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

Very good afternoon, everyone. Welcome to CIMB Niaga Third Quarter 2024 Earnings Call. My name is Teguh Sunyoto from Investor Relations Division here at CIMB Niaga. We'll be moderating the session today. Presenting to you this afternoon, our President, Director and CEO, Ibu Lani Darmawan; and our Strategy and Finance and SPAPM Director, Bpk Lee Kai Kwong. Also present to take questions from you, our Treasury and Capital Market Director, Bpk John Simon; and our Business Banking Director, Bpk Rusly Johannes. A quick reminder, as usual, that today's presentation may include forward-looking statements that are based on current management estimates and are subject to uncertainties and changes in circumstances. Actual results may differ significantly due to a variety of factors. And with that, I'm pleased to turn the call over to our CEO, Ibu Lani Darmawan and our CFO, Pak KK. Ibu Lani, please go ahead with the presentation.

Well, thank you, Teguh. So thank you, everyone, for joining us today to discuss our 3 quarters, 9 months 2024 financial performance. First, let me refresh about CIMB Niaga strategic priorities. I think, Teguh, the -- Teguh, the presentation is different.

Sorry.

Sorry, everybody. All right. So firstly, let me refresh about CIMB Niaga's strategy priorities, which is rest on 5 strategic pillars. The first one is playing to our strength. The second one is expanding our CASA franchise. The third is discipline in cost management. The fourth, preservations of capital and balanced risk culture. And last but not least, number 5, leverage informations and technology. So the benefits of our disciplined strategy executions over the last couple of years are evident in our performance, which I will explain to you on the next pages. So if you go into the next page, yes. So allow me to share with you some of the reflections of our journey since 2019. So the 5 key strategies that we implemented consistently have enabled us to deliver higher returns for our shareholders. The first thing we had to do at the time was to reshape our portfolio. Under this strategy that we continue to grow high RAROC business and maintain strict discipline in avoiding growth in non-strategic subscale or unprofitable business. So as a result, as you can see, our asset risk profile is improving as the evident coming through the reductions of RWA density from 76% back then in 2019 to 62% now. So the second and very important strategic choice is to grow CASA to fuel our growth within the whole bank area. With this, we have invested our resources to grow CASA, particularly in the area where we have competitive edge, such as our retail, SME and also digital. And from non-business part, we are also focusing on some throughput, including operating account coming from CASA -- coming to our CASA, which reflects into the CASA ratio growth from 55.3% back then in 2019 to currently 67.7%. Now the other part is actually the cost discipline culture. We have instilled across the organizations, the cost discipline and productive improvement can be seen as well. This one has enabled us to lower our cost-to-income ratio or CIR from 49.1% to currently 46.6% (sic) [ 43.6% ]. So our prudent risk management approach, along with the structural changes to asset allocations have allowed us to sustain the asset quality improvement over the years. Our NPL and LAR are both better than the industry average. In fact, is that asset quality management, along with the efficiency are the steps that we put additional attention this year to navigate the maximum profitability that we can get. All right. So on technology side, we continue to invest from time to time. Our top priorities in technology investment remains in the area of cybersecurity, data analytics, and currently, we are also investing in generative AI. This will complement our growth for the next years to come. As you know, we delivered ROE improvement in the past 6 years from 9% back then in 2019 to currently 14.6%. And we expect to continue to grow towards 2025 and the coming years as well. And the other tangible measure of success is dividend distributions to our shareholders. I am happy to inform you that we have already delivered around IDR 11.5 trillion of dividend to the shareholders over the last 6 years. If we go into the next page, okay, the best measure for us to measure the performance is actually whether we are on track and where are we in terms of our competitions and peers and industries. So as you can see in this slide, all of the key financial metrics have been moving into the right direction. Our asset quality metrics, gross NPL has been improving consistently and has been lower than industry in terms of NPL for the past 4 quarters. Now our track record in operating efficiency in Indonesia is measured by BOPO, clearly shows that CIMB Niaga is one of the best-in-class in terms of operational efficiency. So I also am happy to say that our investment in digital is also one of the benefit that we harvest now in this area that we are more efficient and less operational