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

Ladies and gentlemen, I would like to welcome you to PT Bank Danamon Indonesia Tbk's 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. Danamon's Board of Directors and President Director of our subsidiary, Adira Finance, have joined via MS Teams from their respective locations. Before we begin, I will explain some information. We encourage participants to join this event by using laptop and headset. Please put your mobile device in silent mode during the session to avoid echo. Please ensure that you are joining MS Teams in a close environment or room with a stable Internet connection. Do not access MS Teams link more than once in more than one device during the conference. Please put participants' voice access on mute during the presentation. [Operator Instructions] Now before we present the detailed financial -- the detailed fiscal year 2021 financial results, I invite Bapak Yasushi Itagaki as President, Director of PT Bank Danamon Indonesia Tbk to deliver his remarks on some of our key strategy progress. Pak Yas, please?

Thank you, Reza. Once again, good afternoon, good evening, valued analysts and investors. Thank you for joining us for this analyst briefing. To begin with, I have just a few words primarily touching on our key enablers, which is MUFG collaboration and the digital initiatives. These are the 2 key enablers for our business growth. First, the collaboration -- MUFG collaboration. Our collaboration with MUFG brought more tangible results last year. The number of deals accumulated to almost 300. The synergy loan went up close to IDR 12 trillion and CASA went over IDR 4 trillion. By leveraging MUFG's capabilities or network or customer base, Danamon is right now able to penetrate into each part of the business -- great business ecosystems. For example, corporate loan provided to our enterprise banking customers, dealer financing expanded into -- including SME client base of Danamon. Mortgages provided for consumer customers extended from our -- the real estate finance to MUFG developers. And last but not least, the co-brand credit card we launched with Grab late last year. Likewise, we are expanding the scope of MUFG collaboration, which is our quite strong engine for our business growth. On digital end, given the pandemic, like any other banks, for sure, we experienced more and more customers' behavior shift towards [indiscernible] digital channel or digital transactions. Last year, we saw a good traction or take-up from customers via digital channel. For example, time deposit and bond transactions, as you see in the screen, we continue to ramp up the D-Bank PRO, our digital apps with new features or new solutions, particularly payment features onboard it. In addition, we strategically made solid progression on partnership with leading digital partners for e-commerce players via API connection. This year, supported by economic recovery, we assure we expect this MUFG collaboration and digital to bring more benefits to our strong business growth. That's the kind of highlight remarks from myself. Thank you. And now I turn it back to Reza. Reza you're muted.

Now it's time to listen to the presentation of fiscal year 2021 financial results. I invite Bapak Muljono Tjandra as CFO of PT Bank Danamon Indonesia Tbk to deliver his presentations. Pak Mul, please?

