile, we have
a HOLD call on Bank Neo Commerce (BBYB) as we are looking at a lower loans-to-
deposits ratio in the next few years given its limited capital and higher risk in its
customer segments next year amid higher inflation and interest rates. We have yet
to incorporate the capital raising plan into our forecast. Risks to our view are lower
than expected customer acquisition and monetization, higher-than-expected NPLs,
and regulatory obstacles.
Target Market
Price Cap. P/E (x) P/BV (x) ROE (%)
Company Ticker Rec (Rp) (RpBn) 2022F 2023F 2022F 2023F 2023F
Bank Jago ARTO IJ BUY 7,600 71,013.3 1,457.1 480.8 8.8 8.6 1.8
Bank Neo Commerce BBYB IJ HOLD 1,000 8,744.2 (36.2) (28.6) 4.0 5.9 (16.7)
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Table of Content
INITIATING COVERAGE ON THE DIGITAL BANKING SECTOR WITH AN OVERWEIGHT
VIEW ............................................................................................................................. 3
RACE TO ACQUIRE CUSTOMER`S DEPOSIT ..................................................................... 4
HIGHER RATES TO ATTRACT CUSTOMERS .................................................................................. 4
ANALYSIS ON IMPACT OF RATES TO CUSTOMER`S DEPOSIT ........................................................... 4
INDONESIA’S DIGITAL BANKING POTENTIAL ................................................................. 6
BELOW AVERAGE DEPOSITS TO GDP RATIO .............................................................................. 7
LOW HOUSEHOLD DEBT TO GDP RATIO IN INDONESIA ................................................................ 8
HIGH APPETITE FOR DIGITAL LENDING AMONG INDONESIA`S UNBANKED POPULATION ....................... 8
DIGITAL BANKING ADOPTION IN INDONESIA IS ON THE RISE TO SPREAD BANKING
SERVICES EVEN FURTHER .............................................................................................. 9
ROOM TO IMPROVE FINANCIAL LITERACY AND INCLUSION ............................................................ 9
DIGITAL BANKING APP USERS ARE STILL LESS THAN HALF OF THE MOBILE BANKING APP USERS ............. 9
THE LATEST ESTABLISHED DIGITAL BANKS ARE GAINING TRACTION ............................................... 10
DECLINING NUMBER OF BANK BRANCHES ............................................................................... 11
FACTORS AFFECTING THE DIGITAL BANK SECTOR’S MARKET CAPITALIZATION ........... 12
DIGITAL BANKING SECTOR STOCK PRICES ARE INVERSELY CORRELATED TO THE BIG 4 BANK STOCK PRICES
..................................................................................................................................... 12
DIGITAL BANK SHARE PRICE MOVEMENTS MIMIC INDONESIA’S TECHNOLOGY SECTOR ...................... 13
DIGITAL BANK SHARE PRICE MOVEMENTS ARE CORRELATED TO CRYPTO CURRENCY AND GLOBAL
LIQUIDITY ........................................................................................................................ 13
DEPRESSING VALUATIONS OF DIGITAL BANKS GLOBALLY ............................................................ 16
THE GENERAL INVESTMENT ENVIRONMENT IS STILL WEAK .......................................................... 16
DEPOSITS AS THE KEY FACTOR DETERMINING SHARE PRICES........................................................ 16
REGULATORY RISK IN DIGITAL BANKING AND FINTECH LENDING ................................ 17
TIGHTER REGULATION COULD LIMIT POTENTIAL GROWTH OF DIGITAL BANKING .............................. 17
THE GROWTH IN DIGITAL BANKS WILL DEPEND ON THE GROWTH IN FINTECH LENDING ..................... 17
SAME POTENTIAL BUT UNLIKELY TO FOLLOW CHINA’S CASE........................................................ 17
DIGITAL BANKS ARE PERCEIVED AS A MAJOR THREAT IN THE FUTURE BY BOTH
TRADITIONAL BANKS AND FINTECH FIRMS ................................................................. 19
INDONESIA’S DIGITAL BANKING IS STILL IN AN EARLY STAGE WHICH SHOULD PROVIDE SOME BUFFER
FROM COMPETITION FROM THE INCUMBENTS… ...................................................................... 19
… BUT THE FUTURE MAY TELL A DIFFERENT STORY .................................................................... 20
THE SEGMENTATION OF INDONESIA’S FINTECH ........................................................................ 21
DIGITAL BANKING UNDER OUR RADAR ....................................................................... 22
ALLO BANK INDONESIA (BBHI) ........................................................................................... 24
BANK SEABANK INDONESIA (SEABANK) ................................................................................. 25
BANK DIGITAL BCA (BCA DIGITAL)...................................................................................... 25
BANK RAYA (AGRO) ......................................................................................................... 26
BANK ALADIN SYARIAH (BANK) .......................................................................................... 26
VALUATION METHODOLOGIES .................................................................................... 27
COMPANY REPORT...................................................................................................... 28
BANK JAGO (ARTO) ......................................................................................................... 29
BANK NEO COMMERCE (BBYB) .......................................................................................... 43
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2
Initiating coverage on the digital banking sector with an
Overweight view
We are initiating coverage on the digital banking sector with an Overweight view
noting: 1) the solid potential for banking in Indonesia, 2) growing digital adoption,
and 3) more reasonable valuations. We believe digital banks are here to stay in
the long run with users of its application supporting its funding balance and
partnerships and direct lending supporting the loans growth. The branchless
nature of digital banks will drive cost efficiencies in the long run as we expect the
cost-to-income ratio (CIR) of digital banks to stand at 36-38% in the mature stage
or lower than the figure of 44% currently for the big four Indonesian banks.
We currently have two stocks in our digital banking universe. We have a BUY call
on Bank Jago (ARTO) as we believe the bank is ready to capture growth and has
prudently managed its risk. We have a HOLD call on Bank Neo Commerce (BBYB)
as we are looking at a lower loans-to-deposits ratio in the next few years given its
limited capital and higher risk in its customer segments next year amid higher inflation
and interest rates. We have yet to incorporate the capital raising plan into our
forecast.
We note that the digital banking sector has significantly underperformed the JCI by
41% YTD with ARTO and BBYB posting more than 60% share price declines. We
believe the weak share price performance reflects the weakening appetite in the
tech-related sector and slow-down in global liquidity leaving the intrinsic value of
the banks to be seen.
Exhibit 1: YTD stock performance of digital banks
Source: Bloomberg (as of 26 October 2022), BRIDS
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Race to acquire customer`s deposit
Higher rates to attract customers

As an engine to drive loans growth, and thus profitability, digital banks are in a
race to increase third party funds or customer deposits. The growth in customer
deposits has also been seen as influential in determining the share price of the
digital bank. This will be discussed later in the section: Factors affecting the digital
bank sector’s market capitalization.
Besides the convenience they are offering in their apps, digital banks are also
offering higher interest rates than most conventional banks to attract customers.
Currently, Bank Neo Commerce (BBYB) and Seabank (not listed) are offering the
highest saving rate of 6.0%. Both are also offering the highest deposits rate of 7.0-
8.0% depending on the duration.
Analysis on impact of rates to customer`s deposit

We undertook analysis on the higher rates for both savings accounts and time
deposits on the customer deposits growth. We used the published rate for the
rates and used the YTD change in customer deposits (at the end of August 2022)
for the customer deposits growth. We used 8M22 equity value as the z axes which
represents the size of the ball.
Our analysis shows that four banks are hovering at the regression line, which
indicates the average industry customer deposits to rates ratio, with one bank
above the line and one bank below the line. Both saving accounts and time
deposits analysis produces similar results.
Based on our analysis, Bank Jago (ARTO) is positioned around the regression line
for both savings and time deposits. Jago`s time deposits balance only grew slightly
YTD which is in line with its low deposits rate. This mainly reflects the bank’s
initiative to increase its CASA ratio and the fact the bank is also backed up by its
high capital compared to its digital banking peers.
Bank Neo Commerce is positioning itself as one of the highest interest rate
providers among its peers (Seabank matches its saving rates of 6.0%). However,
the growth of its savings accounts is still below that of Seabank. Aside from the
drag from its legacy portfolio, this could also relate to its main partnership,
Akulaku, which is more positioned as a lender, in our view

Exhibit 2 . Saving rate vs increase in saving account Exhibit 3. Deposit rate vs increase in time deposit
Source: Company, various sources, BRIDS Source: Company, various sources, BRIDS
BCA Digital (Blu) consistently positions itself (both savings and time deposits) in
the lower part of the regression which indicates that it can gain third party funds
by offering lower rates than its peers. This is interesting as the parent company,
Bank BCA (BBCA) is also known for offering low rates. Despite being one of the
newest digital banks, it seems the strong franchise of BCA has impacted positively
on Blu. Blu was able to acquire time deposits of IDR2.6tn YTD which is the second
highest behind Seabank by offering a rate of 4.0%.
Seabank has seen the most growth in acquiring third party funds and saw its
saving accounts reach IDR9.7tn in Aug-22 (+66% YTD) and time deposits reach
IDR7.8tn (+471% YTD). In the first eight months of 2022, Seabank has acquired
total savings and time deposits of more than IDR10tn. We believe the strong
growth was not only driven by the high rate it offers, but was also supported by
the ecosystem of its e-commerce business, Shopee.

Indonesia’s digital banking potential
Being the fourth most populated country in the world with more than 270 million
people, Indonesia’s banking industry has a lot of potential. The potential is also
reflected in Indonesia`s demographics where around 65% of the population is
below the age of 40. According to BCG, the middle and affluent classes are
expected to grow 1.3x from 2019 to 2024 with banking revenues growing from
USD47bn to USD77bn during the same period (see Exhibit 5). The appetite for
digital financial services is also increasing with digital transactions expanding 30-
50% p.a. between 2015 and 2018.
Exhibit 4. Indonesia population by age (2021)
Source: BPS, BRIDS
Based on BCG in 2017, less than half (49%) of Indonesia’s population is banked
which is better than Vietnam and the Philippines at 31% and 32%, respectively,
but far behind Thailand and Malaysia at 82% and 85%, respectively, let alone
Singapore where 98% of the population is banked. The data is also in line with
data provided by theglobaleconomy.com which shows that only 48% of the
people in Indonesia have bank accounts with less than 31% of the population
having a debit card.
We believe that aside from the low financial literacy, the high unbanked
population also reflects Indonesia’s vast geographical area which makes it more
difficult for banks to open branches in less populated areas. As such, we believe
that digital banking and other fintech services will be more effective in untapping
the opportunities due to their branchless nature.

