ed: KK / sa:MA, PY, CS

Gearing up for disruptions By 2030, seamless digital banking products will be

standard customer requirements Mobile revolution will catalyse financial inclusion and

cashless society; rise of e-money to provide Rp3,000tr funding and Rp47tr fee income potential

Most banks are digitally ready; collaboration with fintechs and e-commerce will reshape the financial landscape

BBCA, BMRI, BBNI and BTPN are current proxies, other banks will catch up; fintechs (unlisted) to be watched

Technology is disrupting Indonesian banks… Compared to traditional banks, financial technology companies (fintechs) are faster in deploying new technology and providing better customer experience. In the future, fintechs could have more touchpoints and intercept banks’ direct access to customers. Gargantuan banks might still have a size advantage but becoming a slow mammoth will eventually lead to extinction. By 2030, seamless digital banking products will be a basic requirement, not a bragging point. Customers are evolving and banks have to adapt to stay relevant.

...but could provide new opportunities. Indonesia has the right ingredients to succeed in the digital banking era driven by affordable smartphones, young population, and improving basic education. It is almost comparable to what we are seeing in China today. We estimate Rp3,000tr potential of e-money float and Rp47tr revenue from fee income in 2030. Every 1ppt reduction in cost-to-income from automation could mean 2.5% improvement of pre-tax profit for the industry. Technology used to reach out to the unbanked population should speed up financial inclusion and open up new business opportunities to banks. Banks have slowed down the pace of new distribution networks. Instead, it is focusing on alternative digital and online-to-offline (O2O) channels.

Indonesian banks are gearing up digitally… Indonesian banks have digital products ready, ranging from basic internet banking, artificial intelligence (AI) chatbot, to blockchain trade finance. However, not all banks are digitalised from the core. This may result in glitches that diminish credibility and waste advertising budgets. Bank Central Asia (BBCA) is the most digital-ready given its complete product range, reliability and right customer segment. Bank Mandiri (BMRI) and Bank Negara Indonesia (BBNI) continue to improve their digital products. Bank Tabungan Pensiunan Nasional (BTPN) has its Jenius and BTPN WOW.

… and collaborating with fintechs and e-commerce. Banks are opening up their application programming interfaces (API) to improve connectivity with e-commerce and fintech players. BBCA is even collaborating with Go-Pay, the leading server-based electronic money, rather than going all out with its own e-money service, Sakuku. Collaborations between fintechs and banks will reshape the financial industry landscape and provide mutual benefits for all.

JCI : 6,106.70

Analyst Sue Lin LIM +65 83326843 suelinlim@dbs.com

Benedictus Agung SWANDONO +6221 3003 4935 agung.swandono@id.dbsvickers.com

Indonesia: Financial services (needs and products in each

segment)

Source: DBS Bank, DBSVI

DBS Group Research . Equity 8 Jun 2018

Indonesia Industry Focus

Indonesian Banks

Refer to important disclosures at the end of this report

STOCKS

12-mth

Price Mkt Cap Target

Price Performance

(%)

Rp US$m Rp 3 mth 12 mth Rating

Bank Central Asia (BBCA) 22,975 40,655 27,000 (1.4) 30.9 BUY Bank Danamon (BDMN) 6,100 4,196 6,300 (6.2) 14.0 HOLD Bank Mandiri (BMRI) 7,375 24,702 9,400 (9.0) 18.0 BUY Bank Negara Indonesia (BBNI) 8,450 11,310 8,500 (9.6) 30.0 HOLD Bank Tabungan Negara (BBTN) 3,070 2,333 3,600 (19.2) 26.9 HOLD

Bank Tabungan Pensiunan Nasional (BTPN)

3,920 1,643 4,200 14.3 57.4 BUY

Panin Bank (PNBN) 870 1,504 1,300 (29.6) (4.9) BUY

Source: DBS Bank, DBSVI, Bloomberg Finance L.P. Closing price as of 7 Jun 2018

Industry Focus

Indonesian Banks

Page 2

Table of Contents How Indonesians could bank in the next decade 3

Financial inclusion, a key agenda 3

Millennials will influence banking 4

Banking at your fingertips 6

Indoensia’s digital banking landscape: then, now and the future 10

Current digital banking landscape 10

Which banks will benefit from digitalisation? 13

Which are the most digitised banks? 14

Digital banking strategies 19

Fintechs – friend or foe 22

Exhilarating future of electronic money 24

P2P lending – Key issues 32

Conclusion, recommendation, and valuations 37

Industry Focus

Indonesian Banks

Page 3

Financial inclusion in Indonesia is making huge strides

Financial inclusion is growing fast. Indonesia has shown remarkable progress in accelerating financial inclusion. The World Bank’s survey revealed that the penetration rate for savings accounts among adults (age +15) has increased to 49% from 20% in 6 years. Encouraging progress has also been made on the lending side, with adults borrowing from financial institutions rising to 17% from 9% in 2011. People borrowing from family or friends have declined to 36% from 42%, also in 6 years. Why is 51% of Indonesians unbanked? Reaching out to Indonesia’s unbanked population is a challenge mainly due to the country’s unique geographical features and underdeveloped infrastructure. Furthermore, potential businesses in these areas are too small for financial institutions. High operating expenses and risks of this limited market segment makes it commercially unappealing. Internet is faster than banks. Rapid mobile phone (especially smartphone) adoption bypasses geographical hurdles in serving Indonesia’s various market segments. Fintechs, multifinance, and

banks are racing to develop a business model to serve these market segments effectively and profitably. Indonesia: savings and borrowings penetration

Note: An adult is defined at age 15; government targets 75% savings account penetration rate in 2019

Source: Findex, World Bank, DBS Bank, DBSVI

Indonesia: financial inclusion mapping

Note: Nano and pikko lending are smaller sized loans intended for low income individuals/groups that do not meet financial institutions’ borrowing criteria. BRI – Bank Rakyat Indonesia (Indonesia People’s Bank), BPR – Bank Perkreditan Rakyat (People’s Credit Bank/rural banks), Co-operatives BKD – Badan Kredit Desa (Village Credit Board), LKBD – Lembaga Keuangan Bukan Bank (Non-bank Financial Fund)

Source: DBS Bank, DBSVI

20%

36%

49%

75%

9%13%

17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2011 2014 2017 2019T

% of adult population with savings account

% of adult population who have borrowed from financial institution

Industry Focus

Indonesian Banks

Page 4

Millennials will influence banking

Start from young, very young! Many 6-year olds understand digital technology better than adults. In this digital age, the younger generation sometimes learns how to operate smartphones before even walking! They grow up watching YouTube, communicate through WhatsApp, and broadcast on Instagram. These youngsters are the future and will reshape how societies communicate and do business. Technology cuts across all income segments. Our on-the-ground checks not only support this theory, but add an even more compelling story. The millennials’ love affair with technology is not exclusively for children growing up with silver spoons, but also for low income communities. Kids who are unable to afford personal computers or smartphones, visit modest internet cafés regularly to play games or browse for entertainment instead. These internet cafés charge a mere Rp4,000/hour (USD30 cents/hour), well within the kids’ financial means. We will later exhibit how digital penetration to middle and lower classes will be boosted further by cheap mobile phones and mobile data prices. ‘Demographic dividend’ by 2030. Longstanding forecasts have predicted that Indonesia will enjoy a demographic dividend by 2030, where the dependency ratio (ratio of population aged 0-14 and 65+ per 100 population 15-64) will reach a low of 47% in 2030 due to the current pyramid-like demographics (which are dominated by millennials). Indonesia: Young adults dominate digital banking metrics

Source: Findex, DBS Bank, DBSVI

Indonesia: 6-year old child embraces technology

Note: A 6-year old child watching his favourite TV show on YouTube instead of television. This picture is taken in one of Jakarta’s small internet cafés in May 2018.

Source: DBS Bank, DBSVI Indonesia: Demographic forecast

Source: United Nation World Population Prospects Indonesia: Productive age population

Source: UNFPA Population Forecast, DBS Bank, DBSVI

32%

8%

1%

34%

2.6%

36%

22%

2%

36%

4.9%

Sent or received domestic remittances in the past year

Used the internet to pay bills or to buy something online in the past

year

Used a mobile phone or the internet to access a financial

institution account in the past year

Made or received digital payments in the past year

Mobile Money Account

Age Young Adults(% age 15-24)

Age Older adults(% age 25+)

119132

141151 157 160

50%

49%48%

47% 47%48%

45%46%46%47%47%48%48%49%49%50%50%51%

0

20

40

60

80

100

120

140

160

180

2010 2015 2020 2025 2030 2035

Productive Age Population Dependency Ratio - RHS

mn people

Industry Focus

Indonesian Banks

Page 5

Indonesia: Banking at your fingertips

*from SourceMinistry of Communications and Information Technology survey in 2016 Note: Illustration taken from Kompas.com; Numbers are in % of total Indonesian population Source: Ministry of Communications and Information Technology survey in 2016

BANKING AT YOUR FINGERTIPS 72.8% of population has mobile phones

47.8% uses smartphones 31% uses the internet

7.5% in e-commerce activities

Payments for e-commerce transactions:

77.5% uses ATM transfers 22.5% uses Cash on Delivery

20.7% uses mobile/internet banking

Industry Focus

Indonesian Banks

Page 6

Banking at your fingertips

Rapid smartphone adoption. The internet can reach out to the unbanked population faster than banks, thanks to rapid smartphone adoption. Half of the Indonesian population has smartphones, based on a government survey in 2016. We believe this trend will extrapolate and expect that more than two-thirds of the Indonesian population will be on smartphones by 2030. Five factors that can propel the smartphone adoption rate further: (1) cheaper smartphones flooding the market, (2) cheaper mobile data due intense competition among the telecommunications (telco) players, (3) contagion effect of social media, (4) better education supports reading, writing, and cognitive abilities, and (5) e-commerce transactions.

(1) Cheaper smartphones In Indonesia, anyone can buy a 3G Android smartphone for USD20. Even if we take the average minimum salary of c.USD250/month as a proxy for blue collar workers, the price is still well within their reach. Our checks also reveal that 4G LTE enabled smartphones, which are capable for a wider range of applications and/or gaming, are priced at around USD60 with 12 month installment options as low as USD5 per month. Even people living on the breadline should be able to afford smartphones.

Indonesia: 3G Android smartphones cost only around USD20

Picture

Price (Rp) 325,000 365,000 290,000 389,000

Price (USD)* 23.2 26.1 20.7 27.8

Product Name VandroidS3C A850 C221 RocketR3R2407

Brand Advan Mito i-Cherry Polytron

Screen Size 3.5inch 3.5inch 3.5inch 4inch

OS Android4.2 Android4.2 Android2.3 Android4.4

RAM 256MB 256MB 256MB 1GB

Camera 2MP 2MP 2MP 2MP

Network 3G 3G 3G 3G

OS Android Android Android Android

Version Detail 4.2JellyBean 4.2JellyBean 2.3Gingerbread 4.4KitKat

RAM 256MB 256MB 256MB 1GB

Other Facility Wifi + Bluetooth + GPS

Notes: Assuming exchange rate Rp14,000/USD

Source: Lazada.com, Tokopedia.com, Bukalapak.com; as at 8 May 2018

Industry Focus

Indonesian Banks

Page 7

(2) Cheaper mobile data The price war among the telco players is still ongoing. Revenue per Megabytes (MB) continues to head south. Indonesia’s largest player Telkomsel cut its pricing by a third within 2 years. Cheaper data programmes and cheaper smartphones have been the main contributors to the rapid smartphone adoption. Telcos and smartphone brands often bundle their products together to lower total costs even further. This is a common strategy to acquire long term loyal customers.

