PT Bank CIMB Niaga Tbk (BNGA.JK) Q3 FY2025 Earnings Call Transcript & Summary

Very good afternoon, everyone, and welcome to CIMB Niaga Third Quarter 2025 Earnings Call. My name is Teguh, Investor Relations Head here at CIMB Niaga, and I will be your moderator for today's session. Joining us and presenting to you this afternoon are Ibu Lani Darmawan, our President Director and CEO; Lee Kai Kwong, our Strategy, Finance and SPAPM Director and CFO. Also present here to address questions during the Q&A session are Pak John Simon, our Treasury and Capital Market Director; Bapak Rusly Johannes, Business Banking Director; and also Pak Henky Sulistyo, our Risk Management Director. As usual, before we begin our session, please note that today's presentation may include forward-looking statements based on current management expectations. These are subject to risks and uncertainties, and the actual results may differ materially from those expressed or implied in this session. With that, I'm pleased to hand over the call to our CEO, Ibu Lani Darmawan, Ibu Lani, over to you.

Well, thank you, Teguh. Well, good afternoon and [Foreign Language], ladies and gentlemen. Thank you for attending our sessions. Today is to report -- our report for Q3 2025. Well, for the spirit of SBF, simpler, better, faster. So, let's go straight to our report. So Page 7, please, Teguh. Okay. So, I'm pleased to share our financial results for the first 9 months this year, reflecting continued resilience and our disciplines of execution amidst the challenging situations. This third quarter is a record quarterly profit for us with 9.9% Q-on-Q growth, leading to a positive 9 months profit growth in 2025. This performance was supported by a healthy loan growth of 4.6%, and a strong almost 11% growth in CASA. This shows effective funding strategies that we have. Operationally, we have recovered our quarterly performance supported by both revenue growth and discipline in cost management. Our CIR improved to 44.3%, below 45%, reinforcing our focus on efficiency and prudent expense management. ROE stood at 13.5%, slightly lower than last year, but remained solid given the higher capital base and ongoing investment in several of our growth initiatives. On asset quality-wise, COC actually increased to 1.28% in Q3, reflecting industry-wide pressure in consumer asset quality, particularly in mortgage and auto businesses. So year-to-date COC was 86 basis points or 0.86%. But despite all of this, our NPL ratio remains well managed at 1.98%, highlighting the strength of our risk management capabilities. Now, we continue to maintain sound capital position with a CAR of 24.7%, supported by strong organic capital generation. So overall, we are happy with our quarter 3 performance despite the challenging situations that we have. To the next page, [ Foreign Language ], I would like also to address some postponement of our Investor Day event, which originally scheduled for September this year. As many of you know, the situations in Indonesia during August and September was not really so conducive for us to hold a large public gathering. So for the safety and the well-being of our investors, our partners, as well as our staff, we always been -- which has always been our top priority. We sincerely apologize for any conveniences that this one caused. I truly appreciate your understanding and your continued support on the cancellation of our Investor Day in September. As we were unable to conduct the Investor Day, however, I would like to take this opportunity today to share with you our bank's Forward30 strategy or F30 strategy, which is our bank's long-term plan from this year 2025 to 2030. So, if you go to the next page. Now, before we share our Forward30, F30 strategy, let's take a moment to look back and how far we have come up. Over the past few years, under the Forward23+ strategy or F23+ strategy or locally known as 5-pillar strategy from 2019 to 2024, we have delivered strong and consistent performance in the dynamic environment that we have for the past years. So, in 2019, our ROE stood at 9.7%. Then came the pandemic, as you all know, for almost 2 years, starting 2020 to 2021, when ROE dropped to 5.3% back then in 2020. But through discipline, agility and the teamwork, we rebounded sharply, reaching 12.6% in 2022, and 15% in 2023 before we start settling in with 14.3% last year, which is actually 530 basis points above our KBMI 3 peers, they show our significant progress compared to 2019. So, with these solid foundations, we are ready to take the next steps and embark on our next chapter based on what we achieved. So, on the next page, we look into the drivers for our Forward23+. Over the last 5 years of F '22 period, we have transformed with discipline and focus. Our retail loan share or portions rose from 39% to 45%. And our CASA ratio grew from 55% to 66%, and our CIR improved from 49% to 44% and our COC only nearly half with 0.8%. And digital penetration has also improved and increased from 24% to 71%, showing how technology is actually empowering our customers, as well as building a better customer experience. So this result reflects our 5-pillar strategy, as you can see from the right side, playing to our strength, expanding our CASA, maintaining our cost discipline, preserving capital and leveraging technology to drive the growth. On the next page, so the result of F23+, the previous long-term plan is actually very clear, both in progress as well as our positions in the industry. So CIMB Niaga now stands among the top performing KBMI 3 bank, and our ROE reached 13.5% in half 1 2025, which is actually well above our peers. CASA strengthened to CASA ratio 69%, and we maintained the best-in-class CIR of 45.5% in H1 2025. Our COC was on the 70 basis points, half that of our peers. And with a 24% CAR, we are very much well positioned for our future growth. These achievements give us the confidence and momentum to move forward with our new F30. Now, the next page. Now looking ahead, the banking landscape, as you all know, is changing very fast with rising competitions, macro uncertainties, and also a shifting on some of the customer behaviors. But these changes also bring opportunities for us. Indonesia's middle CASA is expanding rapidly with 30 million households expected to join the mass affluent segment in 2045. So, we are also seeing a new economic center emerge in second-tier city, Tier 2 cities, helping us reaching more communities and deepen our inclusions. In fact, we have been testing these Tier 2 cities market share penetration exercise for the past more than 1 year, resulting very positive, and there will definitely be extra additional opportunities in Tier 2 cities. And technology-wise, through some disruptions give us new ways to innovate and grow. We are approaching this future with confidence, believing that every disruptions will create a path for us to grow, including to continue to make our business and operations to be more efficient, as well as more resilient. Now, the next page. This is our Forward30, our new strategic plan and road map for sustainable growth over the next 6 years from 2025 to 2030. At the core of this plan is our purpose, advancing customers and society, meaning we will have our customers, our society and communities to fulfill their dreams [ Foreign Language ] practically. So, we will deliver this through our 4 key pillars, what we call 4 Cs. The first C is capital. We'll optimize our capital and resource allocations, making sure every investment drive sustainable and profitable growth. The second C is CASA, as always. We will deepen customer relationship by driving CASA growth through a stronger transaction-led engagement strategy. This is our backbone for our growth. The third C is cross-sell. We'll foster deeper trusted relationship, ensuring that we meet more of our customer needs of customer centricity in turn, growth -- for growth of income, as well as return. And finally, the C number 4 is actually capabilities. We will continue to strengthen our human capital, our operations and our digital platform to deliver a simpler, better, faster or SBF customer experience for both internal customer as well as external customer. So these 4 Cs, we believe, will help us to create more value to our stakeholders while advancing our purpose and delivering sustainable shareholder returns. The next page. Now under our F30 plan, we have set our aspirations to guide us toward our goals by 2030. We aim for ROE in the top quartile among our peers ranging between 16% to 17%, a reflection of strong capital efficiency and our discipline in growth. We are targeting a CASA ratio above 70% to ensure a solid and stable backbone funding base anchored in customer trust and engagement. We will continue to drive cost efficiency, aiming for CIR below 40% through digitalization, SBF, simpler, better, faster process simplifications and operational excellence. And finally, we are committed to maintain the risk discipline. We are balancing with profitable return with COC below 1.5%, reflecting our focus on balancing asset quality, as well as profitable return through responsible good return lending and which our focus will remain -- will be our retail and SME business. So with that, I will now hand over to our CFO, Pak KK, who will walk you through the detailed financials. Yes, KK.

