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

Good afternoon. Hello, our respective investors and analysts. I would like to welcome you to analyst briefing of PT Bank Danamon Indonesia Tbk First Half 2023 Financial Results. My name is Yogi Zadian Arief. And today, I will once again be your host for today's briefing session. Already with us today join from their respective locations, please allow me to welcome Danamon's Board of Directors as well as President Director of our subsidiary, Adira Finance. Before we present our consolidated financial results for first half 2023, I would like to invite Bapak Daisuke Ejima as President Director of Danamon to deliver his remarks highlighting the progress of our key strategies. Pak Ejima, the stage is yours.

Thank you, Yogi. [Foreign Language] investors and analysts. Thank you for joining our briefing session today. And to begin, I am delighted to highlight that we are continuing our commitment in expanding our business and executing the foundation of building the good franchise in this country. I would like to highlight the progress of our key strategic initiatives and later on, our CFO, Pak Muljono, will cover the details of our financials. Our first slide, please. Yes. Thank you. This slide illustrates the MUFG collaboration and digital banking highlight. To begin, I would like to share our continued ecosystem expansion on left side top. With being part of MUFG family, Danamon and our subsidiary Adira continue leveraging the growth opportunities of MUFG ecosystem to expand our business. Our most recent and ongoing transaction on Mandala Finance will further strengthen our data's capabilities and ultimately becoming the leading managed finance company in Indonesia. Showcasing the growth on consumer segment, mortgage collaboration with Japanese developers continue to grow as we keep adding new developers partners, which enter into real estate market in Indonesia. Recently, we newly partnered with Sumitomo Forestry and Mitsui Fudosan Asia. We also continue providing the benefit of being part of MUFG ecosystem to our customers that is expanding our customers' business network and connectivity through business and investment matching fair, which recently took place in February in this year. This event helps our customers to expand their business, finding suppliers, distributors and/or business partners. We really believe that as we help our customers to grow, our own business also grows in tandem and ultimately, Indonesian economy to expand more. Business synergy with MUFG highlight. As shown in the bottom left bar chart, we have accumulated 387 synergy deals for the past half with synergy loans accumulated at IDR 17.3 trillion, an increase of 20% from same period as of last year. The synergy deals are diversified across lines of business from consumer banking to enterprise banking. We also have progressed in digital banking and business and the result is encouraging both in terms of numbers of new-to-bank customers and monthly active users you see on the left -- right side bottom. Next slide, please. Thank you. This slide highlights the synergy in automotive ecosystem highlight. Our synergy collaboration with Adira Finance in supporting the automotive ecosystem is progressing well. As a group, Danamon and Adira supported by MUFG continue strengthening its position as a financing partner of choice for the Indonesia automotive industry as described at the end -- at the middle section. The business synergy between Danamon and Adira continue will be bringing mutually beneficial collaboration. We have been able to turn our [ returns ] and pipelines into actual business numbers reflected at the increase of number of deals and loan volume. Improvement also happened in CASA opening and loan facilities for dealers. Taking confidence and looking at the growth of these various figures, we believe our effort and approaches that we started since last year have built positive momentum and created a very promising potential in a mutual manner going forward. While we continue building a synergistic work and value proposition such as partnership with major auto exhibition and leading automotive brand, we will continue to strive for becoming the most trusted financial partner of automotive ecosystem in Indonesia. Synergy with Adira and soon, including Mandala Finance, is a showcase that we are and will be able to reach much more than what we have done in the past alone. [Foreign Language] This concludes the highlight of our key strategic activities for the past half. Now let me hand it over back to Pak Yogi for next agenda. Thank you.

Thank you very much, Pak Ejima. So on the next agenda, we will present our consolidated financial results for first half 2023. I would like to invite Bapak Muljono to start the presentation. Pak Mul, the time is yours.