Indonesia: Data subscription fee comparison

Source: Companies, DBS Bank, DBSVI (3) Indonesians’ deep attachment to social media Indonesians love their social media intensely. Active Facebook users in Indonesia stands at 130mn people, the fourth largest in the world, based on a global survey – We Are Social - at the end of 2017. It is mind-blowing, but to put these numbers into perspective; (1) one of two Indonesians has a Facebook account and; (2) almost everyone who can access the internet have Facebook accounts. Internet penetration rate is about 50%. Time spent by Indonesians on social media (on any device) and time spent on mobile phones are the second highest in the world. This attachment to social media is astonishing given the substandard internet infrastructure in Indonesia. Average mobile internet connection speed, fixed broadband penetration and overall internet penetration are among the lowest in the ASEAN region and among developing countries. For Indonesians, accessing social media is very important, no matter how hard.

Global: Average number of hours spent daily accessing

the internet (via mobile phones)

Source: We Are Social 2017, DBS Bank, DBSVI Global: Average number of hours spent daily on social

media (via all devices)

Source: We Are Social 2017, DBS Bank, DBSVI Global: Most active Facebook users (by country) Countries with most active Facebook users

Cities with most active Facebook users

Users (in

mn) %

Total Users (in

mn) %

Total India 250 12% Bangkok 22 1.0% US 230 11% Dhaka 20 0.9% Brazil 130 6% Bekasi 18 0.8% Indonesia 130 6% Jakarta 16 0.7% Mexico 83 4% Mexico C 14 0.6% Philippines 67 3% Quezon C 14 0.6% Vietnam 55 3% Istanbul 14 0.6% Thailand 51 2% Sao Paulo 13 0.6% Turkey 51 2% Cairo 13 0.6% UK 44 2% Ho Chi Minh 13 0.6%

Source: We Are Social 2017, DBS Bank, DBSVI

4:56

4:17 4:133:47

3:27 3:26 3:233:02 3:00

2:19 2:141:54

0:00

1:12

2:24

3:36

4:48

6:00

3:57

3:233:10

3:00

2:262:06 2:03 2:01 2:01 2:00

1:39

1:12

0:00

0:28

0:57

1:26

1:55

2:24

2:52

3:21

3:50

4:19

Industry Focus

Indonesian Banks

Page 8

Indonesia: Internet penetration vs other countries

Source: We Are Social 2017, DBS Bank, DBSVI

Global: Average mobile internet connection speed

Source: We Are Social 2017, DBS Bank, DBSVI (4) Improving education The Indonesian government allocates 20% of its budget on improving education and these investments have borne fruit. Indonesia was able to eradicate youth illiteracy in 2016. Other metrics such as school enrollment rates and pupil-teacher ratios have shown continuous improvements at pre-primary, primary and secondary levels. Enrollment rates at the tertiary level also improved significantly despite the lack of tertiary teachers, showed by the increasing pupil-teacher ratio. Education is an important driver for digital financial inclusion. A World Bank survey suggests that those with at least a secondary education have higher usage of digital payments, higher mobile money penetration rates, and are more familiar with online shopping.

Indonesia: Education and digital penetration

Source: We Are Social 2017, DBS Bank, DBSVI Indonesia: Education quality metrics Indicator 1990 1996 2001 2006 2011 2016

Literacy rate, youth total (% of people ages 15-24)

96 n.a n.a 97 99 100

School enrollment, pre-primary (% gross)

17 19 24 35 42 60

Pupil-teacher ratio, pre-primary

17 17 16 16 13 11

School enrollment, primary (% gross)

114 110 110 106 110 103

Pupil-teacher ratio, primary

23 22 22 19 19 14

School enrollment, secondary (% gross)

47 50 56 63 78 86

Pupil-teacher ratio, secondary

13 14 14 12 15 14

School enrollment, tertiary (% gross)

8 12 14 17 25 28

Pupil-teacher ratio, tertiary 11 15 14 14 22 22

Source: World Bank, DBS Bank, DBSVI (5) E-commerce boom We believe the e-commerce boom will continue. Based on a survey in 2016, only 7.5% of the population used e-commerce. This number can only go up with customers demanding better payment facilities. The survey also revealed that 78% of e-commerce users still used automated teller machine (ATM) transfers while only 21% used mobile banking. The rise in e-commerce will lead to demand for better transaction platforms.

95% 93% 93%88% 87% 84% 82% 79% 76%

67% 66% 63%

54% 53% 53% 50%

34%

5448.9

43

34.9 34.7 32.527.2

1613.6 13.5

9.8 9.1

0

10

20

30

40

50

60

20%

0.4%

3%

0%

48%

5.6%

19%

2%

Made or received digital payments in the past year

Mobile Money Account

Used the internet to pay bills or to buy something online in the past

year

Used a mobile phone or the internet to access a financial

institution account in the past year

Secondary Education

Primary Education

Industry Focus

Indonesian Banks

Page 9

Tipping point of a digital economy. Internet businesses in Indonesia have been around for decades. Bhinneka.com (online electronic store), and Kaskus.com (C2C online forum) were two of Indonesia’s earliest internet businesses before 2000. After the new millennia, start-ups like Lipposhop.com, Glodokshop.com, iklanbaris.co.id, tried their luck. But these internet businesses never really took off simply because the Indonesian market was not ready then. Lift-off after 2010. The notable successes of Go-Jek (online motorcycle hailing app), Bukalapak (e-commerce) and Tiket.com (traveling) marked the lift-off for Indonesia’s e-commerce industry. In 2010, internet penetration rate increased tenfold to 10.9%, mobile phone penetration rose to 87% from 1.7% and fixed broadband subscription started to rise, all within a decade. After 2010, these numbers continued to rise along with the decline of fixed line telephones, as more families used mobile phones instead. These were the tipping points for Indonesia’s digital economy, when it really took off. Indonesia: Mobile phone subscription per 100 people

Source: World Bank, DBS Bank, DBSVI

Indonesia: Individuals using the internet (% of total

population)

Source: World Bank, DBS Bank, DBSVI Indonesia: Individuals using fixed broadband vs fixed

telephone (% of total population)

Source: World Bank, DBS Bank, DBSVI

0

20

40

60

80

100

120

140

160

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Mobile phone subscription/100 People

0

5

10

15

20

25

30

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Individuals using the internet (% of population)

0

2

4

6

8

10

12

14

16

18

0

0.5

1

1.5

2

2.5

Fixed broadband subscription Fixed telephone subscription

Industry Focus

Indonesian Banks

Page 10

Indonesia’s digital banking landscape: then, now and the

future

By 2030, digital banking will be a standard customer requirement. Customer trends are evolving fast, leaving banks with no choice but to adapt. In the past three years, Indonesian banks have jumped onto the digital bandwagon and embraced the digital era. They have proudly announced various digital banking strategies and products. But in a decade, these digital banking products would be considered basic requirements rather than innovative breakthroughs. What have banks done? We observe several critical digital trends in the past three years: (1) Dwindling branch additions, ATM expansion and new employee hiring, a phenomenon experienced in developing countries 5-8 years ago; (2) Most banks have been gearing up by launching various digital products and; (3) Exponential growth of digital transactions, especially in retail payment services such as electronic money and mobile banking. Branch expansion has slowed down. The most notable decline trend was seen among BUKU 3 banks (banks with equity less than Rp30 tr), with the likes of BTPN and Bank Danamon Indonesia (BDMN) reducing their branches. Big banks like BBCA, BMRI, BBRI, and BBNI have been adding branches up to 2017, although in a smaller scale compared to previous years. ATMs slowing down. Expansion of ATMs is still seen especially for BUKU 4 banks (banks with equity more than Rp30tr). However, we note that expansion is much slower than previous years. Indonesian banks: Total number of branches

Source: OJK, DBS Bank, DBSVI

Indonesian banks: Number of branches (per bank)

Source: OJK, DBS Bank, DBSVI Indonesian banks: Number of ATMs

Source: OJK, DBS Bank, DBSVI Indonesian banks: Number of ATMs (by individual banks)

Source: OJK, DBS Bank, DBSVI

2.8%

0.6%

-0.7%

-1.4%-1.7%

-0.02

-0.01

0

0.01

0.02

0.03

0.04

31,200

31,400

31,600

31,800

32,000

32,200

32,400

32,600

32,800

33,000

33,200

2013 2014 2015 2016 2017 Mar-18

Branch y-o-y (%)

-

2,000

4,000

6,000

8,000

10,000

12,000

BMRI BBCA BBRI BBNI BDMN PNBN BTPN BBTN

2014 2015 2016 2017

19.5%

9.5%

4.2%3.1%

1.6%

0

0.05

0.1

0.15

0.2

0.25

-

20,000

40,000

60,000

80,000

100,000

120,000

2013 2014 2015 2016 2017 Mar-18

ATM y-o-y (%)

-

5,000

10,000

15,000

20,000

25,000

30,000

BMRI BBCA BBRI BBNI BDMN PNBN BTPN BBTN

2014 2015 2016 2017

Industry Focus

Indonesian Banks

Page 11

Plateauing head count. Most of BUKU 4 banks saw no staff additions in 2017. BUKU 3 banks have been aggressively reducing manpower in the last three years. BDMN, for example, halved their employees mainly due to rationalisation of its micro business. BTPN also almost halved their employees in 4Q17 under its Sunrise Project, consistent with its digital banking transformation programme. BBTN is an exception, due to the rapid growth of its 1-million housing government programme in the past three years. Indonesian banks: Staff count

Source: Companies, DBS Bank, DBSVI EDC growth. Electronic Data Capture (EDC) machines continue to see strong growth, in line with sturdy growth of debit card and credit card transactions. This is also consistent with the general trend of fewer transactions through branches. The EDC expansion was also contributed by BBRI’s intense recruitment of BRI Link agents. Indonesian banks: Total number of EDCs

Source: OJK, DBS Bank, DBSVI

Indonesian banks: Transaction value through ATM/debit

and credit cards

Source: OJK, DBS Bank, DBSVI Branchless banking gains traction. Branchless banking initiatives, which were initiated in 2015, continue to gain traction especially among the Big 3 state-owned enterprise (SOE) banks (BMRI, BBRI, BBNI). Indonesian banks: Number of branchless banking agents

Source: Companies, DBS Bank, DBSVI

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

BMRI BBCA BBRI BBNI BDMN PNBN BTPN BBTN

2014 2015 2016 2017

32.8%

19.3%

4.5%

17.8%

5.8%

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2013 2014 2015 2016 2017 Mar-18

EDC y-o-y (%)

3,797 4,445

4,898

5,624 6,200

223 255 281 281 298

-

100

200

300

400

500

600

700

800

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2013 2014 2015 2016 2017

ATM/Debit Credit Card

ATM/Debit (Rp tr) Credit Card (Rp tr)

6,807 19,162 33,643 50,259 84,550

279,750

111

30,860

69,589

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

2015 2016 2017

BMRI BBRI BBNI

Industry Focus

Indonesian Banks

Page 12

Digitalisation to improve efficiency and profitability Indonesian banks spend more on opex than funding costs. Aggregated data of 8 banks under our coverage suggests that Indonesian banks spend more on operating expenses (opex) than interest expenses. Operating expenses are at 3.5% of average assets, while interest expenses are at 2.7%. Salary expenses have been the main contributor to high operating costs, amounting to 1.6% of assets. General and administrative (G&A) expenses contribute a significant 1.4% of total assets. Further digitalisation and automation may

reduce these expenses, translating to higher return on assets (ROA) and return on equity (ROE). Indonesian banks’ opex/asset ratio among the highest in the region. Retail banks like BBCA have among the highest opex-to-asset ratios in Asia. Corporate banks like BMRI and BBNI have above average opex-to-asset ratios. The opex-to-asset ratios of Indonesian banks are higher compared with banks in other developing countries in ASEAN, such as Thailand or Malaysia.

