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

Ladies and gentlemen, I would like to welcome and thank our respective investors and analysts for joining PT Bank Danamon Indonesia Tbk's Investor and Analyst Briefing Full Year 2024 Financial Results. Today, I will be your host, and please allow me to quickly introduce myself. My name is Marcella Tanamas, Investor Relations of Bank Danamon. I would like to welcome and introduce Danamon's Board of Directors and also the President Director of our subsidiary, Adira Finance, who have joined from their respective locations. Bapak Daisuke Ejima, President Director; Bapak Honggo Widjojo Kangmasto, Vice President, Director; Bapak Hafid Hadeli, Vice President, Director; Bapak Herry Hykmanto, Syriah and Sustainability Finance Director; Ibu Rita Mirasari, Compliance Director; Bapak Dadi Budiana, Management Director; Bapak Muljono Tjandra, Finance Director; Bapak Thomas Sudarma, Enterprise Banking and Financial Institution Director; Bapak Jin Yoshida, Global Alliance Strategy Director; and Bapak Made Susila, President, Director of PT Adira Dinamika Multi Finance Tbk. We also would like to welcome Danamon's Board of Management who have joined from their respective locations. Before we begin the CEO's presentation, let's first take a moment to look at Danamon's company profile video showcasing our synergy and collaboration to grow as a financial group. [Presentation]

Ladies and gentlemen, before we present the detail of PT Bank Danamon Indonesia Tbk financial results for full year 2024, I would like to invite Bapak Daisuke Ejima as our President Director, to deliver his remarks highlighting the progress of our 3 strategies. Ejima, the screen is yours.

Thank you, Marcella. Good evening and [Foreign Language] for investor analysts, and thank you so much always for your interest and coverage of Bank Danamon and group companies, including Adira Finance. Before coming into details, let me explain key highlights of 2024 results of Bank Danamon. Page 3, please. The page is showing macroeconomic situation. The first one, GDP. We saw steady growth of 5% last year, supported by continuous trade surplus, which brought the banking industry generally a good growth trend, particularly on lending side over 11%, funding side 7.5%. There exists gap, which is indicating mounting pressure on the banking N-I-M, NIM side. Right side top is U.S. FRB rate, at one time 5.5%, now coming down to 4.5% with uncertainty and higher inflation expectation, market lead was originally 4x cut in this year, but now it's gradually shifting up to only 2 cuts, and we will continue to monitor this U.S. dollar interest rate. Multifinance areas saw significant minus, particularly on 4-wheelers last year first half. Now it's gradually coming back, particularly on 2-wheelers. Next slide, please. Danamon started the 3 years midterm business plan since 2024. We set the direction grow as a financial group, indicating not only banking, but including multifinance partners, Adira Finance, Mandala Finance of Credit Indonesia and Zurich Insurance. Together, we will continue to grow. And we set business engines continuously under 4 segments: enterprise banking, SME banking, consumer banking and Adira Finance, plus other nonbank partners. There are 3 strategic themes, which I will elaborate more in later slides. Those are, we want to be dominant in targeted ecosystems. We want to be unique MUFG proposition to be enhanced. And thirdly, we want to enhance data analytics and process improvement to build up the solidified foundation. Right side is some highlights of 2024 financials. Lending, we saw 8% year-on-year growth. Funding, slightly larger, 9% year-on-year growth. NPAT, due to OpEx and credit cost increase, we saw 9% year-on-year decrease. PPOP, pre-provision operating profit, we got IDR 8.3 trillion, which is 1% year-on-year plus. And NPL coverage now 287%, which has significantly jumped from previous year. Next slide, please. From here, I'd like to elaborate 3 slides in our 3 strategic themes. First one is dominant in targeted ecosystems. We set ecosystem targeting approach in 4 main areas. Those are automotive, real estate and property, Hajj and Umrah and education. You see numbers are showing a good healthy growth. Automotive ecosystem, which is the most important segment for us, collaborating between Danamon and Adira, both retail finance and non-retail finance, we saw growth, particularly on retail financing and automotive financing. We jointly did several key event promotion together and also many KPM Prima customers gathering in the events. Right side, we started to do new ecosystem approach in, firstly, Hajj and Umrah. Now we have over 100 travel agencies collaborating with us, which saw a 213% year-on-year growth. Funding, FX income, those we saw triple-digit growth. Education ecosystem as well. We now have a number of institutions over 20s in -- mainly in universities, et cetera, collaborating together so that we capture the bank account of that school, students and parents, et cetera. Funding, we saw a double-digit growth. Next page, please. Second strategic theme is the MUFG value proposition that we want to enhance and leverage. Synergy loan between MUFG and Danamon, including Adira, we saw 13% growth, and particularly on employees' benefit program, which we are trying to obtain to increase the CASA. Our payroll account now is 7x larger year-on-year basis. Number of synergy deals, we also saw a good double-digit growth with particularly on automotive segment in anchors and distributors finance areas. Right side pictures, photos are showing some of the joint events that we did together, including the Fintech Festival and the investment and business matching. Next page, please. Third strategic theme is the foundation building, data-driven analysis and process improvement. Firstly, left side top, D-Bank PRO, which is our mobile banking applications, we continued enhancement and introduced 16 new features, including FX, online, et cetera. Number of engaged customers increased 14%, transaction plus 28% and value also. Left side bottom is the Danamon Cash Connect, which is for wholesale business cash management systems. We enhanced our new -- 6 new features, including the payment, transfer and tax, et cetera. Again, number of users, we saw a double-digit growth and transaction value as well. Right side top is our branch network. Nationwide, we continued our branch transformation. You see photos, and now we finished 93 branches so far, and we will continue to do this new style concept of branches in the countries. This is bringing a good result in terms of funding, loan disbursement and new-to-bank in branch activities. Lastly, people side. We started to collaborate among the MUFG group companies and partner banks outside of Indonesia and within Indonesia. So this kind of exchange program, mobility program, leadership program, we will continue. This is all highlight summary from me. And now I would like to hand it -- hand the microphone over to Pak Muljono, Danamon Finance Director. Pak Muljono, please.