Exhibit 5. Banking revenues and unbanked population in Southeast Asia
Source: BCG Global Revenue Pools, BCG ASEAN Banking Revenue Pool, Central banks, World Bank, Global Findex
Note: (i) Banked population = Account ownership at a financial institution or with a mobile-money-service provider (% of population ages 15+);
(ii) Exchange rate of 4.14 USDMYR used; (iii) Banking revenue includes both retail and wholesale (covering SME and corporate banking
Below average deposits to GDP ratio

Indonesia’s deposits to GDP ratio stood at 39.7% in 2020, or only better than
Vietnam’s figure in the region. Indonesia’s deposits to GDP ratio is lower than the
world average which stands at 69.6%. With more than 80% of the population
banked, Malaysia, Thailand, and Singapore all have above 100% deposits to GDP
ratios. The country with the highest deposits to GDP ratio in 2020 was Hong Kong
at 413.7%.
Exhibit 6. Financial system deposits, percent of GDP (2020)
Source: TheGlobalEconomy.com

Low household debt to GDP ratio in Indonesia
Indonesia’s household debt to GDP ratio stood at a mere 16.9% as of March 2022.
This is one the lowest figures in the world (the average is 58.7%). One of the
biggest digital banks in the world, Nubank, exploited the failings of the banking
system in Brazil in which millions of underbanked people did not have access to
the financial tools they needed or were paying exorbitant fees for them. We
believe the potential of Indonesia’s underbanked people is similar (if not higher)
than in Brazil which currently has a household debt to GDP ratio of 34.1%.
Exhibit 7: Households debt to GDP ratio (Mar, 2022)
Source: Trading Economics
High appetite for digital lending among Indonesia`s unbanked population

We note that digital lending in Indonesia has a lot of untapped potential as seen
in Google SEA E-conomy data which shows that Indonesia’s share of BNPL
payments stands at 4.0% (SEA average: 2.7%), the highest in the region. This is in
contrast to the share of credit card payments where Indonesia’s figure is the
lowest in the region at 4.9% (SEA average: 11.9%). We believe digital banks are
here to stay since they have the potential to exploit opportunities in Indonesia's
traditional banking system.
Exhibit 8. Share of wallet in digital payments (credit card) Exhibit 9. Share of wallet in digital payments (BNPL)
Source: Google SEA E-conomy Source: Google SEA E-conomy

Digital banking adoption in Indonesia is on the rise to spread
banking services even further
Room to improve financial literacy and inclusion

The level of financial literacy and inclusion has continued to move positively in
recent years. Based on the results of the National Financial Literacy Survey
conducted by OJK in 2019, the financial inclusion index reached 76.19% or up from
67.80% in 2016. Positive developments can also be seen in financial literacy,
where the index rose from 29.70% in 2016 to 38.03% in 2019. Despite this, we see
huge room for improvements in Indonesia’s banking industry especially outside
Java where the figures were far below the national average. Digital banking is well
placed to seize opportunities given its branchless nature which eliminate the high
investment costs associated with opening bank branches.
Exhibit 10. Financial literacy and inclusion in Indonesia
Source: OJK
Digital banking app users are still less than half of the mobile banking app
users
Based on a survey conducted online by Populix from 20 – 25 May 2022, an
Indonesian digital-based research company, from 1,000 respondents aged 18–55
in Indonesia, sixty four percent of the respondents have financial service
applications on their mobile phones. This is lower than the figures for social media
and e-commerce apps at 93% and 85%, respectively, but higher than the figures
for GPS navigation and traffic at 60% and the figure for travel bookings at only
44% (see Exhibit 11).
Of the total banking/financial app users, 91 percent of the respondents have a

mobile banking application, 84 percent have an e-wallet, and 33 percent have a
digital banking application. We believe the numbers are related to the duration
of the technology available to customers, i.e. mobile banking as the first available
app followed by e-wallet and digital banking as the latest. As people get
accustomed to the new technology, we believe the adoption of digital banking
apps will grow in the future from its low base.

Exhibit 11. Mobile apps ownership Exhibit 12. Banking/financial apps used
Source: Populix Source: Populix
The latest established digital banks are gaining traction

Due to the high number of digital banks joining the fray backed by their extensive
marketing activities to attract customers, these digital banks are gaining
popularity in Indonesia. We categorize the early digital banks as those established
before the Covid-19 pandemic which include but are not limited to Jenius,
Digibank, and TMRW.
Based on a survey conducted by Daily Social in December 2021, two early

established digital banks, Jenius and Digibank, are in the top-three well-known
digital banks in Indonesia. However, based on a survey conducted by Populix,
from the top five digital banks used by respondents, Jenius was the only one of
note.
Exhibit 13. Most used digital banking apps (May 2022)
Source: Populix

Exhibit 14. Most known digital bank in Indonesia (December 2021)
Source: Daily Social, Katadata
Declining number of bank branches

Many bank branches were closed in early 2022. The number dropped to c. 25.7
thousand in 5M22 from 32.4 thousand at the end of 2021. The number of
branches in 5M22 is comparable to that in 2011. Although branches are still
relevant in the banking industry, we can imagine the number falling further due
to the ongoing consolidation and higher adoption of branchless banking by
conventional banks in the future.
Exhibit 15. Number of commercial bank branches
Source: OJK

Factors affecting the digital bank sector’s market capitalization
Based on our research, we found that the share prices of Indonesia’s digital banks
moved in conjunction with IDX Tech, cryptocurrencies, and global liquidity rather
than Indonesia’s conventional banking sector. With uncertainty surrounding high-
risk investments, the unconventional valuation method, and high liquidity now
gone, we advise investors to take a step back and gain a better understanding of
what the digital banks have to offer fundamentally.
Digital banking sector stock prices are inversely correlated to the Big 4 Bank
stock prices
The correlation between the stock prices of the Big 4 Banks in Indonesia, i.e. Bank
Central Asia (BBCA), Bank Rakyat Indonesia (BBRI), Bank Mandiri (BMRI) and Bank
Negara Indonesia (BBNI) is inversely proportional to the stock prices of digital
banks. This may reflect the significant differences between the two, i.e. the Big 4
Banks are mature companies with stable dividends while digital banks potentially
offer high growth with dividends unlikely to be paid in the near future.
The negative correlation might also stem from the fact that despite being in
different growth stages and not competing directly against each other, digital
banks are still fundamentally banks meaning they take deposits and channel loans
to customers. In this case, the overlapping customers will fall in the retail and
micro, small and medium enterprises segments. The positive sentiment on
conventional banks may mask the growth outlook for digital banks. This can
reduce investor interest in digital banks leading to declines in their stock prices.
Exhibit 16. Correlation between the share prices of Big 4 Banks and digital banks
Source: Bloomberg, BRIDS

Digital bank share price movements mimic Indonesia’s technology sector
Although banking is perceived to be a stable business, the use of technology by
digital banks in their core operations means they are perceived more as a tech
business. Digital banks are also still at an early stage with high potential revenues
growth, with some of them still loss making as they seek to capture market share.
As such, they are less likely to distribute dividends to shareholders in the near
future. Looking at the IDX Tech sector index, we note that the movements of
digital bank share prices is highly correlated to this index. While the Indonesian
tech space is currently suffering from negative sentiment and experiencing de-
ratings, we believe digital banks are still worth a look on a fundamental basis.
Exhibit 17. Correlation between IDX Tech and digital bank share prices
Digital bank share price movements are correlated to crypto currency and
global liquidity
Despite its controversy as an investment alternative, we note that the digital
banking sector’s market capitalization is correlated to the crypto currency space.
We use bitcoin as a proxy to crypto currency and found that the correlation is
87%. This may be understandable considering that bitcoin and digital banks have
some similar characteristics, i.e. 1) perceived as an investment vehicle, 2) high
growth in value as use-cases increase, and 3) enjoying the liquidity in the financial
markets where investors have higher risk appetite.

Exhibit 18. Correlation between bitcoin and digital bank share prices
Exhibit 1. Correlati on betwee n bitcoin a nd digital ba nk share pri ces
Based on studies, the movement of bitcoin and crypto currencies are influenced
by liquidity. Similarly, we note a high correlation between global liquidity and
digital bank share prices. We use money supply (M2) of the United States, China,
and the European Union combined as the proxy of global liquidity. With interest
rates set to rise globally to curb inflation, global liquidity should remain tight. As
such, we believe that investors should take a step back to look at the
fundamentals of the digital banking space rather than look at the liquidity side of
the equation.
Exhibit 19. Correlation between global liquidity and digital bank share prices
Index: 2017=100

Exhibit 20. The most popular bank in each country
Source: BusinessFinancing.co.uk
Exhibit 21. Most valued independent digital banks (2021)
Source: WhiteSight

Depressing valuations of digital banks globally
With global liquidity down and appetite for the tech sector subsiding, digital bank
valuations have come under pressure globally. We note that of the three listed
banks among five Decacorn Digital Banks (valuations above USD10bn), i.e.
NuBank, Revolut, Chime, Tinkoff, and SoFi (see Exhibit 21), valuations dropped by
more than half. As of 24 October 2022, SoFi’s valuation dropped by more than
60%, bringing its valuation down below USD10bn. Tinkoff’s valuation tanked more
than 90% making its valuation fall below the unicorn level of USD1bn, affected
also by the conflict between Russia and Ukraine. Only NuBank`s valuation remains
at Decacorn size with its valuation down from c. USD45bn to c. USD21bn.
The general investment environment is still weak

According to Crunchbase News analysis, there wasn’t a single firm that increased
its lead deal pace in Q3 (see Exhibit 22). This is not too surprising given the general
investment environment. Global venture funding for the third quarter, which
totaled US$81 billion, was down 53% y-o-y and 33% q-o-q.
Exhibit 22. Investments led by quarter by global active venture and growth investors
*Growth equity investors

Source: Crunchbase
Deposits as the key factor determining share prices

Based on our regression analysis, we found that deposits growth is positively
correlated with the digital banking sector market capitalization. Despite being
perceived as a key determinant to share prices, net profits were not correlated to
share price movements based on our analysis. This is also the case for loans. In
our view, deposits - which are also correlated to the number of app users - is more
significant as it depicts how quickly the digital banks can scale up to match the
current lofty multiple valuations.

Regulatory risk in digital banking and fintech lending
Tighter regulation could limit potential growth of digital banking

As a sector regulated by the Financial Service Authority (OJK), digital banking’s
future growth will depend on the regulations governing the business. Currently
there are specific rules regarding digital banking in Indonesia, which makes it
follow the same regulations as conventional banks. As digital banks seek to
disburse loans to different segments (the underbanked) compared to
conventional banks, we may see some tightening of regulations if the risks are not
managed well by the digital banks. Currently, most digital banks disburse their
loans through fintech lending and other partnership platforms.
The growth in digital banks will depend on the growth in fintech lending
Fintech lending which includes but is not limited to peer to peer (P2P) lending and
buy now pay later (BNPL) will be a growth driver for digital banks to disburse their
funding balances through their partner’s ecosystem. Despite the high growth
potential in Indonesia’s fintech lending market, we note the risk of tighter
regulation if not managed well. This was the case in China’s fintech industry.
Same potential but unlikely to follow China’s case

Like China, Indonesia has huge market potential in fintech lending due to its large
population and high underbanked portion. Indonesia`s macroeconomic and
socioeconomic conditions are comparable to the rise of China’s Fintech industry
in 2013.
The difference, however, is that China’s market and business model targets the
hundreds of millions of lower-income individuals who do not have credit cards.
This resulted in a majority of Chinese P2P players offering short-term consumer
loans. The rapid expansion of the P2P market in China was followed by significant
platform collapses, incidents of fraud, and platform operator misconduct, which
caused significant losses to consumers. In response, China started to implement
increasingly strict regulations (with stringent compliance procedures) in 2017.
This heightened the risk of a market fall-out, causing direct harm to consumers,
and could also lead to greater mistrust of fintech and the financial sector overall.
Indonesia, on the other hand, is targeting both underserved individuals and

MSMEs, which should provide a more balanced mix between consumer and
investment loans. Indonesia has benefitted from analyzing China’s initial
conditions. To support the growth of fintech lending while minimizing the
proliferation of unauthorized platforms that operate in an unethical manner,
Indonesia’s regulatory framework takes a principle-based and collaborative
approach.

Exhibit 23. Comparison of Indonesia`s fintech lending with China
Source: CNNIC Report, APJII, CMSPI, Euromonitor, SME Finance Forum, PWC

Digital banks are perceived as a major threat in the future by both
traditional banks and fintech firms
A survey conducted by the World Bank reveals that banks see traditional financial
institutions and digital banks as threats. Fintech firms did not see traditional banks
as competitors but did worry about digital banks and other fintech firms
(domestic and foreign). This is shown by the survey responses of which 87 percent
of the traditional banks (large, small, and medium) and more than 75 percent of
the fintech firms believe they will face competition from digital banks.
On the other hand, only a little over 60 percent of the fintech firms believe they
will face competition from traditional providers. We think this is due to the
different customer segments they target. Exhibit 24 shows the average
competitiveness score for the perceived degree of competition that is faced by
each responding institution type from each competitor type.
Exhibit 24. Map of average competition expectations by responding institution type
Source: World Bank Group (based on responses to the Digital Technology and the Future of Finance
Survey 2020)
Indonesia’s digital banking is still in an early stage which should provide some
buffer from competition from the incumbents…
Aside from the three predecessors with digital banking apps launched before the
Covid-19 pandemic, Indonesia’s digital banking companies mostly surfaced in the
past two years. Their early stage and the huge potential of Indonesia’s banking
market will provide some buffer for digital banks for early penetration as they
have yet to be perceived as a major competitor to conventional banks and fintech
firms.

