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

Good morning, ladies and gentlemen. Welcome to PT Bank Negara Indonesia Persero Tbk Analyst Meeting Full year 2021. Thank you for your participation, and we believe you are well during this difficult time. We will proudly introduce our members of Board of Directors who are here with us virtually or live in our head office building. First, we have Mr. Royke Tumilaar, our President Director or CEO; next, we have Mrs. Adi Sulistyowati, our Vice President Director; Mrs. Novita Widya Anggraini, Managing Director of Finance; Mr. Henry Panjaitan, Managing Director of Treasury and International Banking; Mr. Silvano Rumantir, Managing Director of Corporate Banking; Mr. David Pirzada, Managing Director of Risk Management; Mr. Y.B. Hariantono, Managing Director of IT and Operation; Mrs. Corina Leyla Karnalies, Managing Director of Consumer Banking; Mr. Muhammad Iqbal, Managing Director of Micro, Small, Medium Enterprise; Mr. Sis Apik Wijayanto, Managing Director of Institutional Relations; and Mr. Ronny Venir, Managing Director of Service and Network. Mr. Royke Tumilaar will begin the presentation with several management highlights. Mr. Silvano Rumantir will expand on Corporate transformation progress, Wholesale Banking highlights and our best-in-class ESG. Mrs. Novita Widya Anggraini will proceed the presentation with the detail of our full year 2021 results. And following that, Mr. Henry Panjaitan will address our liquidity update. Mr. David Pirzada will describe the bank's approach to loan quality and risk management strategy. Last but not least, Y.B. Hariantono will wrap the presentation with our digital initiatives. Ladies and gentlemen, our corporate presentation can be downloaded through the link we provide in the chat room. Should you have any issues, please kindly contact our Investor Relations team at [email protected]. Any questions are appreciated. Please send your question to our e-mail address or you can simply send your question in the Q&A section on your Zoom apps during the Q&A session. Please remain silent during this presentation, which will last around 30 to 45 minutes. [Operator Instructions]. And now to begin the presentation, please welcome our CEO, Mr. Royke Tumilaar.

Thank you, moderator. Good morning, ladies and gentlemen. We closed 2021 with a net profit of IDR 10.9 trillion, triple the 2020 profit. And we believe it is almost 10% above the market expectation. This is supported by healthy loan growth at 5.3%, resilient net interest margin at 4.7% and the asset quality improvement that resulted in cost of credit construction to 3.3%. While these ratios met the 2021 guidance, we totally understand that there is room for improvement going forward. For this year, we expect loan growth to accelerate to high single-digit level and credit costs to improve significantly by more than 1% point. As for net interest margin, we saw some pressure on quarter 4 last year as we built liquidity buffer in low-yielding government bonds and central bank placement. This decision was taken to secure our liquidity ahead of potential hike of interest rate this year. Our loan-to-deposit ratio was very healthy at only 79.7%. Glance of our recent quarterly performance. PPOP was resilient quarter-on-quarter. This enabled us to build slightly higher provision coverage for the sake of being prudent as the world is still grappling with the trade from Omicron variant. We believe this is a conservative approach as our loan at least were actually improving by 2% point during last quarter. Ladies and gentlemen, entering 2022, there are 3 key economic themes that we are anticipating. First one is GDP growth recovery momentum driven by government vaccination program that should be -- achieve national health immunity by second quarter this year. Second, we expect inflation rate to accelerate up to 4% level which we believe is still a moderate level of inflation for developing countries. Lastly, as a result of U.S. [ tempering, ] we assume around 50 basis point benchmark rate hike in Indonesia, which should be able to contain exchange rate volatility risk, while at the same time, not hurting economic recovery momentum too much. The implication of these economic themes to our bank is stronger loan growth and better asset quality, obviously. On static basis, BNI is net beneficiary of interest rate hike as the amount of our floating rate loan is bigger than the amount of our floating rate liabilities. During this rate hike cycle, we see opportunities to grab market share in lending, especially towards low-risk customers, supported by our competitive advantage in terms of funding cost. We don't expect to see margin expansion this year, but we expect to build a bigger and stronger good customer base for the long-term. Ladies and gentlemen, our vision is to be a financial institution to excels in service and performance on sustainable basis. This will be supported by our DNA with a reliable provider of digital-based integrated financial solution with international network advantages. Our 5-year strategic planning is divided into 3 steps. For the first 2 years, including this year 2022, that strategic initiative prioritized in -- on improving asset quality, strengthening digital capability, building a sustainable business in lending and funding, strengthening our capital structure as well as upgrading our talent management. After we built a strong foundation in the first 2 years, we aim to have a best class in capabilities by 2023, 2024. This included a capability in bionic or hybrid banking to deliver superior customer journey capability to offer a holistic business solution by focusing on multinational companies as well as data analytics capability and culture. By having the best capabilities in the industry, we have a vision that by 2025, BNI will be ready to become a financial institution that provides solution beyond banking. With the advantage of an integrated wholesale business, market lending subsidiaries as well as strong international network to connect local companies