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

Good evening, ladies and gentlemen. Welcome to PT Bank Mandiri's First Quarter '21 Results, and thank you all for joining us today. My name is Laurensius, Head of Investor Relations. And together with us today as speakers, we have Pak Darmawan our CEO; Pak Siddik, our Chief Risk Officer; and Pak Sigit, our CFO. Before we start, I strongly encourage you to download both our presentation material and financial statement currently available on the IR homepage of Bank Mandiri. [Operator Instructions] Now I would like to turn the mic to our first speaker, Pak Darmawan Junaidi, CEO of Bank Mandiri. Please, Pak Darmawan.

Thanks, Lau. Good afternoon, everyone. On behalf of my fellow Board members, I would like to thank you all for your participation in this earnings call. Allow me to run through the key messages of the first quarter 2021 by starting with highlights of our notable operational strengths during the quarter as well as the key challenges that need to be addressed in the subsequent quarters. As highlighted in this table, we identified loan growth, NIM trend, treasury gains and OpEx management as top contributors to our pre-provision operational profits. Meanwhile, overall, core fee income and retail business growth remained challenging in first quarter 2021. On a consolidated basis, our loans outperformed the industry both on Q-on-Q and year-on-year term. But be mindful that it was also as a result of BSI integration. As you can see, the left chart shows that BSI post-integration loans were 89% higher on Q-on-Q compared to before integration, when -- or Mandiri, Syariah as standalone. However, even excluding BSI, Mandiri's bank-only loan growth as well as selected subsidiaries also deserve the spotlight. Indeed, on bank-only term, Mandiri posted 2% Q-on-Q and some other subsidiaries, such as Bank Mantap and Mandiri Utama Finance, recorded higher growth. There is another important point to note. The center chart shows bank-only Q-on-Q loan growth in first quarter over the past 6 years. 2021 is the only year where our bank-only loans saw positive growth, albeit low single digits. Importantly, our strategy to leverage from the bank's unique regional model is effective. The right chart is an evidence of that. Out of 12 RCOs, 9 booked positive Q-on-Q growth during first quarter 2021. Businesses in 3 regional offices, located in areas heavily affected by COVID-19, namely Jakarta 1, Jakarta 3 and Bali, Nusa Tenggara, remain difficult but expected to gradually recover when economic activities start to improve, hopefully sooner than later. Our NIM recovered nicely in first quarter 2021 both on a bank-only term as well as consolidated. Figures in this chart are in bank-only level. Both yield side and cost of funds played their role during the first quarter '21 and translated to higher NIM Q-on-Q to about 4.7% bank-only from 4.3% in fourth quarter 2020. The improvement in yields is visible across most business segments as shown in the top right chart. While on the other hand, deposit rates continued to be cut, resulting in lower cost of total funds of 1.96% in first quarter '21. Note that low LDR environment allowed us to achieve this level of funding costs. Liquidity conditions to date remain ample. Therefore, room to further lower cost of fund exists. On the other hand, while interest rate environment is on the low side, repayment from COVID restructured book should help yield in the subsequent quarters. Combined, we expect NIM to be stable, if not turning to the better going forward. Next, our third and fourth strength during first quarter 2021, which are cost and treasury gains. Cost efficiency has been one of Mandiri's priority. And we are happy to tell you that cost control has been done throughout the past quarters, including in first quarter '21. Our cost-to-income ratio is stable and our cost-to-asset ratio is substantially lower this time around compared to previous years. Going forward, we will continue to selectively control our operational costs. Finally, treasury gains as part of our strength also helped Mandiri in achieving first quarter '21 profits. Now I would like to discuss about the key challenges we faced during first quarter '21 with our core fee income and retail growth. Strong growth in our mobile app fee, Livin', was not able to offset weaknesses in other areas of core fee income, such as loan and deposit-related fees. Most of this core fee income is heavily impacted by the enforced social restriction to combat COVID-19. Progress of vaccination and overall business activities are key to recovery in this area of fee income going forward. Meanwhile, we expect our mobile app, Livin', to continue to perform well and contribute to our bottom line. ATM fee decline is by design as we sat down nearly 5,000 ATMs in 2020 alone, which affected the fee generation through this channel. It is worth mentioning that the decline in ATM fees are largely offset by other e-channels, such as Livin' fees. Next, the bottom left chart shows loan growth of our retail segment, both quarter-on-quarter and year-on-year. As you can see, KUR had led the overall retail growth while other retail segment was soft. This was driven by two aspects. On the one hand, demand was low. On the other hand, the bank's risk appetite was also low with higher -- with tighter risk acceptance criteria on products such as salary-based loans. The good news is number of new booking has started to outpace runoff in the month of March 2021 as you can see on the bottom right chart. We expect this trend to continue, which should lead to the positive growth of our retail segment in the following quarters to come. Further, I would like to shortly update you about our restructured book. As of March 2021, the outstanding COVID-19 restructuring stood at IDR 94.5 trillion, which was stable compared to December 2020. Please note that borrowers that have repaid so far are conservatively kept under the restructuring flag. High risk portion is at about 11% with potential downgrades to NPLs, meaningfully lower than their level based on our risk assessment. But Sigit will later elaborate more on this. Just recently, we introduced Livin' 1.0, an evolution of Mandiri's mobile banking app previously known as Mandiri Online or [ Mando ], which, so far, had successfully onboarded more than several million users. Livin' 1.0 is the earlier state of substantial transformation that Mandiri mobile app is undergoing. In the fourth quarter 2021, we plan to launch Livin' 2.0, which will feature a massive upgrade from Livin' 1.0. Livin' 2.0 will digitally leverage Mandiri's unique ecosystem to be powered by strong, ready and robust data management team, our very own EDM division, or Enterprise Data Management Group. Sigit will also later elaborate more on Livin' 2.0. Now I would like to turn the presentation to Pak Sigit, our CFO, to run through the first quarter 2021 detailed financial performances. Please, Pak Sigit.

