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

Ladies and gentlemen, I would like to welcome and thank our respected investors and analysts for joining PT Bank Danamon Indonesia Tbk's Investor and Analyst Briefing First Half 2025 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, Chief Financial Officer and also 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 Herry Hykmanto, Syariah and Sustainability Finance Director [Foreign Language]; Ibu Rita Mirasari, Compliance Director; [Foreign Language]; Bapak Dadi Budiana, Risk Management Director, Bapak Thomas Sudarma, Enterprise Banking and Financial Institution Director; Ibu Yenny Siswanto, IT and Digital Director. Ibu Theresia Adriana Widjaja, Chief Financial Officer [Foreign Language]; Bapak I. Dewa Made Susila, President Director of PT Adira Dinamika Multi Finance Tbk [Foreign Language]. 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 video of Danamon Group showcasing our synergy and collaboration to grow as a financial group. [Presentation]

Ladies and gentleman, before we present a detail of PT Bank Danamon Indonesia Tbk's financial results for first half 2025, I would like to invite Bapak Daisuke Ejima as our President Director, to deliver his remarks highlighting the progress of our key strategies, Ejima, the screen is yours.

Thank you, Marcella. Good afternoon, respected investors and analysts who are covering Danamon, we greatly appreciate all the support throughout the year. Among our management names, who were introduced before we have 2 new members that I would like to highlight; firstly Yenny Siswanto, New IT and Digital Director, that is from the past March. We also have Theresia Adriana Widjaja, a new CFO, who will cover more details of performance of first half of Danamon after my presentation. So let me touch on the key highlights of our activities during the first 6 months plus. Page 3, please. You can see some macroeconomic key indicators highlighting Indonesian economic situation. Overall sentiment-wise, we were having a sort of cautious sentiment. GDP growth is expected to go under 5%. PMI purchase manager's index is also below 50, right side bottom multifinance area, 2-wheelers, 4-wheelers are still seeing minus growth, the left side bottom banking industry, although it's still growing in terms of lending and funding, but the growth rate is gradually seeing downward trend. Next page, please. Danamon key strategy will continue to be the same. We grow as a financial group. And we remain focused in building strong foundation for Danamon to continue to deliver sustainable business growth and the line of business. We have set 3 strategies based on 4 key line of business, enterprise banking and FI covering large corporate segment, SME, consumer and Adira Finance. Three strategic themes we have been pursuing since 2024 until '26. Those are dominated -- dominant in ecosystem. Number two, unique MUFG proposition we like to leverage and thirdly data analytics and process improvement we want to pursue. There are several key highlights on right side in terms of first half financials lending plus 6%, funding plus 10%, NPAT plus 12%. Most of these are showing a good trend and detail will come again after me from new CFO, Ibu Theresia. Next page, I would like to highlight some key areas. Firstly, the strategic theme of targeted ecosystem. One of them is definitely automotive, which we have Adira Finance as a large subsidiary. Other auto retail financing synergy between Danamon and Adira what we call the product KPM Prima. This is primarily the automobile loan sold through our Danamon branches. We saw a good growth, plus 58% year-on-year growth. We also introduced Special Package and Red-Carpet program for particular privileged customers so that we can shorten the credit process of this auto loan. We also continuing to support the overall Indonesia International Motor Show IIMS 2025, in Jakarta and Kemayoran. With regards to Data analytics and Process Improvement, we are taking steady steps . We are trying to collaborate with a few key startup companies. Here we show pictures of 6Estates to enhance the credit process model through the GenAI. Bottom part, we are showing the milestone activities with regard to the financial conglomeration. Recently, we received the OJK approval, so Danamon will be operating a holding company -- Operating Financial Holding Company under MUFG group in Indonesia. Financial Conglomerate members under Danamon will include Adira Finance, Mandala Finance, and Home Credit Indonesia. In line with this initiative and strategy, we recently announced the merger between Adira Finance and Mandala Finance. Currently, we all obtained necessary approval and having the execution phase, legal day one will be expected in 1st of October this year. Bank side, we also started a new collaboration between Home Credit Indonesia, iPhone 16 campaign in Indonesia, so that we can support each other through the customer activities. Next page, please. Here, we are showing some core foundation building activities. Left side, our mobile banking application, which is D-Bank PRO. We recently upgraded to D-Bank PRO version 2.0. We have new design. We have 360-degree portfolio dashboard. We also having now 24 hours, 7 days FX transaction that will cater the ease of the users. We will continue to brush up this mobile application, so that we will maintain this competitiveness in the market. We also continue the branch transformation since 2 years ago. Now first half, we finished 16 additional branches, total so far 110 branches we newly transformed. So about 1/3 of our branches are already moved through the new transformation side. We also recently had the Danamon 69th anniversary in this month and coincide with this opportunity. We launched new concept of Danamon on Wheels, which is the mobile branch to support the broker activities in Indonesia. We also enhanced the Co-Events and Co-Based activities between among all MUFG group companies namely Danamon, Adira, Zurich, Home Credit, and MUFG. We will continue to enhance those group collaborations so that we will make our services unique. Now, I would like to invite Ibu Theresia, Danamon CFO for the performance update of first half 2025. Theresia please.

