PT Bank Negara Indonesia (Persero) Tbk (BBNI) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. We are glad to welcome you to PT Bank Negara Indonesia Persero Tbk Virtual Analyst Meeting on financial results for the first half of 2021. We hope you are all safe, healthy and doing well. Proudly, we will introduce our Board of Director members who are attending the analyst meeting presentation as well as the Q&A session. Together with us now, Mr. Royke Tumilaar, President Director; Mrs. Adi Sulistyowati, Vice President Director; Mrs. Novita Widya Anggraini, Managing Director of Finance; Mr. David Pirzada, Managing Director of Risk Management; Mr. Silvano Rumantir, Managing Director of Corporate Banking; Mr. Henry Panjaitan, Managing Director of Treasury and International Banking; Mr. Sis Apik Wijayanto, Managing Director of Institutional Relations; Mr. Muhammad Iqbal, Managing Director of Micro, Small & Medium Enterprise; Mrs. Corina Leyla Karnalies, Managing Director of Consumer Banking; Mr. Ronny Venir, Managing Director of Service and Network; Mr. Bob Tyasika Ananta, Managing Director of Human Capital and Compliance; and Mr. Y.B. Hariantono, Managing Director of IT and Operations. For our guidance, Mr. Royke Tumilaar will begin by presenting several management highlights. After that, Mrs. Adi Sulistyowati, together with Mr. Muhammad Iqbal will deliver corporate information highlights. Then Mr. Y.B. Hariantono will explain the corporate's digital initiatives and strategies. Continued by Mrs. Novita Widya Anggraini, the highlighted result of first half financial performance. And to close the presentation, Mr. David Pirzada will elaborate the bank's loan quality and risk management strategy. The corporate presentation can be downloaded through the link we provide in the chat room. In case of any difficulties to access the link, kindly contact IR team through e-mail address [email protected]. Any questions are welcome. Please send it to IR e-mail address to be followed up in the Q&A session. The presentation will be running for about 30 to 45 minutes. [Operator Instructions]. And now to commence the presentation, please welcome our CEO, Mr. Royke Tumilaar.

Thank you, moderator. Good afternoon, ladies and gentlemen. Please allow me to spend the opening section of today's earnings call to highlight second quarter 2021 results. And provide our direction in entering the recovery year of 2021, I will then turn the call over to my fellow board member. The pandemic has been growing on for more than 1 year. And as the audited financial numbers show, we are quickly adapting to the new normal. Continuing the latest positive trend during first quarter 2001, most of our financial indicators are showing solid improvements. PPOP at IDR 8.2 trillion was the highest quarterly number we are ever booked. There are -- there was a slight compression on the net interest margin due to lower yield in the marketable securities, while loan yield was relatively stable. At the same time, we also managed to lower cost of fund by 10 basis points quarter-on-quarter. Loan average improved by 110 basis points to 25.8% on June, thanks to a gradual recovery of client situation under restructuring category. Despite improving trend in loan-at-risk category, we continued to conservative in building provision with 3.5% cost of credit in second quarter 2021 stable quarter-on-quarter. We believe this is a prudent approach as the country is still fighting against Delta variant of COVID-19. The reason for strong PPOP in the second quarter was solid top line, both from the net interest income and fee income. On the net interest income, we managed to maintain stable loan yield, while at the same time deliver loan growth above industry average. We were also closely managing cost of third-party funds by reviewing counter rate time deposit from time to time as well as focusing on building sustainable CASA. Our counter rate time deposit was 2.85% during the second quarter, which was almost 30 basis points lower than in the first quarter. As you could see from the slide, we see from the -- lower it further by 10 basis points starting on August. Almost all fee income components showed strong rebound. Trade Finance, for example, was growing by 20.4% year-on-year and 32.1% quarter-on-quarter due to strong commodity demand from developed countries. In addition to macro factor, the growth was also a sign preliminary result of our focus on fee income area within Wholesale Banking, as we mentioned earlier this year. E-Channel without any doubt, also grew strongly by 9.8% year-on-year, in line with shifting consumer behavior towards digital banking services. Last month, we announced a share buyback program, which will be executed until the October. We believe it is the right time for us to do share buyback as BNI valuation multiple has not reflected key progress of our transformation program. On the digital front, we managed to turn around our mobile banking application quality. And now it has the highest customer rating in the Play Store and the most complete features among major banks in Indonesia. We also believe a leader on open banking ecosystem with the highest number of API connectivity with the other ecosystem. The latest development was we become early adopters of pay later business in collaboration with Traveloka and Shopee. Behind our record-high PPOP, both our cost of fund and cost-to-income ratio are now the second lowest among major banks in Indonesia. We are running a cost-efficient business model, focusing on being the most profitable bank in the medium term. Despite ongoing pandemic, our asset quality indicators such as loan-at-risk coverage have been improving consistently. We want to emphasize here that the buyback program does not contradict our goal to build fortress balance sheet by having a higher capital. Buyback will have only a very small impact on the capital and only for the short term. We plan to allocate the buyback share for management and employee stock option program by next year. Hence, our capital will increase again. This long-term incentive program tied to share price performance is part of management strategy to align our remuneration with minority shareholder interest. One of the corporate transformation growth in the wholesale segment is to capitalize our cross-selling and upselling. We want to offer comprehensive solution to corporate clients beyond plain vanilla lending. We strengthened our investment banking capabilities by upgrading BNI securities team and establishing a Singapore office. Agung Prabowo previously was the UBS Head of IBD Indonesia is now CEO in BNI Securities. We also established BNI Securities Singapore to enable us to enhance product offering and seek to generate fee income by leading international capital market transaction for issuer clients. The CEO for the Singapore entity is Leonard Ng, previously an investment banker with Standard Chartered helped by Robin Goh and Edwin Chew. Both are experienced bankers with Commonwealth and Deutsche Bank, Singapore. I would now like to turn the presentation over to Ibu [ Susi ], our Vice CEO, to highlight some updates on corporate transformation. Ibu [ Susi ], please.

