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

Hello. Good afternoon, ladies and gentlemen. We would like to thank the respective investors and analysts, glad that we can complete [indiscernible] today. I see some familiar names that are already joining us for today. Thank you for your registration and joining the virtual analyst briefing of PT Bank Danamon Indonesia Tbk, the full year fiscal 2022 financial results. 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 user handset to optimize the audio quality. Please ensure that you are joining from a closed room and quiet environment with a stable Internet connection. 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 one device. [Operator Instructions]. The analyst briefing will start in a moment. Ladies and gentlemen, I would like to welcome you to PT Bank Danamon Indonesia Tbk's 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, joined from their respective locations, please allow me to welcome Danamon's Board of Directors and President Director of our subsidiary, Adira Finance. Now before we present the detailed 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 strategy execution [ Pak Yas ], the stage is yours.

Thank you, Yogi. Thank you very much, our valued investors and analysts for joining us this briefing session. As opened up by Yogi, I'll just highlight on the progress of our key strategic initiatives. Next page. Next page, please. Okay.

If you don't mind, we can hold a little bit, Pak Yas. There's some technical issue in our sharing of the material. Now we already move to your first slide, Pak Yas.

Thank you. So let me start with this -- the collaboration progress with MUFG and digital partnerships. For MUFG part on the top, as you see, we have accumulated more than 400 transactions. Synergy loans reaching about IDR 17 trillion, synergy CASA IDR 4.4 trillion. Very, very steady and good growth across the segments. A little bit highlight on this real estate ecosystem, which is right now our one of the forecasts. In addition to the Central Park Mall acquisition financing I mentioned last time, we also provided the real estate financing to The Grand Outlet, a luxury outlet mall in Karawang, developed by Mitsubishi Real Estate -- Mitsubishi Estate and Tuan Sing Holdings. On the residential side of the ecosystem, we secured more mortgage partnership with leading developers shown here. Actually, now Danamon is a top bank, top mortgage bank in the Japanese developer market. In this collaboration, the key for success is we capture this entire ecosystem of real estate from the very upstream developing stage until the real actual sale of the houses, so this is mortgage. And also, we fully leverage MUFG's client relationship with those developers. On the bottom, digital partnership. Again, you see a significant increased space, growth space of this digital customer onboardings and transactions with big names like you see. On top of this business, digital partnerships, we kind of finally uplift the gear on MUFG or our investment in this digital ecosystem. After the investment by MUFG in graph, in the last quarter, we announced an acquisition of Home Credit within MUFG Group, including Adira Finance. We also announced an investment by MUFG in [ Akulaku ]. And just a few weeks ago, we also announced a so-called Garuda Fund, the new corporate venture capital, where MUFG and Danamon co-invest and manage. So leveraging all this investment acquisition, we try to capture the so-called digital ecosystem customers, gross sale, onboarding into Danamon. Next page. Here's our progress from collaboration on synergy in automotive ecosystem. And again, on the top of the page, you see a significant high base growth of this referrals, cross-sell between Adira Finance and Danamon. So again, the way we approach this ecosystem approach, MUFG having strong access to almost all Japanese OEMs, they're all made back to MUFG customers. We are quite active in reaching to these dealers, and Adira Finance will benefit all this downstream consumer finance. On top of this internal collaboration, we are quite active in marketing. Just from tomorrow, we will hold an IMS automotive exhibition starts. We'll make a big noise from tomorrow by providing a very highly competitive run rate, again collaborating among MUFG, Danamon and Adira. And we are quite active in partnership programs with almost all brands and OEMs. Also, we started to be in this EV financing programs as well. Next page. This is my last slide. It looks like it's a digital development. But we redefine it as a way digital is touch point or channel together with the branch network. So we enhance -- we are enhancing or upgrading those touch points. One is digital, like you see D-Bank PRO with many, many features, with increasing number of transactions and accounts. In addition, we start to launch this new concept, next-generation branch concept or holistic banking experiences. The pilot branches starting from Jakarta-Pondok Indah Mall as well as Medan - Putri Hijau with different concept, and that we roll out much more this year. It's all, in a sense, we enhance our touch points to better serve each customer segments. And so this is our enhancement of our own conventional and digital channels and touch points. So these are our sort of initiatives. So maybe later on, Pak Mul, our CFO, will brief you. But as a result of all these strategic collaborations and initiatives, we hit a record high in some of the key important financial figures. With that, I pass it back to Yogi. Thank you.

