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

Good evening, ladies and gentlemen. Welcome to PT Bank Mandiri's Third Quarter 23rd Results Briefing, 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 Mr. Darmawan Junaidi, our CEO; Ibu Alexandra, Vice CEO; Pak Siddik, Chief Risk Officer; 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 webpage of Bank Mandiri. Please note that the Q&A session will be opened after the presentation and participants who wish to ask questions can use the raise hand button in the Zoom app, wait for your name to be called and your microphone to be unmuted. Questions typed in the Zoom chat box are not prioritized in this meeting and will likely be addressed by the call after the Investor Relation -- by the Investor Relations team. We're also happy to take questions via e-mails afterward, and we'll try our best to reply to your questions as soon as we can. Now to start the presentation, I would like to hand over to Pak Darmawan, our CEO. Please, Pak Darmawan.

Thank you, Lau. Good afternoon, ladies and gentlemen. I would like to start by delving into the macroeconomic aspects that are shaping our current landscape. Overall, we anticipate a stable economic growth at 5.04% for 2023, slightly lower compared to the 5.31% achieved in 2022. This moderation can be attributed to the stabilization of commodity prices. However, we remain optimistic as we expect a robust interplay of factors, including increased household spending, government expenditure, and investments to bolster the GDP outlook. We also see encouraging trend on inflation rate at 2.28% as of September '23 and projected to hover around 3% by December '23. This result is also backed by BI decision to keep benchmark rate high at 5.75% since January 2023. However, BI eventually decided to increase the benchmark rate to 6% on October '23 as part of BI plan to stabilize rupiah exchange rate against strong dollar, in which, our economies projected that BI will maintain benchmark rate at 6% level until the end of 2023. Nevertheless, Bank Mandiri continues to exhibit exceptional performance, achieving above-industry year-on-year growth in both deposits and loans. These accomplishments can be attributed to our relentless pursuit of excellence through the ecosystem value chain and our successful digital strategy, which has further strengthened our market share within the Indonesia financial system. As a brief overview of our strategy, we continue to pursue a value chain ecosystem approach, which focuses on mobilizing the Mandiri ecosystem to unlock its full potential. This strategy serves as our enduring growth engine, sustaining our competitive advantage in the dynamic market landscape. To ensure the realization of our ecosystem potential, we are committed to making the necessary investment in system upgrades, cutting-edge technologies and talent development. While striving for market share growth, we remain steadfast in safeguarding profitability. The graph on the right-hand side illustrates that our bank-only loan share and ROE have increased. At the same time, our bank-only CASA share have been maintained at 17.9%. The matrices illustrates that our ecosystem approach will not only boost our market presence but also enhance overall financial performance. Our value chain ecosystem growth strategy is more than just a short-term plan. It's a long-term priority for the bank. This approach will serve as our enduring growth engine, sustaining our competitive advantage in the dynamic market landscape. Moving to the results. Overall, we believe that Mandiri delivered a strong performance as of September '23, with all financial metrics within the bank's guidance, if not better. As you can see from the charts on the right, loan growth is slightly up than our guidance at 12.7% year-on-year, and the net interest margin was on the higher end of our guidance. The cost of credit as of September '23 is also slightly lower than our guidance at 0.96%. More detail will be provided later. As usual, we identified our strengths and challenges during the quarter. Our strengths include the overall trend in loan growth, net interest margin, non-interest income, and asset quality management. Additionally, we achieved progress with digital innovations and successfully launched new offering during the third quarter of 2023. On the other hand, we faced challenges related to trend in cost of fund, liquidity environment, and selective retail growth. Next, this slide provides a summary of the bank's consolidated performance as of September '23, showcasing positive trends in most metrics. As of September '23, our consolidated net profit after tax & minorities' interest experienced a growth of 27.4% year-on-year and the pre-provision operating profit surged by 15.4% year-on-year. These figures were primarily driven by a noteworthy 12.7% year-on-year growth in loans and a substantial 12.8% year-on-year increase in CASA deposits, resulting in high CASA ratio. Moreover, the consolidated net interest margin as of September '23 improved by 17 basis points compared to the previous year, reaching 5.59%. Additionally, the bank demonstrated decent growth in non-interest income, maintained a positive trajectory in cost efficiency, and effectively managed the cost of credit. Consequently, both return on assets and return on equity continued to increase, reaching healthy levels. As of September '23, our ROA after tax stood at 2.60%, while ROE excluding minorities remained high at 22.5%. These figures reflect our commitment to delivering sustainable and healthy financial performance and value to our shareholders. This slide summarizes the bank's consolidated third quarter of 2023 performance. And as you can see, most matrices trended positively. On loan growth, Bank Mandiri Group recorded a healthy level of 12.7% year-on-year growth in September 2023 and 11.9% year-on-year on bank-only level, both of which are higher than the industry loan growth. We see an encouraging acceleration on our retail segment, which can be represented by the strong growth in credit card, payroll loan and mortgage. While this may be driven by macro-related factors, it should be highlighted that our digital ecosystem also helped in fostering this growth. The bottom left chart shows trend of retail loan bank-only growth breakdown based on value chain. In line with our strategy, almost 30% of retail loan has been driven by value