PT Bank CIMB Niaga Tbk (BNGA) Earnings Call Transcript & Summary

Investor Relations here at CIMB Niaga. Presenting to you this afternoon are Ibu Lani Darmawan; CIMB Niaga, President Director and Chief Executive Officer; and Pak Lee Kai Kwong, our strategy Finance and SPAPM Director. Also present to take questions by Pak John Simon, our Treasury and Capital Market Director; Pak Rusly Johannes, our Business Banking Director; and Pak Henky Sulistyo, our Risk Management Director. As you show, I would like to remind everyone that today's presentation, which is available for rollout on our website, cimbniaga.co.id. May include forward-looking statements that are based on management estimates and are subject to uncertainties and changes in the circumstances. Actual may differ significantly due to a variety of factors. And with that, I will now turn the call over to Ibu Lani for her presentation. Ibu Lani, the time is yours.

Thank you, Teguh. Good afternoon, everyone, and thank you for joining our first quarter 2024 earnings call. I will make some updates on our priorities, and then we'll give you some comments on our first quarter results. I will then turn the call over to Pak KK, our CFO, to provide further results much more in detail before we take your questions. So let me start with some updates on our priorities. Our strategic priorities were on 5 strategic pillars. The first one, we are growing scale in our [ private data ] segment, leveraging connectivity across identify segments and geographies where we are competitive and can take the advantage, especially in the area of retail and SME, resulting in increase in portions of our loans in these 2 segments and area. The second one is actually to maintain a strong balance sheet. Our focus on [ low-cost ] CASA will remain as a as we can also see later that CASA growth has been very promising, almost 9% year-on-year and also to build our customer relationship that enhance our profitability. The third one is a disciplined approach to operational excellence. [ Execution ] is very critical to be better, to be faster and also at a lower cost. So, with a continuous focus on productivity, process simplifications and our effort to build a culture will give us a competitive advantage. Number 4, our preservation of capital and balance risk and return, we are in the business of taking risks so long as we are generating sufficient risk-adjusted return on our capital. So, a disciplined approach to risk adjusted margin is key to evaluating the attractiveness of each of our business segments and opportunities that we will take. Lastly, we want to leverage technology for improving our customer experience, streamlining digitalization processes where we can also take advantage in terms of efficiency. The next page, -- so even - ladies and gentlemen, this year will be the last year of our Forward 23+ Strategy, and yet we continue to realize the benefits of our discipline in terms of strategy execution. On the top left chart, showing our disciplined approach and capital allocation towards low-risk, high-return retail segments, which has rested in significant shifting in our portfolio risk profile as shown by the substantial decline in our RWA density. So, this is also coupled with our prudent approach in credit risk management, which has enabled us to steadily improve risk-adjusted NIM in the past [ few years ] as we can see by the top right chart here. So, we believe that the profit margin has to also calculate the risk factor -- we continue to strengthen our cost discipline. As you can also see here by the sustained improvement of our CIR and also cost to asset. We will continue to manage our costs strongly, and we will also continue to invest in the area, which will support our strategy and also business growth. So overall, our objective is actually to continue increasing risk-adjusted profitability and ultimately sustainable value creation for our stakeholders, especially our shareholders. So, the next page, -- this is the first quarter highlights. We are seeing quite an encouraging start of the year, and our results are consistent with our expectations so far. I'm pleased to report a record quarterly net profit of IDR 1.7 trillion, which is up by 6.3% year-on-year. This was primarily driven by a mix of earning asset growth, improvement in our asset quality and operating efficiency. In line with our strategic priority, CASA, as I mentioned earlier, was up almost 9%, which was higher than the industry growth with a strong growth coming from both retail as well as non-retail segment. And in the meantime, loan was up by 6%. I think it's healthy on growth, reflecting our focus on more to profitable growth. Our strategy to focus on the new customer acquisitions are actually condition on here, particularly in the retail area, in order to boost up our future asset growth has resulted in an extraordinary customer base growth. We are happy with that, which is growing by 22.2% this quarter. This is also a continuing good asset quality management that we have, which NPL ratio continued to improve to 2.1%, with improvement is coming from all the business segments. On capital, our capital ratio stood at 24.5%, which is above our target range and also well above our regulatory requirements. So finally, in the first quarter 2024, we were able to meet 2 of our 2024 aspirations ahead of schedule, which is COC was 0.8%, which is ahead of our 2024 aspirations, and ROE was 14.4% or actually 15.4% if we adjust with 2023 dividend payment that we did also ahead of our 2024 [ operations ]. The next page. So, a couple of other points I'd like to make on our digital success. OCTO Mobile's differentiated digital offerings and capabilities continue to be a unique driver of a better customer experience. Customer engagement through OCTO mobile continued to increase [ basically ] with a number of financial transactions through OCTO Mobile grew by 112.9% year-on-year and transaction value up by 42.5% year-on-year. The second is an example of our digital success. QRIS payment done by our customers has been growing exceptionally. QRIS number of financial transactions reached 7.6 million in the first quarter, doubled than the same period last year. This demonstrates our strong capabilities in digital offerings to the customers. We will continue to adopt the latest QRIS development and strive to ensure that the reliability and the responsiveness of QRIS, so it continues to enhance our customer experience. Apart from improving the customer experience, the digitalization effort is also driving ongoing in cost savings and new customer growth. It supports the increasing volumes of customers transactions with a little increase in terms of cost. So, in summary, on digital, the first quarter was an encouraging start of the year. We are now in the early stages of executions against plans to deliver our key strategic objectives, growing, scaling on our [ private segment ], improving customer experience. So, we are currently working on our next long-term strategic plan, which we will share with you on the next sessions that we have. So, with that, I will turn this over to our CFO, Pak KK to give you a more detailed financial review of the quarter. KK [Foreign Language]