Thank you very much, Pak Yas, for highlighting the strategy execution in full year for 2022. So now moving on to the next agenda, it's time to listen to the presentation on financial results for 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. I will share with you the -- some of our achievement in 2022 and as well as the financial highlights. Okay. Next, so from the loans collection, we see that our total loan and trade finance grew by 12% year-on-year and reaching a record high of IDR 147 trillion. So both Enterprise Banking and Consumer Banking portfolio grew by 18% year-on-year, respectively, supported by MUFG collaboration and segmentation approach. Adira Finance new financing increased by 22% compared to the same period last year. On the funding side, we continue focusing on the granular funding through the institutional approach and digital, resulting in a 12% year-on-year on CASA. And with that, our CASA ratio reached close to 64% at the end of the year from 99 -- from 59% last year. On the asset quality, our NPL coverage improved from last year, and reaching 231% in December. Our LAR percentage, this has included the profit restructure still under forbearance, was managed down by [ 340 ] basis points year-on-year to 12.6%. With all of those, our NIM improved by 30 basis points, driven by improvement in funding composition of corresponding structure as well as cost of fund. And our NPAT increased by 110% year-on-year and reaching IDR 3.3 trillion. Next, on the summary of our balance sheet basically. So we look at the -- our total asset [ console ] slightly increased by 3% year-on-year, with a change in composition from government bonds to loan and trade finance. As we discussed earlier that our loan portfolio and trade finance increased by 12% year-on-year. And similar to the funding side, total funding increased by 2%. But if you look at the detailed competition, you look at the CASA grew by 12% year-on-year, while our [indiscernible] deposits declined by 9% year-on-year. Next. On the detailed income statement. So our net interest income grew by 3% year-on-year compared to the same year-on-year mainly supported by improvement in cost of fund as well as the loan growth. Our OpEx increased by 7% year-on-year. This is due to the investment commitment to build our IT, then digital capabilities, marketing and branding. Our CoC improved by 42% year-on-year due to improvement in the asset quality. And our operating profit grew by 72% year-on-year and NPAT increased by 110% year-on-year and reached IDR 3.3 trillion in full year 2022. Next. On the key financial ratio. So we see that our NIM improved by 30 basis point year-on-year mainly supported by improvement in cost of fund and funding structure, as we discussed earlier. And compared to the same period last year, CoC and risk-adjusted margin better by 20 -- [indiscernible] and 20 basis points, respectively. Our cost-to-income ratio increased due to the investment commitment on IT, digital, capability, marketing and branding. And our NPL console grossed at 2.6% or improved by 10 basis points from last year. And loan loss coverage at 31% or improved by 5.2% compared to last year. And loan at risk coverage include [indiscernible] at 48%, higher by almost 10% compared to the same period last year. And our car console remains strong at 26%. Next. So this is the detail of our granular fundings. So as we discussed earlier, we continue focusing on granular funding. This can be seen from the funding structure on the bottom line tables where we were able to grow our CASA at 23% since 2022. And since then, our CASA improved from 52% to 64% here. From the liquidity side, very healthy, supported by strong LCR and NSFR. We can see only table on the right -- top right. Next. Our capital remained very strong. Bank only capital at 25.3% and [ console ] at 26.3%. This is excluding the impairment of Basel III from the credit risk and [indiscernible], where if we are including the Basel III, implementation of Basel III, the CAR will increase about 150 to 200 basis points basically. And all of -- almost 70% capital in the form of Tier 1 capital, if you like. Next, this is showing strong growth in all lines of businesses. As I mentioned earlier, the EB FI and Consumer increased by 18% year-on-year, and Adira Finance increased by 10% in terms of the receivables, if you like. But in terms of new financing, as we discussed earlier, increased by 22%. Next. This is the [indiscernible] loan composition remains stable and diversified. Next. This is a picture of the Adira Finance. New financings increased by [ 22% ] which refers to the top right table, where on the details, outstanding loan, if you like, the 2-wheelers increased by 2%, 4-wheelers, very strong, increased by 16%, and white goods and others increased by 11%. So altogether increased by 10%. But as I mentioned earlier, in terms of new financing compared to the same period last year, we increased by 22%. Next, this is the details NIMs. As we discussed earlier, that's our NIM kept on improving, and a repeated composition of our noninterest income. Next, this is the asset quality. So as we discussed earlier, that's our NPL ratio at 2.6%, improved by about 10 basis points compared to the same period last year. And our special [ mention ] improved by 140 basis points from 9.1% last year to 7.7% this year. And our NPL coverage increased from 20% and 26% last year to 20% and 31%. Next. This is the detail of our cost of credits improved from 4.4% last year to 2.4% due to improvement in asset quality, where our LAR improved to IDR 17.2 trillion from IDR 19.8 trillion last year. And LAR as a percentage of total loans improved from 16% last year to 12.6% this year. And for the [ COVID ] restructure still under forbearance, also improved from 5.1 last year to 2.9 this year. So that's all I have for the financial update, if you like. So I return it back to Yogi.

