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

Good evening, ladies and gentlemen, and welcome to PT Bank Mandiri third quarter '21 results. Thank you all for joining us today. My name is Laurensius, Head of Investor Relation. And together with us today, our speakers, we have Pak Darmawan, our CEO; Ibu Sandra, our Vice CEO; Pak Siddik, Chief Risk Officer; Pak Panji, our Treasury and International Banking Director; Pak Sigit, CFO; and Pak Tim, our IT Director. Just for information, the video that you just watched was a review on New Livin' by Mandiri done by an Indonesian tech reviewer with more than 8 million subscribers. 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] We are also happy to take questions via e-mail afterwards, and we'll try our best to reply to your questions as soon as we can. And without further ado, I'll hand over the first presentation to Pak Darmawan, our CEO.

Thank you, Lau. Good evening, everyone. Allow me to run through the key highlights of our operational strengths as well as the key challenges during third quarter 2021. As shown in this slide, we identified loan growth, CASA and cost of funds, retail fee income and asset quality trend as key positives to take away during the quarter. Meanwhile, yield, especially the corporate yield, was main challenge that we continued to witness in third quarter this year. As of September 2021, our loans reached IDR 809 trillion bank-only and IDR 1,022 trillion on a consolidated basis. That represented 0.45% and 0.72% Q-on-Q growth, respectively. The growth was largely driven by the higher-yielding segments in our portfolio such as commercial, which was up 2.2% quarter-on-quarter and other retail segments. This is an active strategy we put out to manage yield and overall profitability of the bank. Please note that Mandiri had meaningfully improved our growth, underwriting and risk assessment approach particularly in commercial and SME to ensure quality. For example, we applied a loan follow transaction strategy, focuses on investment loans with good collateral and the redirected credit approval decision-making in order to ensure high-quality loans. We also focuses our growth on borrowers that do business with our corporate clients to ensure safety, a strategy that leverages from our value chain. The corporate segment loan was down 0.6% quarter-on-quarter, but it is worth noting that private corporate was up almost 6% Q-on-Q, slightly offsetting the decline in the SOE corporate. Our strategy to use regional office's strength showed positive results, as you can see in the bottom left chart. As earlier stated, our growth focus is on investment loans, which saw 1.2% increase Q-on-Q while working capital was lower Q-on-Q. Consumption loans also pick up, driven by credit card business. The second highlight relates to our cost of funds, which continue to show nice improvement. Our strategy to go beyond lending essentially targets business transactions, which ultimately would lead to higher CASA and fees for the bank. We have been quite aggressive on this one and, as a result, able to achieve CASA ratio of nearly 75% in third quarter 2021 on a bank-only term. Today, our CASA is funding nearly 90% of our loans, as you can see in the top right chart. Lower portion of special deposit rate as well as cutting the CASA rate and TD rate help us bring cost of funds further down in third quarter '21. This helps offset the weakness we are seeing in the corporate yield, which remain under pressure due to competition and micro due to some returns to no payment state on the back of PPKM. Net-net, our LDR is kept ample at 83%, largely on CASA, while NIM improving. Total noninterest income was down on Q-on-Q term, mainly on lower treasury gains and no subsidiary dividend gains unlike second quarter this year. That said, the noninterest income that are more recurring in nature, such as fees from Livin', mutual funds and bancassurance, continued to show good quarterly turn. On asset quality, the COVID restructure book declined, and payout ratio and loans at risk continued to improve, and importantly, cost of credit dropped further. Pak Siddik, our Chief of Risk, will later elaborate more on this aspect. Overall, we are seeing a good improvement in both PPOP as well as the net profit, which, of course, translated to an encouraging trend in ROE as well as the ROA. Against our guidance on NIM and COC, the 9-month results are tracking well, and therefore, we are keeping this guidance unchanged. On the loan growth side, we are seeing the trend so far to be ahead of our end-of-year guidance, and thus we update our consolidated loan growth target to low- to mid-teens level by end of the year. Ladies and gentlemen, allow me to shortly present our key focus strategy until 2024. The goal is clear: to become undisputed market leader with sustainable growth as well as a sustainable high-teens ROE. Our strategy consists of three key points. First is going beyond lending. By this, the bank, especially on the wholesale segment, is committed to improve contribution of noncredit business, such as higher fee income from business transaction, higher CASA from our corporate wholesale and smaller business clients and unlock value chain. Second, shifting gear towards high-yielding segments. We will focus our growth more on high-yielding borrowers, especially in SME, commercial and other retail loan, all of which are expected to be key drivers of growth in the next couple of years. On SME and commercial, we have a refined approach for both growth strategy as well as risk management system. Last but not least, taking a deeper dive into our retail ecosystem. Our focus here is to improve retail product penetration, especially through digital innovations. Now I'd like to hand over the presentation to Pak Sigit, our CFO. Please, Pak Sigit?