[ Foreign Language ] And very good afternoon, ladies and gentlemen. Welcome once again to our results briefing. Like what Ibu Lani has said, right, I'm also quite pleased with our Q3 results. And I'll kick off with the liability side of our balance sheet, where we have seen a little bit more meaningful momentum built in deposits. As after a relatively flat performance in the first 7 to 8 months, market liquidity eased noticeably towards the end of the Q3. The actions taken by the Ministry of Finance and BI has created a much more favorable funding environment for us, and that translated into a robust deposit growth of 6.2% quarter-on-quarter, driving a 6.7% growth year-to-date, and overall expansion of 8.6% year-on-year. CASA continued its strong run, up another 4.5% quarter-on-quarter, pushing the year-on-year growth to 10.6%. Time deposit also finally inflected positive after 2 quarters of decline, posting a sharp 9.8% quarter-on-quarter increase and closing with 4.7% year-on-year growth. On the equity front, our capital position strengthened further. Shareholders' equity jumped 4.7% quarter-on-quarter and 7.8% year-on-year, really bolstered by retained earnings and a very favorable fixed income market valuation adjustments. Moving to the asset side, Teguh previous page, please. Yes. Our balance sheet expansion continued at a very measured pace where total assets grew 3.2% quarter-on-quarter and for the year, 4.3%. The quarter-on-quarter primary growth in our asset was a combination of a strategic as well as opportunistic build in our government securities investment, which went up 15.5%. But still compared to a year ago, total investment in government securities was still lower by 3.4% as some of the maturities of our SRBI investment kicked in. On the lending side, loans contracted in the third quarter with corporate and commercial portfolios leading some of the pullback. I shall provide a little bit more detail on the segment level lending data on Page 22 later. Okay. Let's walk through the P&L next, starting with the revenue rebound story that we have. NII stage a welcome 4.5% quarter-on-quarter turnaround, and also, for the year flipping into a positive territory already. Yes. Interest income was up 0.8% quarter-on-quarter. Look modest, but I think it's a little bit more sustainable after having seen the declines for several quarters prior. But however, the real driver for NII, right, is really the interest expense, which fell 3.5%, really fueled by the reduction of our reliance on high-cost funding. We had quite a bit of repos and interbank borrowing that were elevated in the prior quarters. So we were able to offer a lot of that. So, this really earmarked a structural improvement in our funding mix as customer deposits growth momentum begin to kick in, in the third quarter. So noninterest income delivered an outstanding plus 24.8% quarter-on-quarter with broad-based strength across all major fee lines. I'll share a little bit more detail later. That pushed the NII growth to 7% year-on-year. So, with that, total operating income surged 10.7% quarter-on-quarter, translating into a 2.6% year-on-year expansion. Operating expense also was contained at 3.4% quarter-on-quarter, while year-on-year expense was held at 4.3%. The result was a PPOP improvement of 16.5% quarter-on-quarter and now flipped year-on-year to a growth position of 2.6%. Now, loan loss provisions rose to 128 basis points or an increase of 74.2% quarter-on-quarter with some maybe modest concern on consumer asset quality, which Ibu Lani has alluded to. We also continue to build some proactive overlays as part of our forward-looking conservatism on provisions. So, in spite of this quarterly spike, credit costs maintained flat year-on-year. So bottom line results, PBT improved 5.4% quarter-on-quarter and now showing a 1.7% year-on-year, really showing our resilient earnings delivery in spite of very high provisions for the third quarter. To the next page, some key ratios. Just a few key ratios then. Q3 was sharply better than Q2, right? ROA climbed 20 basis points to -- from 2.4% to 2.6%. ROE strengthened 50 basis points from 13.1% to 13.6% versus the prior quarter. Now, cost of credit is the one that we watch as we took provision -- more prudent provision stance, taking year-to-date credit expense to 86 basis points. CASA ratio did decline a little. That's because also TD growth started gaining traction, but we still delivered close to 68% CASA ratio. Loans-to-deposit ratio came down to 81.1% as deposits started growing sharply during this period. NPL ratio increased a little bit by 10 basis points during the quarter coming mainly from the consumer banking sector segment. Year-on-year, NPL was pretty much intact, in fact, down 2 basis points and across all other asset quality measures like LaR and gross impaired loans continue to improve year-on-year and quarter-on-quarter. Coverage ratios on NPL loan at risk as well as impairment continue to