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

My name is Teguh Sunyoto. I'm Investor Relations here at CIMB Niaga. Presenting to you this afternoon are Ibu Lani Darmawan, President, Director and CEO; and Pak Lee Kai Kwong, our Strategy, Finance and SPAPM Director. Also present here to take questions are Pak John Simon, our Treasury and Capital Markets Director; Pak Rusly Johannes, our Business Banking Director; and Pak Henky Sulistyo, our Risk Management Director. As usual, I would like to remind everyone that today's presentation material which is available for download on our website investorrelation.cimbniaga.co.id, may include forward-looking statements that are based on current management estimates and are subject to uncertainties and changes in circumstances. The actual result may differ significantly due to a variety of factors. And with that, I will now hand the call over to Ibu Lani for the presentation.

Well, thank you. Thanks, Teguh. Good afternoon, everyone, and thank you for joining our first half of 2024 earnings. Firstly, let me provide you with some update on our strategic priorities and progress. I will not go through the first 2 to 3 pages. I think that's very familiar already. So we go through directly, yes, okay, so on the strategy. As you know that our strategic priorities rest on 5 strategic pillars. The first one is actually we prioritize growth in a segment which provide profit on risk adjusted basis for us. So we carefully pick and choose the more resilient segment and business in weathering the current situation of high cost of fund and raising NPL as well. So we lined up with our focus on consumer and SME. So as a result, our loan contribution from retail segment increased to 45.5% in June 2024 versus last year H1 of about 45%. The second, maintaining a healthy balance sheet position with a key focus on low cost CASA growth by investing in retail customer acquisition through digital ecosystem partnerships and market share penetrations in Tier 2 cities across Indonesia. And also we are focusing on pursuing better and closer cooperation with our non-retail customers whether it is in SME, commercial, corporate clients for their operating account, right? So we are maintaining a good CASA balance and CASA ratio continue to increase and reaching 65.2% in June 2024. The third one, a disciplined approach to operational excellence with a continuous focus on productivity, process simplifications and also our focus on customer experience as well. So our cost-to-income ratio stood below 44%, which actually was better than our guidance and has been improving compared to the last 2 quarters. The fourth, preservation of capital and balanced risk and return. So I think this is a disciplined approach to risk adjusted returns as a key to evaluating the attractiveness of each of our business segment opportunities. So we deliberately choose to put emphasis on risk management to weather the current situations which led us to a better asset quality and manageable provision expenses. As you can see there, our CoC of 0.9% in H1 this year is better than our guidance. The fifth, we leverage our capability and technology for operational excellence and improving customer experience, which lead us into a higher financial return to shareholders. So we posted our ROE of 14.8% in H1 which is expected to improve to achieve our ROE targets for 2024. If we can go into the next page. Okay. So this is the some of the key metrics on our strategic progress if we are comparing ourselves now in H1 versus when we start back then in 2019. First, the top-left chart shows our disciplined approach in capital allocations toward low risk portfolio, particularly in retail segments, has resulted in significant shift in our portfolio risk profile as shown by the substantial reductions in RWA density. So this coupled with our prudent approach in risk management that I mentioned earlier, has enabled us to defend our profitability in terms of risk adjusted NIM. So our strong cost discipline also resulting in sustained improvement of our cost-to-income ratio as well as cost-to-asset. And this is not changing. So we'll continue to do that. So in overall, our objective is actually to increase the risk adjusted profitability and ultimately to sustain our value creation for all stakeholders, especially for the shareholders. So if we go to the next page, so we are as well keeping track on our performance versus the industry. As you can see in this slide, all of the key financial metrics have been moving into the positive directions. So our asset quality metrics, gross NPL has been improving consistently and has been lower than industrial NPL in the past 3 quarters. Our track record in operating efficiency, which in Indonesia we measured by BOPO, clearly show that CIMB Niaga is one of the best-in-class in terms of operational efficiency. Then with such an improving metrics, we will continue to create value to all the stakeholders. So if we move into the next page. So this is our first half financial highlights. So I'm happy to report a record high net profit both in half yearly and quarterly basis. We reported net profit of IDR 3.4 trillion in H1. So it's an increase by 5.4% year-on-year and a net profit of IDR 1.7 trillion in second quarter which is an increase of 2.7% quarter-to-quarter. So our positive performance was mainly driven by healthy growth in earning assets, operating efficiency as well as a very good asset quality. So, as I mentioned earlier, we reiterate our commitment and disciplined approach in growing only the profitable segments. In that sense, we have increased our loan portfolio by almost 6% in line with our 2024 loan guidance of between 5% to 7%. Our loan growth was driven by profitable consumer segment, primarily the retail auto and unsecured loan coming from credit card and personal loan as well as the SME segment. Meanwhile, customer deposit grew by 6%, mainly driven by CASA growth of about 7.4% year-on-year. Our initiatives to accelerate customer acquisitions resulted with a strong customer base growth of 22%. In fact, our banking customer base has increased by overall 40.9% since 2021, driven by mostly retail segment which coming from consumer customer increased by 40.6% and SME customers by 54.1%. So we have achieved a solid asset quality with NPL 2.1% which is actually below the banking industry NPL. This has enabled us to maintain a prudent level of provisioning which impact our P&L. So our capital ratio remained very strong at 22.7%, much higher than the regulatory requirement. And on the operating efficiency side, the CIR, cost-to-income ratio are actually better than our guidance. Looking forward, we remain positive on our financial performance for 2024. So we expect the ROE to improve for currently in H1 of 14.8% to align with our target this year between 15% to 16%. So Pak KK, our CFO, will go through more detail in our financial performance. But I just want to reiterate that the common theme in my view of all the numbers in this page is that we continue to grow and we are growing in a profitable way. So Pak KK [indiscernible]. Thank you.