chain with a 15.6% year-on-year growth, indicating that the ecosystem value chain loans have been growing faster than the non-value chain counterpart. Our digital enabler, Super App Livin' and Super Platform Kopra have driven loan acquisition significantly. Payroll loan & credit card power cash disbursement from Livin' has increased 337% year-on-year on bank-only level. Similarly, business loans' disbursement through Kopra has grown 37.3% year-on-year on bank-only level. This highlights the significant role and potential of our digital solutions within our ecosystem. Next, I would like to share some trend highlights in our bank-only loan yield and deposit cost of fund performance. As previously mentioned, one challenge that we faced this quarter was the rising cost of fund. From the top left, we can see that the cost of deposit increased Q-on-Q to 1.67%. This was due to some pressure in the deposit competition, which resulted in an increase of special rate deposits as shown in the bottom left graph. However, our yield continues its upward trend and shows a significant improvement both Q-on-Q and year-on-year. Those despite the rising fund costs, our yield increase can offset the rising cost of funds. This can be seen from the positive trend in our NIM that continues to grow Q-on-Q to 5.35%. Next, on non-interest income. In the third quarter of 2023, our total consolidated non-interest income was IDR 9 trillion, an improvement from both Q-on-Q term and year-on-year. This performance was largely driven by transactions from our digital ecosystem enabled by the expansion and enhancement of our digital ecosystem, namely our retail one-stop solution, Livin' and our wholesale digital comprehensive solution. From the right chart, we can see the breakdown of the recurring fees category that Livin' and Kopra are main contributors to its growth, whereby Livin' grew by 12.2% Q-on-Q and 30.4% year-on-year, and Kopra grew 4.4% Q-on-Q and 10.2% year-on-year. With our continued focus on further developing and optimizing our digital ecosystem, there is ample room for improvement in non-interest income for the bank going forward. Another noteworthy driver is the non-interest fees from subsidiaries, accounting for 20.7% of the total and significantly increased 12.2% Q-on-Q and 23.4% year-on-year. We are passionate on delivering many exciting innovative solutions through our digital ecosystem. The potential of the retail sectors is undeniable as its contributes more than IDR 9,000 trillion to Indonesia's GDP in 2022, with more than 60 million MSME merchants in Indonesia and 92.1% of Indonesians being digitally-aware, our penetration leaves ample room for growth. So for this segment, the focus has been to expand our Livin' superapps to be a comprehensive one-stop digital solution for both individual customers and online merchants within the retail ecosystem. In line with this strategy, we recently launched Livin' Merchant in the first half of 2023 as our enabler to acquire offline merchants. Pak Tim will later on delve further into the details of the digital innovation we have adopted and what the future of our digital ecosystem looks like. Let us now shift gears to the operational cost side of the equation. Much has been done, and the results so far has been encouraging. As of September '23, Bank Mandiri was able to keep the cost-to-income ratio down from 2022 to 33.9% on bank-only level and 38.1% on consolidated level. It is worth noting that there is a seasonality element in operational expenses, which are usually higher in the second half of the year. That said, we aim for better cost-to-income ratio overall in 2023 from 2022 with the expansions of Mandiri's digital ecosystem. Better efficiencies are also the result of several structural changes we have made in the past couple of years, such as optimizing our physical infrastructure. At the same time, we work towards improving the capability of our people in order to reach higher productivity level. Our CFO will later explain more on the bank's operational costs. Next, I would like to address the topics of asset quality. Over the past couple of years, we have achieved consistent improvement in our loans at risk ratio, which now stands at 9.79% as of September 2023 as depicted in the left-hand chart. Similarly, our credit costs have shown a positive trend with consistent improvement, reaching 0.96% in September 2023. Even more importantly, we have maintained a healthy level of coverage through our loan loss reserves against our assets. As shown in the right-hand chart, our non-performing loan coverage remains high at 299% for consolidated level and 339% for bank-only level, indicating a strong buffer against potential losses. Additionally, our bank-only loan at risk coverage stands at a robust 46.6%, further underlining our prudent approach to risk management. These positive indicators reflect our commitment to maintaining a sound and resilient asset quality, which is essential for sustainable growth and mitigating potential risks. Our continuous efforts to monitor and strengthen our asset quality will remain a top priority to ensure the stability and long-term success of the business. The unwavering commitment to continuous innovation has yielded positive results, propelling the bank profitability to new highs. Both our PPOP and net profit after tax have shown significant improvements, demonstrating the efficacy of our strategic decisions amidst challenging circumstances. In the third quarter of 2023, our return on equity, excluding minorities, increased to 20%, 22.5%, while return on assets reached 2.6%. These figures not only surpass pre-COVID levels but also reflect our dedication to excellence. We take pride in these accomplishments, but remain heavily focused on our long-term goal, that is, strong profit growth and stable profitability. Finally, I would like to touch on our consolidated guidance for 2023. First, we conservatively expect our loan to grow at the range of 10% to 12%. This conservative outlook takes into account our macro assumptions. Second, maintaining NIM between 5.3% to 5.6% despite our first half of 2023 number being on the higher range of the guidance. Liquidity could remain challenging, and therefore, we need to be cautious. Lastly, we lowered our cost of credit guidance on better asset quality outlook. Now I would like to pass on the presentation to Pak Sigit, our CFO. Please, Pak Sigit.

