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

Good afternoon, ladies and gentlemen. We would like to thank the participants, analysts and investors who have registered and joined the analyst briefings of PT Bank Danamon Indonesia Tbk 9 Months fiscal year 2021 financial results this afternoon. My name is Reza Sardjono, and I will be your host during this event. The event is held virtually using MS Teams live event platform. Today, we are joined by Danamon's Board of Directors as well as CEO of our Adira Finance subsidiary via MS Teams from their respective locations. Before we begin, I will explain some information. We encourage participants to join the event by using laptop and use a headset when joining the event. Please ensure, when you are joining MS team in a close environment or room with stable Internet connection. Do not access MS Teams link more than one device during conference. And participants voice access will be put on during the presentation. For the Q&A session, please note the following points. Each question by participants will be conducted through the Q&A box feature. Participants can start writing questions during the presentations by typing in the chat box. Participants must inform name and company in Q&A box when writing the questions, and I will read each question raised through Q&A box to the BOD. Now before we continue with the detailed 9-month fiscal year 2020 financial results, I invite Yasushi Itagaki, as President Director of PT Bank Danamon Indonesia Tbk, to deliver his remarks and walk us through progress update on our key strategies related to collaboration and digital. Pak Yas, the floor is yours.

Thank you, Reza. [Foreign Language]. Good evening, good afternoon, valued analysts and investors. Thank you very much for joining us for this financial updates in the 9 months. As introduced, let me touch upon a few of the highlights of our bank-wide key strategy. The first one is synergy or collaboration with MUFG. As you see in the top chart -- I mean, top left, we keep growing on so-called synergy loan or synergy CASA, as you see over the years or over the quarters. We also are accumulating the variety of financial solutions to the customers not only just simple lending and funding, but the financial supply chain, Sharia solutions, employee benefit package and et cetera. Let me share with just a few of the notable transactions disclosable in the last quarter. Through this innovation, we are quite active in providing our financial solutions or products to the MUFG customer base. So naturally, it's predominantly Japanese corporate customers or global customers. But not just those global customers, but also, we are quite active in providing local customers, big name like [ Protelindo ], with a big ticket-sized syndication collaborating with MUFG. We are also quite active in providing digital payment solutions to, we cannot name the exact name, but a very large financial conglomerates. Moving down to the bottom half, this is sort of key highlights of the digital initiative. As you see on the bottom left, we steadily grow our digital penetration in the transaction of time deposit or bond sales. And overall, the bank-wide transactions, roughly 80% of our transactions are processed on digital base. So we keep growing our digital-based transaction, which is a lower cost of service. On top of this, the growth -- our own digital capability development enhancement, we are quite active in so-called digital partnership through which we are able to connect us with other digital ecosystem represented by fintech players or tech players or e-commerce players with the aim to expand our customer base and provide a more seamless service like onboarding, payment, transfer, et cetera. With that, I stop here, and I pass it over to our CFO, Pak Muljono. So Pak Mul, please?

