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

Good afternoon, ladies and gentlemen. I would like to welcome the respected investors and analysts. Thank you for joining PT Bank Danamon Indonesia Tbk Investor and Analyst Briefing First Half 2026 Financial Results. Before we begin, I would like to emphasize on the following information. [Operator Instructions] Ladies and gentlemen, I would like to welcome and thank our respected investors and analysts for joining Bank Danamon's Investor and Analyst Briefing for First Half 2026 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 President Director of our subsidiary, Adira Finance, who have joined from their respective locations. Nobuya Kawasaki, President Director; Bapak Herry Hykmanto, Syariah and Sustainability Finance Director; Ibu Rita Mirasari, Compliance Director; Bapak Dadi Budiana, Risk Management Director; Bapak Thomas Sudarma, Enterprise Banking and Financial Institution Director; Bapak Jin Yoshida, Global Alliance Strategy Director; Ibu Yenny Siswanto, Information Technology and Digital Director; Ibu Theresia Adriana Widjaja, Chief Financial Officer; Bapak Dewa Made Susila, President Director of PT Adira Dinamika Multi Finance Tbk. We also would like to welcome Danamon's Board of Management, who also have joined from their respective locations. Ladies and gentlemen, before we present the detail of Bank Danamon's financial results for first half 2026, I would like to invite Bapak Nobuya Kawasaki, our President Director to deliver his remarks, highlighting the progress of our key strategies. Pak Nobuya, the screen is yours.

[Foreign Language] I hope you're all in good health, and thank you for joining today's investor and analyst briefing of the first half of 2026 Bank Danamon's performance. So if you flip to Slide 3, I will give you some situation of Bank Danamon starting from macroeconomy and industrial update. The economy remains resilient, although GDP growth is expected to moderate into FY '26 as tighter financial conditions and manufacturing input headwinds weigh on activities. Bank Indonesia is expected to maintain a tight policy stance with rates potentially rising for approximately 6.25% through FY '26 to widen the yield spread and support currency stability. A higher or lower Fed rate environment continues to pressure capital flows and foreign exchange even as U.S. rates gradually ease. The banking sector industry lending growth remains healthy and is projected to hold around double-digit levels. Funding is expanding at a slower pace with first half '26 growth softer than in FY '25. The lending versus funding gap keeps competition for deposits and NIM management at focus. Multi Finance, the automotive sector showed encouraging signs of recovery in the first half of 2026. Both 2-wheelers and 4-wheelers wholesale sales rebounded significantly, supported by improving demand, government spending and growing EV adoption. Momentum is likely to persist and stay positive toward the end of this year. Please flip to Slide 4. This is about Danamon's strategic overview. So our 3-year strategic direction through our growth as a financial group strategy, we remain focused on building a strong foundation for Danamon to continue delivering sustainable business expansion across our lines of businesses. We have set our 2024 to 2026 priorities, comprising building dominance in targeted