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

Good afternoon, ladies and gentlemen. We would like to thank the respective investors and analysts. Thank you for your registration and joining the virtual analyst briefing of PT Bank Danamon Indonesia Tbk the 9 months financial results for fiscal year 2022. This event is virtually held using MS Teams meetings. And before we begin, I would like to emphasize on the following information. We encourage participants to join this event by using laptop and use a handset to optimize the audio quality. Please ensure that you are joining from a closed room and quiet environment with a stable Internet connection. And during the presentation session, please kindly put your phone in silent mode to avoid echo sound, and do not access the MS Teams link simultaneously in more than 1 device. [Operator Instructions]. Now the analyst briefing will start in a moment. Ladies and gentlemen, I would like to welcome you to Danamon's 9 months financial results for fiscal year 2022. My name is Yogi Zadian Arief. And today, I will once again be your host for today's briefing session. Already with us today joining from their respective locations, please allow me to welcome Danamon's Board of Directors and President Director of our subsidiary, Adira Finance. Now before you present the detailed 9 months financial results for fiscal year 2022. I would like to invite Bapak Yasushi Itagaki, as President Director of Danamon to deliver his remarks, highlighting the progress of our collaboration highlights. Pak Yas, the stage is yours.

Thank you, Yogi. Very good evening, [Foreign Language], our valued investors and analysts. Thank you for joining us at the analyst briefing session. To begin with, I'm delighted to highlight that we continue on solid performance in the third quarter. Next page. The page changed?

Yes, just wait, Pak Yas.

Sure.

We are having some glitch on our material sharing. Okay.

Has the page changed?

Still in at the moment. Just wait, Yas.

Okay.

I will let you know once it's back up again. Okay. So ladies and gentlemen, please just bear with us for a while. We're having trouble a little bit on our technology to share the material this way. Okay. Yas, I think we have solved the material. Now it's already up and running on the screen. So going to the next slide, please.

Okay.

Thank you, Pak Yas.

Sorry for the inconvenience. Well, in this slide, I touch upon the synergies. Synergies with from MUFG collaboration continued to grow, as you see, as shown in the bar charts, we have accumulated more than 400 transactions. Synergy loans are reaching IDR 16.7 trillion and CASA reaching at IDR 5.1 trillion. I'll share a few -- just a few examples of these rising or growing synergies. First one is a real estate financing for Central Park Mall, as you know, a very successful shopping mall in Jakarta. It is one of our large ticket size refinancing transaction recently, where Danamon acted as a sole lender. The Central Park Mall is now jointly owned by y Hankyu Hanshin Properties -- Japanese properties and Agung Podomoro Land, the local partner. Danamon fully leveraged MUFG's relationship with Hankyu Hanshin in Japan and our relationship with Agung Podomoro to win the deal. Likewise, Japanese developers focus on Indonesia market and we are very confident to realize more transactions like this by collaborating with MUFG. Another example is financing of a partial loan to graph drivers. As part of our strategic alliance between MUFG and Danamon -- I mean, MUFG and Grab, Danamon has launched various financial products to Grab ecosystem. I mean users, merchants and drivers. We started providing personal loan to Grab drivers through a peer-to-peer lending company. As shown on the bottom part, the customer acquisition and transactions over our digital banking were continue to steadily increase. In Q3 this year, we kept growing our partnerships with digital players, which includes with Kulo Group, Kawan Lama Warna Mardhika and SNS. These partnerships are executing to benefit our customers while for us expanding our ecosystem reach. Next slide, please. Yes. Well, our collaboration journey with Adira Finance and MUFG on automotive ecosystem had marked another milestone. As one group last quarter, we were very active and engaged in various major events in line with our commitment in sustainability and financial inclusion. We supported the EV sustainable ecosystem and Nota Exhibition and Financial Export 2022. We just completed another live off-line event, the Indonesia 2023 Summit, last week. Taking rebuild the economy as a headline and having special coverage on automotive ecosystem or outlook, we believe the Summit provides valuable insights for our customers and our intention to be the most trusted financial group in automotive industry was well received. As a result, we -- the business synergies between Danamon and Adira is gaining traction and building positive momentum, as you see. Talking -- taking confidence and looking at the significant growth of these various figures, we believe our [ RE ] effort and our approach have a very promising potential going forward. Thank you very much. And let me now hand it over back to Yogi, please.

Thank you very much, Pak Yas. Now I shall move to the next agenda. It's time to listen to the presentation on 9 months financial results of fiscal year 2022. I would like to invite Bapak Muljono Tjandra, as Finance Director of Danamon to deliver his presentation. Pak Mul, the stage is yours.