… but the future may tell a different story
The competition between conventional banks and digital banks in the future will
occur in the mobile space with conventional banks to continue developing mobile
banking apps while digital bank apps will remain as the core banking activity for
digital banks. We do not expect digital banks to venture into offline branches in
the near future. As competition from digital banks intensifies, more features are
expected to be added to attract users. This includes but is not limited to direct
lending products. As such, we expect the high growth of digital banks to normalize
as competition intensifies.
A survey conducted by Populix also shows that the top three reasons people use
mobile banking apps and digital banking apps are the same, i.e. hassle-free, time
efficient, and easy to use. However, we note that a lot more people prefer digital
banking apps due to: 1) lots of features, 2) integration with e-wallets, and 3)
integration with e-commerce, all of which will be dependent on each digital
banking partnership ecosystem in the future, in our view.
Exhibit 25. Reason of using mobile banking apps and digital banking apps
Source: : Populix, BRIDS
Based on the same survey conducted by Populix, the top three transaction
purposes of mobile banking and digital banking apps are also the same, i.e. to top-
up other applications, e-commerce purchases, and to make transfers to family
members. Interestingly, we note a greater investment intention for people in the
digital banking space which partly reflects the high deposit rates offered by digital
banks, in our view.

Exhibit 26. Transaction purposes of mobile banking app and digital banking app users
Source: : Populix, BRIDS
The segmentation of Indonesia’s fintech

Based on the origin of the business and the scale, we divide Indonesia’s fintech
into four broad categories which are: 1) infrastructure providers which seek to
help financial institutions to digitize and modernize their technology stacks, 2)
large technology ecosystems which use financial services to strengthen
relationships with their users, 3) new entrants, startups, and attackers which
seek to enter financial services using new technology, and 4) incumbent financial
institutions which make significant investments in technology to lift their game.
Exhibit 27. Segmentation of Indonesia’s fintech category
Source: McKinsey, BRIDS

Digital banking under our radar
While we only have two names i.e., ARTO and BBYB, under our digital banking
coverage, we have a total of seven digital bank names under our radar. Under our
digital banking radar we have several listed names such as Allo Bank (BBHI), Bank
Raya (AGRO), and Bank Aladin Syariah (BANK) and private names such as Seabank
and BCA Digital. These names are part of the new generation of digital bank
launches during the Covid-19 pandemic. While we like to include the older
generation of digital banks such as Jenius by BTPN, Digibank by DBS, and TMRW
by UOB under our radar, data limitations prevent us from doing so. This is mainly
due to the form of the digital bank which is not a separate entity and the fact that
the contribution to the groups is still small.
We map the digital banks under our radar on P/BV to ROE with equity as the size
(see Exhibit 28). Most of the digital banks except ARTO and BBHI booked net losses
in FY21 which, we believe, is understandable given their early stage of operation.
Based on FY21 P/BV, the figures for digital banks range from 3-37x with BBYB at
the low end and BBHI at the high end. Compared to the valuations of Indonesia’s
big 4 banks (P/BV of 1.3-5.0x), digital banks have a premium valuation as we
believe the market expects higher growth to justify the lofty valuations.
Exhibit 28. Digital bank sector P/BV – ROE map
Source: Company, Bloomberg (as of 25 October 2022), BRIDS

Exhibit 29. BRIDS digital bank radar
Bank Neo Bank Digital Bank Aladin
Bank Jago Allo Bank Seabank Bank Raya
Name Commerce BCA Syariah
(Abbreviation) (ARTO) (BBYB) (BBHI) (Seabank) (BCA Digital) (AGRO) (BANK)
as of August 2022
Financial (in IDR billion)
Loan
7,445 8,447 7,125 16,058 1,970 8,454 218
Loan growth (YTD) 39% 98% 224% 163% 85% -27% n/a
Asset
15,838 15,712 10,594 23,996 9,465 12,902 2,480
Third-party fund
7,338 11,935 3,970 19,982 5,329 9,674 429
TPF growth (YTD) 100% 47% 87% 139% 208% -28% -59%
Liabilities
7,553 13,420 4,272 20,660 5,451 10,497 493
Equities
8,285 2,293 6,322 3,336 4,014 2,405 1,987
Market cap.
116,739 11,518 73,014 n/a n/a 16,036 25,004
P/BV (x)
14.09 5.02 11.55 n/a n/a 6.67 12.59
Net profits 36.48 (604.33) 186.80 10.97 (21.18) 29.36 (124.74)
Net Interest Margin (%) 11.0 13.5 7.7 18.6 3.2 4.7 2.7
Loan to Deposit Ratio (%) 101.5 70.8 179.5 80.4 37.0 87.4 50.8
CASA Ratio (%) 69.6 26.7 6.4 61.0 29.1 41.0 14.3
Cost-to-income Ratio (%) 70.6 57.2 54.5 24.2 94.2 12.4 410.4
Market Share
Total loan (%) 15.0 17.0 14.3 32.3 4.0 17.0 0.4
Total TPF (%) 7.0 17.3 7.2 39.0 12.1 16.7 0.7
# of customer (Dec-21)
3,900,000 18,500,000 1,000,000 n/a 806,000 713,000 160,000
Apps Launched Apr-21 Mar-21 20-May-22 2021 22-Jul-21 Feb-22 2022
# of app download (google/apple)
Apps store
3,500 6,300 797 19,000 9,100 333 803
Playstore
5,000,000 10,000,000 1,000,000 5,000,000 1,000,000 500,000 1,000,000
# rating (google/apple)
Apps store 3.8 3.8 4.3 4.9 4.8 4.9 4.6
Playstore 3.9 4.1 3.6 4.9 4.7 4.9 4.3
Source: Bloomberg, Company, various sources, BRIDS

Allo Bank Indonesia (BBHI)
Before being known as Allo Bank, the bank was originally called Bank Arta Griya
and was founded in 1992. The bank changed its name again in 1993 to Bank Harda
Griya or Bank Harda. In 1996, the name was changed to Bank Harda International
(BHI). Almost 2 decades later, in 2015, Bank Harda International decided to
conduct an IPO with the stock code BBHI.
Along with the bank’s development, in March 2021, PT Bank Harda International
(BHI), was officially acquired by MEGA Corpora, part of CT Corp, one of Indonesia's
large conglomerates. Three months after the acquisition, Bank Harda
International officially changed its name to Allo Bank Indonesia. The shareholders
of BBHI as of September 30, 2022 include PT Mega Corpora (60.88%), PT
Bukalapak.com Tbk (11.49%), PT Indolife Investama (6%), Abadi Investment (7%),
and the Public (14.63%).
In November 2021, Allo Bank received OJK permission for the AlloApps digital
product and carried out the soft launch of Allo Apps. This application makes it
easy for customers to connect with merchants in the CT Corpora ecosystem. The
Allo Bank application provides a variety of features and services, such as being
able to top up through several channels, be it ATM, internet or mobile banking,
under the ecosystem of CT Corp free of charge.
The products and services provided by Allo Bank include Current Accounts,
Tabungan Super, Tabungan Harda, TabunganKu, Deposits, Working Capital -
Current Account Loans (PRK), Working Capital - Accept Loans (PA), Working
Capital - Decreased Acceptance Loans (PAM), Working Capital - Installment
Working Capital Loans (PMKA), Investment Loans, Loan Acceptance Decreased –
Multi-finance (PAM-MF), Home Ownership Loans (KPR), Car Ownership Loans
(KPM), Installment Refinancing Credit (KRA), and Multi-Function Credit (KMF).
At the end of 2021, Allo Bank conducted a limited trial of several new products
and services, including: Allo Pay and Allo Pay+ , Allo Prime, Deposits, Pay Later and
Instant Cash, and Allo Bank App.
Exhibit 30. Allo Bank`s shareholder structure Exhibit 31. Seabank`s shareholder structure
Source: Company Source: Company

Bank Seabank Indonesia (Seabank)
PT Bank Seabank Indonesia (Seabank) was previously known as Bank
Kesejahteraan Ekonomi (Bank BKE) and was established on October 4, 1991. The
bank started its banking activities on February 27, 1992 after obtaining a business
license as a commercial bank. In 2021, the bank officially changed its name to PT
Bank Seabank Indonesia (Seabank) after being acquired by Sea Group, the
shareholder of the e-commerce platform, Shoppe, and online game developer,
Garena. By the end of 2021, the Bank’s total assets have grown to IDR 11,039
billion with 1,082 employees.
Seabank officially launched its digital banking application in 2021 with savings
accounts and virtual accounts as its main features. In 2021, the bank focused on
developing digital banking services for savings and virtual accounts. Moreover,
the bank also continuously strives for sustainable collaboration and synergy with
the shareholders’ ecosystem i.e., Shoppe to further reach the retail and MSME
segments in Indonesia.
Bank Digital BCA (BCA Digital)

PT Bank Digital BCA (Blu) was originally founded in 1965 in Tjiparaj (Bandung)
under the name of PT Bank Rakjat Parahyangan. In 1982 there was a change of
name to PT Bank Pasar Rakyat, and thereafter in 1990 there was a change of name
to PT Bank Royal Indonesia (Bank Royal). At the end of 2019, Bank Royal was
obtained by one of the biggest banks in Indonesia, PT Bank Central Asia Tbk
(BBCA), then transformed into a digital bank. Bank Royal officially changed its
name to PT Bank Digital BCA (Blu) on 28 May 2020. BCA Digital is part of the
Indonesia conglomerate, Djarum Group.
BCA Digital has prepared various strategic steps to improve its services, product
quality, and profitability as well as maintaining sufficient liquidity with the
implementation of risk management. This is intended to complete the
transformation into a well-run digital bank through a new business model. In July
2021, the bank officially launched a digital application called Blu. The Blu mobile
banking application was launched along with an exclusive partnership with Blibli
and Telkomsel to provide an integrated digital ecosystem with partner platforms
that provide a seamless banking experience to customers.
Exhibit 32. BCA Digital`s shareholder structure Exhibit 33. Bank Raya`s shareholder structure
Source: Company Source: Company

Bank Raya (AGRO)
PT Bank Raya Indonesia (AGRO) was created by the Plantation Pension Fund
(Dapenbun) on September 27, 1989 under the name PT Bank AGRO. By the end
of 1989, the Bank had secured a business license from the Minister of Finance
according to a Ministerial Decree and had begun commercial operations on
February 8, 1990. The Bank has concentrated its efforts on the agro industry since
its foundation. The majority of the bank's loan portfolio is directed at agriculture,
both on and off farm.
The bank completed an initial public offering on the Surabaya Stock Exchange in
2003. Simultaneously, the Bank's name was changed to PT Bank Agroniaga Tbk.
In 2007, the Bank's shares were listed on the Indonesia Stock Exchange under the
ticker AGRO. On March 3, 2011, one of the biggest banks in Indonesia, PT Bank
Rakyat Indonesia (Persero) Tbk (BBRI) bought the majority of Dapenbun's shares,
thereby becoming the controlling shareholder. In 2012, the Bank changed its
name once again to PT Bank Rakyat Indonesia Agroniaga Tbk, with the commercial
brand BRI Agro.
Through assistance from BRI, the bank accomplished a milestone in 2019 with the
introduction of PINANG, a digital-based credit product and the first application-
based bank credit product. On September 27, 2021, the GMS approved the Bank's
name change to PT Bank Raya Indonesia Tbk in order to become the digital bank
with the most extensive point of access in Indonesia.
Bank Aladin Syariah (BANK)