Thank you, Pak Ejima, and good afternoon, [Foreign Language]. Let me go through the key highlights on the financial part. Let's start from this page. We see that on the top left tables, strong growth in all line of businesses. Our total loan and trade finance grew by 8%. Wholesale grew by 11% and Consumer grew by 5%. On the bottom left table, showing the healthy asset quality, where loan at risk improved by IDR 1 trillion, NPL coverage ratio increased by 21.3% to 287.2%, and our NPL growth improved to 1.9% from 2.2% last year. On the top right table showing our third-party deposits grew by 9% to support our loan growth. And further, we see our granular funding increased by 8% year-on-year. Bottom right table showing our operating income grew by 4% year-on-year and NPAT reached IDR 3.2 trillion. Next, this is a picture of our balance sheet. We see that our total assets grew by 10% year-on-year, which mainly supported by growth in loan and [indiscernible]. To support loan growth, our total funding grew by 10% year-on-year, which mainly from TD and borrowing in Adira Finance. CASA declined by 13% during the high rate environment. Customer -- when customers changed their portfolio to higher rates, higher return, which is like TD and wealth management products. Next, this is the picture of our profit and loss. We see the steady growth in operating income. As discussed earlier that our operating income grew by 4% year-on-year, and OpEx increased by 6%, mainly due to the commitment on the investment, which largely in IT, digital and branch networks. Excluding the investment, our OpEx increased much lower, which is around 4%. Our CoC increased by 19% year-on-year. However, in terms of percentage to total loans, our CoC is 2.5% or increased by 10 basis points compared to same period last year. With that, our operating profit and NPAT lower by 14% and 9%, respectively, compared to the same period last year. Next, this is the key of our -- key financial ratio. We see that our risk-adjusted NIM lower by 100 basis points compared to last year. Our cost-to-income ratio at 55.9%, slightly increased compared to last year despite of the investment commitment, as I mentioned earlier. Our NPL growth improved by 30 basis points to 1.9% and coverage ratio at 287% increase by 21% compared to same period last year. Our CAR consol remains strong at 26.2%. And our RIM about 97.5%, same with last year, and we have ample liquidity. Next, so we -- as I mentioned earlier, that we continue focusing in granular funding and refers to the top left table, our granular funding grew by IDR 6.8 trillion year-on-year. And our -- and refers to the top right table, our LCR, NSFR and LDR remained healthy. Our capital consol remained strong at 26.2% and almost 100% in the form of Tier 1 capital. Next, refers to the top right table, we see that other than Adira, all our business line grew by double digits, being EBFI grew by 10% year-on-year, SME grew by 12% year-on-year and Consumer grew by 19% year-on-year. And Adira Finance flat compared to last year due to the challenges in the demand due to the current economic conditions. And bottom left table showing composition of our loan and trade finance portfolio, which is pretty much consistent compared to previous years. And bottom right table showing our loan by sector and purpose, which is largely around 58% represent in working capital loans. Next. As mentioned earlier, that refers to the top right tables, due to weakening automotive sector and challenging economic conditions, Adira new financing grew was lower by 12% compared to same period last year. This resulted in the outstanding loan at 31st December 2024 remained flat compared to last year, refers to the bottom right table. From the composition, the multipurpose loan or NPL grew faster than other products. We can show that the multipurpose loan grew by 19%. Next, table on the left showing the composition of our interest income and noninterest income. And our noninterest income grew by 11%, which contributed from all type of fee. This refers to the top right table. So supported by all type of fee being credit-related, noncredit related and treasury fee. Next, as we discussed earlier that we maintain prudent asset quality -- manage -- quality management as shown by our NPLs, our special mention ratios, loan at risk, NPL coverage ratio and CoC, which, other than CoC, we see that all improved compared to last year. So that's all I have. That's all I want to share on the financial highlights. And probably next, I will pass it to Marcella for further guidance.