Okay. Thank you Ibu Lani. And very good afternoon, ladies and gentlemen. Welcome to our first quarter 2024 earnings briefing. Over to Page 13. I will begin with the balance sheet first. And I would like to start with the deposits and also reiterate what Ibu Lani has shared earlier. So, we closed the quarter quite strongly building our deposits by 5.2% versus the previous quarter. And this was primarily led by strong momentum in both currents and savings accounts, which grew 8% and 4.6%, respectively, quarter-on-quarter. Compared to a year ago, it's a bit more impressive. Current account has been tremendous strides are gaining 12.3%, while savings also expanded 5.8%. In the first quarter, time deposit grew 3.2%. For the year, you see a decline of 5.6% as we continue to manage down the higher cost time deposits. Over to loans, loans were off to a slower start in the first quarter, losing 0.8% in the quarter. But for the year, still give us a 6% increase. I'll share further details of the loans by segment [ and subsequent ] page. We also begin shifting on the first line. You'll see that shifting our cash into shorter-term [ in BI ] securities to take advantage of gaining from higher yields from some of this excess liquidity that we have. I'll just go to Page 14, next page, please. Okay. So, the financial statement, interest income grew quite nicely at 4.5% in the first quarter coming from a combination of loan pricing and effective interest rate adjustments on the asset side. Our interest expense continued its upward trajectory, increasing 5.5%, but this was primarily due to the balance sheet -- the balance growth and deposits, not so much on the deposit rate increases. So that gave us a fairly strong 3.8% or IDR 120 billion increase in NII. For the year, however, we still see -- we still see the interest expense overwhelmed interest income, bringing down NII by 3.6%. On NOII or fee income, we saw that improved 36% quarter-on-quarter, driven by a strong showing in bad debt recovery, FX as well as derivative income. For the year, we still saw that -- we saw that NOII down 3.9% as we were not able to replicate the strong gains from the treasury trading and mistaking business from a year ago. So given the NII was better, NOI was better, delivering [ profit improved ] operating income was up by over IDR 500 billion or 12.2% compared to the fourth quarter. In the first quarter, operating expense were higher by 6.4% given that we had quite a bit of a write-back of a reversal of expense in the fourth quarter last year. And on a year-on-year basis, we continue to show higher operating efficiency, reducing operating expense by 3.8%. And -- so with this strong earnings growth or revenue growth and much reduced OpEx, right, we saw [ our jaws ] getting stronger and closed the quarter with a PPOP gain of 12.2%. Provisions were however, higher by 15% versus the fourth quarter. In the fourth quarter, we did have a substantial write-back when we adjusted our macroeconomic factor into our models. So, this is not alarming as the low provisions last year included some one-offs. Also in the first quarter, we also took additional provisions on other noncredit-related assets. So far more like-for-like comparison over a 12-year period, our asset quality has shown improved resilience, lowering our provisions by 36 -- 34.6% -- so that resulted in a first quarter, 6.4% [ PBT ] growth over the fourth quarter and 7.8% PBT growth versus the first quarter of 2023. Next page, please. Very quickly on some key ratios. These are encouraging quarterly improvements on really several key ratios to start of the year. ROE, ROA, CASA ratio, all showing improvement. Finally, we managed to turn NIMs around raising it to 4.2%. On risk-adjusted NIM, it was lower by 13 basis points given that we have a higher provision. But for the year, we continue to improve our risk-adjusted NIM by 15 basis points. Asset quality comparing with a year ago -- from a year ago, NPL loan at risk [ dual ] ratios have all shown significant improvement -- so evidently given the better asset quality together with prudent loss provisions we have translated to a much higher loan loss coverage over -- compared to over a year ago. On Page 16. So NII, then I mentioned it a little earlier, we managed to turn it around, maybe look at the bottom right bar chart. After 3 consecutive quarters of a downward trend finally in the first quarter of 2024, we managed to turn it around, improving [ 15 ] basis points. So, this is definitely a much welcome sign, but with the rate hike that just came last week, we'll see if that is translated into maybe higher loan rates or also whether there's a pressure for us to price our deposits higher. Maybe on to the next page, NOII. NOI or fee income lines, this is a little mix. In the first quarter, you can see here there's a 36% improvement compared to fourth quarter last year. So, we did have some big loan recoveries, right, improving which improved by about 200%. While the FX and derivatives business rebounded strongly after a very challenging fourth quarter, up almost 8 folds. Fee and commission for core banking sales and services that we provide came in pretty flattish year-on-year 4.2% for the quarter, it's down 3.5%. As you can see here, we had a pretty tough quarter in marketable securities or basically the trading business, the bonds trading business, which almost came in -- which only came in at about IDR 4 billion. Next, on the operating expense. We have the key lines -- our key expense lines, very much where we wanted it to be. Our biggest expense component, which is the first personnel expenses increased 3.8% year-on-year or 0.5% for the quarter. We managed to phase in our tax expenses very nicely, up 3.7% year-on-year basis, while expenses, including establishment costs, tax provision, admin and general services, marketing, they were down significantly by 21.1%. So, this has consequently drive the total operating expense reduction of 3.8%. However, compared to the fourth quarter, we did show a 6.4% increase. And as I mentioned earlier, we did have a sizable write-back or reversal of some tax provision in the fourth quarter. Page 19. Now the loan performance loans growth continued to be driven by our key focus segments, which are the retail and SME segment. We now combined to a total of 46.2%, right, growing at 7.5% year-on-year. We have mentioned it before, our ambition is to really drive this in the near future to [ about 50% ] composition level. So, the biggest gain from the table, you see is coming from auto loan followed by retail financing, including cards, personal finance and a little bit of our third-party [ channeling ] finance. SME, even though flattish for the quarter year-on-year, it's showing a great improvement at 9.4%. And -- we are also now a little -- a bit more optimistic of our commercial banking business after having shown another good quarter of progress closing with a gain of 5.6% compared to a year ago. In the corporate banking space, we started the year quite slowly, but really opposed the election result, we did see some traction going into corporate banking, but however, it wasn't enough for us to close the quarter on a positive note. But year-on-year, [ we're still up ] 4.1%. Our [ auto ] deposits very much CASA-centered [ drive ], which is our second pillar of our 5-pillar strategy. shown earlier, here, CASA ratio improved to 64.6% driven by a double-digit growth in current account 12.3% and 5.8% in savings account overall CASA group 8.9%. So, we will continue to drive our CASA agenda and sharpen all the execution deliverables to build this CASA franchise. Next, over on asset quality, maybe focusing a little bit more on the top left bar chart -- you can see that almost all asset quality measures have steadily improved over the last 4 quarters. Loan at risk or LAR is down to 10.9% from 13.9%. Cat-1 restructure collectability [ when ] restructured loans reduced to 4% from 5.9%. Special mention loans is now at 4.8% from 5.4% and NPL 2.1% from 2.6% a year ago. Cost of credit as well has also settled very nicely. I think to a more steady state or predictable [ state ] now at 0.8%. So, we continue to see prudent coverage across NPLs, our impaired loans as well as our loan at risk. Lastly, on liquidity and capital, all key liquidities measures, as you can see here, remain very strong LCR above 250%, about NSFR 120% and LDR at 84%. Over to capital on the right side, CAR ratio or maybe Tier-1 Ratio, which is equivalent to our CET, what has now risen to above 23% with CAR ratio reaching the 24% for the second time in consecutive quarters. Okay. I will hand this presentation over back to Ibu Lani for his final remarks. Ibu Lani, back to you?