ecosystem, delivering unique MUFG propositions and advancing data analytics and process improvements. In parallel, we continue to focus on optimizing our business through foundation building in IT and digital infrastructure, people, branding and branch network. In first half 2026, Danamon delivered solid performance with double-digit growth in both funding and lending, continued improvement in credit quality and higher NPAT growth of 33% year-on-year. Let's move to Slide 5. This is about our strategic initiatives. One is the Automotive Ecosystem. Automotive remains our key ecosystem. Synergy Loan Disbursement increased 31% year-on-year to IDR 2.2 trillion in the first half, powered by Danamon, Adira and MUFG working together as one financial group. Our fifth consecutive year at IIMS Surabaya delivered strong results. Visitors increased 20%, transaction volume rose 29% and exhibitors grew 13% year-on-year. Our 17th anniversary programs and customer gatherings deepen engagement across customers' entire value chain. The regional-based ecosystem, we are turning our local strength into regional ecosystem across retailers, F&B and community foundations. Grassroots engagement and local partnership are growing our granular low-cost funding base. Regional franchises give us diversified sticky deposits and pipeline of new lending opportunities. Hajj and Umroh ecosystem. A key highlight was funding from Pilgrims, travel company and BPKH, which surged 149% year-on-year. The number of accounts grew 24% year-on-year, while the number of partner travel companies increased 22% year-on-year. Deper ties with BPKH and Associations have strengthened our standing in this fast-growing face-based niche. Let's move to Slide 6. Strategic initiatives continues. As an MUFG operational financial holding company in Indonesia, we are turning group scale into tangible synergies. Danamon serves as the holding company of MUFG Financial conglomeration in Indonesia. As planned, Home Credit Indonesia shares and along with its control and consolidation group transferred to Danamon in June 2026. The Adira Mandala Legal Day 1 merger has been completed, with operational day 1 is on track for completion in August this year. Joint events with local organizations introduced premium customers into the group. Shared CSR initiatives, including clean water program, blood donation through D'Club and MUFG Gives Back helped build one group brand. IMPACT mentorship Batch 2 is deploying talent across group entities. Now let's move on to Slide 7. Continuous initiative. One is D-Bank PRO. D-Bank PRO continues to show strong traction with engaged user up 9% and transaction up 31% year-on-year. QRIS is going cross-border, now usable in China, South Korea with a new SAR currency feature and customer presented mode. Danamon Cash Connect supports business transaction across Indonesia. The platform continues to show strong traction in user transaction and transaction volume. Branch network, regional centricity is delivering results with 128 community events held across the region in the first half this year. These engagements are lifting both funding up 9% and loans up 7% year-on-year in the areas where we operate. Danamon on Wheels is extending our reach with 5 units, more than 150 client visits and launching a new 70th anniversary mobile branch. That is all for me, and I will pass it to Theresia.

