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

Good morning, ladies and gentlemen. We are delighted to welcome you to PT Bank Negara Indonesia Persero Tbk Virtual Analyst Meeting on Financial Results for the Third Quarter of 2021. We hope you are all safe, healthy and doing well. We will proudly introduce the members of our Board of Directors who are going to be 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. Henry Panjaitan, Managing Director of Treasury and International Banking; Mrs. Corina Leyla Karnalies, Managing Director of Consumer Banking; Mr. Muhammad Iqbal, Managing Director of Micro, small, Medium Enterprise; Mr. Bob Tyasika Ananta, Managing Director of Human Capital and Compliance; Mr. Sis Apik Wijayanto, Managing Director of Institutional Relations; Mr. Silvano Rumantir, Managing Director of Corporate Banking; and Mr. Ronny Venir, Managing Director of Service and Network. For today's again there, Mr. Royke Tumilaar will first provide several management highlights. Following that, Mr. Y.B. Hariantono will address the company's digital initiatives and strategies. Mrs. Novita Widya Anggraini will continue with the highlighted outcomes of the third quarter financial performance. And finally, Mr. David Pirzada will describe the bank's approach to loan quality and risk management to conclude the presentation. The presentation material can we downloaded through the link we provide in the chat room. Should you have any issues accessing the link, kindly contact the IR team at [email protected]. Any questions are welcome. Please send it to the IR e-mail address, so they may be covered in the Q&A session. Please remain silent during the presentation, which will last around 30 to 45 minutes. And now to commence the presentation, please welcome our CEO, Mr. Royke Tumilaar.

Thank you, Moderator. Good morning, ladies and gentlemen. The third quarter 2021 was quite dynamic where we saw rise in COVID-19 case on July and August, followed by social restriction to contain the pandemic spread. Fortunately, on September COVID-19 case started to decline and a bigger gradual loosening of social restriction policy. Our third quarter result was a mixed bag of the negative impact of social restrictions as well as the positive result of disciplined portfolio management that we have been implementing since last year. On 1 hand, our quarterly PPOP was not as high as the previous quarter due to delay in loan disbursement and some pressure on asset yield, despite successful reduction in cost of fund by 10 basis points quarter-on-quarter. However, we are glad to see that our portfolio quality has been quite with total loan at least continued to decline to 25.2% as of September, thanks to disciplined monitoring, proactive restructuring and selective loan disbursement policy. As a result, our net profit after tax managed to grow to IDR 2.7 trillion, the highest level since pandemic began. On a cumulative year-to-date basis, our net profit grew by 74% and reaching to IDR 7.7 trillion, driven by asset quality improvement as well as a strong 21% growth in PPOP, thanks to strong funding franchise that helped NIM recovery by 50 basis point year-on-year. We continue to be prudent in asset expansion by loan growth slightly higher than industry and focus on low-risk segment. Stronger capital is crucial for our corporate transformation agenda. To do this, we are using a combination of Tier 2 securities, AT1 securities and CET1 or equity raising. On September, we took advantage of favorable global bond market momentum by issuing $600 million perpetual bond quality price as AT1 capital securities. It was the first ever AT1 issuance by Indonesian Bank, and we successfully set reoffer yield at 4.3%, in line with some other major banks in Asia Pacific region at the time. We also received a lot of positive feedbacks from our shareholders and as these AT1 capital securities is a more economical way to strengthen our capital rather than relying solely on equity issuance. The AT1 securities issuance have to boost our Tier 1 capital by 140 basis point, now stands at 17.8% as of September, narrowing the gap with our peer banks in Indonesia. With this issuance, we believe we have a broader options of capital source in the future if we need it. It also means that the potential upcoming right issue size will be more moderate in size that we have initially expected. As we always did in previous quarter earning calls, we continue to deliver progress of corporate banking vision to become a one-stop shop wholesale banking solution that includes value chain and consumer banking. During third quarter alone, there were at least 6 top-tier corporates that we acquired in our portfolio, with total financing facility of almost $1 billion. The largest among them, which was already published in media, is financing to Chandra Asri, Indonesia's largest integrated petrochemical producer. The rest include several leading FMCG business groups, the major player in telecom and major player in telecommunication sector. We continue to emphasize that we want to offer a whole step of solution to our client beyond lending. We started to the progress as shown by gradual improvement in CASA-to-loan ratio and fee income contribution in Corporate segment. We believe the trend for these 2 ratios will continue to get higher as we are upgrading the capability of our investment banking subsidiaries. For example, we can now open a global bonds advisory services for our corporate clients. Focusing on SMEs with potential to go global, we launched Xpora, which offers a comprehensive consolation for SME exporters beyond lending, such as business advisory, global market access and payment solution. We offer bundled financial product with attractive discount for LC discounting, collection, remittance, even the loan application process is simplified through digital portal with loan disbursement around 6 days. In the last 3 months, this newly launched Xpora has gained positive response. Around USD 74 million loan has been disbursed to SME exporters, mainly for exporters of agriculture, fisheries, wood, handcraft and textile products. We also help our client to reach global business partner and customer by collaborating with the e-commerce and institution-like trade association and the KPM. Business banking facilitated by our overseas branches and successfully facilitated several SMEs meet their first overseas buyers. We are still in the early stage in this journey. However, we believe BNI Xpora will strengthen BNI strategic positioning in market and could increase our sustainable SME portfolio in the future. Next topic on digital transformation will be delivered by our Director of IT. Please, Y.B.