Indonesian banks: Revenue and costs breakdown (as % of average asset in 2017)

Source: Company; DBS Bank, DBSVI Note: Ratios are based on agggregated data of 8 banks under coverage Indonesian banks: Revenue and costs breakdown (as % of average asset in 2017)

Source: Company; DBS Bank, DBSVI

8.4%

2.7%

5.7%

1.8%

7.5%

3.5%

0.1%1.2%

3.0%

0.8%

2.2%

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

KOTAK MAHINDRA BANK LTDKB FINANCIAL GROUP INC

BANK RAKYAT INDONESIA PERSERBANK CENTRAL ASIA TBK PT

SHINHAN FINANCIAL GROUP LTDBDO UNIBANK INC

BANK MANDIRI PERSERO TBK PTBANK NEGARA INDONESIA PERSER

STATE BANK OF INDIAKASIKORNBANK PCL

METROPOLITAN BANK & TRUSTBANK OF THE PHILIPPINE ISLAN

HDFC BANK LIMITEDSIAM COMMERCIAL BANK PUB CO

HANG SENG BANK LTDBANGKOK BANK PUBLIC CO LTD

CIMB GROUP HOLDINGS BHDHANA FINANCIAL GROUP

POSTAL SAVINGS BANK OF CHI-HMALAYAN BANKING BHD

BANK FOR FOREIGN TRADE JSCBOC HONG KONG HOLDINGS LTD

UNITED OVERSEAS BANK LTDSUMITOMO MITSUI FINANCIAL GR

DBS GROUP HOLDINGS LTDPUBLIC BANK BERHAD

MITSUBISHI UFJ FINANCIAL GROBANK OF COMMUNICATIONS CO-H

CHINA CITIC BANK CORP LTD-HOVERSEA-CHINESE BANKING CORP

JAPAN POST BANK CO LTD

Industry Focus

Indonesian Banks

Page 13

Which banks would benefit most from digitalisation? Opex reduction is critical to profitability. Digitalisation may provide plenty of room to enhance efficiency and profitability. Our sensitivity analysis on aggregated data of 8 banks under coverage suggests that every 1% cost-to-income improvement may boost pre-tax earnings by 2.5%. The least efficient banks (with the highest cost-to-income ratios) would see the most significant profitability improvement. Unlocking value of retail banking. We believe retail banks would benefit the most from digitalisation. Traditional retail banks are typically burdened by high operating costs of maintaining infrastructure such as ATMs, EDCs, branches, tellers, micro loan officers and customer services. The objectives of these expenditures are to reach customers for either cheaper current accounts, savings accounts (CASA) or higher yielding loans. Digitalisation would unlock value by reducing opex while maintaining profitability. Two cost-saving opportunities: 1. Migration of front-end activities to digital channels could

save billions of overhead costs (tellers, customer service, ATMs and branches).

2. Automation of internal process could improve productivity of back office staff. A radically transforming bank could lay off staff or freeze hiring.

How much value can be unlocked through digitalisation? We expect Indonesian banks to reduce their opex-to-asset ratios close to 2% by 2030 due to digitalisation. If Indonesian banks can achieve such efficiency, ceteris paribus, average ROE may improve. This could translate into 40-400% upside to current fair value. Based on our calculations, retail banks with strong lending capabilities like BTPN and BDMN would have most upsides from digitalisation. BBCA would be less affected due to its already high ROA. Its marginal profitability improvement from cost savings would be less than second tier banks such as BBTN, BDMN and BTPN (with ROAs much lower than BBCA).

Indonesian banks: Pre-tax profit impact after 1pct cost-to-

income ratio improvement

Source: Company; DBS Bank, DBSVI Indonesia: Opex-to-asset ratio of Indonesian banks

Note: BDMN and BTPN opex are BAU numbers. Restructuring costs and digital banking costs were taken out. Source: Company; DBS Bank, DBSVI Indonesian banks: Impact to equity value (assuming opex-

to-asset ratio reduces to 2%)

Source: Company; DBS Bank, DBSVI

2.8%2.5% 2.4%

1.9%

2.8%

3.5% 3.4%

5.2%

2.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

BMRI BBRI BBNI BBCA BBTN BDMN PNBN BTPN Average

1.4% 1.2% 1.2%1.7%

1.2% 0.9%1.8%

2.7%

1.4%

1.4% 1.9%1.4%

1.6%

1.1%1.0%

2.9%

2.7%

1.6%

3.15%3.61%

3.18%3.53%

2.60%2.30%

5.22%5.72%

3.41%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

BMRI BBRI BBNI BBCA BBTN PNBN BDMN BTPN Average

Gen& Adm Expenses Salary Related Others Total Opex

50%

103%

87%

42%

100%

54%

95%

442%

0%

20%

40%

60%

80%

100%

120%

140%

BMRI BBRI BBNI BBCA BBTN PNBN BDMN BTPN

Industry Focus

Indonesian Banks

Page 14

Which are the most digitalised banks?

Digital readiness. The digital trend is unstoppable and banks are jumping onto the digital bandwagon. In the past three years, banks have been racing to keep up with the latest technology and launched various digital banking products. We assess a bank’s digital readiness on two fronts; (1) variety of products and; (2) quality of products and user engagement. We found that BBCA topped the rank while the big three big SOE banks is catching up.

BBCA and BBNI have complete digital products. Currently, BBCA and BBNI have the most complete range of digital banking products and services, from conventional internet banking to quick response (QR) code payment applications. BMRI has yet to launch their QR payment apps, but have other digital products. These Big 4 banks (BBCA, BMRI, BBRI, and BBNI) have also launched their digital assistants, allowing customers to ask questions to a AI-based chatbot instead of a customer service personnel. They also have a well-established card-based electronic money service which is largely used for toll fee payments.

Indonesian banks: digital products

Source: Companies, DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 15

The big 4 banks have gained better traction. We observe that the big banks, especially BBCA and BMRI, have strong traction for their digital banking products.

BBCA has the biggest transaction value and frequency in mobile banking, thanks to its strong retail franchise. Its dominance in internet banking is at a staggering transaction value of Rp7.7tr a year, while BBRI comes second with only Rp551bn. BBCA’s dominance in internet banking is attributed to the small medium enterprise (SME) and commercial segments. It was also one of the first banks to launch internet banking.

BMRI, the biggest corporate bank in Indonesia,

leverages on its payroll accounts, leading to retail businesses. It serves retail customers using the

Mandiri online and Mandiri mobile, which was merged into a multi-platform application in 2017.

BBNI is catching up digitally, despite having the

lowest mobile and internet transaction value among the four. The latest product launch will be BBNI’s Yap!, which combines credit card, debit card, and e-wallet equipped with QR code payment.

Other smaller banks like BBTN, PNBN, and BDMN

have much weaker traction than the big banks. Even BTPN, which aggressively markets its Jenius mobile banking, has still not reached 500K customers.

Indonesia: Mobile banking transaction value

Source: Companies, DBS Bank, DBSVI Indonesia: Mobile banking transaction frequency

Source: Companies, DBS Bank, DBSVI

486 556

722

971

69 105

279 383

14 50 47 46 108 129

-

200

400

600

800

1,000

1,200

2014 2015 2016 2017

BBCA BMRI BBNI BBRI

Rp Tr

500 592

786

1,161

- -

1,009 1,128

11 32 133 165 219 277

-

200

400

600

800

1,000

1,200

1,400

2014 2015 2016 2017BBCA BMRI BBNI BBRI BBTN

Mn Transaction

Industry Focus

Indonesian Banks

Page 16

Indonesia: Mobile banking (number of users)

Source: Companies, DBS Bank, DBSVI Indonesia: Internet banking (transaction value)

Source: Companies, DBS Bank, DBSVI

186 457

6,600 6,900 7,331 7,533

506 1,368

8,819

11,624

14,646

18,000

-

5,000

10,000

15,000

20,000

2014 2015 2016 2017BTPN Jenius BMRI BBNI BBRI

5,350 5,935

6,801 7,694

- - 151 142 95 94 86 175 339 551

-1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

2014 2015 2016 2017

BBCA BMRI BBNI BBRI

Rp Tr

Industry Focus

Indonesian Banks

Page 17

Customer feedback is a crucial indicator. We found that m-BCA and BRI Mobile is well accepted by the market. Our survey of Google Play (application store for Android users, which account for c.90% users in Indonesia) suggests that both mobile banking apps have been downloaded by more than 10mn users and positively reviewed by more than 100K users. BMRI’s Mandiri online was badly reviewed after its merged web and mobile applications last year encountered various technical problems. However, we believe it is improving based on our own user experience. BNI Mobile received modest reviews, but it never really gained traction among users. BTPN’s Jenius and BDMN’s D-Mobile received gratifying reviews, but from a limited user base.

Little things that matter. Banks might have wide ranges of digital offering, but little things can really affect customer experience. Below are several frequent issues we found:

1. Reliability issue. Mobile Banking App loading time is very slow. Frequent maintenance. These issues were faced by Mandiri online and Jenius during the first few months after their launching.

2. Cost issue. Some banks still charge SMS fees for every transaction. Although the cost is insignificant, some costomers see the App is just another version of SMS banking.

3. E-wallet top up. Some E-wallets must be done through their mobile app or branchless banking agent. Therefore the non-existing customer will find it hard to use it.

Indonesian banks: Mobile banking products survey (based on popularity and rating)

Rank Bank Google Playstore Survey

Mobile Banking Apps Downloads Content Rating Reviews

1 BBCA m-BCA 10,000,000+ 4.0 197,087

2 BBRI BRI Mobile 10,000,000+ 4.2 133,806

3 BTPN Jenius 500,000+ 4.1 43,676

4 BMRI Mandiri Online 1,000,000+ 2.9 45,883

5 BBNI BNI Mobile 1,000,000+ 3.5 34,859

6 BNGA Go-Mobile 1,000,000+ 3.2 29,557

7 BBTN BTN 1,000,000+ 3.8 8,514

8 BNLI Permata Mobile 500,000+ 3.8 17,017

9 BDMN D-Bank 500,000+ 4.2 9,884

10 BTPN BTPN Sinaya 10,000+ 4.3 374

11 PNBN Panin 100,000+ 4.0 1,504

Source: Google Playstore, DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 18

Positioning of digital banking products. Indonesians live in two different worlds due to staggering income inequalities. This can be seen in the increase in Gini coefficient to 0.4 in 2016 vs 0.36 in 1996. Data from Badan Pusat Statistik (BPS, Statistic Department of Indonesia) indicated that the top 20% of the Indonesian population contributed to 48% of total expenditure. The inequalities includes wealth, education and access to information. E-money, an alternative to banking. For people who live in rural areas, accessing bank accounts is troublesome. Even transferring money can be very costly and difficult. This is where electronic money can be useful. People can transfer electronic cash without opening bank accounts. Branchless banking initiatives could help the unbanked population (51% of Indonesia’s population). As income improves, customer might need savings accounts or loans. An affluent middle class might need different services, such as QR payment platforms or even a stock portfolio embedded into the digital banking platform. One good example is BTPN, which has two different digital banking products. Jenius is for the affluent middle class who need more complex services (convenient money transfer, savings,

time deposits, financial planning), while BTPN WOW caters to the middle to low segments and offers simple money transfers and savings through field agents. Human interactions and online-to-offline (O2O) platforms are still needed due to slower technology adoption in these segments. Indonesia: staggering income inequality

