PT Bank Mandiri (Persero) Tbk (BMRI) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you all for joining us, and welcome to PT Bank Mandiri Third Quarter 2020 results. Before we begin, there are a couple of things we would like to address. First, for those of you joining us, we strongly encourage you to download a copy of our presentation and the quarterly financial statement currently available from the Investor Relation homepage of Bank Mandiri. [Operator Instructions] And now I would like to hand the call to our first speaker of the day, Pak Darmawan Junaidi, CEO of Bank Mandiri.

Good morning, everyone. On behalf of my fellow Board members, I would like to thanks for your participation in this earnings call. Before we get into greater detail on Bank Mandiri's third quarter 2020 financial performance, but firstly, I would like to introduce myself. My name is Darmawan Junaidi, and I'm taking up a role that I have had respect for ever since the merger of Bank Mandiri in 1999. As you might already aware that our former CEO, Pak Royke, has been appointed as BNI's CEO. For this earnings call, I'm also accompanied by our Chief Risk Officer, Pak Siddik; Director of IT, Pak Rico; and the newly appointed CFO, Pak Sigit, who has yet to participate for fit and proper test. He was previously CFO at BNI. With the new management team put in place, now allow me to run through the key messages for this quarter. Firstly, together with the other members of the Board, we remain committed towards our 5-year corporate plan to be the best modern and digital bank in order to deliver sustainable growth to create long-term value for our shareholders. We have delivered a resilience third quarter performance with net profit recovery during the quarter despite second round social quarantine impact and conservative accounting policy on interest income accrual and on loss -- loan loss provision. More detail on our third quarter performance will be presented later by our CFO. Secondly, I will briefly discuss about the strategic merger for our Syariah subsidiary in order to unlock growth potential. Next, our strong franchise has enabled us to gradually lower cost of funds. In third quarter, we started to see recovery in economic activities as shown by transaction value through our e-channel. This might also explain preferable progress of profit restructuring that has been slowing down since mid-June. So far, the restructuring amount is flattening and well within our expectation. As mentioned earlier, we will continue to implement 3 major strategic initiatives in our corporate plan. In wholesale we want to be a better corporate bank beyond lending, tapping more into fee income potential and low-cost funding. While we have been maintaining leadership positions in term of outstanding loan in corporate segment, we noticed that the cross-selling of our bank's products have not been optimal. For example, for cash management, refinance and treasury products, we aim to increase customer product holding ratio so that the customers will be more sticky to us, which translate to further room to improve low-cost funding potential. In retail, we want to be Indonesia's #1 modern and digital retail bank, leading in the employees' ecosystem and mainly targeting urban and suburban households. Lastly, we are going to grow our SME segment in a sustainable way, mainly tapping those within our wholesale clients' business ecosystem. With just this, we will strengthen collaboration with subsidiaries to better serve our customers with more comprehensive products and service offerings. We also accelerate the business process reengineering initiatives to simplify and digitize process to ensure superior user interface and user experience to our customers across different segments. We remain committed to deliver a sustainable improvement in return on equity with progressive dividend policy. And in terms of geographic area, we will continue to focus our business in Indonesia. We just recently announced a merger plan between 3 state-owned Syariah banks with expected effective merger by first quarter next year. The merger plan is a strategic move we have been considering since last year in order to unlock growth potential in a fast-growing Syariah banking segment were around 40% of -- is a potential target market. The merger of 3 state-owned Syariah banks should create a strong platform in term of capitalization, economics of scale and ability to attract best talent pool. These are important ingredients to create a national champion in Syariah banking industry. Bank Mandiri will be a controlling shareholder of the new entity with just about 51% ownership. Since second quarter this year, we have been identifying opportunities to optimize profit by lowering our cost of funds, supported by strong inflow of third-party funds coming to us. As you can see from the chart on the left-hand side, the bank still has ample liquidity with LDR of 83% despite the continued cut in time deposit rates. As of September 2020, both of our 1-month and 3-month time deposit rate have declined to only 3.5%, down by 75 basis points, and 200 basis points year-to-date, respectively. Interestingly, the strong inflow of time deposits continued to persist, growing strongly at 10% year-on-year. With the ample liquidity we have, we believe that there is further room to lower cost of funds in the next few quarters. One of the leading indicators of economic activity that we have is retail transaction value done through our e-channels. In third quarter, average monthly retail transaction value has been around IDR 180 trillion, IDR 190 trillion, which are approximately at the same level with break profit barrier. With COVID-19 accelerating consumer behavior shift, we have seen Mandiri Online continues to dominate the e-channel transaction. On September alone, Mandiri Online transaction represents about 52% of the total e-channel transactions. One of the biggest opportunities to come out of this pandemics is customers' rapid uptake of digital banking. Government orders to stay at home have resulted in the huge increase in digital adoption across all client segments, driving our digital transformation initiatives. With regards to the corporate restructuring progress, the approved amount is currently at IDR 116 trillion out of IDR 128 trillion pipeline. In fact, there is a slight decline as compared to the data we shared to you last quarter. If we were to compare with our peers, which disclosed their restructuring progress, the percentage of loans being restructured due to COVID-19 in our bank is lower at 16% as we have been improving our underwriting standards in the past 4 years. In terms of provisioning, we have gradually built specific provision for COVID restructured loans starting second quarter this year. This is purely our initiatives to be conservatives as this practice is not required by the regulators. We are seeing positive development in several sectors. Post the reopening of Jakarta's second lockdown, marketing sales from our property developer clients have been gradually picking up. [indiscernible] sales are also showing similar trends. Despite the ongoing COVID-19 concern, we believe that the majority of loan restructuring has been completed. Next, I will let our fellow Board members to continue with a more detailed discussion on the bank performance. Please, Pak Sigit.