loss as well. With such improvement of metrics, we will continue to create value with ROA or return on asset continuing in upward trends. So -- and we will continue to share that value with our shareholders. So if you can see on ROA basis versus our peers or KBMI 3, ours is actually much higher, the 2.6% versus KBMI 3 also about 1.7%. So if you go into the next page, yes, we have made progress as well in executing all our strategy. We grow our loan book based on RAROC maximization principle. So for example, we conservatively grew our loan by 6.4% year-on-year until quarter 3 this year as we choose on growing the loan portfolio only based on RAROC adequacy, right? So within our key focus segment, consumer, we continue to grow the profitable auto business, which is year-on-year growing 18.2% as well as unsecured loan portfolio, mostly coming from credit card, personal loans, growing 11.5% year-on-year. And on the other hand, we will be more than happy to regrow our mortgage then when market pricing is back to profitable level. So mortgage practically relatively flattish. On the SME side, we are doing well. We grew 9.4%. This is net-net growth after some of the write-off. So our strategy to accelerate growth in this area as a key focus coming from second tier city strategy across Indonesia that we implement. We tested it since June last year within 16 secondary cities and resulting it very, very well. So currently, we are expanding it, and we confirm the strategy as well. So we are expanding our coverage into more cities in Indonesia. Now our corporate banking segment remains a very important part of the business. So both lending and funding side as well, we will also continue to choose for quality over just growth in corporate banking space by focusing on top-tier corporate and multinational companies. Lastly, our Commercial Banking segment continue to show performance improvement. We have repositioned our portfolio and grow respectively and selectively as well, again, by employing RAROC as key parameters of our credit key decisions. We go to the next page. Now turning to our results now, as always, our purpose, our ambitions, values and strategy have been helping us to drive the results as I am going to highlight here. First of all, the year-to-date performance clearly demonstrates that we have had another good quarter, reflecting the successful executions of our strategy. So year-to-date reported profit before tax was IDR 6.6 trillion, which is an increase of 5.1% year-on-year, which is supported by the quality loan growth and enabled by the improvement in operational efficiency as well as better asset quality. Now our CASA and customer deposits both grew 8.8% year-on-year, which is higher than the industry growth. Meanwhile, our loan portfolio went up 6.4% year-on-year, in line with our expectations and as well as supported by the growth in the key areas such as SME, auto loans and secured loans. And as a result, our liquidity position is quite ample with LDR of 83.4% in quarter 3 2024. Now the other part is the number of banking customer base. This one is actually not including our eWallet or OCTO Pay and as well as our digital user from OCTO Mobile and OCTO Clicks, both expanded rapidly. So customer base increased 22.5% year-on-year and the user of digital channel is actually increasing 17% year-on-year. This is a very important driver for our growth in the future. So in fact, our banking customer base has increased [ 46% -- sorry, 46%, 47% ] since 2021, which is driven by retail segment consumer increased 49% and SME increase of customer by 58%. Now our asset quality continued to improve with NPL now stood at 2% level, which is also better than the industry NPL. And on the other hand, LAR went down to single-digit level at 9.6%, also better than industry. And our capital ratio remains very strong at the level of 23.4%, which is also much higher than regulatory requirement. And finally, our cost-to-income ratio and COC are also better than our guidance, where ROE is slightly lower than guidance, mostly due to higher capital practically. So before I hand this over to our CFO, let me share with you our updated guidance for 2024. So we are maintaining our guidance on loan growth between 5% to 7%. And we also reconfirm our focus on profitability and quality growth. I think we are in the right track. We are providing a new guidance on NIM. So it will be between 4.1% to 4.2%. But of course, we also expect some improvement in the coming quarters that will be also depending on whether BI will cut some more rates or not, right? So we are upgrading our cost of credit guidance, reflecting the continuations of improvement in our asset quality below 1% on COC. So we are reconfirming our 2024 cost-to-income ratio guidance, which is below 45%. And lastly, on ROE, guidance will be between 14.5% to 15%. This is mainly to reflect the -- both the outlook of remainder of 2024 as well as practically increased internal capital. So with that, I will turn this presentation to Pak KK, our CFO, for more detailed financial report. Thank you, Pak KK [Foreign Language].