PT Bank Aladin Syariah Tbk (Aladin Bank) was established for the first time under
the name PT Bank Maybank Nusa International (MSI) as a conventional
commercial bank. It is a Joint Venture between two commercial banks: Malayan
Banking (Maybank) Berhad from Malaysia and Bank Nusa Nasional from
Indonesia.
In 2019, the Indonesian conglomerate, Nojorono, purchased 100% of the shares
in Bank Maybank Syariah Indonesia through PT NTI Global Indonesia. Along with
the acquisition, Bank Maybank Syariah Indonesia changed its name to PT Bank
Net Syariah (BNS), as well as changing the business activities from conventional
commercial banking to sharia commercial banking, and changing the business
focus from corporate to the retail segment, with the aim of developing a sharia-
based economy, mainly the Micro, Small and Medium Enterprises (MSMEs). On
February 1, 2021, BNS shares were listed on the IDX with the ticker “BANK”. BNS
then officially changed its name to PT Bank Aladin Syariah Tbk on 7 April 2021 (NTI
Global Indonesia changed its name to PT Aladin Global Ventures at the same
time).
Exhibit 34. BANK`s shareholder structure
Source: Company

Valuation methodologies
Valuing a non-dividend paying financial service firm such as a digital bank can be
tricky. While many financial service firms, i.e. conventional banks, do pay
dividends, a relatively young and high growth digital bank will choose not to pay
dividends and reinvest all of its earnings back into the operations. As a matter of
fact, some of these digital banks are still losing money.
While it may seem inappropriate to use the dividend discount model to value non-
dividend paying firms such as digital banks (expected to be zero for the
foreseeable future), we argue that for firms which have a positive earnings
outlook, they will have to pay dividends in the future. As the banks continue to
grow, the growth will ultimately subside. As the growth drops, the firm’s capacity
to pay out dividends will increase. We can estimate the expected payout ratio in
future periods using the long-term growth and return on equity.
Exhibit 35. Assumption used in our dividend growth model valuation
Phase High-growth Transitory Mature

Risk free rate (Rf) 7.0% 7.0% 7.0%
Market return rate (Rm) 13.6% 12.3% 11.0%
Beta (ß) 1.50 1.25 1.00
Risk premium (Rm-Rf) 6.6% 5.3% 4.0%
Ke = Rf+ß(Rm-Rf) 16.8% 13.6% 11.0%
Source: Bloomberg, NYU, BRIDS
We assume a zero dividend rate in the high-growth period and expect the banks
to start distributing dividends in the transitory period as growth starts to
normalize in the mature period. We use a long-term growth assumption of 8.0%
to take into account both economic growth (GDP) and inflation. Our estimated
ROEs are 17.2% and 27.5% for ARTO and BBYB which translate to estimated
dividend payout ratios of 53% and 71%, respectively.

COMPANY REPORT

Equity Research
Company Update
BUY Bank Jago(ARTO IJ)

Maintain Ready for a marathon
Last price (IDR) 5,500 As one of the earliest digital banks in Indonesia, Jago (ARTO) is poised for
Target Price (IDR) 7,600 growth backed by its strong capital, growing user base, and improving
Upside/Downside +38.2% partnership ecosystem. We foresee a strong growth period in the next six
Previous Target Price (IDR) n/a
years before normalizing into a mature/stable stage in 2033. We value the
bank using the dividend discount model and arrive at intrinsic value of
Stock Statistics IDR7,600 per share.
Sector Banking Steadily growing number of customers and funding balance. We expect the
Bloomberg Ticker ARTO IJ number of Jago`s customers to reach 23 million by end-2033, implying 14%
No of Shrs (mn) 13,856 CAGR over our FY22F estimate of 5.2 million supported by growing mobile
Mkt. Cap (IDRbn/USDmn) 76,209/4,878 phone penetration and improving financial literacy. We expect total deposits
Avg. daily T/O (IDRbn/USDmn) 156.1/10.0 (from both saving accounts and time deposits) to reach IDR6.1mn per
customer by 2033F from IDR1.0million in FY22F. By comparison at the of end-
Major shareholders (%) June 2022, we estimate total deposits of Jenius customer has reached
PT Metamorfosis Ekosistem Indonesia 29.8 IDR4.3million.
PT Dompet Karya Anak Bangsa 21.4 Growing loans portfolio supported by its partnership ecosystem. We expect
Estimated free float 45.6 loans to grow to IDR163tn in FY33F implying 29% CAGR over FY22F’s lending
balance of IDR9.8tn supported by the partnership ecosystem and a higher
EPSConsensus (IDR) contribution from GOTO. Supported by its strong capital (CAR at 97.5% at
2022F 2023F 2024F 9M22), we expect the LDR to remain above 100% in the next few years
Danareksa 3.8 11.4 36.7 before normalizing at 80% in the mature period with CAR falling to 17%.
Consensus 4.8 24.1 56.6
Earnings growing from both its loans portfolio line and cost efficiencies.
While we forecast Jago`s net interest income to increase from IDR590bn in
Danareksa/Cons (21.4) (52.5) (35.1)
FY21 to IDR22tn in FY33F, implying CAGR of 40%, we expect net profits to
ARTO relative to JCI Index
reach IDR6.8tn implying 46% CAGR, as we expect the cost to income ratio
(CIR) to decline as the bank reaches its maturity stage. CIR stood at 83.8% in
FY21 as the bank started its early operations with high IT and promotional
expenses. In the mature stage, we expect the CIR to drop to 35.6%. This is
lower than the big four banks` ratio of c. 40-45% as we believe Jago will
operate with more efficient costs due to its branchless nature.
Reinitiate coverage with a BUY rating, TP: IDR7,600. We reinitiate coverage
on Bank Jago (ARTO) with a BUY rating as we believe the company is poised
for growth on the back of: 1) a growing number of users to support its
funding balance, 2) its partnership ecosystem to grow lending, 3) cost
efficiencies as business scales up. We value the company using the dividend
discount model and arrive at a TP of IDR7,600. We assume a long-term cost
of equity of 11.0% and long-term growth of 8.0%.
Source : Bloomberg Key Financials
Year to 31 Dec 2020A 2021A 2022F 2023F 2024F
PPOP (IDRbn) (148) 103 454 751 1,457
Victor Stefano Net profit (IDRbn) (190) 86 50 152 488
(62-21) 5091 4100 ext. EPS (IDR) (22.5) 6.5 3.8 11.4 36.7
victor.stefano@brids.co.id EPS growth (%) (77.8) (128.8) (41.7) 203.1 221.1
BVPS (IDR) 146.2 621.3 625.1 636.5 673.3
Eka Savitri
PER (x) (244.6) 848.9 1,457.1 480.8 149.7
(62-21) 5091 4100 ext.3506
PBV (x) 37.6 8.9 8.8 8.6 8.2
eka.savitri@brids.co.id
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
ROAE (%) (19.8) 1.8 0.6 1.8 5.6
Source : ARTO, BRIDS Estimates
bridanareksasekuritas.co.id See important disclosure at the back of this report 29

Equity Research
Company Update
Reinitiate coverage with a BUY rating, TP: IDR7,600

We reinitiate coverage on Bank Jago (ARTO) with a BUY rating as we believe
the company is poised for growth on the back of: 1) a growing number of
users to support the funding balance, 2) its ecosystem partnership to grow
lending, 3) cost efficiencies as business scales up. We value the company
using the dividend discount model and arrive at a TP of IDR7,600.
We expect ARTO to remain in high-growth mode over the next six years with
an earnings per share (EPS) CAGR of 71.7% before transitioning to a stable or
mature stage in the next six years in FY33F. We expect zero dividends during
the high-growth stage as the bank will continue to reinvest its profits to scale
up while we expect long-term stable dividend growth of 52.6% as the
company becomes mature based on LT ROE of 17.2% and LT growth of 8.0%.
Exhibit 1. ARTO`s valuation assumptions

Beta (ß) 1.50 1.25 1.00
Ke = Rf+ß(Rm-Rf) 16.8% 13.6% 11.0%
Return on equity (average) 8.2% 18.1% 17.2%

Growth rate (CAGR) 71.7% 16.0% 8.0%
Expected dividend payout ratio (average) 0.0% 31.2% 53.5%
Source: BRIDS
Exhibit 2. ARTO`s dividend discount model

Forecast year 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Equity book value/share 595 599 610 645 725 850 1010 1203 1430 1658 1878 2081 2262
Return on equity 1.0% 0.6% 1.8% 5.5% 11.0% 14.7% 15.8% 17.6% 19.3% 18.7% 18.3% 17.6% 17.2%
Earnings per share 6.2 3.6 11.0 35.2 79.9 125.4 159.2 212.1 276.4 310.6 343.0 366.0 388.8
growth -42% 203% 221% 127% 57% 27% 33% 30% 12% 10% 7% 6%
Payout ratio 0% 0% 0% 0% 0% 0% 0% 8.9% 17.8% 26.7% 35.6% 44.5% 53%
Dividend per share - - - - - - - 18.9 49.3 83.0 122.2 163.0 207.8
Cost of equity 16.8% 16.8% 16.8% 16.8% 16.8% 16.8% 16.8% 15.9% 14.9% 13.9% 12.9% 12.0% 11.0%
Cumulative cost of equity 0.856 0.856 0.733 0.627 0.537 0.459 0.393 0.339 0.295 0.259 0.229 0.205 0.185
Present value - - - - - - - 6.41 14.54 21.51 28.05 33.41 38.37
Terminal value IDR 7,482
Total value/share IDR 7,624
TP IDR 7,600
Source: Company, BRIDS
More conservative than the street

Our projection on Jago`s revenues and profitability are lower than the
consensus. We estimate CAGR revenues and net profits growth of 69% and
89%, respectively, for 2021-25F while the street expects CAGR of 79% and
CAGR of 122% in the same period. In our view, Jago`s management is taking a
conservative stance in regard to managing its loans portfolio which should
translate to a higher cost of credit. We also expect the bank to continue
undertaking high spending on IT infrastructure and promotions over the next
few years to ramp up its scale.

Exhibit 3. ARTO` s revenues projection (in IDR billion) Exhibit 4. ARTO`s net profits projection (in IDR billion)
Source: Company, Bloomberg, BRIDS Source: Company, Bloomberg, BRIDS
Steadily growing number of customers and funding balance

The number of Bank Jago customers reached more than 4.2 million in
September 2022. This is triple the figure from just nine months ago at the end
of December 2021 (1.4 million customers). Bank Jago`s management team is
targeting to reach 6 million customers by the end of this year.
The increase in the number of customers has supported the growth of Bank
Jago's third party funds (TPF). As of September 2022, the total deposits
collected by the bank reached IDR7.3tn, a 186% y-o-y increase. Low-cost
funds (CASA) increased by a significant 422% y-o-y to IDR5.1tn. Meanwhile,
time deposits grew by 37% to IDR2.1tn. This has led to a better cost of funds
structure as reflected in the ratio of CASA to total TPF reaching 71% by the
end of September 2022 or higher than the figure of 39% at the end of
September 2021.
Exhibit 5. ARTO` s number of KYC-ed customers (in thousand) Exhibit 6. ARTO`s funding balance (in IDR trillion)
Source: Company, BRIDS Source: Company, BRIDS
We expect the number of Jago`s customers to reach 22.6 million at the end of
2033, implying 14% CAGR over our FY22F estimate of 5.2 million supported by
growing mobile phone penetration and better financial literacy. We expect
total deposits (from both savings accounts and time deposits) to reach
IDR6.1mn per customer by 2033F from IDR1.0million in FY22F. By the end of
June 2022, we estimate total deposits of IDR4.3million per Jenius customer.