Thank you, Reza, and good afternoon, all analysts and investors. So I'll start with the highlights. So we see that the profit grew by 56% and record high NPL coverage ratio. On the loans, total loan has started to grow again in Q4 2021, supported by enterprise banking, Adira and mortgage. EB portfolio grew 6% year-on-year and reached IDR 58 trillion, supported by collaboration with MUFG and focus on the blue chip companies and SOE. On the funding side, in line with the bank's focus on granular fundings, our CASA grew 11% year-on-year, and CASA ratio improved from 52.3% in 2020 to 59.1% in 2021. On the asset quality, NPL coverage reached a record high of [ 225.6% ], and NPL ratio improved by 10 basis points to 2.7% at the end of 2021. LAR percentage include COVID restructure still under forbearance, improved 810 basis points year-on-year to 16%. On the profitability, stable NIM at 7.7% with an increasing trend. Operating profit grew 16% year-on-year increased NPAT by 56% year-on-year to reach IDR 1.6 trillion in 2021. Next, on the balance sheet. Year-on-year, loan decreased by 4% and excluding the run-off portfolio and Adira, total loans is lower by 1% compared to last year. However, as I mentioned earlier, that the loan has started to grow in Q4, later we'll see the details. Government bonds increased significantly compared to last year as all excess of funds are temporarily interested into government bonds. CASA year-on-year increased by 11%. And as mentioned earlier, CASA ratio improved by 683 basis points year-on-year to 59.1%. Next on the income statement. So compared to the same period last year, our net interest income remained the same as last year, and our operating income lower by 1%. So mainly due to lower in the noninterest income due to lower volatility, basically. Year-on-year, PPOP was lower by 5%, mainly due to lower fee income and higher operating expense due to the investment that we made. Cost of credit year-on-year improved by 13% and NPAT 2021 of IDR 1.6 trillion or better by 56% compared to the same period last year. Next, on the key financial ratios. NIMs improved year-on-year by 20 basis points, supported by improvement on cost of funds. Cost of credit and risk-adjusted margin better by 40 basis points and 6 basis points, respectively, compared to the same period last year. NPL gross at 2.7% improved 10 basis points compared to last year. And loan loss coverage at [ 226% ] improved by 169 basis points compared to last year and loan at risk coverage include COVID at [ 38.3% ] or increased by 115 basis points compared to last year and CASA [ consolidated ] remained strong at 26.4%. So a lot of the key financial ratios seem to be improved -- indicate -- improved compared to last year. Next, on the funding, strong focus on granular fundings. We see that CASA ratio now at 59.1%, and we have the healthy liquidity supported by strong LCR and NSFR. Next, our capital is very strong. So bank only [indiscernible] [ 6.4% ] and console at 26.7% and almost 100% in the form of Tier 1 capital. Next. So this is showing a strong growth in enterprise banking, supported by MUFG collaborations. So chart on the left is showing the loan composition by each of the segment and table on the right show the year-on-year growth by each of the segments. As you will see that each of the segment showing a positive loan growth in Q4, yes. Next. The loan composition by sector remains stable. You see that on the left chart, and dominated by the working capital loan as shown on the right chart. Next. Adira, regaining market share and growth trajectory. Table on the top right is showing the new loan disbursement Q-on-Q, quarter-by-quarter. So you'll see that the loan disbursement in Q4 improved by 26% compared to the third quarter and improved by 47% compared to the fourth quarter last year. With those Adira outstanding loans saw a positive growth in Q4. So we see that Q-on-Q is showing a positive growth in the loan balance. Next, on the fee income. Adira credit related fee trend is in line with the loan disbursement. So we hope that the good trend will continue. Banca and Wealth Management show improving trend and also, we hope that this good trend will continue. Next, so you see that the high NPL coverage [ coupled ] with the improving asset quality. As discussed earlier that our NPL ratio at 2.7%, this is the gross, yes. And improved by 10 basis points compared to the same period last year. Special mention improved by 20 basis points from 11.3% to 9.3%. NPL amount improved by IDR 3.4 trillion -- improved to IDR 3.4 trillion from IDR 3.7 trillion last year and NPL coverage ratio increased from 29% last year to 226% this year. Next. COVID restructured loans. So loan at risk improved by -- improved to IDR 19.8 trillion from IDR 30.9 trillion last year. So it's a quite significant improvement. LAR as a percentage of total loan improved from 24.1% last year to 16%. Further COVID restructure under forbearance was also decreased from IDR 13.4 trillion last year to IDR 5 trillion this year. So it's also showing the good improvement and significant improvement. With that, I conclude my sharing on the financial results. And now I give it back to Reza.

Thank you, Pak Mul. Ladies and gentlemen, now it's the time for us to enter the Q&A session. [Operator Instructions] We are still waiting, Pak Mul, for the first question.

Okay.

The first question is for Pak Mul from [ Yuli ] from CGS-CIMB. She would like to ask 2022 guidance, if possible, on loan growth, NIM, CoC, cost-to-income ratio, if possible.

On the loan growth? Say again.

NIM, CoC and cost-to-income ratio.