Okay. Thank you, Pak Nobuya. So I will continue with the next presentation on the financial highlights. Next, please. So let me start with our key financial highlights for the first half of 2026. Despite a more challenging operating environment, Danamon delivered strong and balanced growth across lending, funding with double digit, as Pak Nobuya mentioned earlier. And also, we have a strong profitability growth. Total lending increased by 12% year-on-year to IDR 230.1 trillion, supported by growth across all business engines. Wholesale lending grew 16% to IDR 137.8 trillion, while retail lending increased 6% to IDR 92.3 trillion. On the funding side, total funding grew 14% to IDR 181.7 trillion, supported a 1% increase in CASA to IDR 70.5 trillion. This solid business growth translated into improved earnings. Operating income increased 7% to IDR 12.6 trillion. PPOP rose by 13% to IDR 5.9 trillion. Net profit after tax grew 33% to IDR 2.4 trillion, lifting our ROE to 9.7%. At the same time, on the asset quality continued to improve, Loan at risk improved from 10.2% to 7.8%. Cost of credit improved from 2.8% to 2.3%. And gross NPL declined from 2% to 1.7%. Overall, our results demonstrate the resilience of our diversified business model and also discipline on the risk management. Next, please. On the loan portfolio. Moving to this lending performance. Total lending reached IDR 230.1 trillion, up 12% year-on-year and 5% Q-on-Q. Growth was broadly based across all business segments. EBFI remained the largest contributor, growing 19% to IDR 109.7 trillion. SME increased 7% to IDR 28 trillion. Consumer lending grew 5% to IDR 23.2 trillion and loans from subsidiaries increased 6% to IDR 69.2 trillion. Our portfolio remains well diversified across both sector and also loan purposes. Household related financing continues to be the largest sector exposure at 32%, followed by trading at 16%, manufacturing at 16% and other diversified sectors. By loan purpose, working capital financing accounts for around 49%, while consumer 32% and investment loan at 19%. The balanced portfolio composition helped us to capture growth opportunities while maintaining prudent risk diversification. Next, please. So I will update on the subsidiary performance on Adira. Adira Finance continued to show positive momentum. In terms of market performance, Adira outperformed the industry in both 2-wheelers and also 4-wheeler segment. For the 5 months ended by May 2026, Adira 2-wheeler financing unit grew by 16.8% compared with industry growth of 0.7%, while 4-wheelers financing grew by 48.4% against industry growth of 12.8%. New financing volume reached IDR 23.1 trillion, representing 18% growth year-on-year. Two-wheeler financing contributed 41% of total new booking, 4-wheelers 31% and MPL 27%. Outstanding loan expanded 7% year-on-year to IDR 64.9 trillion. Growth was driven by 2-wheeler financing, which increased 9% and 4-wheeler financing grew by 5%. Multipurpose loan also expanded 4%. This result demonstrates Adira ability to capitalize on improving market conditions while maintaining disciplined portfolio growth. Next, please. On the funding, liquidity and capital. Our focus remains on strengthening granular fund deposit while preserving balance sheet resilience. Granular funding increased 7% year-on-year to IDR 99.4 trillion. The composition remained healthy with saving accounts contributing 48%, current account 11% and TD 41%. Liquidity remains strong with LCR 134.8%, NSFR at 116.6%, both above regulatory requirements. Loan-to-deposit ratio stood at 100.4%, reflecting efficient balance sheet utilization while maintaining ample liquidity buffers. Capitalization also remained robust. Our consolidated CAR stood at 22.3%, while bank only was 21.8%. Importantly, almost 100% of our capital coming from high-quality Tier 1 capital, providing substantial capacity to support future growth. In overall, our funding liquidity and capital position remains strong and prudent managed. Next, please. On the operating income. Operating income grew 7% year-on-year to IDR 12.6 trillion, with net interest income contributing 84% and noninterest income accounting for 16% for operating income. This growth was primarily driven by increase in net interest income, which increased 9% to IDR 10.6 trillion, reflecting healthy loan growth and active balance sheet management. Meanwhile, noninterest income remained resilient at around IDR 2 trillion despite market volatility and softer treasury income. On the fee income, our noncredit-related fee increased from IDR 767 billion to IDR 888 billion, which mainly supported by bancassurance and wealth management. This balanced revenue profile provides a solid foundation for sustainable earning growth. Next, please. On the asset quality, I will highlight on the -- our asset quality performance. Asset quality continued to improve across all key indicators. Gross NPL declined to 1.7% from 2% year-on-year. NPL balance remained well managed at IDR 3.7 trillion. At the same time, loan at risk improved significantly from 10.5% to 7.8%, reflecting improving portfolio quality and collection effectiveness. NPL coverage remains very strong, which increased to 282.4%, while cost of credit also improved from 2.8% to 2.3%. It is resulting in lower credit provisioning and support profitability growth. In overall, we are pleased with our first half performance. We delivered double-digit lending and funding growth, strong profitability improvement and also continued enhancement in asset quality while maintaining solid liquidity and capital position. Although the operating environment in the second half remained challenging with ongoing uncertainty in interest rate, funding costs and macroeconomic conditions, we remain focused on the disciplined growth, funding optimization, prudent risk management and execution of our strategic initiatives. This concludes my presentation. Thank you, and I will hand over to Marcella. Thank you.