Yes. Thank you, Pak KK. So, before we begin in our Q&A, I'd like to make a few remarks about our results and our strategy going forward. So, we delivered another good quarter result this first quarter despite continued pressure on funding costs. NIM rebounded in the first quarter with further recovery expected in the subsequent quarters, hopefully. But of course, just like what Pak KK mentioned, [ let's monitor ] what happened with the rate increase by 25 basis points last week. We expected a continued challenging environment as we enter 2024, and we have not been disappointed. Our plan to meet these challenges has been to continue growing our businesses that command higher risk-adjusted profitability in our [ private data ] segment. We continue to manage costs well with CIR below our target. We will continue to invest as well in the area that are aligned with our strategy and to support our future growth. And strong CASA growth momentum indeed in Q1, particularly retail CASA, providing comfortable liquidity, [ capital ] strong and prudent approach to credit and asset quality going further. So, we expect sustained profitable growth this year, hopefully, with an improved ROE above 2023 level. Our strategy execution so far remained on track. So, we are particularly happy with the first quarter results and committed to deliver value further to all the stakeholders, especially the shareholders and our customers. However, we also note that 2024 is still challenging. We are still very positive on our expectations this year. Nevertheless, we also remain vigilant of the global economic uncertainty, which may impact the local economy as well. So that brings the presentation to the [ end ]. Let's get to the Q&A. Over to Teguh. Thank you.

