PT Bank Danamon Indonesia Tbk (BDMN) Earnings Call Transcript & Summary

With the spirit of Danamon's 65th anniversary, I would like to welcome you to PT Bank Danamon Indonesia Tbk's First Half Fiscal Year 2021 Financial Results. My name is Reza Sardjono, and I will be your host during this event. This event is held virtually using MS Teams live event platform. We are informing you that Danamon's Board of Director and also CEO of Adira Finance, our subsidiary, have joined us via MS Teams from their respective locations. Before we begin, I will explain some information as follows. We encourage participants to join the event by using laptop and headset. Please put into silent mode your mobile device during the session to avoid echo. Please ensure that you are in a close environment or room with a stable Internet connection. Do not access MS Teams link on more than one device during the conference. And participants' voice access will be on mute during the presentation. [Operator Instructions] Now before we continue with the detailed first half fiscal year 2021 financial results, we invite Bapak Yasushi Itagaki as President, Director of PT Bank Danamon Indonesia Tbk to deliver his remarks on our strategy execution and progress. Thank you. Itagaki. [Foreign Language]

Okay. Thank you, Reza. [Foreign Language], our valued analysts and investors. To begin with, I first share our deep empathy for many individuals who are suffering from this surge of the pandemic, and we show our deepest condolences to the families who have lost a loved one, sincerely. We shall stay together and united going forward. Okay. Let me start with touching upon or updating you of the -- some of our key strategic initiatives. On this page, it's about MUFG collaboration or synergy with MUFG. As you see in the graph on the top, we keep increasing on the -- creating synergy loan and CASA in high pace. And also, we keep going on realizing the synergy transactions. So both quantity in terms of the amount and the number of transactions, we are on the right track and in good pace. If you look at some specific deals, if you see the key synergy deals, we are progressing in key transactions or the framework, Adira Finance. And also, this time, we are happy to share our symbolic transaction in a syndicated loan. This company is PT Indonesia Asahan Aluminium, so-called the INALUM, the biggest state-owned mining conglomerate. The takeaway on this transaction is that both MUFG and Danamon jointly committed in big amount to support this transaction, by which we are able to get the high status -- highest status, MUFG as mandated lead arranger, book runner and sole coordinator, and Danamon was rewarded as a lead arranger. So likewise, we sort of expanded the scope of our business opportunity, not only just by lateral loans, but also small advanced syndicated type of loans. The real estate value chain is a new initiative, and it's progressing well. You know that we are quite active, starting from a value chain of automotive or FMCG and similar concept. We expanded that into real estate value chain, including mortgage, because Japanese -- the developers are quite active in developing properties here in Indonesia. So this is another type of opportunities that we are acquiring. Also, we are quite active in customer engagement events. We held Indonesia Summit and Business Matching Fair early this year. The key concept here, common in here, is we are very keen to provide value-added information, like a global perspective. In addition, we provided the actual partnership opportunity for our Indonesian corporate customers by introducing MUFG's Japanese or ASEAN corporate customers. So it's all for the sake for us to help our customers to grow their business so that in the end, we are giving a financing or trade opportunities. Next page, please. All right. This is about digital initiatives. We have many fronts. Here, we introduced some of the initiatives. But in May this year, we launched -- revamped Danamon apps, what we call D-Bank PRO, with more enhanced features and great customer convenience. Also here, we -- the good thing about this D-Bank PRO is we are having a great alignment with other Internet channels so that customer feel more omnichannel experiences. We provide both conventional and Sharia Islamic finance products as well. I think as a result, our usage -- customers' usage of our digital channel keeps increasing, as you see in the right-hand charts. Our digital initiative is not only for customer front end but also support for productivity enhancement of frontliners. This -- the frontline enablement designed to support our RMs with -- by range of functions and the features so that they are able to better serve our customers. And this is particularly helpful in this pandemic time. All in all, again, this half of the year, we received many awards for recognition from multiple reputable institutions. Okay. This is it, and I will pass it over to Pak Mul, our CFO, for detailing financial highlights. Pak Mul, please.