Exhibit 7. ARTO` s projected number of KYC-ed customers (in Exhibit 8. ARTO`s projected funding balance (in IDR trillion)
million)
Key features in Jago’s mobile application

Jago’s app log in page features a PIN, password, and biometrics with the biometrics at
the front line. The interface and log in features are very similar to Jenius apps. In the
main interface, Jago’s app features a customized shortcut with a fixed one at the
bottom. We also note that the main interface is quite similar to the one on the Jenius
app. One of Jago`s key features, Jago Pockets, is also featured in Jenius with a
different term. However, Jago Pockets are able to be linked to the external accounts
of its partnership ecosystem such as GOTO and Bibit, making it easier to track a
customer`s financials in one app. There is currently no QRIS (Quick Response Code
Indonesian Standard) payment feature on the app. However, Jago users can indirectly
use the QRIS payment method as Gopay, its e-wallet sister ecosystem, can now link
payments to the Jago account.
Exhibit 9. Jago mobile app interfaces
Log in page Main interface Jago key feature, pocket


Tiering system to encourage users to grow their balance
To grow the user’s balance and activity, while ensuring the bank provides the
best benefits to the right user, Jago introduced a tiering system: Jago Level.
The system provides four levels starting from Jagoan to Platinum Jagoan. The
basic level, Jagoan still gives monthly benefits such as free transfers and free
admin fees but users are not entitled to free ATM withdrawals or a physical
debit card. To reach the Platinum Jagoan level, the user has to maintain a
monthly average daily balance of above IDR20million. Although not certain,
we believe the tiering system will be renewed on a monthly basis, similar to
the Jenius tiering system.
Exhibit 10. Jago mobile app interface
Source: Company
Growing loans portfolio supported by its partnership ecosystem

As of the end of September 2022, the bank had 38 partnerships with 32 of
them being lending partnerships. The collaboration with GOTO to offer BNPL
and cash loans started to materialize in September 2022, but the numbers are
not yet meaningful. According to the management`s team the number should
become meaningful next year as they foresee encouraging volume during its
early-stage implementation.
The partnership ecosystem has given impetus to Jago`s loans portfolio, which
reached IDR8.2tn as of September 2022, representing a 119% y-o-y increase.
Despite the high capital adequacy ratio (CAR), the bank has been prudently
making new loans. The LDR remains high albeit falling further, reaching 112%
in 3Q22 from 119% in 2Q22 and 146% in 3Q21. Despite the high uncertainty
regarding higher interest rates and high inflation, Jago`s management
continues to target high loans growth of 50-60% in 2023 as the bank is still in
an early stage of development. If 2023 is not as bad as expected, higher loans
growth may be possible.

Exhibit 11. ARTO`s lending balance (in IDR trillion) Exhibit 12. ARTO`s loans to deposits ratio
Exhibit 13. ARTO`s partnership ecosystem
Source: Company
We expect loans to grow to IDR163tn in FY33F implying 29% CAGR over FY22F’s
lending balance of IDR9.8tn supported by the partnership ecosystem and a
higher contribution from GOTO. Underpinned by its strong capital (CAR at
97.5% at 9M22), we expect the LDR to remain above 100% in the next few years
before normalizing at 73% in the stable growth period while the CAR drops to
19%.
The growing business from GOTO, which is one of the leading e-commerce and
ride-hailing platforms in Indonesia, will also benefit Jago which shares the same
shareholder. Based on the survey conducted by Populix in May 2022, the most
used e-wallet app is Gopay, which is the e-wallet of the GOTO ecosystem.

Exhibit 14. Most used e-wallet apps (May 2022)
Source: Populix
Exhibit 15. ARTO`s estimated lending balances (in IDR trillion) Exhibit 16. ARTO`s estimated loans to deposits ratio
Earnings growing from both its loans portfolio line and cost efficiencies
While we forecast Jago`s net interest income to increase from IDR590bn in FY21
to IDR24tn, implying CAGR of 40%, we expect net profits to reach IDR6.8tn
implying 49% CAGR, as we expect the cost to income ratio (CIR) to decline as
the bank reaches its maturity stage. CIR stood at 83.8% in FY21 as the bank
started its early operations with high IT and promotional expenses. In the
mature stage, we expect the CIR to drop to 35.6%. This is lower than the big
four banks` ratio of c. 40-45% as we believe Jago as a digital bank will operate
with more efficient costs due to its branchless nature.

Exhibit 17. ARTO`s estimated net profits (in IDR trillion) Exhibit 18. ARTO`s estimated net interest income (in IDR trillion)
Exhibit 19. ARTO`s estimated net interest margin Exhibit 20. ARTO`s estimated cost to income ratio
Company Profile
PT Bank Jago Tbk (ARTO) is one of the earliest digital banks listed on the IDX.
Bank Jago was previously known as PT Bank Artos Indonesia Tbk which was
established in 1992. Bank Artos is a non-foreign exchange private bank
headquartered in Bandung. Bank Artos focused on its partnership business and
the principle of prudential banking which became the Bank’s business
philosophy. Bank Artos has been listed on the IDX with the ARTO code since 12
January 2016. Three years after the IPO, in January 2019, PT Metamorphosis
Ekosistem Indonesia (MEI) and Wealth Track Technology Limited (WTT),
acquired shares in PT Bank Artos Indonesia Tbk with a total ownership of 51%
and the bank become a technology-based bank to focus on the retail market
(consumer), micro, small and medium enterprises (MSMEs), and the mass-
market.
Before Bank Artos officially changed its name to PT Bank Jago Tbk and moved
the head office to Jakarta in June 2020, Bank Artos conducted a Limited Public
Offering I (Right Issue) and the bank's core capital was IDR 1.3 tn in April 2020.
Not long after officially becoming Bank Jago, 6 months later Gojek through PT
Dompet Karya Anak Bangsa (Gopay) became a non-controlling strategic investor
with an ownership portion of 22.16%.

In March 2021, GIC Private Limited invested and become a non-controlling
shareholder, and the company conducted a Limited Public Offering II (Rights
Issue) and the bank’s core capital reached IDR 8.11 tn. Also, PT Bank Jago Tbk
launched the life-centric Jago Application that makes financial management
simpler, collaborative, and innovative in April 2021.
Along with the development of the company, Bank Jago in July 2021 established
a strategic partnership with PT Bibit Grow Bersama (Bibit). Through the
integration of these two applications, consumers can invest and open Jago
accounts easily, quickly, and seamlessly. In addition, the initial stage of
integration of the Jago Application with Gojek was launched. Kantong Jago is
one of the non-cash payment methods in the Gojek application.
Bank Jago is not only engaged in conventional banking products and services. At
the end of 2021, Bank Jago finally inaugurated the Sharia Business Unit to serve
the mass market segment based on sharia principles. Bank Jago offers various
banking products and services that are generally categorized into funding and
lending activities, along with other supporting banking services.
The company has launched several products to raise funds from the public,
namely current accounts, savings, time deposits, Wadiah current accounts with
the wadiah contract yad dhamanah, Wadiah savings with the wadiah yad
dhamanah contract, and Mudharabah deposits with the mudharabah
muthlaqah contract. Bank Jago provides credit to individual debtors and
business entities. Bank Jago focuses on distributing Islamic loans and financing
to the retail and mass market segments, including SMEs and ultra micro.
The digital banking services offered by the bank include the payment of
monthly bills (telephone, electricity, internet, etc.), Remittance/RTGS/SKN,
Inter-cities script invoices, In-city script invoices – clearing, ATM Bersama and
Alto Network, Customer Funds Account (RDN), and Debit Card. In addition to
the above products, Bank Jago will also launch several financial products and
services through the bank's digital application for individual customers and
entrepreneurs.
Exhibit 21. ARTO`s shareholder structure (as of September,31 2022)
Source: Company

Exhibit 22: ARTO`s board of directors
Name Position Description

Kharim Indra President Kharim holds a Bachelor's degree in Mechanical Engineering from the Bandung
Gupta Siregar Director Institute of Technology, and has attended executive training programs at INSEAD,
Singapore and Harvard Business School, USA.
Prior to serving as President Director of Bank Jago, he served as Director of Information

Technology at Bank BTPN for more than 10 years. He had also held several strategic
positions at Bank Universal, Bank Mega, and Bank Danamon, as well as being an advisor
at Bank BTPN Syariah.
Arief Harris Deputy Arief earned his Bachelor of Engineering degree from the University of Indonesia in
Tandjung President 1991, and attended various education and training programs.
Director
Arief has experience in the banking industry for more than 25 years. He held several
positions including Vice President at Bank Universal, Standard Chartered Bank, Bank
Danamon, and Bank BTPN, in which he was appointed as Director. During nearly ten
years as being the Director at BTPN, Arief was responsible for Finance, Treasury & FI,
and Funding.
Peterjan Van Director of Peter was in the first batch of the Gates Cambridge Scholars formed by the Bill and
Nieuwenhuizen Digital Banking Melinda Gates Foundation. He holds a Bachelor's degree and Certificate of Advanced
Studies in Mathematics from the University of Cambridge, and an MSc in Computer
Science from the University of Twente in the Netherlands.
Peter is the Director of Digital Banking at Bank Jago and a member of the founding
team. Previously, he led the launch and oversaw the early stages of operations for
Indonesia's first fully-digital bank, Jenius (a part of Bank BTPN). Prior to that, he was a
member of the board of directors at VPBank for two years. He started his career at
McKinsey & Company in London and moved to the Toronto office before venturing into
Southeast Asia a decade ago.
Sonny Christian Director Sonny earned a Bachelor of Economics degree from Hasanuddin University in 1996, and
Joseph attended various education and training programs, including the Leadership Program at
INSEAD Singapore, DBS Bank, and at the Center of Creative Leadership, Singapore.
Sonny has experience of more than 25 years in the financial industry, mainly in the
fields of Small & Medium Enterprises (SMEs), Commercial, Consumer and Operations.
Previously, Sonny held various strategic positions including SME Risk Head at Danamon
Bank, Asset Head Institutional Banking Group-4 (SME Business) DBS Indonesia bank,
and Head of Business Banking as well as being on the Board of Management at BTPN
bank.
Umakanth Rama Director Umakanth obtained his Bachelor of Technology (1992) and MBA (1994) from University
Pai of Calicut, India.
He served in several strategic positions in Standard Chartered Bank, across S Asia,

ASEAN, the Middle East & Africa. In his last role, he was the Chief Credit Officer for
Retail Banking, South Asia, based in Mumbai (2016-2021). In his previous roles, he was
the Country Credit Head for UAE (2013-2016), Cluster Risk Head for the Southern Africa
Region (2009-2013) and Unsecured Risk Head for Singapore (2005-2006). He handled
various roles in Operations, Systems & Credit in India (1995-2004).
Tjit Siat Fun Compliance She holds a Bachelor's degree in Accounting from Tarumanagara University.
Director
Siat Fun's career in banking compliance spans more than two decades, starting with her
position as Compliance Bureau Head at Bank Central Asia and Senior Compliance
Officer (Vice President) at Citibank. Subsequently, she served as Director of Compliance
at Deutsche Bank, Bank MNC International, and Bank DBS Indonesia.