Yes. Thank you, Ibu Lani and Pak KK for [ the presentation ]. So, let's now go to the Q&A. [Operator Instructions] So, we will also take the [ formal ] question first. And then if it's time for me to take questions from the [ chat box ], we have a first question here from Peter Kong from CLSA.

I have 2 questions. I ask them at the same time. The first one is more of an observation about your risk-weighted asset density in your earlier slides, that seems to have been increasing in the past 2 quarters despite just now the management mentioned focusing on more profitable growth sectors and putting more into liquid assets. So, I was just wondering, is there anything that we should note or take note about why the risk-weighted asset density seems to be coming up again, although it doesn't look to be at any worrying level. That's number one. My second question is on the back of the recent Bank Indonesia rate increase. I just want to understand in terms of CIMB Niaga, how do you think about the ability to pass through to your customers on the loan side and having considered that? What would be the estimated impact to NIM. That are my 2 questions.

Yes. Well, thank you for the questions, Peter. So, I will answer the [indiscernible] related first, and then I will let Henky respond on RWA. So yes, it is -- I think it's quite a surprise to the market probably increase of 25 basis points. But so far, as we demonstrated as well in Q1, we have already started to reprice our loans across the segments, except for the corporate banking, we do the selected repricing, especially for the existing customers, but new customers is already adopting repricing up -- so that's one of the things. And the second one related to the NIM is we know that the rate is actually increasing that [ put ] a challenge in terms of cost of funds. However, we also demonstrated that CASA growth is actually significantly much higher when we shared some of the much higher [ cost of ] fund time deposits. So, we will continue that successful drive that we have in Q1. So, as we present that CASA agreement is actually about almost 9%, right, across the segment and especially [indiscernible] has been increasing very, very strong. So, when -- even though when the [ rate ] might be increasing, but if we can continue to increase the CASA ratio and focusing on CASA, we believe that we are -- we should be able to sustain the cost of fund. And some of it on the NIM is actually coming from repricing of the loan. So, this is one of the areas which actually reduced the growth rate of some of the segment of a loan, especially corporate in Q1. Yes, because I think whether we like it or not, so we have to be making a sensible decision in terms of loan pricing, first just the cost of fund effect that we have. Now related to the NIM guidelines, I think this year, our guidelines will NIM be around 4.2% to 4.4%. So, [ they ] be ranging around that. But of course, with the latest development on [ the rate ], let's see what happens as well. Henky you want to take the RWA.