Thank you, Pak Yas. [Foreign Language] Let me share with you our first half 2021 financial highlight. So we see that on the detail. As we show here, we see loans. EB portfolio reached IDR 57 trillion or grew by 11% year-on-year, supported by collaboration with MUFG network and focus on the blue chip segments. And along with the improvement in the auto financing industry, Adira Finance, second quarter 2021 new financing increased by 18% compared to the previous quarter. And we hope the good trend continue. On the funding, CASA grew 10% year-on-year, in line with the bank's strategy and focus on the granular fundings. And our CASA ratio improved by 310 basis points to 56.3%. On the asset quality, our NPL ratio improved by 110 basis points year-on-year to 3%. Loan loss coverage increased from 119% in the same period last year to 177%. COVID restructured loan declined by 26% Q-on-Q to IDR 7.7 trillion. On the profitability, our operating income increased 5% Q-on-Q, supported by improvement in both net interest income as well as in the fee income. PPOP improved 6% Q-on-Q. With those, our NPAT improved 18% year-on-year and reached almost IDR 1 trillion in first half 2021. Next, on the summary of our balance sheet. We see that our year-on-year loan increased by 8%, but excluding the runoff portfolio and Adira Finance, the total loan is relatively stable compared to last year and also compared to last quarter. Government bond increased significantly compared to last year as all the excess of fund are temporarily invested in government bonds. And CASA year-on-year increased by 10%, as I mentioned earlier, and Q-on-Q increased by 2%. And CASA ratio improved 310 basis points to 56.3%. Next, on the summary of our income statements. Operating income year-on-year lower by 8% and Q-on-Q increased by 5%, supported by growth in the interest income and also in the noninterest income, along with the improvement in the economy. Year-on-year, PPOP was lower by 14%, mainly due to Manulife upfront free. So excluding Manulife fee, our PPOP is lower by 4%, mainly triggered by lower in the interest income both in Adira and as well as Danamon and Adira Finance, while improvement on the interest expense [ wasn't ] able to compensate on the lower on the interest incomes. PPOP Q-on-Q grew by 6%. Cost of credit year-on-year improved by 21%, and our NPAT first half 2021 was IDR 998 billion or higher by 18% compared to the same period last year. Next, on the key financial ratio. Our NIMs year-on-year, lower by 25 basis points, whilst Q-on-Q improved by 50 basis points due to improvement in both cost of funds as well as on the loan yield. CoC, lower by 60 basis points compared to last year, and our risk-adjusted NIM improved by 40 basis points compared to the same period last year. And NPL gross at 3% or improved by 120 basis points compared to last year and Q-on-Q improved by 30 basis points. Loan loss coverage improved by 600 basis points compared to the same period last year. And loan at risk coverage, exclude COVID, increased by 50 basis points compared to last year. And CAR remained strong. CAR consol remains at 26.1%. Next, on the liquidity. So we see that we have ample liquidity support by focus on the CASA. So healthy liquidity and strong LCR and NSFR. Next, on the capital. Capital remained very strong to support growth and also provide buffer against uncertain economic conditions. So we see that our consolidated CAR was 26.1%; and bank only, 26.5% with almost 100% in the form of Tier 1 capital. Next. So this is the detail of our loan portfolio and loan portfolio composition, if you like. So the chart on the left is showing the loan composition by each of the segment. And we see that the biggest portfolio now on the EB with 45 -- with 43%. And second biggest is Adira Finance is 31%, followed by SME and consumer. And table on the right show the year-on-year growth by each of the segment, if you like. Next. This is the chart showing the Adira Finance unit financing improvement, on pace with the industry. We see the table on the top right is showing the new loan disbursement quarter-by-quarter. As we've seen compared to last quarter, the new financing increased by 18% and hope the trend will continue. And despite significant increase in new financing, the operation is significant, and this is the nature of the finance business. And therefore, the total loan is lower by 18% compared to last year. But we hope that will -- the good trend will continue with the significant booking on the new loans, if you like. Next, on the noninterest income. So compared to last semester, our noninterest income was slightly lower. But if we see the details on -- in the bottom left chart, the credit related from Adira Finance have started to pick up, in line with the pickup of the new loan booking. Same pattern on the banca, as shown in the bottom middle chart, also have picked up and increased nicely. Next, on the NPL and NPL coverage ratio. As discussed earlier, our NPL improved by 120 basis points compared to the same period last year and improved by 30 basis points compared to last quarter. NPL coverage ratio improved by almost 600 basis points compared to the same period last year; and compared to last quarter improved by 60, 70 basis points. Next is the COVID restructured loan and loan average, continue trending down. So we see that our cost of credit lower by 60 basis compared -- 60 basis points compared to the last year. And LAR as a percentage of total loans improved from 29.7% to 19.9%. So I stop here and welcome for any comment or question, if you like. So Reza?