Thank you, Pak Darmawan. Ladies and gentlemen, now allow me to run through our financial highlights. In the third quarter of 2023, our total assets increased by 9.11% year-on-year, driven by 12.7% growth in loans, in line with our growth guidance, loan growth guidance in 2023. On the liability side, demand deposits grew by 21.7% year-on-year and savings grew by 5.80% year-on-year, both combined to CASA growth of 12.8% year-on-year. Overall, consolidated CASA ratio stands at 73.7% as of September 2023. On the P&L side, net interest income was up 12.3% year-on-year to IDR 71.9 trillion as of September 2023. Non-interest income was up by 10.8% year-on-year, driven mainly by non-interest income from subsidiaries and recurring fees from digital. The total revenue grew by 11.2% year-on-year to IDR 101 trillion, higher compared to the growth in the operational cost of 4.9% year-on-year, leading to positive jaws as of September 2023 and lower cost to income ratio. Pre-provision operating profit was 15.4% higher as of September 2023 compared to the same period last year, while provisioning was down significantly during third quarter of 2023, which helped net profit to grow by 27.4% year-on-year to IDR 39.1 trillion as of September 2023. Next, on ratios. Most of the key consolidated ratios are showing positive result as of September 2023, starting with NIM at 5.59% or 17 basis points higher year-on-year and well within our guidance for the full-year of 2023. Our consolidated cost-to-income ratio came down to 38.1% as of September 2023 from above 42% level in 2022. Equally, cost to asset ratio has also come down to 2.55%. Asset quality ratios are showing encouraging trend in general and credit costs were capped at a very healthy level of 0.96% as of September 2023. All the above led to the increase of the consolidated return on asset to 2.6% as of September 2023 and return on equity to 22.5%. The next slide shows the group's loan and deposit breakdown. Loan growth in September 2023 was led by Commercial segment at 18.6% year-on-year, Consumer segment at 12.1% year-on-year, SME at 11.7% year-on-year and Micro at 10.1%. Our subsidiaries also contributed meaningfully to loan growth with 15.5% year-on-year growth, leading to the total loan growth of 12.7% year-on-year for the group. On the deposits, our group focused largely on the TIP fundings, such as saving deposit and demand deposit as you can see on the right-hand chart. Next, on the net interest margin analysis. Loan yield improved in third quarter of 2023, as you can see on the top left chart, especially from wholesale loan repricing. This can also be seen in the top left chart, showing the corporate loan yield is -- has increased to 7.29%. Moreover, bank-only cost of fund is stable at 2.17%, leading to the total NIM of 5.48% in the third quarter of 2023 or 4 basis points higher compared to the first half 2023. The bottom right chart shows the NIM of the bank-only as well as the key subsidiaries, BSI and Bank Mantap. And overall, our consolidated NIM stands at 5.59% as of September 2023, or 17 basis points higher compared to the same period last year. As we continue repricing wholesale loan, shifting to higher yield loan while reducing the portion of specialty deposit, we expect our NIM to stabilize in the coming quarters. Ladies and gentlemen, our consolidated non-interest income saw a healthy growth of 10.8% year-on-year as of September 2023 to IDR 27.4 trillion. This was primarily driven by credit card, which grew by 19.2% year-on-year and Livin' apps, which grew by 16.5% year-on-year. On the non-recurring, cash recoveries helped growth while forex & derivatives remain challenging. Overall, our consolidated non-interest income to total revenue remained at a healthy level of 27.1% as of September 2023. On the cost side, we were able to maintain a healthy low single-digit growth on operational expense at 5.53% year-on-year at the bank-only level. The driver of the bank-only OpEx efficiency came from the cost related to promo & sponsor, training, and allowance expense. On the consolidated level, OpEx grew by 4.92%, meaningfully lower than the growth of the revenue of 11.2% year-on-year. Overall, our consolidated cost to asset ratio is 2.55% and cost to income ratio at 38.1%. Next, I would like to pass the presentation to Pak Siddik, our Risk Director. Please, Pak Siddik.