Thank you, Pak Darmawan. Despite the exceptional and unprecedented circumstances for the past 6 months, the bank has continued to maintain the strength of its balance sheet that provide safety during the pandemic and allows room to grow prudently. Our third-party fund grew strongly by 15% year-on-year, mostly driven by current account that grew by 33% and time deposit that grew by 10%, respectively. We are seeing a strong inflow in deposit in the bank, despite multiple cut in time deposit rate, reflecting our solid domestic funding franchise that continue to boost customer confidence during uncertain times. As for our expectations, loan growth remained subdued in third quarter at 3.8% year-on-year growth as of September 2020. As a result, we placed a lot of excess funding into placement in Central Bank as well as tactically seeking for yield in government bonds and marketable securities, growing by 41% year-on-year. As deposit inflow was strong, exceeding loan demand, it has created ample liquidity, whereby our loan-to-deposit ratio has been gradually declining to 83% as of September 2020 as compared to 96.4% at the beginning of the years. The bank's diversified funding base gives us a strong liquidity and stable funding position as evidence by our liquidity coverage ratio of 203% and net stable funding ratio of 124% as of September 2020, which are the highest level we have had in the past 2 years. We continuously monitor our monthly liquidity for cash for the next 12 months. And so far, we are confident with our liquidity position. Highlights of our third quarter financial results is a soft quarter-on-quarter recovery in net profit, driven by lower loan loss provision, disciplined spending on operating expense and partially recovery in fee income. As for the top line, despite some [ sussing ] on cost of funds, our net interest income was still declined by 1.3% quarter-on-quarter due to loan-to-deposit ratio as well as conservative accounting policy where we do not accrue interest from corporate escrow portfolio with grace period concession. With the time deposit rate cut on September, we expect net interest income should start to trend positively going forward. As what have been communicated in the previous results, we have front-loaded the majority of loan loss provisioning from COVID restructure portfolio in this year. As a result, our 9-month provision expenses has increased by 53% year-on-year. However, in third quarter alone, provision expenses declined by 20% quarter-on-quarter as we started to see favorable trend in corporate restructuring amount. Despite the challenging operating environment and consultative policy we adopted, we still managed to book positive profit in IDR 3.7 trillion in third quarter, growing by 57% quarter-on-quarter on the back of lower credit costs, continuous product pricing and noninterest income growth. As you might already aware, in the past several quarter, we have been showing loan-to-deposit growth, using daily average balance instead of ending balance to reflect changes in KPI of our business. This is a strategic move made by management team in order to have better assets/liabilities management. As you could see on the left-hand chart, the daily average loan was stable quarter-on-quarter and still grew healthily by 8% year-on-year, with 2 biggest contributor from corporate segment and micro segment predominantly coming from salary-based loan and subsidized KUR loan. On the other hand, our deposit grew stronger than our loan growth, which resulted in ample liquidity. Current account are grew by 23% year-on-year, and time deposits still grew by 14% year-on-year despite multiple cut in time deposit -- time deposit rate this year. On asset side, blended loan yield decreased quarter-on-quarter, mainly due to conservative policy, are switching into cash basis from COVID restructured loans with grace period. However, the quarterly decline in third quarter was 37 basis point, lower than in second quarter, decline of 88 basis points. While on the funding side, cost of funds decreased considerably by 21 basis point quarter-on-quarter, led by lower time deposit rate of 55 basis point quarter-on-quarter. As explained earlier that we are being more aggressive in lowering our cost of fund, it has elevate the pressure on our NIM. As a result, our first quarter 2020 net interest margin only declined by 31 basis points quarter-on-quarter compared to 95 basis point quarter-on-quarter down in second quarter 2020. We also want to highlight that the momentum for net interest income recovery is there with month-to-date September. NIM data saw a meaningful improvement as compared to third quarter NIM, [ TAM ] has round impact of time deposit rate cut on early September. Our total noninterest income grew by 2.4% quarter-on-quarter, driven by cash recovery as well as e-channel's income. As our CEO has explained at the beginning of the presentation, our retail transaction values then via our e-channel has to recovered to pre-COVID level. This supported resilient growth in our e-channel's income. The emphasis on cost control started on second quarter this year, and we have started to see the impact on quarterly OpEx, where it was flat quarter-on-quarter, bringing 9 months 2020 OpEx to be relatively flat year-on-year. We expect to see broader cost-cutting impact on subsequent quarter and still aim for flat OpEx growth this year, if not a slight contracted. We are not focusing only to minimize and control this year's OpEx, but we also identifying OpEx component in order to optimize structural shift in operating expense for the long term. I would now like to turn the presentation to Pak Siddik, our Director of Risk Management, to discuss our asset quality.