Thank you very much, Pak Darmawan. Ladies and gentlemen, now allow me to briefly update you on our first quarter '21 financial results. But before that, I would like to remind you that our first quarter '21 consolidated performance had fully integrated the merger of the 3 state-owned Syariah banks in Bank Syariah Indonesia, or BSI, with Bank Mandiri as the biggest shareholder. This slide provides a quick snapshot of BSI contribution to our consolidated numbers. On the balance sheet side, our first quarter 2021 consolidated asset booked a nice increase of 11% quarter-on-quarter and 20% year-on-year. On the bank-only terms, asset also grew positively at 3.7% quarter-on-quarter and 11% year-on-year. Liquidity remained ample as growth in the third-party funds continue to outpace loan growth. Indeed, our CASA were up 15% quarter-on-quarter and 32% year-on-year, substantially higher than the 10% quarter-on-quarter and 9% year-on-year we are seeing in loans. This has resulted to a multiyear low loan-to-deposit ratio level in first quarter '21. Excess funding was strategically placed in 2 central banks as well as tactically allocated for yield in government bonds and marketable securities, resulting in high double-digit growth in this asset in first quarter '21. Bank only loan-to-deposit ratio had meaningfully come down from last year and continue to fall in first quarter '21. From 95% level in first quarter '20, our loan-to-deposit ratio is currently standing at around 80%. Ample liquidity situation, not only helped us manage the bank cost of fund, but at the same time, placing the bank in good position for growth soon as the overall economic and business environment start to recover. Additionally, other liquidity ratio, such as LCR and NSFR, are in very healthy level of 211% and 122%, respectively, as of first quarter '21. On the P&L side, we are seeing a nice sequential recovery in our profitability during the first quarter of the year with up to PPOP level as well as net profit on consolidated and bank-only term. The recovery that we are seeing in net interest margin on quarter-on-quarter terms as well the loan growth had contributed to the improvement of our net interest income in first quarter '21, which was 22% higher Q-on-Q on consolidated basis and about 8.5% quarter-on-quarter, bank-only. As earlier explained by Pak Darmawan, noninterest income, particularly currency-based, was our key challenge during the first quarter '21. While treasury gain booked during the quarter were high and contribution from our e-channel mobile banking app, Livin', increased, it was not enough to offset the decline in other areas of noninterest income, such as admin from loans, deposits and cash management businesses. Therefore, please note that the drop in quarter-on-quarter noninterest income was mainly driven by high base in fourth quarter '20 due to LinkAja gain booked by one of our subsidiaries. Throughout the pandemic, professional processing has been the management theme or top priority. Our effort to reprioritize expenses and to operate more efficiently had given significant impacts. Having cost-to-income ratio at 45% and cost-to-asset ratio come at below 3% in first quarter '21 are evidence of that. Further, lower provisioning on quarter-on-quarter term help Mandiri to boost a nice 92% net income growth in first quarter '21 from fourth quarter '20. On a bank-only term, our first quarter '21 net profit was more than 3x higher than fourth quarter '20 level. Our consolidated key ratios are pointing toward positive trend in general in first quarter '21, starting with 0.6 percentage