CoC and cost-to-income ratio, okay. Maybe I'll start with the loan growth first. So loan growth will be in line with the economic recovery where we have seen positive indication, although still in the slower pace, we will continue to monitor the impact on the pandemic and PPKM regulation to the economic growth and loan demands. In the -- automotive industry has begun to show improvements after being significantly affected by COVID. Remember that we have the [indiscernible] in the month of the July and August. So the impact was very bad. But now we see that the loan -- the demand has started showing improvement. We see the fourth quarter, as I shared with you that the Q-on-Q loan disbursement grew by 26%, yes. And on NIMs. So we see that our NIMs is -- our NIM is 7.7%. So improve, I think it's improved compared to last year, and we see some improving trend in our NIM, obviously, because the growth in the high-yield segment like Adira Finance, yes. And improvement in our cost of funds, as I mentioned earlier, that we were able to grow our CASA by 11%. Now our CASA ratio at 59.1%. And continue -- we will continue to focus on granular funding to improve our funding structure as well as cost of fund. On the CoC, maybe I will later on give it to Pak Dadi, I will continue with cost-to-income ratio first. So we see that our cost-to-income ratio 51% this year. As I mentioned earlier, in the various occasions that we -- after the bank acquired by MUFG and we've been investing in a lot of areas, which is like our IT infrastructure, digital capabilities, people and branding. That's why it cost a bit to our cost-to-income ratio spiked a bit but we hope that the investment will bear fruits in our results going forward.

Thank you Pak Mul. Maybe Pak Dadi, do you want to elaborate on the CoC?

Sure. Thank you, Reza, Pak Mul. Yes. So on -- I think given our very adequate, right, I would say, provisioning position. I think Pak Mul mentioned about our loan loss coverage which by the end of the 2021 was at actually historic high for the bank at 225%. So basically, we believe that this year, in terms of CoC, we should actually go back to our normal CoC level, and if you've been following us, following Danamon for many years, like let's say for the last 10 years, you would actually see that in the normal years, Danamon's CoC would range anywhere between 2.5% to 3%. So obviously, the last 2 years, 2020 and 2021, have been aberrations, right, because of the pandemic. But if you look further, prior to that, et cetera, you'll look at -- you'll see that normal range. And we believe that this year, we are back with that normal range. So despite the fact that we still have COVID-19 restructuring, albeit at a much lower level, IDR 5 trillion only, right? But the fact that we have a very high level of provisioning. So for this year, we believe that our CoC level would go back to our normal level.

Yes. The second question comes from [indiscernible]. Congrats for the good results. The first question is on the CASA ratio. Do you think it is sustainable? And could you elaborate maybe, Pak Mul?

Okay. I think we have received the same -- almost have the same question in every -- our analyst briefings since 2019, I guess, yes. But you see that for the last few years that our CASA ratio keep on increasing. So as Pak Yas mentioned that now our approach is different. We have a lot of collaboration with MUFG. That's why you see that our synergy, CASA has increased by more than 100%. In addition to that, we also have a different approach. Now we are having the institutional approach. So we are not only focusing on the big parent company, but we are also looking at the ecosystem like the suppliers, the vendors, try to cap the ecosystem, yes. On the retail side, we see that our CASA also improving, the saving accounts. And what we have done good so far -- you look at the -- for those customers that are looking for the high yield, so we offer them the wealth management product. That's why you see that our fee income has also improved in that area. So for those people who are looking for the high product, we also have quality of the product, which is like the retail bonds, [indiscernible] and many other, mutual funds, yes.

The second question is on the growth strategy, Adira target growth of 25%. Could you give more color on the growth strategy for the bank and Adira. So maybe for the bank, we can ask Pak Honggo to elaborate. And then Adira, obviously Pak Hafid.

So thank you very much. In general, I think 2022, we are more optimistic. We can see from the Q4 2021. I think we see some tractions on the loan growth in all LoBs. So we are looking at double-digit growth on the 2022 that we also submitted our business plan to OJK based on that assumption. So in short, I think we are more optimistic on 2022 and we are looking at the double-digit growth.

Okay. On Adira Finance, it's basically 2 things. The first one is we expect the market will also continuously to grow in the auto industry, both 2-wheelers and 4-wheelers. Obviously, both GAIKINDO and [ Ichiya ] are quite optimistic for 2022. And the second thing is also the last 2 years, we had problem with credit quality with 1/3 of our portfolio got restructured. They are settled now. So practically, very insignificant amount left. So now we are starting from a good ground to underwrite more portfolio -- more underwriting, more sales.

The next question is from Abhishek from JPMorgan. Could you please elaborate on the impact to the bank of the expected rate hike in FY '22?