Thank you, Royke. Ladies and gentlemen, we have all realized that both impact and conventional banks have their respective advantages, unlike fintech, which only have platform. As a bank, we have both platforms and our own products to maintain and to run. We keep upgrading our platform. And in addition to our existing brick-and-mortar brands, we developed branchless agent banking in suburban and rural areas as an economical way to distribute our products and services. Development of digital native product and services also be the focus that cover both retail banking, mainly through mobile apps and wholesale banking, mainly through our P&I Direct, our cash management platform. We will discuss about them in more detail after this. The market now is entering a new equilibrium, where fintech is more rational in its marketing and business strategies and conventional banks and fintech are becoming more rational to set up collaborations. On digital transformations, we have 3 focus areas, which are to digitize our internal platforms, develop digital native products and modernize our existing services and to leverage digital ecosystems through our API open banking. As shared in the last quarter earning result, we became early adopters of pay later business in collaborations with Traveloka and recently, Shopee, they're just starting at the end of August. As of September 2021, the total portfolio of our pay later reached IDR 118 billion. The quality is good, with NPL below 1%. While average net effective interest rate stood high at 19.88%. Starting from 13th of September 2021, BNI has become the first Indonesian bank to have a virtual card number generated for commercial credit card. BNI has established a new business scheme advancing our collaborations with Traveloka pay later. These products enable Traveloka pay later selected customers to utilize their credit limit across e-commerce platforms beyond Traveloka ecosystem. The risk will also be maintained prudently as the credit limit given by BNI is covered by cash collateral from Traveloka itself. Therefore, through this business scheme, BNI is able to expand our customer horizon from B2B to B2B2C. This will inevitably also be BNI new fee-based income generator. Apart from developing fintech and e-commerce partnership, BNI also continues to elevate our mobile banking applications. The number of BNI mobile banking customers continued to grow by 46.6% year-on-year, reaching 9.9 million users. Our strength and advantage compared to peers is the completeness of features. The number of transactions made through BNI mobile banking was 112 million in the third quarter of 2021, an increase of 62% compared to the third quarter of 2020. Furthermore, transaction value reached IDR 160 trillion, surpassing our ATM transactions. For further improvement, our mobile banking users will have an omnichannel experience, personal finance, finance management and SME solutions integration. Beside retail customers, we keep improving our products and services for business banking clients through our digital platform as well. For business banking clients, BNI offered its cash management flagship product called BNI Direct, available in both mobile apps and web-based applications. One example of our key features often getting complemented by our clients is integrated taxation management platform within the BNI Direct. To facilitate the transaction of our wholesale clients, we also developed an integrated portal called bnidbs.id, where customers could do various types of transactions such as payment management, collection management, value chains management and open banking solutions. Number-wise, we still see strong momentum of our wholesale cash management platform, with 19.9% year-on-year growth in the number of users with a significant of 113.1% of transaction numbers. Despite in the number of transactions 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 21.9%. We already explained in details regarding our effort to upgrade digital offerings to our clients. Ultimately, the question is what is the impact to us? What is the monetization to us? In this slide, we show that other than fee income, better customer experience, end-to-end transactions, ultimately brings CASA, which enable us to maintain or even expand our margin. Nowadays, 52.7% of our savings balance come from regular mobile banking apps users. This percentage is much improved as compared to only 39.2% a year ago. For current account, 93% of it come from the cash management users. These current accounts stay with us because of the convenience to do transactions and not sensitive to the interest rate we offer. As a result, year-to-date cost of fund for current account is only 1.3% until September 2021 as compared to 2.03% a year ago, overall. This should help our bank to maintain leadership in low-cost funding. The next presentation is about our financial highlight by 