Thank you. Thank you, Pak Sigit. As was guided in the previous earnings call, we have gradually built up specific provisions for certain portion of the restructured loans due to COVID starting April this year. As a result, our consolidated credit costs increased from 1.5% in the first 9 months in 2019 to around 2.2% in the first 9 months of 2020, of which 52 bps was a specific provision built up for COVID-restructured loans across segments. The remaining 1.7% BAU cost of credit was only 20 bps higher than the same period last year and remained way below the level we had in 2016/2017, thanks to the successful fundamental improvements in our credit risk management in the past 4 years. The provision built up so far were more in the retail segment where we prioritize to have a higher loan loss coverage considering how the pandemic has significantly affected the retail segment, namely the micro and small/medium enterprises segment. The reported NPL ratio has been stable quarter-on-quarter at 3.3%. As we conservatively continue to build loan loss provision, the NPL coverage has increased by around 9 percentage points to 205%. Loan net risk ratio has also showed some improvement by 100 bps quarter-on-quarter, driven by the lower collectibility to our ratio across all segments. Please note that the following OJK regulation, the COVID restructured loans category collectibility 1, it's not categorized under loans at risk. If you were to include this collectibility 1 risk for COVID accounts into the loan at risk calculation, then the adjusted loan at risk would have been around 21.4%, which was still better as compared to our key peers. If you refer to the table at the bottom-left side, we are quite conservative in setting aside credit reserve for potential loan losses. The loan loss reserve ratio for Stage 2 and Stage 3 loans were already quite high at 30% and 81% level, respectively. Our total CAR and CET1 ratio are still at a healthy level, 19.8% and 18.7%, respectively, as of the third quarter 2020. The decline in the capital ratio year-to-date was due to the dividend payment and a onetime adjustment of -- due to IFRS 9. We expect to maintain total CAR of around 17% and CET1 ratio of around 16% in the midterm. Given the high and resilient capital ratio, we do not need to raise capital anytime soon. We also continue to run our business prudently with only 12x leverage ratio, which is a ratio of assets to equity. I would now like to turn the presentation over to Pak Rico, our IT Director, to present our digital banking strategy and initiatives. Pak Rico, [Foreign Language].