Thank you, Pak Royke. We start our transformation journey in January this year. And in the last 5 months, we have met [indiscernible]. On the digital front, as mentioned by Pak Royke earlier, we are speeding up our digital transformation. On fifth of July 2021, we launched our new mobile banking app featuring an all new looks and feels as well as streamlined navigation, which incorporate the bank's brand values, the launch also marks the third transformation of our mobile banking evolution since release in 2016. We are also improving feature in our mobile banking application with leading features like [ bank multiple log-in ], digital account opening with facial recognition feature, digital loan, credit card bill integration, investment in bond and mutual fund, QR payment which is accepted in all retail merchant that already adopt a standardized national QR system as well as Life Goals Tapenas, which will allow customers to set specific monthly auto debit deposit amount and tenor for school [indiscernible]. Completeness of feature is currently our competitive advantage over our peers. The number of BNI mobile banking customer continue to grow by 57% year-on-year, reaching 9.3 million users. We are also getting more engaged with our apps are reflected in the rating on Android Play Store, which continue to be the highest among all BUKU 4 banks and its number of transactions that will keep up growing immensely. Ladies and gentlemen, SME plays a crucial role in Indonesia, revenue-wise, it contribute to almost 40% of Indonesia GDP. In general, most of SME products are currently consumed domestically. Despite the quality potential, they can't compete in the global market. On 2020, SME contribute to 14% of Indonesia export and government has been targeting the contribution to increase to be 22% by 2024. To achieve this, SMEs need to be supporting by all parties from government institution to banking industry to take part in global supply chain. BNI Xpora have unique solution to support SME exporter. In addition to [ proven bundled ] financial solution with competitive pricing, BNI Xpora offer various value added services. For example, one, global market access through partnership with e-commerce and global trade association; two, advisory on how to do export, including licensing and tax information; three, integrated business productivity tool to upgrade SMEs business, such as accounting and bookkeeping service in collaboration with [ start up ]. We are just in the early stage in the journey, however our initial research suggests that this [ provision ] resonate well with our customer. We believe that BNI Xpora will [ start BNI ] strategic positioning in market and increase or [ sustain our ] SME portfolio in the future. Further detail on Xpora will be explained by Mr. Iqbal, our Director of MSME, Please, Mr. Iqbal. Thank you.