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 highlight. We managed to grow our loan book by 3.7% year-on-year, in line with industry However, we focus the growth mainly from lower-risk segment, namely top-tier corporate clients, subsidized micro loan and payroll-based loan. On the funding side, we merged the growth in third-party fund with loan growth. As CASA inflow continued to be strong at 8% year-on-year, we had room to reduce expensive funding from time deposit by 11% year-on-year. Net interest income managed to increase by 17.6% 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 14.2% year-on-year, mainly from marketable securities, trade finance transaction and e-channel. OpEx growth was 13.2% year-on-year, smaller than revenue growth of 17.5%. So we delivered a significant positive of 5 percentage point during 9 month 2021. As a result of strong growth in revenues, our PPOP and net profit grew by 21% and 79%, respectively. Our strategy to focus on low-cost funding was reflected in CASA ratio at 69.7%, a significant 430 basis point improvement compared to the last year. As a result, cost of fund could be reduced to the level of 1.6% and contributed to 4.8% NIM. ROE and ROA were at 10.3% and 1.5%, respectively, keep improving on year-on-year basis. Loan at risk was at 25.2%, improved by 70 basis point as compared to the previous quarter despite the social mobility restriction. NPL ratio improved by 10 basis point quarter-on-quarter to 3.8%. As a result, year-to-date credit cost down to 3.3% only, the low end of our guidance. Our liquidity position was quite good with LCR at 2.2% -- 2.2x and NSFR at 1.5x way higher than regulatory requirement. Loan-to-deposit ratio was maintained at healthy level of 85%. On the capital side, as a result of profitability recovery and AT1 capital security issuance, total CAR increased to 19.9%. The social restriction across major cities in Indonesia had affected loan growth during the third quarter, where our portfolio was only flat Q-on-Q, driven by weakness in Corporate segment, while Retail and Consumer segment continued their growth momentum. In addition, we are encouraged by positive development in the Medium segment. Note that in the past 1 year, we have been selectively let go some client in Medium segment to build a new good portfolio. On third quarter, we started to see a turning point where Medium segment grew by 3% Q-on-Q, mainly from large commercial clients. Consistent with our previous results on year-on-year basis, loan growth was coming from lower segment, namely private sector corporate grew by 5.2% year-on-year, subsidized micro loan grew by 38% year-on-year and payroll loan grew by 17.5% year-on-year. Blended loan yield was lower by 45 basis points Q-on-Q, mainly due to the general contractor restructuring that impacted blended loan yield by 8 basis point. Note that for restructured loan, we do not accrue interest income. As of September 2021, low-cost funding or CASA grew by 8% year-on-year and 3.5% Q-on-Q. 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 to 69.7%, the highest level we have seen in the past 10 years. In the third quarter 2021, our cost of third-party fund was only 1.54%, the lowest level we've ever had and improving by 10 basis point Q-on-Q. We are still seeing room to improve it further as we cut our TD rate again starting on October. We will always focus on sustainable growth of low cost of 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 17.6% year-on-year, thanks to our strong CASA franchise that led to successful reduction of cost of funds. Noninterest income grew by 14.2% year-on-year, driven by marketable securities, e-channel fee, finance business from recovery in global trading activity, especially commodity related. Operating expense grew by 13.2% year-on-year, driven by an increase in personnel expense. Note that to support our transformation agenda, we need to realign our OpEx priority. For nonpersonnel expense, we remain cost heavy with flat growth year-on-year. On the human capital aspect, we invest a lot to attract and retain the best balance. While the number of headcount remained flat, we increased total personnel expense by 32% year-on-year, bringing our remuneration structure to be more competitive in the industry. As we delivered 4 percentage point positive between income and OpEx, PPOP grew strongly by 21% year-on-year. While the social and mobility restriction in the third quarter had affected our business volume, our asset quality has been proven resilient. In fact, it was improving. As a result, provisioning expense in the third quarter declined by 18% Q-on-Q, bringing year-to-date 9 months provision expense to grow only 1.5% year-on-year. Bottom line profit increased by 79% year-on-year and 5% Q-on-Q. Next presentation on asset quality, risk management and loan restructuring update will be delivered by our MD of Risk Management by Pak David Pirzada. Please, Pak David. Thank you.