Thank you very much, Pak Darmawan. Ladies and gentlemen, now allow me to briefly update you on our third quarter 2021 financial performance. But before that, I would like to remind you that our consolidated performance had fully integrated the merger of the three state-owned sharia bank into Bank Syariah Indonesia or BSI, with Bank Mandiri as the biggest shareholder. This slide provides a quick snapshot of BSI's contribution to our consolidated numbers. On the balance sheet side, our third quarter 2021 consolidated loan have booked nice increase of 0.7% quarter-on-quarter, 16.9% year-on-year and 14.4% year-to-date. Growth was largely driven by high-yielding asset and investment loan in line with our [indiscernible] strategy. Growth in third-party funds was largely dominated by our CASA, which was up 5.7% Q-on-Q, with current account up 9.3% Q-on-Q and savings 3%. We continue to shrink our time deposits to achieve optimum cost of funds. This too is part of our [indiscernible] strategy. Liquidity-wise, LDR is kept ample at 83%, largely driven by growth in CASA and other ratio, such as MIR, LCR and NFSR positioned as safely and healthy. On P&L side, we are seeing a nice sequential recovery in our profitability during the first 3 quarters of the year, brought up to PPOP level as well as net profit and consolidated and bank-only term. Lower cost of funds have helped us keep stable margin and booked 3% higher net interest income Q-on-Q and 37% higher year-on-year during the third quarter. Noninterest income was up on year-on-year term, both on third Q 2021 term and 9-month 2021 term, but down Q-on-Q on the back of lower treasury gain and of this effect of last quarter where we booked subsidiaries dividend gains. On the cost side, we managed to keep a positive [ job ] leading to stable cost-income ratio. Provisioning expense came within our internal target, resulted in 2% increase in net profit Q-on-Q and 80% year-on-year in third Q 2021 and 37% higher year-on-year for 9 months 2021. Our consolidated key ratios are pointing to a positive trend in general in third Q 2021. NIM was stable and in line with our internal target for full year 2021. CASA ratio continued to increase, helping control our cost of funds. Cost-to-income ratio was kept stable at 45.9% during 9/1/2021 as well as cost-to-asset ratio, which stood at 2.8%. Credit cost was down quarter-on-quarter in third Q 2021, kept well within our guidance for full year. As a result, overall return on asset and return on equity improved nicely. Unconsolidated term, our loan book came 0.7% higher Q-on-Q and 17% year-on-year. This is half of our original guidance for full year 2021. Thus, we upgrade the target. The growth that we saw up to September was primarily driven by the high-yielding segment as part of the bank's strategy to optimize yield, NIM and profitability. For instance, our commercial segment booked 2.2% growth Q-on-Q and 14% year-on-year. SME segment, Micro and Consumer grew higher than the bandwidth. This slide displays our bank-only yield, cost of fund and NIM. As you can see, the improvement in net interest margin in the third quarter was primarily driven by lower cost of funds, which offset the fall in yield on the back of lower corporate yield. Our strategy in net interest margin consists of further lowering our deposit rates across our product: current account, saving account and time deposit. We will also focus on loan growth towards the high-yielding segment. Next, I would like to pass on the presentation to Pak Siddik, who will elaborate more on asset quality. Please, Pak Siddik?

Thank you, Pak Sigit. The trend in asset quality has been progressing well, very much in line with our internal guidance. In the third quarter 2021, the provisioning built up on COVID-19 restructure book was marginal on top of our business as usual credit provisions. Both BAU and COVID-19 provisions combined has resulted into 2.26% total consolidated credit costs in the first 9 months of 2021, which translate to around 2.1% credit cost in stand-alone third quarter, 20 basis points lower on quarter-on-quarter term. This achievement falls toward the middle range of our full year 2021 cost of credit guidance of 1.9% to 2.4%, which we keep unchanged today. Although we acknowledge that COVID-19 is not out of the woods yet, at this point, we think that the upper range of that guidance should be able to cushion any potential negative risk on provisioning in the subsequent quarter of the year. Next, I would like to discuss about our COVID-19 restructured book positioning and its risk profile in more details. The outstanding balance of the COVID restructured books is lower in September 2021 at IDR 90.1 trillion, down from IDR 96.5 trillion in the second quarter, partly due to about IDR 2 trillion worth of loans we unflagged in the third quarter of 2021. Moreover, we are glad to report that the last rising COVID-19 cases in the period of July to August 2021, which had led to some social restrictions, locally known as PPKM in Indonesia, did not have meaningful or significant impact on our portfolio performance in general and COVID-19 restructured book in particular. Now regarding the risk profile, the high-risk segment of the restructured book remained stable at 11.5% of the restructured book, as you can see on this table, with 62.8% credit provision coverage. Our medium- and low-risk segments are stable at 30.7% of the restructured book and 57.8%, respectively, in the third quarter. Total provisioning level coverage of all the restructured book of COVID-19 accounts has reached 14.2%, higher as compared to 13% back in the second quarter. We will continue to watch these accounts very closely and monitor the existing restructured book and then make adjustment on our credit provisioning levels accordingly. The following slide shows an NPL formation analysis of our COVID restructured book. Up to September 2021, about IDR 2.37 trillion of the COVID restructured book was downgraded to nonperforming loans, representing 2.6% of the restructured portfolio, which is substantially lower than our earlier conservative high-risk assumption of 11%. Please note that we have set aside 14.2% worth of credit provision for the COVID-19 restructured book, which is meaningfully higher than the actual NPL we've seen so far. The NPL formation is in line with our projection in the beginning of the year, where we expected less than 5% of the total COVID portfolio to be downgraded to NPL by the end of this year. In terms of nominal in the third quarter alone, the increase of -- in NPL was around IDR 660 billion, which is much lower than the first 2 quarters of the year, which is around IDR 850 billion and IDR 880 billion, which is a good thing. By segment, a bigger portion of the downgrade is similar as compared to the previous quarter, which largely came from the retail loans such as Consumer and Micro productive loans while corporate banking NPL for the restructured book remains 0. Now a general update on NPL and loan-at-risk trend. We are seeing a declining NPL ratio trend, which has reached 2.96% in the third quarter from 3.1% in the second quarter. Furthermore, loans at risk also show an improving trend as you can see from the top right chart. Our NPL coverage is high at 230% as of September, and on a broader coverage perspective, which is loan loss reserve to loans ratio, we are now about 7.5% among the highest in the industry. Lastly, I'd like to update you regarding our capital positioning. In general, CAR level is higher by 1.44% in September as compared to June. We intend to maintain CAR at current level in the near to medium term. This is all for me. I would like now to pass on the presentation to Ibu Alexandra Askandar, our Deputy CEO, to start discussion on the digital initiatives. Please, Ibu Sandra?

Thank you, Pak Siddik. Ladies and gentlemen, the four points that you are seeing in this slide represents the principles that Mandiri holds in approaching the changing behavior of our customers, which also relate to our approach on digital initiatives. Couple of weeks back, precisely 2nd of October or during Mandiri's 23rd birthday, we launched a banking super app that we now call New Livin' by Mandiri and a super platform called Kopra for our business clients. First principle, Mandiri believes that the key to winning customers and, more importantly, blow your customers is through providing good high-demand features and use cases and seamless overall banking experience to both our retail and business customers. That is how New Livin' by Mandiri, as a digital banking application, stands out from the crowd. The app offers best-in-class features for highly demanding use case, such as e-wallets top-ups, e-commerce transaction, reminders and many more. Of course, the app also offers ability to open account seamlessly within 5 to 10 minutes to customers that are completely new to the bank. On the other hand, Kopra's single sign-in feature with a consolidated financial dashboard, limit management and many more are experience that we are offering to our business customers. Second, start from what we have as a group. Our customer base is very strong. Bank Mandiri alone serve about 30 million individual customers with at least a deposit account with us. Our subsidiaries combined have more than 15 million customers. More than 50,000 individuals are considered ultra-high network. We have more than 2,500 branches and 13,000 ATMs to serve offline use cases such as cash withdrawals, something that is also very important to even digital customers. That said, retail product penetration remains low at Mandiri, only 5% of the 30 million deposit customers have at least one loan product in Mandiri, be it credit card or mortgage. We believe that true technology through digital app, a new way of marketing these products, new way of targeting our customers, we can increase that retail product penetration. That is not all. Please note that a big customer base and high-traffic app will give us advantage when it comes to exploring value at partnerships. As a reminder, Mandiri's old version mobile app have nearly 6 million active users with a daily traffic of 2 million to 3 million. Moreover, we have a strong wholesale clients that provide us with great leads to potential value chain businesses. Our third principle is on partnerships. We choose to partner with as many as possible, not the other way around. However, note that we are selective in picking our partners in different areas of the business. Last but not least, in Bank Mandiri, we believe that transformation is possible as long as everyone is committed. Therefore, our digital strategy is less about other banks, but more about our bank. Transformation is on the way. So please stay tuned. That is all from me, and I would like to pass on the presentation to Pak Tim to talk a little more about New Livin' by Mandiri. Please, Pak Tim?

Thank you, Ibu Sandra. Friends, let me take you through -- Ibu Sandra has actually given us a bit of prelude of what New Livin' is all about. We recently launched New Livin' during our anniversary -- 23rd anniversary on the 2nd of October. And since then, actually, I've got a lot of questions from friends and alike. And they asked me, what is this New Livin'? Is this a digital app? Is this a digital bank? Or? Because in the market is quite interesting when people perceive a new launch. So let me open by saying what we have here from the perspective of what a digital bank is. The digital bank normally is defined as something that offers services without a branch. And if I take that further, what does it mean to have a bank without a branch? What it means is the clients would want to interact with the bank without going to the branch. They can -- they would want to do it from the ease of their living room for example. So what I can say -- what New Livin' is all about, this is what it is. So I would like to probably introduce to say that everything that you need in a digital bank is now delivered by Livin' super app. So Livin' super app will have three big components. The first big one is actually what I would call the comprehensive banking services. As -- and that means everything that you normally do by coming to the branch when you dealt with the bank before, today, you don't have to do it anymore by coming to the branch. I can open an account, like Ibu Sandra said, within 5 to 10 minutes, but I would say average probably closer to the 5 because I've got the technology that is connecting all of us to [indiscernible], which is the repository of residents' data. And then the next bit is -- the next block is when I call the full suite of financial services. We have subsidiaries in the Mandiri Group, 11 of them. So when you deal with Mandiri through the super app, which is called the New Livin', we can do it without even having to go to those offices for our subs. Last, which is the most exciting part, is the New Livin' is structured in such a way because it's actually using a complete new technology. So if people ask me, is this actually an upgrade from the previous Livin'? It is not an upgrade from the previous Livin'. This is a complete new build using digital native technologies, stacks, microservices compartments, whereby I'm able to bring partners into this ecosystem, lifestyle and the likes, even for nonfinancial. So this is where all three combined, what we present in our new super app. So I'm just going to give you a flavor of one of the important parts, which is the seamless account opening for our new clients without having the need to actually come to the branch. So the solution -- probably in the past, it was close to hours. Now we can do it within minutes. From a branch, you can be doing it from your couch. The exciting bit since we've launched this, what, 3 weeks ago or so, 2nd of October, we have got quite a nice respond, and I've got about 1.5 million downloads throughout. And the other piece is the acquisition cost is actually quite attractive. It's less than $3, and we target to get about 10 million to 15 million all combined from existing as well as new customer base. One more thing that probably is of interest, our New Livin', because we come in with that big base, actually has got traffic that in most digital world, people measured by GMV or GTV. Our New Livin' and the digital channel -- sorry, the Livin' digital channel, that is combining the older ones. We already reached 1,000 trillion. And the closest that I know from what I've read in the media, even the [indiscernible] in Indonesia they have been talked about the fintechs. The largest probably today that I'm seeing is not more than, if I'm not mistaken, 400 trillion. So I've got already a real estate with 1,000 trillion traffic in the Livin' world. Next. I think this is where we want to -- which is definitely not the first one in terms of offering this app or super app, but we definitely want to pioneer by giving a unique innovation. And the thing that we always look for are, are we able to solve the pain points that clients may face or the customers may face? From an onboarding, which I've touched on before, you can do it without even video calls now. Many apps actually use video calls. We don't use video calls, is actually with the [indiscernible] connected with our [indiscernible]. To pre-login features. So we look at our app, people do not have to directly log in to do certain transactions that they believe requires speed. But then security is actually considered. So it's going to be about of lesser clicks, faster responses and easier. The other piece that we do is also we customize quick picks. So people have got the ability to actually put -- choose what are the activities that you like and through the quick pick function, you can look at all the different functions and features. The next one is actually very exciting. I believe we are the first one. And like I said, we collaborate -- Ibu Sandra mentioned before, we bring partners in. We have LinkAja, OVO, DANA and GoPay, right? We bring them into our real estate. And the beauty of this is not only they are sitting there, but I can see their balances, a kind of holder or wallet holder. I can see live balances. And then I can set up a top-up, which is auto top-up. Depending on the threshold that you like when it drops certain balances, how many times a month and so on is actually at the control of the clients. And then the next one, again, I think we're the first one today, whereby Tokopedia being a marketplace is a very popular place. I don't buy my day-to-day needs unless I need to go to a shop. But for most things, I'll do it through Tokopedia. But with Livin', when I check out on Tokopedia, I just have to say, I'm checking out, and I'm going to pay with Mandiri virtual account. And it will immediately link. When I go to Livin', I don't have to input Tokopedia, the amount, the reference number and so on and so forth. It will pop up to say this is a transaction that is waiting for your approval for whatever amount or whatever product that I just purchased on Tokopedia, and I just have to push and approve. And then the other piece is we do loans. So it's not just on the deposit side. We do loans, and we can do loan applications through our super app. And there are many, many other features. So with that, let me move on to the next block, where we talk about the bank being a conglomerate almost. It is a conglomerate, where we have got subs that I will bring all of them into the super app: for an AXA Mandiri for insurance purposes, for Mandiri Utama Finance for car financing, Mandiri Tunas Finance, Mandiri Sekuritas or security, Inhealth and BSI, which is our Bank Syariah Indonesia. So all in one app, all the subs going to be in one app. So now let me just come to just say, so what's next, right? As I mentioned before, what we have built, we built on a digital native stack, new technology. What it means: We can bring new features in a reasonably fast turnaround time. And I can do upgrades release after release. So I'll be the first one to have admit, ours is not perfect yet, and we'll continue to improve it. But with the -- coming up to the third year -- sorry, in the third quarter, after the launch, we're going to do a lot of enhancement to the existing. And then in Q1, it's going to be very exciting where I'm going to be able to introduce FX transfers 24/7, personalized rates. We're going to bring in DigiWealth, where I'm going to allow people or people going to do -- will be able to make investments including personal advisers. And last but not least, you've heard about buy now pay later or BNPL. So we have now the product ready on doing all that, and once I've got all the approval, it's going to be loaded up Q2 2021, Q3 2023 and beyond. Based on feedback, based on needs, we will be able to continue to develop new features and creating what is most important, the right UI/UX, for our clients so that I can solve all the pain points. We can solve the pain points with the right experience, and we'll keep improving. So with that, I think I hope I've given you a bit of a flavor, what our super app, New Livin' super app, is all about. And I would like to hand it over to my colleague, Pak Panji, who's going to share a bit more with the excitement that we have in Kopra. Over to you, Pak Panji. Thank you.

Thank you very much, Pak Tim. Ladies and gentlemen, Digital solutions and offers that Mandiri provide do not stop at retail segment. As you might aware that we are a wholesale banking, and we have 65% of our loan is coming from the wholesale. So for our wholesale client, we -- for our wholesale client, which consists of around 65% of our total [indiscernible] loan businesses, Mandiri offers wholesale solutions through the launch of our super platform called Kopra, a platform that integrates all wholesale services and features into one single access portal. Features such as electronic foreign exchange, trade and bank guarantee, value chain, smart account, cash management, online custody will be easily accessed through one single platform. To accommodate all business segments from large to small, even small and medium enterprise level, we bring Kopra in three main forms, and we name it Kopra Host to Host, which integrates Kopra to our business partners -- our business partner system in order to ease operational transaction, especially for large corporate segment. The second Kopra Portal Based, which allows easy web-based access by all of our business partners from big corporate to SMEs. Third, Kopra Parternship, which is based -- Kopra Parternship Based, which integrates Kopra with third-party systems, such as Jurnal and iSeller, to tap into the SME market. The existence of Kopra is expected to generate higher current account and saving account for the bank, more business transaction and fees and better data for enhanced credit assessment. These aspects are part of the [indiscernible] strategy of growing beyond lending, like our CFO and our CEO mentioned at the beginning that we've already been lowering down the cost of fund to the level of 1.6%. One of the airport is coming from the demand deposit, which is current account. And we provide them with this Kopra so that the stickiness of the -- our clients, our demand deposit account, it will be a lot more sticky and also by the time they feel and they experience that the easiness of using Kopra, there will be a lot more transaction through our Kopra. So that is the aim of why we develop Kopra. And Kopra are equipped with multiple features, which brings convenience to our business clients, which includes E or electronic foreign exchange, which is a real-time online ForEx transaction. Limit management, which allows corporate to manage and allocate its loan facility that we give and limit them to their subsidiaries or parents company. Remittance tracking, so by the time our client, they do some remittance, they could do some tracking, where is the position of the fund, which is a real-time remittance tracking from Bank Mandiri to other banks. Supplier onboarding, which allows supplier from our wholesale clients to onboard their suppliers and join our ecosystem do easy Bank Mandiri supply chain management. And lastly, Kopra also brings virtual assistant to help our clients who faces difficulties that can be assessed easily without coming to branches. So currently, Bank Mandiri is leading wholesale market share not only on the lending side but also from the current account, trade and bank guarantee with market share of 17%, 23% and 34%, respectively. In addition, cash management and trade nominal transaction has reached more than IDR 10,000 trillion, which is -- I think it is around USD 0.7 trillion and IDR 7.3 trillion until -- sorry, bank guarantee and supply chain also reported IDR 820 billion and IDR 410 billion transaction value until third quarter 2021. Kopra will not only maintain our dominance in wholesale business, but it is expected to improve our positioning even further. So for some more data, the 2020 digital banking transaction nationwide is around IDR 27,036 trillion, which is almost USD 2 trillion equivalent, and then Bank Mandiri position is around 43.2%. So by 2021, with Kopra also, we are really aiming to get sustainability in this dominance on this digital banking transaction. So Kopra will not only maintain our dominance in the wholesale business, but it's expected to improve our positioning even further. We have reached the end of our presentation. And now I would like to return it to Lau, our Investor Relations. Please, Lau?

Thank you very much, and thank you to all speakers. Ladies and gentlemen, we have reached to the Q&A session.

[Operator Instructions] We have the first question coming from the line of -- sorry, it's the wrong guy, but Jayden from Macquarie. Is that you?

Can you hear me okay?

I guess give us a second. No, we can't hear you. [Technical Difficulty] Can you come again?

Can you hear me okay now?

Yes, very well. Go ahead.

Okay. Great. Thank you so much for the opportunity and well done on a really strong quarter, guys. I guess I had one question. I just wanted some thoughts on 2022. What sort of loan growth? How should credit quality be trending for next year? That's my one question.

So I think we'll start with Pak Siddik on asset quality, and Pak Sigit will talk on the loan growth side. Please, Pak Siddik?

Okay. Thank you, Jayden, for the question. You're asking about 2022 projection on credit quality. As you are aware of, we've actually taken the required necessary credit provision that we needed since March last year, 2020, to actually anticipate for a portion of the restructured book that are impacted by COVID to actually go to NPL. And we've done that gradually since March, April 2020. Until now, we continue every month to evaluate the restructured book, how much additional provision we want to actually add so that by the end of the moratorium program from OJK, we have more than enough to actually cover for any potential downgrade. And we also took a more conservative approach on downgrading this structured account that, in our opinion, will not be able to make it, meaning that they were impacted deeply by the pandemic, so rather than waiting for March 2023 to come, we started to actually downgrade those, which we think have no hope on -- of recovering. That's why we explained earlier that a small portion of the restructure will be actually have been taken into NPL. So with that background, there would be a less, less need for us to actually build up any additional provision in 2022. So we actually are projecting the cost of credit to actually decrease significantly, probably going back to 2019 maybe in the -- we're still cooking the number, but it's probably much below 2%. That probably will end up close to by end of the year. NPL also, I think we see -- we are seeing, I guess, improvement gradually, consistently since end of last year. I think we'll continue that trend. The quality of the new book that we're actually putting to our portfolio has been very encouraging because we are very selective in terms of what account we are bringing into our book during the pandemic. So I think the recovery of the loan growth in fourth quarter and early next year will bode well to our balances. So we do not expect to add more. So I think the NPL ratio last year -- next year will be probably between 2.5% to 3% kind of level. But we'll probably update you later on the exact guidance or range of these numbers towards the end of this year or even January 2022, when we finalize our guidance for next year.

Our next question about 2022 loan growth guidance. We don't have an official guidance for 2022 yet. However, we see a high single-digit loan growth for 2022 in line with nominal GDP that we forecast of around 8%. Driver, as Pak Darmawan said, we focus on high-yield segment, commercial, SME and KSM through strong risk management and regional strength and, of course, loan follow transaction. On wholesale, also focus on investment loan, which has higher yield.

The next question comes from the line of Jovent. Okay, so Jovent, please go ahead and ask your question.

I have two questions. My first question on the quarter-on-quarter loan growth. In terms of the breakdown by the regional office, it shows that the Jakarta 3 region actually posted the strongest growth of 4% whereas the Jakarta 2 and Jakarta 1 posted only 2% of growth, and I think it's almost flat growth. Could you explain to me why would there's such a big discrepancy from the three Jakarta offices? And my second question is on the downgrade on the profit restructuring. Overall, downgrade is IDR 2.4 trillion, but to my surprise, that almost IDR 900 billion coming from the low-risk segment, which is almost equal to the high-risk segment. Could you give us more color on what has happened on the downgraded so far?

If it's okay, Pak Siddik will touch on the asset quality side, and we'll get back to you as well on the regional profile.

The total NPL downgrades coming from the restructured book is around IDR 2.4 trillion. So -- and then again, when you look at the breakdown between where it came from, yes, IDR 885 billion come from the low-risk segment. IDR 483 billion come from the medium-risk, and IDR 1 trillion come from the high risk, yes. But if you divide the NPL downgrade versus the outstanding balance for each of the segment, then you can see the risk segmentation or risk differentiation. So the -- from the low risk, I mentioned earlier, the NPL amount is IDR 885 billion divided by IDR 52.1 trillion, so it's 1.7% of the total outstanding in low risk became NPL already. Medium risk is IDR 483 billion divided by IDR 27.6 trillion, so it's 1.7%. High risk IDR 1.00 trillion divided by IDR 10.4 trillion is 9.6%. So, yes, I think in terms of amount, they may not be different. The difference is not significant. But if you divide by the base where we actually -- the bulk of the outstanding is in the low-risk segment, yes. Then we can see that actually the smallest ratio come from the low risk and medium risk. So that's what we had expected, meaning that our methodology to actually segment the restructured book into low, medium risk, actually giving us the risk differentiation in terms of the quality of the restructured books. Am I making sense, Jovent?

I think I'll just quickly touch on the second question regarding loan growth. Jovent, one of the biggest strategy that we're doing is leveraging our regional strength. And the new approach that we also have is that regional strengths are also sectors expertise, right? I'll give you an example, Jakarta 3 -- Region 3, for example, Jakarta is focused on manufacturing industry, seaport ecosystem, wholesale and retail trading. We also have another Jakarta in Region 4, for instance, that focuses on industrial estate, health care ecosystem, retail business cluster. Another Jakarta is focused on PLN ecosystem, education and health cluster for instance. We believe that it makes more sense to basically redirect the focus of our regional, not based on where they are but based on sector expertise. So the profile that you see there, one Jakarta grow further than the other, it's more explained by sector growth as opposed to regional growth. I hope that makes sense. We have our next question, I think [ Pagus ]. I think you are still muted. [ Pagus ]? Okay, so I think maybe we can ask for -- there is no further hands raised in the list. If anybody else has one? Weldon.

Can I just ask on your digital progress? So I guess great work on the New Livin' and everything, but the rest of your peers has sort of set up a separate digital bank with the rationale is like sort of test out new features or to target different segments. So I just want to understand, is it that you think you can do -- you can achieve the same result using New Livin' rather than set up a separate digital bank?

Pak Tim will answer that question.

Well, I think it's a very good question. And frankly, these are the same ones that we keep asking ourselves. But Ibu Sandra, I think have laid down reasonably clear principles and strategy for us at the moment, right? And that is -- for now, we look at our ecosystem, what assets that I have within the bank that I need to maximize. So I believe what we have today, and like I mentioned, even the numbers if you look at the closest exchange marketplaces that is there in Indonesia, is worth 400 trillion. That's the largest. I'm already having a real estate of 1 trillion. But actually, as we speak today, is actually 1.2 trillion now -- 1,200 that is trillion. And it keeps growing with the existing base. So I believe with the strategy that I've just covered and Ibu Sandra covered, what we have introduced, we still have a lot to maximize within our own ecosystem. The question is, are we going to go after other segments, and that other segments will have to be looked at obviously. And are we going to be able to provide the same solution? Or are we going to go different ways? So I think for that one, I would probably not be able to safe to say that out, but what Livin' -- the New Livin' can do is actually -- can reach out anybody that I want to in Indonesia. So probably at this stage, I would like to say that we are still maximizing what we have on our platform. As to what's going to be next, I suppose we will have to continue to watch, see the market, how it's developing. And as you can tell, all the new players that are so-called digital bank have not been able to fill up the way that I expect that to see fill up, right? So you just have to look at the reports. But that doesn't mean we're not going to be able to want to evaluate and value and how we're going to go forward with that. Perhaps that would be my answer. And hopefully, that gives you a bit of a color as to the approach that we're taking, Weldon.

And I think maybe if I can add, Weldon, I think one thing to understand also is the staging. Many digital banks out there are talking about how to get from 0 customers to 3 million in the next 5 years, how to get from 500,000 customers to 5 million in the next 3 years. As we speak, Mandiri has 30 million. So the focus rather is more to product penetration and make sure that we can optimize what we already have as opposed just go for any other thing. So I think it's very important to also understand the starting point, where Mandiri is versus the ones that are just started. I think due to time, and I think there is no other hands raised, we'll end the meeting here. Thank you very much. Thank you to all speakers, and thank you to our participants. If you have any questions -- further questions, feel free to email the Investor Relation team or contact me personally. Thank you.