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Shifting Sharia

In response to Powell's 'higher for longer' statement, global financial markets have been on edge, prompting central banks in emerging markets, including Indonesia, to strategically adopt similar measures.


The trend of rising interest rates has wide-ranging effects, with one significant area of impact being mortgage lending.


Sharia banks, in particular, are experiencing benefits due to their distinctive approach. Unlike conventional banks, which frequently employ a combination of fixed and floating rates, Sharia banks, primarily utilize flat rates.


This unique characteristic provides borrowers with stability and predictability, a stark contrast to the volatility seen in the conventional banking sector- which typically offer fixed rates for a limited period, after which the rates transition to floating.


Source: Industry


In contrast, Sharia banks maintain a fixed rate structure throughout the mortgage tenure, offering borrowers a more stable and appealing option. As the largest Sharia bank in Indonesia, Bank Syariah Indonesia (BRIS) naturally stands as the most advantaged compared to other Sharia banks.


Fixed Rate Structure by Sharia Bank

Source: BSI


Moreover, BRIS stands out with a manageable LDR of less than 90%. This prudent approach to managing their assets indicates a lower risk profile, contributing to the stability and reliability of the bank.



Also, the Wadiah system, a distinctive feature of Sharia banking, further enhances the stability of banks like BRIS.


Unlike conventional banks that pay interest on deposits, the Wadiah system allows BRIS to provide stability without participating in interest-based transactions. This unique approach contributes significantly to the stability of the bank's cost of funds.



As the Sharia system continues to strengthen within the country, recent surveys conducted by the BSI Institute in collaboration with the University of Indonesia reveal a rising preference for Sharia banking among the Indonesian population.


Presently, 59.7% of respondents favor Sharia banking services, while 65.1% prioritize Sharia aspects, albeit with consideration for profit levels. As awareness of the ethical and stable practices of Sharia banks grows, there is an increasing demand for these services, positioning institutions like BRIS for sustained growth.


In conclusion, as the largest Sharia bank in Indonesia, Bank BRIS is not just weathering the storm of global economic uncertainties but emerging as a strong competitor to conventional banks. So, y'all better watch out!


With competitive interest rates, stable financial products, and a commitment to ethical banking, BRIS is well-positioned to meet the evolving preferences of Indonesian consumers.


Considering the aforementioned factors, a BUY recommendation for BRIS seems prudent, with a TP of Rp2,540, implying a 2.7x 2024F PB ratio.






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