Thank you, Ibu Novita. Ladies and gentlemen, as of September 2021, the outstanding COVID restructured portfolio was IDR 78.8 trillion or 13.8% of total loans, driven by medium, small and consumer segments. Out of all COVID restructured portfolio, 1.8% was already NPL, 10.6% was collectibility 2 and the remaining was collectibility 1. We frequently receive questions from analysts regarding their concern on potential NPL formation after termination of OJK realization potentially by March 2023. The concern is mostly on debtors with grace period and no installment payment. On the bottom right-hand pie chart, we could see that out of COVID restructured book, only 21% of it didn't do installment in the past 3 months. The big portion of it is wholesale segment of IDR 13.5 trillion, which is mostly related to general constructor restructuring scheme. For wholesale clients, we could do intensive monitoring through various data points, hence, the risk of misclassification between collectibility is remote. We believe that the more tricky part is the retail and consumer segment with grace period. However, our exposure is only IDR 3 trillion, relatively immaterial as compared to our total loan book. We hope this explanation could bring confidence among analysts that we have a good understanding of the risk profile of our COVID resourced book, and we are able to assign provision coverage accordingly. Overall, asset quality data continued to be resilient and slightly improved during the third quarter. Loan at risk was at 25.2% of total portfolio, which is 70 bps lower than June position. Now looking into the component of loan at risk 1 by 1. Restructured loan collectibility 1 has improved by 10 bps to 16% of total loan. Collectibility 2 ratio decreased by 40 bps Q-on-Q. NPL improved by 10 bps Q-on-Q to 3.8%. Considering initial concern on asset quality during the third quarter social and mobility restriction, this improvement in every components of loan at risk was a positive surprise to us that led to lower provisioning expense. Ladies and gentlemen, continuing our regular survey on asset quality, on September, we conducted another survey for the fourth times. This survey, we believe, has captured the impact of social and mobility restriction on July and August. Overall, we are glad to see that our debtor's risk profile continued to improve. On the bottom left of the slide, the proportion of higher risk loan declined to be below 5% for the first time since the beginning of pandemic. High-risk NPL defined as loan in collectibility 2 and current restructured non-COVID, which are assigned high-risk flagging from the survey, has declined to IDR 14 trillion from IDR 17 trillion under the previous survey in May 2021. The decline was mostly coming from Wholesale segment. Sector-wise, manufacturing is the most improved among all followed by trading, restaurant, hotel and agriculture. This is pretty much in line with on-the-ground observation, where domestic traveling are getting more active and commodity prices continue to increase. Despite general improvement in loan at risk ratio, we still consistently built higher provision coverage. NPL coverage was at 2.3x and coverage at 34%, higher than the previous quarter and putting us in line with our peers. Overall loan loss reserve ratio to total loan has been gradually increasing to 8.6% in September 2021 from 7.4% the year before. We have signed a conservative provision coverage of 76% on average for those in NPL category, which we deem sufficient, considering LGD rate of around 60% to 70%. For those in collectibility 2, the provision coverage was 49%, much more conservative than regulatory suggestion. Provision coverage for current restructured loan was 12.6%, as we believe only a small portion of this bucket, around 14%, is having high risk of downgrade to collectibility 2. Now I will turn back the presentation to Ibu Novita to explain our guidance.