Okay. Thank you, Pak Ejima and Pak Mul, for your presentation. Ladies and gentlemen, now it's the time for us to start the Q&A session. [Operator Instructions]. While waiting for the incoming questions, let's have a look at a quick video, summarizing our journey, which marks the 5 years since the acquisition by MUFG. [Presentation]

I have seen there are 20 investors and analysts who have joined from various institutions. Thank you for taking your time to join Bank Danamon's analyst briefing event. Now let's start our Q&A session with the first question is from Pak Irfan, what is the outlook for Adira Finance this year in terms of growth and gross NPL?

Okay. Yes. For Adira, last year, we are down by 12%, in part because of the sales of auto also dropped from 14%. So this year, we expect that there is slight recovery in terms of sales, both 2-wheeler and 4-wheeler around 5%. As such, we expect to book -- to increase our new financing by 8% to 10% this year.

Okay. Thank you, Pak Made, for you answer. So let's move on to the next question. It's from Boby Kristanto Chandra. Pak Boby is from Mandiri Sekuritas. There are 3 questions from Pak Boby. So I will read the question one by one. The first question is, could you provide us some guidance with regards to loan growth and deposit growth in 2025? Which segment will drive the loan growth in 2025?

Maybe I can respond to that, the loan growth and deposit growth, basically. So we expect that the credit and trade finance in 2025 will grow in line with the credit growth target set by our regulator for 2025 of around 9% to 11%. This growth is supported by all the engine of growth in Danamon being EBFI, enterprise banking and financial institution, SME than the consumer and Adira Finance. This projection is determined by considering the company's strategy, but were greatly influenced by various internal and external conditions that may have influenced the growth. On the deposit side, we also expect that we're going to grow double digits, lower double digit basically to support our loan growth. Thank you.