Source: BPS 2014, DBS Bank, DBSVI

Indonesia: Financial services (needs and products in each segment)

Source: Bank Indonesia, DBS Bank, DBSVI

17%

40%

35%

40%

48%

20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Expenditure Population

Top 20%

Middle 40%

Bottom 40%

Industry Focus

Indonesian Banks

Page 19

Digital banking strategies

Bank Central Asia (BBCA). BBCA has the best traction for its digital banking products compared to other banks. Its mobile and internet banking transaction value and frequency is the highest in Indonesia. BBCA has continued to improve digital technology and seen a significant switch in customer transaction preferences in recent years. The frequency of its digital transactions has continued to increase, while the frequency of transactions through branch offices has decreased. The frequency of transactions through digital channels contributed 97% to the bank’s overall transactions in 2017, up from 96% in 2016. The rapid growth in digital channels was driven mainly by internet and mobile banking. It is also worth noting that BBCA’s number of transactions through internet banking exceeded ATM transactions in 2017. VIRA virtual assistant. BBCA launched its VIRA virtual assistant in 2017, which is accessible through Line, Facebook, and Google Virtual Assistant. VIRA uses AI technology and is expected to reduce the workload of the traditional customer service. Developing digital economy ecosystem. BBCA management understands the need to cater to the fast growing e-commerce market. It is collaborating with marketplace-based e-commerce companies to further increase the penetration of its products and services in the sector. BBCA is implementing host-to-host solutions, online virtual accounts and the Application Programming Interface (API) to support cash management services for customers, in line with technological developments. As e-commerce continues to grow, BCA is exploring opportunities for lending to e-commerce merchants. Collaboration with Go-Jek. BBCA supported Go-Pay during its earlier stage in 2016. It provided integrated cash management solutions though BCA Virtual Account, allowing BBCA’s customers and Go-Jek drivers to top up Go-Pay via BBCA’s electronic channels. BBCA also provided host-to-host enterprise resource planning (ERP) integration which enabled cash transfers between Go-Jek accounts with Go-Jek drivers/partners.

Open API platform. BBCA has developed an Application Programming Interface (API) platform which allows its systems to be integrated with the systems of e-commerce and fintech companies to accommodate their financial transactions. BBCA: API platform

Source: Company, DBS Bank, DBSVI Venture Capital. BBCA established Central Capital Ventura (CCV) in 2017, a venture capital subsidiary. Through CCV, BBCA intends to invest in and collaborate with fintech companies and support companies in the financial industry to enhance the overall financial service ecosystem of BBCA and its subsidiaries, while delivering added value to stakeholders. BBCA: Central Capital Ventura logo

Source: Company, DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 20

Bank Mandiri (BMRI). BMRI is improving its digital capability at all fronts. Its main strategy is shifting customer transactions from branches to electronic channels. Currently 94% of BMRI’s transactions are done through e-channels. Branches will be transformed as points-of-sale rather than points-of- transactions. Currently BMRI has a wide range of digital products and continues to improve customer experience. In 2017, BMRI launched Mandiri Online. It is an integrated service between Mandiri Internet Banking and Mandiri Mobile. Customers have single access user ID and PIN to all services on mobile and web services. The app has the following advantages: Performs financial transactions: Utility bills, credit card

bills, instalment payments, tops up e-cash and e-money

Single Access user ID and PIN to all services on mobile and web services

Complete personal portfolio overview, including savings, time deposits, loans, and credit cards

Smart marketing: Provides promotional materials for banking services

Electronic Money. BMRI has two types of e-money services: e-Money (card based electronic money) and e-cash (server based electronic money). It is targeting to increase the utilisation of electronic money (e-wallet), namely Mandiri e-Money (for payments on toll roads, parking) and payments at renowned merchants, and Mandiri e-cash (co-branding with various parties such as Line and Grab). BMRI also teamed up with telco and tech companies to increase the usage of its e-money. One of them is LINE Pay e-cash, which is a co-branding partnership between Mandiri e-cash and wallet app LINE Chat and Call. Mandiri e-cash also teamed up with GrabPay, a major ride haling app in Jakarta. Bank Mandiri will continue to improve its e-cash infrastructure, developing payments with QR codes, integrating e-money (chip based) and e-cash (server based) e-money, and enhancing cooperation with various parties via co-branding. Open API. Mandiri continues to play an active role in building cashless ecosystems. One of them is e-money Application

Programming Interface (API). With this API, location points (both physical and virtual) for e-money top up that can be accessed directly from third-party applications are expected to increase. Various transaction features and advantages are constantly being added. Venture Capital. BMRI established its own venture capital Mandiri Capital Indonesia (MCI) that invests in innovative fintech startups and helps them scale up with BMRI’s vast network and expertise. BMRI: Mandiri Capital Indonesia (MCI) investees

Source: Company, DBS Bank, DBSVI PrivyID provides digital identity through digital signature, seamless know your customer (KYC) and on boarding process for financial institutions by having an online identity network connected to millions of bank and multi-finance accounts.

Moka provides a point-of-sale application that you can be downloaded on your mobile devices and an integrated card reader giving customers an option to pay with debit/credit cards.

Amartha is a Peer-to-peer (P2P) lending platform to bridge micro businesses with access to capital and investors.

Cashlez is a digital payment startup that pioneered the mPOS system in Indonesia, a mode of credit card and debit card payments using smartphones interconnected with card readers via bluetooth.

Yokke is a third party processor company which performs technical connections to brand networks to support issuers and acquirers.

DAM (Digital Artha Media) is a pioneer in Indonesia’s digital wallet providers. Its e-cash is a mobile-based electronic money that can be used by both banked and unbanked population.

Industry Focus

Indonesian Banks

Page 21

Bank Negara Indonesia (BBNI). BBNI has complete range of digital banking products - internet and mobile banking, QR codes, SMS banking, virtual assistant and is even starting to implement blockchain technology. BBNI continues to develop its digital bank capabilities to enhance customer experience and optimise profit.

Improving payment channels. BBNI continues to develop digital channels as points-of-acquisitions and points-of- transactions with offerings such as Yap! (Your All Payment), Tapcash Mobile and BNI Mobile. These products should increase CASA through closed-loop and e-channel transactions.

BBNI: Information technology master plan

Source: Company, DBS Bank, DBSVI The first to use blockchain. BBNI utilises blockchain technology to improve its trade finance and remittance products. Currently, BBNI is the first bank in Indonesia to apply blockchain technology that can ease document access, validation for trade finance transactions and remittance transactions. Colaboration with Go-Pay to distribute KUR. BBNI collaborates with Go-Pay to help food & beverage (F&B), micro, small and medium enterprises (MSME). It also partners with Go-Food to provide access to cheap financing through the KUR program. Go-Pay and Go-Food are part of the Go-Jek enterprise which started as a ride hailing company but has since transformed into various on-the-go services, including food, payment and other services. BBNI digital branch outlets. BBNI will continue to develop its digital branch outlets. It will optimise existing digital branch outlets and open 7 new outlets. Digital branches will be specially designed as a banking café at selected locations in 2018.

YAP! BBNI recently launched YAP!, a transaction system using QR code media that facilitates mobile payment for e-wallet, debit card and credit card. BBNI currently has more than 15K YAP! merchants and targets 500K merchant by the end of 2018. BBNI: F&B merchants accept YAP! payments

Source: Company, DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 22

Fintechs: Friend or foe?

Indonesia’s fintechs are growing rapidly. Fintechs are mushrooming and growing in size. There are now over 190 fintech startups in Indonesia. Most of them are either payment fintechs or peer-to-peer (P2P) lending fintechs. These fintechs have been able to attract US$176.75mn of funds based on a report from Daily Social. Disruption or collaboration? Unlike China or other developed countries, Indonesia’s financial industry is underpenetrated, with a potentially huge market for payment and lending. We believe that fintechs and banks have their own strengths. Their collaborations could transform the landscape of Indonesia’s financial industry. Based on our rationale: Payment fintechs will serve as the last mile for digital

payments and dominate the e-money payment industry. They will increase banks’ liquidity and broaden money

supply. There is a potential overlap with banks’ e-money products, with transaction value of 0.2% of ATM/debit card.

P2P fintechs mostly target non-collateralised SME loans. There are still potential overlaps, especially in banks’ consumer loan products such as non-collateralised loans and credit cards.

Indonesia: Number of fintech players

Number of Indonesian fintech players 2016 135-140 2017 188-196

Fintech players growth 2014-2015 9% 2015-2016 78% 2016-2017 39%

Registered fintech associations 2016 55 2017 109

Source: Daily Social, DBS Bank, DBSVI

Indonesia: Banks and fintechs - strengths and challenges

Banks Fintechs

Stre

ngth

s

• Ample resources. Banks have deep pockets, huge balance sheets and ample human resources to develop digital products. • Well established infrastructure & payment networks. Banks have infrastructure such as EDC’s, ATMs and servers to support digital banking initiatives.

• Huge customer base. Banks have huge existing customers and well established relationships. They may spend less to promote digital banking products.

• Access to regulators. Banks have long and well maintained relationships with regulators which enable better coordination.

• Nimble. Agility is the main advantage of fintechs. They are able to execute their vision faster than banks due to lean organisational structures and less bureaucracy.

• Ability to take more risks. Fintechs’ shareholders are typically venture capitals and private equities that are able to take more risks. Banks’ shareholders are typically the government and public who more risk averse.

• Financial inclusion draws government support. The regulators and government view fintechs as beneficial to the financial inclusion agenda.

Cha

lleng

es

• Slow giants. The main challenge for big banks is that they are often slow to catch up with new trends. It may take months or even years to implement changes due to bureaucracy.

• Limited room for risk. Most banks’ shareholders do not take significant risks on profitability. They may not explore new business opportunities as freely as fintechs.

• “Make or break” business model. Some fintechs need to grow to a certain size before being profitable.

• Lack of regulatory supervision. The fintech industry is still new and not as heavily regulated as banks yet. Fintechs need to be regulated to; (1) prevent reckless players from tarnishing the credibility of the whole industry; (2) share infrastructure and data for a more efficient industry; (3) standardise practices and technology (such as QR codes).

• Lack of experience. Most fintechs in Indonesia, especially the P2P lenders, have not gone through even one credit cycle, while banks have survived much more crises.

• Regulatory corridors. These are usually established after fintechs are started. “Do first, apologise later” is a common practice in the tech industry.