All right. Thank you, Ibu Lani, and a very good afternoon, ladies and gentlemen. Welcome to our third quarter's earnings briefing. I will begin first with -- on Page 14 with the balance sheet and really jumping into CASA, which was a good story for us in the quarter and again, expanding a little bit more on what Ibu Lani has shared or presented. Really a big quarter for us in CASA, achieving a new historic high of -- almost IDR 171 trillion, representing a growth of 4.8% in the quarter. For the year, we gained 13.3% -- year-to-date gain 13.3%, for the year, 8.8%. Very evidently, current account was the star driven by wholesale CA, while in the highly competitive retail space, we gradually saw savings account gaining traction also. And this is after a pretty weak start in the beginning of this year, now showing a 2.7% growth quarter-on-quarter and 2.9% growth year-on-year, respectively. Now time deposit was a little bit lower by 2% in the quarter as we now directed more focus on capturing cheaper CASA. But for the year, time deposit continued to grow at 8.9%, giving us a total deposit growth of 8.8% year-on-year. Now with the stronger liquidity that we are seeing now in the third quarter, it has also afforded us larger investments in government securities. As you can see here, government securities grew 5.3% in the quarter and for the year, almost close to 20%. A large majority of the added investments were really in the SRBI. Loan also gained momentum towards the tail end of the third quarter, ending the beginning of 0.7% in the quarter and delivering us a 6.4% annual growth. Now with the improvement in profit and significant turnaround of mark-to-market valuation of our AFS bonds investments, this has resulted into a huge significant increase in our equity, up 5% in the quarter to IDR 52 trillion. And compared to a year ago, our equity base has increased by 10.1%. Move on to Page 15 -- okay, Page 16 on the financial statement, yes. Interest income beginning to have a steady growth already starting from the second quarter now into the third quarter at 2.8% from a combination really of the loans growth as well as I mentioned earlier, the increase in investment in securities. However, the biggest challenge remains for us is really on -- really navigating through this increasing cost of deposits that, right, that's still seeing a 7% increase quarter-on-quarter. And when you look at the year-on-year number, it's still up 22.8%. So even though the interest income has been increasing, the net interest income remained pretty flat at IDR 3,352 million due to the highest interest expense. And for the year, we still experienced a 1.8% decline in overall NII. On non-interest income, we delivered an improvement of 2.4%, largely attributed to a much more robust trading income and continuation of our strong bad debt recovery. For the quarter, NOII up 22.4% and 1.3% when compared to a year ago. And combining both the NII and NOII, we delivered a small positive gains of 0.3% in operating income, but still running a little behind our number by 0.8% last year. What we have done really well is on our expenses -- really in our pursuit for operating efficiency. Operating expense came down lower by 0.4% quarter-on-quarter and a very, very commendable 2.2% reduction compared to a year ago. As for loan loss provision, purely a coincidence, we have exactly the same number as the previous quarter. No change in the overall cost of credit here. But for the year, we are showing a 17.1% reduction compared to September last year. So that gave us an overall pretax profit of IDR 2.2 trillion in the third quarter, an improvement of 1% versus the second quarter and a IDR 6.6 trillion pretax profit in the first 9 months, an improvement of 5.1% versus the first 9 months last year. Okay. Next page, please. Page 17 shows some of the key financial ratios. ROA was stable at 2.6% last quarter and the first 9 months of last year was at 2.6%. ROE saw a little bit of decline from 15.2% in the previous quarter to 14.3%. And for the year -- first 9 months is at 14.6%. I shared a little earlier, the NIM challenge continues to be there. NIMs for the quarter declined by about 15 basis points to 4.07% and 32 basis points year-on-year. So other key ratio shows a much better story, encouraging quarterly improvements on many key ratios, fee income ratio, costs -- cost-to-income ratio, CASA ratio and most of -- in fact, all of the asset quality indicators recorded better performance against the last quarter, and you look at it on a first 9-month basis, also showing a much improvement across all the key metrics here. Next. Now, yes, so this one, not a very encouraging optics. Yes, it's really hard to get away from the NIMs compression. The NIMs or interest-earning assets declined 36 basis points year-on-year, resulting to NII decline of 1.8%. And really looking solely on the loans and deposit books, we saw loan NIMs declined 13 basis points or 8 basis points year-on-year, whereas the cost of deposits were up 33 basis points, resulting in a 26 basis points decline on the loan and deposit books NIM. Okay. Next page, please, 19. Now non-interest income, a little mix, slightly lower fee and commission in the third quarter, down by 10.4%. And also the derivatives business took a big hit, a big reversal after a gain of IDR 633 billion in the second quarter, so a reversal IDR 321 billion. But on the reverse side, right, with interest rate -- our expectation of interest rate coming down, you saw -- you can see here that all the losses from our marketable securities or bonds turned around very quickly, negating some of the losses, both of the losses in our derivatives business. Loan recovery continued to show very, very good momentum, improving 54% quarter-on-quarter. So all in all, non-interest income improved 2.4% and year-on-year 1.3%, delivering us a fee-to-income ratio of 30.2%. Next page, please. Now operating expenses, we have the key expense lines very much where we wanted it to be. Our biggest expense component, personnel costs increased at a very manageable rate of 3.9% year-on-year. Tax spend, as we expected, will continue to move up at 7.6% now, while the other expense line, these are the lines that we will try to optimize as much as possible. This includes establishment costs, tax provisions, admin and general services costs, marketing costs, we were able to manage it down by 19% year-on-year. So this consequently derived a total OpEx reduction of 2.2% year-on-year. It's a continuation also of third quarter consecutive reduction in our cost-to-income ratio. Next page, please. Loan performance, right? Yes, very quickly, then you look across all the product sets and segments, except for mortgages. All products and segments showed growth quarter-on-quarter, year-on-year and year-to-date. So deriving is a 6.4% year-on-year growth in total loans. The 2 key segments, consumer and SME, consumer taking out mortgages, the auto was growing at 18.2%. Credit card, personal loans and other financing grew 11.5% and the key segment of ours -- focus segment of ours, SME grew 9.4%. Ibu Lani did mention on commercial banking, much more comfortable in growing this segment already after de-risking over the years, now growing about 4.7%, where the selected sectors in corporate banking, we continue to grow it now at 7.1%. On an overall, our retail composition, which includes consumer banking as well as SME banking now represents 45.8% of our total portfolio, and it's growing at about 6.4% pace year-on-year. So over to deposits, yes, current account stands up here. Quarter-on-quarter increase was 6.9%, delivering a 14.8% growth. Savings account already, I said -- I mentioned earlier, very, very competitive at this juncture for retail, 2.7% growth and 2.9% growth year-on-year. Next page, asset quality. As presented earlier by Ibu Lani, the key ratios, all asset indicators look very good, right? Loans at risk is now below 10%. NPL ratios will likely go below the 2% very soon. Special mention maintained at 4.5%. And the restructured loans composition has also come down to 3.1%, totaling -- bringing down the total LAR to 9.1%. On the coverage side, we saw improvement in NPL coverage, impairment coverage as well as the loan coverage. You see here also the cost of credit increased slightly, but that is also, I think, our cost of credit coming to a more steady state. It's a little bit heightened because we did take additional provisions to manage some of the provision model refinements that we will be implementing going forward in the later part of the fourth quarter. And lastly, on liquidity as well as capital, right? The 3 liquidity measures, LCR, NSFR, LDR, all are well within regulatory -- at least the LCR and NSFR well within the regulatory requirement, LDRs maintaining at about 85% level. Capital ratios going above the 23% level already and with CET1 at 22.4%. So this is a snapshot of the financials and the end of my presentation. I shall pass it over to Ibu Lani for final remarks before taking any questions from the floor. Over to you, Ibu Lani.