Okay. Thank you, Ibu Lani, and a very good afternoon, ladies and gentlemen, and really, thank you once again for coming in today for our second quarter results briefing. Like Ibu Lani, I'm happy to share with you another strong quarter of our financial results. Next, basically, as usual, I'll start with the balance sheet. Let's look at total assets first. Total asset grew 4.1% on the back of a relatively good loans growth of 2.6% in the quarter. And in the same period, you also see that we have increased investment primarily in the government bonds, the government papers, by about 11%. If you look at these numbers on a year-on-year comparisons, loans were up 5.9% while investment in marketable securities were higher by 21.7%, taking a total asset higher by 5.2%. So during this period also, you'll see that a lot of the excess cash that we had compared to the first quarter -- first half of last year has now been moved into higher yielding securities already because total cash was down 33.2%. Next is over to deposits. CASA was the story for us. In the second quarter, CASA was up 1.7%, really boosted by strong current account growth of 5% coming in mainly from the Business Banking setting. In the same period, the savings deposit took a little dip of 1.4%. On a year-on-year basis, we continue to make big strides in building current account balances with growth of 15.3% while CASA grew at the pace of 7.4%. Next page to the P&L. So a little bit of the light here really seeing the turning point and the positive trajectory of our net interest income growth. So in the second quarter, interest income gained 2.8% while interest expense really cooled off already at the 2.9% increase, giving us a 2.6% increase in our NII. However, when you compare it to from a year ago, we're still up by about 24.6% in interest expense versus interest expense of 7.7%, deriving year-on-year contraction of 2.6% in NII. So on the non-interest income, right, it was came in a little weaker in the second quarter by 6.7%, very much attributed to weaker trading income and lower bad debt recoveries. It was similar also when compared to a year ago. We saw the same 2 lines coming in weaker, resulting in the NOII decline of about 8%. So with the weaker NOII, the total operating income was slightly lower compared to the first quarter and 4.3% lower compared to the same period last year. Next is on the operating expense. Our sustainable cost management measures continue to deliver its intended results. We remain judicious in our spending, bringing overhead even further down by 2.9% from a quarter ago and 3% lower when compared to 2023. Provision expense were also well within our expectations, remaining below the IDR 500 billion level for the second quarter -- for the second time this year in 2 consecutive quarters. This was about 36% lower when compared to a year ago. The end result was really a 2% quarter-on-quarter improvement to our PBT and 5.8% increase versus the first half of last year. So in short, I think we like what we are seeing and how our financials is really shaping up for the rest of the year. Now that we are starting to see NII gaining traction, expenses are well under control and then provisions, I would say, landing in a very steady state already. Maybe to some ratios -- maybe just to highlight some key ratios, the positives are really on our ROE, climbing above the 15% level in the second quarter, after a relatively subdued start to the year. The NIM contraction has stopped. In fact it has increased by 2 basis points in spite of still very challenging operating environment in getting chip funding. The cost of credit, though slightly higher in the second quarter, is well within our guidance, closing the first half of the year at 0.89%, also representing a 74 basis points reduction compared to the first half of 2023. And the other risk indicators, very evidently really may attribute the lower cost of credit to the ongoing improvement in asset quality as exhibited here by our gross NPLs, low net risk, gross impaired loan ratios, all coming down by significant levels from a year ago. You also see that as CASA remain a key focus, we are above 65% already again at the close of the first half. Okay, go over to NIMs. So the NIM challenges, I think, still remains even though we have seen a slight increase in the NIMs already in the second quarter. When compared to a year ago, we are still about 40 basis points lower last year, but NII is off by about 2.6%. Really, the silver lining is really after seeing 3 consecutive quarters of NIM improve -- so at least 2 consecutive quarters of NIM improvement starting in the first -- which ended the last year at 4.05%. Now we have 4.2%. And then this quarter, this last quarter at 4.22%. Next to the NOII, maybe. Okay. The composition of fee income looks very different compared to a year ago where we had a good mix across all 4 key NOII lines. Really for us, the big positive story for the year is that our fees and commissions income from our core banking operations and product services showing improvement, quarter-on-quarter 7% and year-on-year at 15.9% respectively in the last quarter and also compared to last year. Our FX business and derivatives business also saw significant increases over the same period. However, you see that we still have losses on our trading side, so the losses was however unable to offset some of the -- or the gains from the FX were not able to offset some of the losses in the marketable securities. We also have lower bad debt recovery compared to last year and compared to a year ago. Next page, please. Yes. Yes, further good news on operating efficiency. Personnel expenses were inched up slightly at 2.6% because the interest expense from personnel actually represents 60%, almost 60% of our overheads right now. So it's very well managed, up only 2.7%. Other expenses, which includes our establishment costs, marketing costs, admin and general cost was maintained significantly lower both quarter-on-quarter and year-on-year. So these big deductions were largely attributed to all the structural cost take-outs we have implemented since the last 2 to 3 years. And with that, it has afforded us bigger investment in technology. We saw us increase by 5.2% and now really happy to see our CIR below 44%. Over to loans, next page. Loans was stronger in the second quarter, right. Year-on-year, our 2 focus segments, Consumer and SME, recorded growth of 5.8% and 10%, respectively, and jointly these 2 segments grew 6.9%. That moved the composition of these 2 loans portfolio from 45.1% to 45.5% of the total loans ratio. The commercial banking and corporate banking segment also saw a quick turnaround by both recording growth in the second quarter after seeing some small contraction in the first quarter. Next to deposit, please. Okay. Our focus on deposit is really on CASA. So far we have been one of the market leaders in attracting more current deposits with a year-to-date gain about 8.1% already. Over on the retail side, we still have some work to do to win more savings balances. To-date, we are up 3.2% but when compared to our peak last year, we were up by 0.3%. Next to the cost of credit. Our cost of credit continued to improve with all 3 key asset quality indicators recording improvement with NPL lowered to 2.15% now, special mention at 4.49%. Collectability 1 or category 1 restructured loans came down significantly to 3.6%. So that took our loan at risk ratio to a historic low about 10.2% right now. We also added about 96 basis points of credit costs in the second quarter. These were actually 80 basis points lower than a year ago. Year-to-date, total credit card stood at 0.89% and that took our coverage of our loan at risk to a higher level of 52.5% and the coverage of our total impact loans to 113.4%. One last one with last slide. Next page, please. Okay, liquidity and capital, liquidity ratio inched up a little to a very comfortable level of 245.5% on LCR while NSFR continued to stay steady above the 100% level. Now at 119.4% with a little bit of loans growth in this quarter, we saw loans to deposit ratio inching up again to 85.7%. Capital ratios remain strong with current 22.7%. This was post dividend that we paid out in April with CET1 at 21.6%. So those are our results. I'll hand it over back to Ibu Lani for her final remarks, and then we'll take questions right after. Thank you.