stay at a comfortable level. Okay. Next page, please. Maybe sharing some insight on our NIMs. Year-on-year NIMs experienced a decline of 16 basis points on the left side of this slide here. However, in the third quarter, we saw a healthy rebound of 15 basis points in our NIM. So, with 3 BI rate cuts in between July to September, we saw -- continue to see loan yields trending downwards, but only slightly by 8 basis points quarter-on-quarter. Customer deposit costs did inch up 18 basis points as TD growth began to pick up, right? But in spite of this higher cost, or deposit costs and lower loan yields, NIMs improved as we were able to really almost eliminate our alternative funding sources, which includes repo and interbank borrowing, replaced it with deposits. Okay. Next page, please. Okay. So, I think, this is the slide I'm most happy with. I'll start maybe on the table on the right side, looking at the last line, noninterest income right, across all fee lines really delivered very strong growth, gaining 24.8% quarter-on-quarter, and that brought a year-on-year improvement of 7%. Now fees and commission from our core products and services offering delivered 8.3% increase quarter-on-quarter, bringing it to a 9.4% increase year-on-year. Our Treasury and Markets business posted the biggest gain with our treasury customer franchise, which consists of FX, bonds, derivatives sales improving 14.3% quarter-on-quarter. While on the trading, or our risk-taking side of the business, we were better by over 200% quarter-on-quarter. All in, treasury delivered 20% year-on-year fee income growth. Our loan recoveries were also stronger by 11.4 basis points, even though it's slightly lower compared to a year ago. So, in the third quarter, NOI contributed to 34.4% of our operating income. On operating expenses, I'm just going to look at maybe the last column on the table, just the year-on-year number. Overall cost was up 4.3%, which we are quite happy with. Personnel cost, which represents 60% of our expenses was up by 2.4%, very much in line with our personnel cost control measures. Tech costs, we were able to manage it better to 5.8% increase as we begin to see some positive effect from our tech cost takeout. Other expenses, including marketing and admin costs was up 8.3%, but these were mostly spent to strengthen our franchise building effort as well as our presence through marketing. We continue our pursuit for more structural cost takeouts, further optimizing ATMs, EDCs, while at the same time, increase our effort to direct more traffic to our digital channels to drive a lower cost to serve. Okay. Then next slide, a little bit more detail on our loans portfolio. And quite evidently from this table, you will see that loans growth was halted in the third quarter with consumer banking gaining 0.4%. SME was up 1% in the same period, commercial banking, corporate banking, both ended lower versus the previous quarter. We did deemphasize lower return exposure while preserving our pricing discipline. So for the year, loans growth was quite evenly spread, I would say, across all the different segments, delivering a 4.6% year-on-year increase. And over to deposits, yes, we are still very much CASA focused. Once again, we closed the quarter very strongly, taking quarter-on-quarter and year-on-year growth up 4.5%. 10.6%, respectively. CAR growth primarily comes from the business banking segment, were very strong, improving by 14.7%, while consumer banking savings accounts saw a resurgence in the third quarter, gaining 3.1%, taking the year-on-year growth to 6.3%. TDs closed almost 10% higher for the quarter and delivering an improvement of 4.7% year-on-year. And next to asset quality. Starting with the loan at risk numbers. Quarter-on-quarter, 2 of the 3 key LaR loan at risk components showed improvement with the special mention portfolios coming down from 4.4% to 3.7%, while the Cat.1 R&R loans improved from 2.1% to 2%. NPL did move up a little bit to 2%. So, the health of our overall portfolio remained strong, while we carefully watch the consumer portfolio asset quality. The higher cost of credit at 1.28% or 1.3% here, mostly came from consumer banking with additional provision overlays as well. We are already taking many proactive actions in early bucket collections, as well as fine-tuning recovery strategies to address them. Loan loss coverage across NPLs, impairments still look sufficiently provided for. And lastly, liquidity and capital, right? Quite a big turnaround in our liquidity position over the last 90 days. Our LDR now has come down to 81% after hitting close to 90% in the first quarter. Our liquidity measures, LCR and SFR still very comfortably above our regulatory requirement. We maintained our strong capital ratio, a much stronger capital ratio, I must say, with CAR inching to about 25% and CET1 at 23.6%. That's all from my side. I'll hand the session back to Ibu Lani, and we'll take questions thereafter. Thank you.