Well, thank you, Pak KK. Before we start on the Q&A, there is some points on final remarks for me. So we strictly maintain our discipline and our prudent approach to asset allocation. So we will grow loan portfolio only when it is deemed profitable. But importantly, we will avoid growing unprofitable business just for the sake of growth. We will continue to invest in customer acquisition, particularly retail and SME customer base through our own distributions network and partnership as well. This is -- to us, this is a backbone to continue building our strategic liquidity going forward. Risk management, technology, especially on cybersecurity, data analytics as well as operational resilience, which has been our key focus in the last few years, will continue to play a center stage, and [ in situation ] throughout the organization. Currently, we are in the midst of developing our new strategic plan from 2025 to 2030, taking into account some of our competitive edges, industry trends as well as the competition in terms of environment. So we intend to announce our new strategic plan in early 2025 to you all. So that brings our presentation to an end. So with that, Teguh, go back to you for Q&A. Thank you.

All right. Thank you, Ibu Lani and Pak KK for the presentation. It's now time for the Q&A. [Operator Instructions] So let's begin with the question. I think we already have some questions here. So the first question is from Kresna Hutabarat from Mandiri Sekuritas.

Can you hear me?

Yes.

All right. Great to see the earnings growth steadiness in 9 months 2024, especially during this quite challenging liquidity situation in the industry. Just 2 questions from me. The first question is actually on CASA. So if you look at the long-form financials, we've noticed a very strong FX CASA growth in third quarter 2024. Can we get some sense on what drove this growth? And how should we reconcile this higher FX CASA balance and the overall cost of fund trend in third quarter 2024 and possibly going to fourth quarter 2024? The second question is on the Sharia business. Can we get some update on the strong Sharia loan growth in third quarter 2024? It seems that the strong Sharia loan growth was quite broad-based in terms of segment contribution. Is there any renewed focus here on Sharia banking or the strong growth was more driven by contemporary demand?

All right. Let me take that. Well, thank you for the questions, Pak Kresna. Number one is actually on CASA growth. In fact, that we are growing 8.8%. On the back of that, it actually is coming from certain FX, especially on -- well, we are focusing certain like Singapore dollars, for example, because we identified some of the pockets within our branch operations and with the fact that -- and data that we took from our existing customers, for example, somebody in Sumatera Utara and then Batam, Manado and et cetera. So we practically took the advantage of it and priced up a little bit on those to gain some more on the balances. So I think we still see some more opportunity within those areas. Since we are testing our strategy on several secondary cities, we identify some of the pool as well, which we can really gain in terms of back to our focus on CASA growth, which some of it is actually coming from certain foreign currencies within our branch operations area. Number 2 is actually on Sharia loan, right? Sharia loan has continued to grow nicely double digits. Practically, we don't really change significantly in terms of strategy. But on -- we are focusing on retail as well as SME. So I think that's already in our DNA within Sharia first for a couple of years, but then since 2016. So we are actually facing the Sharia spin-off within the next 1 or 2 years. We don't change the strategy to focusing on Sharia as well. For us, this is quite a good franchise value and also as a base when we have to spin-off practically in 2026.