Thank you, Pak Sigit. Ladies and gentlemen, now please allow me to run through some updates on the asset quality trend as of third quarter of 2023. Overall, the indicators that you can see on this slide are showing positive progress for the group. First, the COVID-19 restructure will continue to decline as shown in the top left chart to IDR 34.9 trillion, or only 2.65% of our total consolidated loan. Both, subsidiaries and bank-only saw improvements. Further, the improvement we had for the NPL ratio had led to lower loan at risk ratio of 9.79% consolidated with 45.9% LaR coverage. NPL ratio, which stood at 1.49% consolidated is well covered with 299% NPL coverage on consolidated basis. As a result of the above, we were able to lower our cost of credit to 0.96% consolidated as of September 2023. We expect the trend of asset quality improvement to continue on a gradual basis in the second half of 2023 as we lower our guidance to less than 1.1% for the full-year 2023. Next, in this slide, I would like to update regarding our capital positioning. In general, Bank Mandiri CAR level was stable at 20.68% in September and well capped within the optimal level. On a yearly context, we intend to maintain current Tier 1 ratio at around 18% to 20% range in the near to medium term. I would like now to pass on the presentation to Pak Tim Utama, our IT Director, to continue the presentation. Please, Pak Tim.

Thank you, Pak Siddik. I think as mentioned by Pak Darmawan, I'm just going to explore a bit more on our digital capabilities. And on this slide, as you can see, we will continue our journey in our digital innovation addressing the entire spectrum of customer needs from retail to wholesale. And let me underline again the capabilities and solutions that we provide is to position the Bank Mandiri as the transactional bank in the country. So there are 3 big components. The first one, continue to extensively build on digital capabilities for our retail segment. We have our superapp Livin', as all of you know. We continue to build comprehensively for relevant financial use cases. There are new 2 items that I'll elaborate a bit more. One is actually we launched the new SUKHA and the second bit, as Pak Darmawan mentioned, the ability to serve our MSME under Livin' Merchant. The second one, we will continue to build full-scale digital wholesale solutions to establish a one-stop wholesale platform for our corporate clients, our wholesale clients. Third building block, which is going to be getting more important as going forward is we continue to invest in the state-of-the-art data analytics and artificial intelligence to answer 3 main issues. The first one is to unlock revenue growth potential, and 2 is to drive costs & operational efficiency and then the third one is manage risks & regulatory compliance. So let me move next to the following slide. I just want to go quickly. I think when we do our digital propositions, we have got a very clear framework for our retail. So this is all about Livin' on the left side. When you see, the framework is very clear. We look completely from online onboarding to transactional capabilities, lending, investment, ecosystem, and so on. And as you can see, I think the key to all this is the ability to bring speed to market with our solutions. We have now more than 85 use cases in just less than 2 years. There are some notable functions that we have developed, and I will address them as we move forward all the way from overseas onboarding for our Indonesians in 122 countries all the way down to the exciting capabilities that we will see in SUKHA and also in Livin' Merchant. Next, I just want to show to you that what we have achieved in Livin'. We have positioned ourselves as the #1 mobile app with the highest growth of users in Indonesia. At the same time, we have also registered as the #1 mobile app as the -- with the highest growth of account opening. So we have now registered 21 million users under Livin' and that is showing 55% growth year-on-year. What's more exciting when it comes to the account opening, this year alone, we have seen a 1.5x increase from last year over the same period. So we've got 6.5 million accounts open digitally, of which resulting in more than about year-to-date 2 billion transactions, that's 46% growth year-on-year. And the value is equally exciting. We are seeing a growth of 37% up to IDR 2,400 trillion. And all the savings account linked to Livin' now is about 90% bank wide. Next, I want to touch base quickly. We will continue to strengthen our cross-border capabilities with seamless account opening across currency transfers. And also now we have got the capability to do in-store payments at foreign merchants. So on the left, I just want to show that we do have the cheapest and transparent forex cross-border transfers. And what is exciting, 80% now we see first-time forex transfer users through the app. And then that's 51% of total bank wide forex transfers volume is now done through the app. This is an overwhelming response. What's coming up next is the cross-border capability in-store payment, and that's going to be done through contactless with foreign currencies. And at the same time, QR cross-border with multiple source of funds. So that's coming very fast soon. Let me move on to the next page, which is our all new SUKHA. This is the first