Yes, sure. Okay. Good questions. Yes, actually, the increase in RWA actually starting in January is mostly because of the new regulation on the weighted asset with regards to market risk on the RTB. So, there is -- in [indiscernible] has imposed has implemented the Basel III FRTB for RWA calculation starting January 2024. So -- but apart from that, there is nothing like a significant change in terms of our composition of our strategy.

All right. Next question is from Harsh Modi with JPMorgan.

A few questions. First, just the entire pickup on CASA has been phenomenal, especially if you look at the fact that money supply in Indonesia is running at 5%. So Ibu Lani and you had explained it in the past, but could you give a bit of detail on what is allowing you to significantly outperform the industry in terms of both current and savings account in whatever detail you can explain especially last couple of years, and I'll follow up with the rest of the questions.

Yes, it is that our growth of 9% on CASA is actually way above the industry. Even last year, our deposit growth is actually still ahead of the industry. Number one is that this definitely is one of the key strategies to go there. So, across the segment, whether it's the retail, nonretail, that is the one that we track. And we communicate with all the segments of customers one by one. majority is coming from -- as you know, last year -- we increased 25% of our retail customer base a low ticket size, but manageable cost of fund in terms of [ SAR ], even though term deposit [ assets ] is also quite expensive. But this year, we continue. So, retailer is one-off thing, [indiscernible] play a big role as well. And then on non-retail, I should say, this is one good thing to note that nonretail contributions is actually getting larger and larger, especially coming from CAR. One is actually the cash management. Second is actually the operating account of customers. So, we mandated all the loans with us is actually having some percentage of operating account with us in a very much high discipline. And then the other one is actually we are riding on our capability in digital. So, account opening, retail [Technical Difficulty] opening digital, which is not price uncertain, is actually increasing quite significantly. So actually, it's coming from retail and nonretail, coming from discipline of [ executions ] and [ fracking ] as well.

Right. And if we look at that Ibu, if I think about what Mandiri is doing, what BCA is doing, again, they're riding on the capability of the digital offering. But at the same time, I'm just trying to understand, who are you gaining market share from? Are you gaining market share from other big 4 guys? Or is it more from number 6 to 20%? Is it -- like where is that additional market share gains coming from, especially on the CAR [indiscernible] -- in fact, for both...

Yes. Well, very spot on your questions, Harsh. So mostly, I have to be honest, we can't really beat some of the BUKU 4 [indiscernible], KBMI for the big 4 guys. Actually, they probably still increase what high especially BCA, but we're definitely taking shares coming from BUKU [indiscernible] which is actually the rank number 6 up to #15.

Yes. Just to add a little bit color on current think we continue to see strength in terms of current account growth given the month of April, I think even stronger growth. I think if you are wondering, I think I can let you aware that our cost of fund current account remains stable since December. So, we managed to grow. There's a lot of things we do. I think it's more disciplined by all the teams in non-retail and we managed to keep cost of fund flat since December. So, this is a good source. That's where you can see the NIM goes up because we repriced some of our loans, most of our loans, and yet, we maintain our cost of fund for our current accounts.

So just to a final question on this. If I think about where it is getting to is you have better digital offering. And also, you talked a bit about working with the clients. So, does it mean that if you are lending or you're lending to any of these, especially corporate clients, there is an inherent ask for them to keep deposits with you or give you payroll accounts? Is it a bundled structure that you are working on with clients? And do you see other guys starting to do that?

Yes. I think I may elaborate, Ibu Lani. I think it's all its disciplined Harsh, in terms of looking at our loan size and also our fair share in terms of the operating throughputs. I think this is also -- the discipline also we share in our commercial bank. I think because we strongly believe operating throughput not only improve our cost of fund, but also provide visibility and improved asset quality because we are able to see the real churn in our books.

Yes. I think additionally, as I elaborated earlier, we always increase our capability in terms of customer experience through digitalization, including for non-retail -- right? We have this channel, for example, which is currently widely used by our corporate clients as what Rusly mentioned, we sort of put on a [ mark ] to ask the customers, especially loan customers to put operating [ income ] with us. But I don't really think that can be replicated by competitors very easily if the bank does not have capability, which actually giving a good customer experience for the clients. So, we are making use of our ability in terms of digital where customers can access to their accounts and make transactions very easily without having to interact with us on office hours, for example. So, I think there's combinations of discipline and then the strategy itself to focus on CASA as well as the capability on our digital, which is improving the customer experience, which makes customers okay to respond to our request to put their operating account with us.