Thank you Ejima. Good afternoon, everyone. Let me continue on the financial highlights. On the left above, our loan and trade finance grew by 6% year-on-year with higher loan growth from wholesale lending by 13%. While retail lending decreased by 2% due to slowing down on the automotive industry. Bottom left table showing the healthy asset quality with loan at risk improved by 2.1% year-on-year to 9.1%, and has consistently improved since last year with NPL coverage improved by 16% to 279.2%, while the gross NPL improving from 2.2% to 1.8%. On the top right table, June '25 showing third-party deposits, which grew by 10% year-on-year to IDR 160.1 trillion with 2% increase on our granular funding. On the bottom right table showing our operating income which remains flat year-on-year and NPAT of IDR 1.6 trillion increased by 12% year-on-year. Next page. On the balance sheet, showing our total assets grew by 8% year-on-year to IDR 251.5 trillion, which mainly from the loan and trade finance grew by 6%, while gov. fees decreased by 7%. To support our loan growth, our funding grew by 6%, supported by strong CASA grew by 4%, and TD grew by 15%, while borrowing and long-term funding in Adira Finance declined by 21%, in line with its declining of the loan in Adira Finance. Next page. On the, profit and loss, Danamon recorded consolidated NPAT of IDR 1.6 trillion grew by 12% year-on-year, mostly supported by better noninterest income increased by 1% and improvement in the credit cost with lower CoC by 16%, while the PPOP declined by 4%, mostly from the higher cost of funds and operating expense. Next page. On the key financial ratio, our risk adjusted NIM is stable at 4.8% compared to last year, cost to income year-on-year increased by 1.5% to 56.3%, which remained the same with 4Q '24. Compared to Q4 2024, our CASA ratio is better by 2.2% from 41.7% to 43.9%. Although, year-on-year it is lower by 2.1%. Our RIM lower by 1.1% from 99.8% to 98.7. We have ample liquidity, our quality showing some better NPAT growth by 40 bps year-on-year to 1.8% and higher loan loss coverage by 16% while higher year-on-year to 279.2%. Return on assets was stable year-on-year at 1.3% while return on equity improved by 40 bps. Our CAR is strong at 25.9%. Next page. This is to show our funding, liquidity and capital, as explained in the beginning, our granular funding increased by 2%, mainly from the CASA in terms of the liquidity as shown on the right upper above, LCR, NSFR, and LDR are steady, our capital is still strong, and almost 100% of our Tier 1 capital, refer to the right bottom table with the strong CAR at 24% for Bank only and then 25.9% on the consolidated CAR. Next page. As mentioned earlier, our loan and trade finance grew by 6% year-on-year supported by double digit growth across segment. EBFI grew by 13%, SME banking 11% and consumer banking 15%. While Adira Finance was declined by 7%. On the top left above showing the lending composition, which lastly from the EBFI around 48%, followed by Adira Finance 28%, SME and consumer banking around 13% and 11% respectively. Lending by sector on the Bank only, mainly dominated in the Household, Trading, Manufacturing, Financial Intermediaries and Agriculture, Forestry, and Fisheries; while the lending for Bank purpose, only mainly from the working capital around 56%. Next page. On the Adira Finance, industry trend of 2-wheelers in 5 months 2025, declined to minus 2.4%. While Adira Finance saw performance from first half '24 to 5 months '25 was declined to minus 22.3%. Industry trend on the 4-wheelers on 5 months 2025, declined by 5.5% while Adira Finance saw performance from first half '24 to 5 months '25 was declined and at 5 months '25 is minus 47.3%. New Financing of Adira Finance on New lowered bank 19% compared with the first half '24 due to the weakening auto industry, which mainly from the 4-wheeler and 2-wheeler, while our MPL, Multi-Purpose Loans was higher of 12%. In terms of the operating loans the total loans reduced by 7% year-on-year, mainly in the 4-wheeler auto loans lower by 15%, 2-wheelers lower by 5%, which partially off-setted with higher multi-purpose loan, which was higher by 11%. Next page. On the Revenue Structure, it remained steady. Our operating income grew by 1% from higher non-interest income, which mainly dominated by treasury fee grew by 32%. Credit related fee, only quite stable while Adira Finance lowered by 8%, in line with the lower financing. Non-credit fee from the Banca and Wealth Management year-on-year lower by 20%, while Cash Management and Other increased by 24%. Next page. This is showing consistent improvement in our asset quality by maintaining a healthy asset quality as respected in Danamon as below, better NPL and SM ratio, refer the top left table; with loan at risk, refer to the bottom left table, and then we also maintain the NPL coverage ratio at 279.2% in June '25, higher compared with June '24 of 263.2%. Better CoC by 50 bps year-on-year whereby the composition of the CoC was 12% on Danamon and then 88% on Adira Finance. I think that's all the updates on the financial highlights of first half 2025, I will handover to Marcella for the Q&A. Thank you.