Thank you, Pak Siddik. As read out in the beginning of the presentations regarding our new 5 years corporate plans, we are now aiming to be the best modern digital retail bank in Indonesia by 2024. To meet the emerging customers' expectations, we continue to invest the need for digital transformation at scale. We are implementing the 4-pronged digital strategies, namely digitizing our internal platform, developing digital native products, modernizing our distribution channels, and as well as leveragings third-party digital ecosystems. Along with the ongoing transformations, we need to ensure that we continue to build up our human capital skill sets and strengthen the framework of information security and risk management in order to be able to keep pace in this digital age. To have a good foundations to be the best digital bank, we are continuously revamping our core banking capacity and systems to anticipate huge digital demands. We have upgraded our core banking capacity by almost 3/4s, which resulted in 2.7x higher maximum TPS, 50% faster processing times. And yet, we managed to get a lower maintenance cost by 20 -- 80%. We accelerated the provision of infrastructure by shifting from conventional models to cloud computing models, which has improved the provisionings of infrastructure SLA from 2 weeks to 15 minutes and also enabling us to provide more range of services, including hybrid clouds. As we are automating our processes, we are also building our capability in the data analytics in order to be able to identify client needs better. And even in launching product [ details ], we have been using data analytics to be more efficient in terms of our budget and targeting the customer itself. We have also started modernizing our enterprise data management by developing more data scientist talents into the team. We have successfully launched our online onboarding platform in April this year, in which customers could open new accounts by scanning QR codes. Customer no longer need to go to the banks, they just need to download the apps. They don't even download the apps, and they can open account paperless anytime, anywhere. We are pleased to report that we have average of about 3,000 new accounts being opened daily, and there are 250,000 accounts that have been opened via our online onboarding platform year-to-date. We have been modernizing our mobile banking platform, Mandiri Online, with the latest development, including the biometric log in and more numbers of billers. We are right now in the process of redesigning and replatforming the -- our mobile banking to enhance customer experience with services from our subsidiaries and external digital ecosystem players. We have also launched Mandiri Pintar. This is our digital sales platform for micro and SME businesses. This platform allows for seamless processes with instant approval of just 15 minutes and also automate data scoring. We believe integrating our services in one single platform will bring tremendous convenience for our customers as we are the most diversified bank with the leading market shares in every product category. Our e-channel transactions continues to grow year-on-year. This reflects customer preference to use our banks for their transactions. For the first time, in this quarter, we finally saw transaction value done from our mobile banking app surpass that transactions done via ATM. This is encouraging trend that enable us to continue lowering network infrastructure costs going forwards. Please note that average cost per transaction in mobile banking apps, our Mandiri Online, is only 1/4 of that of ATMs. Since its launching, our online banking, Mandiri Online has been very well accepted by our customers, as shown by the numbers of active users that continue to grow, reaching 4.2 million active user as of September 2020. We still see ample room for growth in terms of the number of active users as we are close to 25 million deposit customers in total. The transaction value conducted via our mobile banking platform also showed a strong growth of more than 40% year-on-year, which also translates to more fee income generated. Even when GDP contracted during this period, the number of financial transactions in Mandiri Online still grew by 18% quarter-on-quarter. On the third-party digital ecosystems, we have been accelerating our customer adoption of our products by opening ourselves for -- to the digital ecosystems by launching API portal last month. Through this portal, we want customers to be able to access our products through various platform they are using in daily life. For example, our customers can now top up e-money from e-commerce websites, our e-commerce app, when they are shopping. At the moment, 2.5 million transactions per month via third-party applications has been conducted on monthly basis. Another example is we also provide digital financings, whereby merchants in various e-commerce websites are able to apply bank loans through their apps without hassles as compared to going to our branches or opening our apps separately. Right now, we are running around IDR 45 billion per month digital financing through our third-party apps. I would like now to turn the presentation back to our CFO, Pak Sigit.

Thank you, Pak Rico. [ Let us ] time deposit cut on September [ leads ] us to lower cost of fund in fourth quarter. The flattening of loan restructuring and some improvement in other areas of asset quality provide tailwind for us to deliver our cost of credit guidance probably to lower side of the guidance range. Hence, the management team is confident to deliver our recent guidance. I will stop here and let Investor Relation team to coordinate the Q&A session. Thank you.