Exhibit 23: ARTO`s board of commissioners
Jerry Ng President Jerry is the Founder and President Commissioner of Bank Jago. Previously, for more
Commissioner than ten years he served as President Director of Bank BTPN.
Jerry earned a Bachelor of Business Administration from the University of Washington,

and attended various Executive Management programs, including at the Stanford
Graduate School of Business and Harvard Business School. He is also a fellow of the
Eisenhower Fellowships.
His experience of more than 35 years in the financial industry started at Citibank, and
he later served in various senior leadership positions at Bank Central Asia, Bank
Danamon, and Astra Financial Services.
Anika Faisal Commissioner Anika earned her law degree from the University of Indonesia in 1990, and has
participated in various executive training programs, including the Authentic Leadership
Program at Harvard Business School, USA.
Anika is a professional with extensive experience in the legal field and also has more
than 30 years of experience in the financial industry. Previously, she served as
Compliance Director at Bank BTPN. Anika pursued her career at Bank Niaga, then held
various key positions including Director at Bank Danamon.
Arief Independent Arief obtained his Bachelor of Laws from the University of Indonesia in 1977 and Master
Tarunakarya Commissioner of Laws from School of Law University of Washington in 1984.
Surowidjojo
He co-founded Law Firm Lubis Ganie Surowidjojo in 1985 and serves as Senior Partner
until now. He has served as Independent Commissioner in several publicly-listed
companies, namely at PT Holcim Indonesia Tbk., (2001–2015), PT Sampoerna Agro Tbk.,
(2007–2013), PT Vale Indonesia Tbk (2009–2016), PT ABM Investama Tbk., (2015–
current), PT Bank BTPN Tbk., (2016–2018), and prior to holding the recent position as
independent commissioner of PT Bank Jago Tbk., he served as Audit Committee
Member and Risk Oversight Committee Member at PT Bank Jago Tbk., (2020-current).
Teguh Dartanto Independent Teguh holds a Bachelor's degree in Economics from the University of Indonesia, Master
Commissioner of Economics from Hitotsubashi University, and Doctor of Philosophy from Nagoya
University.
He has held a number of strategic positions, including Head of Economics Department,

Faculty of Economics and Business at the University of Indonesia, Head of the Research
Group for "Poverty and Social Protection" at the Institute for Economic & Social
Research (LPEM) at the University of Indonesia, and Visiting Scholar at Japan
International Cooperation Agency Research Institute, and currently is the Dean of
Faculty of Economics and Business at the University of Indonesia.

Exhibit 24. Loans and Growth Exhibit 25. Net Interest Income and Growth
Source: Company, Danareksa Sekuritas estimates Source: Company, Danareksa Sekuritas estimates
Exhibit 26. NIM and LDR Exhibit 27. NPLs

Exhibit 28. Income Statement
Year to 31 Dec (IDRbn) 2020A 2021A 2022F 2023F 2024F
Interest Income 90 652 1,517 2,118 3,453
Interest Expense (25) (63) (151) (308) (454)
Net Interest Income 65 590 1,367 1,810 2,999
Non-Interest Income (NII) 25 44 83 88 140
Oper. Income 90 634 1,450 1,898 3,140
Oper. Expenses (237) (531) (995) (1,146) (1,683)
Pre-provisions profit (148) 103 454 751 1,457
Provisions & Allowances (38) (92) (395) (562) (836)
Operating Profits (186) 11 59 190 620
Non-Operating Income (4) (1) 5 5 5
Exceptionals 0 0 0 0 0
Pre-tax Profit (190) 9 64 195 625
Income Tax 0 77 (14) (43) (138)
Minorities 0 0 0 0 0
Net Profit (190) 86 50 152 488
Exhibit 29. Balance Sheet

Gross Loans 908 3,321 6,744 9,852 18,097
Provisions (82) (127) (471) (958) (1,647)
Net Loans 826 3,194 6,274 8,894 16,450
Govt. Bonds 0 0 0 0 0
Securities 138 1,899 3,590 4,308 3,016
Other Earnings Assets 0 0 0 0 0
Total Earnings Assets 1,677 11,193 16,568 21,953 29,488
Fixed Assets 152 175 210 216 264
Non-Earnings Assets 309 789 522 623 544
Total Assets 2,180 12,312 17,454 23,548 33,303
Customer Deposits 804 3,567 8,216 13,115 20,814

Banks Deposits 2 0 0 0 0
Int. Bearing Liab. - Others 0 110 441 1,324 2,649
Total Liabilities 948 4,063 9,155 15,097 24,364
Share capital & Reserves 1,573 8,504 8,504 8,504 8,504
Retained Earnings (341) (255) (204) (53) 435
Shareholders' Funds 1,232 8,249 8,300 8,451 8,939
Minority interests 0 0 0 0 0
Total Equity & Liabilities 2,180 12,312 17,454 23,548 33,303

Exhibit 30. Ratios
Yield on Earning Assets 6.3 10.1 10.9 11.0 13.4
Cost of funds 3.5 2.7 2.3 2.6 2.3
Interest Spread 2.8 7.5 8.6 8.4 11.1
Net Interest Margin 4.5 9.2 9.8 9.4 11.7
Cost/Income Ratio 264.4 83.8 68.7 60.4 53.6
Oper. Exp./Oper. Gross Inc. 261.2 98.5 96.3 91.4 82.7
Gross NPL Ratio 0.0 0.9 1.7 5.1 4.6
LLP/Gross NPL 0.0 421.4 413.0 191.7 199.5
Cost of Credit 6.4 4.4 7.9 6.8 6.0
Loan to Deposit Ratio 112.9 93.1 82.1 75.1 86.9
Loan to Funding Ratio 112.9 93.1 82.1 75.1 86.9
CASA Mix 27.1 47.0 74.4 73.0 71.4
ROAE (19.8) 1.8 0.6 1.8 5.6
ROAA (10.8) 1.2 0.3 0.7 1.7
CAR 89.6 111.1 81.3 56.5 39.8
Exhibit 31. Dupont and growth

Year to 31 Dec 2020A 2021A 2022F 2023F 2024F
Dupont
Pre-Tax ROAA (10.8) 0.1 0.4 0.9 2.2
Tax Retention rate 100.0 941.8 78.0 78.0 78.0
Post-Tax ROAA (10.8) 1.2 0.3 0.7 1.7
Goodwil, Assoc& Min 0.0 0.0 0.0 0.0 0.0
Leverage 1.8 1.5 1.8 2.4 3.3
ROAE (19.8) 1.8 0.6 1.8 5.6
Growth (%)
Interest income 71.2 624.3 132.6 39.6 63.1
Net Interest Income 462.1 812.3 131.7 32.4 65.7
Other Oper. Expenses 458.7 123.7 87.5 15.1 46.8
Fee Based Income 74.0 329.6 0.0 0.0 0.0
Pre-Provision Oper. Profit 475.9 (169.7) 341.9 65.3 93.9
Net Profit 55.4 (145.4) (41.7) 203.1 221.1
Shareholders’ Equity 80.9 569.4 0.6 1.8 5.8
Loan 218.8 265.8 103.1 46.1 83.7
Earnings Asset 41.8 567.4 48.0 32.5 34.3
Deposit 28.5 342.7 130.3 59.6 58.7
Int. Bearing Liab. 29.3 379.2 130.1 66.2 62.1
CASA 97.8 667.0 264.7 56.5 55.3
Total Asset 65.0 464.8 41.8 34.9 41.4
Source : ARTO, Danareksa Estimates

Equity Research
Initiating Coverage
HOLD Bank Neo Commerce(BBYB IJ)

Initiate Remaining relevant in its own game
Last price (IDR) 970 As one of the earliest digital banks in Indonesia, Bank Neo Commerce (BBYB)
Target Price (IDR) 1,000 will continue to show growth momentum in its high yield segment. We
Upside/Downside +3.1% expect the bank to turn profitable in FY26F, later than the consensus
Previous Target Price (IDR) n/a (FY24F). We value the bank using the dividend discount model and arrive at
intrinsic value of IDR1,000 per share.
Stock Statistics
Targeting higher deposits per user. We estimate that BNC`s number of
Sector Digital Banks
customers will reach 47.1 million by the end of 2033, implying 7% CAGR over
Bloomberg Ticker BBYB IJ
our FY22F estimate of 21.4 million supported by growing mobile phone
No of Shrs (mn) 9,422 penetration and improving financial literacy. We estimate total deposits (from
Mkt. Cap (IDRbn/USDmn) 9,139/585 both saving accounts and time deposits) to reach IDR3.8mn per customer by
Avg. daily T/O (IDRbn/USDmn) 50.2/3.2 2033F from IDR0.5million in FY22F. As a comparison, we estimate total
deposits of IDR4.3million per Jenius customer by the end of Jun-22.
Major shareholders (%)
PT AKULAKU SIVRR INDONESIA 25.7 Loan channeling and direct loans to support future growth. Both loan
PT GOZCO CAPITAL 14.8 channeling and direct lending continue to propel BNC`s loans portfolio which
Estimated free float 70.4 reached IDR8.9tn as of September 2022, a 133% y-o-y increase. BNC`s loans-
to-deposits ratio climbed to 71% in 3Q22 from 53% in FY21. BNC`s
EPSConsensus (IDR)
management is targeting an LDR of 75-80% in FY22F. BNC is looking to channel
2022F 2023F 2024F
more direct lending to its registered customers whereby currently less than
Danareksa (26.8) (33.9) 46.9 5% of the users are borrowers.
Consensus (102.7) (32.5) 33.7
Danareksa/Cons (73.9) 4.5 39.4 Cost efficiencies to support earnings. We expect net profits to turn positive
from net losses of IDR1tn in FY21, reaching IDR2.2tn by FY33F as we expect
BBYB relative to JCI Index the cost to income ratio (CIR) to decline as the bank reaches its maturity
stage. CIR stood at 278% in FY21 as the bank’s early operations entailed high
IT and promotional expenses which includes free transfers. In the mature
stage, we expect the CIR to drop to 37.6%. We foresee a longer path to
profitability (FY26F) than the consensus (FY24F) as we expect a gradual
decline in CIR and a high cost of credit.
Initiate coverage with a HOLD rating, TP: IDR1,000. We initiate coverage on

Bank Neo Commerce (BBYB) with a HOLD rating as we believe the company
needs to raise its capital to boost its loans growth which is not included in our
projection pending the finalization of its rights issue. We value the company
using the dividend discount model and arrive at a TP of IDR1,000. We assume
Source : Bloomberg a long-term cost of equity of 11.0% and long-term growth of 8.0%.
Key Financials
Year to 31 Dec 2020A 2021A 2022F 2023F 2024F
Victor Stefano PPOP (IDRbn) 17 (254) 476 1,071 2,012
(62-21) 5091 4100 ext. Net profit (IDRbn) 16 (450) (253) (320) 442
victor.stefano@brids.co.id EPS (IDR) 2.7 (47.8) (26.8) (33.9) 46.9
EPS growth (%) 0.0 (1,882.7) (43.9) 26.5 (238.3)
Eka Savitri BVPS (IDR) 190.4 306.7 241.9 163.8 145.3
(62-21) 5091 4100 ext.3506
PER (x) 361.8 (20.3) (36.2) (28.6) 20.7
eka.savitri@brids.co.id
PBV (x) 5.1 3.2 4.0 5.9 6.7
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
ROAE (%) 1.4 (22.5) (9.8) (16.7) 30.3
Source : BBYB, BRIDS Estimates
Initiate coverage with a HOLD rating, TP:IDR1,000
We initiate coverage on Bank Neo Commerce (BBYB) with a HOLD rating as we
believe the company needs to raise its capital to boost its loans growth which
has not been included in our projection pending the finalization of its rights
issue. We value the company using the dividend discount model and arrive at
a TP of IDR1,000. We assume a long-term cost of equity of 11.0% and long-
term growth of 8.0%.
Exhibit 1. BBYB`s valuation assumptions

