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

All right. Apologies, first of all, for the -- some of the delay that we experienced. We experienced some technical issues, and we just had it solved quite recently. So I think for the best of the presentation, allow us to present the material from the beginning. And hopefully, we can go through it. So I'll allow Darmawan Junaidi, our CEO, to start the presentation from the first slide. Thank you very much.

Thank you, Lau. Again. Good morning, everyone, ladies and gentlemen. First of all, let us briefly examine the macroeconomic landscape. GDP growth is expected to reach around 5% in 2024 and 5.13% in 2025, supported by the new administration's policies aimed at accelerating economic expansion. Inflation is projected to remain stable at 2.38%, following 1.6% last year, staying well within Bank Indonesia's target range. This allowed BI to cut its reference rate by 25 basis points to 5.75% in January 2025. Meanwhile, the rupiah has remained stable, reinforcing confidence in the economic outlook. On the lending front, our loan growth continues to outpace the industry, reaching 20.7% in 2024 compared to the industry's 10.4%. While liquidity remained tight across the system last year, loan growth was a strategic necessity, particularly as the corporate segment played a key role in driving future expansion. This aligns with our value chain ecosystem strategy where strong corporate relationships serve as an entry point to deeper engagement with their suppliers, employees and other business networks. Last year saw exceptionally strong corporate demand momentum, reinforcing the need to support this growth while maintaining prudent liquidity management. While growth has been robust, asset quality remains a top priority, balancing expansion with risk discipline is essential to maintaining portfolio health. NPL ratios have improved significantly with Mandiri consistently outperforming the industry, reinforcing our commitment to sound risk management amid continued lending growth. Deposit growth has been volatile with Mandiri 6.82% in 2024, exceeding industry 4.48%, yet liquidity and liability franchise is our key priority in 2025. Overall, the macroeconomic outlook remains strong with steady growth, stable inflation and policy support. Monitoring liquidity will be key to sustaining balanced growth going forward. Ladies and gentlemen, from the start, Mandiri has been committed to maintaining market leadership while ensuring strong profitability, consistently delivering sound ROE and ROA. By December 2024, we successfully retained our dominant market position in both loan and deposit growth despite liquidity challenges. A key driver of this success is our value chain ecosystem strategy, which strengthens corporate relationships and extends our reach into their suppliers, distributors and employees. This approach has proven highly effective, not only in managing asset quality, but also in enhancing transactional funding as we capitalize on corporate cash flows. As a result, we have reinforced our CASA dominance at around 19%, even in a tight liquidity environment. That said, while our CASA performance remains strong, there is still room for improvement, and we are fully aware of the areas that need to be addressed, especially on current account to further strengthen our position, enhancement in digital infrastructure and cash management solutions as well as clear value chain execution strategy will be key. Beyond market share, we have also translated this strategy into profitability, closing the year with a bank-only ROE of 21.4% and ROE 2.87%. Looking ahead, we remain committed to deepening our presence across corporate value chains, ensuring that every relationship we built extends further into the ecosystem, driving both sustainable growth and long-term profitability in 2025 and beyond. Now as usual, let's begin our fourth quarter '24 assessment by breaking down our strengths and challenges. On the strength side, we saw strong loan growth, consistent improvement of asset quality, solid growth from digital fees and an improvement in consolidated NIM during the fourth quarter '24. These factors reinforce our overall financial resilience and competitive position. However, challenges also emerged during the period. Weak system deposit growth environment put pressure on the overall cost of funds, while non-interest income from cash recoveries came in lower than the previous year. Despite these headwinds, we managed to deliver loan growth and credit cost better than our guidance, while our consolidated margin remained in line with our guidance. Ladies and gentlemen, next, despite challenges related to funding costs, Bank Mandiri sustained positive growth in both PPOP and net profit. As of December 2024, our consolidated net profit grew by 1.3% year-on-year, reaching IDR 55.8 trillion, while pre-provision operating profit, PPOP, increased by 3.8% year-on-year, totaling IDR 88 trillion. This was supported by a 5.73% increase in total revenue, reflecting robust business momentum despite funding cost pressures. Our consolidated loan portfolio expanded by 19.5% year-on-year, reaching IDR 1,671 trillion, outperforming the industry and reinforcing our strong position in the market. This growth was complemented by CASA deposits, which grew by 8.49% year-on-year to IDR 1,271 trillion, allowing us to manage funding costs more efficiently. However, system-wide liquidity constrained exert pressure on funding costs with cost of funds rising by 42 basis points to 2.16% between 2023 to 2024. Despite this, we successfully maintained our consolidated NIM at 5.15% higher Q-on-Q. Crucially, our loan expansion was accompanied by disciplined risk management, allowing us to lower the cost of credit to 0.79%, down from 0.85% in 2023. This reflects ongoing improvements in asset quality, further strengthening our balance sheet. As a result, ROE stood at 2.42%, while ROE remained strong at 21.2%, well above the 20% threshold, reinforcing our ability to generate sustainable returns for shareholders. In summary, this result reflects our strategic focus on growth, profitability and risk discipline. While funding costs remain a challenge, our strong deposit franchise, asset quality improvements and revenue diversification position us well for 2025. Ladies and gentlemen, let me briefly discuss our loan growth profile. By the end of 2024, our strong loan growth was primarily driven by the wholesale segment, which grew by 25.5% year-on-year, reinforcing Mandiri's position as a leading wholesale bank. Corporate loans grew by 26.7% year-on-year, while commercial loans expanded by 23% year-on-year, benefiting from an exceptionally strong wholesale demand environment throughout the year. Meanwhile, our retail segment grew very much in line with industry trend at 11%. This diversified growth allowed us to close the year above our consolidated loan growth guidance. Crucially, our growth was not driven by risk taking or aggressive pricing, but by our strategic focus on wholesale relationship and capitalizing on strong corporate momentum. This is evident in our interest income from loans, which has consistently improved each quarter, reaching IDR 27.2 trillion in fourth quarter '24, approximately 22% higher year-on-year, demonstrating strong pricing discipline. However, while loan growth was robust, net interest income growth did not expand at the same pace. This was due to higher funding costs reflected in a 42% basis point -- sorry, 42 basis points increase in cost of deposits rather than loan pricing. The high interest rate environment, tightening system liquidity and rising deposit competition exerted upward pressure on funding costs, partially offsetting the strong loan-driven interest income growth. At the same time, asset quality remained intact, particularly in wholesale, while net NPL formation in retail continued to improve, reaffirming our ability to grow without compromising risk management. Looking ahead, our strategy remains clear, leveraging our strength in wholesale banking while maintaining disciplined risk and pricing management