Thank you, Pak Mul, for your answer. So the second question from Pak Boby, within your corporate banking or enterprise banking, how much of this enterprise banking loan comes from your synergies with MUFG?

Sorry. This is Thomas, but my camera seems -- does not work. Let me answer that question. Currently, about 20% of the loan outstanding balance is coming from the synergy loan with MUFG.

Okay. Thank you, Pak Thomas, for your answer. The last question from Pak Boby, for Adira, new financing dropped by 12% year-on-year. Can you give us color on what numbers of new financing do you expect Adira can achieve in 2025? And how much of it will be driven by multipurpose loan?

Yes. I think I just spoke about it. So last year is we see that a contraction in terms of the auto sales. But this year, we expect a single -- mid-single-digit growth on the auto sales. As a result of that, we have targeted new financing around 8% to 10% growth compared to last year. We do expect multipurpose loan will continue to grow double digit.

Thank you, Pak Made for the answer. We are still waiting for another question. [Operator Instructions] There is another question from Naura from BRI Danareksa Sekuritas. What is driving the rise in OpEx in FY '24?

Okay. Probably I can answer the question. So the significant increase is mainly coming from the -- related to our investment, investment in the various areas, which is like our IT-related, digital and then branch network and also increase in manpower costs due to the salary increase, yes. And this is the investment commitment basically, the investment commitment for the future growth. Having said that, we also are doing a lot of cost management in order to contain the increase also in the area of -- related to the IT-related manpower in terms of the process improvement and all the staff, IT related to the, what you call it, the applications that we are no longer required and to -- also to streamline the process. Thank you.

Thank you, Pak Mul, for your answer. There's another question from Pak Irfan. Any NPL guidance for Adira?

Yes. NPL of Adira stood around 2%. I think we will stick with that.

Okay. Thank you, Pak Made. There is one more incoming question from Andrey Wijaya from RHB Sekuritas. Will you kindly update on liquidity situation in first quarter '25?

Maybe I can answer this first and probably other can also help. We see that the pressure on the liquidity is better. Liquidity is better in the first half, up until now at least. We see pressure on the rupiah, especially on the deposit side is much better compared to the fourth quarter. That's why we are able to lower our TD rates, yes. And we see that our RIMs and our RDR also remain very, very healthy, and we have the ample liquidity so far.

Thank you, Pak Mul, for your explanation. So we have another question from Pak Boby from Mandiri Sekuritas. There are 2 follow-up questions. The first one is, some banks are considering to increase the dividend payouts and considering buyback program. Can we get some color on your dividend policy and whether BDMN is interested to do these strategies in the future? Also, if possible to share, do you have ROE and CAR target in the medium term that you can share with us?

Okay. Let me try to answer that. Danamon plan to continue distributing cash dividend for 2024 financial year with, of course, approval from the shareholders. The value of cash dividend to be distributed is maximum around probably -- if you look at the previous year, we distribute about 35% of our NPAT. That's if you look at the Danamon history for the last few years. So the distribution -- the dividend distribution plans will be announced further along with the summon of the -- to the AGMs and approval will be sought from the shareholder.

I'd like to answer the question on this ecosystem, education, it's basically mainly on acquisition of funding from various customers, like, for example, in school education ecosystem, we want to onboard the school, also the parents to use Danamon for payment of the school fee, et cetera. So that's mostly on the funding side.

There was a question on the ROE and CAR. So let me try to answer that. ROE 2025 is about 7.6%. And going forward, we are talking about our ROE probably around -- in the next couple of years, probably around -- I mean, lower 8% to the -- which is like probably 7.7% to 7.8% to around 8.5% in the next couple of year. If you're talking about CAR, CAR now in terms of consol, about 26%, very strong, and all in the form of Tier 1 capital. And we would like to maintain our CARs in this level going forward.

