The bank’s strong track record of leadership and broader optimism about the future of digital banking in Indonesia have combined to raise investor expectations.
Bank Jago is an Indonesian bank that mainly offers digital banking services. It is also one of the most valuable publicly traded companies in Indonesia, with a market capitalization at the time of about $10 billion. In early 2022, when the stock was trading at its peak before the stock market began to resize itself, that valuation was considerably higher.
At first glance, this is a bit puzzling. According to the Annual Report 2021Last year, Bank Jago had 12.3 trillion Indonesian rupiahs (about $823 million) in assets, including 5.4 trillion in loans. At 3.7 trillion, its deposit base is also relatively small. The company’s pretax operating profit was less than $1 million. With such slim margins and only a few hundred million dollars in loans and deposits on the books, why does the market think Bank Jago is worth billions?
One reason is leadership and its track record. In 2019, banker Jerry Ng and investor Patrick Walujo, co-founder of Northstar Group, took a 51 percent majority stake in what was then Bank Artos, a relatively small company based in Bandung. Ng is known for helping PT Bank Tabungan Pensiunan Nasional grow rapidly, including through the development of Jenius, one of Indonesia’s leading digital banking platforms.
Walujo’s Northstar is a big investor in the region and has ties to US private equity giant TPG. Northstar was an early investor in Gojek, Indonesia’s most successful and ubiquitous consumer-facing app. So when the duo took over a small bank in Bandung, there were expectations that it was just the first step in a major move for Indonesia’s digital banking scene.
Digital banking is still finding its place in the region, with Singapore and Malaysia recently awarding the first of its kind digital banking licenses to heavyweights such as Sea, Grab and Singtel after a competitive application process. As I noted when writing about those developments, the scope of digital banking for reach unbanked populations it is much higher in Indonesia than in Singapore or Malaysia. If done right, a well-run digital bank in Indonesia has a huge advantage.
Bank Jago’s potential increased when Gojek, as many expected, acquired 22 percent of the bank’s shares in 2020. With Gojek as a strategic partner, Bank Jago will be well positioned to provide financial and banking services to the app’s millions of users. The alliance with Gojek was instrumental in convincing the market that great things await Bank Jago. A few months later, GIC, one of Singapore’s sovereign wealth funds, acquired a 9 percent stake and the stock began to shoot up.
This creates an interesting dynamic. Bank Jago’s huge market valuation is based on its growth potential as the banking/finance arm of Gojek, another publicly traded company with a huge market valuation which is also mainly based on future growth prospects (as we saw when made public, Gojek is yet to make a profit). What Bank Jago’s valuation tells us is that many investors are betting big on forecasts about the behemoth that Indonesia’s digital economy will one day be, and the pivotal role Bank Jago and Gojek are expected to play in that ecosystem.
But what is Bank Jago doing right now? Well, it made a small profit last year when its loan portfolio increased massively from IDR 908 billion to 5.4 trillion. We should expect to see it continue to grow aggressively in the years to come. The composition of the loan portfolio is also interesting. 79 percent of outstanding loans (including Sharia loans) in 2021 were made to households in the form of consumer credit or working capital for retail, hotel and restaurant businesses.
This ties in closely with what Bank Jago’s leadership has said it will do, which is to provide credit to small and medium-sized retail and restaurant businesses and consumers, the same kind of people who use the Gojek app every day. Bank Jago is in a unique advantageous position to identify customers in these areas and market the most suitable products to them.
This is also a relatively neglected segment of the Indonesian economy. If you look at the loan portfolios of most of the big Indonesian banks, consumer credit and small business loans generally do not represent a large part of their lending activity. Through Gojek, Bank Jago is well poised to fill this gap by targeting and providing these services to small businesses and consumers who would otherwise have difficulty accessing them. If strong underwriting standards are followed, this could be a huge net advantage for both the bank and the economy as a whole. Time will tell if this ultimately justifies the sky-high valuation.