Banks Are Priced on Price-to-Book, Not Price-to-Earnings. Here's How PBV and ROE Work Together for IDX Bank Stocks
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5 min read
Bank Central Asia (BBCA) traded at about 2.6 times its book value in early June 2026. Bank Negara Indonesia (BBNI) traded at 0.88 times. Both are big, listed Indonesian banks. Why would the market price them so differently?
The answer sits in two numbers that go together: PBV and ROE. This post explains both in plain words, then shows how they connect. It does not say any bank is cheap or expensive. It shows the link, so you can read the numbers yourself.
Most people learn the price-to-earnings ratio (PER) first. It is the share price divided by profit per share. Our post on PE ratios across IDX sectors covers it.
Price-to-book value (PBV) is different. It is the share price divided by book value per share. Book value is what is left if a company adds up everything it owns and subtracts everything it owes. It is the shareholders' equity on the balance sheet.
For a factory or a software firm, book value says little. Its worth sits in brands, machines and plans.
A bank is different. A bank's main "product" is money. Its assets are loans and bonds, and they are written on the balance sheet at values close to what they are worth. So equity is a fair yardstick of what the owners have put in.
That is why analysts reach for PBV first with banks.
Return on equity (ROE) is yearly profit divided by shareholders' equity. It answers one question: for every Rp100 the owners have tied up in this bank, how many rupiah of profit did it earn this year?
If a bank has Rp100 of equity and earns Rp20 in a year, its ROE is 20%.
ROE is the missing half of the story. A bank sitting on Rp100 of equity is worth more if it turns that equity into Rp25 a year than if it turns it into Rp10.
Here is the idea in one line. A bank that earns more on its equity deserves a higher PBV.
Finance textbooks write this as a simple formula, the "justified" PBV. It comes from the constant-growth dividend model:
Two things follow from it:
This is a teaching tool, not a price target. The inputs r and g are guesses, and small changes in them move the answer a lot.
Let us use round, illustrative inputs: r = 12% and g = 5%. These are not forecasts for any bank. We feed in four ROE levels.
| ROE | Justified PBV |
|---|---|
| 25% | 2.9x |
| 19% | 2.0x |
| 18% | 1.9x |
| 14% | 1.3x |
Each line is (ROE − 5%) ÷ (12% − 5%), rounded. The pattern is the lesson: higher ROE, higher justified PBV. A 25% ROE bank earns about twice the multiple of a 14% ROE bank under the same assumptions.
Now compare the shape above with what the market showed. These are reported figures from Indonesian media, taken from search summaries because the original pages could not be opened in our environment. We retrieved them on 6 October 2026.
| Bank | ROE, March 2026 | PBV | PBV date |
|---|---|---|---|
| BBCA | 25.1% | 2.63x | 3 June 2026 |
| BMRI | about 19% | 1.38x | 15 June 2026 |
| BBRI | 18.4% | 1.34x | 15 June 2026 |
| BBNI | 13.6% | 0.88x | 15 June 2026 |
ROE comes from Kontan's report on first-quarter 2026 results. The June PBV figures come from Bisnis.com (15 June) and a market wrap for BBCA (3 June). The PBV dates differ, so treat the table as a rough snapshot, not an exact side by side.
The order lines up. The bank with the highest ROE has the highest PBV. The bank with the lowest ROE has the lowest.
It does not line up perfectly, and it should not. The market also weighs growth, asset quality, how much of a loan book might go bad, dividends and mood. Prices also move every day, so these PBVs are already out of date.
BBNI's 0.88x shows the case that confuses beginners. A PBV below 1 means the market values the bank at less than its accounting equity.
That is not a bargain stamp. It can mean investors expect weaker profit, or doubt that the loans on the books are worth what the books say. It can also be temporary.
Read PBV below 1 as a question to investigate, not an answer.
Here is a short routine you can run for any bank:
The aim is to understand the market's reasoning, not to beat it.
Open the Explore screener and compare the big IDX banks side by side, then open each bank's page, such as BBCA, to see its price history. Put each bank's ROE next to its PBV and see whether the pattern above holds today.
To see how rates affect bank profit, read how net interest margin works, and keep an eye on the macro dashboard for the BI Rate.