Thank you, Pak KK. Right. So let me close by highlighting several key takeaways from today on our first 9 months 2025 results. First, we have delivered a positive performance, a result of discipline of execution and a strong teamwork despite a challenging external environment, as we all know. The second, we remain mindful of ongoing macroeconomic headwinds and pressures on -- especially on consumer asset quality, which may bring our full year result towards the lower end of our guidance. We are monitoring this development closely and managing our portfolio with prudence. The third, we stay fully committed to our F30 strategy, accelerating profitable growth and delivering sustainable long-term value for our shareholders, advancing customers and society. The fourth, we continue to invest in technology and digital innovation, not just to drive efficiency, but to also create a simpler, better, faster experience for our customers. And finally, we remain confident in our long-term growth trajectory backed by our strong fundamentals, and our discipline of execution, as well as the strength of our human capital. So that concludes our presentations for Q3 2025. So back to Teguh. Thank you.

Thank you very much, Ibu Lani and Pak KK for the presentation. So, before we begin with the Q&A session. [Operator Instructions] So we already have the first question here from Kresna Hutabarat from Mandiri Sekuritas. Kresna?

Can you guys hear me? I got 3 sets of questions. But firstly, congratulations on the very strong results in quarter 3 2025, really beat our expectations. So, congratulations again to management. My first question regarding the aspirations for 16% to 17% ROE. Can you just give a bit more color on how the bank can arrive to that level kind of ROE? Will that be more a function of operational profitability or leverage? Or should we expect CIMB Niaga to grow its high-yielding business such as consumer and SME faster than the other categories, hence, the profitability improvement? Perhaps I'll start with this question first and maybe I'll continue later on after the answers. Is that okay?

Sure. So Teguh, I think I'll take this. So, thank you, Pak Kresna. As we all know, the challenging situations, but we are trying our best to weather the situations. Okay. In terms of the F30 goals and ambitions that we have on 16% to 17% ROE, we believe that going forward, situations will be back again to normal, even though we realize 2026 probably will still be challenging year, Pak Kresna [ Foreign Language ]. But then we are looking at the more positive outlook going forward, 2027, 2028 to 2030, again, with the growing middle class coming into the market, which is cross-sellable. Yes, we are going to focus more on retail, including retail SME, which we can see amidst whatever situations on some pressures on asset quality, especially on retail right now, but we think that we still can weather that. In fact, that our asset quality now is still better compared to market. So, there is a NIM game as well. We believe that the cost of fund will not be as high. So, we can also see some positive trend here. So, cost of fund will be lower. And then we are focusing -- continue to focus on retail and retail SME. So, we expect NIM continue to be better. And the other part is that, with ongoing investment in digitalization, we have several objectives and initiatives to bring down cost per transactions between now to 2030. So that's why we aim for CIR much lower than what we have right now. Our ambition is actually below 40% from 44% to 45% currently right now.

Understood. That's very clear, which is related to my next question actually on your successful rebranding and revamp of the bank's digital banking app, OCTO, which I think really put the bank's mobile banking franchise among the country's best today. And definitely, it's much better than, I would say, 67% of the banks in the industry today. And maybe related to that 4C strategy, if you would like to tie in the digital banking capabilities, especially on the cross-selling and capabilities, perhaps would you be able to enlighten us with how your digital banking platforms can contribute to that 4C strategy. You mentioned about the cost impact from digitalization, but is there any avenue for digital banking platform to deliver a more meaningful revenue contribution perhaps through digital lending or digital wealth management and any other form of digital financial services going forward?

Yes. Well, thank you. Well, and also, thank you for the compliment, Pak Kresna, because even though I'm really looking forward that we are better even compared to the 90% of mobile banking.

Sure. Yes.

Okay. So, you're right that this is the digitalization, especially the expansion of OCTO for retail. And we have OCTO Biz also for non-retail. Currently, we brand it as Biz channel, but Subantaragi, we will launch our new applications for nonretail called OCTO Biz. But OCTO for retail and OCTO Biz and combinations will definitely be contributing to our cost efficiency, again, cost per transactions to reduce, so that's why that contributed to CIR. But in terms of business, it's definitely one of the key drivers for our business, especially for retail and retail SME. One is in the area of tapping the new clients on new customers as well as retail and retail SME customers. We are aiming to have at least 10% to 15% annual increase of customer base through digital, which actually in terms of financially cost per account is actually much less -- much smaller compared to traditional direct sales or branch-related acquisitions. And the other one is actually revenue. The other C is actually cross-sell. Again, going through our segment is not on micro, but more on middle classes, mass and mass affluent, which is cross-sellable. So our aim is actually with digitalization is revenue per customers to increase by 2030.

So, our next question comes from Jayden with Macquarie.