Thank you, Ibu Susi. Focusing on MSME, with potential to go global BNI Xpora has 3 target market, namely established exporter, new exporter and exporter-supporting businesses. Previously, Ibu [ Susi ] has mentioned several lending solution for SME exporters such as business advisory, global market access and payment solutions. Through this solution, BNI aspires to become an orchestrator in MSME ecosystem that will help to connect domestic MSME to global buyers as well as to connect them with important business and export enablers such as training platform, trade promoter, financing providers and many others. Xpora is accessible by 120,000 SME exporters and almost 10 million businesses within their value chain. We collaborate with various institutions. For example, is Smesco, a government institution under Ministry of MSME as well as TaniHub, one of the major agriculture technology start-up focusing on small farmers. Xpora provides network to more than 100 million worldwide customers, supported by BNI extensive international operation and collaboration with trade association and values e-commerce. Xpora also facilitates connection to export enablers from various institutions such as business training and incubation provider logistic company, government licensing and many others. Therefore, we believe that Xpora could be a holistic ecosystem solution, a place to go for any domestic entrepreneur who wants to tap into the export market. Xpora model is designed to be customer-centric. We identified SME exporter pain points and offer solutions to it. Xpora provides SME incubation center where we give advisory and assistance on how to tap export market. Due to this, we partner with various institutions including with several top universities. We help our clients to reach global business partner and customers by collaborating with e-commerce and institution like trade association and BKPM. We offer bundled financial products with attractive discount for LC -- discounting LC, collection and remittance. Even the loan application process is simplified through digital portal with loan disbursement of less than 5 days. Beyond lending, Xpora also offers special pricing for trade finance and cash management products. We move quickly to roll out Xpora model to major exporter hubs across Indonesia. To begin with, we opened Xpora hubs in 7 cities in Sumatra, Java, Bali and Sulawesi. In these Xpora hubs, we provide dedicated [ relicensing ] manager to serve the needs of exporter customer. The hub also serve as a co-working space where various entrepreneur with export ecosystem may sit and exchange ideas as well as showcasing their products. So far, we received very positive response with various constructive feedbacks from our customers. Next topic on digital transformation will be delivered by our Director of IT. Please Pak Y.B..