So our next question is from Jayden from Macquarie.

A couple of questions. The first one is just a follow-on from what Kresna was asking about the Sharia business. I think you alluded to the fact that you'll have to spin it off. Is there any updates around the timing and how you may do that? That was my first question. I just have a couple more.

All right. So I'll just -- I'll answer it one by one then. Okay, on Sharia, yes, because that's by law, not only regulations. Therefore, our Sharia accept more than IDR 50 trillion banks need to spin-off. So we are within that category. In terms of time line, 2025, we will start to process the spin-off, but the day 1 spin-off will be in 2026. So, so far, in terms of time line schedule, we forecast to be ready by end of quarter 1, 2026 in terms of [indiscernible].

Okay. And I was going to ask Ibu Lani, does that mean you create a new entity? Or like will the regulator allow you just to create a new bank? Or do you have to acquire somebody? Or how is it done?

Well, actually, by regulations, it's practically in terms of acquiring new banks and et cetera, it depends on the banks itself. Currently, we are preparing ourselves and then the spin-off will be in the form of subsidiaries of CIMB Niaga.

Okay. And then I had a couple of other questions. One of them was just around the capital ratio, which looks really strong, and this might be related to the Sharia separation. Is there any potential to make much larger dividend distributions and bring the capital ratio down? Because it seems that it's more than ample to support the business and the current pace of growth. And then, finally, sort of related to this as well, you mentioned a lot about the RAROC, right, the risk-adjusted return on capital and how we're not growing mortgages. But I was wondering if you thought about like the whole customer relationship even if the spread is not that great, is there any sort of transactional or bancassurance or other cards business you can get from those customers that would make it profitable? I guess they're kind of related to capital, those questions. So that's what I wanted to ask as well.

Yes. So I'll answer on the RAROC on mortgage again. So it seems that in terms of growth, it's flattish. But again, flattish in terms of ENR or balances. We continue to book new loans, practically within some of the area. So to us right now, mortgage is more into the balance builder. But particularly, we don't really push if in overall profitability is actually at stake. So net-net, we are not growing. It's practically flattish, but that's on the back of new loans on mortgage coming in. Some is actually paying off, but some is actually -- price war is crazy in the market right now is being taken over by others. Now, well, thank you for the questions. As a sharp questions, what about the customer franchise, cross-sell and et cetera. We take that into the account as well. And particularly, we don't really see too big in terms of impact related to mortgage because if we are looking at the penetration rate of mortgage versus wealth management product, eventually, the wealth management product is actually higher in terms of percentage of penetration rate. So we continue within the cross-sell area. But of course, ideally, we want to have mortgage back. So we are really looking forward if we can have a new model, which we are working on right now. And we start to see the potential within the secondary and the tertiary cities. So practically, honestly, we might not be able to compete within -- well, practically within 1 or 2 banks only, right? So it is not -- I don't think an industry can compete within versus the 1 or 2 banks. But we start to see based on our test in June 2023 to go into secondary cities. This is the area that we can win. So we have done the assessment more than 1 year to that. So let's see what happened. But of course, the cost of fund will still play a big role in it. So -- well, the things that -- what we expect for the Q4 is another rate cut, but of course, we don't know what will happen. But if you see the rate cut in September, and we are looking at our cost of fund on a month-on-month basis, not Q-on-Q from August to September, for example, we can see some improvement. A lower cost of fund, but yield, loan yield, we can't put it down and cannot bring it up. But I think in terms of NIM and et cetera, it is getting better. And your questions related to strong CAR. Now on dividend payment, historically, I think for the past 3 to 4 years, we are paying 60% dividend. But of course, this is some of the area that we can control 100%. So regulatory, they are comparing bank based on peer related to CAR versus the dividend payment. So we paid 50% last year. So we are trying to get it back to 60%. But of course, we can't really decide on this one. On CAR, whether we can really put the CAR down, no. The challenge in this area is that the regulator is saying that KBMI 3 CAR afraidingly is actually higher than us. So -- and in terms of dividend payment, majority KBMI 3 is actually lower than us. So that correlation still play a big role. But I agree with you, practically in terms of CAR, if we compare Indonesia and the other countries, a little bit inefficient, I should say. So if we can bring the CAR down a little bit ROE up and dividend up, that would be the most ideal. KK, you want to add something on CAR?

