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 Fiscal Year 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 the President Director of our subsidiary, Adira Finance, who have joined from their respective locations. So we would like to welcome Bapak Daisuke Ejima, President Director; Bapak Honggo Widjojo Kangmasto, Vice President Director, [Foreign Language]; Bapak Herry Hykmanto, Syariah and Sustainability Finance Director, [Foreign Language]; Ibu Rita Mirasari, Compliance Director, [Foreign Language]; Bapak Dadi Budiana, Risk Management Director, [Foreign Language]; Bapak Thomas Sudarma, Enterprise Banking and Financial Institution Director, [Foreign Language]; Bapak Jin Yoshida, Global Alliance Strategy Director; Ibu Yenny Siswanto, IT and Digital Director, [Foreign Language]; Ibu Theresia Adriana Widjaja, Chief Financial Officer, [Foreign Language]; and Bapak 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 has joined from their respective locations. Ladies and gentlemen, before we present the detail of PT Bank Danamon Indonesia's Tbk's Financial Results for Fiscal Year 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 evening. Thank you for all the investors and analysts for joining the Danamon reporting regarding the 2025 financial performance. As we all know, that circumstance wasn't that easy. However, today, I would like to deliver several good news about last year's performance. I would like to you the slide. So if you go to Page 3 [indiscernible] partly macroeconomic data. Generally, I expect the domestic momentum will get strengthened in 2026 from investment recovery, fiscal expansion and ample domestic liquidity as major catalyst. Consumer sentiment also really gradually recovering our job prospects improving and manufacturing expansion continues. But Indonesia lowered the interest rate, 125 basis points last year, which is starting to transmit into the year sector through higher lending growth. In this year, in conclusion, we expect room for further growth in economy. We also expect some further [indiscernible] cut on the back of stable domestic inflation and potential future growth. Next page. The page summarizes the 3 strategic direction from 2024 until 2026. We have an initiative and strategic team of growth as one financial group. We are strengthening the capabilities founding Danamon based on this direction and we built the foundation to support sustainable growth across all business segments. In [indiscernible], we continue to optimize our operations through ongoing investments in IT and digital infrastructure, people, planning and branch network including APN. So if you see the right side up, we are pleased to deliver the result of NPAT was higher than previous year by 21%, excluding Mandala Finance acquisition impact, including this up-study statement, approx 14% year-on-year growth. Consolidated loan grew by 9% and funding also increased by 16% year-on-year basis. We continued to accelerate our ecosystem led approach and strengthen group collaboration across all regions. Other details of financial performance will be discussed and delivered by our CFO later in this agenda. Page 5, please. There are several strategic themes that we focused on last year, partly this type of automobile and retail financing synergies. We expanded the old financing across through the KPM Prima product, which is a special program for Adira loan financing through our Danamon branch customer. It delivered 41% year-on-year growth in loan disbursement, reaching IDR 2.1 trillion in last year. This slide bottom, we also accelerated the ecosystem approach across all regions. Each region forecasted on cultivating a unique ecosystem in the Adira cities, including SMB, retailers and local communities and foundation. It generated 4% year-on-year growth in consumer and SME granular funding reaching to IDR 97 trillion as of last year, December. Right side of education ecosystem also that strengthened through the partnership with the leading education institution across the region. We also try to capture dependent opportunity through providing the cash management solution. We have seen strong growth in funding plus 26% year-on-year and number of accounts, the same plus 27% year-on-year. Hajj and Umrah ecosystem also expanded the customer base through collaboration with BPK association and travel agency. It recorded a positive funding traction plus 6% year-on-year and 43% growth in terms of a number of accounts. We expect further growth in 2026. Next page. The page is illustrating the approach in that MUFG Indonesia, we are enhancing our collaboration, financial conglomeration and Adira Finance and Mandala Finance merger was described on the top of this page. In last year July, Danamon recieved OJK approval of the operational or financial holding company [indiscernible] for MUFG Indonesia. Effective last year October 1, Adira Finance merged with Mandala Finance. And now Adira Finance is the surviving entity, expanded the territory and also the coverage. These developments, strengthened the governance integration and collaboration across the group member, enabling Danamon and group to deliver more holistic financial solution to all sorts of -- all segments of customers. This slide bottom, we also enhanced the venture fund supporting activity. Danamon support the Indonesia's digital ecosystem through strategic investment via recent participation in Japan Thematic Funds. This reinforced Danamon's strong commitment as a subsidiary of MUFG group that we continue to contribute and to the sustainable economic growth in Indonesia and also would like to support the expansion of the digital economy. Page 7. The page is illustrating our continuous effort in core business and foundation building for our long-term and sustainable growth. Our mobile application, D-Bank Pro. We upgraded capabilities to the next level through agile approach in last year July, including a new interface, 360-degree portfolio dashboard and 24x7 FX transaction. We also improved the digital experience which drove the higher customer engagement in terms of transaction volume and value. This year, we are also continuing the enhancement, including the unified onboarding for group partners, new payment feature and SME mobile application capability. So more to come in this year. We also started to adopt gen AI accelerating the new technology development. This is now inevitable to for all of our branch members to support our customer needs, Danamon Cash Connect, which is the cash management solution for corporate, also got enhanced during the last year with new features, including multicurrency, cross-border transfer, supply chain invoice correction and bank guarantee based transaction limit, et cetera. This also resulted in a strong attraction across the user base. Lastly, right side bottom, branch network, we continue to strengthen the local and regional activity. We rolled out the new branch concept since 3 years ago. Now we finished 120 branches that transformed already so far by the end of last year. We increased the community engagement across regions, supporting sustainable lending and funding growth. This is a high level snap-shot of our key activities and the financial performance last year. I would like to hand it over to our CFO, Ibu Theresia, for further details in financial performance.