Thank you Ejima, and Ibu Theresia, for your presentation. Ladies and gentleman, now is the time for us to start with Q&A session. [Operator Instructions] [Presentation]

[Operator Instructions] There's a question from Kresna from Mandiri Sekuritas. Thank you, Kresna for the questions. The question is, how is industry liquidity trend today in management's observation? And how does management view industry liquidity trend could be in the second half of 2025? We would like to have the BOD to answer the questions.

Thank you for the questions, Kresna Partogi Hutabarat. So if you look at the statistic of Bank Indonesia, the liquid, the total ample liquid in the statistic, actually, the liquidity is ample, right? So even the number increased from during the COVID. That's fact number one. Having said that, fact number two, the competition among banks about this deposit still very -- what you call it, very tough. That's why even though the Central Bank reduced the BI rate, I think it's for the third time this year, the transfer to our lending rate, the transfer of the lower lending rate still takes some time. So to answer your question, we see the liquidity has no problem. So we are confident, and I think Central Bank have done a good job. However, to translate into the lower lending rate, I think still take a while, right, maybe another 2 months to get the full effect of the -- whatever the BI rate reductions. And then what is the other question? Yes, I think that's our observation so far. Thank you.

Thank you, Pak Mul, for your answer. We are still waiting for another questions. So there's another one question from Pak Boby from Mandiri Sekuritas. Thank you, Pak Boby, for the questions. To kick off the Q&A session, could you elaborate the reasonings of a meaningful decline in credit costs in first half '25. Considering the current macro and purchasing power conditions, are we confident enough to withstand future NPL formation? How is the recent trend of NPL formation in the past 4, 5 quarters?