Yes. I guess, Ibu Lani have said it most of it already. So to a small extent, I would say, right, we may not have the final say on dividend distribution, right? The peer comparison is one of the things that the regulator look at. And when compared to, I think, most of the banks in our cluster, there are 13 banks in that cluster, majority of them have higher CAR ratio, right? In fact, the top 4 banks has a lower CAR ratio compared to the next cluster of banks. And the third cluster of bank has an even higher CAR ratio. So we -- again, we attempt to get -- try to pay 60%, and we will continue to engage with the regulators on what is a more ideal level for us in our capital adequacy. With regards to the spin-off and whether we are preparing some of these increased capital or overcapitalization for the spin-off, yes, but we do feel that even after the spin-off, both the Sharia entity as well as the CIMB conventional entity going forward, we'll have a similar CAR ratio. So we basically just carve out a little -- carve out sufficient capital to support the business growth for the spin-off entity.

That's very, very interesting. It sounds like the 13 banks need to get together and decide to all pay out higher capital. Some of them are just holding it a bit. But that's really interesting context. I appreciate it.

Our next question is from Ilham from BNI Securities.

Maybe one question from me on the corporate side. Maybe can you give some color on the...

[Foreign Language]

Can you hear me?

Yes, yes.

Okay. Maybe I just want to ask some questions on the corporate segment side. Can you give some colors on how intense is the competition in the corporate segment right now? And following up to the mortgage -- the mortgage segments that you have mentioned earlier, when do you think the competition in this segment will be less intense and then you can grow again in this segment? And my third question is, can you -- I think, I missed something when you explained about CASA or the costs on the Kresna questions earlier on CASA. Maybe can you give some color on the cost of fund for your CASA? Just wondering, do you give some special rate for the current accounts products? I think that's all my questions.

Yes. Well, thank you, [Foreign Language]. So I think I will let, Rusly, later to explain on the intense competition in corporate segment. But the [Foreign Language] is actually, it is intense, but Pak Rusly will explain later. On mortgage, an interesting question [Foreign Language] it will be less intense. I think it will continue to be intense. However, when the cost of fund is actually -- can get lower because previously, many economies predicted that there will be another 2 cuts of base rate by -- until the end of this year. This will lower -- hopefully, will lower the cost of fund, at least, for next year, right? So if it is not happening, then whether the competition and as well as the rate on mortgage will be still intense. I think it will. So that's why since last year, we are experimenting to see which area and which pocket that we are still able to compete. So I think the next stage of strategy for mortgage for us is actually to take a look at the not competing head-to-head in top cities but in Tier 1 cities. But we go into secondary tier cities to take a look at and going on specific target probably not within Tier 1 developers, but Tier 2 and Tier 3 developers where we still can be able to price up a little bit. And then on CASA, cost of funding, et cetera, well, CASA ratio right now is actually getting up again on 66.7%, which if we are looking at the growth between CA and SA and this is aligned with the market. Our CA, especially CA growth is actually 15%. Market industry current account grow around 9%, 9.4%, right? So the question, do we give special rate or not? Here and there, we do. However, if we are looking at our cost of fund product by product, SA, CA, and TD still the most efficient cheap is actually saving account. But current account is also not bad, still much cheaper compared to time deposit. So that's why -- and we have been focusing on this, especially in the area of non-retail coming from commercial banking, corporate banking and some point as well as SME. So your questions on whether do we have -- do we give special rate, yes, but not all. Majority, the good CASA that we obtain is actually coming from loan throughput, one. The second is actually operating account, even coming from non-borrowers account from especially corporate and commercial. In fact, if you're looking at corporate and commercial, current account growth month-on-month is actually around 20% to 25%. So that is one of the pool. And looking at the cost of funds, again, compared to time deposits it's much lower. Okay. Maybe Pak Rusly, do you want to answer on the intense competition on corporate segment?

Yes. So, obviously, Ibu Lani, you are right in terms of competition is very, very tough in corporate because it seems most banks are moving to the wholesale, given there are some weaknesses in the -- what we call the lower [indiscernible] level. So we've seen that most of our major competition is going bigger, right? When they are comfortable with certain names or certain groups, they go much bigger. And basically, they say, give me everything, right? So really, that really squeeze out banks like us, CIMB or the KBMI 3. So we really need to really leverage on our relationships, right, focusing on the key groups that we grow together and they view us as their partner. So no matter what's the situation, they would like to have CIMB in their so-called banking group or loan group. So we leverage on that, and obviously, we also focus on the key growth area. We've seen opportunities, especially in the mining and non-coal side. So this is where we selectively look at what are the key local groups that we can partner with and then we deploy our capital around it. So we have to be very selective as what you can see our asset quality keep improving. That's part of credit selection and asset quality that we choose to compete in corporate structure.

Our next question is from [indiscernible] from Ashmore Asset Management.

[indiscernible] you are still on mute.

Okay. Maybe we move to the next question, later we can go back. Our next question is from Andrey Wijaya from RHB Sekuritas Indonesia.