Thank you, Pak Iqbal. Ladies and gentlemen, we have all realized that both fintech and conventional banks have their respective advantages unlike fintech which only have digital platform, asset bank, we have both the platform and our own products. We keep upgrading our platforms. In addition to our existing brick-and-mortar branches, we developed branchless agent banking in suburban and rural areas as an economical way to distribute our products and services. Development of digital native products and services also be the focus that cover both retail banking, mainly through mobile apps, and wholesale banking, mainly through our BNIDirect, our cash management platform and also through our open APIs. We will discuss about them in more detail after this. The market now is entering a new equilibrium where the fintech is more rational with its marketing and business strategies and conventional banks and fintechs are becoming more reaching us to set up a collaborations. With these circumstances, a strategy to form a new subsidiary that offers a digital proposition is not the only alternative for conventional banks. We feel that forming a new bank or a digital bank subsidiary means building a new ecosystem from scratch that require effort and cost. So the other way is to do a partnership or a collaboration based on a mutualism with these fintech players to produce an even bigger B2B2C ecosystem. To collaborate with other ecosystems, we developed API since 2018. BNI is a leading bank in terms of API with 283 services. the most compared to our peers, includes various services such as transfers transactions, bill payments, global remittance, cash management, et cetera. Through this API service, BNI optimize all 3 possible roles. First, as an orchestrator of the ecosystem, where BNI builds an integrated platform that is being used by the ecosystems, for example, including the BNI Smart City solutions for the government ecosystems, BNI EduPatrol for the education ecosystem and BNI Xpora for the export of MSME ecosystem. The second as a partner where BNI optimize the partner system to sell its products like that cash top-up or digital account opening through our partners' platform. Third one, as a contributor, where we optimize our bundled solutions into our new products. One of the use case is our collaborations to provide pay later features, and we will discuss about this more in detail later. Our goal is to enlarge the customer base on the platform itself by increasing attractiveness and building excellence through quality and service differentiations and also by reaching out and collaborating with other digital ecosystems to enlarge the market share of our banking products. BNI has collaborations with digital ecosystem such as [ GoTo ] and many other ecosystems drive BNI's revenue. Our cash management platform is one of those who enjoy the benefits. BNI I has seen a significant increase in fintech or e-commerce customers in the last 3 years, reaching 195 fintechs and 74 e-commerce partners who have become our cash management clients as well. In the first semester of this year, the number of BNI cash management transactions reached 214 million transactions. Around 61% of it was contributed by our digital clients, notably from virtual accounts, e-collection service. The contributions of these digital clients to cover to our cash management fee-based income also continues to increase, reaching 74% in June 2021 and its contribution continues to increase from time to time, in line with fintech and e-commerce boom in Indonesia. We became early adopter of Pay Later business in collaborations with Traveloka and recently Shopee. They're just starting at the end of July. With Traveloka, marketing and credit scoring is performed by partners. But its scoring reliability has been back-tested by BNI. And BNI has determined the risk appetite criteria or RAC, risk [ acceptance ] criteria threshold based on the result of our back-testing. Credit risk for this partnership is on BNI. However, we mitigate the risk by implementing credit insurance. As of July 2021, total portfolio of Traveloka pay later reaches IDR 47 billion. The quality is good with NPL at the level of 3.8%, but has been backed by credit insurance, while average net effective interest rate stood high at 21.41%. We just started a collaboration with Shopee pay later, and we will add more partnership in the future as well. Apart for developing fintech and e-commerce partnership, BNI also continues to our -- to develop our mobile banking. The number of our BNI Mobile banking customers continue to grow by 57% year-on-year, reaching 9.3 million users. Completeness of features is our competitive advantage over our competitors. The number of transactions made through BNI Mobile Banking was 109 million in the second quarter of 2021, an increase of 58% compared to the second quarter of 2020. And for further improvement, our mobile banking users will have an omnichannel experience, personal finance management and SME solutions integration. Besides retail customers, we keep improving our products and services for business banking clients through our digital platform as well. For business banking clients, BNI offers its cash management flagship product called BNIDirect. This is available in both mobile apps and web-based approach. One example of our key features often getting compliment by our clients is integrated transaction management platform within BNIDirect. To facilitate the transaction of our wholesale clients, we also developed an integrated portal called bnitbs.id, where customers could do various types of transactions such as payment management, collection management, value chain management and open banking solutions. Number wise, we still see strong momentum for our wholesale cash management platform with 16.4% year-on-year growth in the number of users with a significant 175.6% growth on -- of transaction numbers. The spike in the number of transaction is due to the increasing contributions of our digital clients as explained previously. More importantly, the room for growth is still ample as the penetration rate of our clients is only 20.6%. We already explained in details regarding our effort to upgrade our digital offerings to our clients. Ultimately, the question is, what's the impact to us? In this slide, we show that other than fee income, better customer experience in doing transactions ultimately bring sticky CASA which enable us to maintain or even expand our margin. Nowadays, 50.4% of our savings balance come from regular mobile app users. This percentage is much improved as compared to only 38.4% a year ago. For current account, 92% of it comes from cash management users. These current accounts stay with us because of the convenience to do transactions and not sensitive to the interest rate we are offering. As a result, cost of fund for current account is only 1.33% in June 2021 as compared to 2.14% a year ago. Overall, this should help our bank to maintain leadership in low-cost funding. The next presentation is about our financial highlights by our CFO, Ibu Novita Widya Anggraini. Ibu Novi, please go ahead. Thank you.