Well, thank you, Pak KK. So, before we begin with the Q&A, I'd like to make a few remarks about our result and our strategy going forward. Well, despite our good result in H1, again, we would like to reinforce our commitment and discipline to strictly focus on profitable growth, not only just growth. So we'll continue investing in retail customer acquisitions, as well as focusing on our operations with our non-retail customers for operating account, which we believe will serve as a key driver of our future sticky and low cost CASA backbone for us. Although our efficiency ratio is better than our target, but we remain our focus on cost control and maintain our operating efficiency, while we also continue to invest, right. So our prudent approach in asset quality is maintained, along with strong positions in liquidity and capital. We believe we should put more emphasis in this area to be able to weather the high cost of fund environment as well as we can see from the reality that the industry on the raising NPL. So our prudent approach in asset quality will maintain. Finally, looking forward to the rest of the year, our good first half will put us on track. So we are confirming all our guidelines for 2024. So, thank you. So I think back to Pak Teguh. Can we please go to the Q&A? Thank you.

Yes. Thank you, Ibu Lani and Pak KK, for the presentation. It's now time for the Q&A, but before that, let me remind the attendees here in this call, if you want to ask questions, please type your name and company name to the host in the chat box. We will then open your line, so you can speak directly to our management and ask your question. We will take verbal question, first from the line and then take question from the chat box. So the first question goes to Ben. Yes. Ben, your line is open now.

Can you hear me?

Yes. Yes, Ben.

Well done on a good set of results. My first question is around your retail CASA. I mean, I think a quarter ago, the momentum was a lot stronger. And if I'm listening to you, you're talking about now switching or pivoting a bit more to maybe wholesale CASA from your corporate accounts, right -- corporate operating accounts. Is this sort of your retail CASA momentum of dying down? How should we think about this going forward?