Thank you, Pak Sigit. We will begin the Q&A session now. [Operator Instructions]. We have first question comes from [ Raymond ] from Nomura. Looking at the ratio of cash flow interest income in P&L, we see that there is a decline. Does it mean that we see more deferral interest income as opposed to cash interest income?

Thank you, [ Raymond ], for the question. I'll try to response on your second question. Probably, we will see also the first question will response by our CFO, but I'll try to cover this answer also. So for the first one, looking at the ratio of cash flow interest income to interest income in P&L, we see a decline. Does it mean that we see more deferral interest income as opposed to cash interest income? We see that the average corporate rate through approved in third quarter was IDR 180 trillion, higher than second quarter of IDR 61 trillion. That's why we record higher amount of balance sheet deferred interest income in third quarter of IDR 690 billion versus in second quarter of IDR 549 billion, means around 26% higher Q-on-Q. And the -- about the credit costs, we see that economic activity nowadays is getting better compared to second quarter. We see some of the business activities started already. It is also indicated by the recovery retail transaction activities in our e-channel. However, all of us know that uncertainties are very high during pandemic, and we always want to maintain conservatism in term of loan loss provision policy. We maintain our guidance of 2.5% to 3%, with probability to deliver close to the lower end of the guidance. I think we could manage this very disciplined and optimistic to have a better figure to the end of the year. Thank you.

Thank you, Pak Darmawan. The next question comes from Ferry Wong, Citibank. Question one, how much interest rate subsidy from the government that you have been received? Question two, what is the government loans guarantee scheme amount? And the last question. From your guidance in 2020 did not change, but from your 9 months result, has been better, especially for the NIM and the cost of credit. Is it because of your conservative guidance or do you think that the fourth quarter 2020 will be a tougher quarters?

Pak, why don't you?

Yes. I'd like to probably give some information about the stimulus program from the government. The first one related to interest rate subsidy under PMK 85, which is subsidy to MSME borrowers. So these are relevant to our micro and small/medium enterprises. So far, we have actually received around INR 578 billion of interest rate subsidy from the government. And we're still going through the process because there's a lot of validation in checking and calculations are being done. So we're still continue to expect to receive a lot more in the coming months. And the government has also expanded the definition of the eligible borrowers and amount of the interstate subsidy under the PMK 85. So I think these are good news because these are needed by our borrowers. The second one is on the government guarantee program for the micro and SME segment, where through Askrindo and Jamkrindo, the government guarantees 80% of the principal of the credit risk and the bank takes up 20%. And then the premium of the insurance coverage is also paid by the government. So far, this has been quite popular in our credit extension. So we have actually disbursed around IDR 786 billion, so it's actually helped us in terms of credit extension and giving working capital loans to both new customer as well as existing customers. And then the third one, which is the government guarantee program for the corporate segment, which is above the micro and SME. We've just started with that program, and so far, there is just 1 disbursement of around a IDR 17.5 billion, and there are about IDR 2 trillion in the pipeline that are being processed between us and LTEI, which is the entity that is given the mandate to hopefully process this guarantee program. And on the -- yes, in terms of bank-only provisions and subsidy provision in third quarter and fourth quarter, I think these are, as you see in Page 27 -- yes, these are the detail of the provisions that are BAU as well as built up for Bank Mandiri and the subsidiaries, yes. And then in terms of the question, the last one, I think, on guidance, yes. As Pak Darmawan has mentioned earlier, I think there may be possibility or chance that the economy will continue to address -- to actually be improving in the next few months, but we want to maintain our conservatism because there's a lot of uncertainties in the next few months, especially the decisions on the lockdown or PSBB. [Foreign Language].

Thank you, Pak Siddik. The next question comes from Laurence of CIMB Securities. Question one. From the new management, what is the full year guidance for NIM, loan growth, cost of credits and OpEx growth? Second question, what is the relapse ratio of your COVID restructured book so far? And last question, what is the implications of Bank Mandiri Financial as majority shareholder for Bank Mandiri Syariah merger.