I have 2 questions. Actually, one on the mortgage. If you look at the mortgage growth -- mortgage loan growth in the September, this is quite flat, but also slightly declined actually and much below the industry growth. Could you give the color what is the reason why the mortgage loan growth is quite conservative in the 9 months? And the second question more on the operating expense that what we see that the main reason of the lower operating expense is on the other expenses, which is quite declined in the third quarter and second quarter. Could you give color what is the other expenses that caused the expense decline and also the outlook in the fourth quarter?

[Foreign Language] On mortgage, let me -- I only let Pak KK answer on OpEx. On mortgage, you're right that on a year-on-year basis, we are slightly minus, flattish 0.8% minus. Again, the reason why this -- my explanations related to whole strategy and growth strategy on loans. We only grow those area which is making sense in terms of financial. In mortgage, competitions is actually cut through. And again, it is actually practically taken by 1 or 2 banks, [ better than ] BCA and et cetera, but they do have the advantage of low cost of funds practically. So -- and then -- so it doesn't really make sense for us to push for the time being in the area that currently -- so that's why we restrategize if we go into secondary cities with [indiscernible]. So there is still a pocket for us to take the market share within the area, but not within the big cities. Again, if you are talking about profitability of mortgage, the NIM itself is quite thin. It's ranging between 2.1% to 2.2%. And we still have to calculate the OpEx versus the cost of funds. So related to RAROC super small. So that's why for profitability, we decided to very selectively growing that mortgage. But in some of very competitive area, which is RAROC is actually super low or even negative, we don't grow. So, selecting it. So currently, let's see what happens if cost of funds is getting lower and the additional strategy that we have in terms of secondary and tertiary.

Okay. I'll take the question on expenses. Expenses is essentially breaking it up into what we call a PETMA lines like personnel, establishment, technology, marketing and admin costs, right? So the line you see on others is basically the EM&A establishment marketing and admin. So in the second -- in the third quarter, we did have additional information on our provisions for taxes, right, and also consultation with tax lawyers, and we were able to release part of some of these tax provisions that we have. At the same time, also, we really tightened the belt a little bit on marketing costs. So that also helped reduce the overall expenses during the quarter. But the majority of the reduction came from the reversal of those tax provisions.

So our next question is from Yong Hong from Citi. Yes, let's try to get Yong Hong here.

Yes, he's on the chat, right?

Yong Hong, would you like to ask question...

For NIM, from Yong Hong, right? From Yong Hong, the question is the NIM guidance in quarter 2 to quarter 3, yes...

Yes, let me [ Lee ], point you.

I can take that, yes. So your question was on NIMs, now we were able to maintain it in the second quarter, why not the third quarter. Yes. So I thought about it, this is several things on the NIMs, right, and also on the portfolio. So substantial growth in corporate banking in the third quarter. Some of these are U.S. dollar loans. And when you blend the U.S. dollars, which is yielding lower, that brought the NIMs down a little bit. You also have seen that in the same quarter, we got in quite heavily on the government securities. The NIMs on government securities are also lower as compared to bonds. So that also brought the NIMs down a little bit. Not undoubted, the cost of deposits did go up, right? We were not expecting to go in so heavily into the SRBI. So it's attributed to a combination of these few things that the NIM came down to below our guided level. In fact, it closed the quarter at 4.07%. But we do foresee some turnaround here given that the rate cuts -- the rate cut, I think, was in the third week of September. So it has not transmitted the lower cost of funding, right, into the third quarter yet. So we will see that probably on the -- in the fourth quarter. We don't foresee lowering interest rates on the loans in the fourth quarter. So any reduction or relief coming from a lower deposit cost will help us turn around the NIMs in the fourth quarter. ROE this quarter pressured by accumulated profits. Yes, profits is one of them, but we do have a sizable AFS book as well, mostly on government bonds. So when interest rate expectations turn right, in the third quarter, a lot of some of our AFS bonds, which we're experiencing or carrying mark-to-market losses on the equity side, became positive. So that really enlarged our equity base. So that also partly resulted into a bigger equity base and resulting in a lower ROE. Of course, the guidance that we made earlier part of this year was based on a 60% dividend payout. We also reduced our payout to 50%. That caused us to retain another IDR 700 billion of additional equity. So a combination of these couple of things, right, has resulted to ROE being a little bit pressured because equity base is enlarged. NOII have been quite lumpy. Yes, so we do rely a lot on our trading side. Our treasury and markets are pretty active, both on the derivative side as well as the bonds investment. But they proved to be a pretty good hedge against one another. You would see that the derivatives took a heavy hit this quarter, but the bonds more than enough -- more than covered those losses on the derivatives. Undoubtedly, we will still need to find greater traction in the fee and commissions of our core products and services. Some quarters are better than others. But I think we are pretty stable. We don't see big swings. Some months do come in better, especially towards the midyear and maybe towards the end of the year, somewhere closer to the Christmas season. Some of these fee income do pick up a little bit. But what we are very encouraged on is really on the loan recoveries, the recovery efforts, the additional resources we put in, we really take it as a profit center, what we are doing in collections. So that will continue to drive our NOII. So I don't think it's come to a steady state yet, and these numbers will continue to improve over time. That contributes to the NOII also. Yes, Ibu Lani, you have anything else to add?