Okay. So I'll go straight to answer that. Thanks for the questions, Ben. Yes, we have been focusing on CASA for quite some times now. I think we can see the result. We also started to look at non-retail CASA, which is actually CA predominantly for non-retail. And I think the result has been very good. So we are not really only depending on SA only, but CASA has been growing very well.

So I just want to get a little bit on the SA. I saw there are 2 sides of this story. I saw you said that we have -- noticeably, we have flattened, but what we really like to see in our CA right now is the mass market size actually increasing or adding quite a bit of balances into our portfolio, whereas the -- the more affluent segment, given the high interest rate environment, have moved some of their money into a time deposits also even in the retail bonds investment. So that one cause a little bit of outflow, but to other investment products. So we don't mind that either. But the good story is really on the mass market retail CASA as SA coming in quite strongly.

Yes. And I think attributed as well with -- we continue to grow our retail customer base, which are on year growing around 22%. So I think that's a very good intended investment that we have for low ticket size, averagely, but sticky and non-price sensitive customer base.

If I can, I think, Ben, yes, there's what Ibu Lani has pointed out, there's a strong year-on-year growth in both the commercial and also the corporate bank segment. But I think we note, I think the loan deposit ratio -- LDR, sorry, the LDR ratio for both segments still above 100%. So, meaning that there's still room for growth for us in terms of tapping more into the funding side. That generates a lot of efforts. But I think the focus continue to grow both our lending and also funding customers. So I think if we look at the CASA ratio for commercial and corporate bank is very good. I think corporate bank has even reached about 78%. So we are able to generate transactional current account and tap into the operations.

Okay. My next question, sort of I hope you're looking at this correctly. When I look at your net interest income charts, right, I can see that Q-on-Q, your yields are coming down, your cost of funds is moving up, but you still got to unbalance some NIM expansion. Can you talk us through that dynamic a little bit?

Sure, Ben. Okay. You also noticed from the balance sheet that there's significant increase in marketable securities, right. So actually, the market has presented us with this at least, tactical opportunities. The government yields are very good right now. So the yields coming from -- the yields are actually coming from loans and also bonds. So what is not represented here are the yields coming from bonds actually increasing, right, whereas for the NIMs, it's a summation of the interest expense yield from bonds and also yield from loans. So, yes, while the yield from loans are coming down slightly and the cost of deposits up a little, the yields coming in from the markets help propel this increase in NIMs. I hope I answered your question, Ben.

Okay. Yes. So should we think about this NIM [indiscernible]?

I think going forward, we'll add another line of that. Pardon me?

Yes. So go ahead first, yes.

Yes. Maybe going forward, we'll add another line on the non-banking book yields, basically the investment yields. Then you'll get a summation of -- when you get a summation of that, you see where the yield increase is coming from.

Yes. Okay. Got it. I guess the follow up question here is, what is -- that means that your NIM expansion is a bit less underlying, it's a bit more opportunistic, right, with the marketable securities. It's the underlying trends, probably NIM compression. Is that maybe the correct way to think about it?

Yes. Well, that has been a challenge for us for quite sometimes. But we believe that since we are shifting, say, for example, loan into the area and segment, which we can reprice, we can see from month-on-month and Q-on-Q as well in terms of trajectory, which is actually in retail and SME, and our ability to continue to improve the CASA ratio, that will ease up the NIM compression challenge that we have. So we are looking at our NIM now in 4.2%, we believe that will be, I think, that the bottom line of the NIM in overall, right. So we expect NIM will still be hovering around 4.2% to 4.3% to [ 4.35% ].

Thank you, Ben. The second question is coming from [ Tan Yong Hong ] from Citi.

Yes. I have a few questions, but maybe I'll ask them one by one. Maybe first on the non-interest income, can we get our thoughts on your strategy on non-interest income and maybe in particular fees? Which areas do you think are the opportunity to grow as the next engine of growth, especially after becoming more focused on the retail segment? This is my first question.

Yes, well, thank you for the questions, [ Yong ]. The other one is that when we increase more in terms of transactions on the fee income is a transaction -- transactions and administration fee from the new customers coming in is actually one. And then when we continue to grow the unsecured loans, that is of the area that we are targeting as well, remittance as well, the other part that comes from retail. SME, also the same. And wealth management is from bancassurance, for example, is one of the areas which we believe will give us and will contribute more now and then and in the future as well in the area of retail. Anything that you want to add from non-retail as well, Rusly or Treasury?

I think maybe. Yes, sorry, sorry.

Just as a quick one for me maybe to add. Yes. If you have to see from the FX and marketable securities, it is a drop year-on-year. But if we have to dig deeper, the -- for first half '23 versus first half '24, for last year, 57% of that number was from trading. Only 43% of that number was from sales. Versus the first half of '24, we have 57% of that from sales versus only 43% of that from trading. So we are switching from more trading, risk taking, concentrated kind of business on the fee base to more customer centric kind of business this year. So I guess that's the good part of what we are doing now. Although I guess the work in progress that we are still doing now is that we still need to catch up more with regard to having to dig even deeper to get more from our customer franchise.