with global markets. The vision and strategic target road map are prepared to ensure optimal value creation for the all stakeholders. We estimate that BNI ROE will gradually increase to above 18% by 2025. The main underlying assumptions are: one, is healthy and quality loan growth with CAGR of 10% per year; second, we continue to make a mix shift of low-risk customers and promote solution beyond lending that generate superior fee income. Fee income will be higher than 25% of total revenue in 2025; third, we also expect gradual improvement in operational cost efficiency with a cost-to-income ratio to be below 42% by 2025. This will be achieved through digital transformation and agile business model; four, asset quality is the main priority with the optimal level of NPL, [ being strive ] to reach a percentage below 1.5% so that in the long term, the credit cost will be able to approach 1% in the next 3 years. I would now like to turn the presentation over to Pak Silvano, our MD Corporate Banking to highlight some update on corporate confirmation and also wholesale business. Pak Silvano, please.

Thank you, Pak Royke. Ladies and gentlemen, good morning. As we stated earlier, we're currently rolling out a corporate transformation program as an important foundation of our corporate plan until 2025. As you know, we've made several important progress, and that includes throughout last year we've constantly acquired top-tier corporate clients in resilient and selected sectors, such as FMCG, telecommunications, mining and services. We will continue to optimize this strategy because the room is still ample for BNI. These acquisitions were followed by optimization of other businesses from the entire client ecosystem. So not limited to just loan growth. In the SME segment, we launched Xpora, which targets the businesses of SME exporters and diaspora with service excellence that focuses on developing the production and operational aspects of medium and SMEs as well as business matching with global markets through optimization of our overseas branch network. Within 3 months of the implementation of Xpora, we observed already more than IDR 2 trillion of financing that we provided to export-oriented medium and SMEs, and we've built so far, 7 Xpora hubs throughout Indonesia to support this program. On the retail side, we have been accelerating our digital transformation through strengthening our mobile banking as well as optimizing the B2B and B2C ecosystem through APIs. We've also strengthened our beyond lending business capabilities by promoting our cash management platform, including BNI Direct. We've also strengthened our capital markets and investment banking platform in BNI Securities and the establishment of BNI securities in Singapore. On the other hand, we are also in the early stages of developing independent digital bank that supports inorganic growth. Our efforts to strengthen our capital are carried out through the issuance of Tier 2 bonds and additional Tier 1 capital securities in 2021. And the impact of this is that our Tier 1 has been improved to the level of 17.7%. Further, to provide a solid base, we strengthen our fundamentals as reflected in our cost of funds, which we were able to reduce to the level of 1.6% and of course, our asset quality have continued to improve. Ladies and gentlemen, BNI is committed to align our business with ESG principles. We have institutionalized ESG into a formal committee, led by risk management group to monitor the initiative and the execution. We try to accommodate as many ESG framework as possible, which fits with Indonesian banking landscape and make sure that the frameworks are aligned with OJK guidelines on sustainable finance action plans. In monitoring the result, one indicator that we have been using so far is MSCI ESG rating, which now for us stands at Single A, the highest rating amongst Indonesian banks. On environmental aspects, we have already incorporated environmental aspects into our underwriting standards and practices. Specifically, in palm oil, we require new palm oil borrowers to have RSPO or ISPO certification, and around 40% of our borrowers are already ISPO or RSPO-certified or in the process of obtaining certification in the near term. In the coal sectors, our borrowers must have either gold, green or blue category from the Ministry of Environment and Forestry. BNI does not provide loans to business owners with a red or black ratings. At the moment, there is no specific time line imposed on banks in Indonesia regarding new coal financing policy and palm oil, RSPO, ISPO, full compliant policy. This is understandable as these sectors are still crucial for the economic development, and it has continued to bring a significant social impact to the community. However, we will take serious initiatives to be at the forefront of Indonesian banks in terms of managing exposure and policies relating to coal and palm oil sectors. As we are shifting our wholesale banking portfolio into top-tier corporate clients, margins will naturally be lower as well. However, in the long-term, we believe this strategy will deliver sustainable and less volatile profitability due to better asset quality that will translate to lower credit costs. In addition, there are other sources of profitability coming from fee income and low-cost funding potentials. Last year, we successfully increased our CASA to loan ratio in corporate banking from 52% to 67%. Our fee income contribution to total revenue also improved and now stands at almost 20%. These levels are far from ideal. We will continue to invest in our wholesale transaction banking digital solution as well as sharpening our capabilities in value-added services beyond lending. A quick look into recent trend of our wholesale loan book. Manufacturing sector showed a significant pickup in loan demand during the last quarter, followed by infrastructure and telecommunications. The next presentation is about our financial highlights and it's going to be delivered by our CFO, Ibu Novita Widya Anggraini, Ibu Novita, please. Thank you.