Okay. This is Dadi from risk management basically. Yes. So the reasons for the decline in credit costs basically was the good quality of our portfolio. So our loan portfolio, especially in the remaining businesses other than Adira has actually seen better asset quality, I would say, compared to like, let's say, even 2 years ago. So the improvement has continued. So even though I would say that as you can probably see from our NPL ratio, right? So then this is -- this translates to the credit cost to the lower credit cost basically. So Adira, as you are probably aware of, in line with the softening of the auto sector and also, I believe, in line with the performance of other consumer finance companies, I think they -- in their case, the credit cost is still at an elevated level compared to their historical standards. However, if we compare their credit cost with 2024, it's been on an improving trend. So that's basically the reason for the decline in the credit cost basically. Your other question is the -- are we confident? Okay. Yes. We believe that at the moment, we've been growing relatively cautiously. So although we've been growing at in the previous years at low double digit or in this case, this year, in the first half at 6%. But we've been growing cautiously so that we believe that our NPL level should be relatively well maintained in the near future. You're also looking at the -- okay, 2025 and 2026. In terms of credit cost, I don't think we can continue the declining trend. I believe this is basically more or less the bottom, but we also do not foresee an increase basically. So that's basically a guidance that I can share. I also see more question relating to loan write-off, I think that I can probably answer. I think the question is from Andre. Yes. So loan write-off in 2025 in second quarter compared to the 2020 -- okay, sorry, in the first quarter, it is basically comparable. So it's not like -- it doesn't -- it didn't increase or it didn't also -- it wasn't like -- it didn't go down significantly. So basically, it remains very much flat, so in the first quarter and the second quarter, so that's from me, Marcella.

Yes. Thank you, Pak Dadi. The second question is from Pak Andre Wijaya is what is the loan growth driver in second half of 2025? The question is from Pak Andre Wijaya.

So I'm going to answer this question from Pak Andre together with [indiscernible] from [indiscernible]. So the overall banks, BDI year-to-date consolidation, we grow single digit. I think it's around 6% to 7% on the top line. That consists of the bank only, which is the corporate banking, EBFI, the SME banking, the consumer banking, that's grow basically double digit and being offset by the 2-wheeler and 4-wheeler from Adira, right, consolidated because slightly lower than PEN. So overall, that dragged down the growth rate. The segment to grow still because we look the demand of the 2- and 4-wheeler still be for this year. So we will be relying on the banking side and mostly from the corporate and the SME banking. I think that will be the driver. About the ecosystem, not only we're relying on the Japanese ecosystem and automotive ecosystem, but also we are not expanding the ecosystem. The way we structured the Danamon, consists of the 11 region of Indonesia. Then we're now introducing what so-called region-based ecosystem. We ask the branches to reach out to our group companies to grow both funding and lending. For example, we have Suri, right, as our partners or yes, we have a small investment in Suri that the Mitra, which is the, what you call it, let's say, auto body shop or body repair from the Suri, which is in the past, not 100% banking with us. Now we're asking all the region to reach out. The automotive related like the tire, selling the accessories, we also ask them to reach out. So yes, the answer is yes. The ecosystem remains intact. We even expand to the Group Danamon as Pak Ejima, our President Director mentioned in the beginning that we want to grow by group, right? So financial group to grow. Dadi, you want to add something?

No.

Let me add a few more points. In my presentation slide, there were 4 business engines, as Honggo explained, large corporate segment, SME, consumer and Adira Finance. This Adira Finance part, we -- in the past, we relied on Adira only. But in the future of financial holding company concept, within next 12 months, it will come -- it will become the Mandala Finance going to this umbrella, also Home Credit Indonesia, et cetera. So this managed finance segment, hopefully, even if the Adira Finance top line is seeing some declining trend in terms of loan growth, hopefully, with including other segment -- other entities, sorry, we are able to make up. Also, as 4 business lines, hopefully, the cycle of loan growth will be different. So that although Adira is seeing minus this time, but banking segment, we are seeing a stronger growth. Vice versa, if the auto market is gradually catching up in the near future, hopefully, Adira Mandala Finance, they will make up so that even if the banking segment is relatively weak, we are able to show growth as a financial group-wide. So those are something we are expecting to grow as one financial group.

Thank you, Pak Honggo and Pak Ejima for your answers. We have another question from Posmarito. The first question is with CAR at 25.9%, are there plans for capital deployment, dividend enhancements or another acquisition? If yes, what companies or segments will Danamon be interested in? I think we answer the first question first before we go to the next question.