Yes. Additionally, [indiscernible] that our FX sales is doing very, very good. So this is not -- FX actually is done by all the BUs. And if you're looking at the progress, year-on-year growth is actually tremendously very good. So we're talking about 30% to 40%.

So, yes, the fee income is still very much retail dominated, right. The 2 biggest lines is really on the bancassurance wealth management business. Our cloud business is actually doing well on the fee income side. But what Ibu Lani said, the biggest income really is coming from the cash management transaction of cash and payments in fee income. So that one with more customers, customer acquisition, this will be the one that's continued driving the fee income growth.

Okay, got it. And maybe just to sum it up together, do you think fees income can grow out of this IDR 1 trillion to IDR 1.5 trillion kind of range that you have been reporting over the past 2, 3 years quarters? Do you think you can grow maybe more sustainably above the IDR 1.5 trillion kind of level, IDR 1.5 trillion kind of level?

Certainly, we want to get there, right. Ambition is really beyond -- above that. Yes. Sometimes we rely a little bit more on the savviness of our treasurer to trade to really give us this uplift, right. Even though very much so, we want the sales business to be outperforming the trade business. One thing we should not also forget is that the loan recoveries are also very important for us. These are basically bad debt loans that we have written off, right. For this quarter, we did see a slower recovery, but some months when we get the bigger recoveries, that will help us propel above those levels that you just mentioned.

Okay. Yes. I think my next question is on that. I think over the past 2 years, I think you have did quite a lot of loan recovery. Can we just get a sense on how much of these legacy NPL that you can do loan recovery are still sitting in your books?

Yes, I think we have been digging on those for the past 2, 3 years and I think we should, right. That's the right way to do for recovery. We still believe that there is some in the book, even though definitely much less than it is. But we still put some target for -- from now till, yes, 1 or 2 years after this as well.

Yes. So, yes, we have really plucked all the low hanging fruits. So those loans really that are written off, point of no return, we think we have difficulty collecting. We are also considering selling them off to any interested bad debt investors. So that will actually help us recover also in bulk especially.

Okay, got it. But essentially you have done the most. So whatever residual is not so much...

Yes, the easy ones we have done yes. So these are...

Easy one, yes. But we still believe that still can fit us some in our balance sheet and in our profitability within now and the next 1 or 2 years, right.

So probably if I can add also, we also do have business - collateralized-based business like [ ADB ] and mortgage. So although we are not like expecting or become very accuracy in terms of risk appetite on this, but this come -- I mean, time to time, there is NPL with good collateral where we can always more -- I mean, intensive on getting the recovery.

Okay, got it. And my final question is on OpEx. I mean given that you are at the end of your structural cost takeout, where do you see OpEx growing from here and into the next year?

I don't think we are at the end of a structural cost takeout, right. Our goal is to accumulate at least IDR 200 billion of cost takeout each year. So by the next year, we can get another IDR 200 billion. Then we have IDR 400 billion and costs that would not recur that following year. And then by the third year, we have IDR 600 billion of costs that will not recur that happened, let's say, 3 years ago. So, yes, our goal is continue to dig deep. I think we have big enough franchise to look at the better efficiency across organization. It is such a big geography.

Yes. To add to that as well, you see that we have been investing in our digital capabilities, et cetera, et cetera, and then we are now starting to embark on GenAI to help us in a medium term, to propel ourselves to be even much more efficient. So if you are asking whether this is the end of it in terms of cost efficiency, I don't really think so. We still are able to even improve it further. And we still have the ambition even to press down the CIR when we grow the top line as well, to even much better. Even though our guidelines is actually -- we are happy if we have the CIR of below 45%, which currently we perform even better than the guidelines that we have. We are actually now low 44%. So we are very disciplined in that. But we also don't forget and not shying away from investing, especially on human capital, continue to do digital, especially on cybersecurity and et cetera.

Thank you, Yong, for the question. Okay, let us move to the chat box, Ibu Lani and [Foreign Language]. So we have question from the chat box from Samuel Woo from MIDF Amanah. I think the question has already been answered before. What is the expected NIM trajectory for the remainder of the year? I think we have answered this question.

Yes, 4.2% to 4.4%. Actually, it's between there. So currently we are on 4.2%. We don't really expect it will go below 4.2%, but I think that's still within our expectations on the NIM.

Right. And then the second question is regarding the OPEC. Maybe you can set light on the union negotiation process in Indonesia if this is an issue for [ several ] indices?

Okay, let me answer that from Samuel, right. So I don't really think that will be a key issue for us. But one thing is that we always follow the regulations [indiscernible], yes, also all the law and regulations, and then we are always benchmarking ourselves within the market, not only internally, but using the capable consultant and advisors to take a look at the compensation benefit and salaries and et cetera. So we don't really see this as a threat or an issue.