Yes. Just additionally related to NIM, we are also putting some considerations actually for the guidelines until the end of the year that looking at the situations and the global situations as well, whether Bank Indonesia will continue to cut rates or not this quarter 4. So I think we put more on conservative view that if not, the higher cut rate in September, we can see the trajectory, especially it's almost like consensus that big banks want to reduce the cost of fund by reducing deposit rate and want to increase the loan yield. It's not happening yet. But I think in terms of cost of fund, some of the big banks already started to do it. However, if the yield rate is not cut again as per expected previously, that will be another challenge. So that's why we take the conservative road to put the NIM forecast a little bit down from 4.2%, 4.3% to 4.15% to 4.2%. Currently, we had 4.16%. But again, I think if we are comparing KBMI 3, our peer in terms of NIM, we are not that bad actually. Does that answer the question, Yong Hong?

Yes. Okay. I think we will answer a few more questions, Ibu Lani and [ Pak KK ] from the chat box, still have a few more minutes. So let's take a question from [ Peter ]. I think the first question you already answered before related to the high rate. The second question from Peter is considering the higher growth from auto and SME loans, should we expect higher NPL and COC going forward? I think that's a question from Peter.

Yes. Well, we take it as an overall in terms of COC. So that's why if we are looking at COC right now, still below 1%, 0.9%, 0.88%. So -- but if we are looking at 2024, with the increase even on auto and SME loans, the impact for 2024 will not be significant. So we still maintain the cost of credit COC within below 1%. So that will be hovering around 0.9%, probably a little bit more than 0.88%, 0.91%, 0.92%, but still below 1%. Now going forward, 2025 and et cetera, again, we are right now in the middle of finalizing our budget 2025 as well as our next 5 to 6 years journey program transformation and forward 2030. You're right. If we are -- we are calculating if our focus is actually recalibrations of loan portfolio going into retail, auto and SME loans where the COC will go up, we think so, stabilize. If we are actually focusing on, say, for example, from 45%, 46% retail and SME into 50% within the next couple of years. Of course, we'll need to really take some trade-off in higher COC, but of course, higher NIM as well.

Okay. Thank you, Ibu Lani. Let's read the last couple of final question from the chat box. We got question from Nicolas from Foreign Capital. The question is with CIMB Niaga pushing for SME loans growth in the second-tier city, does that mean Niaga has to selectively open new branches in those second tier cities, assuming that majority SME business is still cash basis.

Okay. I will take that. So, well, currently the one that we tested since June 2023, secondary cities, we tested 16 cities, which resulting very, very well, very, very good. And we are practically taking market share. As you see, SME loans growth is almost 10%, 9.8%. If we take out several of the write-off that we took, it's actually double-digit growth. Some of them is actually contributed by the Tier 2 cities again. So does it mean that we need to open branches? If we need to, we open. Currently, within our testing, we don't increase our branches, but we beef up the team with more RMs and digitalizations, knowledge and then customer awareness and et cetera. So related to branches, if we need to open a new one or close or relocations, there is a BAU for us. So branches is actually an enabler for us, facilitating channel if we need it. So that's very flexible. Currently, during the testing, we don't open. What we do is actually mostly relocations of some of our branches. But I think going forward, we might need to also relocate and focusing on secondary and tertiary cities to open as well. Currently, we have through branch is about 304 branches through branch, but we add more on digital branch with no customer service, no tellers, but some of it is actually digital and then we have also mobile branches and et cetera. So we are exercising on those and taking some more in terms of strategy, those giving us benefit in terms of business growth as well as better customer experience.

Okay. Thank you, Ibu Lani. That was the final question in today's call. So before we conclude this call, I would like to hand over again to Ibu Lani for the closing remarks. Ibu Lani, your...

Okay. Thank you so much, Teguh and [ Bapa ], ladies and gentlemen. Thank you for attending the sessions and for all your support. I hope that we have given you some of our clear explanations on where we are right now. So again, thank you. Stay healthy and happy.

Thank you, Ibu Lani, and thank you, [ Pak KK ], for the presentation and answering all the questions. With that, we conclude today's call. If you have any further questions, please contact our Investor Relations team. Thank you so much for participating in today's call, and have a wonderful day.

Thank you, everybody.

Thank you. Thank you, everybody.