I would like to add on the Hajj and Umrah ecosystem. So our customer increased 213% year-on-year. This is the customer that's coming from the association, religious travel agencies and Hajj Financial Management Agency. We increased by 143%. So with this, hopefully, going forward, we will do more aggressive increase in the Hajj and Umrah ecosystem. That's additional from Hajj and Umrah ecosystem.

Thank you, Pak Mul, Pak Hafid and Pak Herry for your explanation. So we have the next question from Vinchel Budihardjo from Pangolin. Can you tell us the performance of Home Credit Indonesia and Mandala Finance? Are those lumped under consumer loan portfolio?

Pak Mul, should I respond on this one?

Yes, Made, please.

Yes. I think the number that we show is excluding Mandala and Home Credit. Mandala is consolidated to MUFG Bank of Japan, while Home Credit is to consolidated to Krungsri Bank of Thailand. So Adira is a minority interest in both company.

Thank you, Pak Made, for explanation. So we have the next question from Ilham Firdaus from BNI Sekuritas. Do you see any opportunities in optimizing risk-adjusted margin this year? Whether it's from repricing the loan? Or do you see the room for improving liquidity hence lower cost this year? Maybe we try to answer the first question first.

Maybe let me try to answer first, probably others can also help. From the loan growth, as we discussed, actually, we focus in all major -- in all engines being the BFI, SME, consumer and Adira. And as you mentioned that -- and as Pak Made mentioned earlier that in Adira, they are largely focused on the multipurpose loan, which is give a better loan yield as well as better margins, yes, that we hope that we can improve our loan yield and margin going forward. And second, that we also hope that with the less pressure on the liquidity and potential that I will cut rates -- one more rate cut in 2025 in the first half as well as follow the Fed cut rates also in the first half, we hope that the pressure on the cost of fund will be better compared to last year. And with that, we also hope that can improve our cost of funds going forward, yes. In addition, of course, we try -- as Pak Hafid mentioned earlier that we try to grow our customer base, our capability to serve customers. And then with that, we're also able to grow our CASA with a lower cost of funds to support our sustainable growth going forward.

Okay. Thank you, Pak Mul. The second question from Pak Ilham, some follow-up on the Adira loan growth. If I'm not mistaken, you mentioned you target 5% growth on vehicles loan and 10% disbursement growth. Can you give more color on the assumption on this? Like what is the driver of this year's growth? And how do you see the outlook for vehicle sales in overall this year?

Yes. I think -- thank you. Number one, we're targeting 8% to 10% growth in terms of amount of financing, new disbursement loan. The one underlying assumption is basically we expect that the sales of auto is recovered this year because last year, sales of 4-wheelers dropped by 14%. So we expect that recovery in terms of sales is going to be improved around 5%, while our amount financing expected to grow between 8% to 10%. We expect more growth in the multipurpose loan, double-digit growth on that segment. But while, since we are quite big in the new car and new motorcycle, our growth will more likely tracking the growth of the industry, which is we expect around 5%. So that is -- as a result of that, overall, we're targeting 8% to 10% of new financing growth. Industry is still expecting some recovery after declining last year. Probably we will see single-digit growth for the 2-wheeler and then single-digit growth for 4-wheeler, although we expect in the first half of this year going to be very sluggish growth given uncertainty in the market as well as a new government that programs still need to be rolled out that impact the purchasing power into the mass market.

Okay. Thank you, Pak Made, for your explanation. [Operator Instructions] Since there are no more incoming questions, then we will close the Q&A session. Ladies and gentlemen, the respected investors and analysts, once again, thank you for taking part in the PT Bank Danamon Indonesia Tbk's financial results for FY 2024. For any further interest and questions, please do not hesitate to reach us through our Investor Relations mailbox at [email protected]. See you at the next Danamon's corporate event, and thank you.