Thank you for the question. So for the first question, from the new management, we do not change our guidance even though the recent progress in the economy provides headwind to deliver our guidance to better sit within the range, especially for corporate credit and net interest margin. As for loan growth, it is still lukewarm, and we continue to be prudent in term of loan underwriting. For the second question, so far, out of IDR 116 trillion corporate restructuring, we have approved until September only IDR 1.8 trillion into collectibility 2 and none are in NPL. And as for the Bank Syariah merger and the implication to our financials, there is no major material impact immediately post-merger. In the long term, however, we expect the new entity to contribute even a bigger portion to be mandated profit. Some key metrics that we expect to see from the new entity, for example, cost-to-income ratio to continue to improve as we expect cost synergy. Currently, they are around 55%, 56%, and we expect it should improve to be below 50%, even closer toward Bank Mandiri cost to income, which is around 45%. This is -- this will be supported by the combination of their network infrastructure. And we also expect that the new entity will be able to grow their funding even stronger, maybe around 12% to 16% per annum, which is higher compared to the concessional bank, and this is supported by the nature of the Syariah industry, which is in fast-growing trend this year. We could discuss the business plan further in detail once the merger is completed by early 2021. Thank you.

Thank you, Pak Yohan. The next questions comes from Ferry Wong of Citi. Asset yield declined from 7.2% in second quarter 2020 to 6.7% in third quarter 2020. Could you please elaborate on that? And is this because due to loan restructuring or interest rate cut versus the overall trend of the lower interest rate environment?

Yes, I'll take the question from Ferry Wong of Citibank. We could see that the decline in loan yield quarter-on-quarter was mainly due to the combination of 3 factors: deferred interest income from COVID restructure portfolio of a IDR 690 billion in third quarter compared to IDR 549 billion in second quarter; the second one is lower loan-to-deposit ratio from -- by 5 percentage points from 88% on June to 83% on September and also impacted by lending rate adjustment to reflect lower benchmark rate environment. If we exclude the deferred interest income, loan yield would have been at 7.86% in third quarter and 7.99% in second quarter. In other words, we have a more conservative accounting policy, impacted our loan yield by 13 basis point quarter-on-quarter.

Thank you, Pak Darmawan. The next questions comes from Joshua Tanja of UBS. What improvement have been seen in the asset quality that resulted in 20% quarter-on-quarter decrease in cost of credit?

Okay. Sorry. The -- basically, we're seeing an improvement in collectibility to ratio from around 6.5% in June to around 4.9% in September. And we actually had seen the improvement of collectibility 2 across all segments. So all posted improvement, I think it was due to the fact that in the last 6 or 4 -- 4, 5 months, we've been able to change our business processes, especially in collection, to be able to operate under the new normal. The major improvement came from segment in Corporate Banking, the collectibility from 5.2% to 2.9% as well as in consumer from 7% decreased to 4.7%.

Thank you, Pak Siddik. The next question we have is from [ Raymond ] of Nomura again. On Bank Syariah BRI, there is a plan of becoming [ Bogor ] #4. Is there a possibility to increase the free float at Bank Rakyat Indonesia Syariah? And how would this come when Mandiri, BRI and BNI may want to retain their respective states?

Thank you for the question from [ Raymond ]. We consider to explain this part of the merger plan. So I think it's better if we discuss later after the legal major of the Syariah Bank of HIMBARA by February next year.

Okay. Thank you, Pak Darmawan. The next question comes from Harsh Modi of JPMorgan. Question one. NIM and provision guidance for 2020 versus the ninth month 2020 suggests a sharp decline in the fourth quarter profits. Is that true or the guidance is too conservative? Second question, what are the broad NIMs and provision guidance range for 2021? And last question. What are main changes that incoming management team is taking?

Yes. Thank you, Harsh Modi from JPMorgan. And our response, actually, it is possible as cost of fund keeps getting lower because we have the discipline now, started by early September, and we see the result to the end of September. However, we think there might be some pressure in asset yield as we expect one more benchmark rate cut. And beside that, we maintain then guidance between 4.4% to 4.6% with odds to deliver close to the upper range of the guidance. And on the provision guidance, it's also possible if economic situation continues to improve, however all of us know that uncertainties are very high during pandemic, and we always want to maintain conservation in terms of loan loss -- loan loss provisioning policy. We still maintain our guidance of 2.5% to 3% with probability to deliver close to the lower end of guidance. And the NIM 2021 with the OJK extension, as explained by Pak Siddik earlier. For profit restructuring term, net interest margin recovery will be delayed. However, we believe NIM will be better than this year as we cut our TD rate aggressively, as mentioned earlier also. And our loan-to-deposit ratio also should improve to higher level, probably close to 87% to 90%. And then from the result of third quarter of this year, we are optimistic to have the good track for the next fourth quarter this year to close to the end of year, will have a better result because we will continue lower the costs. You can see that not only cost of fund, but also on the OpEx, we will have a negative growth compared to last year. And also, we will maintain the asset sale yield if and still pressure on the declining a bit of the yields of loan this year. So I think what we already explained about the guidance for this year, we will have the plan for fourth quarter to help at least manage the performance, what we have achieved, to the end of third quarter this year, then we have better performance compared to what we have first half. For the second half, we will have a better result.