Source: DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 23

Indonesia: Fintech investments in 2017

Startup Vertical Stage Announcement Value Investor

Espay/uNIK Fintech Acquired 1-Jan-17 Undisclosed EMTEK

Cermati Fintech Series A Ext 2-Feb-17 Undisclosed Orange Growth Capital

Akseleran Fintech Seed Feb-17 Undisclosed angel investor

Amartha Fintech Series A Ext 3-Mar-17 USD 2 mn MCI, Lynx Asia Partners, Beenext, Midplaza Holding

c88/CekAja Fintech 11-Mar-17 Undisclosed Kickstart Ventures, Socrates Capital

Kudo E-commerce /Fintech

Acquired 3-Apr-17 USD80-100mn Grab

Ayopop Fintech Seed 4-Apr-17 USD1mn Gree Ventures

Bareksa Fintech Seed 6-Apr Undisclosed Gemilang Dana Sentosa

Gandeng Tangan Fintech Seed 7-Apr-17 Undisclosed Mariko Asmara, ANGIN

M-Cash Fintech 20-Apr-17 Undisclosed Kresna Graha Investama

Taralite Fintech 12-May-17 USD 6.3mn SBI Group Japan

Akulaku Fintech Series B Jun-17 Undisclosed Legend Capital, Shunwei Cpaital, Qiming Venture Partner

Kioson E-commerce/ Fintech 20-Jun-17 USD 450K Mitra Komunikasi Nusantara

Pasar Dana Pinjaman Fintech 4-Jul-17 USD 50mn Itochu

Jukir Fintech Acquired 6-Jul-17 Undisclosed Walezz

JULO Fintech Seed 19-Jul-17 Undisclosed East Ventures, Skystar Capital, Convergence Ventures

PayAccess Fintech Series A Jul-17 Undisclosed Undisclosed

Artawana Fintech Pre-seed 4-Aug-17 Undisclosed East Ventures

UangTeman Fintech Series A 7-Aug-17 USD 12 mn K2 Venture Capital, Draper Associates, STI Financial Group, Alpha JWC

Payfazz Fintech 8-Aug-17 Undisclosed Y combinator, MDI Ventures

Kredivo Fintech Series A 4-Oct-17 Undisclosed Jungle Ventures, NSI Ventures

Kioson E-commerce/ Fintech IPO 5-Oct-17

Pendanaan Fintech Series A 31-Oct-17 Undisclosed Legend Capital

M Cash Fintech IPO 1-Nov-17

OnlinePajak Fintech Series A 9-Nov-17 USD3-5mn Alpha JWC Ventures, Sequoia Capital

Bitcoin.co.id Fintech 23-Nov-17 Undisclosed East Ventures

Source: Daily Social

Industry Focus

Indonesian Banks

Page 24

Exhilarating future of electronic money

Electronic money payments still small, but growing exponentially. The transaction value of electronic money (e-money) was a mere Rp12tr in 2017, virtually nothing compared to other digital payment methods such as ATM/Debit transactions or credit cards. The transaction value is still at 0.1% of Indonesia GDP, much smaller than China at nearly the same GDP. But based on its strong growth momentum, e-money transactions could be much bigger.

Indonesia has the right ingredients to emulate China’s success story. However, banks could lose out on the payment business to fintechs and telco companies (which are a proxies of China’s giant tech companies and Indonesia’s giant telco companies) if they are too slow. These players can even take over the retail payment business.

Indonesia: Digital payments (by value, 2017)

Notes: *aggregate transaction of BBCA, BMRI, and BBNI mobile banking and internet banking Electronic Money includes Go Pay, Mandiri e-cash & e-Money, T-cash, etc. Electronic Money is issued on the basis of the value of money deposited in advance by the holders to the publishers. The value of money is stored electronically in mediums such as servers or chips. Value of electronic money deposited by holders and managed by issuers are not deposits, as referred to in banking laws. Real Time Gross Settlement (RTGS) is an electronically processed real time individualised gross settlement transaction, in which the participant's account can be debited / credited multiple times a day, with payment orders and receipts.

Source: Bank Indonesia, DBS Bank, DBSVI

Indonesia: Digital product transaction value y-o-y

growth

Source: Bank Indonesia, DBS Bank, DBSVI

Indonesia: electronic money transaction

Source: GSMA Report, DBS Bank, DBSVI

118,620

13,589

9,876

6,200

1,403

298

12

- 20,000 40,000 60,000 80,000 100,000 120,000 140,000

Real Time Gross Settlement (RTGS)

Indonesia Nominal GDP

Internet banking*

ATM/Debit

Mobile Banking*

Credit Card

Electronic Money

Rp tr

59%

34%

75%

19%

54%

38%

13%

18%14%

10%

15%

10%

0% 6%1% -1%

6%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2015 2016 2017

Electronic Money

Mobile Banking

Internet banking

ATM/Debit

Credit Card

Real Time Gross Settlement (RTGS)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

-

50

100

150

200

250

Jan-

14

Apr

-14

Jul-1

4

Oct

-14

Jan-

15

Apr

-15

Jul-1

5

Oct

-15

Jan-

16

Apr

-16

Jul-1

6

Oct

-16

Jan-

17

Apr

-17

Jul-1

7

Oct

-17

Jan-

18

Nominal (bn) - RHS Volume (mn)

Industry Focus

Indonesian Banks

Page 25

Indonesia: Transitioning towards a cashless society

Source: Euromonitor, KartuKu, DBS Bank, DBSVI

Indonesia: Mobile payment - key players

Banks Telco Fintech

Source: Companies, DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 26

Indonesia can emulate China’s success story. Alipay and WeChat Pay shook up China’s payment ecosystem 3-4 years ago, dominating mobile payments for everything from taxi fares to “hóngbao” (Chinese red envelope). These two giants claimed 600mn and 800mn users respectively from China’s 1.4bn population. A report from iResearch suggests that the transaction value of mobile payments in China reached RMB 58.8 tr (USD 5.5tr), 79% of its GDP. This is huge number compared to Indonesia’s electronic money transactions which only represent less than 0.1% of GDP. Three critical factors that will lift mobile payments; (1) young population; (2) high smartphone penetration; and (3) the birth of hundreds of millions of affluent middle class. With these elements, we believe Indonesia could emulate China’s success story. Global: Unique mobile subscribers as % of population

Source: GSMA Intelligence

China: 3rd party mobile payment transaction value

Source: iResearch, DBS Bank, DBSVI E-money transaction/GDP comparison

Source: iResearch, BI, World Bank, DBS Bank, DBSVI

Indonesia: Popular electronic money providers

Source: GDP Venture, Jakpat cashless payment report

89%84% 82%

73%68%

63%

53% 51% 49%

39%

90% 86% 85%

77% 75% 72%

63% 60%55%

50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Russ

ia US

Chi

na

Indo

nesi

a

Braz

il

Mex

ico

Indi

a

Bang

lade

sh

Nig

eria

Paki

stan

2017 2025F

0.1 0.2 1.2 6 12.2

58.8

97.7

165.9

229

0

50

100

150

200

250

2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

China 3rd party mobile payment transaction value (RMB tr)

0.2% 0.4% 2.0%9.3%

17.7%

79.0%

119.1%

0.05%

0.06%0.09%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

2011 2012 2013 2014 2015 2016 2017F

China Indonesia - RHS

Industry Focus

Indonesian Banks

Page 27

The potential of e-money payments. In 2030, our base case scenario suggests there will be Rp3,333tr (US$ 238bn) worth of funding opportunities, as more money supply (M0) which was previously outside the banking system now registered into CASA. We estimate e-money transactions to be 40% of Indonesia’s nominal GDP in 2030 (compared to China current mobile payments which are more than 100% of its GDP). We estimate 20% of the transactions will float in the payment providers’ balance sheets, a conservative number given that current Debit Transaction/savings account in Indonesia is

higher at 28%. The e-money float will represent 17% of total deposits. Heading towards a cashless society, Indonesians will have its cash (fiat money) replaced by e-money, which will represent about 60% of outstanding cash in 2030. Our base case scenario also suggests there will be Rp47tr fee income potential in 2030 if we assume that the industry is mature enough to charge Rp500/transaction.

Indonesia: e-money transaction and floating balance forecast

Base Bull Bear No Assumption 2016 2017 2030 2030 2030

1 Nominal GDP (Rp tr) CAGR: Base 9%, Bull 10%, Bear 8% 12,407 13,589 41,661 46,912 36,956 2 Loan to GDP Ratio In 2030: Base 45%, Bull 55%, Bear 40% 35% 35% 45.0% 55.0% 40.0% 3 Industry Deposits (Rp tr) CAGR : Base 11%, Bull 15%, Bear 9% 4,749 5,143 19,972 31,644 15,767 4 % of GDP (3/1) In 2030: Base 48%, Bull 67%, Bear 43% 38% 38% 48% 67% 43% 5 Industry Savings (Rp tr) CAGR : Base 11%, Bull 15%, Bear 9% 1,570 1,721 6,683 10,589 5,276 6 Savings/Total Deposits (5/3) in 2030: stable savings/total deposits 33.06 33.46 33.46 33.46 33.46 7 ATM/Debit Transaction (Rp tr) (5/9) 5,624 6,200 33,415 42,355 35,174 8 % of GDP 45 46 80 90 95 9 Savings Float/Transaction (5/7) Base: 20%, Bull: 25%, bear 15% 28% 28% 20% 25% 15%

10 E-Money Transaction (Rp tr) 7 12 16,664 23,456 11,087 11 % of GDP (10/1) Base: 40%, Bull: 50%, Bear 30% 0.1 0.1 40.0 50.0 30.0 12 % of Deposits (10/3) 0% 1% 83% 74% 70% 13 Estimated E-Money Float(Rp tr) (14*10) 2 3 3,333 5,864 1,663 14 Savings Float/Transaction (=9) 28% 28% 20% 25% 15% 15 E-Money Float/Deposits 0% 0% 17% 19% 11% 16 E-Money Transaction Freq (mn) (10/17) 683 943 93,952 156,374 55,435 17 Assumed Value per transaction(Rp ths) 10.34 13.12 177.37 150.00 200.00 18 Assumed Fee/transaction (Rp) Base Rp500, Bull Rp1000, Bear Rp200 500.00 1,000.00 200.00 19 Potential Fee Income (Rp tr) (16*18) 46.98 156.37 11.09 Source: Bank Indonesia, DBS Bank, DBSVI

Indonesia: cash (fiat money) in circulation vs forecast e-money float under base case scenario

Source: GSMA Intelligence, DBS Bank, DBSVI

828 1,380

3,333

-

1,000

2,000

3,000

4,000

5,000

6,000

2014

2015

2016

2017

2018

F

2019

F

2020

F

2021

F

2022

F

2023

F

2024

F

2025

F

2026

F

2027

F

2028

F

2029

F

2030

F

Cash held Outside Banks

Cash held by banks

e-money float (Estimated)

Rp tr

Industry Focus

Indonesian Banks

Page 28

Key mobile payment players Two e-money providers that could pose significant threats to banks are: 1. Go-Pay from Go-jek Go-jek started off as a motorcycle taxi hailing app and become the first Indonesian unicorn start-up. Go-jek has diversified its services to four-wheeled transportation, on demand services (including food, personal care and handyman services) and payments. Go-jek claims to have 900k drivers, 15mn weekly active users and covers 125K merchants with over 100mn transactions processed on its platform per month.

In Dec 2017, Go-jek acquired offline payment firm Kartuku, payment gateway Midtrans, and payment and lending network Mapan. These acquisitions are to boost Go-jek’s payment network, which centers around its Go-Pay mobile payment devices. Our on-the-ground checks revealed that Go-Pay is aggressively expanding its offline payment. On 4 May 2018, Bank Indonesia formalised regulation for electronic money and standardisation of QR codes. A few days later, small food merchants were already accepting offline QR code Go-Pay payments. Even our local gas stations were accepting payments. This is an important move which enables Go-Jek riders to pay for gasoline. As a result, cash will circulate within the Go-Pay ecosystem.