Thank you, Pak Mul. [Operator Instructions] Okay. So the first question is from Ferry Wong from Citigroup. What do you think is the impact of inventory restriction to your credit cost and loan growth in 3Q '21. Maybe Pak Mul and Pak Dadi can help answer these questions.

Okay. I think I'll answer the questions on the impact to credit costs, right? Well, it appears now that although we have the second lockdown this year, right, the first lockdown we considered in the second quarter of last year, right? Although we have this lockdown, which in terms of restriction to mobility is probably as strict as last year, but it appears that a lot of people, both business people and consumers, have seemed to be able to adapt basically to this lockdown or mobility restriction. So I think although there are impacts, definitely, for sure, there are impacts, but it appears to us that it's not as bad or as significant as it was last year. So if we look at, for example, right, to our remedial process, our collections process, yes, there are impacts. But it's not like I mentioned earlier, we do not think that this impact will actually adversely affect our plan for cost of credit for this year. As you can see in the slide that is being shown here, this is Slide 15 that is appearing on my computer, I hope it's the same thing with yours, last year the CoC level was at 4.7% to 4.8%. That is, of course, quite high reflecting what happened last year, right? In a normal year, Danamon usually has CoC level of anywhere between 2.5% to 3%. This year, obviously, it's not a normal year. So it will remain elevated, right, as what's being shown there. So far year-to-date, it's at 3.9%. And we believe that this is about the level of CoC that we will continue to see this year. We do not think that we will return to anywhere close to the level that we saw last year, 4.7%, 4.8%. But this year, we believe this is about it, basically, this 3.9%. It should be the level where we think -- so basically below 4% basically, it's the level of CoC that we will see this year. So we don't think it will actually impact greatly unless -- of course, unless if this lockdown gets extended further, right? But by all measures, it appears that it probably will not be extended at the same level of restriction, right, by even as early as next week. So that's my answer on the CoC.

Thank you, Dadi.

Maybe on the loan growth, I -- maybe I can share that the -- you see that the -- what we see that for the first weeks' implementation of the PPKM, the mobility dropped by 10%. So this obviously will impact to the productivity as a lot of our branches closed as well as a lot of the dealers also [ never ] to open their shop. So obviously, will impact to the sales and productivity. And however, we are yet to see and to calculate because this PPKM we don't know basically whether this -- how long this PPKM will continue. And also whether they will continue in the larger area and also [indiscernible] whether it's Grade 4 or Grade 3. And as we are still monitoring the result and the progress, I think it's hard for us at the moment to predict how much the PPKM will impact to our loan growth. But obviously, it will impact the to the asset. As I mentioned earlier that because the productivity and mobility is reduced, if you like, yes.

Thank you, Pak Mul. The next question -- go ahead, Pak Honggo.

I would add something for the Ferry Wong and Linda also the question about this CoC and regarding the, what you call it, so Linda also asked about the restructured loan. So I want to add what Dadi and Mul said. If we look at these industry practice during the normal years, specific people are looking at 1.5% CoC, the cost of credit. There amount is slightly higher, 2.5%, like Dadi said because we have the idea that the 30% of the assets coming from the direct consumer loans. But having said that, it doesn't mean that if we keep adding the CoC because of the deteriorating in the asset quality. But later, you can see on the coverage, what you call it, the provision coverage ratio, we are actually adding up quite aggressively. So our comfort is close to 130%. And also, your question is all depend on the -- not only about the PPKM how long the government are going to do the lockdown, but also depend on the -- whether or not the OJK will prolong or continue the relaxations. I bet you if the -- by October, if the OJK or the regulator does not announce the relaxations being extended, then our bank will beef up again the provision because, of course, we want to anticipate some of the customer will fall into the quality [indiscernible] 2 or further 3, 4 or 5, yes. So this is not a look at the data, but a lot of factors we are waiting also. Thank you.