Thank you, Ejima. Good afternoon, everyone. Today, I will walk you through the Danamon full year '25 financial performance and key drivers behind the results. Before we begin, I would like to highlight the full year 2024 figures have been restated following the implementation of PSAK 338 related to the merger between Mandala Finance and Adira Finance effective October 1, 2025 as a business combination under common control. Therefore, year 2024 is presented as if the merger had occurred since Mandala Finance was under MUFG Group common control using the pooling of interest method. This restatement is applied solely for the comparative purposes and there is no economic benefit changes due to this restatement. Next, please. On this slide, we present our key financial highlights on a like-for-like basis, excluding [ MFIN ], Mandala Finance, to reflect the current performance without the MFIN impact while the rest of the deck aligned with the published consolidated financial segment and the full year '24 restatement. Starting with the balance sheet. Total assets grew 13% year-on-year to IDR 273.6 trillion supported by 9% loan growth to IDR 206.9 trillion, higher government bond holding by 14% year-on-year to IDR 21.4 trillion strengthening the liquidity. On the funding side, total funding increased 15% year-on-year to IDR 196.2 trillion, driven by CASA growth of 18% lifting funding mix quality, time deposits and long-term funding also grew in line with the balance sheet expansion. Equity increased 13% year-on-year to IDR 57.8 trillion, maintaining a solid capital position. If you look to the income statement on the right side, the operating income grew 3% year-on-year to IDR 19.5 trillion supported mainly 10% growth in noninterest income. While interest income was broadly stable. Cost discipline maintained intact with the operating expense up 3% year-on-year while cost of credit declined 18% year-on-year, addressing 27% growth in operating profit and NPAT up 21% year-on-year to IDR 3.9 trillion. Next, please. So as mentioned before, starting on the next slide, I will explain the rest of the deck aligned with the public consolidated finance statement and the full year '24 statement. Next, please. On the full year '25 was a year where we expected returns through strong funding and prudent lending. If you see on the top right bar chart showing total lending, including trade finance grew 9% year-on-year, supported by sustainable lending growth, 12% across wholesale EBFI and SME, 12% across retail portfolio, consumer and Adira Finance. On the bottom left chart showing the healthy asset quality with loans at rates improved by 2.3% year-on-year to 8.3% and has consequently improved since last year with NPL coverage stood at 280.7%, while gross NPL improving from 1.9% to 1.7%. On the funding side remain ample. As we can see here on the top right chart, grew by 16% year-on-year with continued improvement in CASA, TD, mixed and granular funding. This transferred into higher operating income by 5%. PPOP grew by 4% and stronger profitability, whereby the NPAT increased to 14% year-on-year. Next, please. On the balance sheet showing our total assets grew 11% year-on-year to IDR 275.7 trillion from both loan and trade finance, government bonds, which grew by 9% and 14%, respectively. To support our loan growth, our funding grew by 13%, supported by strong CASA grew by 18%, TD grew by 14% while borrowing and long-term funding in Adira declined by 3%, in line with the funding