Thank you, Yogi, and good afternoon to investors and analysts. So let me go through our 9-month result for the year. Next. So we see on a summary here, basically, our -- on loan, we see that our year-on-year total loan and trade finance grew by 8% year-on-year. Enterprise Banking and Consumer Banking portfolio grew by 16% and 11% year-on-year, respectively, supported by segmentation approach and collaboration with MUFG. Adira Finance new financing increased by 21% compared to the same period last year. So a very, very strong growth. Granular fundings, institutional approach and digital resulted in a 14% year-on-year growth on CASA. And our CASA ratio reached 64.2% in 9 months from 57.6% last year. And on the asset quality, our consolidated gross NPL percentage improved 40 basis points year-on-year to 2.7%. And our NPL coverage improved from 175% in the same period last year to 217%. Then our LAR percentage, this is include COVID restructure, which is still under forbearance, improved 460 basis points year-on-year to 14%. On the profitability, NIM improved by 32 basis points, driven by improvement in funding composition and cost of funds. Just now, we've seen that our CASA ratio improved from 57.6% to 64.2%. Well, obviously resulted in improvement in our cost of fund. Our NPAT increased by almost 80% year-on-year and reached IDR 2.5 trillion in 9 month 2022. Next, on the balance sheet highlights, basically, you'll see that our consol asset remained the same as last year, with a changed composition from government bonds to loans. So as I mentioned earlier, our total loan portfolio and trade finance increased by 8% year-on-year. From the funding side, the total remained the same as last year, but there is shift in composition from time deposit to CASA, which resulted in improving our CASA ratio to the 64.2%. Next, let me go through the detailed income statement. So you'll see that our operating income grew slightly compared to the same period last year, supported by growth in net interest income from the asset growth as well as improvement in cost of funds. OpEx increased by 7% year-on-year due to investment commitment to build our IT digital capabilities, marketing and branding. CoC improved by 37% year-on-year due to improvement in asset quality. And our operating profit grew by 55% and NPAT increased by 79% year-on-year to reach IDR 2.5 trillion in 9 months 2022. Next, I'll continue with the key financial ratio. So you see that our NIM year-on-year improved by 32 basis points, mainly supported by improvement in cost of funds. And compared to the same period last year, our CoC and risk-adjusted margin [ bettered ] by 152 basis points and 180 basis points, respectively. Cost-to-income ratio, I think we discussed just now, increased due to the investment commitment in IT, digital capabilities, marketing and branding. NPL consol gross at 2.7% or improved by 40 basis points compared to last year. And our loan loss coverage at 217%, improved by 14.8% last year -- compared to last year. And our loan loss coverage, our loan at risk coverage including COVID risk -- COVID at 41% or higher by 127 basis points compared to last year, and our CAR remained very strong at 26%. Next, I'll go through the details of our granular funding. So we see that we continue focusing on granular fundings. This can be seen from the funding structure on the bottom life tables, where we were able to grow our CASA 25% since September 2022 -- '20. And since then, our CASA ratio improved from 51.5% to 64.2%. On the liquidity, we have a very healthy liquidity supported by strong LCR and SFR. Next, on the capital. As I mentioned earlier, that consol CAR at 26.2% and stand-alone or bank only at 25.3%, far above the minimum requirement with almost 100% in the form of Tier 1 capital. Next, so we see that strong growth on the Enterprise Banking and Consumer Banking as we discussed earlier where Enterprise Banking able to book the 16% year-on-year and on consumer banking at 11%. Adira showing improvement despite the auto industry sales having stock problems. Next, our loan composition remained stable and diversified. Next, on the Adira Finance, new financing, we see that increase by 21% year-on-year. So basically, table on the right is showing the new financings quarter-by-quarter. And compared to the last year, we see that increase by 21% despite issue on the inventory. And Adira still able to book a 5% loan growth, mainly in 4-wheelers and multipurpose loans. Next, fee income is relatively stable, supported by double-digit growth in noncredit related fee. Next, on the asset quality, so as discussed earlier, our NPL ratio at 2.7% improved by 40 basis points compared to the same period last year. Special mention improved by 100 basis points to 8.5% or in amount improved by IDR 137 billion. And our coverage ratio increased from 175% last year to 217%. Next, our cost of credits improved by -- from 3.8% last year to 2.3% due to improvement on asset quality. LAR improved from IDR 18.7 trillion from IDR 23.1 trillion last year. And LAR, as a percentage to total loan improved from 18.8% to 14.2%. And further, our profit restructure under forbearance also decreased from IDR 7.5 trillion last year to IDR 3.9 trillion for the -- at the end of September. So this is all I have for the financial update. Now I -- back to you, Yogi. Thank you.