to drive sustainable growth with a continued focus on optimizing funding costs to maximize margin expansion and ultimately, ROE. Next, Mandiri Corporates ecosystem strategy and tech investment have been instrumental in strengthening our CASA franchise. Our Livin' digital banking platform, which enables online customer acquisition and product cross-selling has helped us outperform the industry in saving deposit growth for multiple years, while keeping cost of funds stable at under 0.5%. In 2024, Livin' transaction volume surged 37.8% year-on-year, reinforcing our ability to capture low-cost transactional saving deposits. On the demand deposit side, headline growth came in at 3.47% in December, a sharp deceleration Q-on-Q as we strategically released high-cost special rate deposits amid rising competition. However, SMA demand deposits, which currently accounts for 21.1% of total demand deposits grew by 12.2% year-on-year, well above the industry, supported by our value chain transactional ecosystem. Notably, SME demand deposit cost of fund is 1.8%, which is significantly lower than our overall demand deposit cost of fund of 2.87%, optimizing funding costs while expanding our business going forward. A key driver of this value chain liability growth is our Kopra cash management platform, where transaction volumes grew 21% year-on-year, translating into a higher proportion of stable low-cost SME demand deposits. Going forward, we will continue leveraging our digital ecosystem and value chain strategy to expand CASA, maintain pricing discipline and optimize funding costs, reducing our reliance on high-cost deposits. Let me now move on to the NIM trend. Despite strong loan growth in 2024, we maintained pricing discipline as reflected in our stable loan yields, particularly in the commercial, SME and consumer segments, which held up well in fourth quarter '24, higher from the previous quarter as shown in the top left chart. On the funding side, while tight liquidity condition led to an increase in overall deposit cost Q-on-Q, our savings and demand deposit cost of funds remained stable, helping us manage our net interest margins. As previously mentioned, our loan-to-deposit ratio increased to 98% as of end of December 2024 as we actively cut high-cost special rate deposits and shifted focus towards strengthening our liability franchise. While this led to a temporary spike in December, we have since seen normalization back to low 90% in January 2025, reinforcing our strategy of balancing loan growth with disciplined funding management. On a net basis, our NIM improved sequentially in fourth quarter '24, and we aim to sustain this positive trajectory into 2025 through continued pricing discipline, a strong funding base and an optimized asset liability mix. Next, let's discuss non-interest income. As December 2024, our total consolidated non-interest income reached IDR 42.3 trillion, reflecting a 4.12% year-on-year increase, largely driven by recurring fee income, particularly digital fees, treasury income and non-interest income from our subsidiaries. We continue to see strong momentum in digital fee income, which grew in line with our CASA and transaction volume expansion. This growth was primarily driven by Livin' and Kopra, which have been instrumental in scaling our transactional ecosystem. In 2024, Livin' and Kopra contributed a combined IDR 5.03 trillion, reinforcing their role as key revenue drivers in our digital banking strategy. However, cash recoveries declined by 26.4% year-on-year, falling below our target due to a challenging macro environment and the high base effect from 2023. The shortfall in cash recoveries was a key factor behind the moderation in our net profit growth as it offset some of the strong gains from our digital fee income and subsidiary performance. On the subsidiary side, fee income remains strong, particularly from BSI, further supporting overall non-interest income growth. Going forward, we will continue leveraging digital transactions and fee-based income as a key growth drivers while maintaining a disciplined approach to managing recoveries and optimizing recurring revenue streams. Now let's shift gears to operational costs. As of December 2024, we closed the year with a cost-to-income ratio of 35% at the bank-only level and 40% on a consolidated basis, marking a significant improvement from pre-COVID levels. It is important to highlight that operational expense tend to be seasonally higher in the second half of the year, which is reflected in our cost trend. However, our continued focus on efficiency and digitalization has been a key driver in keeping costs under control. Our Livin' and Kopra platform have expanded our network reach and enhanced customer acquisition without the need for costly physical infrastructure. At the same time, digital transformation has allowed us to stay focus towards upskilling our talent, increasing workforce productivity and optimizing operational processes. That said that there is still room for improvement, particularly from our subsidiaries with BSI being a key area of focus for further cost efficiency. For a deeper dive into our operational cost management strategy, our CFO will provide further insights later in the presentation. Next, I would like to address asset quality. Our strong loan growth in 2024 was achieved without compromising risk discipline. This reflects our value chain strategy, which enable us to expand lending within trusted ecosystems, corporates, their suppliers and employees, ensuring high-quality growth. Despite challenges in retail asset quality, we successfully improved our loan at risk ratio to below 7%, better than pre-COVID levels. This disciplined risk management allowed us to keep credit costs below 1%, supported by provision reversals during the year. Looking at coverage, despite our low credit cost, we maintained NPL coverage at a prudent level with bank-only at 304% and consolidated at 271% as of December 2024, in line with our long-term target of around 275% for bank only. Additionally, our consolidated [indiscernible] coverage remained strong at 45%, still higher than pre-COVID levels, providing a solid cushion against potential risk. Looking ahead, we remain confident in sustaining asset quality in 2024 as our loan growth is backed by strong underwriting standards and the resilience of our value chain approach. This ensures that our expansion remains both profitable and sustainable, reinforcing Mandiri's position as a leader in risk-adjusted growth. Finally, let me present our consolidated guidance for 2025. We expect loan growth of range 10% to 12%, in line with expected deposit growth or lower as we prioritize liability management, unlike last year, where wholesale loan growth led expansions, this year we will focus on value chain extraction, leveraging corporate ecosystems to drive value chain-driven growth and strengthen our CASA franchise. This ensures loan growth follows deposit growth, allowing us to maintain or even lower LDR to mid- to low 90s percent levels while improving cost of fund and hopefully NIM. For NIM, we conservatively guide range 5% to 5.2%, reflecting our cautious stance on the industry deposit environment, while we aim to expand transactional CASA and optimize funding costs, we prefer to see improvements in the industry-wide deposit landscape before adapting a more optimistic view. Additionally, our focus on lowering LDR may act as temporary drag on NIM, reinforcing our prudent approach. On credit cost, we expect 1% to 1.2%, reflecting a normalization as loan growth moderates. The increase does not indicate asset quality deterioration, but rather lower provision reversals compared to previous years. Our asset quality remains stable, supported by strong underwriting and the resilience of our value chain strategy. Looking ahead, while we take a measured approach to 2025, our long-term focus remains unchanged, delivering an ROE above 20% through disciplined execution of our value chain strategy and a strong transactional CASA franchise. Now I would like to pass on the presentation to Pak Sigit, our CFO. Please, Pak Sigit.