Go-Jek’s wide range of services

Source: DBS Bank, DBSVI

Go-Pay’s expansion into offline payments

Left: Go-Pay at an artisan coffee shop in Cikajang, South Jakarta; segment: middle-upper class Center: Go-Pay at a canteen in DBS Bank Tower office building, Jakarta; segment: Middle-to-lower class Right: Go-Pay top up counter, in a canteen in DBS Bank Tower’s office building

Source: DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 29

2. T-Cash from Telkomsel Telkomsel is Indonesia’s biggest telecommunications provider with more than 190million subscribers across the Indonesian archipelago. Telkomsel’s flagship mobile payment service is called TCASH. Its objective is to realise financial inclusion and to create a cashless society in Indonesia. TCASH has expanded its user base to around 13 million registered users (in 2017), of which around 25% were active users. This makes Telkomsel one of the biggest mobile money providers in Indonesia. To support its payment ecosystem Telkomsel added almost 100,000 TCASH service channels consisting of traditional outlets, modern retail outlets and agents. TCASH users are from two main segments - lifestyle and micro segments. The lifestyle segment refers to banked individuals who mostly live in urban cities, while the micro segment refers to the unbanked/under-banked segment who live in tier-3 and tier-4 cities, as well as rural areas. TCASH featured a SNAP QR Code in its TCASH Wallet app in October 2017, and by the end of the year 3,500 local merchant outlets across the country had adopted the feature. 3. OVO OVO is a smart financial app that offers payment solutions and rewards points to for customer loyalty and traction. OVO is owned by LippoX, a digital payment arm of the Lippo Group. It gathered early traction by leveraging on Lippo’s vast business network. Visit one of Lippo Group’s malls in Jakarta and you will see aggressive promotions for OVO everywhere, such as 30% cash backs on merchants and Rp1 parking fee for unlimited hours. Lippo has more than 30 malls across Indonesia. OVO is also aggressively promoted at Lippo’s grocery stores (10% cash back in Food Mart and Hypermart), cable and internet services (30% cash backs for First Media ), bookstores (30% cash banks in Books and Beyonds), and many more. OVO claimed to have 9.5mn users and targeting 20mn users by the end of this year. With the aggressive promotion, OVO has become one of the significant player in the electronic payment landscape.

TCash’ SNAP QR payment in Indonesian wet market

Source: TCash, Kumparan .com

OVO’s promotional material

Source: OVO, DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 30

Indonesia: Fintechs’ payment products

Source: Daily Social

Industry Focus

Indonesian Banks

Page 31

Indonesia: Licensed electronic money providers

Licensee Entity Type Date Ops e-Money offering name Purpose of e-Money offering

B.P.D. DKI JAKARTA Bank Nov-12 JakCard Prepaid card for public transport

B.P.D. SUMSEL BABEL Bank Jul-09 BSB Cash Prepaid card which can be used at multiple POS

BANK CENTRAL ASIA Bank Mar-13 Flazz, Sakuku Prepaid card which can be used at multiple POS. Sakuku functions as eWallet

BANK CIMB NIAGA Bank Jul-09 Rekening Ponsel eWallet

BANK MANDIRI (PERSERO) Bank Jul-09 Mandiri eCash, and various prepay cards in partnerships with retailers

Prepaid cards and eWallets for a variety of payments (toll roads, convenience stores, petrol purchase, etc)

BANK MEGA Bank Jul-09 Mega Cash and Mega Virtual Prepaid debit cards and eWallet

BANK NATIONALNOBU Bank Jul-09 Nobu eMoney Prepaid cards

BANK NEGARA INDONESIA 1946 (PERSERO)

Bank Apr-13 TapCash and Kartuku Prepaid cards and payment service provider

BANK PERMATA Bank Jan-13 BBM Money Prepaid card which can be used at multiple POS

BANK QNB INDONESIA Bank Dec-10 Dooet Prepaid cards and payment service provider

BANK RAKYAT INDONESIA Bank Jun-12 Brizzi Prepaid card which can be used at multiple POS

ARTAJASA PEMBAYARAN ELEKTRONIS

Switching Jul-09 Mynt Prepay card for digital purchases. Artajasa, also owns ATM Bersama, one of the largest switching networks

DOMPET ANAK BANGSA Switching Mar-13 Go-Pay (prev. PonselPay) mWallet

ESPAY DEBIT INDONESIA KOE Switching Jul-09 uNIK eWallet

FINNET INDONESIA Switching Jul-09 Finpay Prepaid cards, switching, remittance and other payment services.

INDOSAT Telco Jul-09 Dompetku eWallet

NUSA SATU INTI ARTHA Switching Mar-11 DokuPay and DokuWallet Payment gateway and eWallet

SKYE SAB INDONESIA Switching Jun-14 Skye Card and BEAT eWallet and eWallet for Binus students

SMARTFREN TELECOM Telco Sep-14 Uangku Payment gateway and eWallet

TELEKOMUNIKASI INDONESIA Telco Jan-15 T-Money mWallet

TELEKOMUNIKASI SELULAR Telco Jul-16 T-Cash mWallet

WITAMI TUNAI MANDIRI Switching Mar-17 TrueMoney Remittance focused payments provider

XL AXIATA Telco Apr-17 XL Tunai mWallet

BUANA MEDIA TEKNOLOGI Switching May-17 GudangVoucher Payment gateway

BIMASAKTI MULTI SINERGI Switching Jun-17 SpeedCash Payment gateway

VISIONET INTERNASIONAL Switching Aug-17 OVO Payment gateway and mWallet

INTI DUNIA SUKSES Switching Oct-17 i.Saku Prepaid cards, rewards, and eWallets for transaction in Indomaret

Source: Bank Indonesia, KPMG, DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 32

P2P lending: Key issues

P2P lending is still small but growing. Aggregate outstanding P2P lending in Indonesia amounted to Rp5tr in April 2018, based on data from OJK. Despite its relatively small size (compared with credit cards, micro loans, and SME loans), outstanding P2P lending has more than doubled in the past 4 months from Rp2.5tr in Dec 2017. This is much faster than the overall industry’s loan growth at around 8% y-o-y.

Although aggregate P2P lending volume is a still small fraction of bank-lending, the rapid growth raises some fundamental questions: (1) How big is the potential market for P2P lending?

(2) What is the target market for P2P lending in Indonesia?

(3) Are these loans more or less risky than banks’ loans?

(4) In developed countries, does P2P lending affect volume and profitability of bank lending?

(5) Does current P2P lending really promote financial inclusion?

Indonesia: P2P lending comparison with conventional loans and GDP

Source: OJK, Wang Dai Zhi Jia, BPS, DBS Bank, DBSVI

Indonesia: P2P outstanding loans

Source: OJK, DBS Bank, DBSVI

13,589

4,789

879

240

72

5

- 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

GDP

Industry Loans

SMEs Credit & Micro, Small

BBRI's Micro Loans

Credit Card

P2P lending

Rp tr

2,186 2,579 3,074

3,905 4,764 378

424 470

568

652

2,564 3,003

3,544

4,473

5,416

-

1,000

2,000

3,000

4,000

5,000

6,000

Dec-17 Jan-18 Feb-18 Mar-18 Apr-18

Java Outer Java Total

Rp bn

Industry Focus

Indonesian Banks

Page 33

What is the potential for P2P lending? Taking China as a case study, P2P lending can grow to as much as 1.5% of a country’s GDP. With Indonesia’s nominal GDP expected to grow at 9% until 2030, using the same P2P lending to GDP ratio, the Indonesian P2P lending industry can grow into a Rp600tr (USD43bn) market vs Rp5tr currently. China’s P2P lending first appeared in 2007 to provide financing to the vast number of individuals and small enterprises that were underserved by the traditional banking system. It also provided wealth management solutions for investors using online technology as channels for credit risk management. P2P loans in China expanded by 128% compounded annual growth rate (CAGR) during 2014-17. By 2017, total P2P loans outstanding reached Rmb1.2tn with annual transaction volume hitting Rmb2.8tn. The scale of P2P loans was equal to 1.5% of GDP and 0.7% of total loans. With the ongoing digital revolution, Indonesia’s P2P lending market could take off, similar to China. What is the target market for P2P lending in Indonesia? P2P lending products currently mostly target MSME or personal loans. The productive loans range from Rp5mn to Rp2bn with maturity up to 2 years and are not collateralised. The personal loans are typically payroll loans and payday loans ranging from 7 days to 30 days. The main value propositions for these products are fast underwriting processes, simpler procedures, smaller personal loans, and flexibility of tenor and collateral. The underserved “missing middle”. P2P lenders believe that the “missing middle“segment is underserved by existing players. This segment consists of SMEs with monthly revenue of Rp10-100mn needing loans for working capital, or loans to mitigate cash flow volatility. This segment is underserved due to limited assets for banks’ collateral requirements, lack of credit history and audited financial statements.

P2P lending comparison - Indonesia and China (2017)

Source: OJK, Wang Dai Zhi Jia, DBS Bank, DBSVI

P2P lending comparison - Indonesia and China (2017)

Source: OJK, Wang Dai Zhi Jia, DBS Bank, DBSVI

Indonesia: Lending segments based on ticket size

Product Ticket Size

BBRI

KUR Micro Below Rp25mn

KUR Retail Below 200mn in units Below 500mn in branches

Kupedes Below 200mn

P2P Lending Rp5mn-2bn

BBRI Small Commercial Below Rp5bn

BBCA SME Below Rp10bn

PNBN SME Below Rp75bn, mostly Rp5-10bn

BDMN SME Targeting segment with ticket size +/- Rp5bn

BMRI SME Below Rp20bn

BBRI Medium Below Rp50bn Source: Companies, DBS Bank, DBSVI

12,283

1,002

27,206

353 184

0.40

China Indonesia

GDP Loans P2P Lending

USD Bn

1.5%

0.04%

0.7%

0.1%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

China Indonesia

P2P Lending / GDP P2P Lending / Loans

38x

6x

Industry Focus

Indonesian Banks

Page 34

Indonesia: Supply-demand mismatch between the “missing middle” and banks

Source: Oliver Wyman, Modalku

Indonesia: Major P2P productive loans compared with BRI

Loan Size Up to Rp200mn Rp5mn-Rp2bn Rp10mn-Rp1bn Rp30mn-Rp2.5bn

Tenor 1-3 years 3-24 months 6-24 months 1-6 months

Payment Interest + principal Interest + principal Interest + principal Interest only

Location All regions Greater Jakarta + Bandung +

Surabaya Greater Jakarta Greater Jakarta

Requirements for productive loans

Business has been running for minimum 1 year

Business has been running for minimum 1 year

Business has been running for at least 2 years

Invoice

Collateral-asset certificate Monthly sales minimum Rp20mn/month

Have relationship with big institutions

Age 21 s/d 60 years Have business revenue documented in bank accounts Personal guarantee

Personal guarantee

Have BRI account Aged 21 s/d 60 years

Rates 18%-25% 12.7%-40.6% 26%-45% 12%-20%

Loan Outstanding

Rp185,600bn Rp1,670bn Rp170bn Rp682bn

Loan balance in 1Q18 Disbursement Per 2Q18 Disbursement Per April 2018

N/A

Source: OJK, DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 35

Indonesia: P2P lending players

Source: Daily Social

Are P2P loans more or less risky than bank loans? Yes, P2P mostly targets market segments that don’t really meet banks’ risk appetite. But the big question is whether P2P players can manage their risks. P2P players believe that technology can overcome traditional banks’ problems in serving the unbanked population by providing better credit scoring using big data, faster underwriting process and better operating systems. Technology is expected to improve and help manage risks that banks might not be able to control. Based on data from OJK, non-performing loans (NPL) of P2P lenders are currently at 0.5% and special mention loans (SML) at 0.8%. Although these numbers are significantly smaller than the banks’ NPL and SML, it is not conclusive because credit costs and write-off data for P2Ps are still unavailable.

Indonesia: P2P lending asset quality indicators

Source: OJK, DBS Bank, DBSVI

In the developed world, does P2P lending affect banks? Surprisingly, P2P lending increases banks’ profitability instead of disrupting them. This is based on a study done in 2016 using a sample from the largest and oldest P2P lenders in Germany, Auxmoney, and 105 banks in Germany. The study had 4 important findings: (1) P2P loans are riskier than bank loans, making bank loan

portfolios less risky.