All right, thank you, Ibu Lani, for the answer. And then let's move on to the next question from the chat box. We have question from Donny Primananda from Sinarmas Asset Management. His question is which segment mostly drives the growth of current account in second quarter of 2024? And what caused the bank to be able to capture that segment?

Yes, actually Pak Donny that I touch base on that previously as well. So our CA growth has been very, very good across the non-retail because CAs is actually mostly coming from the non-retail across SME or we call it EBB. And corporate banking, commercial banking, so we grew double digits. Even in corporate and commercial, we grew actually hovering around 25% to around 39% to 40%. So that's the -- And SME who is actually one of the driver for CASA for a couple of years, still growing double-digit above 10% on CA. And what caused your bank to be able to capture that segment? I think at the end of the day the team is very good in executions. So we calculate and we know where the pockets of good cost of fund and good backbone liquidity. So I think that the ability for us to execute and equip all the team with the enablers is actually there. And then Teguh I'll just read the number 2.

Yes, let me read the question for you, Ibu Lani. I think the second question is related to the corporate and commercial and SME business banking. Should we expect business banking loan to grow to accelerate in the second half of 2024? And then the last question from Donny, maybe if you can answer also regarding our appetite into the inorganic or M&A, if you can answer that?

Yes. So I think on M&A [indiscernible]. So, yes, we always have the appetite to do M&A. But of course it depends on whether it will fit with our cultures, organizations and P&L and et cetera. But yes, we have the appetite for M&A. And I think maybe Rusly want to answer on the expectation on corporate commercial loan growth in H2.

Yes, obviously we would like to grow but a lot of emphasis now is really responsible growth. I think there's a lot of tightening in terms of pricing among the good credits, but we emphasize, right, we want to increase our loan yield. So that's very important for us to continue working to find pockets where we can still land with good high asset quality, but also give us more responsible returns. As what Pak KK said earlier, right, the government return is very, very attractive now. So we have to do much better than that give that we're taking risk. So, yes, it will be the growth, but it will be responsible growth I would term that way.

Okay. Thank you, Ibu Lani and Pak Rusly. Let's move on to the next question from [indiscernible] from CGS. Could you give color in terms of asset quality, Special Mention and NPL from the consumer segments, especially from mortgage and auto as well as SME segment? I think that's the question.

Yes. Well, let me answer that as well. So on special mention and NPL, we don't see an issue on those in the environment that micro and SME NPL is actually increasing. Well, thank God that we don't really see that in our book and portfolio. I think it's the result of our disciplines and the risk management, including the filtering that we have because actually for all of you who attended the analyst sessions, a couple of quarters that CIMB Niaga is emphasizing on asset quality first in the environments of high cost of funds and we know that the NPL will be rising. We don't see a rising NPL across the segment, even in mortgage, SME and auto. Probably a little bit in terms of -- in auto, but I can say that there is an uptake, a temporary uptake due to the new regulations from OJK on collections. But I think it's resolved now, it's more to industry issue so we can get back to our healthy NPL across. So currently you asked me do we owe any warrant, for example for retail including SME, so far not -- so far, not yet, right. And yes, I think we are quite comfortable with what we have right now. In fact, if we are looking ourselves in terms of asset quality including NPL compared to the market, we are still better.

Thank you, Ibu Lani. Next, let's take question from the audio line. We have question from Gaurav Khandelwal. Gaurav? Hi, Gaurav, can you hear us?

Hello. Hi. Is my line audible?

Yes, it's open and audible.

Yes, it is.

Yes. I have two questions. I'll take those one by one. First, on loan yields, which have declined by 8 basis points quarter-on-quarter. I just wanted to understand, is the lower loan yield quarter-on-quarter a function of your higher corporate loan growth in this quarter versus retail? That's one. And number two, if you could also tell us how is the pricing competition on the loan side? Is it that loan yields -- lower loan yields are a function of better flight to quality, or is it because the borrowers also have quite a bit of bargaining power? That's my first question.

Okay. Maybe I'll get this one on loan yields. So I think we got to unpeel some of these things. The corporate loans growth were pretty strong -- in corporate and commercial, actually, loans growth were pretty strong in the second quarter. And some of these loans are actually U.S. dollar loans. So, because when we show a number, it's only showing a percentage, right. So the U.S. dollar loans are actually priced lower in terms of percentage compared to the rupiah loans. So the yields came up because we have a bigger proportionate growth in the U.S. dollar loan. So all in all, I think we are still pricing it pretty much the same with loans in the first quarter or since the start of the year. So no real cutting of loan rates or loan yields just yet. But this is because the composition of U.S. dollars and also rupiah has slightly changed in the second quarter. So I hope that answered your question. But really we did not price down anymore because I think our loan rates are really very competitive at this juncture.