Thank you, Pak Darmawan. Ladies and gentlemen, allow me to talk through our financial highlights. In 2024, we strategically shifted our focus in interest-earning asset prioritizing loan growth of lower yield securities. As a result, while loan expanded strongly, our receivable and also government bond declined by 3.8% and 8.3% year-on-year, respectively. This was deliberate reallocation of the resources to capture high loan demand while maintaining an optimal asset mix. Consequently, total asset grew by 11.6% year-on-year. On the liability side, current account grew modestly at 3.6% year-on-year as we actively released high-cost wholesale deposit towards the end of the year. However, saving deposits grew strongly by 13.4% year-on-year delivering overall CASA growth of 8.49% year-on-year. Looking ahead, we expect deposit growth to be led by transaction of [indiscernible] CASA, which will further support our lower cost of fund and also more efficient funding structure. Now moving to the P&L side. The total interest income grew by 14.1% year-on-year, driven by loan interest income, which expanded by 19.5% year-on-year, while interest income from bond declined by 7.62% year-on-year, reflecting our shift towards higher-yielding loan assets. On the funding side, tight liquidity condition led to 35% year-on-year increase in interest expense impacting net-interest income growth, which came in at 6.12% year-on-year. Separately, non-interest income rose 4.12% year-on-year, supported by recurring digital fee income, while recovery income faced pressure. Waking on our performance, despite this, total revenue grew by 5.73% year-on-year to IDR 146.6 trillion. With operational costs increased by 8.8% year-on-year, we maintained consolidated cost-to-income ratio at 40%, ensuring cost efficiency remain intact. This result in pre-provision operating profit growth of 3.77% year-on-year, ultimately supporting the net profit growth of 1.3% year-on-year to IDR 55.8 trillion. Next, let's look at our key ratios. As previously mentioned, our consolidated net interest margin improved slightly on a Q-on-Q basis, reaching 5.15% in 2024. On the cost side, our operational cost-to-income ratio stood at 40%, while cost of credit costs remained low at 0.79%, reflecting disciplined expenses and also stable asset quality. In terms of return, our return on equity stands at 21.2%, and we remain committed to maintaining an ROE above 20% in line with our long-term strategy. Shifting to liquidity. Our bank-only LTR increased to 98% in 4Q 2024, following our deliberate strategy to reduce expensive funding. However, as anticipated, LTR has since normalized, declining to low 90% range in early 2025. Moving forward, we plan to keep LTR at mid- to low 90% level as loan growth moderate and deposit growth strengthened to transactional CASA. On the asset quality, as our CEO highlight, NPL improved to 1.12%, while loan at risk declined to 6.8%, reflecting a resilient portfolio. We believe asset quality will remain healthy in 2025, supported by prudent risk management and also disciplined loan underwriting. Ladies and gentlemen, let's now take a close -- at our loan and also deposit breakdown. In 2024, Loan growth was led by wholesale segment, reinforcing Mandiri position as a leading wholesale bank. Corporate loan expand by 26.7% year-on-year, while commercial loan grew by 23% year-on-year, driven by strong demand in the wholesale space. Meanwhile, retail loan grew in line with the industry at 11%, maintaining a balanced portfolio. Beyond the core bank, our subsidiaries also contributed significantly with 15.2% year-on-year loan growth, reflecting Mandiri expanding footprint across multiple segments. As a result, total consolidated loan growth stood at 19.5% year-on-year, exceeding our initial guidance. Looking ahead, as mentioned by our CEO, we expect loan growth of 10% to 12% in 2025 with a strategic shift towards harnessing in retail ecosystem with our value chain. This means leveraging our strong corporate relationship to drive expansion into supplier, distributor and also employee ensuring high quality and also sustainable growth. On the deposit side, we actively reduced our [indiscernible] expense funding in 2024, leading to the decline in time deposit and also release of costly wholesale demand deposit. This was a deliberate moving to stabilize our cost of funding and also optimize our funding mix. In 2025, our focus will be growing low-cost funding sources, particularly saving deposit and also SME demand deposits, which have proven to be sticky and also cost efficiency. Importantly, with the loan growth now following the deposit growth, we expect deposit to outpace our loan, allowing us to bring LGR to mid-90% level further reinforcing liquidity discipline. By prioritizing transaction CASA expansion, optimize funding costs and also ensuring disciplined loan growth, we are confident that Mandiri will continue delivering sustainable growth and offer a strong return. Next, let's discuss our interest margin -- net interest margin or NIM performance. For full year 2024, our bank-only NIM stood at 4.93%, slightly higher than 9 months 2024, 4.91%, supported by improved loan yield and also higher LDR. Breaking it down further, loan yield increased across the commercial, consumer and also SME segment, driven by new loan repricing effort, which we expect to continue throughout 2025. And meanwhile, corporate loan yield remained stable in 4Q 2024. On the funding side, our total cost of funds rose to 2.31% in 4Q 2024 from 2.21% in the previous quarter, driven by higher time deposit costs. And however, saving deposit and demand deposit remained stable. At the consolidated level, NIM improved from 5.11% in 9 months 2024 to 5.15% by year-end. Looking ahead, we see opportunities to further reduce our funding costs as our liquidity condition improve, supported by more [indiscernible] from Bank Indonesia and also various government initiatives and boosting domestic liquidity, including overall government spending programs such as freelance program, the export regulation and all of which expanded to create more offerable funding environment in 2025. On non-interest income. Overall, our consolidated non-interest income for full year 2024 reached IDR 42.3 trillion or increased by 4.12% year-on-year, led by recurring income that grew by 11.3% year-on-year. The recurring income growth was largely driven by the digital fee income from Livin', which grew by 20.7% year-on-year and also loan-related fee, which grew by 13.2% year-on-year. We expect recurring non-interest income to still grow by double digit in 2025, supported by digital income as we focus on building our transaction value chain CASA franchise. On the other hand, we see non-interest income declining by 15.7% year-on-year, largely resulting from slow recoveries due to challenging macro condition. In 2025, we expect non-recurring non-interest income to normalize to mid-single-digit growth. Furthermore, we see that subsidiaries non-interest income has improved to growing 30.2% year-on-year, driven by Bank Indonesia and also auto finance subsidiaries. We expect our total non-interest income to continue to grow in mid-single digit in 2025. Turning to operational expense. We maintained strong cost discipline in 2024 with our cost-to-income ratio at 35% for the bank only and also 40% on the consolidated basis, a continued improvement from pre-COVID level. While seasonality impact cost in the fourth quarter, our focus on digital transformation and also operational efficiency helped us to optimize spending. This expansion of Livin' and Kopra has played a key role in enhancing productivity and scaling customer acquisition without significant cost increase. We also maintained strict control of our discretionary spending, ensuring that personnel expense and also IT investment are aligned with the long-term productivity again. However, as we expand subsidiaries, particularly BSE remain a focus for further cost efficiency improvement. Going forward, we will continue to balance investment in growth initiative with disciplined cost management, ensuring sustainability in profitability and also strong return. Now let me provide an update on our asset quality as of December 2024. Despite strong loan growth, our asset quality remained robust, demonstrating our prudent credit underwriting approach. Our NPL ratio and also loan at risk ratio have reached all-time low, reflecting disciplined risk management and also high-quality loan expansion. At the same time, we remain well positioned with consolidated loan at risk coverage ratio of 45% and NPL coverage ratio of 271%, ensuring a strong buffer against potential risk. In 2024, we execute some provision reversal, allowing our cost of credit to decline to below 1% as we optimize our coverage level. Heading into 2025, we expect credit cost to normalize at around 1%, though this does not indicate [indiscernible] in asset quality, instead it reflects a return to more typically provisioning cycle following the reversal last year. We remain confident in sustaining a healthy asset quality in 2025, supporting by rigorous risk management and also our strategy with ensuring a high-quality loan and also high-quality loan expansion across our ecosystem. Now let's discuss our capital positioning. As of December 2024, Bank CAR remained stable at 20.1%, well within our range, ensuring strong capital resilience to support future growth. Looking ahead, we intend to maintain our CAR and Tier 1 ratio within 18% to 20% range over the near to medium term, striking a balance between capital efficiency and also sustainable expansion. With the loan growth expected to decelerate in 2025, we recognize the potential for higher dividend payout ratios as a part of our capital optimization strategy. And as we mentioned that this is not a final decision and this remains an option that is actively being assessed. I would like now to pass on the presentation to Pak Tim, our IT Director, to continue the presentation on our digital and also ESG initiatives.