Makes sense. And the last one, if I may. Your cost to asset numbers have been phenomenal, I think down to 2.5 over the last few years. Has it bottomed because you have fantastic number of customers' growth and that has helped. So, balance sheet growth has also [ helped allowed ] to spread the costs over a wider range of assets. Is it done? Is there a risk that in case of -- I mean -- or is it a risk that if you continue to be very disciplined, it can end up showing up elsewhere? So, are we done with cost to asset improvement, net-net?

We don't [ only ] see that any negative downside on those so far. In fact -- but you are right, there is always the limitations on how we can be more efficient, right? We can really see some opportunities related to digitalizations. But the rest of it, I think we are very much efficient looking at the CIR, KK, you want to add?

That expansion will be much faster than the increase in cost, right? I think the earlier charts, we have shown you that a lot of migration to digitization, even on, let's say, transaction, a lot coming to few risks instead of EDC. So, a lot of cost savings because EDC is a very expensive [indiscernible] to have, QRIS is almost cost free. Number of branches has continued to come down, number of ATMs has continued to come down to a much more optimum level. So, we do see the level of establishment costs, admin cost, getting a little bit more efficient. And if our assets are growing at between the 6% to 8% level, expenses at 3% to 4% level, you will continue to see a slight improvement -- many smaller improvement going forward of this cost to asset.

Last question on all of it. The reason I'm asking that on call because you have seen that at in Singapore, in India, in Thailand, in Indonesia, all large -- one of the largest banks in every country where -- and these are all digital leaders, and they had operational issues, which led to regulators stepping in or it led to asset quality problems. So, all I'm kind of worried about is it is going really well. And at some points in time then it just increases the risk because you have so many different moving parts in the digital value chain that one thing cracks and then a lot of good work kind of pauses. So, is that something that you worry about? Or you are very comfortable because 3% to 4% cost growth seems really low in an environment where competition is going to increase significantly on digital in the next 12, 18 months.

Yes. Just like what Pak KK mentioned, the way that we see it, we still see some opportunities coming from it that we don't really see any inherent risk so far coming from it, especially when we focus our growth in certain segments, which don't need too much in terms of face-to-face interaction. So -- and then in terms of risk is still much more manageable with much lower ticket size as well. And if you're looking at the improvement of cost to asset as well, it is coming from the reduction of high-cost infrastructures that we have.

Yes. Maybe just to add on a little bit to that. I think fact resiliency of IT or digital resiliency is a top priority in CIMB Niaga. I think we get the benefit of -- from learning from the many failures or maybe other banks or inefficiency from other banks to at least not make similar mistake or at least put us on guard with regards to ensuring that our systems are operating at the optimal level. So yes, it will continue to be a key priority for us.

Okay. Our next question is from Ben Lim from Macquarie. Ben Lim, your line is open now.

Can you hear me clearly?

Yes.

Yes, then. All right. Great. And well done on a good set of results. My first question is around your net credit cost is still below your guidance for the full year. And I believe you also enjoyed some decent loan recoveries this quarter. Just want to understand sort from a first quarter perspective, trajectory wise, do you think that there's probably going to be a pickup in net credit cost? Or do you think relative to your guidance, at least the -- risk is tilted positively?

Yes. Well, thank you for the question, Ben. So, COC, I'll start with the COC. COC has been very good below 1%. But the guideline, if we see coming up by the end of the year probably is within 1 to 1.1%, which is still very, very healthy. But then some of them is actually is probably coming from -- we might see that the loan growth will not be as much. So, it is because of [ DNR ], but we don't always see very significant issue relate portfolio asset quality. But the guidelines will be probably see COC will be within 1% to 1.1%.

Okay. I mean should we expect to see like your LAR continue to come down, your [indiscernible] continue improving how do you feel versus the [ levels ] do you think we can improve further from here?

Henky, want take that?

Yes. Ben, if your question is on the improvement [-- further improvement on GIL ] and LAR yes, of course, it's what we have been striving since post-[ COVID ]. So yes, we are targeting like [ GIL ] ratio towards 5% or in fact, below that, [ 4.8%, 1.5% ]. And of course, that will correspond to the NPL to NPL is more like a lagging to [ GIL ]. And in terms of coverage, and that also relates to your allocation of COC, basically, we will maintain the [ impaired ] coverage around 100%.