Thank you, Yogi. And good morning and good afternoon, all analysts. Let me go through the financial results for the 6-month period ended June. So we see the total loan and trade finance grew by 15% year-on-year, reaching IDR 161 trillion, driven by growth in all lines of businesses, and our subsidiary, Adira, new financings increased by 43% compared to the same period last year. Funding total grew by 5% year-on-year, reaching IDR 141 trillion. And our granular funding, where we are focused on, grew by 6.4% year-on-year despite that some shift in CASA to regular TD due to higher benchmark rate. On the asset quality, our loan-at-risk percentage, yes, was managed down to 12.9%, improved by 201 -- 210 basis points year-on-year. And our coverage ratio improved from last year and reaching 260%. On the profitability, our NIM improved by 35 basis points year-on-year with a stable quarterly trend. Operating income increased by 6% year-on-year to IDR 8.8 trillion, and NPAT reached IDR 1.5 trillion. Next, on the balance sheet. So our total assets grew by 5%. And as I mentioned earlier, that our loans showed strong growth at 15% year-on-year. On the fundings, our overall funding grew by 5%. And on composition, significant growth on TD and borrowing in Adira to support the business growth, while CASA, lower as some of the balances shifted to TD and other products. Next, on the income statement. So we see that the operating income grew by 6%, supported by both net interest income and fee income. Our OpEx increased by 8% year-on-year, mainly due to the investment in IT infrastructure, digital capabilities, branding and manpower. This is the -- showing a strong commitment from our shareholders for our long-term growth. As a result, our PPOP grew by 5%. COC grew by 25%, mainly due to the loan growth. And our operating profit and NPAT lowered by 10% and 11% compared to the same period last year. Next, on the key financial ratio. Our risk-adjusted NIM improved by 10 basis points, supported by better NIMs 35 basis points and increase in COC by 20 basis points. CASA ratio declined by 8.4%, mainly due to the increase in benchmark rate and as well as some customers shifted to the high-yield products. Our RIM at 100% at June end, but on average, our RIM at 94% to 95% and liquidity is well maintained. Our NPL conso gross at 2.3%, improved by 50 basis points compared to last year. And our coverage ratio increased to 260%. Next, on the granular fundings. As I mentioned earlier that our focus on granular funding continues. We saw 6.4% year-on-year growth. Despite that, as I mentioned earlier, some shifted to the higher rates -- to the higher -- to the TD because of the higher benchmark rates. Next, on the capitals. Conso CAR at to 28.2%, and bank only at 26.3%, far above the minimum regulatory requirement and almost 100% in the form of Tier 1 capital. This is to support our growth and expansions going forward. Next, the detailed loan growth by business. So next slide. So a chart on the left showing composition of our loan portfolio and trade finance by business. And the right table is showing the loan growth by business. So as you see that each of our business showing a strong growth in EB, SME, consumer and Adira Finance. Next, on the loan composition. Table on the left showing the loan by sector, which -- and chart on the right showing the loan by purpose. As we can see that our loan composition remained stable and well diversified. Next, this is our auto finance. So chart on the left showing the Adira new unit financing growth versus industry. So you see that both 2-wheelers and 4-wheelers showing significant improvement. Top right table showing Adira new financings, which grew 43% compared to the same period last year. And right bottom table show Adira outstanding loan by products and all showing strong growth compared to the same period last year. Next, this is the operating income. So table on the left showing the growth on the net interest income and right chart showing composition of our noninterest income, which is quite stable and consistent. Next, on the risk management, so you see that our NPL balance and ratio improved. The NPL ratio improved by 50 basis points from 2.8% to 2.3%, and our special mention increased by 30 basis points due to the long holiday near to June end, which mainly contributed by retail segment, both in Adira and consumer. However, these are temporary and will normalize in the coming months. As I mentioned earlier that our NPL coverage ratio increased to 260% from 203% last year. Continue on the risk management, next table. Our cost of credit increased by 20 basis point from 2.3% last year to 2.5%. And our loan at risk as a percentage of total loans improved from 15% last year to 12.9%, and COVID restructured loan declined significantly from IDR 5.2 trillion last year to IDR 2.4 trillion or 55% in percentage. So that's all I have for the financial update. So I will pass it to the moderator, Yogi.