and only banking app with state-of-the-art -- next page, please, with the state-of-the-art capabilities where we're going to bring our strong wholesale partnerships to answer lifestyle needs. So as you can see, we have launched the different feel and look where we have 3 capabilities underneath SUKHA. This is the only banking app with one-of-a-kind entertainment and shopping experience inside the app. We have SUKHA TV, so the capability to streamline content of television, and we have SUKHA Reels, so we can feature reels for different topics. And at the same time, we also can use just to show that Indonesia just launched the first ever fast train and within -- since October, we already sold 15,000 tickets on our SUKHA platform. Next, I just want to show, again, as we mentioned, the other new development after SUKHA, we have launched our Livin' Merchant. This is actually a growth enabler to help our merchants for offline MSME. In short, this is a digital EDC with point of sales. What we have seen since the launch in June, to be exact 12th of June, the daily adoption rate has grown extremely fast, and it's showing on the left-hand chart, as you can see. So this is as exciting as Livin' -- superapp Livin'. So the capabilities that we -- the reason we have full adoption with fast onboarding, we have the capabilities of 15 minutes onboarding. We are I think the only one that are able to do settlements 3 times a day for our merchants, so they can see their cash and the balances straightaway, settle on the account. And importantly, we do not charge MDR for merchants. And this is including also modern and complete POS systems. So I'm going to move next, shifting gears to our wholesale platform. We position our Kopra, as you all know, to be the one-stop financial partners for all our Kopra clients. And quickly, as we've seen, we've -- we will continue to develop the Kopra portal and combine it with Kopra Embedded Finance. And the solutions that we provide will continue to build on our cash management solutions all the way from domestic and cross-border, treasury solutions, working capital solutions. And these are all, again, enabled with data analytics and AI to support risk management and global networks. So what is this? It's actually tailored to industry specifics that we operate in, all the way from wholesale & retail trade, minerals & energy, transport & logistics, healthcare and education. So let me move next to the next page, where what we see is quite exciting with the growth and optimizing of the business acquisition of transactions. We are the highest wholesale digital transaction in terms of value in the nation. So we have about 770 year-to-date million transactions, which is showing 20% growth. And our transaction value remains the highest, close to IDR 14,000 trillion year-to-date. And 95% of our wholesale clients are Kopra users. What's important is 85% of the transaction is actually our top tier -- sorry, top 1,000 clients are actually contributing 85% of the Kopra volume. As you can see, these are some of the examples of the top clients that are there in Indonesia. Next, the end-to-end solution for our wholesale needs are becoming the -- making us the main operating account for our clients, resulting in encouraging increase in fees as a fee income generator, showing quite a good increase of 10% year-on-year. And at the same time, we become contributing to the CASA balances, as you can see with a 23% year-on-year increase. Next, what we develop in Kopra, we also now link to our Livin'. So we have the capability to provide payment reminders for our future client retail users. So the Kopra clients can do that in Livin' and that will come up. And at the same time, we're also going beyond borders, bringing Kopra to Singapore, Hong Kong, Shanghai, and Dili. I would want to -- next page, I would want to just quickly touch on the capabilities of our data analytics. So we want to solidify our wholesale dominance using artificial intelligence. On the left-hand side, it's actually a picture to show that we have the network of graph analytics to uncover new opportunities, identify new key players that are in our ecosystem, and create customized community-based solutions. What it has done, then we'd continue on again with working capital propensity score model. And what you can see is that is contributing, showing actually 86% rate of success, resulting in our models for our loans and contributing 40% of our total SMC (sic) [ SME ] loan results. So that AI will continue to build on our capabilities and ecosystem. Next, I want to say that our data assets and AI-driven technology is significant also in our retail side. We use rich and diverse data assets to understand each customer's potential from demography, products, transaction, behavior & profile, interaction & preference. What we have done as a result, we have delivered 11,000 digital campaigns, serving 20 million customers, optimized using AIs, and we have done more than 20 key visuals for every campaign. And the outcome of that is we have increased the average transaction by 20% per month per user, contributing 35% of our retail loan booking. Quickly, I think after this, we can see that we will continue to develop and use AIs. So now let me hand this over to Ibu Xandra, who's going to take you over on the ESG initiative. Ibu Xandra, please.