Thank you, Pak Y.B. Ladies and gentlemen, allow me to explain about our financial highlights. For your information, our first half report has been audited by our auditor, PricewaterhouseCoopers, and we received an unmodified opinion. We managed to grow our loan book by 4.5% year-on-year, higher than industry average. However, we focused the growth mainly from the lower segment namely top-tier corporate client, subsidized micro loan and payroll-based loan. On the funding side, we match the growth in third-party funds with loan growth. As CASA inflow continued to be strong at 11.5% year-on-year, we had room to reduce expensive funding from time deposit by 8.7% year-on-year. Net interest income managed to increase by 18.2% year-on-year. Thanks to a 120 basis point reduction in third-party funding costs that was more than enough to cover the impact of pandemic to loan yield. Noninterest income grew by 19.2% year-on-year, mainly from trade finance transaction and E-channel. OpEx growth was 12.7% year-on-year, lower than 19.2% growth in revenue. Hence, we delivered a significant positive [ jaws ] of 2 percentage points during first half 2021. As a result of strong growth in revenue, our PPOP and net profit grew by 24.4% and 12.8%, respectively. Our strategy to focus on low-cost funding was reflected in CASA ratio at 69.6%, a significant 440 basis point improvement compared to last year. As a result, cost of fund could be reduced to the level of 1.7% and contributed to 4.9% NIM. ROE and ROA were at 10% and 1.5%, respectively, keep improving on year-on-year basis. Loan-at-risk was at 25.8%, improved by 110 basis points as compared to the previous quarter. This was contributed by a reduction in both NPL and collectability 1 restructured loan as some clients start to resume normal business and no longer need restructuring support from us. NPL ratio finally improved to be below 4% level and credit cost at 3.5% was in line with our guidance. Our liquidity position was quite good with LCR at 2.3x and NSFR at 1.4x, way higher than regulatory requirement. Loan-to-deposit ratio was maintained at healthy level of 87.8%. As a result of sub debt issuance on March this year and profitability recovery, our total CAR increased to 18.2%. During the pandemic time, we are fine-tuning loan mix composition toward low risk portfolio. You could see that loan growth was dominated by corporate segment, subsidized micro loan, our KUR, part of small business loan as well as secure consumer loan. Loan-to-private sector corporation grew by 7.9% year-on-year and 1.6% quarter-on-quarter, driven by industry in infrastructure, energy and real estate sector. Meanwhile, loans to step 1 enterprise was contracting by 8.1% year-on-year in line with our strategy to [ decertify ] more into private sector. In line with our strategy to improve asset quality, we selectively let go some client in medium segment and built new good portfolio. During this process, it resulted in 3.3% portfolio contraction year-on-year. As anticipated, blended loan yield was relatively stable in second quarter 2021. As of June 2021, low-cost funding grew by 11.5% year-on-year and 3.8% quarter-on-quarter. As loan demand hasn't fully picked up, CASA growth alone was enough to meet loan demand. This enabled us to keep improving CASA ratio to69.6%, the highest level we have seen in the past 10 years. In second quarter '21, our cost of fund was only 1.64%, the lowest level we've ever had. We are still seeing room to improve it further as we cut off our TD rate again by 10 basis points starting on August. We will always focus on sustainable growth of low-cost funding. In wholesale, it will be driven by our effort to cross-sell cash management solution to clients. In retail, we are going to keep investing in mobile banking feature and reliability. Net interest income grew by 18.2% year-on-year. Thanks to our strong CASA franchise that led to successful reduction of cost of fund. And our cost of fund now is the second lowest among Indonesia banks. Noninterest income grew by 19.2% year-on-year and 12% quarter-on-quarter, driven by marketable securities, E-channel fee income and trade finance business from gradual recovery in global trading activity. Operating expense grew by 12.7 year-on-year, driven by an increase in personnel expense due to accrual of variable remuneration to reward our employees for their collective efforts in delivering strong business recovery. On the G&A expense, we remain cost savvy with flat growth year-on-year. As we delivered 7 percentage point positive [ jaws ] between income and OpEx, our PPOP grew strongly by 24.4% year-on-year. The management has intention to build higher provision charges when we have good PPOP in order to minimize profit volatility in the future. Looking from the quarterly trend, provision in CAR start to stabilize in line with general trend of asset quality improvement. Bottom line increased by 12.8% year-on-year and 7% quarter-on-quarter. Next presentation on asset quality, risk management and loan restructuring update will be delivered by our Managing Director of Risk Management, Pak David Pirzada. Please Pak David.