list in Adira Finance. Next page, please. On the profit and loss, Danamon recorded consolidated NPAT for [indiscernible] grew by 14% year-on-year, supported by improved operating income 5% growth supported by both in interest and noninterest income. And also better asset quality with lower cost of credit by 10% year-on-year. Please note there are segment impact on the MFIN business for full year '25 is reflected in Q4 2025. Next page. Our key financial ratio increased in loan risk coverage by 550 bps despite lower CoC. This adjusted NIM better by 3 bps to 5.5% compared to last year. Cost to income year-on-year increased by 40 bps to 55.3% compared to Q4 2024, our CASA ratio is better by 90 bps from 41.6% to 42.5%. Our RIM lowered by 60 bps from 97.5% to 96.9%. We have ample liquidity, 30 of our asset quality showing better NPL growth by 20 bps year-on-year to 1.7% and loan losses coverage stood at 280.7%. Return on assets was stable year-on-year at 1.6%, while return on equity improved 60 bps to 8.3%, while our CAR is strong at 25.4%. Next page. This is to show our funding, liquidity and capital. We have strong capital and ample liquidity to support business growth. As explained in the beginning, our granular funding increased 4%, mainly from CASA in terms of liquidity, as shown on the right upper table, LCR high at 14.1% to 158.9% while NSFR and LDR are steady. Our capital structure is strong, almost 100% from Tier 1 capital, refer to the last bottom table with strong capital at 23.8% [ December ] only and 25.4% consolidation, refer to the right bottom table. Next page. As mentioned earlier, our loan and trust finance grew by 9% year-on-year, supported by double-digit growth in EBFI and consumer by 14% and 10%, respectively, while SME and Adira grew 7% and 2%, respectively. On the top right table showing lending composition reached largely from EBFI, around 47%, followed by Adira Finance of 29%, SME and consumer around 13% and 11%, respectively. Lending by sector, mainly dominated in household, trading, manufacturing, financial intermediaries and agriculture, forestry and fisheries while lending by purpose mainly on working capital was around 47%. Next page, on Adira Finance. Industry trend on 2-wheeler in 11 months '25 increased to 0.4% while Adira Finance sales performance of 11 months '24 to 11 months '25 was increased to minus 3.6%. Industry trend of 4 wheelers in 11 months '25 declined to minus 9.9%, while Adira Finance sales performance from 11 month '24 to 11 months '25 was increased to minus 9.5% just below with the industry trend. New financing of Adira Finance year-on-year was stable at IDR 43.1 trillion, although the auto industry was weakning. In terms of the outstanding loans, the total loan grew 2% year-on-year, mainly in 2 years auto loans grew by 4%, NPL grew by 5%, which partially netted off with the lower 4-wheeler auto loans by 2%. Next page. On asset quality, consistent improvement in NPL and SM Ratio by maintaining the healthy asset quality as reflected in Danamon ratio. Better NPL and SM ratio refers to the top left table, better loan at risk, refer to the bottom left table below. We also maintained NPL coverage ratio at 280.7% in December '25. But on the CoC of the average loan relatively higher, 50 bps year-on-year whereby the composition of CoC was 9% from BDI while 91% from Adira Finance. I think that is concluded my explanation on the financial highlights of full year 2025. So I will hand over to Marcella for the Q&A. Thank you.