Sure. Thank you very much, Pak Mul. So ladies and gentlemen, now is the time for us to enter the Q&A session. [Operator Instructions] I see people still coming in to the -- as attendees to these analyst sessions. Can I wait to hear the first questions from the analysts and investors? Yes, there is one coming in. Thanks. Right timing, just to -- so thank you, Pak [ Andre ] from BCA Securities. So this question goes to Pak Hafid. The question, Pak Hafid, is may I know Adira Finance strategy on second half of this year, especially after MUFG acquisition with Mandala Finance? Thank you for the questions, Pak [ Andre ]. Maybe Pak Hafid can answer and later on, Pak Made can supplement also, given this is context of Adira Finance. Please go ahead, Pak Hafid.

Yes. Thank you. So basically, the acquisition of Mandala Finance is to complement Adira Finance in terms of geographical coverage. So Mandala Finance is quite special in some remote areas, so I think that's an additional complement to Adira Finance. So then maybe Pak Made can add more on this specifically on Adira Finance strategy going forward with especially with [ unmet ] banks.

Yes. Thank you, Pak Hafid. I'll just add in a couple of things. I think as the market recover, we want also to grow faster than the market, which is what we did in the first half of the year. We want to improve our offering. We want to improve our process. And also, we are expanding our footprint in growing areas like in the Eastern Indonesia. I think with that, we continue to execute the strategy consistently going forward. Hopefully, that we can continue to post a strong growth in the second half of the year.

Thank you very much for the response, Pak Hafid and Pak Made. Let me continue to the second question. This is from Utami Ratnasari. Thank you very much for the question, Bu Utami, from CGS-CIMB Sekuritas. The question is on how is the outlook on liquidity in second half '23? And how is also the outlook for auto loan growth for the second half? Thank you. So let me go throw the first question to Pak Mul, if you don't mind, Pak.

This is liquidity for Danamon, I suppose, or liquidity...

Yes. I think let's go for the consolidated basis, Pak Mul.

So I think for Danamon, basically, if you look at it from liquidity point of view, we know that at month end, June end, our RIM is slightly high, around 100%. But on average, our RIM is 94% to 95%. And so far, our liquidity are well maintained and well managed.

Yogi, let me chip in, Yogi, about this liquidity.

Sure, Pak Honggo.

We are in line with the Pak [ Dewan ] OJK statement lately, right, and also BI, and we can see the fact that the money in the market in the monitor -- a lot liquid monetary, so the monetary what you call instruments, are very ample actually. We know that the prior COVID, approximately in the market IDR 350 trillion. During COVID, it goes up to IDR 800 trillion. And to be exact, there is a number on my table in this July, IDR 586 trillion in the market. So we are confident that the government, especially Central Bank, will maintain enough liquidity for market. That's also give us confident that we don't want to be like our competitors to bring expensive deposit to pay higher interest because we are confident that liquidity is still there. Thank you.

Okay. Thank you, Pak Honggo. I think that's a holistic answers on the liquidity. Let move on the second part of the question. I think this goes to Pak Made, specific on the auto loan growth for the second half, Pak Made.

Yes. Thank you, Yogi. I think if you see right now is what happened is there is a recovery in terms of sales of 2-wheeler on the back of improvement of the production because in the last 2 years, you see there is a lot of disruption in the 2-wheeler. But again, despite of growing, the growth that we expect is between 5% to 7% compared to last year. This is the industry, the domestic retail sales. While on the 4-wheeler, we expect moderate growth after very strong growth in the last 2 years, supported by a tech incentive by the government. But this year, even the guide [ Kino ] expect the rate of the growth is between 5% to 6%. So you see a moderating growth in the 4-wheeler, but improvement growth in the 2-wheeler. With that, Adira Finance target to grow the balance sheet, the outstanding loan, between 15% to 20%. Bear in mind, in the first half of last year, there is a lot of -- basically, the sales of auto is depressed because of supply issue. And the condition only improved in the second semester. That explain why you see in term of year-on-year growth, it's going to be very strong. But then after full year, it's going to be moderating to still double-digit growth. Thank you.