Thank you, Pak Sigit. Good morning, ladies and gentlemen. I'll take my presentation in 2 parts. The first one is on the digital development and progress and the second part is on the ESG. So let me now move to the first part of the digital, which is on the retail side, Livin'. I would like to, again, after 3 years running since the launch in October 2025 -- 2021, Livin' has served as the primary gateway for our retail transaction, as you can see and discussed earlier, that in all fronts, we are showing a significant growth, double-digit strong growth in terms of transaction being transactional platform, in terms of the transaction value as well as fee base, as you can see on the slide. But what is very important now we have actually delivered where all the retail transactions that are non-cash related, 99% is already conducted through our super app Livin'. The savings deposit growth has continued to outgrow the industry, and we performed well within the guidance that we have given before. Next, I'd just like to show the -- how we have become dominant as an everyday banking app. So this is a very important point because Livin' has been seen in the market as the everyday banking app by our clients. And in particular, the 2 very important parts, we can see the QR payment in Indonesia has significantly increased and Livin' in particular, is showing very, very strong results, where the frequency has gone up 3x over since last year. At the same time, I think we are also managing the market for FX transactions and has grown strongly for our retail clients. What we focus to enable to get this is actually on the ease of use. We keep improving our UI/UX, the experience that our customers feel when they are using our super app. Next, you have heard from our CEO, Pak Darmawan, in terms of our strategy of executing the ecosystem. And this is now reflected fully in terms of how we launch and leveraging the ecosystem execution from our wholesale clients' employee payrolls. Livin' today has provided all retail lending products on the platform, where 6 [indiscernible] products are there, and it's continually giving very good progress in terms of growth from all the credit cards installments. You can see 90% is now done through Livin'. Cash advance disbursement strongly and also showing a good outcome whilst we are moving this with rigor and managing the returns. The buy now, pay later has grown encouragingly positive. Now let me move next to say that beyond the lending products, our investment products have been very encouraging to see the growth there. With the latest one, we have introduced the stock purchasing for equities through our Mandiri securities. The transactions, as you can see from -- on the right-hand side, the intensity and the growth has been very strong. In particular, I would just want to highlight that we have increased the growth in trading account opening through Livin' by 10x over. So this is, again, our effort to provide all the investment capabilities for our retail clients. Next, equally, I think we have now developed our loyalty features that drives higher transactions, balances and in particular, improves the customer stickiness. You can see that our -- the ones that are really driven with loyalty points, we can see the difference with terms of loyalty users versus non-loyalty users. So we introduced the likes of gamification and to help boost our clients' loyalty. So we will continue to develop this. And the aim is for 1 user to bring 3 new Livin' users going forward through our loyalty program. Next, I'd just like to say that all the things that we've developed, we develop with very clear framework, as you can see on the left-hand side, where the doughnuts are representing everything that we built in Livin' is always about saving money, moving money, borrowing money and growing money with the ecosystem that we run underneath. You can tell that from what we have done, we have continued to improve now our UI/UX. So features-wise, we're reasonably complete, but what we'll continue to do is actually improving our customer experience. And this will continue to be done relentlessly through our innovation to improving the experience for our clients. There will be some next releases that you will see in the second quarter of this year, and it will be a lot more with AI-enabled while we're already using AI. Next, in closing for Livin', I think this is a very important slide that I would like to highlight to you as far as the outcome is concerned, I think from a Livin' perspective, we have seen that the first section there, we are not yet the highest in terms of users. If we are represented by X, there are the banks that have -- do have higher users on the apps. But what you can see because we are really focusing on the UI/UX and the use cases in 2022, 2023 after we launched, we have started to see very encouraging results when our savings account incremental savings balances actually has outperformed the other banks. But more is more encouraging. You see after 2023 to 2024, that trend even is more exciting. The growth has been even higher. That is showing that from an incremental of savings account balances that we have been able to book by focusing on the right use cases and the right customer experience, like I said in the opening, we have become the dominant everyday super app. Now let me move to the next part of Livin', which is for our merchants. Equally, the merchant transactions have seen a significant increase in terms of monthly active users from when we started to where we are today. You can see from the graphs. And from the transaction frequency, Livin' merchant has exceeded that of our EDC machines. Next, I would like to say that with the recent releases for Livin' Merchant, we are almost complete. We become the most comprehensive merchant solutions for MSME, where we have the onboarding, which is fastest through digital. And more importantly, we have the capability now to accept all cards, inventory, stock purchasing and procurement, connecting that with our ecosystem in wholesale. The next release is where we're going to facilitate real-time settlement, which is now done 3 times a day. So we will believe that this will empower merchants in terms of using Livin' Merchant to be their main acquisition tools. Let me now shift gears to our next big platform, which is our wholesale platform called Kopra. What