Let me try to take this, Reza. So I think this is a multi-aspect questions, right? So everybody anticipating of the rate hike. So first of all, the liquidity. As you know, the market consensus, even though BI issued, the new regulation about the risk requirement, they want to increase that twice, which is March and June. But the impact of rate hike, we think, it will not impact so much on liquidity because the -- at the same time, BI also still, what to call, under the [indiscernible] sharing with the MOF. I will buy, [indiscernible] [ IDR 224 trillion ] this year, similar amount with the last year. So from the liquidity, we are quite optimistic. It's going to be ample liquidity. Number two, if this a rate hike then, of course, we are looking at the -- what is the impact to our borrowers, right? So if the borrower can pass on those costs to the retail price, hopefully, then our borrower will be survive. Otherwise, we are also anticipating if some of the industry cannot pass on them, we have to be careful. If we increase the rate of borrowing, then the NPL will go up. So I think that's the balance that we are pay attention with. Number three, of course, you look at the bank portfolio, right? So as the other questions in the other meetings that we always said we are going to manage our durations. Of course, if the -- under 2022, I cannot disclose the number, but I think every bank will adopt the same principle that we are going to shorten the durations and we are going to invest in the short-term tenor of the portfolio. And then what else, yes, the impact of the rate, okay. So for banks, actually, the rate hike is not always negative impact, right? So if we can maintain our CASA ratio, for example, where the CASA ratio is steady because we are concentrating on the become -- make the Danamon becoming to operating banks. So more and more CASA will be placed on Danamon, right? So if that is the case, then the rate hike, it will have a positive impact to the bank because we are going to enjoy a higher margin. So I think those are combination of those 4 aspect that we are also anticipating in terms of the rate hike. So maybe the other colleague want to add something?

Yes. Maybe I just want to add that you may aware that for the last few years because of this COVID, the demand on the auto financing and SME was very weak, yes. So if the economy -- economic growth, the momentum is there. We are able to grow in this area. I think despite the rate hike, we will bring a positive impact to the banks because both SME and Adira, remember that they have a high yield compared to the EB loan where the blue chip company and tend to be pricing is a bit tight, yes. And Honggo mentioned about CASA ratio that we tried for the last 3 years that we've been increasing our CASA balance and CASA ratio that we hope that the momentum is continued. With that, I think -- we are thinking about positive impact to the bank.

Pak Honggo and Pak Mul. The next question is from William BCA Sekuritas. I would like to ask regarding the yields for SME versus Adira's financing in 2 wheel and 4 wheel. So maybe this is a combination between [indiscernible] Pak Mul, Pak Honggo and Pak Hafid.

Thank you. I think on average, the yield of SME is around 9%, 9.85%, and the NIM is around 4.5% to 5%. That's, I think, the benchmark of the SME yield. And for Adira, Pak Hafid?

Yes. It's quite big different, 2 wheelers and 4 wheelers. Two-wheelers, we're talking about a gross yield about 30%, while the 4-wheelers is about 15%. So it's a combination of passengers and commercial in the 4 wheelers, yes.

The next question is, what is the main driver of Q-on-Q increase in the noninterest income? And then second question, on the SOE loan, could you share with us the sector of this SOE company? So maybe number one, Pak Mul and then number two, Pak Honggo.

So the main driver of the noninterest income increased in the fourth quarter basically and have a few components there. One is the fee income coming from the -- fee income from the [ periphery ] and capital market. And second is the performance-linked bonus on our Banca. We have the collaboration with the insurance companies. So we have performance-linked bonus in aspect to that collaborations, basically.

Thank you. Pak Honggo on SOE loan.

Yes, thank you. I don't know where I can disclose the number here. But I think, that's okay, the SOE loan approximately 20% to 25% of our portfolio today. And if you ask about the sectors, I think we go almost all sectors, starting from the financial institutions. And then we also go for the infrastructures, transportations but definitely, we are reducing in the contractors, right? So that's definitely pacing out. Then we're also coming with the -- yes, when I said infrastructures, this is transportation infrastructures, also the airport, also the SOE, I think, if I said that- on brokers, [indiscernible] we also have a portfolio on that one. And then we also in electricity and also some of the mining companies. I think all those type of sectors that we are entering in the SOE.