Thank you, Pak David. Judging from the 9-month result, we believe we are on track to deliver both loan growth and NIM guidance, yes? As for credit cost, there is a potential room for further improvement that the run rate in quarter -- third quarter if there is no major surge in COVID case in Indonesia. As for 2022, we expect loan growth to accelerate in the range of 7% until -- up to 10%, driven by new top-tier client acquisition in Corporate segment as well as Middle segment turns into positive growth. Net interest margin expectation for next year is between 4.6%, up to 4.8%, taking into account potential rate increases next year. We acknowledge that during the economic environment, and as we just start building relationship with top-tier corporate clients, lending rate adjustment might be laggard for 3 up to 6 months. Cost of risk should improve materially to be within 2% to 2.3% range. This optimist view is picked up by the data from recent asset quality survey. This concludes the end of our presentation. Next, our moderator will coordinate the Q&A session. Thank you.

[Operator Instructions] The first question is related to the most highlighted topic these days coming from [indiscernible] and [indiscernible] Is there any update on acquiring smaller banks to make a digital bank? What would be the key area of focus in terms of customers? How much it would impact BNI's CAR? We believe the participants would love to hear the answer from our CEO. Royke, would you kindly give us some guide for this question? Thank you, Pak.

Thank you. Digital transformation is one of our key strategies to serve customers better and to achieve our goal to be the most profitable bank. In addition to digitizing existing business process, we believe having a digital bank subsidiary will bring BNI to another level of banking services. Right now, we have made an initial agreement to acquire a bank with a strong business ecosystem to be developed into a digital bank. In doing this, we believe having a partner strong in technology will be one of the key success factors. We want this bank to focus on SME customers as the growth potential is tremendous. And at the same time, align with ESG objective in terms of making impact to the community.

The second question is coming from Jayden, Macquarie; and Ong Chang Qi, JPMorgan Asset Management. When is the timing for right issue? How about the size? And is it possible if the shares are traded at below 1x or must be above? Ibu Novita, would you kindly respond to this question?

Thank you, Jayden. Regarding right issue, Parliament has approved IDR 3.5 trillion government participation. And we have some flexibility regarding the total issuance size as long as public ownership is kept at least maximum 40% to maintain existing corporate income tax incentive. With successful issuance of AT1 capital securities that boost our Tier 1 CAR by 140 basis points, we are getting closer towards ideal capital life. We estimate right issue size will be relatively not big as compared to our market cap. And we think there is a small chance investor need to trim their position before the right issue. We expect no material selling pressure on our stock. And we plan to execute this right issue on early next year using December 2021 audited financial report. At the initial phase of right issue discussion, our PBV was below 1x. And based on discussion with several government institution, we still could do the right issue below 1x PBV. However, with risen share price movement, our PBV is already rebound to around 1.2x.

The next question comes from [indiscernible]. Would you give us some guidance for 2022 outlook? Would you give us some color for this Ibu Novita?

For 2022, we estimate NIM should be ranging between 4.6% up to 4.8%, taking into account potential rate increases next year. We acknowledge that during this pandemic environment and as we just start building relationship with our top-tier corporate client, lending rate adjustment may be laggard for 3 up to 6 months. Our healthy CASA growth, driven by mobile apps and still low penetration rate of cash management clients, should help our NIM in the long term. In addition, our LDR at 85% will also give us some flexibility on managing next year net interest margin. And as we know, we feel very comfortable with asset quality outlook, we expect loan growth to accelerate to 7% until 10%, driven by new top-tier client acquisition in Corporate segment as well as middle segment turns into positive growth. NPL should improve close to 3%, supported by broad economic recovery and stringent underwriting process. Credit costs around 2%, up to 2.3% significantly improve as we continue to see gradual asset quality improvement, even during social restriction in third quarter and we are comfortable with our current level of LAR coverage, which is also in line with our peers.

The next question, which is also coming from [indiscernible] would you explain the digital bank strategies? We believe Y.B. can give us some insight related to this question.

Yes. Thank you for the questions. The bank aspires to be the one of most profitable financial institutions by 2022. In order to achieve this long-term vision, one of the bank strategies are digital capabilities, both organically and inorganically. In the last 4 quarters, we expect that our digital transformations, it covers both retail banking, mainly through mobile apps and wholesale banking, mainly through BNI Direct, our cash management platform. To collaborate with other ecosystems, we develop open API or open banking platform. Our mobile banking app now enjoying the highest rating in the Playstore because of the completeness of its features and also is currently becoming our competitive advantage over our peers. For business banking clients, BNI offers its transaction banking flagship product called BNI Direct, available in both mobile apps and web-based platform. Better customer experience in doing transaction via our mobile banking and BNI Direct ultimately brings the key CASA. Currently, more than 70% of our CASA are either from mobile apps or cash management users. And the proportion is still growing. This should help our bank to maintain leadership in low-cost funding. In terms of open banking, BNI is a leading bank with more than 280 services, the most compared to our peers. Improving BNI collaboration with the digital ecosystems or B2B2C is the next focus of these services. We are early adopters of pay later business in collaboration with Traveloka and Shopee. And now keep new business beyond by launching the first Indonesian virtual card number for Traveloka, selected pay later customers. And as our CEO mentioned, we are also, at the same time, exploring inorganic strategy to boost our digital offerings to SME customer segments. Thank you.

The next question is coming from [indiscernible] With regards to ESG, can BNI share whether it has restrictive lending policies against certain borrowers in Indonesia, such as coal and palm oil? Pak David, would you kindly give us some answer related to this question?