Got it. So basically, even from the first quarter briefing, what I understood was if there is a trade off between growth versus pricing, you would stick with pricing. Is that the correct way to think?

Yes, just like I explained earlier, we only take that the loan if it is profitable, practically. So you were asking whether the price war is there, it is. The price war is always there. But we carefully price our loan as well as our deposit and then we took the loan if it is making sense for us.

Got it. Very helpful. And the second question which I wanted to ask is more of a housekeeping question and sorry, I should have known this, but these changes on the collection regulation, could you tell us what exactly are these changes and how does it really impact collection for you?

Yes, well, the new regulations that from OJK saying is that there's restrict the hours of collections time and you cannot call within a certain hour, you cannot call during the holidays, even non-holidays, you restrict calls between this time and that time which actually reduce the hours, collection hours of the collection team, which actually in line with deductions of productivity because the hours of collection time. But I think we sort of partly resolve those with OJK with some of the new -- not new regulations still coming in the same regulations, but the sub regulations or what we call the SOP of the regulations. So we expect that to come back to more into normal already within a couple of months.

Got it. Very helpful.

Hello? Does that answer?

Yes, that's very helpful.

Right. Thank you, Gaurav. Let's take another question from the chat box. We have question from [ Desmond ] here. Let me read for you. Could you please comment on what the expectation of interest rate in Indonesia once the Fed start to cut rates and anticipated impact on NIMs? I think that's question.

Okay, let me give it a try, Desmond. Okay. Usually BI would follow suit. Am I audible? Because Ibu Lani seems to have a screen freeze. Usually BI would follow what the Fed is doing. But this time around with the dollar still -- the rupiah still hovering around 16.3, whereas the other currencies in the region seems to be doing better than rupiah. I have a feeling that BI may not be as gung ho as in the past, right. This is my personal take. Some people may feel that BI may also try to be more pro growth as opposed to be more on the stability side as opposed to be on the growth side. But for me with rupiah at around 16.3 after it dropping below 16.2 as it approached 16.1 have very heavy buying support there. So maybe as and when the Fed cut rate, would BI immediately cut rate, I would think depending on when the Fed cut rate, if the Fed cut rate before the new Indonesian administration is put in place, I tend to think that BI may not because the wait and see by a lot of stakeholder with regard to the uncertainty is still quite there, right. So -- but if it happened afterwards, then maybe less uncertainty then maybe BI may be more likely to cut rate. That's my feel.

Yes. I think the impact on NIM will not be straight away. But I think if BI as the follow through of Fed rate cut and BI cutting rate as well, I think in the long run it will also impact the cost of fund at least. So whether that will be increasing the NIM, I think at least we expect that NIM will not continue to be compressed, right, compared the loan yield versus the [indiscernible] cost of fund. So that will be more positive. But I don't really think that it will straight away increase the NIM.

Thank you, Ibu Lani and John, for answering the question. We have -- the next question is from Kresna. Today, Kresna has send a question to the chat box but it's too long. Kresna, maybe better if you ask question directly. Kresna?

Congrats again on a [ good ] set of results. My first question is actually on loan repricing. Can we just check just how much loan repricing has CIMB Niaga successfully done in first half 2024? I suppose the consumer segment remains very competitive but any color on the wholesale or the business banking? That's my first question.

Yes, maybe Pak Rusly want to start first with the loan repricing on corporate and commercials.

Yes. So I guess if we divided several segments, right, there's a rupiah and also U.S. dollar. But to give you some color, I think repricing is much easier than for long term, we call it investment loan or term loan. I think we had done successfully repriced that by 20 basis points to 50 basis points across the businesses. But more challenging is the working capital, the short term where there is a high intensive market grabbing within all the players because these are the ones that you price for 1 to 3 months. So these are -- we still reprice, we managed to reprice but it's not as much as our term loan. So similar to that. And then the U.S. dollar, obviously we are slowly repricing this up because Indonesia market is a bit different from offshore market because offshore market is based on software. So the repricing automatically adjusted to the benchmark. While in Indonesia the U.S. dollar loans are kind of quoted, right. So there are slight slower adjustment in terms of the market for U.S. dollar. That's why we see a lot of companies who typically borrow offshore are refinancing their offshore liabilities whether it's the dollar loan or dollar bond into the onshore dollar lending. But increasingly we see the liquidity of the U.S. dollar in the market are tightening. I think that comes with the loan pricing for U.S. dollar start to creep up also more to the market similar to the offshore. So I hope this gives you an answer. Yes, we managed to reprice up between 25 basis points to 50 basis points in general for rupiah.