Thank you for the questions post Posmarito Pakpahan. The policy of the Danamon and MUFG as our holding company, the commitment to invest in Indonesia is always there, right? So the appetite to invest always there. One of the proof, the MUFG even together with the Danamon form Garuda Fund, right, to invest in the start-up company in Indonesia. That to show that the appetite is always there. Given the situation, of course, we are not going to recklessly invest. And there are a couple of the target, I have to say, now being under microscopy under discussion. I cannot disclose the name, but still the segment and the company is, of course, related to the financial because you cannot invest in the manufacturer, for example. So just a clue. There are a couple of companies that are being discussed and being under our microscope. Then the strategic outlook post Adira and Mandala consolidations. So like Ejima explained, the legal day one will be 1st of October. We got the approval already, both to merge Adira and Mandala. The benefit, right, we don't need to wait until the legal merger. At the moment, MUFG announced they are buying Mandala, the following months, we got the benefit already, which is the cost of fund of Mandala reduced by, I think, at least 200 basis points. So that's the obvious benefit. The synergy between the Adira and Mandala, I think [indiscernible] will explain in different time maybe because I just have a meeting today to disclose how to do the legal merger, the operational merger, how we're going to consolidate all the process improvement and all, including the how to deploy, redeploy all the human resources of these 2 Adira and Mandala. And definitely, there are going to be some synergy. The time line and the expectation, yes, so the synergy and the benefit start not only now, but start when the MUFG announced the owning Mandala. So the benefit is already there, especially from the financing costs. The rest will follow. Thank you.

Thank you Pak Honggo for answering the questions. We have another question from Pak Bobby. The first question is with the potential merger between MUFG and BDMN, your total capital perhaps could exceed BBNI's. Would you be more aggressive in tapping corporate segment? In doing so from 100 points, how much can you attribute your future corporate loan growth through the expansion of numbers of clients? And how much can you attribute to the expansion of current lending facilities to existing clients? Or do you have any other strategies, perhaps using capital to build transaction banking franchise, et cetera? What is management's grand plan in utilizing this excess capital?

Thank you, Bobby. I don't think I can answer this straightforward. We never announced officially or formally about the merger between Danamon and MUFG brands. As the one of the foreign bank, we got the privilege to have branches because we are one of the first foreign bank opening in Indonesia. If you ask me whether internally, we exercise several options, of course, from time to time, we look at the -- do some exercise. But at this point, we cannot say yes or no because all still on the paper that we are doing the exercise. I don't think we ever announced that we are going to merger between MUFG and Danamon. And then question number two, the risk perspective, do we have certain guideline et cetera that we are receiving more exposure? I think Dadi and Thomas, you better take the question number two.

Okay. Yes. Thank you, Pak Honggo. Thank you, Bobby. So on the sectors that we have appetite to grow more, these are basically -- I don't think -- because you're actually emphasizing the sectors that are currently underserved, right, by Danamon. I think we do not currently have any like, let's say, sectors that we previously underserved because like, let's say, we have certain reservation of appetite and then suddenly -- not suddenly. And then now we believe that we should actually expand our appetite on those sectors. But as far as the sectors that we would like to, let's say, limit our exposures, basically, it remains the same sectors. So there are certain sectors where because of like, let's say, environmental concerns, right, we do have a preference not to expand our appetite to, but this is something that is generally shared by other banks also. And obviously, with the weakening of like, let's say, in the auto sector, for example, right? So it's not that we are reducing our exposure to the auto sector. Automotive ecosystem remains our priority, right, remains our -- so it's not that we are reducing our exposure or anything, but we are more cautious basically. So in terms of how we select our customers, how we acquire our customers, how we actually consider to expand exposures to certain customers, we are much more cautious. So that's basically how I can -- what I can share with you.

Thank you for the answer. So we will wait for another 2 minutes. 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 first half 2025. 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. Thank you.

Thank you.

Thank you, everybody.