Thank you, Pak Tim. Now I would like to discuss about Bank Mandiri's ESG. In order to achieve our vision of becoming Indonesia's sustainability champion for a better future, we have curated a comprehensive framework and set concrete milestones to ensure consistent progress. Our framework is divided into 3 pillars, emphasizing the role of sustainability: sustainable banking, sustainable operations, and sustainability beyond banking. Each pillar has a commitment that we work towards and in moving forward, we are actively improving and implementing our initiatives so we can be Indonesia's sustainability champion in the future. Here, we can see Bank Mandiri ESG performance at a glance. On the environmental side, one of our key commitments is to achieve net zero emission operations by 2030 and financing by 2060. We continue to encourage customers to transit into the low-carbon economy by disbursing green financing, sustainability-linked loan and transition loan. In terms of the social aspect, we also strongly emphasizes racial and gender equality in the company. Pursuing gender diversity, currently, women make up 25% of the management team, including myself, and there are 46% female senior leaders in Bank Mandiri. Finally, on governance, we take a big commitment in maintaining data privacy and data security as well as other operational, regulatory, and governance issues. For a responsible banking practice, as the green market leader, Bank Mandiri has disbursed IDR 122 trillion of green portfolio and IDR 131 trillion of social portfolio to the micro and small, medium enterprises segment in Indonesia, resulting in a total sustainable portfolio of IDR 253 trillion or 24.9% of total loan portfolio bank-only as of September 2023. This lending has positively impacted millions of Indonesians, touching various sectors, including MSMEs, agriculture, renewable energy, clean transportation, and various other activities. We also provide various sustainable finance solutions, such as green loan of IDR 927 million, sustainability-linked loan of IDR 2.1 trillion, and transition financing of IDR 1.1 trillion. We are committed to be part of the government's aspiration to phase out coal-fired power plant and achieve net zero by 2060, aligning with PLN net zero emission road map. We have gradually increased our renewable energy portfolio with loan to clean energy projects such as Poso, Kerinci and Malea hydro power plant. Lastly, we are also expanding our exposure to potential renewable energy projects such as floating solar power plant, wind power plant and geothermal power plant. On our operations, and we are committed to achieve net zero operation by 2030, to offset the carbon we produce, Mandiri is focusing on land restoration and conservation to absorb our emissions. Furthermore, we are adopting a green business mindset by implementing initiatives such as EV and hybrid charging stations, solar panel in our buildings, green building, and smart branches. Lastly, on the social aspect, we are helping to increase financial inclusion by disbursing loan to the underbanked and unbanked population. As of September 2023, we have disbursed KUR loan to more than 2.8 million borrowers. We are also creating impacts through micro and small, medium enterprise society by providing training and entrepreneurship skills to more than 14,000 MSME players. That is all from me, and I will hand back the presentation back to Lau for the Q&A session. Thank you. Please, Lau.

Great. Thank you, Ibu Xandra, and to all speakers. We now open the Q&A section. Again, as a reminder, we are prioritizing questions from the conference, from the call. So if you have any questions, please press the raise hand button and wait for your name to be called and your microphone to unmute. I will call for the first one from Ferry Wong, Citibank.

Congratulation management for excellent result. I have several questions. The first one is on the impact on the higher interest rate environment. Basically, if you have the internal assessment for every 25 basis point interest rate hike and impact to your NIM. We know that basically, you will be the beneficiary of higher interest rate environment, but do you have any internal assessment, i.e., for the fourth quarter of 2023. The second one is on the loans' growth. Can you elaborate more on your Sharia lending, especially if you have some exposure towards the women's ultra micro lending? Because we saw that some of the Sharia lending actually is having trouble like Bank BTPS and Bank Jago, they have been lowering their loan growth significantly, but it's more towards the women's ultra micro lending. And lastly, on your G&A. It moved up by 29% quarter-on-quarter, but I noticed that it is mainly from your subsidiary level. Could you elaborate more? That's all for me.

Sorry, Ferry. Can you repeat the last question, please?

It's on your G&A expenses quarter-on-quarter. It's increased by close to 29%, but mainly because of the subsidiary. Could you elaborate more on that?

Sure. Thank you so much. Just to clarify, there is somebody from the chat that is also asking about G&A expense, which came from, I think, Edward from KC Securities. So we're just going to address that in one go. So maybe I will let Pak Sigit to answer the G&A expense as well as the impact of higher interest rates on yield part. And Pak Siddik, if you don't mind, touch on the Sharia and the ultra-micro part concern?