And I really appreciate the strategy update. I thought it was very interesting. I just wanted to ask about the consumer market. I think, we've seen it across the sector, a pickup in stress in the consumer space, which seems to be a bit of a concern, especially when you see people defaulting on mortgages. Any thoughts on like why this has come about and how long it could last? And what would CIMB Niaga, what steps would you take? I could see you sort of slowed growth to the sector, but anything else you could do as this asset quality issue is ongoing? Would really appreciate your thoughts.

Okay. I'll take this. Thank you for the question, Jayden. Yes, this is one of our concern as well, as I mentioned earlier, especially in the area in retail is particularly in mortgage. As you see, market asset quality for mortgage also increasing very, very fast, which is created by -- one is that, the buying power itself is not really good and still continue to trend down. And for CIMB Niaga, the other part is that the growth of mortgage ENR is not really as fast. So it's a combination of both. Particularly for us in CIMB Niaga, as you see from the balances itself, mortgage, particularly minus 1.4% on a year-on-year basis, because of the price competition, et cetera. So, on how to fix it, but we are still very confident that this business, we don't really see mortgage business as isolation. We can see that in terms of revenue per customers in mortgages is actually still very, very good and very positive contributions, because of the cross-sellable customers. In terms of NPL, or asset quality, we have a solid plan to go back our ENR, it is not minus anymore to sustain it by the end of the year. And of course, this is part of our F30, because mortgage is one of our key products as well from some product suits that we have. The second, we can see the growth of mortgages during our 1-year testing in secondary cities is actually positive. If we have a national ENR on mortgage, it's actually minus, but secondary cities are all very much positive. Even some 8 to 10 cities is actually double-digit growth, with good asset qualities. So, this is the area that we are focusing now. We think that we still can compete and taking market shares on a profitable portfolio for mortgage for secondary cities. So, we're practically shifting a little bit of a gear right, focusing on those as well as not only focusing on primary mortgage, which is still quite tough and majority is coming from employee segment, but we are also targeting for business owner segment, which in terms of asset quality is also not worse than employee segment, particularly.

Jayden, yes, maybe more on the numerator side of the asset quality. I guess, this is also about the time game. And we have analyzed in our portfolio, we see that, we don't see any issue on our credit underwriting, and also on the portfolio on the delinquency because our 30-plus delinquency actually stable, and in fact, improved and our special mention actually improved. But yes, the portion that has delinquent from last year, and this is like Ibu Lani said, because of the buying power, that has started to basically to flow or to fall. And we have basically accelerated and a lot of aggressive -- more aggressive plan in terms of restructuring, in terms of early settlement with the customer and in fact, including provisioning and also how to wait until when we need to have a higher recovery maybe next year or in 2 years' time when the market recover in terms of property price is about that. But in terms of underwriting, we see actually our special mention at 30-plus stable and slightly improved actually.

On top of it, Jayden, as well in terms of NPL, we can see that there is a stress on Q3 starting June, July, August to September, but we can see a reducing NPL as well from June, August to September. And I can see that, from -- we expect a better cost of fund. So, in terms of price competition will be less as well in mortgage, especially on secondary cities.

Yes. I was going to say it's actually been quite fortunate. You weren't expanding too aggressively in the previous quarters. As you noted, the risk-adjusted returns went there. So, I think from a strategy point of view, you handled it very well. I wanted to also ask about the Sharia spin-off. I think the strategy, we didn't touch too much on it, but I think you've obviously got the scale now and you'll spin it off into a separate entity. Any thoughts on how you'd position that entity? Some of the peers in the group have done quite a lot on the gold space. What's your thoughts on how you could grow that and position it?

Okay. Well, very interesting questions as well. I thought, there's nobody will question me on Sharia spin-off. Okay. So, Sharia spin-off is actually a month and definitely by law. We plan to spin off by June 2026 next year. So right now, it's actually on finalization. So we are positioning Sharia as BUS or Banka Sharia, independent Sharia as a bank which is focusing more on retail and retail SME. So, we are testing the market as well during the past 1.5 years to 2 years that we think that we still can have one big pool of opportunity currently, which is actually mostly taken by #1 Sharia bank in Indonesia, as we know, SE, they're doing very, very well, by the way. But in terms of market share, we have relatively quite small when the pool is actually not small. So this is the area that we realize that we are not there yet, because of the Sharia First or DLBM, dual leverage banking model that we use. So particularly, currently, almost 55% of our Sharia book is actually owned by non-Muslim customers. But we can see that we have opportunity to penetrate more in terms of Islamic ecosystem. So, we are shifting our gear when we have BUS or independent Sharia toward ecosystem -- Islamic ecosystem in Indonesia, which is quite large, mainly coming from several fronts, which is Islamic education, Islamic health care and then as well as the Islamic tour and travels. We are aiming for lower cost of fund through Wadiah or Islamic savings and as well as embarking on Hajj and Umrah ecosystem and market. So, in terms of our business model, we are aiming for a higher NIM portfolio, because we are focusing on retail and retail SME and a better or at least not less cost of fund, not higher cost of fund from what we have currently in Sharia.

And I think for the Sharia banks in general, the opportunity for gold seems to be there. Is that something that you think is open for your business as well?

Yes. So, in terms of the -- some product suite some gold is actually included. So, we're just starting the business for this couple of months now, but that will be the area which our Sharia business will be focusing on.