Sure. Thank you very much, Pak Mul. Ladies and gentlemen, now is the time for us to start the Q&A session. Our respected investors and analysts, please do not hesitate to raise your questions. [Operator Instructions]. So one question is coming in. Thank you very much. That will be Chandra, our colleagues from Mandiri Sekuritas. Thank you very much for the questions. So let me start reading out the first one. What is credit cost expectation for full year '23 at Danamon? And what would be the steady LAR coverage over the next 2 to 3 years? Which economic segments to improve more meaningfully in full year '23? So let me just start with the first question. May I ask Dadi, our Chief Risk, to answer this one.

Yes. Thank you, Pak Boby. Yes. Thank you, Pak Boby, for the question. So in terms of cost of credit, right? The amount of -- in terms of the percentage, right, that we are aiming for in this year would be anywhere between 2.5% to 2.8%. Actually, the normal range of Danamon is 2.5% to 3%, but we are aiming for the lower range of that range basically for the lower boundary of that range. So that's basically the level of credit cost that we expect for this year. In terms of LAR coverage itself, obviously, because there are still -- at the end of 2022, as we showed in the presentation material just now. There was still some element of COVID-19 restructuring, right, despite the fact that demand has indeed gone down significantly from the end of 2021. But there was still about IDR 2.9 trillion, right, of COVID restructuring under forbearance. So the level of LAR coverage itself at the end of 2022 was higher, right than what we expect it to be in 2023 onwards. Because of the fact that this COVID-19 restructuring portfolio, we expect them to disappear obviously, right, over time. So all in all, I think the level of LAR coverage that we are looking at would be in the range of anywhere between 30% to 35%. But I would say that this should be in the higher range of the rates, the higher boundary of that range. So anything between 30% to 35% would be a guidance, I would say, in terms of LAR coverage. Thank you.

Thank you very much, Pak Dadi. I hope that answered for number one, Pak Boby. [Operator Instructions] But let me move on to the second question. I think this is specific to the enterprise banking. Thomas will answer this, but let me read out the questions first. So enterprise loan growth outlook in full year '23, what would it be? And then will the growth come from existing clients or more from the new clients, especially any pipelines to the mineral downstreams projects? Pak Thomas, if you don't mind.

Okay. For enterprise banking and financial institution, the outlook this year, we expect to grow by about 11%. In terms of where the growth is coming from, we do have both a deepening as well as widening. Deepening, i.e. is from the existing clients for us to get a bigger wallet share not only from loan but from other ancillary business. And widening, of course, from the [ new ] to bank, including the collaboration from MUFG. Whether we have a pipeline, at the moment, we don't have in pipeline, though we are in discussion with some of the [ mineral ] downstream projects. We are reviewing from the ESG angle, whether the ESG is actually acceptable to us. Once it's acceptable, we will include that in the pipeline.

Thank you. Thank you very much, Pak Thomas. So moving on to the next question. So I see number 3 and number 4, maybe a bit hand in hand. But let me start with the third question first. Could you share shareholders plan for Home Credit? If you don't mind, Pak Yas, you can respond to this. And later on maybe Pak Mul, you can supplement.

Okay. Thank you for this question, a very timely question. First of all, we are still on the phase, sort of working on the final closing of this transaction, including regulatory approval, et cetera. But having said so, I'm happy to share a preliminary thinking as a shareholder for Home Credit. First of all, the customer base that Home Credit acquired is slightly lower segment than Adira Finance. So synergy, which we're anticipating, is cross-sell between Adira and Home Credit, first of all. But depending on the customer profile, we, Danamon as well, kind of plan to extend our banking products to Home Credit customers. The other angle we are trying to is we want to really learn from Home Credit about their technology and digital lending capabilities. Based on our discussion on due diligence, they are quite advanced in utilizing many multiple database of the customer profile. So that could be [ LAR ] acquired by Adira Finance as well as Bank Danamon. And that's sort of a key strategic thinking in our mind. But Pak Madi or Pak Hafid, if you add, please.