Pharmaceuticals, Pak Honggo.

Pharmaceuticals, yes. Pharmaceutical, that's also the big one. We are helping during the pandemic.

Thank you, the next question, actually, we have covered it. CASA ratio improvement and the main driver of the increase and color on the strategy and then a monsoon to increase CASA ratio in 2022. I think Pak Mul have covered it, but I don't know if there's additional color Pak Mul, in terms of additional room to increase and strategy?

Probably on the strategy, Reza, I think we will continue on the prudent credit growth through the ecosystem approach, Yes. Second number the CASA grow through the [ interventional ] approach and increased fee income through unique value propositions, yes. And then we will continue our solid condition through the branding, human capital, IT, digital and process. We'll also strengthen our banking capabilities, digital banking capability. We have launched products and services that are in line with the Bank Indonesia. I think this one is covered by Pak Yas in the beginning of the slide, yes. And through MUFG and its partner bank, Danamon will have access to various international best practices. And we have many collaborations with MUFG and the -- I think the good one for the last few months was the collaboration in the area of mortgage. So we tie with the Japanese developer. This is in addition to the big developer in Indonesia [ area ].

So Reza, a little bit to add about this point too how -- what is our strategy to increase the CASA ratio. So I think it goes back to the Pak Yas explanation. The main topic is we want to be the [indiscernible] chain, the financial supply chain with the collaboration of the MUFG. This is still the main focus of Danamon. So we are more and more selling our capability in cash management, in transactional banking, as everybody understand in this digital era, basically BI, right, encourage banks. Finally, we are moving to the open banking. So we also increased our capability in the designing API, so the customer can transaction easily with Danamon. So the cash management, the API, the collaboration. And also, we are trying to get as much as possible the supply chain through the collaboration with MUFG. So with that, you can see the results for the last 2 years, the CASA ratio increasing, today the CASA ratio is 59%, I think, of the overall banks. So that is the positive result of all these 2 years' effort to get all those financial supply chain, including the collaboration with MUFG.

And please also don't forget to download our D-Bank PRO, it's fantastic. So it's very user-friendly and has quite complete features.

Thank you, Pak Honggo and Pak Mul. Ladies and gentlemen, we still have time for further questions. So I will wait for a few minutes to see if there are other questions. Okay. The first question -- the next question is for Pak Dadi. Could you elaborate on the increasing CoC in 4Q '21?

Okay. Yes. Thank you, Reza. I actually do not see the question, okay. But yes, basically, in the fourth quarter, right, we wanted to make sure that we would actually end 2021, right, in a position -- in a comfortable position where we would be able to grow ambitiously in 2022 without being hindered by any assets quality issues. So that was basically the driver of our strategic decision, which we took in November last year to beef up our provisioning so to a level that I think both Pak Mul and I mentioned earlier, a historic level, basically. So it was -- we basically built up provisioning in November 2021, that would actually provide us with significant comfort that we would be able to grow ambitiously in 2022 as has been elaborated by my colleagues, everyone, Pak Mu, Pak Honggo, Pak Yas, right, everyone. And without any hindrance basically on assets quality. So that's the thinking behind it.

Thank you, Pak Dadi.

Reza if I may, I want to add something about this also. So basically the key word why we're increasing the CoC in the fourth quarter, like everybody understand that -- we are anticipating the end of the government relaxations, right? So I think all countries are discussing about the cliff effect about this the end of restructuring. So like Pak Dadi said you can see our coverage ratio increased up to 225%. So -- and also, we are following the guideline [indiscernible]. We are more and more stringent to do the relaxation. So we want to make sure that at the end of the -- when the government uplift the relaxation, then there's no hiccup. So I think that's the important point. So we want to smoothen the cliff effect of the restructuring -- the [ relaxations ].

The next question is from William BCA Sekuritas. Any color on digital initiatives and any metrics on digital channels with regards to volume and transaction value, perhaps Pak Nao?