Yes. If I may add a bit, Jayden, John here. Definitely something that we will be looking forward to do. This is something that we are working in parallel, because it is something that is easier to be done, the bullion bank kind of approval can be done easier on the Sharia side. So, this is something that we are looking at to have it up and running on the Sharia side of things as soon as possible. So, we don't want to be only brokering. At this point in time, we do have gold offering, but it is just us brokering prices from another liquidity provider. But going forward, we want to be able to market make so we can get traction by providing better prices if we were to market make ourselves.

Our next questions come from Harsh Modi with JPMorgan.

I just wanted to understand this NPL bit a bit more. Could you give a bit more details of which subsegments in consumer are having a problem? Is it -- my understanding from the comments till now is it seems to be more Tier 1 cities? And is it also more of the people who had, let's say, who are in sales job where bonus and incentives were a much bigger part of salary? Like is there some similarity on the kind of people who are defaulting. And also, I think my understanding is there is some improvement in September compared to earlier in the months, June, July, August. So, what is driving that improvement? And yes, then I have a follow-up on that. So, I just wanted to understand that part better.

All right. Thank you for the questions, Harsh. Yes, on consumer, actually, particularly, there are 2 subsegment of the business, which is in terms of year-on-year NPL is actually increasing. One is mortgage. Again, as I mentioned earlier as well as information from Henkey, there are 2 parts. It's because of the NR is not growing, it's minus for mortgage, again, one. And then the second is the buying power. Which segment in buying power? Actually, the way we look at it is actually is more to salaried person. We are very prudent. We don't do the non-fixed salary, super small. So practically, our mortgage is based on fixed income customers as well as the business owners, SME-like customers, especially on secondary cities. We can see the stress is actually on the salary. So that's why in terms of the NPL, et cetera, and the growth on secondary cities is actually still better. And then the improvement, if you compare to June, for example, on mortgage, NPL is actually improving. In quarter 2, mortgage NPL is about 3.19%. And then quarter 3, we end up with 3.12%. But that comes from various is actually we have -- we collect early buckets. And then, we add our collection strategy into more digital. So, it is not based on call by people, but reminders is actually getting earlier to all the high-risk segment. And then the other part is actually auto. Now auto is the one, if you are looking on year-on-year is increasing, but NPL is still quite healthy. If we are comparing ourselves, our auto NPL is actually 1.8% now, where compared to market it is about almost 2.6% right? So -- but again, quarter-to-quarter is increasing. Last quarter, our auto is 161 and now we are 180. So, it's a slightly increase. But on auto, as actually is happening in the market, not only particularly to CIMB Niaga, or CNAF is actually coming from, again, majority is the buying power itself. Now the second is actually the value of collaterals. So, we are changing the strategy, again, on collections as well as on LTV on selected high-risk segment.

Right.

So maybe if I can give a bit of more color, I mean, Harsh, that on mortgage, yes, earlier, Ibu Lani has mentioned about the NPL in auto. So, like, for example, NPL of mortgage in industry is 3.3%, us is 3.1%. But maybe more the color is actually since last year, we have noticed although our -- when we look at underwriting, as I said earlier, it's still good, the 30-plus stable. But then what we call stayers, the delinquent 60 to 90 days since last year has increased a little bit month by month. So, this is what Ibu Lani mentioned, the buying power. And now start early this year, we see some of them start to fall. So -- and -- this is -- yes, I think the lagging impact of the lower buying power in Indonesia, the economy slowdown. And what Ibu Lani said about the acceleration and the intensive on our collection and restructuring, I think you mentioned that Q-to-Q actually in mortgage, yes, there's a little bit of improvement. Like our NPL in June is 3.19% in September is 3.12%. So yes, so we will keep doing that, as Ibu Lani mentioned, going forward, basically to lighten this so-called stay burden of inventory in our book.

Right. So, just so that I understand this better, on the auto side of it, okay, NPLs are much lower than the industry. There is some degree of normalization, which is understandable. But on mortgages, are people losing jobs? Are these people -- because if I have a job and inflation is not exactly high in Indonesia. So, I'm just trying to understand what is the reason? Because, yes, there have been some pickup in NPL for the big banks in consumer, but not to the same extent. So, was there any kind of subsegment where Niaga took a bit more risk over the last 12, 18 months and that's showing up in NPL? Or is there something more idiosyncratic is what I'm trying to get to?

Yes. So, we identified some sub subsegment. Actually, the second tier segment from -- because we do a monthly PQR portfolio quality review on each of our businesses. So, we identify some without changing risk postures, but we put some more selections on who to address first. But the second as well is we also identify a good segment, which actually we can have the chance and opportunity to evergreen the balances even more. So yes, you're right that we identify those areas. And then will that be because our customer is actually losing jobs? We don't really see that actually, because even within the delinquent portfolio, they are still our customers who still have jobs, but it seems that the other needs rather than paying loans is actually small.

So people are willing to default on mortgages. The reason I'm double-clicking on this Ibu is mortgages are probably the last thing people default on. The default on credit card and then auto and mortgage tends to be the last. And credit card, I understand. But mortgages -- so the question really is this 3.12, yes, it has come down a bit. But is it the end of it? Or is it a beginning of a much weaker mortgage and consumer credit cycle over the next 6 to 12 months?