Thank you, Ibu Novita. Ladies and gentlemen, as of June, the outstanding COVID restructured portfolio was IDR 81.8 trillion or 14.4% of total loans. This amount continued to decline since December last year of IDR 102 trillion and almost 19% of total loans previously. All segments also showed improvement across the board. During second quarter, there was some new restructured loan under corporate segment, mainly from client and general contractor which we already assigned 21.7% of provisioning coverage. Despite regulatory relaxation, where banks are allowed to classify all COVID restructured loans under collectability 1, we choose to assign classification as much as possible to reflect the client's underlying situation. By doing this, we also could assign higher loan loss reserve accordingly. Out of all COVID restructured portfolio, 1.8% was already NPL, 8.7% was collectability 2 and the remaining was collectability 1. Overall asset quality data showed a gradual improvement trend. Loan net risk was at 25.8% of total portfolio, 110 basis points lower than March position. And also now looking into the component of loan at risk one by one. Restructured loan collectability 1 has improved to 16% of total loan from previously 17.3% in March 2021, or around 130 basis points decrease. collectability 2 ratio increased by 30 basis points year-on-year. This is triggered mainly by an exposure in trading restaurant, hotel and business services. For collectability 2, we already built 46% provisioning coverage as of June 2021. And also NPL improved by 20 basis points quarter-on-quarter to 3.9%. All of these movements have been in line with our expectation. Despite general improvement in loan at risk ratio, we still consistently built higher provision coverage. NPL coverage was at 215.3% and LAR coverage at 32.9% and which is higher than the previous quarter. Overall loan loss reserve ratio to total loan has been gradually increasing to 8.5% in June 2021 from previously 6.5% the year before. We assigned a conservative provision coverage of 77.2% on average for those in NPL category, which we deem sufficient considering LGD, loss given default rate of around 60%. For those in collectability 2, the provision coverage was 46%, much more conservative than regulatory suggestion. Provision coverage for current restructured loan was 10.5% as we believe only a small portion of this bucket or around 12% is having high risk of downgrade to collectability 2. Now I will turn back the presentation to Ibu Novita to explain our guidance.

Thank you, David. Based on latest situation in the economy and banking industry, we mention our full year '21 guidance. Loan growth target is revised to be 5.7% factoring potential impact from social restriction to loan demand. We believe at this level of growth, we are still growing higher than the industry average. However, the growth will continue to come from the lower risk management -- lower risk segment. Net interest margin is revised upward to be 4.7%, up to 4.9% to take into account a continuing cut in time deposit rate. Cost of credit guidance remained the same at 3.3% up to 3.6%. Since the beginning, we have been very conservative in budgeting for provisioning charges with ample buffer for the unanticipated development related to the pandemic. Hence, lessened social restriction should not change the picture. This is the end of the first half 2021 result presentation. Next, moderator will coordinate for the Q&A session. Thank you.

[Operator Instructions] The first question is coming from Weldon Sng from HSBC and [ Chelo Zhou ] from CICC Asset Management. Kindly give updates on asset quality, restructured loan and net interest margin. Mr. David and Mrs. Novita, would you kindly answer these questions?

Okay. Thank you, Weldon. Asset quality data showed a gradual improvement trend. As of June 2021, total loan at risk was at 25.8% of total portfolio, which is 110 basis points lower than March position. And if you look into the component, COVID restructured portfolio was recorded at IDR 81.7 trillion or equivalent to 14.4% of total loans. This amount continued to decline since December last year, which was around IDR 102 trillion. So there was a decline of IDR 20 trillion in total for 6 months. And we saw that all segments showed improvement across the board. During second quarter, there were some new restructured loan under Corporate segment, mainly from particular SME construction borrower, which we already assigned almost 30% of provisioning coverage, while collectability 2 ratio increased by 30 basis points quarter-on-quarter, which is triggered mainly by exposure in middle segment, mostly from trading sector. For collectability 2, we already increased our loan loss ratio of 46% or 240 bps higher Q-on-Q. NPL also improved to 3.9%, which is 40 bps lower year-to-date and 20 bps lower Q-on-Q. As of June 2021, LAR coverage ratio including COVID has reached 32.8% compared to only 27% in December 2020.