point increase in net interest margin quarter-on-quarter as a result of both lower cost of fund and improved yield as well as higher CASA ratio, stable cost efficiency ratio and well-managed cost of credit backed by stable nonperforming loan and special mentioned loan and restructured book ratio. This combined had led to a nice recovery of return on asset to 1.57% in first quarter '21 from 1.25% in full year '20; a risk-adjusted return ratio, or RoRWA, to 2.5% from 1.8%; and return on equity to 12.8% from 9.2% last year as you can see in the table we provided on this slide. Now let me elaborate on our loan growth by segment. Our consolidated growth of 10% quarter-on-quarter and 9% year-on-year was largely driven by the integration of BSI as other explained. This is reflected in the increase of our subsidiary balance as you can see in the left-hand chart. Sequentially speaking, wholesale loan, both corporate as well as commercial, saw a nice increase on quarter-on-quarter term by 3.2% and 1.3%, respectively. Consumer was the only segment that saw lower balance quarter-on-quarter. Micro loan looked an encouraging trend as well quarter-on-quarter but mainly supported by its [ KUR credit loan ] while other salary-based loans took a backseat. We hope that this sequential quarter-on-quarter can continue and improve in the weaker areas of salary-based loan, can happen in the subsequent quarter of the year as economy started to recover. Progress in fighting against of COVID-19, including government's effort on vaccination, are crucial to this outlook. Furthermore, I would like to highlight a few points on our net interest margin, that number is the slide of bank-only. The top left chart saw the NIM improvement was driven by both recovery and stability in yield as well as the continued decline in cost of fund. Yield improvement in first quarter '21 from the previous quarter was true for all business segments in both our wholesale as well as retail segment as shown in bottom left chart. Meanwhile, our cost of fund decline was a result of our active strategy in lowering deposit rate across the bank, which had led to time deposit costs down to 3.1%, demand deposit cost down to 1.7% and savings cut at below 1%. Of course, ample liquidity condition made it possible. We believe that room for further improvement exists, which in turn should help growth of our net interest income. Next, breakdown of the performance in noninterest income. As earlier stated, strong performance of our gain from fixed income in first quarter, which contributed about 22% of total noninterest income as well as a growth in fee from mobile banking. As an intra-banking channel, we are not able to offset weaknesses in other areas, such as loan and deposit-related fees, credit card fees and et cetera. As economy start to recover, we expect contribution of fee income to increase. Lastly, I would like to discuss our OpEx. Overall, our OpEx increased by 14.5% year-on-year, mostly come from the integration of BSI. However, as you can see on -- as we can see, the trend in OpEx has been positive with both cost-to-income ratio and cost-to-asset ratio have stabled, if not lower than historical level. We have implemented a very active strategy to reduce our OpEx mainly from the changes in business environment due to COVID-19. For example, we have reduced our ATM more than 5,000 units since March 2020 and has decreased more than 140 unproductive branches, including 66 Micro branches across Indonesia. I would like to turn the presentation to Pak Siddik, our Chief of Risk, to discuss about asset quality. Please, Pak Siddik.