Maybe -- thank you, Ferry Wong. Maybe the third question about the G&A expenses. Okay. In the third Q 2023, we are seeing an increase in operating expense mainly driven by G&A expense of IT & telecom, transport & travel, goods and other professional services. And this expense are mainly contract based, that is due to -- due in third Q 2023. And going to fourth Q, we expect OpEx to keep accelerate due to seasonality. Historically, Bank Mandiri cost to income ratio are higher in fourth Q due to employee bonuses, good and also services payment due in December. And -- but the most important thing is we are still keeping our full-year cost-to-income ratio guidance of 35%, 36% for bank-only and around 39%, our cost-to-income ratio consolidated our guidance. The first question related our impact of increased interest rate environment to our net interest margin. Okay. First, we are seeing that we have a potential increase opportunities for yield of loan because we -- around 23% of our total loan is reference rate. So when the interest rate increase, Fed fund, also BI rate added increase. We have a benefit coming from yield of loan, especially for the corporate segment. On the other side, we are also cautious on the cost of fund. So we're seeing the intense aggressive pricing from our competitors. So we see the potential increase on the cost of fund in the fourth Q 2023. But we believe the NIM will be stable until the end of the year because of our focus on the CASA can minimize our cost of fund increase and also our opportunity to repricing loan on the wholesale segment is more than enough to compensate the increase on the cost of fund. I think this is our view, the NIM should be stable until the end of the year.

Thank you, Pak Sigit. So just to recap, there is a seasonality on G&A, and there is some positive impact from the NIM side from higher interest rates. I'll let Pak Siddik answer you on the Sharia concern.

So basically, micro banking segment within Bank Syariah Indonesia is probably one of the smaller size segment. So out of the -- the biggest one would be the consumer banking segment followed by corporate and in commercial, SME and then we have a small micro segment. And we don't really have any particular special program for ultra micro for women per se. So everybody is under the same risk acceptance criteria under the same micro lending program. So there may be some women borrowers, but we don't have a particular special program to acquire women ultra micro lending borrowers.

And maybe just to add to that. in fact, the NPF ratio of BSI has also shown -- has been showing a consistent downtrend as well equally to the current company.

Perhaps the non-performing loans ratio for micro segment has reduced from around 3.2% in September last year, now to 2.7% in September 2023. So there has been gradual improvement in the last 1 year. So we don't see any significant concern at all in the micro segment within Bank Syariah Indonesia.

Moving on to the second question coming from the line of Morgan Stanley, Selvie.

I just have -- I have 3 questions. So firstly, in terms of the loan yield, if I were to look at the Q-on-Q, I think with the exceptions of the corporate, commercial SME and retail, they actually declined Q-on-Q. What has been driving that? And also if you could share a couple of like insights in terms of the corporate loan growth Q-on-Q, it actually grew pretty well. Where has it come from? And then my second question is in -- for the credit cost. I guess like we saw a couple of like data with regards to digital lending that you are doing. In terms of the provisions for digital lending, what kind of credit cost you are looking at? And in terms of like the tenure of these loans, is it more like short-term in nature? So I'm just trying to understand how good is like the credit analytics for this lending. And lastly, I think in terms of like both loan growth as well as fees from your subsidiaries, it was pretty good. Which subsidiaries have been driving it? Has it been like the Sharia side or is there like any other subsidiaries? So those are my 3 questions.

Sorry, could you repeat the second question regarding asset quality, please?

Okay. So in terms of the asset quality, for the credit costs related to those digital lending that you are extending. Because I think there is one slide about like how much loans you are giving out from like the digital app. Is that like the ECL per se, is it the same as what you are doing on the traditional basis? So I'm trying to gauge like in terms of your data analytics for the credit risk for that segment, how -- what kind of like confidence level you put into it?

Maybe Siddik, for the second question. For the first question, actually, Selvie, if we look at the growth on a Q-on-Q term, you'll see that commercial is still growing quite healthily at 3.1% Q-on-Q, right? And corporate is 3.7% Q-on-Q as well. So both are actually showing positive growth on a Q-on-Q level with sectors around energy, mineral, construction as well as telecommunication. And as regard to the third question regarding fees from subsidiaries, these came from -- there is Man Sek, there is -- there was our -- coming from our -- one of our multi-finance company as well as our venture capital, MCI. So those are the top contributor of the subsidiaries' fees in the third quarter of the year. I'll let…

Sorry. I think one of the questions was more on the lending yield. With the exception of the corporates. I think the lending yield across the other segment actually fell Q-on-Q.

Okay. Sorry, I misunderstood. So on the lending yield, you're right. So pressure was visible across almost all the segments, and this was due mainly to overall competition and some minimum competition. The increase of lending yield that you see in the corporate, which actually is the only one that went up is largely driven by the dollar loan. Mind you, that we have about 20%, 30% of our corporates in the U.S. dollar loan. So that's the bigger driver of the corporate yield on a Q-on-Q term. I'll Pak Siddik to talk about on the digital lending and the outlook on asset quality around that.