you can see in Kopra now -- can you move next, where the momentum being the wholesale bank, strong wholesale bank, we can see a strong momentum. But I think as Pak Darmawan covered and Pak Sigit covered earlier, some of the homework that remains to be improved is actually the opportunity to optimize the cost of funds. Whilst Kopra has become the largest transaction value in terms of platform that goes through for our wholesale clients, executing the value chain is so important where with Kopra now, we are going to look forward to improving to optimize the cost of funds to obtaining the value chain in SME transactions. So in order to do that next, I would like to tell you in terms of what we have done because we launched Kopra at the same time we launched Livin'. But then the development took place between October 2021 to recently when we launched and as I've updated before, Kopra has been benchmarked to a global standard for the wholesale platform, and we benchmarked to 2 banks globally that we believe have a very strong proposition for transaction. So from a Kopra perspective today from our cash management payment collections, liquidity, in terms of also working capital solutions for trade and value chain. And as far as also for the tools for treasurers from reporting and AI capabilities, I can report that with the recent launch in the fourth quarter 2024, Kopra today, I can claim that we are benchmarking at the same level as any global players in terms of superiority of capabilities and experience. Next, I would like to show that this is the new phase of Kopra where the offering for business clients has been strengthened and the ability to maximize transaction capabilities and optimize cost of funds. Even for liquidity, as you can see, I think we are the only one today that are able to do liquidity management, combining different accounts from a different structure of same company groups with a drag and drop. So it's very easy of use. And obviously, behind that is all the supply financing solution that will enable us to move into the SME part of it. Next, I think I'd just like to say that we will continuously innovate, we will not stop -- similarly to Livin' that we have had that experience. We will do releases for the next levels. But then again, Kopra always going to anchor on the principle that is on the left, which is about wholesale digital treasurer, digital working capital, ecosystem partner and business intelligence advisers. So the ecosystem partners, Kopra partnership will be the next release that we're going to put in the market. Let me now shift gear to ESG. ESG, I think we'd like to report that we are very pleased to say that we have embarked on a transformative journey to strengthen our ESG initiatives. So our consistent effort has led to a remarkable achievement. And in particular, in 2024, we have improved our MSCI ESG rating to BBB with enhancements across all aspects of E, S and G. More recently, our -- what is very important is our Sustainalytics rating has improved from 28.45 to 17.5, and this has just come out in January 2025. This actually has taken us, our classification from medium to low and solidifying our position as the lowest risk bank in Indonesia. More recently, our Sustainalytics ESG ratings, not only this, but again, we will continue to drive the -- our leadership in sustainability banking, where we will continue to improve our ESG risk management. These achievements actually reflect our commitment to global sustainability standards, robust risk management and long-term value creation for our shareholders. Next, ladies and gentlemen, I'll just say that we continuously enhance our ESG policies to align with best practice standards across all areas. First, in the environmental sector, we have strengthened our ESRM framework, including a 12 sector credit policy for responsible financing. Second, in the social sector, we focus on data privacy, security, responsible marketing and consumer protection. Third, in governance, we have reinforced corporate behavior and ethics policies to uphold integrity at all levels. We are also the first national bank in Indonesia to adopt a sustainable finance framework and a transition finance framework that provide better transparency and accountability in the credit policy implementation. Next, I would like to say that on sustainability banking pillar, our sustainable portfolio has reached IDR 293 trillion as of 2024 or grew 10.8% year-on-year as we continue to grow into sustainable sectors. The breakdown of by categories, our social portfolio also grew by 6.5%, while our green sector financing grew by 15.2% year-on-year, driven by our focus on growing loan in renewable energy area, eco-efficient products and clean transportation sector. This commitment has allowed Mandiri to position ourselves as the dominant market share in green portfolio among our competitors in Indonesia. Going forward, we expect to maintain our leading position by continuously supporting sustainable portfolio growth. Now let me move to sustainable operations, where we remain committed to achieving net zero emission or NZE by 2030 for our operations. And we have streamlined our operations to be more eco-friendly. We are able to reduce our carbon emission by 33%, as you can see on the slides between 2019 and 2024. This reduction has been driven by several key actions, including the installation of solar panels, development of green buildings and support for EV and hybrid ecosystem. Lastly, on our pillar for sustainable beyond banking. We continuously support financial inclusion through our digital strategy across all areas in Indonesia. For example, Livin' Merchant, our effort in digitalizing small merchants in Indonesia have reached 1.5 million users in the non-urban area, which is a very significant achievement, showing a 42% year-on-year growth. Our CSR programs such as Wirausaha Mandiri, Mandiri Sahabatku and Rice Milling Unit also create impacts on -- by focusing on the empowering and of small businesses, creating new entrepreneurship and supporting rural areas. The last piece I'd like to highlight is that we also provide a fair and equitable working environment by giving every gender the same opportunity. Currently, we are close to 50% of our manager level employees is filled by female leaders. That marks the end of my session, and I'll hand it back to Lau for the Q&A.