Thank you, Pak Sigit. This slide is showing on the left side, the mix of the loan receivable across business segments as well as the subsidiaries while on the right-hand side is showing the trend of the cost of credit in the last 3 years, including this quarter. So you can see that the trend in asset quality has been progressing well within our internal expectation and guidance. In the first quarter 2021, we continue to build up provisioning on COVID-19 restructured accounts, which is voluntary and optional in nature on top of our business-as-usual provisions. So both of the BAU provision as well as the buildup for COVID-19 restructured accounts combined into a cost of credit of 2.36% on consolidated basis in the first quarter, which is about 40 basis points lower quarter-on-quarter. So this is in line within our full year 2021 cost of credit guidance of 1.9% to 2.4%, which we keep unchanged today. The next slide basically shows the analysis on the COVID-19 restructured accounts by risk segments. So we basically, as of March, have a balance of IDR 94.5 trillion of restructured accounts broken down by the business segments. And then within each of the business segment, we break them down into 3 risk segments: low risk, medium risk and high risk. Low risk means that these are accounts, which based on our analysis, models, parameter, [indiscernible], et cetera, account that are most likely to be able to survive and then become healthy again after the completion of the restructuring program. The medium risk accounts are accounts that will need a second round of restructuring, post which they will be able to survive and no need for help anymore. And accounts under high risk are accounts that need special handling because there is a high probability of accounts to go into NPL. So we need to actually come up with various strategy to actually save most of them for not going into the NPL. So as you can see from the table, in total portfolio basis, about 11.4% of the total outstanding COVID restructured accounts are conservatively classified as high risk. Low risk is about 66% and medium risk is 22.5%. And on the right side, this is the ratio, the provision coverage, for each of the business segment by risk segment. You see there is a risk ranking between the amount of provision coverage from low risk to high risk. So for the high-risk accounts, we set aside close to 50% in the provision, 9% for the medium risk and 4% for the low risk. We will continue to monitor and watch these accounts very closely and adjust our provisioning levels accordingly so that later this year or next year, we have more than enough provision if some of them goes to NPL. The next slide shows basically analysis on the NPL formation from the COVID-19 restructured portfolio book. So from the total of IDR 94.5 trillion of the restructured books, as of March, only 0.9% or IDR 880 billion of loans has been downgraded to NPL. So what we did is accounts that has no hope of surviving, we will let them to downgrade rather than restructure again, even though it's allowed under POJK 48. So in our opinion, it's good news, only 0.9% of the total COVID restructuring books goes to NPL. The middle pie chart shows that 46% of the NPL accounts came from a high-risk COVID restru while 29% and 25% came from medium-risk and low-risk segments. And you can see that from the table below, there is a risk ranking in terms of how much from each risk segment has gone to NPL, from the low risk-only, 0.4%; medium risk; 1.2%; and high risk, 3.7%. And none of the account in our corporate banking restructured accounts were downgraded at all. Please note that although we have conservatively identified 11% of the total restructured book as high risk, the potential NPL at least for this year is likely to be much lower than 11% as you can see from the far right pie chart. The trend we are seeing in the first quarter suggests that likelihood. In the next slide, this is a trend of the NPL ratio, the NPL coverage for unconsolidated basis. Trend on loan at risk on the right side, top right-hand corner and below, is actually information on the provision coverage by Stage 1 to 3 under IFRS 9 as well as the mix of the portfolio by segment under Stage 1, 2 and 3 under IFRS 9. So NPL ratio remained stable at 3.1% as well as loans at risk, both including COVID restru and excluding, as you can see in the trend line in the top right chart of the presentation. Our NPL coverage is high at 220% as of March 2021. On a broader coverage perspective, which is loan loss reserve to total loans ratio, we're now at 7.7%, which is among the highest in the industry. We can see that even Stage 2, we are reserving 86.3%, which is probably on the high side. In the next slide, basically, I would like to quickly run through updates of our digital initiatives. This slide that you're seeing shows Mandiri's road map on the digital front, a road map like no others, powered by our very own unique ecosystem. However, as we all know, data is the new oil. It fuels the digital power. So a robust ecosystem means nothing without an advanced data management team. We're happy to share with you that we now have a very solid and fully ready data management team to support our digital initiatives. We call it the EDM Group, short for Enterprise Data Management Group. It is backed by its 4 core divisions, namely: data management, information management, business analytics and last but not least, campaign division. Please kindly refer to the yellow box on the slide. We also plan to launch new features such as MSME QR payment in the third quarter, Mandiri Paylater in the fourth quarter and the much-awaited Livin' 2.0 in the fourth quarter, which would be a very substantial upgrade from the Livin' application that we have today. The following few slides show updates in various digital banking areas, such as open API banking, collaboration with key strategic partners, our digital online application, which we can look at later. But for now, in the interest of time, let us directly jump into what we plan for Livin' 2.0 towards the end of the year. But before that, we'd like to show you a short video clip on today's Livin'. [Presentation]