Yes, I will add from the banking -- on the banking services. We would like to, of course, onboard not only the customers, but the partner or the merchant of the Home Credit into -- as a Bank Danamon customer. So we want to -- let's respond the Home Credit ecosystem for onboarding the channel and also the customers into the Bank Danamon. [indiscernible], if you want to add.

Yes. On Adira side is actually already explained by Pak Yas. I think we [ imitating ] 3 synergy. Number one is, of course, cross sell, our product to their customer, vice versa, the product to our customer. Number two is learning about technology, which is quite advanced compared to Adira that probably we can learn so much. And the third is about data analytic. That's something that we're also keen to understand because their business model is really using more analytics as compared to us on the auto side. I think that is the thing that we are aiming going forward.

Understood. Thank you very much, Pak Yas, Pak Hafid and Pak [indiscernible]. So let me move to the final question from Pak Boby. I think this is also related to Pak Hafid and Pak [indiscernible]. So could you please share the outlook or demand in both vehicle loans and multipurpose loans within the consumer segment market?

Pak [indiscernible].

I think this is all probably related to Adira Finance, yes, on people and multiple purpose loan on Adira Finance. Maybe Pak [indiscernible]. Yes. Okay. I think the outlook -- I think there is two type of question. One is outlook of auto; and then second is outlook of multi-purpose loan. On the auto side, we do expect that the sales of auto, both 2-wheeler and 4-wheeler will grow this year. Last year is you see that 4-wheeler is growing at 17%, while 2-wheeler is -- only grew 4%, almost flat, in part due to shortage of supply triggered by shortage of chip. Based on what we understand right now is there is a slight improvement in terms of supply side, with a rise in producing power and improving business environment. We do expect this year, the sales of auto will continue to grow. The debate is whether it's double digit or single digits, most likely probably 5% to 6%, that's what we forecast. Number two, on the [indiscernible] of the multipurpose loans remain very strong. One of the reason is because there is some more than 120 million of vehicle owned by consumer in Indonesia right now, 2-wheeler, and around 40 million are 4-wheeler. And around 70% of the people is still being underserved. This is actually the target of the multi-purpose loan. So the issue is more -- quite more difficult, because this is a pure retail business. And then we do direct sales through agent to cater to them. So that is my comment on the outlook of multi-purpose loan. Now we are confident that the demand is a bit strong.

Thank you Pak [indiscernible]. So let me move on to the next question that's coming from Pak [indiscernible] from [indiscernible]. So some of the questions, I think, is already answered previously from -- by Pak [ Madi ] and also by Pak Yas [indiscernible] on the Home Credit part. But I think, Pak Madi, I think there was a question on the outlook, but this is a specific question here. What is the loan growth target for Adira this year, Pak Madi?

Yes. On our side is with assumption that the industry growth is around 5% to 6%, 2-wheeler, 4-wheeler, we're aiming at between 10% to 15% growth.

Okay. Perfect. Pak Madi. So Pak Irfan, I hope this clarifies your questions. [Operator Instructions]. So let me move to -- somebody is raising the hand. Please wait. So it's coming from Andrey Wijaya from RHB Securities. Pak Andrey, please, you can open your video and also unmute yourself. You can raise the questions directly to our Board of Directors.

Congratulations to the good results, which has increased more than 100% year-on-year in terms of the net profit. I have a question on the net interest margin. Because if you look at the -- your interest margin, it's continuously to increase quarter-by-quarter from 7.9% in the first quarter last year to 8.2% in the fourth quarter. Would you give color? What is the main driven of the incremental in terms of the net interest margin, which is more driven by lower cost of fund or more on the weak pricing on the loan yield? And would you also give guidance or color, what is your strategy in terms of the loan repricing in this year?

Maybe I can actually start to commenting the questions. And [indiscernible], Pak Thomas maybe can chip in. So basically, -- the -- if you look at the NIMs, we improved quarter-by-quarter is mainly coming from the 2 things basically, Andrey. It's coming from the improvement in cost of funds as well as the funding structure as we discussed. If you look at the -- in terms of the funding structure that for the last couple of years, we try to do different things to improve our granular funding and CASA ratio. So we see that for the last 2 years, we've been successful in managing that. That's why our CASA ratio improved to 64% this year, if you like, 63.9%, yes. And that's because, the reason because of the funding structure and the approach that we are taking today is totally different compared to the few years back. And of course, cost of fund itself is also helping because of the [ flush ] liquidity for the last 1 or 2 years. But as we've seen that recently that we have starting to increase the rates, we also try to manage our cost of fund carefully. We try to hold our cost of fund, but this is not easy. It is easier said than done. On the loan side, we also try to pass to the customer, to pass to the customer. Obviously, for those which is on the -- for those loans that we can pass on for the -- some loan, which is like the mortgage for the first year, we cannot really pass on because they stay on the fixed period. Yes, Andrey.