Thank you, [ Yushin ]. BNI complies with OJK regulation #51 2017 concerning the implementation of sustainable finance for financial services solutions, issuers and public companies, in addition to BNI's compliance with global ESG practices, as part of our commitment to continue to be at the forefront of effecting sustainable finance. Lending policy for coal exposure is quite strict, where we only focus on top-tier corporates with good ESG practices, as reflected with debtors must have gold, green or blue category of proper, which is a corporate performance rating program in environmental management from the Ministry of Environment and Forestry. BNI does not provide credit to business owners with a red and black proprietary and also debtors agree to comply with the loan agreement clause that they will comply with all applicable environmental regulations and required documentation, the failure to satisfy will impact loan continuity. Our exposure to coal is quite small, which is less than 3% of total portfolio. And for your information, our biggest debtors in coal mining is specializing in which has a very low ash content. In order to ensure financing for sustainable palm oil debtors, we require new palm oil debtors to have RSPO or ISPO. To encourage RSPO certification, we advise clients to have it in order to expand their target market. For Medium segment, requirement for SPO is applied as affirmative the fulfillment of which will be monitored regularly by RM and become subject to periodic internal audit. And BNI does not provide credit to business owners with red and black from Ministry of Environment and Forestry. As of July 21, around half of our palm oil borrowers are already ISPO or RSPO certified or in the process of obtaining it in the short term. Thank you.

Thank you, Pak David. The next question is coming from Rahmi from Maybank Kim Eng. Please give update on BNI exposure to total exposure, provision, loan status and restructuring progress? Will be an BNI be increasing the coverage to 100%? It would be glad to hear from you, Pak David.

Okay. Thank you for the question, Rahmi. Total exposure to Garuda Group as of September 2021 was IDR 5.2 trillion, consists of IDR 2.3 trillion for the parent company, IDR 2.8 trillion for its aircraft maintenance subsidiary and the rest for the subsidiary. We have increased loan loss reserve based on the clients' underlying situation, reaching almost 60% as of September 2021 for the entire exposure, for the entire group, compared to 8% on December 2020. Specific to the parent company, the provision coverage has reached 100%. Thank you.

The next question is coming from [indiscernible] related to capital. Given successful perpetual bond issuance, would BNI reconsidered to raise perpetual bond instead of equity raising in 2022? Ibu Novita, would you kindly respond to this question?

Thank you, [indiscernible] We are glad that we issued perpetual bond on the right momentum so that we could get an attractive yield of 4.3%. Note that this yield includes first issuance premium as we never did this before, which means that if we reissue similar instrument, the yield could be even better, assuming similar bond market situation. So to answer your question, we are open with option to reissue perpetual burn. If there is a strong investor appetite and of course, to the bone market situation. Thank you, [indiscernible]

The next question, which is also coming from [indiscernible] related to credit costs. Cost of credit is projected to decline to 2.0% until 2.3% and down from 3.3% until 3.6% in 2021. What are your estimated LAR in 2022? Could it be below 20% by the end of 2022? We believe Pak David can give us some insight related to this question.

Okay. Thank you, [indiscernible] for the question. Our loan at risk has been improving this year, and our letter survey on asset quality also indicates that our debtors risk profile has been better. As well, we estimate that loan-at-risk should continue to improve, but it is not easy to estimate the magnitude. The reason for 2022 cost of credit to decline materially because we already feel comfortable with loan at risk coverage, which now stands at 34.3%. Note that high provisioning booking during this year was intended to build LAR coverage which was only 27% at the beginning of this year. Thank you.

And also to follow up the question from Jayden, Macquarie, our CEO, Pak Royke, will give us some guidance related to the impact for BNI's CAR from BNI corporate action for acquiring a bank.

I think the ideal target bank size is a book 1 or book 2 under the Bank classification, meaning that the core capital is under IDR 3 trillion. We will ensure a reasonable valuation in line with the benchmark transaction. So impact to our capital should be small, below 1 percent point -- 1 percentage point. we have enough capital to finance this as we just did capitalizing through AT1 capital last month, and we are also planning for a potential rights issue next year. We will do a proper disclosure to the public according the capital market regulation. Thank you.

That would be the closing of our Q&A session. Ladies and gentlemen, as we are reaching the end of our analyst meeting, we hope to have completed the presentation of our bank third quarter financial results for 2021 to all attendees. Any questions that have not been answered will be followed up by RR team. If you have any more queries, please contact us at [email protected]. You would like to express our gratitude for your participation in today's session. Participants may now leave the webinar room. Thank you.