Thank you for the response, Pak Made. I think we confirm the expectation of our auto loan growth in the second half. So Pak [ Andre ] from BCA, there is a follow-up questions. I think this is hand in hand to the previous answer as well around auto loan. But I think the follow-up questions, the interest is to understand the expectation of our multi-finance book contribution to Danamon. I think the questions is being triggered by market perceptions that currently, Danamon is pursuing towards consumer financing, especially after Standard Chartered acquisition, Mandala Finance as well as MUFG participation in home credit and Akulaku. If you don't mind, maybe Pak Hafid and Pak Mul can give a response on this specific question.

Yes, I will start. In terms of size, we're talking about Mandala Finance is about IDR 5 trillion to IDR 6 trillion. Standard Chartered Bank is about IDR 800 billion, IDR 900 billion, yes, and home credit also about, I think, about IDR 5 trillion. But not everything is accounted for in Bank Danamon because the purchase through app with [ until ] is only 10% with Adira Finance. And also on the home credit, also 10% with Adira Finance. So but the group, yes, it is a consumer. But in terms of Danamon, it's only 10% out of it is going to be consolidated. Pak Mul?

I have no further comment to add, I guess.

Okay. Thank you, Pak Hafid and Pak Mul. So let me move to the further questions. There's an additional -- or not additional. Actually, new questions from Pak Kresna from Mandiri Sekuritas. Thank you for the question, Pak. There are 2 set of questions. Let me go to the first one. So the question is about the interest on the guidance for our full year financials. First is the loan growth, NIM, COC, NPL and also cost-to-income ratio. I think the question is any change in the guidance in relation to the one set up in the start of the year? Of course, looking at the economic development for this year. Pak Mul, do you want to have a go for this one?

Yes. Okay. Thank you. I'll start first. I think in number of loan growth, we have not revised our guidance, our targets. So basically, our 4 major engines, EB FI and then SME, consumer and Adira, all showing a good growth. But this growth also depending to the macro economy and other factors, if you like, yes, to support the growth. On the -- specifically on the NIMs, despite that the benchmark rate increase that we are able to improve our NIM by 35 basis points, we see that our COC slightly increased. I think in the normal course of business, our COC ranging between 2.5% to 3%. I think later, we can also -- Pak Dadi can also give some further comment on that. Similar to the NPL, our NPL ratio now at about 2.3%, which has improved from last year. On the cost-to-income ratio increase, this is, I think, conscious decision made by the shareholder to support our long-term growth. The shareholder commit to invest in a few area, as we've been communicating with you for the last couple of years. So those are area, meaning the IT, IT infra, our digital capabilities and then the branding as well as people. So in terms of cost-to-income ratio, I think we'll increase slightly but that's for the better future for Danamon to support our business growth. I think that's a -- and hope answers the questions. Welcome, Pak Dadi, if you could on the cost of credit.

Yes, I'll probably add on the cost of credit, right? Since Pak Mul earlier mentioned that there is an increase of cost of credit compared to first half 2022, right, from 2.3% to 2.5% in first half '23, this might some -- a wrong impression that we are actually having a higher cost of credit, higher level of cost credit in 2023 compared to 2022. Actually, what happened is our projection for COC in 2023 is more or less like what Pak Mul mentioned, right, is at the lower range of our normal COC. So our normal COC, if you have followed Danamon for the last 10 years or more, our normal COC would range between 2.5% to 3%, right? But our guidance for this year is to be -- for it to be closer to the lower threshold, 2.5%. Now this is also the same with our guidance last year. And this year, we are -- there is no difference. We remain -- we stick to our forecast for the whole year of 2023. So last year, if you noticed, for the whole year of 2022, actually, our COC is also -- is more or less at 2.5%. So it is actually the same with what we expect this year. It is just that last year, our COC was heavier or skewed more toward the second half. So that gives the impression that if we compare our COC in the first half 2022 and the first half 2023, there is an increase, right, 20 basis points increase. Hence, there might be some concerns on our portfolio quality or asset quality. So that's probably what I should add. On NPL, sorry, on NPL, it's very much -- also again, in terms of guidance, it doesn't change. Our NPL ratio should be somewhere around 2.5%, we believe, from -- this is the same with our guidance from the beginning of the year.