Thank you very much, Pak Tim, and thank you to all speakers. Ladies and gentlemen, we have about six questions that came online, and we'll take all of them. The first question is -- for 2025, cost of credit of 1% to 1.2%. Do you see NPL falling or rising to what range for NPL coverage? That question will be addressed by Pak Sigit. The second question is regarding NIM and loan growth. What would you prioritize if deposit growth and deposit environment is much lower than expected in 2025? That will also be addressed by Pak Sigit. And the third question is do you see continued decline on recovery income for 2025 that will also be covered by Pak Sigit. The fourth question is regarding NIM. Are you seeing lower SRBI rate translating to lower wholesale funding rate? I will be covering that one. And then another question regarding NIM as well. What caused higher yield in the fourth quarter of '24? And can it continue in 2025. I will also cover that one. And -- the last question is, since LDR is already at 98% and you are looking to bring LDR down to mid-90%. If deposit growth is below 10%. Now you're looking at a very slow loan growth of single digit. I will also address that one. I will now pass it Pak Sigit to address the first three questions regarding COC, NIM and recoveries. Thank you.

Yes. Thank you, Lau. As I mentioned before that our cost of credit this year around 0.8%. We have some provision reversal last year, and that's where our realization of cost of credits better than expected, 0.8%. And 2025, our guidance is 1% to 1.2%, and we believe this is a normalized cost of credit without any releases on provision anymore in this year. It's not because of worsening on the asset quality. It's just a normalized process because this year, we plan to grow by 10% to 12% -- of course, we need provision and also the normal territory thing. And at the time, we will maintain our NPL at the similar level around 1% is our expected -- our NPL. So 1% to 1.2% our normalized our cost of credit that we expect in this year, 2025. So again, that overall, our NPL we expect stabilize around 1%.