Yes. And I think additionally Pak Kresna is that in overall loan yield, if you are looking at year-on-year, we are able to replace in average nearly about 50 basis points across the BU. But of course there's -- naturally, it will be tougher for corporate and commercial. So mostly we do quite rigorous robust repricing in retail, say for example auto business because that's what the market will do as well. And we can't do it for credit card of course because of this cut rate. But personal loan we can do. But of course, if you're looking at consumer just like you put it here, very -- very, very right, that consumer segment remains very competitive, especially when we are talking about mortgage. I simply can say that we can't compete. You see the growth on mortgage is only about 1.5% to 2%, particularly muted. We can't really take that mortgage loan. It is not profitable to us. So, yes, so overall increment, if you are thinking about yield -- loan yield year-on-year, mostly coming from certain segments, only that we can really reprice as per market reprice.

If I may proceed with the second question on cost of fund trend, have we seen improvement over the past 1 months to 2 months given the RRR incentives from BI? And if we look back in its history, the transmission of BI rate hike in the past 2 years had been relatively slower, right, than in the past rate hike cycle. So could we expect less meaningful improvement in cost of fund [indiscernible] in the event of Fed rate cut or BI rate cut say later this year?

Yes, I think one thing which is good introduced by BI is actually the CAPM [ the economy ]. Yes, the CAPM incentive, right, which actually there is the direct incentive given to us for certain situations related to RPM, certain segment of loans and et cetera which reduce the [indiscernible] which we make use of those. But if you are related to how will be the cost of fund trend in 1 month or 2 months, I should say with the increase of CASA ratio for us is actually we are relying on those, on the composition of deposit itself. But it naturally end users, the cost of fund or deposit rate to customers, I don't only think it's going down, it's stably high. So the way that the bank is actually managing it is actually on the composition of CASA ratio and making use intricately looking at the incentive given by the government, especially Bank Indonesia and take the advantage to the [indiscernible] rate reductions.

Yes, maybe just to add on to that I think, Kresna, you may be right. I think the transmission also we will not see it coming in immediately. So like you said in your question, it may be less meaningful at first, but we will have to wait and see whether what the other banks are doing to attract or impact the deposit. So very much depends on what our competitors, what other banks are doing.

Understood. Okay, if I may just slip in one last question on customer base. Can we also get some update on your customer base growth this year going into the second half of the year? Do we expect more retail CASA growth coming from new customers or more from higher wallet share of existing customers because we're noticing more mobile banking app revamps by your competitors as well this time around?

Yes. Well, thank you, Pak Kresna. So we expect from both actually from cross selling within our ETB or existing to bank customers. But also we also are in terms of number of customers very much reliance on the new customers which we will acquire through our digital and digital partnerships. So there are 2 [ prongs ] here, balances or quicker part is actually coming from selling existing to the bank, but then number of customers which actually is a good investment for us for a further improvement or further growth on saving account balance is actually coming from partnership, low ticket size, mass and mass affluent segment which actually non-price sensitive. So we expect until the end of the year at least where we still target around 20% in terms of new customers growth, mostly coming from retail and SME.

Thank you, Kresna. Thank you. Let me read the last question from the chat box. We have question from Rahmanto from Stockbit. The first question is regarding the sector driving the corporate loan growth on Q-on-Q basis. That's the first question. The second question is regarding the cost of credit. The first half is below the guidance, right? Do we still maintain the guidance for the full year or we expect credit cost to pick up for the remaining of 2024? And the third question is regarding the update for the CIMB Syariah spin off.

Okay. So probably later Pak Rusly will answer the first one. But I'll answer on the cost of credit. So we are doing very well in asset quality. Our cost of credit is actually below 1%, 0.9% but we still put our 2024 guidance between 1% to 1.1%. So still even within 1% and 1.1%, we are still ahead of the NPL and CoC of industry. So that will be the guidance. The second one is actually on Syariah update. So this is again by law that we need to spin off because of above IDR 50 trillion assets. So we are currently preparing ourselves for the spin off. So the process is still ongoing. So we expect the full spin off will be early 2026. So 2025 next year will be the whole end to end process because [Foreign Language]. So we will still be on time. So we are currently working together with regulators, both OJK and Bank Indonesia and the rest of the government bodies related especially for the administrative preparations. Pak Rusly, probably want to answer the first one?

Yes. I think the growth is across many sectors, but we've seen some late growth in terms of the agri, mainly [ sponge ] and also the known coal mining because we're looking at some nickel and I think some of the non-coal mining sectors. But again, our FMCG remains the largest portion of our portfolio in CIMB.

Okay. Thank you, Ibu Lani and Pak Rusly. I think that would be the final question for this call. And before we conclude this call, I would like to hand the call over again to Ibu Lani for the closing remark. Ibu Lani?

Thank you. Okay. [Foreign Language] Thank you very much for joining our call today and for all the questions and support to us as well. So really looking forward to have more exciting and rewarding H2. I think everybody are really looking forward to that and stay healthy for everyone. [Foreign Language] Thank you.

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

Thank you.

Thank you.

Thank you.