[Foreign Language] So I think for 2021 cost of credit direction, we believe, at this time, that 2021's COC would be lower than this year guidance of 2.5% to 3%, but there'll probably still be elevated at around 2%, which was the estimated BAU COC for this year. I think for next year, there are 2 components of cost of credit. So there would be the BAU cost of credit, but I think it will be lower versus 2020 because under IFRS 9, we already front-loaded some of the credit loss recognition when we started having evidence of deteriorating asset quality earlier this year. And then the second part of the cost of credit would be the cost of credit got up for the COVID restructured accounts, which we have actually spread out from April 2020 until March 2021. So there would be a portion of this optional COC built up recognized in the first quarter next year. And hopefully, we won't have to do it for the rest of the year next year.

Thank you, Pak Siddik. The next questions comes from [ Lini of Schroeder's ]. Question one. September month-to-date loan yield is 7.8%, higher than the third quarter of 7.2%. What contributed to higher loan yield? And the next question. What is the guidance on dividend payout policy?

Yes. I'll take this question. There are numbers of our borrower whose COVID risk through relaxation ends on August. And we start accruing interest income from these borrowers based on our confidence when we checked on the ground that the business of our customers still going constant and we also have a communication from time to time to really check that the continue of the business is still, well, being expected. So I think looking at a favorable environment recently in terms of our position in liquidity and profitability, we still aim to proposal to pay dividend payout ratio at least same like last year, subject to discussion with Ministry of State Owned Enterprises.

Thank you, Pak Darmawan. The next questions comes from Jayden from Macquarie. Question one. How much are the COVID-related restructures loan in the subsidiary, especially Bank Syariah Mandiri? And what is the total consolidated amount? Question two. What are the expected losses from COVID-related restructured loans? How much additional provisions are required to cover these losses in the fourth quarter 2020 and 2021, noting that the large coverage is currently about 65%. And the next question. NIM in September is meaningfully improvement. How much of this can be sustained and what is expected for the NIM in the fourth quarter 2020 and 2021.

Thank you for the question, Jayden. I will answer number one. This is Yohan. And Pak Siddik will cover the last for the question. So for the breakdown of profit restructuring between bank-only and subsidiaries, if we talk about the outstanding amount in our balance sheet as of September 2020, impaired only, there was IDR 91 trillion outstanding amount of profit breakthrough. And for consolidated, there was a IDR 99.6 trillion. So the difference, INR 9 trillion, came from Bank Syariah Mandiri mostly and a small portion coming from the small subsidiaries like Bank Mantap and our multi-finance subsidiaries.

Okay. In the second question, I think, in terms of how much more of provisions that we will build up due to COVID-related restructured loans. I think so far, we've actually built up, from April until now, it's around IDR 2.8 trillion. And by end of the year, I think we're expecting probably year-to-date, just for the optional provision due to COVID reso is around IDR 3.4 trillion. In total, until first quarter next year, if you were to add all the provision due to COVID, it will be around IDR 5 trillion. So -- but that amount is actually -- may change a bit from month-to-month because we're recalculating or we're reestimating the higher risk portion of the restructured loan across all segment for us to actually decide on how much each month we're going to actually book. So in total, for 12 months, we have actually planned to set aside about IDR 5 trillion additional provision due to COVID.

Thank you, Pak Siddik. The next question we have is from Yustina Quek from CreditSights. Question one. With the loan restructuring program extended to March 2022, when do you see the NPL peaking? And could you give us guidance on credit costs for full year 2021 and 2022, accordingly? And the next question. In the last commodity cycle, we saw that there are some stressed corporate loans sitting in the bank's balance sheet for years after that. In the current down -- in the current downturn, we anticipate to see more SME and retail-related stress loan coming through. Could you please guide us on the -- on these stressed loans will be treated going forward?