Thank you, Pak Nobuya and Ibu Theresia for your presentation. Ladies and gentlemen, now it's the time for us to start the Q&A session. [Operator Instructions] Let's start our Q&A session with the first question come from Pak Handi. Thank you Pak Handi for your questions. Congratulations to Bank Danamon management for the good achievement in first half '26. There are 3 questions from Pak Handi. I will read the first question and then the BOD members can answer the questions before I move on to the second and the third question. How do you see the competition on corporate and commercial loan yields, especially from the private sector? BOD members are welcome to answer the first question.

Pak Handi, thank you for the questions. I'll answer question number one. In terms of the corporate and commercial loan yield, so far, we have adopted a gradual yield increase. We could not fully pass on the increase in the recent BI rate hike. And we take into account, first, for example, the outward relationships and the ancillary business that we get from those clients as well as the competition landscape. Then in its clients, we adopt depending on those 3 factors, what sort of increase that we apply to those clients. Thank you.

Thank you, Pak Thomas, for your answer. So now let's move on to the second question from Pak Handi. How do you see the loss on repossession trend for Adira's business?

Okay. On the loss of repositioned asset to Adira Finance, so far this year is improved compared to last year. In fact, it's much lower than what happened in -- before COVID 2019. So there is a significant improvement on loss on repos asset from Adira Finance across 2-wheeler, 4-wheeler as well as cash flow.

Thank you, Pak Dadi, for your answer. And third question from Pak Handi is on credit costs for the Adira and consumer business, how should we expect the outlook trend in second half of 2026?

Thank you, Pak Handi, for the question. I think on the credit costs for the remainder of the year, right, especially on the granular portfolio, we expect that with the weakening or the softening of the macroeconomic factors, right, on the GDP, which is expected to be not as strong as the first quarter, especially. And also certain other macroeconomic variables. So we actually believe that there will be an increase on the credit cost for Adira. In the case of Adira, I believe so far this year, it's running at about 5%, which is quite low, quite on the low side for Adira. So we are looking at a level of -- an increased level, but will still be considered quite low historically for Adira. So we are looking at about 5.3%, 5.4%, the COC level for the second half, which, like I said earlier, I think even for last year, if you remember, if you follow Adira, we were at 6% on Adira. On mortgage -- on consumer, sorry, more or less the same. There will be an increase in the credit cost. Generally, we forecast an increase because of the forecast on the softening macroeconomic factors. So all in all, in -- again, like in the case of mortgage, I believe so far, we are at the very, very low trend of 0.5% credit cost on mortgage. This is expected to increase to about 0.6%, 0.7%. But yes, generally, we are expecting a bit of a higher credit cost. However, in the overall picture, especially if we look at the historical trend, we will still be at a very low -- at a relatively low level historically.

Thank you, Pak Dadi, for your answer. We are still waiting for another question. Okay. There's another question from Ibu Fera. Congratulations on your results, Bank Danamon management. There are 2 questions from Ibu Fera. The first question is, do you have any guidance for 2026? Ibu Theresia may answer the first question first before I move on to the second question.

Okay, Ibu Fera for your question, thank you. So I will respond on the first question. Do you have any guidance for 2026? So basically, Danamon is optimistic for the profit in 2026. We will continue to grow our sustainability -- sustainably compared to the previous year. And based on our projection is -- we will do the projection based on our -- considering our company strategy. But I think it will be influenced by various factors from internal and also external condition, as you may also aware of. Thank you.

Thank you, Ibu Theresia. And second question is from Ibu Fera.

Yes. I will try to address that. Yes. So on the LDR, it was indeed at 100% level. And the reason was because of our loan growth that was -- that has been quite successful, I believe. And our funding, of course, as what has been presented earlier, we have also increased our funding. But generally, it was not as fast as the lending growth. But for the remainder of the year, obviously, we will -- the LDR is supposed to be improving in terms of the liquidity. Our overall liquidity position should actually be moving below 100%. But our comfortable LDR level is actually -- if you look at our historical level, it is actually at the 90-something percent level. So we are comfortable at that level of LDR. Historically, that has been our normal level of LDR.

Thank you, Pak Dadi, for your answer. So there's a follow-up questions from Pak Handi. Do you see a sign of better loan pipeline in the corporate and commercial sector? Any color on the business sector?

Loan pipeline overall for corporate and commercial remains healthy. We have a very strong pipeline, but of course, we take into account the challenge in the economy. But that is also partly because of the collaboration with MUFG that contribute to those pipeline, including the likes of Japanese company that is coming to Indonesia. And in terms of business sectors, it's quite diverse. We have pipeline from several sectors, including the pharmaceutical, the real estate, et cetera.

Okay. Thank you, Pak Thomas, for your answer. So we have another incoming question from Pak Eddy Chandra from Stockbit. There's one question from Pak Eddy. What sectors have been growth driver for your corporate loans in second half of 2026? And do you have the breakdown between private and government related in terms of nominal loan increase?