Next question on funding and loan growth.

Okay. Next question about net interest margin and also loan growth. As we mentioned before, the our LDR by the end of the year spiked to 89% -- 98% because we -- this actively, we let go the expensive funding. And if you see our LDR month by month, our LDR is maintained around 94%, 95% along the last year, except by the end of the year. And we also see our LDR back to around below 95% by January 2025. So we committed to maintain our LDR lower than last year. We expect mid- to low 90% as our expectation of our LDR. If we -- how about our net interest margin versus loan growth. So with that, we expect deposit growth higher than loan growth is our aspiration this year. And in above 20% ROE is the key metric for management. So we will balance everything including net interest margin, loan growth, deposit growth in order to keep our ROE above 20%. This is our aspiration. The last question about recoveries. Back to 2023 that our recoveries above 10% is a high base. 2024, our recovery around 6.8%, and we believe this is a normal base, our recovery. And 2025 -- we expect recoveries slightly flat or better compared to 2024. And based on our assumption, we expect the recovery in 2025 around IDR 7 trillion to IDR 8 trillion following the economic recovery into 2025. So that's all the answer to all questions.

I'll now address the other three questions. The first one is whether or not lower SRBI rate can translate into lower funding -- wholesale funding rate? Well, -- the fact of the matter is that the SRBI rate is often being compared by some of our depositors. Especially on the [ corporate ] of the equation. And that is one of the reasons why cost of, for instance, demand deposits has increased quite meaningfully. So for example, if you look at the cost of demand deposits at the moment, we showed this in the earlier slides where you see that the overall cost of demand deposits is at 2.88%, while the SME cost of demand deposit is at 1.8%, which basically means that the non-SMEs, which are mostly wholesale or the big corporates, cost of demand deposit is much higher than 2.88%. And that is affected by the rising SRBI rate. So we do believe that there should be some normalization of funding cost should the decline of SRBI rate is sustained and happens moving forward. The second question regarding yield. And the question was what caused higher yield in the fourth quarter of '24? And can it continue? If we look at the trend of yield in the fourth quarter, '24, there is a clear increase in commercial yield, there is a clear increase in SME yield and micro yield as well as consumer. And I think this is very much a result of the commitment when it comes to pricing. We showed earlier as well that the growth of loans of around 20% is followed by interest income from loans growing also 22% year-on-year. So the commitment on pricing by the management is evidenced by those figures. As regard to the yield, the reason why yield increase in the fourth quarter is simply as simple as higher booking rate. So for example, if we look at the average yield for, say, for instance, commercial back in third quarter '24. The average yield was about 7.37%. But the new booking we had in the fourth quarter, since the start of the quarter, i.e., October all the way into December, are averaging at around 8% when it comes to the interest rates. So that basically has effect on an -- upside effect on the overall yield. Another thing is on SME, for instance. If you look at the yield of SME back in the third quarter of 2023 -- 2024, the number was 7.7%. The average booking rate of SME in the fourth quarter is anywhere between 8.5% to 9.5%. So I think these commitments is the reasons behind the uprising yield in the fourth quarter. And if we look at what the yield of the fourth quarter is compared to the booking rate, I just mentioned, mathematically, this would lead to a potentially higher yield in the upcoming quarters as well on these segments or on the aforementioned segments. So the answer is can it continue in 2025? At least for first quarter, second quarter probably, yes, on the back of the higher new booking. Last question on loan-to-deposit ratio. If the LDR is -- if you plan to reduce LDR to 90% or mid-90%, why are you guiding 10% to 12% loan growth? Well, the answer is very simple. That's because we are -- we believe that we can acquire higher growth in the deposit side of the equation. So if we look at the growth of deposits last year, the quality growth as in saving deposits. We grew saving deposits at the rate of 13% year-on-year, flat cost of funds. And if we look at demand deposits, yes, there are demand deposits that are grown -- that grew on the back of special rate, but there are also demand deposits that grew on the back of transactional and that's why we highlighted our SME demand deposits, which grew by 12%, 13% year-on-year earlier in the slide brought by our CEO. And on top of that, there are some regulatory related -- or macro related factor that push us to believe that deposit should -- in the system should be relatively better in 2025 versus 2024. So on a net-net basis, we believe, and we have a base case that for Bank Mandiri deposit growth can still support loan growth. In other words, deposit growth to be more than 10% or 12% and not deposit growth on the back of expensive deposits, but deposit growth on the back of transactional and chip deposits, which ultimately hopefully should bodes well for our net interest margin. So -- those are all the questions from the line. Maybe we'll take one more question from Harsh from the call. Go ahead, Harsh, and ask your question. This would be the last question.