Okay. Thank you, Selvie. I believe you are asking about loans -- consumer loans that we acquired through our superapp Livin' by Mandiri. So the process is like this. So we actually acquire first customers to actually open online new savings accounts, yes. And then based on those accounts that are online, users that are online, we -- basically, there are 3 segmentations. So existing Livin' user who have payroll with us, existing Livin' user who have savings accounts and other products, but the payroll are not with us and Livin' user who probably only has savings accounts. So we have slightly different credit criteria for all these 3 different segments, whether they are really new to bank or existing to banks, depending on how deep the relationship they have with us. And based on that, we actually offer pre-approved credit card limit and personal loans limit as well. So today, between 10% to 20% of our new loans acquisition for credit card and personal loans come from Livin' users. And this proportion has continued to increase, showing that actually our Livin' users prefer to get their credit card or personal loans online because the process is actually seamless. They don't have to come to the bank. They don't have to submit documents. They just have to do it via online. And within a few seconds, they will get an approval, yes or no, whether they're qualified for a loan. So the proportion is still quite low, even though the new bookings are actually 10% to 20% and is increasing, today, the early vintage quality is almost the same as the new loans that we acquired via offline. So this is probably very different than the digital lending quality that you get from a fintech peer-to-peer lending because we offer credit card and personal loan to our existing customers. So if they don't have savings account with us, they don't have payroll accounts with us, we don't offer these products. So we have 20 -- more than 20 million Livin' users and very small percentage of them have acquired personal loans and credit cards. So we want to focus our business strategy to actually cross-sell personal loan and credit card into this existing 20-more million Livin' user before we go to other segments. We expect the performance of the loans that we acquire via Livin' to be about the same versus the loans that we acquire via offline.

Ladies and gentlemen, due to time, I'm just going to open for one last question. And I'll let Harsh Modi, JPMorgan.

I have -- I don't know how much time you have, but 3 quick ones. One is how low can loan loss reserve to loans go down to? Second, can the banks cut savings account interest rate given you have such a fantastic customer value proposition, as Pak Tim talked about? And final point a bit more, in the next 2 years, why can't you deliver 15% or more loan growth over the next 2 years?

So just to clarify, your second question was on how low the saving deposit rate could go provided the digital initiatives and all of that? And the third question was the outlook on loan growth for the next 1, 2 years. Did I get that correct? Okay, sure. So maybe Pak Siddik can start with the overall provisionings. The question is how low could provisions, in this case, in NPL coverage be over the next, I guess, 12 months?

If you -- as we explained earlier, our asset quality growth have continues to actually improve in the last 3 years on a gradual basis, followed by also the reduced need of increasing credit provisions. And also as because of that, then our NPL coverage has continued to increase now. It may be around 340%, 350%. And we believe that the optimal level on our side will be around between 250% and 280% on a steady-state basis. So we will do a review on a continuous basis in the next 2 to 3 years to actually gradually reduce our coverage of credit provisions, but we have to do it very carefully to ensure that actually this optimal NPL coverage will be sustainable in the long run. So we are taking a look at our, for example, models to generate the credit provisioning for each product and subproduct in the consumer banking because their performance has increased significantly in the last 5 years, so necessitating a recalibration of the models, which resulted in some release of credit provisions. On the wholesale side, we also review account by account, the need to actually maintain a certain level of credit provisionings because probably 3, 4 years ago, we had to increase the credit provisioning, but then, many of these accounts have continued to improve after we did actions on them, including restructuring. But this loan loss reserve provisioning in the coverage will probably go down from 340% to around 250% over 2, 3 years period. So we'll update you every quarter if significant amount will be released so that at least we won't see any volatility in our numbers in terms of asset quality going forward.

Thank you, Pak Siddik. I'll let Pak Sigit to get the second question. Can the bank cut saving account rate further given customer value proposition?

We know that now our saving rate is around 46 basis points, and we believe this is not the best in industry. So we believe we have an opportunity to cut that rate lower than that level. First, when -- maybe next year, when the rate cut happening. And also, we also believe that Livin' is our superapp that can make all the customer happy and transact with the bank. So 46 basis points. We believe we have room to cut in the next year, maybe.

I'll just get the last one. Harsh, when it comes to the loan growth, there are factors that we can deal with and there are factors that are macro-driven. Our internal back-of-the-mind mantra is basically above industry growth. Unfortunately, we can't tell you how industry growth will be in the next 5, 10 years, right? So I think the main point is that we are, through value chain strategy, we want to grow above industry growth, and we've been growing above industry level over the last 2, 3 years and still up to today, and we expect that profile, i.e., gaining market share to continue going to next year. And yes, so that's the way we think about the outlook of growth, Harsh. Thank you very much. This marks the end of the analyst meeting. Again, if you have any further questions, happy to respond. Please e-mail your questions to the Investor Relations team. I would like to thank our speakers. Have a good evening, everyone. Thank you.