Thank you, Ejima and Ibu Theresia for your presentation. [Operator Instructions] Now let's start the Q&A session with the first question is from Pak Boby Kristanto Chandra from Mandiri Sekuritas. So I will read the questions one by one before the BOD can answer their questions. So the first question is, do you anticipate any meaningful impact on cost of funds arising from the export process regulations. Additionally, what are the management's key priorities in maintaining a sustainable cost of funds going forward. If possible, could you also share your 2026 outlook for NIM, asset yield and cost of funds. Bapak and Ibu are welcome to respond.

Let me try to answer question number one. Thomas, go ahead, Bapak Thomas, go ahead.

Thank you, Pak Honggo. I'll try to answer number one. Yes, on the export proceeds that now has to be pulled into SOE banks. We lost some of our customers. At the same time, we are actually managed to acquire more customers that is export oriented in various industries, such as the apparel and the agri business, agriculture and we will see, at the moment, right now, we do not see our cost of funding increasing, but yes, in the future, there is a potential, but at the moment, we managed to get all these new customers that help us. Go ahead, honggo.

That's okay, Thomas.

The second question, could you provide your loan growth outlook for 2026, including the expected growth pick between corporate, commercial and consumer and are there any specific factors that BDMN has a stronger risk appetite?

Okay. So I will respond on this question. Thank you for the question. So basically, on Danamon set the projection for loan growth to be in line with the regulator target. And the engine for this growth -- on the loan growth is -- from our 4-engine, which is on the wholesale, EBFI, SME and also from the retail, consumer and Adira Finance. So while for the question related to the specific sector, we are focusing on the positive economic sector that we will tap in. And also we were saying for the customer track record that we are focusing on the loan growth. I think that's the answer, Marcella, thank you.

Thank you, Ibu Theresia. So the third question, could you share the shareholders strategic expense in relation to the Indonesian government's plan to gradually increase the minimum free float requirement for listed entities.

I think if you look at the our share being float now is approximately 7.5%, right? Definitely, we are going to comply. So we are waiting for the more detailed regulation from OJK. But in principle, I think our shareholders, our shareholders will comply with the regulations.

Yes. In addition to [ Pak Mul ] was mentioned, we are still waiting the regulation itself, but from the shareholder perspective, of course, they will -- I mean that they will comply with that.

And the last question is from Pak Boby for ADMF. Can we get more color on loss on reposition term both in 4-wheelers business and 2-wheeler business and also the NPL loans business, are they any better?

Yes, sure. I think overall, on a yearly basis, our LAR improved from 24.6% to 21.9%, so an improvement of 2.7%. But when we look at by segment, 2-wheeler LAR already back to the normal level around 20%. NPL LAR remained around below 20%, but one that's still although improving is on the commercial segment of the CAR. It's still around 30% to 35%. In the normal level, it's 25%. But that number already down from 45% in the previous quarter.

Thank you, Pak Made, for your response. we are still waiting for another question from respective investor and analysts. And we have another incoming question from Pak Irfan. Is there any requirement to refloat Adira?

Yes, I think we have mentioned before, we are waiting the pool, what do you call it, the detail of the regulation of the free float, but we will always comply with regulation.

Okay. Thank you, Pak Made. [Operator Instructions]. There's another question from Ibu Yulinda Hartanto from [indiscernible] Sekuritas. The first question is how do you see business confidence overall and the business loan demand for Bapak or Ibu [indiscernible].

I think we'll leave it to Pak Dadi to answer #1. And number two, altogether. Pak Dadi, you want to take your question 1 and 2?

Sure, sure. Yes. Okay. Yes, I guess on the overall confidence rate of the market, of the industry players, of the real sector area. I believe it's among our customers. generally, although they are cautious, but the continence is there basically in their respective areas. Even like, let's say, even the auto sector who have seen a slowdown in 2024 and further slow down in 2025. In general, they see that 2026 will be basically the bottom or even some rebound basically, although, of course, there will be some changes in the competition of the auto -- of the sales of the different brands, right? most likely chinese brands will grow, et cetera. But there are some positivism on the, let's say, the auto sector, where we, Danamon, have a lot of interest, right, in the auto ecosystem. Sorry. On the -- but having said that, I think like I mentioned earlier, the caution is there, the caution on the -- generally on the weakening, I'd say, weakening purchasing power, right, of the middle class and then the volatility of rupiya. So that's generally the reason why our customers are also cautioned. But then all in all, we actually still see some relatively healthy demand on loans. On your second question about the asset quality trends in retail segment, right, this is outside the autos. I think generally, we see that the -- we do not really see deterioration in like, let's say, our unsecured, mainly retail, right, and mainly credit cards and mortgage, we generally do not see that the -- any significant, let's say, trend, let's say, be a significant deterioration or significant weakening in the asset quality. We do not see that, I think. And I think if we look generally in the industry, there are weakening sales, but asset quality itself, I think generally, we haven't really seen the weakening. So that's basically the answer to your question, Yulinda.