Beta (ß) 1.50 1.25 1.00

Ke = Rf+ß(Rm-Rf) 16.8% 13.6% 11.0%
Return on equity 31.4% 27.5%

Growth rate n/a 19.6% 8.0%
Expected dividend payout ratio 0.0% 41.4% 70.9%
Source: BRIDS
Exhibit 2. BBYB`s dividend discount model
Forecast year 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Equity book value/share 307 242 164 145 129 155 235 345 464 580 692 787 856
Return on equity -34.1% -26.8% -47.7% -12.7% -12.6% 16.6% 34.2% 36.1% 33.4% 31.2% 30.5% 29.7% 27.5%
Earnings per share -104.7 -64.8 -78.1 -18.4 -16.3 25.7 80.6 124.9 154.6 181.1 211.2 233.9 235.3
growth -38% 21% -76% -11% -258% 213% 55% 24% 17% 17% 11% 1%
Payout ratio 0% 0% 0% 0% 0% 0% 0% 11.8% 23.6% 35.5% 47.3% 59.1% 71%
Dividend per share - - - - - - - 14.8 36.5 64.2 99.8 138.2 166.9
Cost of equity 16.8% 16.8% 16.8% 16.8% 16.8% 16.8% 16.8% 15.9% 14.9% 13.9% 12.9% 12.0% 11.0%
Cumulative cost of equity 0.856 0.856 0.733 0.627 0.537 0.459 0.393 0.339 0.295 0.259 0.229 0.205 0.185
Present value - - - - - - - 5.01 10.79 16.64 22.90 28.32 30.80
Terminal value IDR 924
Total value/share IDR 1,039
TP IDR 1,000
Shift in focus toward quality over quantity

The number of Bank Neo Commerce registered customers reached 19.8 million
in September 2022. This number is up by almost 50% in just nine months from
the end of December 2021 (13.4 million customers). Bank Neo Commerce is
looking to reach 21 million customers by the end of this year. This is lower than
the initial target of c. 28 million as the bank`s management has stated its
intention to slow down customer acquisition and shift its focus toward achieving
stickiness and more engagement from its current customers. The management
is targeting customer acquisition growth of 10-30% in 2023.
The increase in the number of customers has supported the growth of Bank Neo
Commerce's third-party funds. As of September 2022, the total deposits
collected by the bank reached IDR12.7trillion, a 90% y-o-y increase. Low-cost
funds (CASA) doubled y-o-y to IDR3.4 trillion driven by saving deposits which

grew 5-fold y-o-y. Meanwhile, time deposits grew by 85% to IDR9.2trillion. This
has resulted in a better cost of funds structure as reflected in the ratio of CASA
to total TPF reaching 27% by the end of September 2022 or higher than 20% at
the end of December 2021.
Exhibit 3. BBYB`s number of registered customers (in thousand) Exhibit 4. BBYB`s customer funding balances (in IDR trillion)
We estimate that BNC`s number of customers will reach 47.1 million by the end
of 2033, implying 7% CAGR over our FY22F estimate of 21.4 million supported by
growing mobile phone penetration and improving financial literacy. We estimate
total deposits (from both saving accounts and time deposits) to reach IDR3.8mn
per customer by 2033F from IDR0.5million in FY22F. As a comparison, we
estimate total deposits of IDR4.3million per Jenius customer by the end of Jun-
22.
Exhibit 5. BBYB` s projected number of KYC-ed customers (in Exhibit 6. BBYB`s projected funding balances (in IDR trillion)
million)
Key features in the Neobank mobile application

It is quite a hassle to log into the Bank Neo Commerce app, Neobank, as the user
has to click the log in button at the bottom of the main page. The main log in
feature is the pattern lock with the other option being the password and OTP
(one-time password). There is no biometric log in function available currently.
We also note that Neobank has longer idle time (when the app automatically
logs off after inactivity) than most digital bank apps and mobile banking apps.
This will be the main concern for high net worth customers from a security
perspective, in our view.

We found that the Neobank main interface is similar to e-wallet platforms such
as Dana or the ride-hailing app, Gojek (with Gopay embedded in it). Aside from
the benefits such as free transfers, free admin fees, higher interest rates etc,
Neobank also incorporates vouchers/coupons which can be used when
conducting financial transactions within the apps. This is similar to most e-
commerce apps and might result in more stickiness. However, it can also be
overwhelming for customers who prefer banking to be simple, in our view.
Exhibit 7. Neobank mobile app interfaces
First page on app opening (main) Log in interface First interface on log in
Providing many features in the apps

Several features are embedded in Neobank apps. We note the split bill feature
which allows the user to split bill payments between users (Jenius also has this
feature). A savings plan feature, called wish, helps customers to be more
disciplined with their savings. We also note that Jenius has a similar feature,
called Dream Saver. We also found a payment gateway feature called Hematpay
which is interesting as it allows several payments on one page. As of now, there
are two payment options available, namely virtual account and QRIS. Based on
the app, a direct debit payment will be featured in the future.

Exhibit 8. Neobank mobile app interfaces
Split bill Wish (saving plan) Hematpay (payment gateway)

Features for community engagement and tier system

Unlike other digital banking apps we tried, Neobank provides community
engagement features. One of them is Town Hall where people can create a
group with friends or join a group of interest and chat. This is similar to Line
Bank which integrates banking with a chatting platform, in our view. With
interfaces similar to the mini games in Shopee apps, Neo World can engage
customers by using the coin feature which can be collected through engaging
friends or completing financial-related missions daily. The coins can be used to
purchase financial-related vouchers or simply customize the interface
background.
Neobank also has a tiering system called VIP member with 2 levels: VIP 1 or
silver member and VIP 2 or gold member. Unlike other tiering systems, to gain
the level, customers have to top up first and maintain a certain balance daily
(although the balance requirement is lower). The VIP level does not affect the
benefits of other digital bank apps, and includes but is not limited to free
transfers and free admin fees. Rather, it gives the member more
vouchers/coupons which can be used when conducting financial transactions
within the apps.

Exhibit 9. Neobank features on user engagement and membership status
Town Hall (chatting) Neo World Tier Membership

Growing loans portfolio supported by its partnership ecosystem and direct

loans
As of the end of June 2022, the bank had 17 live partnerships and 3 agreement
partnership with loan channeling platforms. Loan channeling still plays a big part
in BNC’s loans portfolio with its controlling shareholder, Akulaku, contributing
around a quarter of the total loans.
Both loan channeling and direct lending continue to propel BNC`s loans portfolio
which reached IDR8.9tn as of September 2022, a 133% y-o-y increase. BNC`s
loans-to-deposits ratio climbed to 71% in 3Q22 from 53% in FY21. BNC`s
management is targeting an LDR of 75-80% in FY22F. BNC launched payday loans
in July 2022. This product is short-term in nature but has high yields as it offers a
lending rate of 0.2% per day. BNC is looking to channel more direct lending to its
registered customers whereby currently less than 5% of the users are
borrowers.

Exhibit 10. BBYB`s lending balances (in IDR trillion) Exhibit 11. BBYB`s loans to deposits ratio
Exhibit 12. BBYB`s partnership ecosystem
Source: Company
We estimate that the loans size will grow to IDR120tn in FY33F implying 25%
CAGR over FY22F’s lending balance of IDR11tn supported by the partnership
ecosystem and its direct lending products. The growth of Akulaku and other
fintech lending platforms is the key driver for BNC`s loans growth going forward.
Our projected loans-to-deposits ratio is below 100% as we believe BNC has to
maintain a healthy capital adequacy ratio. We have yet to include its capital
raising plans in our numbers.
Exhibit 13. BBYB`s estimated lending balances (in IDR trillion) Exhibit 14. BBYB`s estimated loans to deposits ratio

Earnings to grow from both the loans portfolio line and cost efficiencies
We forecast BNC`s net interest income to grow from IDR295bn in FY21 to
IDR18tn in FY33F, implying CAGR of 45%. We expect net profits to turn positive
from net losses of IDR1tn in FY21, reaching IDR2.2tn by FY33F as we expect the
cost to income ratio (CIR) to decline as the bank reaches its maturity stage. CIR
stood at 278% in FY21 as the bank’s early operations entailed high IT and
promotional expenses which includes free transfers. In the mature stage, we
expect the CIR to drop to 37.6%. This is lower than the ratios for the big four
banks of c. 40-45% as we believe BNC as a digital bank will operate more
efficiently thanks to its branchless nature.
Exhibit 15. BBYB`s estimated net profits (in IDR trillion) Exhibit 16. BBYB`s estimated net interest income (in IDR trillion)
Exhibit 17. BBYB`s estimated net interest margin Exhibit 18. BBYB`s estimated cost to income ratio
Company Profile
PT Bank Neo Commerce Tbk is a digital bank previously known as PT Bank Yudha
Bhakti. It was established in accordance with the Principle Approval from the
Minister of Finance on August 14, 1989 and began operations on January 9,
1990. Bank Yudha Bhakti was Initially established to improve the welfare of
members of the TNI/POLRI and to serve the banking needs of members of the
TNI/Polri and partners within the Ministry of Defense and Security.

Along with economic developments and regulatory demands at the time, as well
as efforts to improve the bank’s performance, a strategic alliance was made in
1996 with the private sector. As a result, Bank Yudha Bhakti's share ownership
as of June 2014 was as follows: INKOP and PUSKOP TNI/POLRI (28.94%), Sugeng
Subroto (4.00%), PT. Gozco Capital (61.10%), and BYB Employee Cooperative
(5.96%).
Starting in 2001, the Bank successfully expanded its reach by opening branch
and sub-branch offices in Java and Sumatra. In its growth, Bank Yudha Bhakti
went public through an initial public offering (IPO) on the Indonesia Stock
Exchange (IDX) with the BBYB code on January 13, 2015. The bank has been
serving the consumer retail segment with conventional products for about 30
years, welcoming PT Akulaku Silvrr Indonesia as a new shareholder through the
implementation of Capital Increase without Pre-emptive Rights (PMTHMETD) in
2019.
One year after Akulaku became a shareholder, in 2020, PT Bank Yudha Bhakti
Tbk changed its name to PT Bank Neo Commerce Tbk. The bank plans to
transform its banking services into a digital retail bank which is ready to serve
the needs of millennial customers. In addition, as of September 18, 2020, PT
Bank Neo Commerce Tbk officially holds the title as a Commercial Bank for
Business Activities (BUKU) II. The shareholders of BBYB as of 30 September 2022
are PT Akulaku Silvrr (25.66%), PT Gozco Capital (14.18%), Rockcore Financial
(6.12%), Yellow Brick (5.17%), and the Public (48.24%).
BNC offers various types of products and services such as Savings, Current
Accounts, and Time Deposits that can provide solutions for customers' financial
needs. In addition to these products, BNC has also started marketing some
Wealth Management products in collaboration with Investment Manager
Partners, which are Mutual Fund products. These products have been
distributed on both digital platforms and via branch offices throughout
Indonesia. The operations of PT Bank Neo Commerce Tbk in 2021 covered 8
provinces, with 1 Main Branch Office (KCU), 11 branch offices, 5 sub-branches,
and cash offices in several cities.
Exhibit 19. BBYB`s shareholder structure (as of September, 31 2022)
Source: Company

Exhibit 20: BBYB`s board of directors
Tjandra President Tjandra Gunawan obtained his Bachelor of Accounting at Tarumanagara University.
Gunawan Director
He has work experience including CFO of PT Bank BNP Paribas Indonesia, SVP Head of
Budgeting & Planning of PT Bank QNB Indonesia Tbk, VP Head of Business Finance &
Support, Royal of Scotland N.V., Head of Corporate Planning & Budgeting, PT Bank
Commonwealth, GM Finance & Treasury at PT Asuransi Allianz Life Indonesia, Head
Office Reporting & Analyst at Citibank NA., and Auditor at KPMG Siddharta Siddharta &
Harsono.
Hardono Budi Compliance Hardono obtained his Bachelor of Law from Airlangga University Surabaya.
Prasetya Director
He has work experience including Director of Operations at PT Bank Neo Commerce
Tbk, IT & Operations Director at PT Bank Woori Saudara Indonesia 1906 Tbk, Executive
Officer at PT Bank Woori Saudara Indonesia 1906 Tbk, Marketing Manager R&D. at PT
Lamicitra Nusantara, Instructor at Bank Nitro Consult (Banking Course) Surabaya,
Corporate Banking Account Assistant in Bank Duta Surabaya Branch, and Loan Reviewer
in Bank Duta, East Java region.
Aditya Wahyu Director Aditya obtained his Bachelor of Economics from the University of Indonesia and Master
Windarwo of Science from University of Colorado Denver, USA.
He has work experience including Division Head of Wealth Management, Retail Liability
& Customer Segment Head of PT Bank Permata, Head of Retail Product Management &
Digital Banking at PT Bank Mega, Investment and FX Head in PT Bank Danamon, Head of
Deposits and Investment at PT Bank Barclays Indonesia, and Investment Product Head
in HSBC.
Ricko Irwanto Compliance Ricko obtained his Bachelor of Engineering from Sriwijaya University and Master of
Director Management from STIE IPWI.
He has work experience including Compliance Director at PT Bank MNC Internasional