On this slide, Livin' has successfully garnered users tractions with a total active user of close to 5 million as of the first quarter 2021, a number that is 39% higher year-on-year. The number of transactions and value are surpassing ATM's numbers. Growth in fee income generated from Livin' is notably strong. As you can see in the right chart, Livin' contribution had meaningfully increased over the past few years. It used to be called Mandiri Online, by the way. To noninterest income, our mobile app started to contribute less than 2% in 2017, now close to 4%. This offset the decline in fees we are seeing from ATMs. Relative to asset, Livin' fees now contribute more than 7 basis points. Going forward, we expect Livin' 2.0 to continue this trend. Here is a quick peek into our Livin' 2.0. A substantial upgrade in features, use cases, user interface, user experience, or UI/UX, will be introduced in Livin' 2.0, full digital account opening, ecosystem integration, personalized content and offerings, among others. So big things are coming in this upgrade in the fourth quarter. Will Livin' 2.0 be the super app? We would like to leave it to you and our clients to decide. So stay tuned. Thank you very much for your time. I'll now hand over the presentation back to Pak Sigit for our corporate guidance.

Thank you, Pak Siddik. Ladies and gentlemen, as a result of both current assessment we are seeing so far as well as BSI integration into our consolidated financials, we would like to inform you our revised guidance for 2021 as follow: first, the increase of loan growth outlook from previously single digit to now low-teens; second, higher net interest margin from originally 4.6% to 4.8%, now 4.8% to 5.1%; lastly, we kept our credit cost guidance unchanged at 1.9% to 2.4%. I believe that concludes our presentation. I would now hand it over to Lau, our Head of Investor Relations, to coordinate the Q&A session. Thank you for your attention.

Thank you very much to our speakers, Pak Darmawan, Pak Siddik and Pak Sigit. [Operator Instructions]

Maybe we can start with Jovent Muliadi from Indo Premier.

I have two questions. My first question, on the downgrade NPL for this year, out of IDR 880 billion, the highest segment, give or take, roughly 50% -- 46%, whereas the rest come from the low and medium risk. May I know what was the reason that you decided to downgrade the low- and medium-risk segment? That's my first question. My second question, with regards to your capital, with the addition of the consolidation of Bank Syariah Indonesia to Bank Mandiri as a whole, where do you see your capital in the next 3 years, Pak? Because usually, Bank Mandiri capital never fall below 20%. Do you think it will be this level, 18% to 19%, will be sufficient to support your growth in the next 3 years?

Okay. Thank you, Jovent. Let me answer the first question. I think your question refers to why did we decide to actually downgrade accounts -- restructured accounts due to COVID that are in the low and medium risk, yes? So basically, when we did the segmentation of the restructured accounts into low, medium and high, we were basically combining models using parameters to actually segment accounts based on our learnings in the past. And we combined that modeling segmentation with the data information we get from the field from the regions because we have asked all the relationship manager or account manager to check up on each of the restructured accounts every month, just to see what -- how they're doing. Are they still selling fruit on their store? Is the store still open? Are they doing better or worse? So those information are being used by us to recalibrate the resegmentation into low, medium, high every month. So the resegmentation is not 100% perfect. It's a close approximation of segmenting account to the segment. So some account in the low and medium, which we thought originally were in the low, medium risk, when we actually reconfirmed from the field, then we found that actually the borrower are nowhere to be found, the shops are already closed. So even though the accounts have not yet finished, for example, or almost done with the first round of restructuring, there is no hope for the account to actually be able to survive. So instead of waiting for them to go through the second round of restructuring, et cetera, we decided to actually let them downgrade to NPL now. So these are some of the few accounts in low and medium risk that actually we let them go to NPL now and recognize them as NPL today rather than postponing the recognition of losses.

Thank you, Jovent. It's about our capital strategy. Yes, first, today, our capital ratio, around 18.6%, decreased after consolidated BSI. But in the future, we believe and we're confident to maintain our capital ratio at 19% to 20%. And the strategy to maintain that, of course, it's coming from retained earnings from our net profit. And we also believe that we can maintain our dividend payout ratio at the same level, around 60% like this year.

Our next question coming from -- comes from the line of Melissa Kuang, Goldman Sachs.