Thank you. Good afternoon, all analysts. Let me brief on the financial results for the 9 months period ended September 2021. Let's start on the key highlights. So we said we're going to continuously improvement despite many challenges due to PBTMs. On the loan, our EB portfolio grew 8% year-on-year and are supported by collaboration with MUFG networks and focus on the blue chip and SOE customers. Along with the improvement in the auto financing industry, Adira Finance third quarter 2021, new financing increased by 95% compared to the same period last year. On the fundings. In line with the bank focus on granular fundings, our CASA grew by 10% year-on-year. And our CASA ratio improved by 6.1% to 57.6%. On the asset quality. NPL coverage increased from 142%. In the same period last year, 217%. Our profit restructure improved by 59% to IDR 7.5 trillion. And our loan at rate declined 930 basis points to 18.8% at the end of September. On the profitability. NIM, stable at 7.6%, and we see that some improvement on Q-on-Q to 7.8%. On the risk-adjusted, NIM increased 20 basis points to 3.8% and Q-on-Q increased to 4.2%. NPAT reached IDR 1.4 trillion in the 9 months September 2021. Next, I'll continue with the balance sheet highlights. So as we discussed that our loan increased by 6% -- no, our loan year-on-year decreased by 6%, so mainly coming from the Adira Finance and the SME. Government bonds increased significantly compared to the same period last year as all excess of funds are temporarily interest in the government bonds. As we discussed earlier that our CASA grew 10% and CASA ratio improved to 57.6%. Next on the summary of income statements. So compared to the same period last year, our net interest income were flat and our operating income lower by about 5%, yes. Year-on-year, PPOP was lower by 11%, so mainly coming from the Manulife fee that we received last year. And excluding Manulife, our PPOP pretty much flat compared to the same period last year. As we discussed earlier, our NPAT, 9 months, 2021, IDR 1.4 trillion, slightly lower compared to the same period last year. Next, on the financial ratio. Our NIM year-on-year, flat, yes? So basically, lower. In [ muni ] was compensated by improvement in cost of fund. COC and risk-adjusted NIMs better by 20 basis points compared to the same period last year. NPL growth at 3.1% or improved by 1 basis point compared to the same period last year. And loan loss coverage at 170%, improved significantly compared to last year. And our loan average coverage, which include profit at 28.3% or increased by 115 basis points compared to last year. And our CAR remained very strong at 26.4% for consolidated. Next, on the granular funding. So as mentioned by Pak Yas, just now, actually, we continue focusing on granular funding through our digital and institutional approach, yes. And our liquidity very healthy, supported by strong LTRN NSFR. So LCR at 190% and our NSFR at 141% at the end of September. Next, on the capital. So console at 26.4% and bank only at 26.6%, so very strong, and almost 100% in the form of Tier 1 capital. Next, on the loan composition. So as I discussed earlier, that's very strong growth showing by our EV. And the chart on the left is showing the loan composition by each of the segments. And the capital on the right basically showing the year-on-year growth Next, on the auto financing. So as I discussed earlier, the Adira Finance new unit financing improved along with the industry recovery. So the table on the right is showing the new loan disbursement quarter-by-quarter. So despite significant increment in the new financings, the attrition is significant, and this is the net of the business of the auto financing. Therefore, we see that the total loan is lower by 13% compared to the same period last year. But we see some improvement, especially after the releasing of PTM, and we hope that the good trend will continue. Next, on the fee income. We see some diversification of our fee income source, providing stable trend corresponded mix. Clearly, related, showing a good trend, especially in Adira Finance, as we discussed just now. Banca and Wealth Management showing -- continued showing improving. Next, on the special mention and NPL. We see that -- and as we discussed earlier, that NPL ratio improved by 16 basis points compared to the same period last year and stay at 3.1%. And our special mention also improved by 120 basis points to 9.8% at the end of September. And NPL coverage also increased from 142% last year to 170% by the end of September. And this is the last step that I have on the COVID restructured loan and loan at risk. So we see that LDR as a percentage of total loans improved from 19.9% in last quarter to 18.8% in the end of September. Further COVID restructure under forbearance Q-on-Q also decreased. So from IDR 7.7 trillion to IDR 7.5 trillion. So with that, I guess we open for Q&A, Reza?

Yes Thank you, Pak Mul. Ladies and gentlemen, now it's the time for us to enter the Q&A sessions. [Operator Instructions] So let us wait. And we are open for Q&A. We are still waiting for the first questions. [Operator Instructions] Okay. The first question is -- and actually, the first and second question is related to Adira Finance. So this is to Pak Hafid. First question is from [ Richard Gerry ]. I was just wondering why your new 2-wheel or 4-wheel disbursement keep at lower level versus industry? And what is your outlook for 2-wheel and 4-wheel segment in 2022? I think it's a similar questions also. So I will combine them about how Adira Finance is lagging behind the industry? And is it a deliberate strategy due to pandemic situations in terms of Adira Finance risk appetite? Pak Hafid?

Okay. When the pandemic started, yes, we did a very conservative action, considering a lot of restructured portfolio. But the growth -- as the market growth, we're also growing and almost closing to the market. But actually, the market is a little bit biased here because the market is total, including cash portion. So cash portion remain -- the absolute numbers remain stable, actually. So the portion of cash is increasing, but not because of the people going after credit. But because those people that demand credit actually is lower. So number is a little bit biased because the ratio of the -- we are comparing Adira financing versus the total sales of the motorcycle. But overall, I think as the market grow, Adira will also grow, and we will have ambition to go accessing the market growth. The forecast for 2 wheelers, I'm assuming you're asking for industry. So the IC is talking about numbers of between IDR 4.3 million to IDR 4.6 million this year. And next year, it's about IDR 4.65 million to IDR 4.85 million. So it's a 8% to 10% increase next year. But we believe the number is going to be higher than what's predicted. So the number could reach IDR 5 million next year.

Thank you, Pak Hafid. I hope that answers the question. The next question is from [ Andre Wijawa from RBH Securitas ], and this is for maybe address to Pak Mul. Would you give color on FY '22 loan growth and its growth driver?

Thank you for the questions. I think we are now in the process of our budgeting. So we are not in the -- we cannot share with you because we are releasing the process. But as I cited, probably we will follow the guidance from the [ AJ NBI ] in terms of loan growth as well as the industry.

Yes. Thank you, Pak Mul.

Maybe, Reza -- on the question to give more of the color. Compared to this year, the loan growth in 2022 will be more encouraging. A couple of reasons. This year, this COVID pandemic and mobility restriction through [ pepka ] is strictly strongly affecting the loan growth, particularly in Adira Finance SME. As Pak Hafid said, I think our automotive finance is really dependent upon the market growth, right? But next year, I hope that starting from this fourth quarter, our loan disbursement in Adira get more sort of gaining more pace and probably this declining trend of the loan growth in these 2 segments will stop and be reversed starting from this fourth quarter into next year. So with the recovery of these 2 segments and still, we have a very high hope on this EVFI. As I explained, we have a strong enabler, MUFG. So altogether, we have a much higher loan growth next year compared to this year.