Tbk, Chief Compliance Officer at PT Bank MNC Internasional Tbk, AML- CFT Division
Head at PT Bank OCBC NISP Tbk, Operational Risk Management Head at PT Bank
Permata Tbk, Area Manager at PT Bank Bali Tbk, and Head of Operation Development
and Improvement at PT Bank Bali Tbk.
Chen Jun Director Chen obtained his Master Degree of Business Administration from Hongkong University
of Science and Technology, Hongkong.
He has work experience including Director of Technology at Chained Finance

Technology Ltd, Chief Technology Officer (CTO) at Jinhu Asset Management Service,
Senior IT Manager of Kasikorn Bank, Business Analyst at UBS, and IT Officer at HSBC.
Hartono Operations Hartono obtained his Bachelor of Civil Engineering from Parahyangan University and
Budihardjo Director Master of Management from Bandung Institute of Technology.
He has work experience including Deputy Chief Operations Officer at AXA Mandiri
Financial Services, Vice President of the Internal Audit Unit at Hongkong Shanghai Bank
Corporation Indonesia, Payment Services Manager at Development Bank Singapore,
Indonesia, Officer Global Payment Service at Bank Central Asia.
Source: Company
Exhibit 21: BBYB`s board of commissioners

Suprihadi President Suprihadi received education at the National Defense Institute, graduated in 1997,
Commissioner/ Aviation School in 1974, and received a Masters in Management in 2004 from Institut
Independent Manajemen Indonesia.
Commissioner
He has work experience including President Commissioner of PT Penas, President
Commissioner of PT Asabri , President Commissioner of PT Dahana, Secretary General of
the Indonesian Ministry of Defense.
Tjandra Commissioner Tjandra has work experience including President Commissioner of PT Gozco Plantations
Mindharta Tbk, President Director of PT Gozco Capital, President Director of PT Fortune Mate
Gozali Indonesia Tbk, President Director of PT Gozco Plantations Tbk, and Commissioner of PT
Surya Intrindo Makmur Tbk.
Pamitra Wineka Independent Pamitra obtained his Bachelor of Mathematics from Bandung Institute of Technology
Commissioner and Master of Economics from University of Illinois at Urbana Champaign United States.

He has work experience including Independent Commissioner of PT Trimuda Nuansa
Citra Tbk, Founder and President Director of PT TaniHub Indonesia, Research Analyst at
the World Bank, and Research Analyst at Danareksa Research Institute.
Pramoda Dei Independent Pramoda obtained his Bachelor of Communication Studies from Nanyang Technological
Sudarmo Commissioner University, Master of Science from Nanyang Technological University, Master of
Business & Finance from Wharton University of Pennsylvania, Master In Public
Administration Harvard University from Harvard Kennedy School.
He has work experience including Special Staff to the Minister of Education, Culture,
Research and Technology, Engagement Manager at McKinsey & Company, Associate at
McKinsey & Company, and Summer Associate at General Atlantic.
Source: Company
Exhibit 22. Loans and Growth Exhibit 23. Net Interest Income and Growth
Exhibit 24. NIM and LDR Exhibit 25. NPLs

Exhibit 26. Income Statement
Interest Income 433 645 2,003 2,947 4,567
Interest Expense (277) (351) (655) (867) (1,210)
Net Interest Income 156 295 1,348 2,080 3,357
Non-Interest Income (NII) 63 126 523 641 832
Oper. Income 219 421 1,871 2,721 4,190
Oper. Expenses (228) (698) (1,421) (1,678) (2,208)
Pre-provisions profit 17 (254) 476 1,071 2,012
Provisions & Allowances 0 (195) (724) (1,386) (1,565)
Operating Profits 17 (449) (247) (314) 447
Non-Operating Income (1) (5) (5) (5) (5)
Exceptionals 0 0 0 0 0
Pre-tax Profit 16 (454) (253) (320) 442
Income Tax 0 4 0 0 0
Minorities 0 0 0 0 0
Net Profit 16 (450) (253) (320) 442
Exhibit 27. Balance Sheet

Gross Loans 3,665 4,275 10,764 15,090 22,791
Provisions (103) (101) (130) (860) (1,425)
Net Loans 3,563 4,175 10,634 14,230 21,366
Govt. Bonds 0 0 0 0 0
Securities 253 1,171 2,872 1,149 1,264
Other Earnings Assets 0 0 0 0 0
Total Earnings Assets 4,744 9,453 14,218 16,806 24,613
Fixed Assets 131 159 210 216 264
Non-Earnings Assets 557 1,281 1,427 1,498 1,580
Total Assets 5,422 11,338 16,944 19,187 26,777
Customer Deposits 3,943 8,124 14,105 17,031 24,680

Banks Deposits 321 40 240 264 291
Int. Bearing Liab. - Others 0 0 0 0 0
Total Liabilities 4,301 8,448 14,665 17,644 25,407
Share capital & Reserves 1,066 3,822 3,822 3,822 3,822
Retained Earnings 55 (933) (1,543) (2,280) (2,453)
Shareholders' Funds 1,121 2,890 2,279 1,543 1,369
Minority interests 0 0 0 0 0
Total Equity & Liabilities 5,421 11,338 16,944 19,187 26,777

Exhibit 28. Ratios
Yield on Earning Assets 9.1 9.1 16.9 19.0 22.1
Cost of funds 6.5 5.6 5.7 5.4 5.7
Interest Spread 2.7 3.5 11.2 13.6 16.4
Net Interest Margin 3.3 4.2 11.4 13.4 16.2
Cost/Income Ratio 93.0 157.3 74.9 61.0 52.3
Oper. Exp./Oper. Gross Inc. 96.7 156.5 109.7 108.7 91.8
Gross NPL Ratio 0.0 1.8 2.1 4.3 3.8
LLP/Gross NPL 69.1 134.2 56.8 133.8 163.1
Cost of Credit 0.0 4.9 9.6 10.7 8.3
Loan to Deposit Ratio 92.9 52.6 76.3 88.6 92.3
Loan to Funding Ratio 92.9 52.6 76.3 88.6 92.3
CASA Mix 12.2 19.9 25.3 25.4 24.6
ROAE 1.4 (22.5) (9.8) (16.7) 30.3
ROAA 0.3 (5.4) (1.8) (1.8) 1.9
CAR 32.8 104.3 75.0 60.3 25.2
Exhibit 29. Dupont and growth

Year to 31 Dec 2020A 2021A 2022F 2023F 2024F
Dupont
Pre-Tax ROAA 0.3 (5.4) (1.8) (1.8) 1.9
Tax Retention rate 99.7 99.1 100.0 100.0 100.0
Post-Tax ROAA 0.3 (5.4) (1.8) (1.8) 1.9
Goodwil, Assoc& Min 0.0 0.0 0.0 0.0 0.0
Leverage 4.8 4.2 5.5 9.5 15.8
ROAE 1.4 (22.5) (9.8) (16.7) 30.3
Growth (%)
Interest income 0.0 48.9 210.5 47.1 55.0
Net Interest Income 0.0 88.6 357.7 54.3 61.4
Other Oper. Expenses 0.0 206.5 103.4 18.1 31.6
Fee Based Income 0.0 899.8 950.6 40.2 51.0
Pre-Provision Oper. Profit 0.0 (1,585.1) (287.2) 124.9 87.8
Net Profit 0.0 (2,953.3) (43.9) 26.5 (238.3)
Shareholders’ Equity 0.0 157.9 (21.1) (32.3) (11.3)
Loan 0.0 16.6 151.8 40.2 51.0
Earnings Asset 0.0 99.3 50.4 18.2 46.5
Deposit 0.0 91.5 75.7 20.6 44.4
Int. Bearing Liab. 0.0 94.7 74.5 20.5 44.3
CASA 0.0 213.9 123.4 20.8 39.9
Total Asset 0.0 109.1 49.4 13.2 39.6
Source : BBYB, Danareksa Estimates


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Digital Banks

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Equity Research

Thursday,27 October 2022

OVERWEIGHT Digital Banks

High appetite for digital lending in Indonesia’s unbanked population. We note

bridanareksasekuritas.com See important disclosure at the back of this report

bridanareksasekuritas.com See important disclosure at the back of this report

Exhibit 1: YTD stock performance of digital banks

Source: Bloomberg (as of 26 October 2022), BRIDS

bridanareksasekuritas.com See important disclosure at the back of this report 3

Higher rates to attract customers

Analysis on impact of rates to customer`s deposit

bridanareksasekuritas.com See important disclosure at the back of this report 4

bridanareksasekuritas.com See important disclosure at the back of this report 5

Source: BPS, BRIDS

bridanareksasekuritas.com See important disclosure at the back of this report 6

Below average deposits to GDP ratio

bridanareksasekuritas.com See important disclosure at the back of this report 7

Exhibit 7: Households debt to GDP ratio (Mar, 2022)

Source: Trading Economics

High appetite for digital lending among Indonesia`s unbanked population

Source: Google SEA E-conomy Source: Google SEA E-conomy

bridanareksasekuritas.com See important disclosure at the back of this report 8

Room to improve financial literacy and inclusion

Exhibit 10. Financial literacy and inclusion in Indonesia

Of the total banking/financial app users, 91 percent of the respondents have a

bridanareksasekuritas.com See important disclosure at the back of this report 9

Source: Populix Source: Populix

The latest established digital banks are gaining traction

Based on a survey conducted by Daily Social in December 2021, two early

Exhibit 13. Most used digital banking apps (May 2022)

bridanareksasekuritas.com See important disclosure at the back of this report 10

Source: Daily Social, Katadata

Declining number of bank branches

Exhibit 15. Number of commercial bank branches

bridanareksasekuritas.com See important disclosure at the back of this report 11

Source: Bloomberg, BRIDS

bridanareksasekuritas.com See important disclosure at the back of this report 12

Source: Bloomberg, BRIDS

bridanareksasekuritas.com See important disclosure at the back of this report 13

Source: Bloomberg, BRIDS

bridanareksasekuritas.com See important disclosure at the back of this report 14

Exhibit 21. Most valued independent digital banks (2021)

bridanareksasekuritas.com See important disclosure at the back of this report 15

The general investment environment is still weak

*Growth equity investors

Deposits as the key factor determining share prices

bridanareksasekuritas.com See important disclosure at the back of this report 16

Tighter regulation could limit potential growth of digital banking

Same potential but unlikely to follow China’s case

Indonesia, on the other hand, is targeting both underserved individuals and

bridanareksasekuritas.com See important disclosure at the back of this report 17

bridanareksasekuritas.com See important disclosure at the back of this report 18

Exhibit 24. Map of average competition expectations by responding institution type

bridanareksasekuritas.com See important disclosure at the back of this report 19

Source: : Populix, BRIDS

bridanareksasekuritas.com See important disclosure at the back of this report 20

Source: : Populix, BRIDS

The segmentation of Indonesia’s fintech

Source: McKinsey, BRIDS

bridanareksasekuritas.com See important disclosure at the back of this report 21

Exhibit 28. Digital bank sector P/BV – ROE map

Source: Company, Bloomberg (as of 25 October 2022), BRIDS

bridanareksasekuritas.com See important disclosure at the back of this report 22