Well, it's a difficult question, I should say, for forward-looking. But yes, the way that we look at it, there is some more stress on spending for some customers. So, data from the -- from OJK stated that, some of the debtors is actually has some gap in fintech lending. But unfortunately, usually, our customers is actually first to book with mortgage. So, when we book them, we don't see that, right? But as you know as well, there is unregistered fintech lending as well in Indonesia, and that becomes more popular because much easier to apply. That's the other one. But unfortunately, we cannot see in the system because it does not show in slip, not all of them, unless it is registered in OJK. So probably that's also one of the area. But we select where -- for salary, we select where they work currently. We identify the areas and what type of jobs up to that detail.

Maybe to add, Harsh that maybe I need to clarify a bit. Earlier on, I mentioned about the group we call stayers. I mean, since last year, we analyzed. So last year, we see this delinquent group of delinquent 60 to 90 quite stable, but only increased a little bit. So, meaning they have been delinquent for 2 months. So, what they could do is just to pay 1 month installment. So, they will not -- they couldn't go back to 0. So that's last year. Then starting early this year, they start to fall a bit. So, to answer your -- I mean, maybe your curiosity, we also do a crosscheck to the BI checking, the credit bureau. A lot of them has also default or I mean, bad record in the BI checking. This is also on the other hand, the group that we are accelerating the recovery and the collection as well. But yes, if we look at from last year until this year, last year, they basically try to hold on their mortgage. That's why we call them stayers. But then I think starting this year start to -- yes, the lagging impact of this buying power.

Right. Okay. But from a distance, it does not sound good. This sounds like probably higher risk in making, but we'll talk more offline.

Our final question, I think, from the line, we have Andrey Wijaya here from RHB Securitas Indonesia.

I just have a follow-up question on the asset quality. If we look at the Slide 24, actually, the LaR is declining quite significant to 7.7% from the previous quarter at 0.4%. But in the third quarter itself, we see that the COC is increasing significant to 1.3% from previous quarter of 0.8%. And if you look at the NPL coverage, it is declining actually. So, my question is how much the return of loan in the third quarter? And if could you give a color the comparison, the written of loan in the third quarter compared to second quarter? And is there any big written of loan planned in the -- going forward in the fourth quarter?

Okay. Andrey, let me -- I don't have the numbers with me right now on amount. But we don't plan to have any big write-off. It's actually until the end of the year. Related to write-off, for retail portfolio, except mortgage, is actually an automatic write-off as we all know. So, nothing special is about it. So, it will continue. So, the only which is not automatic probably mortgage. And so far, I think we have been very conservative on those, and we don't really see any big write-off towards the end of the year. The other part is actually for corporate banking and then commercial and SME, probably a little bit on SME, but that's also part of the regulars. We don't really see any big write-off plan.

Yes. So maybe I just want to add a little bit color to this as well. When you compare quarter-on-quarter, you see the big jump, right? But if you look at the previous quarter, it's not really a normalized credit cost, right? Indonesia credit costs are not given the volatility of the credit situation. Our credit cost was running below 50 basis points on average in the first half of the year. We did guide that we will not be able to maintain that. We did guide that while credit cost will not be -- we did actually guide credit cost to improve a little bit. But in the third quarter, we did want to put in a little bit more provisions in there to remain a little bit more prudent and conservatism involved in here to maybe prepare ourselves also for the following quarter. Hence, you see a big jump up in the third quarter. Overall, yes, we are still quite comfortable at the level that we are in now. On the loan loss provision, I'm more interested or at least we are more interested looking at the coverage on our impaired loans. The coverage on the NPL did come down because we have a huge repayment on our impaired loans, which does not -- which is not part of the NPLs. Hence, at 200% NPL coverage, we are still quite comfortable. But what is more important for us are the other 2 coverage, which is the loan at risk coverage above 50%, and also, the impairment coverage of above 100%.

Yes. And maybe to give a bit of color, Andrey, and maybe to other analysts that as I said also maybe earlier that the flow to 30-plus and special mention is stable, in fact, improved. So, we don't see any more, I mean, like our bigger much significant additional to our, yes, status or impact.

Okay. I have a follow-up question since maybe in the next year, we will be more focused also in the Sharia bank growth. Could you give color about the comparison asset quality between the Sharia loan and the conventional loan? Is there any big differences in terms of the asset quality or maybe conventional is better or Sharia is better?

Yes. Well, next year will be the first year for spin-off where the focus of our Sharia BUS, Banca USS Sharia will be more niche to retail and retail -- nonretail -- retail and retail SMEs. So currently, yes, there is still a difference in terms of asset quality. Sharia asset quality is actually slightly higher in terms of NPL say, for example, NPL ratio right now in overall consolidated is 1.98 while Sharia itself is about 2.1%. So, it's not really that much different, but slightly higher. So, I think we expect for the NPL and asset quality will be higher when we run BUS within retail and retail SME. So, for example, in terms of NPL ratio, currently, in consumer, averagingly now 2.72%, while in business banking, which is corporate and commercial, it is only about ranging around 1%, right? So, while with credit card, personal loans, it's definitely ranging between 2.5% to 3.5%. So definitely, Sharia asset quality NPL will be higher. But of course, we also expect a different NIM as well.

Thank you, Andrey. I'll take last question from the chat box Ibu Lani and Bapa Ibu. So, this is a question from Yong Hong from Citi. The question is, there are 3 questions. Where will be you deploy the excess deposit considering the risk of growing loans at the moment? That's the first question. Second one is, what are the key signposts that you are tracking before getting comfortable to grow the loans again? That's number two. And the last one is before that, should we be expecting more volatile risk taking income with your excess deposits?