(2) P2P lending yields are higher due to higher risk, but the risk-adjusted interest rates for P2P is still lower than banks.

(3) Banks’ lending volume is negatively correlated with P2P lending volume, but the average profitability of bank lending goes up.

(4) Price elasticity of demand is higher with P2P loans than with bank loans.

Auxmoney is the oldest and largest P2P lending platform in Germany. According to its website, from the day it started business in 2007 until late 2015 the total volume of credit provided was EUR 219 million in 39,090 projects, with an average nominal interest rate of 9.65%. The paper was titled “How Does P2P lending Fit Into the Consumer Credit Market” and was published in Dec 2016.

3.9% 4.1%

1.6%

0.8% 0.8%1.0%

1.3%

0.8%

0.6% 0.5%0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Dec-17 Jan-18 Feb-18 Mar-18 Apr-18

Special Mentions NPL

Industry Focus

Indonesian Banks

Page 36

Does P2P lending really promote financial inclusion? Geographically, loan disbursements are still concentrated in the Java area which generates 50% of the Indonesian economy. Our checks also reveal that most fintechs still limit their lending to the Greater Jakarta area. However, it is too early to judge whether fintechs are effective in promoting financial inclusion, or merely gaining market share from conventional banks. Even in Java, many people don’t have access to lending. There is plenty of room for growth. Economically, we can safely conclude that P2P serves lower segment of customers compared to banks. Based on data from OJK, the average ticket size of P2P loans is at Rp87mn, which is about the same with BRI’s micro loans. However, unlike Kupedes, most P2P loans don’t require collateral. Indonesia: P2P - number of lenders

Source: OJK, DBS Bank, DBSVI

Indonesia: P2P - number of borrowers

Source: OJK, DBS Bank, DBSVI

Indonesia: P2P - average loan size

Source: OJK, DBS Bank, DBSVI

76 88 102 115 128

24 26

25 29

32

1 2

2 2

2

-

20

40

60

80

100

120

140

160

180

Dec-17 Jan-18 Feb-18 Mar-18 Apr-18

Java Outer Java Outer Indonesia

Thousand People

237 301 502

928

1,323

22 29

45

105

154

-

200

400

600

800

1,000

1,200

1,400

1,600

Dec-17 Jan-18 Feb-18 Mar-18 Apr-18

Java Outer Java

T housand People

184.3

88.5

56.5 75.8

87.4

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

Dec-17 Jan-18 Feb-18 Mar-18 Apr-18

Average Loan Size

Rp mn

Industry Focus

Indonesian Banks

Page 37

Conclusion, recommendation, and valuation

The digital trend is unstoppable. It will provide huge opportunities in payments and lending by 2030. The major digital trend in Indonesia is the rapid growth of smartphone adoption. This is propelled by cheap smartphones, affordable mobile data, contagion effect of social media, better education and increasing e-commerce transactions. We estimate the growing digital ecosystem to provide potentially over Rp3,000tr of e-money float, Rp47tr revenue from fee income and Rp600tr new SME loans for P2P lending.

Digital technology can also significantly improve banks’ profitability by reducing operating costs, which are a big chunk of banks’ cost structure. Every 1ppt reduction in cost-to-income from automation could mean a 2.5% improvement of pre-tax profit for the industry.

The distruptors are coming. And they will continue to do so. Fintechs are mushrooming and growing in size. There are now over 190 fintech startups in Indonesia. Most of them are either payment fintechs or P2P lending fintechs. These fintechs have also been able to attract USD176.75mn of funds based on a report from Daily Social. Currently, fintechs are faster in deploying new technology to provide better customer experience. In the future, fintechs could have more touchpoints with customers and intercept banks direct access to them.

Banks are gearing up for disruption…. Indonesian banks have digital products that include basic internet banking, artificial intelligence (AI) chatbot and blockchain trade finance. However, not all banks are digitalised from the core. This may result in glitches that diminish credibility and waste advertising budgets. Bank Central Asia (BBCA) is the most digital-ready given its complete product range, reliability and customer

segment. Bank Mandiri (BMRI) and Bank Negara Indonesia (BBNI) continue to improve their digital products. Bank Tabungan Pensiunan Nasional (BTPN) has its Jenius and BTPN WOW.

..and collaborating with e-commerce and fintechs. Fintechs and banks have their own strengths and will improve by collaborating. Banks are opening up their application programming interfaces (API) to improve connectivity with e-commerce and fintech players. BBCA is even collaborating with Go-Pay, the leading server-based electronic money, rather than going all out with its own e-money service, Sakuku. Collaborations between fintech and banks will reshape the financial industry landscape and provide mutual benefits for all. Payment fintechs will serve as the last mile for digital payments and dominate the e-money payment industry. They will increase banks’ liquidity and broaden money supply. There is a potential overlap with banks’ e-money products, with transaction value of 0.2% of ATM/debit card. P2P fintechs mostly target non-collateralised SME loans. There are still potential overlaps, especially in banks’ consumer loan products such as non-collateralised loans and credit cards.

BBCA and BMRI as stock pick. We believe BBCA is the most ready in embracing the digital era due to its digital product completeness, reliability, and the right customer segment. BMRI also continue to improve its digital products which continue to gain traction, especially with the Mandiri Online continues improvement. Smaller banks who are agressively transforming into digital bank is BTPN. Operating costs are a huge chunk of BTPN’s cost structure. We believe the success of its digital transformation can reduce these costs significantly thus provide huge upsde to its equity value.

Industry Focus

Indonesian Banks

Page 38

Indonesia: Peer comparison

Banking Group Market

cap Price Target Price Rating PE (x) CAGR PBV (x)

ROE (%)

Net div (%)

(US$bn) (Rp/s) (Rp/s) FY17A FY18F FY19F ^ (%) FY17A FY18F FY19F FY18F FY18F

Bank Central Asia 40,765 22,975 27,000 BUY 26.8x 23.7x 20.9x 14.4% 4.9x 4.2x 3.6x 20.4% 0.8%

Bank Danamon 4,225 6,125 6,300 HOLD 18.3x 15.6x 11.8x 28.9% 1.6x 1.5x 1.4x 7.6% 1.3%

Bank Mandiri 24,684 7,350 9,400 BUY 23.7x 15.0x 13.1x 18.3% 2.2x 2.0x 1.8x 10.3% 2.5%

Bank Negara Indonesia 11,340 8,450 8,500 HOLD 12.6x 10.5x 9.2x 13.4% 1.6x 1.5x 1.3x 13.9% 1.9%

Bank Tabungan Negara 2,332 3,060 3,600 HOLD 12.1x 10.5x 8.9x 10.9% 1.7x 1.5x 1.3x 15.9% 2.0%

Bank Tabungan Pensiunan Nasional 1,648 3,920 4,200 BUY 10.9x 15.6x 10.5x 38.3% 1.2x 1.2x 1.0x 11.9% 0.0%

Panin Bank 1,499 865 1,300 BUY 8.4x 8.4x 6.6x 20.1% 0.6x 0.6x 0.6x 8.0% 0.0%

Weighted average 20.6x 17.0x 14.7x 3.1x 2.7x 2.4x 16.7% 1.6%

Simple average 15.9x 14.0x 11.5x 2.1x 1.8x 1.6x 13.5% 1.3%

Weighted average (ex BBCA) 17.2x 13.3x 11.4x 2.1x 1.9x 1.7x 14.7% 2.1%

Simple average (ex BBCA) 14.4x 12.7x 10.2x 1.6x 1.5x 1.3x 12.5% 1.4%

^ Refers to 2-year EPS CAGR for FY17-19F

* Based on Bloomberg consensus

Source: OJK, DBS Bank, DBSVI

Closing price as of 7 Jun 2018 Indonesian banks: PBV range and position

Source: Bloomberg Finance L.P., DBS Bank, DBSVI

0

0.5

1

1.5

2

2.5

3

3.5

4

Sector BMRI BBRI BBCA BBNI BDMN BBTN BTPN PNBN

-2SD -1SD +1SD +2SD PBV

Industry Focus

Indonesian Banks

Page 39

Indonesian Banks: Rolling forward P/BV bands (5-year)

BBCA: Rolling forward P/BV band

BDMN: Rolling forward P/BV band

BMRI: Rolling forward P/BV band

BBNI: Rolling forward P/BV band

PNBN: Rolling forward P/BV band

BBTN Rolling forward P/BV band

BTPN: Rolling forward P/BV band

Source: Companies, Bloomberg Finance L.P., DBS Bank, DBSVI

Mean, 3.29

+1SD, 3.63

+2SD, 3.96

-1SD, 2.96

-2SD, 2.63

2.0

2.5

3.0

3.5

4.0

4.5

5.0

12 13 14 15 16 17 18

P BV (X)

Mean, 1.30

+1SD, 1.64

+2SD, 1.98

-1SD, 0.96

-2SD, 0.63

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

12 13 14 15 16 17 18

P BV (X)

Mean, 1.91

+1SD, 2.23

+2SD, 2.55

-1SD, 1.59

-2SD, 1.27

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

12 13 14 15 16 17 18

PBV (X)

Mean, 1.36

+1SD, 1.59

+2SD, 1.83

-1SD, 1.13

-2SD, 0.90

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

12 13 14 15 16 17 18

PBV (X)

Mean, 0.81

+1SD, 1.00

+2SD, 1.19

-1SD, 0.62

-2SD, 0.43

-0.1

0.1

0.3

0.5

0.7

0.9

1.1

1.3

1.5

12 13 14 15 16 17 18

PBV (X)

Mean, 0.99

+1STD 1.21

+2STD 1.43

-1 STD 0.76

-2 STD 0.54 0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

12 13 14 15 16 17 18

PBV (X)

Mean, 1.68

+1SD, 2.45

+2SD, 3.22

-1SD, 0.91

-2SD, 0.14 0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

12 13 14 15 16 17 18

PBV (X)