For NIM, initially, we estimated full year '21 NIM will be between 4.6% and up to 4.8%. As of June 2021, NIM was maintained relatively stable at 4.9%, which was slightly above guidance, thanks to strong CASA franchise that enabled us to keep lowering funding costs by 120 basis points year-on-year. Note that our CASA 1 right now is the second best among Indonesian banks. We revised up our net interest margin guidance to be 4.7%, up to 4.9%. The guidance already takes into account further cut in TD rates on [ August ] as well as conservative assumption of tight loan pricing in the second half of the year.

The second question is coming from Agus Pramono from Aldiracita Sekuritas and Jovent Muliadi from IndoPremier Sekuritas. What is the impact of current restrictions on communities or PPKM in Indonesia to asset quality so far? Pak David, would you like to explain?

Okay. Thank you, Pak Agus. Thank you, Pak Jovent. Okay. So right before PPKM or social restriction, our asset quality was improving as suggested by our asset quality survey in May. We started to have PPKM on July until now. If you look from latest data until first week of August, actually, collectability 2 ratio was still improved as compared to end of June position. NPL ratio was stable. We are still keeping monitoring the situation. What we need to do within our control is to keep being prudent in terms of loan disbursement to low-risk segment and building enough loan loss reserve as what we did on June. But we have also anticipated the impact of this PPKM because we saw that there is some indications in small segment and also consumer segment that the impact of PPKM will deteriorate somewhat to the quality of the debtors in this segment. But we have been communicating intensively with all of these debtors. And we will be able also to support them, whether they need another restructuring. And we will do if necessary. Thank you, Pak Agus, Pak Jovent.

The third question comes from Robertus Hardy from Henan Putihrai Sekuritas. Asking for guidance on second half 2021 provision expense. Ibu Novita, we would be glad to hear from you, Ibu.

Thank you, Pak Robertus Hardy. We do not change this year's cost of credit guidance of 3.3% up to 3.6%. Since the beginning, we have been very conservative in budgeting for provisioning charges with ample buffer for unanticipated development related to the pandemic. Hence, recent social restrictions should not change the picture. From our bank-only 5-month result that we published in our website every month, you might have noticed that our year-to-date credit cost until May was only 3.3% or at the low end of our guidance. This was validated by continued improvement in asset quality as suggested by our third survey on our debtor conducted on May. However, entering June, we started to see the emergence of Delta variant across Indonesia. As a result, we conservatively front load credit cost into June, so that month-to-date June cost of credit jumped to 4.5%, bringing our first half cost of credit to 3.5% or close to upper range the full year guidance. We want to reiterate that our month-to-date June for mainly cost of credit in second half, we do not change our full year guidance for cost of credit. We believe this is the right thing to do during this highly uncertain environment, and it should minimize risk of sudden jump in second credit cost.

Thank you, Ibu Novita. The fourth question is coming from Guixin Lin from Prudence Asset Management and Johanes Prasetia from BCA Sekuritas. What are your expectations on nonperforming loan after restructuring scheme ends after end 2022. We would like to invite Pak David to deliver this question. Thank you, Pak.

Okay. Thank you, Guixin. Thank you, Johanes. To get a holistic view of our loan portfolio, we have carried out asset quality assessment 3x already. The latest was done in May 2021. Overall, we see an improvement in the customer risk profile with high risk classification, a decline from previously 12% to 7% while low-risk classification increased from 50% to 62% of the total portfolio being assessed. From the last survey, we also identified around IDR 17 trillion loan book, which we considered as high-risk [ scheduled ] NPL, out of which around IDR 10 trillion would be downgraded this year and the remaining IDR 7 trillion downgraded in next year. If we net off the gross NPL formation with write-off, upgrades and repayments, we expect NPL ratio this year will be below 4%. And we also expect that next year, it will continue to decline. And also, we believe the termination of COVID restructuring relaxation will not result in surging NPL because we do not fully take advantage of the relaxation. Despite regulatory relaxation, where banks are allowed to classify all COVID restructured loan under collectability 1, we choose to assign classification as much as possible to reflect the client's underlying situation. By doing this, we also could assign higher loan loss reserve accordingly. Out of our COVID restructured portfolio, 1.8% was already NPL and 8.7% was already in collectability 2. Thank you, Guixin.