Yes, thanks a lot for allowing me to ask the question. If I may, a couple of questions. Can the higher SME yield lead to NPL formation in course of 2025? How do we get comfort because if cash flows are tight, that the SMEs can sustain higher yields. That's one. Second is, you had a very good slide chart on Slide 17 on special deposit, special rate deposits, which went down to 26% in December. Has that number increased meaningfully in January? And is that reason why we are getting lower LDR?

Thank you, Harsh. Good question. We'll touch on the NPL formation first. Can we bring up the table. Can we show the net -- the NPL formation from the loan growth slide, please? Quickly. No, there is a slide in management highlight with NPL information. Please show that one. So Harsh, the SME growth that management has been doing is actually a value chain driven SME, right? So if you look at the bottom right chart, you will see that basically SME, net NPL formation has come down quite meaningfully throughout the years. So in December '23, our SME net NPL formation is at 2.55%. And as of December 2024, the net NPL formation of SME is at 1.5%. And if I may remind what the average SME net NPL formation throughout 2015 or '13 averaging all the way to 2019 or 2018 is anywhere between 3.5% to 4% or 4.5%. So we believe that as long as we focus our growth in SME despite the pricing, pricing comes along. But as long as we focus on the value chain strategy, then the trend of the net NPL formation will stay as in a trend and healthy trend. Another one that I would like to show is the value chain proportion -- on the value chain proportion. So this is just to show that the growth of our retail loans, which in it is basically value chain, has been consistently focusing on basically the ecosystem value chain of the bank. So if you look at the chart on the bottom left, you'll see that of the total retail loan that we have, which currently stands at IDR 397 trillion. And a big chunk of that is -- part of that is Retail -- is SME. You'll see that the value chain proportion has gone from 28.9% to 32.3% to 35%, and it was, by the way, lower than 20% before 2020. And a big chunk of this growth and increase is either payroll or the SME loan growth. So the key for us is to focus on the value chain. And as long as we focus on the right track, hopefully, the NPL formation can be maintained and not deteriorate. The second question is on special rate. Unfortunately, we have to get back to you on whether or not the special rate has increased from the last month of last year, December to January. We'll get back to you and all the audience that are here.

No problem. If I could just have one follow-up on some of your assumptions for deposit growth this year. 2023, your deposit growth was about 2.5% higher than industry deposit growth -- in 2024. So in 2025, should we expect around 2%, 2.5% higher overall deposit growth for the bank versus the industry? Because I'm just trying to understand are you assuming, let's say, 15%, 16% loan deposit growth for the bank? And is there an assumption of 12%, 13% industry growth? Or if industry growth is -- let's say, 5%, 6%, 7%, can you still deliver the kind of LDR improvements that you are guiding for?

The answer is Yes, Harsh. So two key assumption and notion that we have for deposits. Number one is the notion that industry deposit growth should improve in 2025 compared to 2024 on the back of government spending, net release of SRBI, even if that goes to government bonds, ultimately, it goes to fiscal spending, so on and so forth. So -- the 4%, 5% industry deposit growth that we had in 2024, should improve in 2025, and that is our assumption. The second notion and argument is on the idea that Mandiri growing the deposit higher than the industry base. That is also true. So on the back of the improvement in the industry deposit growth, we are going to be anywhere between 2, 3 percentage points of that level. And that is also the reasoning behind our expectation towards loan growth of 10% to 12% -- on the growth side of the equation, both liability and asset Harsh.

Great. So just so that I understand it right, the assumption is industry deposit growth will be 12%, 13%. Hence, you can grow bank deposits closer to 15% and hence, we can do 10% loan growth and still lower LDR?

We are not saying that industry growth of deposit will be 10%, 12%. We're saying that it's going to be better than last year. Our assumption is probably -- it's going to be likely to be higher single digit for the industry. And if we put some 3 percentage points higher than that, then it will be at 12% when it comes to the deposit growth. In other words, the way we put it is that if there is a higher-than-expected and better-than-expected improvement in the deposit environment for the system, then it's even more positive for growth of the loans as well as the policy is basically a loan to total growth of deposits.

Got it. I'm just trying to reconcile then the LDR guidance, then from 98%, it probably just move -- still remains above 95%, if that's the math. So I was unable to reconcile that statement of early '90s LDR with just, let's say, 10% deposit growth and 10%, 11% deposit growth and similar loan growth.

The LDR situation has been staying -- the LDR ratio has stayed at 92%, 93% all the way until around November. Right. And it's gone up to 78%. And basically, that is on the back of Bank Mandiri strategically releasing a very high cost of deposits coming from [ certain ] corporate. So the focus is basically everything relates to how successful can we be in 2025 when it comes to generating the cheap CASA coming from transactions, both the savings and the SME deposits. So the idea for 2025 is focusing the liability franchise. And hopefully, we can basically end the year with lower LDR, less reliance to high-end cost of deposits, as we hope to see a much higher or at least higher SME deposits or SME demand deposits, saving deposits or cheaper corporate transactional deposits, in order to basically fund our growth on the loan side of the equation. So the concept of reducing reliance of high cost of high deposits is an active strategy that is being managed and being planned by the management for 2025. That's in our budget. Thank you, Harsh from JPMorgan. And thank you to all speakers. We end the call now and happy to take questions. Please send us e-mail if you have further questions, and we'll reply to your emails as soon as we can. Thank you very much, and good morning.