Thank you for the question. Yes. As you can see on the [indiscernible] bottom left of the pie chart, now our digital channel, the mobile and Internet banking account for 80% of the total number of transactions. We continue to increase this, try to constantly increase this ratio through the digital initiative. We have 2 pillars of the digital strategy or initiatives. The first pillar is organic initiative or organic approach by building our own capability of the omnichannel, especially for mobile banking, our D-Bank PRO. And the second, our initiative to increase the number of transactions through digital channel is the partnership approach. We are very much proactive to, say, collaborate or connect with our digital leading partners, as you can see on the bottom right, some example through the API connection try to, say, the increase more and more of the lease or the transaction through -- from the digital partners, especially in the area of e-commerce payment gateway and [ P2P lending ] and so on and so forth. That's it, back to Reza.

Again, we have time for maybe a few more questions. Please write your questions, if any. I'll wait for a few minutes. Okay. We have one question from [ Hamdi from Bahana ] again Pak Hafid, what is the comfortable level of NPL coverage and LAR coverage for Danamon after the ending of government relaxation?

Thank you, Hamdi, for the question. I believe as far as the NPL, the coverage, right, in this case, NPL coverage and also the LAR, right? Obviously, once our -- once the COVID-19 relaxation is over, right, then we can probably look more our just NPL coverage, right, which is a more common figure that is watched for banks, right? So I would say that in terms of NPL coverage, I think our normal level in the future would probably be around somewhere around 150%. So around anywhere between 140% to 160%. This takes into account our -- the nature of our loans, right? The collateral coverage and also both in Danamon and Adira right? So we have larger exposures to SMEs, which are normally collateralized by properties. So this should all be taken into account for us to actually say that our normal NPL coverage should be around, I would say, around 150%. As far as the LAR itself, right, LAR coverage, if we are looking at the later, let's say, later level, I would say it should be around 30%, I would say. That would be the level that we will be comfortable at and at a normal level. So that's probably the normal ratios for us Danamon.

Thank you. The next question.

I didn't address the second part of the previous question, the any metrics of the digital channel. So the [indiscernible] we also set or they still channel initiative is basically in relation to the number of transactions, we focus on the monthly active users number. Those are our key metrics for digital channel. I can't disclose the exact number for those transaction value. But just to give you a figure or image. In terms of the volume of transaction, our number of transactions, the annual number of transactions is a few hundred million or up to several hundred million annually. Just to give you the ballpark image.

Perhaps to continue with that, one of the second aspect of the last questions here is also related to digital. Maybe you can also help answer. Do you see higher customer acquisition costs going forward given fierce competition in digital landscape nowadays?

It depends the -- it depends on our wholesale marketing strategy. So I don't see any [indiscernible] operation on higher customer acquisition cost at this moment. But obviously, the competition is getting clear on peers. And more the fee-based income might be under pressure that they are going for. So that's a short answer to this question.

This first half of the question, perhaps I direct to Pak Mul. Any color on OpEx driver in 2022? I think digital initiatives will recover, but how much CapEx Danamon will allocate in 2022, maybe those 2 questions for Pak Mul.

Thank you for the question. Yes, we do have the significant increase in our CapEx for 2022. As I mentioned earlier that we are investing in our IT infrastructure and digital capabilities in addition to the people and branding. Yes, a significant increase in CapEx.

Okay. Thank you, Pak Mul. I think that's all the questions that we have. With that, I will end the Q&A session. Ladies and gentlemen, all participants, thank you for taking part in PT Bank Danamon Indonesia Tbk Fiscal Year 2021 Financial Results. Before we close, maybe I just want to highlight one upcoming event, which highlights kind of the discussions we had in terms of Danamon's strategy and growth going forward. Danamon, along with Adira Finance and supported by MUFG is showing our commitment in supporting the growth of the automotive industry by becoming an official bank partner and official multi-finance partner in one of the biggest automotive convention in Indonesia. The upcoming Indonesia International Motor Show, IIMS 2022. Through this support, Danamon along with Adira and supported by MUFG is providing comprehensive financial solutions for the entire automotive industry ecosystem and becoming the partner bank of choice in the automotive industry. Thank you. Thank you for attending the event. Ladies and gentlemen, stay safe, stay healthy and always implement health protocols wherever you are. And we will see you at the next Danamon corporate event. Thank you.

Thank you.

Thank you. Thank you so much.

Thank you.

Thank you very much.