Our fifth question comes from Della Agatha from Syailendra Capital and Lim Rui Wen from DBS. Asking for 2022 estimated cost of credit, are you going to keep being conservative in order to build up higher loan at risk coverage and anticipating more deterioration from the relaxation of POJK 11. Ibu Novita, would you kindly clarify this to us?

Thank you, Della. This year should be the last year we book a high COC level, and we expect a significant improvement on 2022 onward, assuming general economic condition is stabilizing. So far, we continue to see gradual asset quality improvement as shown by our loan at risk trend as well as the progressive result of our regular asset quality survey. We do not expect the termination of restructuring relaxation under POJK 11 will materially impact our loan at risk as we always classify the client according to the underlying situation to the best of our knowledge. That's why we have been doing asset quality survey 3 times so far. We are comfortable with our current level of loan at risk coverage, which is also in line with our peers. We will continue to maintain it within current range. Thank you, Della.

Thank you, Ibu Novita, for the response. Our sixth question is coming from Lim Rui Wen, DBS. Loan growth outlook for second half 2021 and 2022. Ibu Novita, would you please answer this question?

Thank you, Lim. Our initial guidance of loan growth was 6% up to 9%. As of June 21, we still manage loan growth at 4.5% year-on-year, higher than industry at 0.4% year-on-year. Compared to the industry, as of June 21, we have marginally better growth opportunity. We managed to have positive momentum in Corporate Banking where we are able to tap into the -- a lot of new tubing top industry player. Our payroll-based loan start from low base with a lot of untapped internal customer. Year-on-year, it grew by 19.6%. We are getting more involved with KUR, targeting to channel IDR 32 trillion this year, about 50% higher year-on-year. For next year, considering the recent development, management team decided to slightly revise this year loan growth to be more conservative from 6% up to 9% to be 5% up to 7%, factoring potential impact from social restriction to loan demand. We believe, at this level of growth, we are still growing higher than industry average. However, the growth will continue to come from a lower risk segment. For the next year, what we can say now is, the management team will always focus on long-term sustainable profit. We are going to keep monitoring the progress of economic recovery and we'll always be flexible in fine-tuning between growth and margin and asset quality.

Thank you, Ibu Novita, for the clear answer. The next question is coming from Akhmad Nurcahyadi, UOB Kay Hian. How much is the current restructured loan that estimates to be NPL in the end of 2021 and how much is categorized as high risk? Pak David, would you please answer this question?

Okay. Thank you. So if we see -- if we refer to our previous survey and assessment, which we did in May 2021. Out of the total restructured COVID portfolio, around IDR 82 trillion, only around 7% of debt is under high risk. So this has been also a decline from the December 2020. So in terms of amount, around IDR 7.8 trillion of our restructured COVID portfolio is under high risk. And from this, we did not really expect all of them to go into NPL or downgraded into NPL this year because we have also seen that actually, our NPL or the restructured COVID loan that downgraded to NPL is actually only around 1.8% or 2% in the past 6 months. So overall, including the restructured non-COVID, we have already projected that around IDR 10 trillion in total will be downgraded into NPL, which we already also mentioned that with the write-offs, with the payments and also with the upgrades, then we will be able still to maintain the NPL ratio of less than 4%.

Thank you, Pak David. Ladies and gentlemen, as we have come to the end of our analyst meeting, we do hope to have been delivering our bank first half 2021 financial results completely to all participants. For the questions that have not been answered will be followed up by IR team. Also, if there are any further questions, kindly send an e-mail to [email protected]. We would like to thank you for participating in today's session. The participants may now leave the webinar room.