I just had a question in terms of your change in guidance. Can we just -- maybe I should have understood this earlier. But in terms of the loan growth, you're changing guidance, can you let us know, is it all due to the BSI? Or are your underlying loans guidance for Mandiri as well changing? And then also for the margins as well, you changed your margin guidance. Is the uplift in the margin guidance mainly resulting from the consolidation? Or do you see the Mandiri itself, the margins moving up? Because I think you have shown that margins are moving -- loan yields are moving up, cost of fund is coming down. But I mean, I can't see really with -- if it's mainly due to the consolidation or is it not? And then just lastly, in terms of your Paylater, can you explain to us in terms of your launch, where do you see your focus group to be, given the competition from different tech players as well?

Thank you, Melissa. So I'll go through the guidance for you. And I think I'll try to answer the Paylater as well and our team will help to answer that as well. Starting with the loan growth, so as you see in the slide that our CEO presented, although the BSI growth contributed meaningfully, the bank-only growth was also trending positively, right? So on a bank-only term, our corporate business was up 2.5%, our retail business was up about 2%, so total about 2%, low. Not to mention that other subsidiaries, such as Taspen, were growing at 7% Q-on-Q and all that, right? And something to note as well is the fact that in the last 5 years, there is no 1 quarter where the first Q gave you a positive growth on a Q-on-Q term. So 2021, since the past 6 years, is the only quarter that provides you a positive growth, albeit just 2%. Now on a bank-only term, we are expecting our loan growth to be at about 6% by the end of the year. That is a conservative sort of expectation. Obviously, if the economy recovers sooner than expected, that number could go up. So the consolidated of the 6% bank-only with the integration that we're seeing from BSI resulted into the low-teens growth that we're giving you. That's on the loan growth. Any question on the loan growth? Is that exact clear?

So just to confirm, right, like just to be sure, so you are expecting bank-only 6%, which means you're still at mid-single digit. Then adding on the rest, you actually -- the consolidation now moves to low-teens, right?

Yes. And really, the rationale behind that, Melissa, the rationale behind that is the fact that we're expecting real GDP of about 4.5%, 4%. You're adding -- so nominal should be at about 5%, 6%, right, on top of a 2% inflation. So if you look at the trend -- the historical trend, you should be expecting about at par to normal GDP growth loans that Mandiri tend to sort of achieve in a recovery cycle, okay? So on the NIM side, as explained in our earlier slide as well regarding NIM, you will be able to see that the bank-only NIM is actually up on a Q-on-Q term, okay? And that is not just driven by cost of funds. It actually is also driven by the increase in yield on a Q-on-Q term. And in one of the slides, we actually show yield improvement on a segment basis. And you can see how the retail yield are actually showing a very nice Q-on-Q improvement, right? And that is driven by a couple of things. It's not pricing, it's largely on the back of repayment, okay? So it's not just BSI, although obviously, as we integrate 2 additional state-owned enterprises, state-owned Syariah banks, interest income will go up. But the stand-alone bank-only also gives us a quite convincing trend in the NIM yield and cost of funds, which allow us to increase our NIM guidance, right? And cost of funds, as our CEO mentioned and as Pak Sigit as well mentioned, liquidity environment is very ample at this point. And room for us to lower cost of fund, yes, Pak Sigit, is very ample in the subsequent quarters, okay? And I think as regard to Paylater, I guess, in terms of the target segment, it is really the millennials, the consumer segment. There is not much a particular segment. I think it's really something that we're jumping the competition basically against other fintech.

Yes. Let me add on the Paylater question. So the starting point when we launched Paylater in the fourth quarter, we will basically take advantage of the fact that we have 25 million deposit customers. So these are the target market, which is going to actually offer Paylater. With our cooperation with e-commerce today, we have, for example, a co-branded credit card agreement with Shopee and Traveloka. So these are the 2 sites we're going to also introduce Mandiri Paylater, in addition, for example, with others, such as Tokopedia, Bukalapak, et cetera. So these are mainly to make our customer -- existing deposit customers to be able to make purchases bigger amount, but then we make it more affordable by making the installments over a number of months. In the second stage, we will target Paylater customers who are not Mandiri customers. But even for us, just to mine the existing 25 million deposit customer for Paylater, it will take some time for us to be able to do it while we are building the scoring model to be able to capture the new-to-bank customers using both data that we have within the bank as well as outside data. 100% will be onboarded digitally within the ecosystem of the e-commerce partner that we will be working with.