Thank you, Pak Honggo. The next question is from Silvony Gathrie from Mandiri Sekuritas. There's a few questions. The first few ones is probably for Ibu Dhany. Is the online TD increase majority comes from retail segments or institutions? And is there any color for the interest rate for TD from mobile, Ibu Dhany?

Yes. Thank you for the questions. So the TD Online is all consumer. There is not institutional because the online feature is available in our mobile banking, which is obviously used by the consumer -- customer or individual customers. In [ the other way], there are probably about 25 bps higher than what is being offered at the branches as our strategy is to offload the TD transaction toward online as a self-service feature for our customers. So we are very happy that we achieved a 30% penetration and the price is comparable actually, not significantly higher compared to the branches.

Thank you, Ibu Dhany. The next question is for Pak Hafid from Adira Finance. As of July, what does the disbursement and asset quality look like in Adira Finance?

As of June, our sales increased by about 18% versus last year. In terms of quality-wise, as of June, our NPL is better compared to last year. From the restructuring, remember last year, we had a restructuring of about IDR 19 trillion. But as of now, the outstanding restructured account is -- that was 30% last year. And as of June, outstanding is probably less than 5%. So meaning, 90%, 95% of the restructured account has been settled.

Thank you, Pak Hafid. The next question is from [ Andre Benas ], RHB. Would you elaborate on Danamon digital initiatives and its impact to boost revenue growth and lower operational costs. Ibu Dhany?

Yes. So obviously, digital channel is the least or the lowest cost in terms of client servicing. So we have -- our strategy is to migrate, to make it easy and convenient for the customer. And obviously, this will offload transaction at the branches as we focus more on the branches toward more complex products, such as mutual funds, bonds, wealth management product, bancassurance as well as loan. So the correlation is obviously not direct, but obviously, as you free up time for the customer to do the self-service transaction, you free up the branches to do more complex fee-based transaction. And this is one where significant growth in our wealth management as shared by Pak Muljono earlier.

Thank you, Ibu Dhany. [Operator Instructions]

Sorry, Reza, I think there is a question from [ Linda Lawira ] from Sequis?

Yes. I think Pak Honggo answered that partially, any change in the guidance. But perhaps if you can add, Pak Dadi, on color in regards to restructured loan progress overall, I think Pak Hafid already mentioned about Adira Finance.

Okay. Yes, thanks. Yes, on the restructuring, I think just now in one of the slides, right, the last -- one of the few last slides, I think it was actually shown that we have made very good progress, right? I think -- yes, this slide, the bottom one, right? We have actually moved from IDR 20.75 trillion, right, restructuring all the way down to only IDR 7.7 trillion in June. And Adira from -- like what Pak Hafid from about IDR 19 trillion at one point in time last year actually goes down to only IDR 200 billion that is still under moratorium or we call it under forbearance, basically. So July, of course, it is more challenging in terms of our collection efforts, obviously, for our customers also, as we have already discussed earlier. But in terms of new restructuring, right, customers actually coming to us asking for new restructuring. We don't actually see much, actually both in Adira and also in Danamon. What happens is, as the impact of this PPKM in July, most likely is the speed of customers who are supposed to improve, right, who are supposed to exit the restructuring, right, who are supposed to be no longer under forbearance or longer under moratorium maybe the speed will get delayed. So obviously, it's too early, right, to figure that out because we are still -- we haven't even finished July, right? But like what I said, if you are asking about new restructuring that comes because of this PPKM darurat, right, what we can say is that not much at all. At all. So that's what we can explain about this. Thank you.

Thank you, Pak Dadi. [Operator Instructions] Since there is no new questions, then I will end the event. Ladies and gentlemen, all participants, thank you for taking part in PT Bank Danamon Indonesia's First Half Fiscal Year 2021 Financial Results. Stay safe, stay healthy. Always implement health protocols wherever you are, and see you at the next Danamon corporate event. Thank you.