Area of asset quality, we are still expecting some improvement, whereas in terms of LAR including the ex-[indiscernible], we still expect to go below 10%, right? [ GIL ] just like Henky mentions, I think new operating will be probably slightly below 5%.

Okay. My next question is around -- just to catch up again your NIMs. I don't know if I missed it or the specific number, your NIM sensitivity to the rate hike. And I'd just like to get your thoughts as well, do you expect there could be room for further rate hikes given that it as a bit of a surprise. I just want to understand the sensitivity going forward as well as for the rate hikes.

Yes. Well, you're right. So I think our [ stand ] on those will be neutral to slightly negative on those. It's quite a surprise on the last week decisions [ from BI ]. So that's why in terms of NIM guidelines, we end up last year, ending with 4.4%. So, guidelines will be reducing NIM to between 4.2% to 4.4%.

Yes, I got the guidance. I understand the sensitivity to a rate hike. Do you have that?

Yes. So, at this time, it's pretty much neutral, but it's also -- we also have to see how the rate hike gets transmitted to loans and deposits, right? A sizable part of our books are fixed rates. So, it doesn't get transmitted there, about 40 -- close to 50% of our are floating rates. And floating rate loans can be 1 month reprisable, 3 months reprisable. And sometimes even annually reprisable. So, it does not get transmitted immediately. So far, we have not seen any demands for higher deposit rates yet. We have not changed our [ board ] rates. We have not given a more delegated authority for red pricing. So, so far, so good. So, if everything stays pretty much status quo, then you probably see a neutral transmission of the rate hike into our NII. But we still have to say. So maybe it's just too early after just 1 week of a rate hike.

Fair enough. Do you think that this will put pressure on your CASA accretion just high rates, customers are only switching over to [ FTEs ] a bit more, you see the rates go up. Do you think your CASA ratios could just inflection going forward?

Yes. I don't see that, though, Ben, because, again, we are much more focusing on so, for example, on very much mass market and retail customers, a low ticket size, but not price sensitive. So, I don't really see that as a real threat actually. And in terms of CAR, we are focusing more on operating account anyway because that starting from SME and commercial and as well as corporate banking. So it is not [ on deposit ] per se.

Okay. That's great. And last one is on your loan growth. Just wanted to be clear here, -- is it demand that's holding -- I mean, asset on the corporate side, you indicated demand is still a bit weak, but you also added that you're being sensitive on pricing, right? You don't want to give it away. So, what is your loan growth or strategy going forward, right? Are you going to be trying to hit the upper end of your guidance? Or are you willing to give that up just to protect NIMs?

Yes. And overall, I think we are still kind of -- again, as we are currently putting on about 5% to 7%, but let's see. On corporate, I think that will be different. Rusly can really add, if your question is particularly on corporate, it will be quite sensitive, but we would like to focus on asset quality. So, we don't want to attract negative selections by pricing it up. So that will be very, very selective. Rusly, do you want to add more on corporate loans?

Yes. I think as what Ibu Lani and Pak KK mentioned earlier, I think we have started to reprice our loan even before the rates increase. I think it's a brave phase really setting the market, and we haven't seen the outcome yet, Ben, in terms of weather market will follow our for steps to increase. But with this rate increase, we are hopeful the market will adjust. And in terms of loan growth, yes, we have to be prudent, right? That's why we say we want to make sure that we have a fair share of the NIM from our loans, right? And I think it's a good problem, I would say that if we can continue to generate our funding. We have more funding to come to the bank. We have more option to deploy where the fund is going to be.

Okay. And just looking at your segments, I think SMEs and commercial is also quite flattish. Is it -- yes, I just want to understand that the demand factor there? Is there starting to really pull back on your loans growth? Or is this really your -- you've got plenty of demand, you just sort of opting not to approve some of these to protect your yields? I just want to [indiscernible] between demand and pricing.