Thank you, Pak Yas. Maybe in line with the topic of FY '22. The other question is also from Andre Vijaya, what is the credit cost outlook in 2022? Maybe Pak Dadi?

Yes. Sure. Thank you, Andre, for the question. Yes. I think this year, basically, right, last year, this year, our credit cost is still very much at an elevated level, right? This year, we are better than last year, but still, it's still quite at an elevated level as we are trying to build up provisioning this year. But our plan is actually to position ourselves so that by next year, by 2022, we should be as far, as credit costs are concerned, yes, we should be back to normal level. So what is normal? In our case, if you look at our provisioning or credit cost, like, let's say, if you've been following us for the last 10 years or so, you'll notice that our credit costs during normal years would range anywhere between 2.5% to 3%. So that's basically -- that's what our outlook would be. We believe that we should be going back to normal in 2022 as a result of us building up or positioning ourselves last year and this year. But next year, we are hoping to go back to normal and with that range of credit costs. So that's -- that would be our credit cost outlook for next year.

Thank you, Pak Dadi. The next question is for Pak Mul. What is the FY '21 forecast guidance following these 3Q '21 results? Is there any revision?

I think we are still working very hard to achieve our targets. We see some improvement on the demand, especially on the auto financings. And on EV, you need -- we see that our EBIT keep on growing. So we hope that with the releasing of PPM, we will be able to accelerate our our growth.

Yes. Thank you, Pak Mul. Let's wait for a few more minutes. Okay. The next question is for Pak Honggo. On the EB segment, could you give color what business sector drive the growth? Pak Honggo, please?

Thank you for the questions. I don't see who is asking the question here, Reza, in my computer.

Sorry, it is [ Handi from Baher ].

Okay. Okay. Thank you for the question, Handi. I think, yes, because of the pandemic is just in a declining mode, and we still believe there are 5 or 6 industry, we are still consistent with our view from -- since the beginning of the year. First of all, of course, the FMCG-related. Number two is the -- anything with the ICT. Number three, the segment is on the medical equipment or supplies. Four, pharmacies. Five, the infrastructures. And then recently, we also look at this -- when the commodities -- everything is on the rise. So we are also adding the commodity -- very selected commodity industry that we are now is watching, maybe towards the Q4 and for next year. And then last but not least, as you know, that we can grow organically or we can grow by the collaborations. So one we do collaborate with our MUFG. The other one is doing partnership or collaboration with the P2P lending or the digital financings, the marketplace and so on and so forth. Those 7 areas that we think we can grow and that we are carefully designing our 2022 budget. As Pak Mul mentioned, we are in the final stage of the -- making our '22 budgets. I think those are the area that we are looking at.

Yes. Thank you, Pak Honggo. The next question is from [ Agos ]. What is the high risk portion of the total restructured loan? Overall, what is the probability of default of the high risk and medium risk of restructured loans. Pak Dadi?

Yes. Thank you. I think if you are asking about this high risk, we have different classifications basically, right? We -- between our LOBs, right? So within our enterprise banking, SMEs, et cetera. We try to classify them based on different parameters, et cetera. But generally, I would say that the high-risk portion would account to 30% of these restructured portfolio.

Okay. Thank you. The next question is perhaps this is for Pak Nao. What is the portion of loan to total via partnerships, such as industry? What is the category of this, is it SME or consumer? And what is the average ticket size, loan yield and credit cost of this type of loans?

Yes. Thank you for the question. So firstly, the portion of loan to total partnership industry. So we are still very much early stage of the loan channeling [indiscernible] with industry. But actually, at this moment, amount is not that big for less than, I'll say, IDR 1 trillion at this moment. As for the category, we are hoping that working through industry for SME, I say, the customers. So the segment is SME. And lastly, ticket size. Yes, ticket is -- this is also MSME lending. The other ticket size is not that big. So few or several, I'll say, the billion rupiah for ticket size. And lastly, what is loan yield, and the loan yield is, of course, double digit number. And the credit cost of this since we were on at still testing the market by taking the potash the credit cost is also pretty much under control at this moment. But we are, say, going to expand our this long channeling or on executing, I mean, the digital lending, the collaboration with other P2P lending fintech going forward. will say hopefully, we're going to announce some new initiatives sometime soon.

Yes, thank you, Pak Nao. We will wait a few more minutes if there are any more questions. Sorry, I think I was put on mute. Apologies for that. Because there's no more questions, I will end the Q&A session. Ladies and gentlemen, all participants, thank you for taking part in PT Bank Danamon Indonesia Tbk's 9 months fiscal year 2021 financial results. Stay safe, stay healthy and always implement health protocols, and we will see you at the next Danamon corporate event. Thank you.

Thank you.

Thank you.