Okay. Let me try to answer the question from Yustina, Credit Insights (sic) [ CreditSights ]. I think the question is if the loan restructuring program, the POJK 11, were to be extended to March 2022, another year, where do we see NPL peaking, yes, and et cetera? So if you were to assume that actually, we can continue to keep the restructured loans in call 1, we would probably see the NPL around 3.88% in June next year, yes. End of the year, still around 3.4%, 3.5%, and then will be elevated to 3.8% and mostly coming -- the increase coming from the BAU increase in NPL. And if we were not to extend the POJK 11 in the same period next year. In June, the NPL would be around 4.13%. So the difference between 4.13% if it's not extended versus 3.88% if it were extended. And we do also do another stress test to assume that if we -- the POJK 11 is extended, but we're actually more conservative in terms of downgrading the accounts that were restructured even we were allowed to keep them in call 1, the worst probably would be around 4.1% to 4.2%. So if you were to extend, but with an assumption, some of them we actually downgrade them ourself. But if we're not to downgrade them, it will be around 3.8%, 3.9%. And then I think the question -- next question is in the last commodity cycle, we saw some of the stressed corporate loans sitting in the bank's balance sheet for years after that. In the current downturn, we anticipate to see more SME and retail stressed loans coming through, yes. So I think what we plan to do this time is that because these are the more retail segment that were affected by the pandemic, which is the micro and SME, we were actually going to take a more conservative stance in terms of writing off accounts that we see there is no hope of them surviving the COVID crisis. So we will take more of conservative accounting. And then we'll continue to recover post that write-off. So they will not be continuing to stay in NPL or market for a long time for the retail segments. Okay.

Thank you, Pak Siddik. We have another question from Harsh Modi, JPMorgan. What are the main changes that the incoming management is taking versus previous management on strategic or execution matters?

Thank you, Harsh Modi. So far, we have a good track of the business to the end of third quarter this year. And of course, we have the plan in place for -- to achieve what we targeted to the end of 2020. But of course, the new team at BOD have a new approach to have a succeeded strategy for every initiatives that we have in our corporate plan. The approach, which are more enforced to the team in the distribution, to have a better understanding about the bank-wide strategy, and we will have the details to each region out there. They execute the region-wise strategy. So we will have a different strategy for each region based on the potential from region covered by each region. It's not the very complicated material that we will bring to our people at the region level, but it's more we will support for the region to have succeeded strategy and also to improve the capability of our people in the region. So the product development groups at the head office, we will support the business of the region. Of course, for the bank-wide, we will continue our core competence in corporate banking. And also, we have development on the digital banking for wholesale and retail. And they approach Bank Mandiri to gain more market share by very detailed targeted for this value chain of our corporate clients. I think that's what we can share at this moment.

Thank you, Pak Darmawan. Last question we have is from Melissa of Goldman Sachs. There are several questions that we received from Melissa, but we will address one other questions here online and the rest via e-mail. The question is, has your assumptions of peak NPL changed post the second lockdown in Jakarta?

Okay. Let me try to answer that questions. So I think what we've seen in the second lockdown period, the impact has not been significant at all. So what we are seeing in the behavior of our portfolio, especially the retail banking segment, the improvement in the flow rates from current to x days and from x days to the next bucket has actually continued to improve month after month in the last 6 months after peaking, I think, in the month of May and June. From June onward, we are seeing improvement in the flow rates every month even until September. So I think our hypothesis is that our borrower or consumers in general has been able to adjust in terms of how they live, how they work, how they actually manage their finances during this new normal. And we also have figured out a more effective way in doing our business, including the effective collection process across the region for the retail banking segment. So I think barring a major second or third infection wave, we should be able to maintain the same improvement in flow rates for the rest of the year. Thank you.

Thank you, Pak Siddik. Ladies and gentlemen, that does conclude our earnings call today. Thank you to the Board of Directors, and thank you to all participant for joining this earnings call. Due to the interest of time, we could not answer all of your questions now, but feel free to send us an e-mail or call us. Once again, thank you for your participation, and you may all disconnect. Thank you.

Thank you for the call, Pak Siddik.