Yes. Well, in terms of loans, I think even commercial, commercial is actually year-on-year growth of 5 points, 5.6% is actually Q-on-Q, yes, it is flattish. But as you know, almost all segment on Q-on-Q basis is actually very mild because of the part of year as well as in Indonesia and actual that some 20 holidays actually in March and especially in March. But commercial 5.6%, the lowest [ is actually ] corporate, just like what Rusly saying. And then whether the mild growth on several segment is because we don't want to prove it. And I said, I don't really think so. But again, the credit filter is there. This risk appetite is not changing, but we pick and choose which customer that we want to put on board because at the end of the day, in this kind of situation, where we are focusing more on the deposit, CASA and fee income, and we are very selective in terms of loan, to match the asset quality.

But I can add, given the dollar and rupiah [indiscernible], Ben, I think it's better to be at the cautious side for the moment. I think with the interest rate also probably going to increase were there for weeknight -- so I think at this point, I think we have to make sure that we maintain our asset quality and be prudent in terms of where to deploy our assets given those environments.

Our next question is from Ilham Firdaus from BNI Sekuritas.

I have questions related on the asset quality. I think some part of it is answered to Ben's question spread previously. My question is, given that recent deployments on the [ SMP ] and consumer, and the consumer segments, which we see some of the financial players showing a worsening asset quality trend on these segments. I wonder if you can give some colors, what is the current conditions on the CIMB, particularly on these 2 segments right now the [ SME ] and the consumer? Do you see any asset quality issue picking up within the segment -- and related to this, I also -- when we look at the NPL coverage, it's down to, it still remain above 25%. Just wondering if you can share your write-off budget for this year? And how much did you write off during the first quarter? I think that's all my questions.

Yes. [Foreign Language] I think in the consumer as well as SME, there is no worsening in some of asset quality is still very, very good actually, and we are still very, very happy even compared to the market if we are actually comparing the NPL, for example, still very much good. On NPL coverage, Henky, you want to answer that?

Okay. I was muted. Yes, thank you Bu Line. Yes, Pak Ilham. So, with regards to budget, actually, we are more towards our NPL target or to target of every segment. So, we have a target for every segment, what [ GIL ] ratio we would like to achieve at the end of the year and then we monitor debt on a monthly basis. Hence, because on a bank-wide basis, we have good coverage. So, whenever we need when it comes to -- after we [ expose ] all resources in trying to recover from our NPL, for example, in [ SMB ] and still cannot then, we have to write off then, we will use proficient to write it off. So, there is no like exact margin as we -- like every segment. So, we manage more on a portfolio basis will be targeting on the [ GIL ] ratio on an NPL ratio.

Maybe I just like to add, I was just looking at some of the numbers for corporate banking, commercial banking and SME year-to-date, 0 write-off, all right? The write-off mainly coming from consumer bank, which are more to write-off for NPLs more than 180 days for credit cards and secured business once they pass the point of no return [ we ] written-off or to allow this as well, even mortgages that were hardly any [indiscernible]. So yes, like what Park Henky said, we don't really set a budget, we exhaust all [indiscernible] options before deciding to write off as well as looking at the overall [ GIL and GIL plus ] numbers before taking a decision write off.

Yes. Probably you are referring to NPL on a quarter-to-quarter basis. It is -- there is some increase, actually, it is correct. But mostly because of the [ ENR ] because of the balances. As I mentioned earlier, Q1 has been very slow and mild in terms of loan growth, [Foreign Language]. So that's also one thing. But not all the segments, SMEs actually is getting better in terms of NPL. So, for example, SME -- NPL is actually improved by 12 to 15 basis points on quarter-to-quarter basis. But on a year-on-year basis, actually improving quite significantly consumer, practically flattish -- and then business banking, which is actually commercial and corporate, a little bit in breezing but only about -- increasing is about 0.2%, 0.3%, [ primarily ] because of the balances decreasing balances. But the rest of it, we don't only see any particular issue in terms of asset quality even within those 2 segments. Okay.

Our final question is coming from [indiscernible].

Yes. I have no questions. I have all my questions is asked.

All right. I see there's no more question. We can conclude before that. I would like to hand the call over again to Ibu Lani for final remarks.

Well, thank you so much [Foreign Language] in for all attending this Q1 call from CIMB Niaga and also for all your attention and support, stay healthy, everybody. Thank you so much again.

Right. Thank you, Ibu Lani. With that, we conclude the session for today. Please contact Investor Relations team if you have any further questions. Thank you so much for joining the call, and have a wonderful day. Thank you.