Okay. Maybe I can take this 3-parter question. Yes. So, 90 days changed a lot for us actually, right, from close to 90% loan-to-deposit ratio. Now we are at low 80s. Our priority hasn't changed. So, we have a lot of excess liquidity now. I mentioned earlier, we did have quite a substantial amount in repos as well as interbank borrowing to remain liquid when liquidity was tight. So that has all gone -- mostly got I'd say, right? So, it's all been replaced with a much cheaper deposits. Repo was at about over 6% before, hence, we saw that NIM improvement when we got rid of all of that. So, first priority is really to use this excess liquidity to build loans, right? Loans has been challenging. I think some of the loans pricing that we are seeing right now does not make a lot of sense. I think a lot of the state-owned banks are beginning to start growing loans, taking over loans from smaller banks as well. So, it's going to be challenging for us. So, we will also need to continue to bring our deposit costs down before we can compete in pricing. So, I don't think -- maybe to answer your second question, I don't think we are looking at any signpost before getting comfortable in growing our loans, but we just said for the amount of risk we will be taking for these loans, we need the loans to -- the risk to be priced into the loans. I don't think we have -- Henky can specify to this also has tightened any risk lending criteria risk assessment criteria. So, we are very much still into loans growth, but we must be able to price in that risk. On the last part, maybe John can help me out a little bit. We are pretty balanced right now in terms of risk-taking income as well as customer franchise income when it comes to our fee income business, right? This year, yes, we are seeing a lot more gains from our risk-taking business. Interest rate volatility or interest rate cuts that did give us a boost in our bonds investment. We were not able to crystallize any gains over the last 24 months because interest rate was moving up and up until maybe just recently, especially in the last 4 months where we saw 4 rate cuts that's where we seized the opportunity to get a little bit more or crystallize some of these OCL or AFS that we have. So, our priority is still to grow the customer franchise, FX, bonds, market-linked deposits and other derivative products. But John, anything else you want to add on this one?

Yes, Yong Hong. I guess the gauge that we looked at the most would be the ratio or contribution of sales versus the overall treasury. And as you can see, that is still -- sales is still contributing majority, right? I guess, that's something that we would like to keep going forward. Yes, we are seeing an increased traction on the risk-taking side, but that's a good thing. As and when opportunity is there for trading to take more, we would. But the priority to always push for more customer franchise will not be forgotten.

So maybe just to close out the first question, right, Yong. First priority, like I said, is still to grow loans first, right? If we still have excess liquidity, we'll look at the bonds, we grew 11.5% in the third quarter, but we also observe the market risk limits, right? Once the market risk limits has been achieved, we will also just continue growing out the bonds portfolio. And if there's consistent difficulty in loans growth, I think the last result would probably be placing it with the Bank Indonesia and really getting rid of the most expensive deposits. So that's how we prioritize to redeploy excess liquidity. Okay. I hope that answers your question, Yong Hong.

Okay.

Yes. Maybe I can answer just right away because I think on Pak Kresna.

No, this is from Yong Hong, Ibu.

There was another question from Kresna.

Yes, maybe last one, I'll answer the other one from Pak Kresna on auto.

Yes. Okay.

Yes. So, your question is actually on the auto portfolio quality. What is the challenge for auto loan portfolio for CIMB Niaga in the market in terms of profitability and also asset quality, particularly Pak Kresna. So, I think the auto business is actually in overall industry is very challenging. But if we would like to subsegment the challenge is actually is different. Now, the new purchase of new 4-wheelers because we are only focusing on 4-wheelers, we don't do 2-wheelers. The 4-wheelers is actually challenging. Year-on-year sales on 4-wheelers is actually minus 15%. I just attended the association's meeting actually yesterday. So minus 15%, yes. So that's why our business model in auto is different. We are different with the multi-finance, which is very much attached to ATEPM, for example. So, our model is actually consists of 3 main focus, not only the new car, but also used car and the other part is actually financing, okay? Now in fact, that our business is still growing double digits. our auto ANR, auto balances is still growing double digits. And then if you're looking at asset quality, yes, it's actually a little bit of deterioration with NPL of 1.8%, but still very much healthy. You see the NIM for auto business is 7% to 7.5%. And then with the NPL is 1.8%, and we have our collection strategy in line in there. And what will be the main driver of the asset quality plunge in the market, which is much larger NPL in the market, again, because the buying power is #1. Number one is actually buying power. Now in CIMB Niaga, especially that we run majorities actually in our subsidiaries in CNAF, we have quite many repeat orders. Our model is that only 30% coming from new customers. The rest is actually recycled customers and you repeat order. Remember that auto business is actually a short tenure of averaging 3 to 3.5 years of tenure. So yes, so in overall, we are still seeing that the auto business is still one of the most profitable overall business for us as a contribution.

Yes. Thank you, Ibu Lani and Pak KK. That was the last question of the day. I think I can now hand it back again to Ibu Lani for the closing remark any.

Ladies and gentlemen, again, thank you so much for attending the call today and also for all your support. So stay healthy and happy. Thank you. Bye-bye.

Thank you.

Okay. Thank you, bye-bye. If you have any questions, please contact our Investor Relations team. Thank you for joining the call today, and have a great day.