Okay. Or what do you see about the pass on of the higher cost of fund in 2022? Because when I -- we did [indiscernible] text some -- like the financing company or maybe the bank, they're targeting also for the car loan, still try to hold to pass on the interest rate for the loan, for the car loan. What do you see the competition and ability to pass on the loan yield for this year?

I think this is specifically on the car loan maybe. Pak Madi will be best to answer the question.

I think the way we are basically addressing the issue of cost of fund hike with regard to our lending rate is really on the segmented basis. In some areas, for example, given the shortage of supply, particularly on the new vehicle, 4-wheeler, a very few [ finance ] company there to increase it, and then we need to follow that because we needed to follow. But on the used vehicle, whereby is the competition less, we pass on the cost of fund to basically -- to maintain the market. But not fully, because we also consider the capacity of the consumer. In new 2-wheeler, for example, the pricing is subject to also agreement with -- of the dealer, because dealer maintain a single pricing policy. So what I'm trying to say is really subject to the specific situation in every product. But as much as -- we do where that our cost and [ price ] is increasing, then we want also to increase the lending rate. But we are very mindful with regard to our growth and with regard to our relationship with dealer and as well as capacity of customers. So it's not one straight answer. Yes, but we're trying to address the market -- we try to address the margin pressure.

Maybe for the sum up, what is your NIM guidance for this year for the whole total loan portfolio, is it could be still increasing? And this year, what do we see?

Maybe for the console level, I think in terms of NIM, I think, will be lower compared to -- 2023, obviously, could be lower compared to 2022 because of the increase in cost of funds.

So I think, Pak Madi, you just need to hold your video one more time. So there's more questions coming in for Adira. So thank you for Pak [indiscernible] from CGS-CIMB Securities. There are 2 questions. Let me read out the first one. How do you see the competition on the vehicle loan segment product?

Okay. I think -- I would say, it's getting tougher. We are -- a couple of interesting happening. Number one is the share of cash portion sales is keep increasing. This is a unique situation. Part of that is because of the export situation, whereby some dealers actually export the vehicle. And that is booked as cash sales. Number two is we also basically facing nontraditional competitor. Like Tokopedia, any tech player also taking this segment. And then lastly, there is also -- we call it basically [ non-cost ] competitor like Coor, that kind of thing. But having said that, actually, last year is our market share in 4-wheeler is stable. Slightly decline in 2-wheeler, in part because of the supply side, the [indiscernible] finding more allocation on that. And we think that with the help of the group and then in terms of cost funding and synergy, we are also optimistic to regain market share going forward.

Okay. Thank you, Pak Madi. There's a second question. So I think this is also a follow-up from the previous question regarding multi-purpose loan. So the question is how much contribution should we expect for the multi-purpose loan in Adira for medium to long-term, Pak?

Right now, it's still between 18% to 20%, okay? Part of the -- because we are growing in all segments, particularly the car segment is growing very, very rapidly. Last year is 40% year-on-year. So we are aiming at least 1/3 of our loan book is non-auto. We call it multipurpose loan is non-auto. So let me just say non-auto is comprised of multipurpose loan as well as durable than any non-auto financing business.

Thank you very much, Pak Madi. So we are now near towards 4 o'clock, 45 minutes. I think that's our schedule. But I'm happy to extend just a little bit if any further questions from our investors and analysts, let me just wait for another 1, 2 minutes before we end the call. Okay, so we are just reaching out 4:45 exactly to our schedule. So ladies and gentlemen, respective investor and analysts, once again, thank you for taking part in the PT Bank Danamon Indonesia Tbk Financial Results for fiscal year 2022. Should you have any further questions and interest, please do not hesitate to reach us through our Investor Relations mailbox at [email protected]. Very fortunate, tomorrow, we're going to have a big event on IMS as an opening day as part of our strategy execution in auto ecosystem, which also being mentioned throughout the discussion today. So again, thank you very much for your attendance. Stay safe and stay healthy. See you at the next Danamon corporate event.

Thank you.

Thank you, again.