Next question comes from the line of Ibu Liny Halim from Schroders.

My question is with regards to Livin' 2.0. Other than Paylater, what are the digital lending features will it be offering? And I understand that Mandiri Capital also recently increased capital in Bukalapak. So how are you going to leverage on the relationship with Bukalapak? And any other -- are you going to do quite a bit of merchant financing, if you are? And maybe, what are your plans on that?

Okay, let me probably answer that, Bu Liny. Yes, first of all, yes, we are already even now doing merchant lending, basically providing loans to merchants from our partners, such as the Bukalapak, Tokopedia, et cetera. So with Livin' 2.0, we will do it more seamlessly digitally going forward. And then we will also be offering other loan products in Livin' 2.0, such as credit card and personal loans. And in the later stage, we will also integrate Livin' into mortgages as well as auto loan. But in the first phase, we will capture the application process for credit card and personal loans. Yes, I think that's about it. Anything else, Bu Liny, that you would like to know about Livin' users, UI/UX or features? And we will also be accessing various product that are being offered by our subsidiaries, be it insurance products or car loan products or even the retail brokerage of the Mandiri Sekuritas. So the ultimate objective is to actually have our retail-related product and services from within Mandiri Group be offered via Livin'.

And I think if I may add, Pak Siddik.

Yes.

So another thing that we are working on, Bu Liny, is on the scoring system, right, particularly on the -- our retail loan -- personal loan. So we believe that with Livin' 2.0, there is a more mature scoring system for us to basically disburse more personalized loans to the Livin' 2.0 customers, obviously leveraging and harvesting our ecosystem, which consists of 20 million, 25 million of deposit customers at this point, if not higher in the next couple of quarters, in the next coming years.

Yes. And just additional information, today, we are already extending loans to the merchants that are on the following platforms: Shopee, Bukalapak, Investree, Koinworks, Akseleran, Crowde, Moda Raya, Telkomsel, Amartha. So we have been -- we have a lot of experience in the last few years in doing merchant lending via these platforms. And going forward, we will integrate this into Livin' 2.0.

And I think it is also worth to note, Bu Liny, that another feature that we are -- another basically aspect that we want to touch on Livin' is NTB, which is short for new-to-bank. And this is also an initiative that the bank has for financial inclusion in the country. With Livin', we want to make sure that onboarding happens fully digitally. That doesn't only help the bank's profitability in terms of lower cost of acquisition when it comes to customers but also our active intention to support financial inclusion in Indonesia.

Okay. Can I just have a follow-up question? With the Livin' online deposit account opening, how much faster will it be compared to the current virtual account opening that you have? And also, on the lending side, like, for instance, credit cards and personal loans, I mean, based on your testing, maybe like how fast can the customer gets their loans?

Okay. First of all, on the account opening, [ Tabungan ] savings accounts, today, we have an onboarding product via video call, et cetera. So today, in Livin' 2.0, we are envisioning and preparing processes to be able to do account opening within 5 minutes. And then for accounts -- loan accounts, such as credit card or personal loans, we are targeting to be able to approve or book a new loan application within 30 minutes.

Our next question comes from the line of Harsh Modi, JPMorgan.

I have a bit of longer-term question. If you think about the amount of fees the bank makes on deposit and related charges, it's about IDR 3.5 trillion per year and then another IDR 2.5-odd trillion on the e-channel. If you look at over the next 2 to 3 years, there are massive number of competitions coming in with very deep pockets and access to ecosystem. Most likely, they will be attracting your depositors. They'll be offering much higher rates. And they may probably not be charging the fees that you are. How do you intend to defend your deposit market share, right now, it's fine, but let's say, 12, 18 months down the line? And do you see that as a meaningful shift in trend? Because over the last 10 to 15 years, BUKU 3, BUKU 2 banks have not been able to make a dent. But do you think it's different going in the next 3 to 5 years?