Industry Focus

Indonesian Banks

Page 40

BMRI: ROE decomposition

BMRI 2015 2016 2017 2018E 2019E 2020E

Interest Income (Yield on Advances) 8.1% 7.9% 7.3% 7.2% 7.6% 7.6%

Interest Expenses (Cost of Funds) 3.0% 2.6% 2.5% 2.4% 2.5% 2.5%

Net Interest Income 5.1% 5.3% 4.8% 4.9% 5.1% 5.1%

Fees & Other Income incl Treasury 2.4% 2.3% 2.4% 2.4% 2.4% 2.4%

Total Operating Income 7.6% 7.6% 7.2% 7.3% 7.5% 7.5%

Operating Profit 4.0% 4.2% 3.8% 3.8% 4.0% 4.0%

Pre-Provision Operating Profit 4.0% 4.2% 3.8% 3.8% 4.0% 4.0%

Provisions 1.4% 2.5% 1.5% 1.3% 1.2% 1.3%

Post-Provision Pre-Tax Operating Profit 3.0% 1.9% 2.6% 2.8% 3.0% 3.1%

Taxes -0.6% -0.4% -0.5% -0.6% -0.6% -0.6%

Return on Assets 2.3% 1.4% 2.0% 2.1% 2.3% 2.4%

Leverage (x) 8.0 7.3 6.8 6.8 6.9 6.9

Return on Equity 18.5% 10.3% 13.7% 14.5% 16.2% 16.2%

Source: Company, DBS Bank, DBSVI BTPN: ROE decomposition

BTPN 2015 2016 2017 2018E 2019E 2020E

Interest Income (Yield on Advances) 16.7% 15.9% 15.0% 14.7% 15.4% 15.1%

Interest Expenses (Cost of Funds) 6.8% 5.6% 4.8% 5.0% 5.6% 5.6%

Net Interest Income 9.9% 10.3% 10.2% 9.8% 9.9% 9.5%

Fees & Other Income incl Treasury 0.9% 0.8% 0.7% 0.7% 1.0% 1.0%

Total Operating Income 10.8% 11.1% 10.9% 10.5% 10.9% 10.4%

Operating Profit 4.2% 4.0% 3.3% 4.0% 4.6% 4.5%

Pre-Provision Operating Profit 4.2% 4.0% 3.3% 4.0% 4.6% 4.5%

Provisions 1.0% 1.0% 1.2% 1.0% 1.0% 1.0%

Post-Provision Pre-Tax Operating Profit 3.1% 3.0% 2.1% 2.9% 3.5% 3.5%

Taxes -0.9% -0.8% -0.6% -0.8% -0.9% -0.9%

Return on Assets 2.2% 2.0% 1.3% 1.9% 2.2% 2.2%

Leverage (x) 6.1 5.9 5.8 5.5 5.3 5.3

Return on Equity 13.4% 11.9% 7.5% 10.3% 11.9% 11.5%

Source: Company, DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 41

BBNI: ROE decomposition

BBNI 2015 2016 2017 2018E 2019E 2020E

Interest Income (Yield on Advances) 8.0% 7.9% 7.3% 7.2% 7.3% 7.3%

Interest Expenses (Cost of Funds) 2.5% 2.5% 2.5% 2.4% 2.5% 2.5%

Net Interest Income 5.5% 5.4% 4.9% 4.8% 4.8% 4.8%

Fees & Other Income incl Treasury 1.6% 1.5% 1.5% 1.5% 1.5% 1.5%

Total Operating Income 7.1% 6.9% 6.4% 6.3% 6.3% 6.3%

Operating Profit 3.0% 2.7% 2.4% 2.5% 2.6% 2.7%

Pre-Provision Operating Profit 3.7% 3.7% 3.4% 3.4% 3.5% 3.6%

Provisions 1.2% 1.2% 0.8% 0.8% 0.8% 0.9%

Post-Provision Pre-Tax Operating Profit 2.5% 2.6% 2.6% 2.6% 2.7% 2.7%

Taxes -0.5% -0.5% -0.5% -0.5% -0.5% -0.5%

Return on Assets 2.0% 2.0% 2.1% 2.1% 2.1% 2.1%

Leverage (x) 6.8 6.8 7.1 7.2 7.2 7.2

Return on Equity 13.4% 13.9% 14.7% 14.9% 15.2% 15.4%

Source: Company, DBS Bank, DBSVI BBCA: ROE decomposition

BBCA 2015 2016 2017 2018E 2019E 2020E

Interest Income (Yield on Advances) 8.2% 7.9% 7.5% 7.5% 7.6% 7.6%

Interest Expenses (Cost of Funds) 2.0% 1.6% 1.7% 1.6% 1.8% 1.8%

Net Interest Income 6.3% 6.3% 5.9% 5.8% 5.8% 5.8%

Fees & Other Income incl Treasury 1.7% 1.8% 1.9% 1.9% 1.9% 1.9%

Total Operating Income 8.0% 8.1% 7.7% 7.7% 7.7% 7.7%

Operating Profit 4.2% 4.4% 4.2% 4.2% 4.3% 4.4%

Pre-Provision Operating Profit 4.6% 4.8% 4.5% 4.6% 4.7% 4.8%

Provisions 0.6% 0.7% 0.4% 0.4% 0.4% 0.4%

Post-Provision Pre-Tax Operating Profit 4.0% 4.1% 4.1% 4.2% 4.3% 4.4%

Taxes -0.8% -0.8% -0.8% -0.8% -0.9% -0.9%

Return on Assets 3.1% 3.2% 3.3% 3.3% 3.5% 3.5%

Leverage (x) 6.9 6.3 5.9 5.6 5.4 5.3

Return on Equity 21.6% 20.4% 19.1% 18.6% 18.5% 18.7%

Source: Company, DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 42

BBTN: ROE decomposition

BBTN 2015 2016 2017 2018E 2019E 2020E

Interest Income (Yield on Advances) 9.5% 8.9% 8.1% 8.1% 8.3% 8.4%

Interest Expenses (Cost of Funds) 5.2% 4.7% 4.2% 4.2% 4.6% 4.8%

Net Interest Income 4.3% 4.2% 3.9% 3.9% 3.7% 3.6%

Fees & Other Income incl Treasury 0.6% 0.6% 0.6% 0.6% 0.6% 0.6%

Total Operating Income 4.9% 4.8% 4.5% 4.4% 4.3% 4.2%

Operating Profit 2.1% 2.0% 1.9% 1.9% 1.8% 1.7%

Pre-Provision Operating Profit 2.2% 2.1% 2.0% 1.9% 1.8% 1.7%

Provisions 0.6% 0.4% 0.4% 0.3% 0.4% 0.4%

Post-Provision Pre-Tax Operating Profit 1.6% 1.7% 1.6% 1.6% 1.4% 1.3%

Taxes -0.4% -0.4% -0.4% -0.3% -0.3% -0.3%

Return on Assets 1.2% 1.4% 1.3% 1.2% 1.1% 1.0%

Leverage (x) 12.1 11.7 11.7 12.5 13.0 13.4

Return on Equity 14.2% 15.9% 14.8% 15.2% 14.3% 13.7%

Source: Company, DBS Bank, DBSVI BDMN: ROE decomposition

BDMN 2015 2016 2017 2018E 2019E 2020E

Interest Income (Yield on Advances) 11.7% 11.4% 11.4% 12.0% 12.0% 11.9%

Interest Expenses (Cost of Funds) 4.6% 3.8% 3.4% 3.7% 3.7% 3.7%

Net Interest Income 7.1% 7.6% 8.0% 8.3% 8.3% 8.2%

Fees & Other Income incl Treasury 2.3% 2.5% 2.5% 2.7% 2.8% 2.8%

Total Operating Income 9.4% 10.1% 10.5% 10.9% 11.1% 11.0%

Operating Profit 4.6% 5.1% 5.2% 5.9% 6.2% 6.4%

Pre-Provision Operating Profit 4.7% 5.2% 5.2% 5.9% 6.2% 6.4%

Provisions 2.6% 2.5% 2.0% 2.0% 1.9% 1.8%

Post-Provision Pre-Tax Operating Profit 1.7% 2.4% 3.0% 3.7% 4.2% 4.4%

Taxes -0.4% -0.9% -0.9% -1.1% -1.2% -1.3%

Return on Assets 1.2% 1.5% 2.1% 2.6% 3.0% 3.1%

Leverage (x) 5.8 5.2 4.7 4.6 4.6 4.7

Return on Equity 7.2% 7.6% 9.9% 12.0% 13.8% 14.7%

Source: Company, DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 43

PNBN: ROE decomposition

PNBN 2015 2016 2017 2018E 2019E 2020E

Interest Income (Yield on Advances) 9.2% 8.8% 8.3% 8.0% 8.0% 7.9%

Interest Expenses (Cost of Funds) 5.5% 4.7% 4.3% 4.2% 4.2% 4.3%

Net Interest Income 3.8% 4.1% 4.0% 3.8% 3.8% 3.6%

Fees & Other Income incl Treasury 0.8% 0.9% 0.9% 0.9% 0.9% 0.9%

Total Operating Income 4.6% 5.0% 4.9% 4.7% 4.7% 4.5%

Operating Profit 2.1% 2.6% 2.6% 2.4% 2.4% 2.3%

Pre-Provision Operating Profit 2.1% 2.7% 2.6% 2.4% 2.4% 2.4%

Provisions 0.8% 1.1% 1.2% 0.9% 0.8% 0.7%

Post-Provision Pre-Tax Operating Profit 1.4% 1.7% 1.4% 1.5% 1.7% 1.6%

Taxes 0.1% 0.1% -0.2% -0.2% -0.3% -0.2%

Return on Assets 0.8% 1.3% 1.2% 1.4% 1.5% 1.5%

Leverage (x) 7.2 6.4 6.3 6.2 6.0 5.8

Return on Equity 5.7% 8.0% 7.4% 8.6% 9.0% 8.7%

Source: Company, DBS Bank, DBSVI

Industry Focus

Indonesian Banks

Page 44

DBS Bank, DBSVI recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 8 Jun 2018 16:29:19 (WIB) Dissemination Date: 8 Jun 2018 19:24:28 (WIB)

Sources for all charts and tables are DBS Bank, DBSVI unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). This report is solely intended for the clients of DBS Bank

Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or

duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia

(''DBSVI'').

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,

the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other

factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or

warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without

notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific

investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees

only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial

advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit)

arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not

to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons

associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have

positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and

other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can

be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.

The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may

not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to

update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned

schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual

results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Industry Focus

Indonesian Banks

Page 45

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the

commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public

offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage

in market-making.

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her

compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)

primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the

issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real

estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the

management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or

his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of

research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment

banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment

banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the

DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates do not

have a proprietary position in the securities recommended in this report as of 30 Apr 2018.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research

Report.

Compensation for investment banking services:

3. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for

investment banking services from Bank Rakyat Indonesia and Bank Tabungan Negara, as of 30 Apr 2018.

4. DBS Bank Ltd., DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for

Bank Rakyat Indonesia and Bank Tabungan Negara in the past 12 months, as of 30 Apr 2018

5. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a

manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further

information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document

should contact DBSVUSA exclusively.

Disclosure of previous investment recommendation produced:

6. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other

investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12

months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his

spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Industry Focus

Indonesian Banks

Page 46

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”). DBS holds Australian Financial Services Licence no. 475946. DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. DBSVS is regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report has been prepared by a person(s) who is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities in Hong Kong pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

This report has been prepared by an entity(ies) which is not licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This report is being distributed in Hong Kong and is attributable to DBS Vickers Hong Kong Limited, a licensed corporation licensed by the Hong Kong Securities and Futures Commission to carry on the regulated activity of advising on securities pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at equityresearch@dbs.com.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No.

198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

Industry Focus

Indonesian Banks

Page 47

United Kingdom

This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai International Financial Centre

This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United Arab Emirates

This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States This report was prepared by DBS Bank Ltd, PT DBS Vickers Sekuritas Indonesia (''DBSVI''). DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Industry Focus

Indonesian Banks

Page 48

DBS Regional Research Offices HONG KONG DBS Vickers (Hong Kong) Ltd Contact: Paul Yong 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: equityresearch@dbs.com Participant of the Stock Exchange of Hong Kong

MALAYSIA AllianceDBS Research Sdn Bhd Contact: Wong Ming Tek (128540 U) 19th Floor, Menara Multi-Purpose, Capital Square, 8 Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia. Tel.: 603 2604 3333 Fax: 603 2604 3921 e-mail: general@alliancedbs.com

SINGAPORE DBS Bank Ltd Contact: Janice Chua 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: equityresearch@dbs.com Company Regn. No. 196800306E

INDONESIA PT DBS Vickers Sekuritas (Indonesia) Contact: Maynard Priajaya Arif DBS Bank Tower Ciputra World 1, 32/F Jl. Prof. Dr. Satrio Kav. 3-5 Jakarta 12940, Indonesia Tel: 62 21 3003 4900 Fax: 6221 3003 4943 e-mail: research@id.dbsvickers.com

THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand 10330 Tel. 66 2 857 7831 Fax: 66 2 658 1269 e-mail: research@th.dbs.com Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand