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

Thank you very much. Good evening, ladies and gentlemen, and welcome to the PT Bank Mandiri's Second Quarter 2020 Results Briefing, and thank you all for joining us today. My name is Laurensius as the Head of Investor Relations. And together with us today as speakers we have Pak Darmawan, our CEO; Ibu Alexandra, our Vice CEO; Pak Siddik, our Chief Risk Officer; Pak Panji as Treasury Director; Pak Sigit, our CFO; and Pak Tim, our IT Director. Before we start, I strongly encourage you to download both our presentation material and financial statement currently available on the IR web page of Bank Mandiri. [Operator Instructions] Now to start the presentation, I'd like to hand the presentation to Darmawan, our CEO. Please Pak. Thank you.

Thank you very much, Lau. Before going into the second quarter 2022 performance, allow me to start discussing about the core strategy approach we took over the last couple of years, which had resulted into positive results so far at least. Bank Mandiri has been well known as a wholesale bank. In this segment, we are the market leader. Our relationship with the corporates for the longest years provided us with a unique access to its value chain businesses. We have benefited significantly from this relationship. On the other hand, Mandiri had also put a large footprint on the retail segment. Our urban presence is strong, and our individual pin pool is huge with at least 32 million customers as of June 2022. Both wholesale and retail dominance combined had opened up exclusive access to a unique and captive ecosystem for us, an advantage over many other banks. we are now mining that ecosystem through serious digital innovations. We do not stop there, the world, the people, the business and customers' behaviors are evolving. New opportunities and new ecosystem have been surfacing in the last couple of years. Besides looking inward, we are also now looking outward through enhanced digital capabilities, we seek values outside in the open ecosystem. To extract all these values, we have established and invested in our own enablers, our bankers and our digital channels are meaningfully upgraded. Lastly, our commitment to sustainable banking practices with corporate governance and bringing positive impact to society sits at the core of our day-to-day at work. With that, Mandiri is an all-rounder ecosystem bank empowered by digital innovation. Moving into the results. Overall, the performance we are seeing up to June 2022 is very encouraging. During second quarter 2022, we identified loan growth acceleration as a key strength, alongside the improvement in net interest margin, cost efficiency and asset quality. Progress on digital initiatives is also very positive. The key challenges were the non-interest income due to lower trading gains as well as the rupiah loan yield, although on a blended basis, our overall interest earning asset yield improved. In summary, second quarter 2022 was positive. Consolidated profit grew by 55% year-on-year, pre-provision operating profit up by 19%, loans and CASA grew by 12.2% and 17%, respectively. CASA ratio recorded an all-time high of 71% in June 2022 as a result. The aforementioned achievements were supported by well-managed ratios, such as NIM improvement, low cost to asset and lower cost of credit. As a result, ROE continued to improve in June 2022. Loan growth in second quarter 2022 accelerated nicely across most segments, bringing total consolidated loan growth of 12.2% year-on-year from -- sorry, from 8.9% growth in first quarter 2022. On the wholesale, corporate growth accelerated significantly to 11% year-on-year, driven mainly by the private corporate, which was up 17% year-on-year, mostly from investment loans. Retail accelerated as well across most retail segments, led by SME loans, payroll loans, auto loans, normal, micro and credit cards. Aggregate subsidiaries also grew nicely year-on-year. Our consolidated NIM improved positively from 5.3% in first quarter 2022 to 5.4% in first half 2022. More importantly, on a risk-adjusted basis, accounting for credit cost, NIM improved more meaningfully, as you can see on the left chart. The improvement of NIM was largely driven by our cost of funds, which continued to decline in June 2022, thanks to the rising CASA ratio shown in the top right chart. On the other hand, positive trend in asset quality drove credit cost down. Total LAR continued to decline in June 2022, as you can see in the bottom right chart. Our dollar loans helped support the overall loan yield performance amid the flat year on the rupiah loans. As you can see on the right chart, dollar pricing increased sooner in response to the benchmark rate relative to the rupiah held on the left chart. Moreover, overall interest earning asset yield also improved in June 2022, thanks to the treasury balance sheet, which will be discussed further by Pak Panji, our Treasury Director. I will now pass the presentation to Pak Panji to continue with the highlights. Please, Pak Panji.

Thank you very much by Darmawan. Ladies and gentlemen, allow me to start with the non-interest income analysis. During the first half 2022, consolidated non-interest income was up 1% to IDR 16 trillion. The second quarter stand-alone was weaker quarter-on-quarter. This is driven by cyclical weakness in the treasury gains, which is we all know -- aware that the Feds already been several times raising the interest rate, which is last night was 75 basis points. So all are being expected already largely expected. However, it is worth highlighting the improvement in our recurring fees, which was up 12% in first half 2022, driven by more source of revenue, including fees from Livin' and fees from Kopra. The increase in recurring fees helped offsetting the weakness we had in the non-recurring fees, as you can see on the right-hand chart. Ladies and gentlemen, regarding the treasury activity, which is we try to optimize the revenue mix between -- and also the bonds profiling as we are really aware that the probability and the reality that the interest is going high. So the next, let me quickly talk about some updates from treasury side. Overall, our strategy focuses on balancing our overall contribution to the bank's revenue. Indeed, while trading gains was low, especially on the bond trading, while on the FX are stable. And then the trading gains was low amid pricing the yield environment, which is the bond portfolio. The treasury team had optimized bonds interest income and contributed a total revenue for the first semester of IDR 10 trillion or 10% higher year-on-year as shown on the left-hand chart. Overall, bank-only interest-earning asset yield improved as a result, supporting net interest margin amid flat loan yield. Moreover, about 1/3 of bonds are on the trading/AFS book, which limits risk of mark-to-market. Previously, the AFS is bigger than the amortized cost portfolio. I will now pass on the presentation to our Vice CEO, please Ibu Alexandra Askandar.

Thanks, Pak Panji. Ladies and gentlemen, let's now shift gear to the operational cost side of the equation. Much has been done, and the results so far is encouraging. Despite the flat growth in non-interest income, Bank Mandiri was able to lower the cost to income ratio further down in June 2022 to almost 35%. Moreover, cost to the asset ratio was also down to 2.3% in June. The bank's level of efficiency has improved meaningfully over the past years. Our average asset managed per branch has improved and PPOP per employee also improved as shown in the bottom left chart. Digitalization stands at the center of these results. As you can see on the right chart, G&A expenses had improved significantly, and that is equally true for headcount expenses as well as promotional costs. As a result of the above, profitability of the bank continued to improve with consolidated ROE spending at 18.4%. Overall, we are happy with the achievements so far, but remain heavily focused on our long-term goal that is sustainable performance and high profitability. Next, I'd like to touch on the guidance. We are upgrading our loan growth guidance to now more than or equal to 11% consolidated by December 2022. This is higher than our previous guidance of more than 8%. Net interest margin and credit cost guidance remained unchanged. I'd like to now pass on the presentation to Pak Sigit, our CFO. Please Pak Sigit.

Thank you, Ibu Alexandra. Ladies and gentlemen, now allow me to go through our financial highlights. Our total asset during the second quarter 2022 increased by 13% year-on-year, driven by 12.2% growth in loans and 27% increase in government bonds and marketable securities, which is part of our effort to optimize the ample liquidity environment we are in. On the liability side, growth was driven largely by our CASA, both current account or demand deposit and staffing deposits. Demand deposits grew by 17% year-on-year and staffings grew by 16% year-on-year, both combined CASA growth of 16.5% year-on-year. This ROE consolidated CASA ratio to 71% as of June 2022, an all-time high. On the P&L side, net interest income was up 19% year-on-year to IDR 42 trillion in first half 2022, driven by the improving net interest margin trend we showed during the first half of the year. Non-interest income was flat 1% in first half 2022 due to the cyclical weakness of trading gain in second Q 2022. However, as discussed earlier, the recurring fees are trending positively, thank to the digital initiative we have put out so far. Total revenue grew by 14% year-on-year to IDR 59 trillion, higher compared to the growth in operational costs of 4% year-on-year, leading to positive [ CoC ] and lower cost income ratio. PPOP was 22% higher in first half 2022 year-on-year. Furthermore, our provisioning was down meaningfully during the first half 2022, which helped net profit to grow by 62% year-on-year to IDR 20.2 trillion. Most of the key consolidated ratios are showing positive results in first half 2022, starting with NIM, which was 5.4% or 32 basis points higher year-on-year. Our cost-to-income ratio came down to 41% from level above 45% in the last couple of years. Equally, cost-to-asset ratio has also come down to 2.68%. Asset quality ratio are showing encouraging trend in general and credit costs were keep at a very healthy level of 1.42% during the quarter. All the above, led to increase of the consolidated return asset to 2.3% in the first half 2022, return on equity to 18.4%. The next slide shows the group's loan and deposit breakdown. Growth of loan until June 2022 was led by corporate at 11% year-on-year, SME and Micro at 12% and 13% year-on-year, and consumer at 9.3%. Our subsidiaries also contributed meaningfully to growth with 18% year-on-year. On deposits, focus growth was largely on the [ chip ] funding, such as staffing deposit and demand deposit as you can see on the right-hand chart. Loan yield was flat in second quarter 2022, as you can see on the top left chart, this is primarily driven by the pricing environment we are seeing in the market at the moment. Thankfully, our bond exposure helped us improve the overall interest-earning asset yield of the bank. At the same time, our initiative on CASA has led to the decline of our funding cost as shown on the right-hand chart, both combined supported the uptrend in net interest margin. The bottom right chart shows the NIM of the bank-only as well as the key subsidiaries, BSI and Bank Mantap. With a relatively stable net interest margin trend in both subsidiaries, we were able to improve our consolidated NIM in first half 2022 to 5.4%. I will stop here and pass on the presentation to Pak Siddik on asset quality update. Please, Pak Siddik.

Thank you, Pak Sigit. Ladies and gentlemen, please now allow me to run through some updates on the asset quality trend up to second quarter 2022. Overall, the indicators and trends that you're seeing on this slide are showing positive progress for the group. The COVID-19 restructured book continued to decline as shown in the top left chart, IDR 76 trillion consolidated or about 6.6% of our total loans. Both subsidiaries and bank-only saw improvement. Further, the improvement we had for NPL ratio and SML ratio in second quarter had led to lower LAR or loan at risk ratio of 14.6% consolidated lower quarter-on-quarter and year-on-year. The NPL ratio, which stood at 2.42% consolidated, it's well covered with 253% NPL coverage on a consolidated basis. As a result of the above, we were able to lower our credit costs further to 1.42% consolidated in the first half of 2022, lower than the previous quarter and year. Our guidance on consolidated cost of credit is unchanged, and we intend to keep our credit cost level between 1.4% to 1.7% for the full year 2022. Next, I'd like to discuss about our COVID-19 restructured book positioning and its risk profile in more details. The numbers shown in this table are in bank-only term. In June 2022, the outstanding COVID-restructured loans dropped to IDR 58 trillion lower compared to IDR 68 trillion in the first quarter 2022. More importantly, the improvement happened across all segments in both wholesale and retail. The medium risk and high-risk COVID-restructured loan segments remained manageable at around 43% and 17%, respectively, as you can see on the table. Please note that the provision set aside for a particularly high risk group is 58% as of June 2022, and the provisions set aside for the total book is 19.5% higher compared to 16.7% in the first quarter 2022. Relative to the actual COVID-19 restructured NPL ratio in June of 3.3%, our coverage is more than enough in our view. We will continue to watch these accounts very closely and take the necessary actions. And then if necessary, we'll adjust our provisioning level. Next, the following chart to provide some analysis regarding CPO price cycle in relation to the CPO NPLs of the bank. Question on this topic came quite often to us over the past couple of months from investors and analysts, perhaps including some of you, following the sharp decline in CPO price, we witnessed this year. Overall, the situation remains under control. The right chart shows the resiliencies of our CPO loan portfolio with NPL ratio never exceeded 1% level throughout the various cycle of CPO price over the past 10 years, at least. In general, our internal comfortable level for CPO price would be around $400 per metric ton, which is still much lower compared to today's $800 level. Finally, I'd like to update you guys regarding our capital positioning. In general, the CAR level, which is at 18.4% in June 2022 is well kept with an optimal level. On a yearly context, we intend to maintain CAR and Tier 1 ratio at around 18% to 20% range in the near to medium term. I'd like now to pass the presentation over to Pak Tim as our Chief Technology Officer, to discuss more on the super app Livin' and its performance. Please, Pak Tim.

Thank you, Pak Siddik. Let me take you through now with the Livin'. As you know, we launched our super app late last year in October. And Livin' was designed as a journey. And if you like, we put it into 4 stages, and each stage is actually built upon each other. The first stage that we looked at was ensuring the digital super app, and if you liken it to a digital mall, it's something that we'll have crowds. So we got to make sure that we attracted crowds that are coming to this digital mall. So far to-date, I'm happy to update that we have actually attracted 12 users -- 12 million users that is into our app. Once we have built this digital app and that is built with focus on UI/UX. Once we have that crowd, we are moving on to the second stage that is monetizing the crowd by having the right use cases and I'll talk a bit more in terms of some of the initiatives that we do there in Stage 2, and that's around investments and payments. And the last -- between 2 and Stage 3, we are moving beyond just banking that is moving into a lifestyle ecosystem. So this digital app is designed to build upon the open ecosystem where we have just recently launched our brand that is called Sukha and I'll cover a bit more on Sukha. Once we move on to that, the Stage 4 is something that is pretty much endless. So we will be agile in terms of thinking and coming up with new proposition. And I'll cover a bit more in terms of what is coming up in the near future. So let me move on to the next page. So as I mentioned, we were focusing a lot more in terms of building the crowds and in just 9 months I'm happy to give you an update of the outstanding performance that we have had. We have had 14 million downloads in just 9 months that resulted in 12 million registered users, and that's an increase of more than 50%. And that is actually combined with actual transactions that you can see, whereby the monthly active users out of the 12 are actually at a level of 8 million. That's almost double -- grown by almost 50% to be exact 48%. Coupled with that, comes the transaction value and transaction volume. So the volume has gone up by 64%, and that's -- if I annualize that, it's close to 2 billion transactions. And then the value, likewise, has gone up by 49%. If I annualize that, it's going to be close to -- is around IDR 2,300 trillion. That is combined because we built the right use cases. As you can see, the features has gone up from 42 to 52 in the last 9 months. So let me move on next to show that in the transaction side, we are seeing a significant growth that is consistent. And what is quite encouraging, we can see that the transaction has actually surpassed that of ATM transactions in both volume and value. So within the Livin', we see that our transactions volume is now 1.8x more than what is there in ATM. And the trend is -- you can see the gap between an ATM and Livin' on that chart. In terms of value, it's even higher. The same -- the volume that is driving the value, the value now is showing 2.8x more in rupiah terms compared to that of ATM. The trend is very clear. So I think what we're going to be seeing that for non-cash, we have been very successful to migrate all the transaction use cases onto our Livin' super app. Now let me move on to the next page where not only we deal in transactions, the real meet in the bank side is actually landing on the asset side. What I can report and to update with the focus that we have built around assets with digital loans and as well as credit cards, you can see that the response has been extremely positive. Personal loans net booking, now we are already seeing more than 60% -- 16%, that is 1-6 is now done through our app Livin'. As well as for credit cards, more than 70% of our installments have been converted through Livin' as well because the capability is built for clients to pick and choose as to how they want to do the installment and with the period. Now let me move on to the next one to introduce to you what we've just launched in May, and that is the investment feature. And what is exciting about this investment feature is that we are actually democratizing investment. And this leads to unlocking the opportunity for a lot more people to do wealth creation. And what we have done, we have actually allowed people to buy mutual funds at the size of IDR 100,000 per item. So it is almost like if you compare that to selling shampoos in the past, people love selling shampoos at the 2 little bottle ones. Now we are selling shampoos at sachets level. So what you can see as a result of this is actually not only the size and the products, but we've build a true digital onboarding. With less than 15 minutes, people can now become wealth client. And that resulted in the user growth in just -- since we launched in May, we have doubled the size of our retail wealth investors. And then, so you can see as well that the transaction that has been bought through our Livin' has passed that of IDR 500 billion, and that equates to about IDR 15 billion a day or $1 million buying transacting mutual funds on our super app. So that's very encouraging to see how it has grown. Now let me move on to the next page where once we have done that, as I've mentioned before, this is the Stage 3. So we've built the different blocks where we can now start monetizing and leveraging, capitalizing on what we have built. Now we want to venture beyond banking. This is where the excitement really comes in, because we do have an open system platform where we are integrating the ecosystem. And the idea is to have one seamless experience that everybody can do beyond banking through our super app. This is called Sukha S-u-k-h-a and combining banking and lifestyle. So with Sukha, we can offer a lot of different things. And the -- what you can see and as just what has happened recently, we sold 25,000 tickets of Westlife on our app within 30 minutes. Only in 30 minutes sold out the entire country is selling 25,000, it's done through Livin'. We are doing -- we are seeing Jogja Marathon in August this month. We sold the tickets under 2 days, fully sold. So let me now move to a bit more with Sukha. What we have done, Sukha is truly an open digital ecosystem, like I mentioned, hopefully, clients don't have to go in or different apps. And through just one Livin', they could do different lifestyle transactions. We have had partners now in different categories. So this is the early days. We're starting off with 9 partners. You can do Garuda, which is our national carrier, Traveloka, KAI and so on, which is Kereta Api. But in the future, we are already lining up wider categories with a lot more partners that are strategic. So what we're trying to choose here, we just want to make sure that we deal with the top partners that are really making a difference to our client base. And then on top of that, our clients in Livin' will enjoy specific privileges that are going to be given through our offering. But last but not least, as I've mentioned before, we have invested heavily in our data analytics. We have a data engine that is running at about 7,000 terabytes or 7 petabytes and I've got 140 data scientists. So now we are in the start of monetizing a personalized offering that we can provide through Sukha. So let me come to my last page, where Livin' really is developed through an agile methodology through digital stacks where time-to-market becomes the essence. As I have mentioned before, in the last 9 months, we have actually added 10 more features. So you can see here that since our launch in October 2021 till now, almost every month, and now we pace it out differently to make sure that we are adding features that are relevant. And the future releases that you will see, there are a lot more that is coming up, including Indonesians that are overseas using their own mobile, which are international numbers can be onboarded. We're going to do cross-border remittances. This is going to be a real gaming changer why our clients can send small denominations. And with the assurance that at the other end, they receive full one of the transfers with reasonably low transactional transfer fees here locally. And then in the investment side, not only are we going to release the mutual funds, but we will also do bonds and going forward equity. So with that, I think this is my quick update and so what we have done around Livin', our super app. I'm going to pass on to my colleague, Pak Panji, who is going to discuss more about Kopra. Pak Panji, please. Thank you.

Thank you very much, Timothy. Ladies and gentlemen, the digital solution and offers the Mandiri profile doesn't stock at retail segment only. And for our wholesale client, which consists of around 60% of our total bank-wide business, Mandiri offers wholesale solutions through the launch of our super platform called Kopra last year in October 2021. It is a platform that integrating all wholesale services and features into one single access portal features such as electronic FX, trade and guarantee, value chain, smart account, cash management and online custody are now easily accessed through one single platform, as you could see at the slide. There's an E-FX on the top, on the left, and then there is remittance tracking also that could track status of ForEx remittance from Mandiri to under bank and there's also limit management for the clients that use Kopra, and there is also onboarding supplier, easy registration for supplier to join the Kopra ecosystem as well as there is a virtual assistant offering administrative assistant without coming to the branches. So ladies and gentlemen, Bank Mandiri has the main operating bank for business clients through Kopra, like Livin', the goal from Kopra is to lead Mandiri to becoming a key operating bank for our business clients and with that to return deposits, especially the demand deposit. You could see on the slide at the left, Kopra also shows direct financial impact to Bank Mandiri. As you might see, the number of product holdings before Kopra is only 1.4 product. And then after the client using our Kopra, they goes to 2.5 product, which is a kind of increasing of 87%. And then if we see the average balance of current account in terms of rupiah billion before Kopra and after Kopra, I mean, the Kopra user versus the non-Kopra users, if the clients, our corporate clients it's not a Kopra user, which is non-Kopra. They only have the average balance IDR 0.9 billion, while when they register to the Kopra platform and become the active user, it goes to IDR 5.1 billion. So it is a 5x increase on our demand deposit balance. In terms of the number of users registered in -- at the end of 2021, there is only 23 -- 247,000 user registered and now it's already been 55,041 users. It is a user registered. And if you see at the right part of the slide, it is resulting a higher bank-wide current account ratio and lowering down the cost of fund of demand deposit. If we see the fourth quarter of 2020, which is the line of light blue, it is 1.95% of the cost of fund of demand deposit. And now it's already goes lower to the 1.36% only the cost of fund of demand deposit. And if we see the current account ratio by the fourth quarter of 2020, which is only 31.2%, now is going up to 35.8%. So again, the total registered user increased to around 55,000 or more than doubled since the December 2021 and the number of product holding of Kopra users is meaningfully higher than the non-Kopra and come with higher balance of demand deposit as well. So let me move to the next slide, which is Kopra drives wholesale transaction improvement in Bank Mandiri. Overall, Kopra had a wholesale transaction in general to grow and we it the fee income as well. This is the case across all products such as trade and bank guarantee, cash management and E-FX. And if we could see this slide, the Bank Mandiri wholesale transaction by type of product, we could see that at the very left of the -- on the top of the chart, there is trade and bank guarantee transaction value. First half of 2021, only IDR 275 trillion, and then first half of this year it's growing by 43% to IDR 394 trillion. And how about the cash management transaction value. Last year, first half is only IDR 5,986 trillion sic [ IDR 4,986 trillion ] and now it goes to IDR 6,354 trillion, so it goes up 27%. That's in terms of the cash management. And how about the E-FX, electronic FX transaction value. First half last year, only IDR 3 billion, our clients using the E-FX on the Kopra, only USD 3 billion. Now by using the Kopra, the E-FX volume transaction is USD 6 billion. It is almost 10% of our total value this year for the client E-FX volume. How about the total wholesale transaction by frequency of transaction in million transaction? Last year first half, 189 million transaction. This first half, 2022, it goes to 326 million transaction, which goes up by 72%. And the total wholesale transaction by value, it is also goes up by 29% from last year was up IDR 6,261 trillion to IDR 8,053 trillion. So [indiscernible], at the end of the year, it could be around IDR 16,000 trillion volume of value of transaction by using Kopra. How about the fee-based income? Last year, first half, it's gaining around IDR 903 billion. This year first half, IDR 1.21 trillion. So Kopra contributed to a total fee income of around IDR 1 trillion in the first half 2022. Ladies and gentlemen, Kopra, will also available for overseas Bank Mandiri customer with innovative features. So by May 2022, it is 2 months ago, so our client in Singapore could also access the Mandiri cash management. So they have the access to the Kopra as well. And then this slide provides you with some of the scheduled features for Kopra, which is the July 2022, we are -- have the plans to launch the new feature, which is number 1, is Mandiri Reconciliation Portal. The second is Mandiri Hospital Application System. The third is Mandiri Cash Management Lite, they are changing and then substituting the Mandiri Internet Banking. So we're upgrading the Mandiri Internet banking for the businessmen that goes to MCM Lite. And then the fourth is Virtual Assistant 2.0, as well as the online onboarding transaction product, MCN. And then by the time Kopra goes to the anniversary, the first anniversary, the first birthday, there is an online onboarding for Mandiri Global Trade as well as Mandiri Financial Supply Chain Management as well as Financial Forecasting. Lastly, we are also expanding Kopra features to our office branch, not only in Singapore, but also Shanghai and Hong Kong. That is all for me. I'd like to pass the presentation to Ibu Alexandra. Please, Ibu Alexandra.

Thank you, Pak Panji. Ladies and gentlemen, let me now touch a little bit on some of the bank's ESG initiatives. In general, we are on track and very much aligned with the banking regulation on sustainable practice under POJK 51, which covers sustainable financial products and services, human resources and corporate governance. Some of our sustainable financial products and services are the sustainable bonds, which we issued last year with 54% allocated to finance social projects, electric vehicle financing for retail customers and sustainable loans. We also continuously educate our clients through workshops and group discussions forums. For the social aspect, we participate it in several corporate social responsibility programs, along with loan disbursement through our financial inclusion channel, such as agent banking, P2P lenders and et cetera. Our sustainable portfolio has gradually increased throughout the year. As of second quarter 2022, about 25% of the total loan is categorized as sustainable portfolio, which consists of 51% micro, small and medium enterprises, 43% sustainable palm oil and the remaining being financing towards renewable energy, clean transportation and more. Moreover, Bank Mandiri is committed to support sustainable banking by prohibiting financing project that endangers the environment and social. Some of the credit policy can be seen in the right-hand side of the slide. This slide provides a specific update on our palm oil exposure. Out of the total outstanding of IDR 89 trillion in second quarter 2022, about 80% is wholesale, corporate and commercial, while 20% SME and micro, which are largely the plasma farmers. Mandiri is actively financing more than 73,000 CPO farmers. Moreover, we also have a strong policy in growing palm oil sectors. Some of the criteria we ask in our debtors are Indonesian Sustainable Palm Oil Certification requirement, no child labor and grow palm tree in sustainable land, no peatland policy. More of the policies can be seen in the upper right part of the slide. The bottom right chart provides an update of the mix between RSPO certified and uncertified loans. Here, we believe we are making a good progress of currently having around 90% of our exposure in certified ones. We also take part in supporting renewable energy ecosystem. As of second quarter 2022, our exposure is about IDR 4.7 trillion in renewable energy, which increased by 10% since last year. We signed an MOU on green financing and expand utilization of the solar rooftop system and an MOU for electric vehicle charging station as our commitment to support renewable energy. That is all from me. I will now hand back the presentation to allow for Q&A session. Thank you.

Thank you very much, Ibu Alexandra, and thank you to all the speakers here. I will now open the Q&A session. [Operator Instructions] Selvie Jusman from Morgan Stanley.

Hello. Can you hear me?

Not too clear. Could you speak a bit louder, please?

Okay. Is it better?

Much better.

Okay. I have a couple of questions. So maybe my first question, probably around the loan side. So I think since late last year, you mentioned about your strategy to grow towards the SME side. So I just wanted to find out how is that going? And is that -- in that aspect as well, which segment have you been growing in? And of course, because you are growing the SME, why is it we are not seeing that in the loan yield? So I think that is my first question. And then my second question is around the cost because I think cost control has been really good. From memory, I think late last year, you did provide quite a bit of, I think, some form of contingent cost. Is it one of the reasons why the cost this year has been lower? And also, I guess, I think what you are doing on the IT front is very exciting. So I wanted to find out in terms of like the expenses related to the marketing, I think quite a bit of a lot of digital initiatives. Where are they being incurred? Or is it like being part of the capital expenditure? Or is it like going through your expenses? So I wanted to find a bit more on debt. Yes, I think those are my 2 questions.

I'm sorry, Selvie, could you repeat the second one? We got the IT part, just the one before that.

Before that. The report I wanted to ask because the cost control has been very good. But from memory, I think late last year, you did prove quite a bit in terms of cost, which could be like, I think, contingent cost you like providing earlier for the subsequent year from memory. So I just wondered, basically what I'm trying to find out, will cost pick up in the second half or the cost-to-income ratio is sustainably like lower -- not only this year, but also next year.

Sure. So thank you, Selvie. Pak Sigit will be replying to your question, perhaps is if Pak Tim would like to add on the IT one. But Pak Sigit will also talk about -- could also talk about the marketing cost for Livin' and all that. Pak Sigit.

Thank you, Lau. Thank you, Selvie. Yes. I will answer about your question about the cost. Yes, in the first half 2022, our cost is very good, very low with cost-to-income ratio for the bank-only around 25%. While the slow growth in first half due to low OpEx recognition deferral that will be recognized in second half 2022. One of the reason of this is due to long Lebaran holiday in May 2022. But we expect in the second half, our OpEx grow higher, but we plan to maintain our OpEx growth reasonable at a mid-single digit growth in full year basis and creating a positive choice. And overall, we expect end of year 2022, our cost-to-income ratio are below 38%.

Yes. And on the marketing cost for Livin'?

Yes. We have -- we have promoted expenses, especially for Livin', start from last year until this year, we have around IDR 100 million. And we expect in the next future, our cost will reduce because Livin' also have capability to become a promotion media. So I think this year, we can register a cost for a promotion, especially for Livin' and Livin' as part as Tim mentioned that we have a capability to become promotion media.

Maybe for the first question, I'll just help on that one. Essentially, if you look at the growth profile in the second quarter continued to be sort of in line with the strategy that we have with a 12.2% of consolidated growth. You got the SME, you got some of the other sort of segments growing on the right side of that equation. And also one thing that is very interesting is if you look at the growth in the KUR and KUM, as you know, KUR is subsidies to micro and KUM is the normal micro. We are actually focusing our growth now and be less dependent on essentially the subsidy. And if you look at the second quarter, you'll see a very nice improvement in growth in the KUM versus the KUR. And just for your information, the yield on the KUM, the normal micro is about 14%, 15% versus the KUR level of about 11%, 10%. So that will -- that is still part of the question. And not to mention that selecting growth, focusing on investment loans as compared to, say, working capital of consumer. It's also one approach that we took basically to focus on the high-yield one. Now why is the yield -- why is the loan yield not up yet up to the second quarter? Well, there are various factors. Obviously, one factor is the pricing environment out there is still not very favorable to increasing interest rate environment. So competition is still around. It's not as tight as last year, and therefore, you see loan yield more on a plateauing sort of level, not declining, but it is still there. Second, obviously, the -- most of our benchmark rupiah are benchmarked to the JIBOR, which is still on the flat basically level today. And we expect that once JIBOR basically respond to the increase of BI rate of which is expected by our economy is about 75 basis points this year. That would basically follow up. So I think the strategy that we have had over -- moving towards these high-yield segments has at least helped us to maintain the loan yield flat, right? So I think that's much better compared per-hour understanding a lot of other competitors out there that is tackling with the yield environment. So that is one of your questions, Selvie. Well, let me just quickly add with regard to the marketing, as you asked earlier. From a marketing perspective, I think I just want to highlight in terms of digital initiatives, one thing that I want to be very clear is, therefore, the first block is so important. So we built the crowd.

Well, let me just quickly add with regard to the marketing, as you asked earlier. From a marketing perspective, I think I just want to highlight in terms of digital initiatives, one thing that I want to be very clear is, therefore, the first block is so important. So we built the crowd. Once the crowd is there, I can move this crowd for a different business model. And to attract the crowd, we actually use programs for awareness, but we are very clear that since day one, the thing that we've got to focus on is path to profitability. So I think Selvie, if you look at the market, a lot of digital players today, when they come in into the market, they perhaps spend money in a slightly different model to attract clients. They get to pay for clients who come in into the platform. For us, I think we focus on UI-UX where we create and provide the right use cases. So they come to our super app because of the use cases, not because of the monetary incentives that are being provided. Once we have that crowd, now this crowd can be brought to different areas of the bank to generate further revenue streams. So perhaps, I just want to add that principle now, in terms of how we look in terms of providing marketing and versus UI/UX that we built in our digital capabilities.

Thank you very much, Pak Tim for the replies. I would like to call for Weldon from HSBC.

Can you hear me?

Loud and clear.

All right. Great. Just one question on NIM. I think previously, you're guiding each 25 basis points BI rate hike will boost NIM by 8 to 11 basis points. So BI has been quite -- hasn't really reiterate yet. What is your -- does your NIM guidance sort of include a certain amount of BI rate hikes in the second half? And then how do you see that translating into loan yields, given what you just said about the competitive environment and all that.

Pak Sigit?

Yes. Thank you, Weldon. Yes. Yes. As our guidance that our NIM is around 5.1% to 55%. And first half, our name achieved around 5.4%. I think we can keep our net interest margin end of year are still in line with our guidance. And I believe that 5.4%, we can keep until end of the year.