Thank you very much, Pak Mul. So ladies and gentlemen, our respective investors and analysts. Now it's the time for us to start the Q&A session.

[Operator Instructions]

This is Rajesh from Doric Capital. Can I ask a question?

Yes, please. Thank you. Long time no see, but please yes, raise your questions, and please don't forget to mention to whom the question is addressed to, also.

Yes. So actually, anyone from the team can answer this. So when we look at the Indonesian economy, it's been improving post-COVID and our growth rate is also stabilizing. Can you give a comment on when we can see sustained at least mid-teens sort of growth rate in loans that we used to have before? What needs to happen for that? And how are you preparing for that?

Okay. Thank you very much for the question, Rajesh. May I ask for the response from Pak Honggo on these specific answers -- questions, on stable loan growth.

Yes. Thank you very much, Rajesh. I sort of agree with you. If you look at this -- all the indicators of the economy are getting better and better, especially Indonesia get the affected of the mining sectors and some of the -- our trade balance are getting better and better. We, of course, will grow accordingly to the Indonesian growth, okay? For this year, we are looking at double digit. As you can see, all the numbers are in the corporate and commercial are in line with the economic growth. While in the consumer and Adira is slightly behind, not because of the demand, but because of the supply side also having some hiccup, right? So for next year, we are now preparing our budget planning. We are also -- I think we are usually the central banks [ BI ] will give us the guidance and then we are going to make our budget planning in line with whatever the government growth. I think we are optimist looking at the prospect, Rajesh. Thank you.

Thank you very much, Pak Honggo. So I also see questions already stated in the chat box. Thank you very much for your question, [ Sabrina from 3Mega ]. So the question is, are the banks looking on the cuts of inorganic growth opportunities going forward? May I ask for Pak Mul to respond on this question, Pak...

So thank you for the questions. I cannot remember the name, but from [3Mega ] Securities.

From Sabrina, Pak Mul.

Sabrina, so thank you for the question. I think as part of our strategy, I think we are looking for the organic and inorganic growth. So you see that our capital is very strong. So we're really looking forward to how to improve our market share basically. So anything that's able to improve our performance, better market share. I think we are -- we will do that. We will look at it.

Okay. Thank you very much, Pak Mul. So I'm now welcome for the next questions. [Operator Instructions]

There is a question from 1 example, number one. Have somebody answered that? The consumers' outlook and the liquidity question -- liquidity going forward?

Yes. I didn't hear that point. Correct, Pak.

I think the questions have to be answered.

Yes. So Pak Hafid, may I ask your response to this, but let me just repeat the questions for everyone. So thank you very much, Yulinda Hartanto. First question is any guidance on direction for 2023 outlook? So let me -- I think Pak Honggo is pretty much covering this part on the previous response. Second question is, what are the sources of strong consumer loan growth? Maybe to supplement Pak Honggo's earlier comment. Pak Hafid, may I ask your help these questions?

Yes. The growth in consumer is predominantly driven by mortgage. So mortgage loan growth, double digit, 13% and it's affected in the disbursement. The disbursement of the mortgages compared to last year increased by 132% So more than double. So that's why the loan increased double digit.

Thank you for the response, Pak Hafid. Number three...

Let me take the third question, [ to answer ] number 3 about this [indiscernible]. So Yulinda, let me take you 1 step back before the COVID here. Before the COVID, if you look at the balance sheet of the Central Bank, if you look at the instrument monetary and the monetary instruments. The liquidity in the market approximately IDR 300 trillion to IDR 350 trillion. But during the COVID since the government kept pumping money, you can see on the tables in the monetary instrument, it goes up to IDR 800 trillion until IDR 850 trillion, if I'm not mistaken at one point of time, close to IDR 900 trillion. And then the -- in the anticipation of the inflation, right, the Central Bank start to increase the reserve requirement 3x. Then if you look at the table, the liquidity in the market is slightly going back to the right from IDR 450 trillion and IDR 500 trillion as today. If you look at the -- on the 26th of October, the total instrument -- monetary is IDR 540 trillion in the market. So if you ask me, I think the Central Bank has done a very good job. The liquidity is quite ample in the market. So we are confident. Thank you very much.

Thank you for the response, Pak Honggo. For Bu Yulin or Bu Sabrina, also Pak Rajesh, if you have any follow-up questions, please feel free to raise. But I also welcome to other analysts who are already joining the call to raise further questions as well.