We have another question from [indiscernible]. The first question -- I think both questions related to Adira Finance. The first question, how do you see the loan yield competition on consumer and Adira segment? What loan growth should we anticipate for Adira?

So competition, we see competition very different across major segment. Of course, the most competitive market right now is on the 4-wheeler financing business, auto financing business. There we see the yields continue to drop. There are -- we see excess capacity in the system given the weak auto sales in the last 3 years. But aside from that, on the retail, 2-wheeler and NPL, we see given the acquisition of new customers is still growing, although there is always competition, but the pressure on the yield is much less than in the 4-wheeler financing business. I think that is number one, yes. Number two, with regard to sales, we expect double -- low double-digit growth in the sales but that translates into around a 5% increase in loan because a lot of our loan is short term.

[Operator Instructions] I think there's one question regarding the 2026 outlook for NIM asset yields and cost of funds, which has not been answered from Pak Boby in the beginning of the Q&A session.

Thank you. So on the first question related to '26 outlook for NIM, asset yield and cost of funds. So in terms of NIM, we believe in the 2026 is around 7.5% and 8%. Well, in terms of the asset yields, it will be variative among our 4-engine [indiscernible]. In terms of cost of funds, it will be in line with the IRS where we expect this year there is declining on the interest from BI. But probably everybody already know, today, BI still keep the interest rate. So we can see later how it will go. I think that's the answer.

So we have another follow-up question from Pak Boby. The first one is any meaningful [indiscernible] or feedback from latest EMS regarding specific demand on EV or specific brand or new cars?

Yes. I think what we see differently this time is basically a big turn of our order -- our order, by the way, increased 60% in term of unit compared to last year. We call it [indiscernible]. But again, a big part of that is associated with EV. So EV got a lot of interest, particularly for the consumer in around the [indiscernible] area. I think that is not about changes that we see as compared to previous 2 years of the IMS.

And the second question from Pak Boby is on noninterest income. Can you provide growth guidance for 2026 and the split between recurring and nonrecurring ones. Would like to understand how much recovery outlook in 2026, if possible.

Okay. So I will answer on the first one on the noninterest income. In terms of splitting the recurring or nonincurring, I think it will be in line with our company strategy going forward. And also, we need to see how the economic currently and also seeing for the IRF, whether it will impact the -- our strategy, which I think it will be in line with the company strategy doing the across selling between the group and also we increased our transaction to the granular funding. I think if we also put our fee income going forward. In terms of recovery, Pak Dadi, you want to add?

Yes. I think -- I suppose this recovery in non-autos, right, because I believe Pak Made has already provided his view on the loss protection question earlier, right? That's on the autos. So on recovery, as far as recovery in the -- I suppose the question on recovery here. I will try to answer it on recovery on bad loans, right? That's what I suppose Pak Boby was referring to, right? If that is the case, then given the fact, right, that our portfolio has actually improved in the last few years, then recovery itself, recovery from the nonperforming portfolios will become less and less actually. So in 2026, it will become less than in 2025. But recovery is basically a part of our credit costs. So this is actually already embedded in our credit costs. So even though our credit cost is better, but the recovery is not necessarily better because as we are -- our portfolio is improving. Then obviously, there are less nonperforming loans to be used from basically. Probably Pak Boby, if you would like to reconfirm whether that is the definitely of recovery that you are talking about. Thank you.

Thank you, Pak Dadi. Pak Boby has responded to Pak Dadi, yes you are correct. So we are still waiting for another question. [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 PT Bank Danamon Indonesia Tbk's Financial Results for fiscal year 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.