Thank you, Pak Sigit. And I think Weldon and this is also related, just to add related to Selvie's question. Mandiri is working on a function that is less dependent on factors that is beyond our control. And that is why we're working on Livin'. That is why we are working on Kopra and we're increasing our CASA ratio from an average of 60% over the past 10 years to now 71% an all-time high. And that's the driver behind our cost of funds. On the other hand, the strategy to move and balance the loan mix from high yield and low yield has helped us to maintain our loan yield flat and flat is better than down. And both of those formula combined has resulted into a 5.4% of NIM in the first half versus a guidance of 5.1% to 5.5%. So in that context, BI rate, up or not is for us, it would be great. It goes up because, obviously, we're going to see that repricing. But we have that 5.4% NIM with or without it. And I think that's what the key is. And so if the question is, what if BI rates start to increase in August as per our expectation by 75 basis points. On the one hand, you have your U.S. dollar loans already repricing up as it follows SOFR benchmark. On the other hand, you hope your loan yield will also go up because BI would basically influence the JIBOR benchmark, which is something that is also going to be positive for our loan yield. So in the context of having 5.4% already today, I think we are on track. The next question comes from the line of Jayden from Macquarie.

Okay. Can you hear me clearly?

Yes, Jayden.

Okay. This is more of a technical question, but I remember at the start of the restructuring in 2020, Mandiri was cash accounting for all the interest that was coming in, especially for the large corporates. And we're now at a point where some of the PKP resolutions have come through, which is a positive. But just want to make sure that you're still cash accounting and as those restructurings become effective, we won't see any modification losses come through the P&L. The reason why I ask this is one of your peer banks has raised as an issue. So I just want to check how you're treating these loans and anything we should expect as that happens.

Pak Siddik, did you get the question?

Yes. They didn't confirm, we continue to actually use the cash accounting method for accounts that are still under the restructuring terms under COVID. So once they're out of the restructuring term and they go back to the, I guess, normal terms and condition, then we go back to the accrual accounting method. But while they are under COVID restructuring, we continue to use cash accounting method. Thanks.

Does that answer the question, Jayden?

Yes, it does. Maybe if I can be a bit more specific, sorry. For certain SOEs, Garuda, [ Waskita ], some of the ones that are quite large restructurings. Those are currently cash accounted, right?

Correct.

Appreciate it.

Thank you, Jayden. I guess we'll just take one last question from [ Raymond ].

Congratulations on your results, and I hope you can continue to deliver a better result in the coming quarters. Thank you for the opportunity. My question is actually related to FX loans. If we take step back, Indonesia has benefited from the commodity boom as well as down streaming into rising supply of the U.S. dollar. But at the same time, we've seen new sectors coming in, commodity minerals that requires significant investments, U.S. dollar CapEx. My questions then, what are Mandiri's risk appetite for these lending to these segments? Because I also see an opportunity that you can grab the cash flow or the cash management businesses. And I think these sectors can be another giant sectors for Indonesia. Second question is what will be the key hindrance in your view in lending to this segment? Will it be limited supply of the dollars because I understand that the FX deposit current rate is actually still very low and in some cases, actually for level -- I mean, better to actually see offshore because you can get a higher rate possibly.

[ Mr. Raymond ], can you repeat your questions again? I think in the last 1 minute, it wasn't that clear.

The second part of the question is what will be the key hindrances in lending to this segment? Is it because of limited dollar supply or you reckon its FX duration mismatches?

All right. Yes. So I think the first question is on the appetite on commodity and FX related; Pak Siddik.

[ Raymond, ] thank you for the questions. Basically, we have established our risk appetite for all kind of loans within the bank, including FX loans, right? So -- and we evaluate every proposal on its merit, including feasibility, whether it is to commodities or other sectors we have our own guidelines. And those guidelines may be modified from time to time depending on the macroenvironment outlook, which is supplied by our chief economist, and we have what we call our portfolio guidelines on basically a guideline for all the business segments, on how much to lend to what sector under what condition and at which region or province and whether it is rupiah loan or FX loans. And that is being reviewed on a quarterly basis, right? And again, the -- we have also the support of our treasury to actually ensuring that there is sufficient funding on any currency when we extend loans. So we are working hand in hand with Pak Panji and his treasury team to ensure that there will be ample liquidity to support any tenor of FX loans if there's an opportunity to do so. And if there are exceptions to the rules or to the guidelines, we'll bring them up to ALCO to actually have input from different members of ALCO and then make a decision. So at this point, we have no issue in terms of continuing extending loans in FX. We have no issue in terms of providing the funding for FX. And then we are in consultation with Pak Panji and treasury team on actually how to take advantage of those business opportunities. So no issue.

Thank you. For the challenge, definitely supply of FX LDR would be part of it. But obviously, that's being managed by the bank in order to serve these segments. I think that is all for today. Thank you very much to all participants, investors and analysts. Thank you to speakers. Thank you very much. I will now close the analyst meeting.