Thank you, Harsh. So basically, about deposit and competition, the idea about having other institutions or alternative sort of financial institutions that provide a much more attractive deposit rate is not something new, right? Mandiri right now is offering rates that is obviously among the lowest in the industry. And we do have other small banks, for instance, out there that are offering 3, 4, 5 percentage points higher than ours. We, at this point, have even P2P lending platforms offering double-digit return. The question is how has we been doing so far with the existing competition? We're doing okay. And the reason is mainly because of that most of our depositors are also seeking for use cases instead of just basically yield, right? The bigger risk -- the bank that has bigger risk of such competition, in my view, in our view, is basically those that are relying on time deposits, for example, right, the ones that only relies on basically higher pricing on deposits. And going forward, as Pak Siddik explained, having Livin' 2.0 will further boost the use cases, but not just use cases, but also the UI/UX, that customer will experience when it comes to tasting the use cases. And I think that will basically keep them with us, right? Or I'm not saying that basically there will be no competition going forward, obviously, there will be tough competition, but we think Livin' 2.0 should be able to help us on that side, on the retail side. Now on the other hand, when it comes to wholesale deposits, which is a big portion of our deposits, right, I think that is more a function of relationship as well as facilities that as a bank have to offer to these institutions, right? It's something that we don't think can be easily offered by a P2P lender, for example, at least in the nearest imaginable term. Pak Siddik, anything that you would like to add?

Yes. I just want to reiterate that one of the main advantage of being Bank Mandiri, we're not a monoliner. So we're offering a complete suite of financial products by Bank Mandiri and subsidiaries as well as our partners and ecosystem. That's why we have invested a lot of money in developing Livin' 2.0. And this is -- what we will launch in the fourth quarter would be the first version of the Livin' 2.0 and it will evolve. We will actually bring in more partners, more products into Livin' 2.0 so that the customer will see the values of staying with Bank Mandiri and not just because of the deposit rates or the savings accounts rate, which they can get somewhere else. But they will not be able to get the convenient, seamless offer and ecosystem that are being offered within Livin' 2.0. Perhaps Pak Darmawan, if you want -- would like to add anything else on Livin'?

I think that's okay.

Okay. So that's what we -- our strategy going forward. So we are quite confident that our strategy going forward will actually generate a higher revenue streams coming from fees from various services that we're going to introduce and maintain.

Right. So just so I'd understand that better, so what you're saying is the competition for your liability side and your ability to price it both via lower yield and charge fees has not changed meaningfully despite newer sort of competitors coming in? And with your offering, you are quite confident that depositors will still be paying a meaningful premium effectively to bank with Mandiri? That's your working assumption for next 3 to 5 years as it stands now?

Correct.

I think given time, we will just take one last question from the line of Jayden, Macquarie.

I have maybe two questions. The first is just on the COVID restructured portfolio. You did say in the presentation that you wouldn't be upgrading anybody that was back to paying normal terms. But some of your peers seem to be doing so. So just so we can compare, I guess, accurately, can you let us know what proportion you expect to go back to paying normally? And obviously, we're probably seeing some of this come through with the yield improvement. That's my first question.

Jayden, your voice is a bit difficult to understand. Can you repeat the first question again, please?

Yes. Just on the COVID restructured portfolio, what proportion do you think will go back to paying at normal terms because some of your peers are upgrading such loans? Just so we know.

Okay. So as of March, out of the IDR 94 trillion, 66% of them is basically classified as low risk. So 66% of them, we are quite sure, they will go back to normal once the first run of restructuring ends. About 22% of them we call as medium risk, they will be needing a second round of restructuring before they will finally be able to be on their own again. So those that we will say straight go back to normal, 66%. And the other 22% are those that need another round of help.

Okay. My second question is on potential inorganic growth. So Pak Siddik, your former bank is going to be selling its retail franchise. Would Mandiri look at inorganic opportunities?

We will -- we always look at the market continuously every day to look at potential organic or inorganic growth. And obviously, Citi's announcement, we will definitely look at this and get information and then probably we will discuss within the management team whether we would like to actually go to the next steps. But as of today, we don't have much information to be able to make decisions. We need to understand the details of what are being sold. And after that, then we'll probably make our mind that this is something that we would like to pursue.

Thank you, Pak Sigit, [indiscernible], Pak Siddik. Ladies and gentlemen, this marks the end of the analyst meeting. Thank you very much for your participation. If you have any further questions, feel free to e-mail the Investor Relations team. We'll try our best to get back to you as soon as possible. Thank you. Stay safe.