Thank you, Pak Silvano. Ladies and gentlemen, now we will discuss the 2021 financial results in more detail. On the balance sheet side, we were in ample liquidity situation on 2021 with third-party funds grew by 15.5% year-on-year and loan growth at 5.3% year-on-year. And on the P&L side, our lower -- our cost of fund right now is around 1.6% and it's significantly reduced from the 2022 by 1 percentage point. Our lower cost of fund has enabled us to not only to grow sustainably by targeting low risk, low yield segment but also to personally help NIM recovery by 20 basis points year-on-year to be at 4.7% on full year 2021. Noninterest income grew moderately at 12.8%, supported by across-the-board improvement in client transaction activities. Profitability and efficiency, our cost-to-income ratio improved by 80 basis points to be 43.3% last year despite significant investment in human capital and corporate transformation agenda, healthy loan growth, margin recovery and cost saving initiative has enabled our PPOP to grow by 14.8% year-on-year. Full year PPOP at IDR 31.1 trillion, was all-time high level, even 10% higher than pre-pandemic PPOP. On the asset quality, our cost of credit was at 3.3% as compared to 4.1% on 2022 -- 2020. Despite lower credit costs, we managed to boost loan at risk coverage to 37% by year -- end of year of 2021. Thanks to conservative accounting policy, as well as continued improvement in loan at risk, which declined by 5.4 percentage points last year. Tier 1 capital increased to 17.7%, while total Capital Adequacy Ratio or CAR, ratio reached 19.7% as a result of sharp profit recovery with 10.4% ROE book last year as well as the issuance of Tier 2 and additional Tier 1 capital securities. Last year, our loan growth at 5.3% was relatively in line with industry growth rate. The key driver in our loan growth was private sector corporate at 7.6% year-on-year, large commercial at 10.4% year-on-year, subsidized micro loan core at 35% year-on-year and consumer loan at 10.1% year-on-year. It is worth to highlight again that large commercial segment started to grow again on the back of asset quality, getting more stable as well as strong demand from manufacturing and agriculture sectors. During fourth quarter '21, pressure on Rupiah loan yield was smaller than in the first 9 months of 2021 except for a small segment where the loan yield contraction came as a result of delayed payment for core subsidy from government. Last year, net interest income grew by 12.4% year-on-year, thanks to strong funding inflow that enable us to cut deposit rates and save more than IDR 6 trillion in interest expense. The slight contraction in the interest revenue was due to portfolio mix shift to lower yield asset. First, the composition of interest-earning asset shift more towards bond and banks placement as we are building stronger liquidity buffer. Secondly, within our loan book, we shifted in -- towards less risky borrower and segment. Noninterest income grew by 12.8% year-on-year due to recovery in retail transaction activity as well as our deliberate effort to focus on non-lending product to wholesale clients to generate fee income. For example, [ the service ] fee grew by 8% and syndication fee grew by 37% year-on-year. Cash recovery income jumped by 66.7% year-on-year. If we net it off with provisioning expense, then net credit cost would have been around 2.7% or 40 basis points below reported gross credit costs. As we already expected in the previous analyst meeting, there will be a positive trend in the terms of recovery income, and we believe this trend to continue. Operating expense grew by 12.3% year-on-year, mainly from personnel expense, which grew by 31% year-on-year. The sharp increase in personnel expense was strategic decision by management team to build strong talent base in order to ensure the success of our transformation agenda. There was no increase in the number of head count during 2021. Provision expense declined by 17% year-on-year despite higher loan loss coverage ratio. Please note that the quarter-on-quarter increase in provisioning expense was only for the sake of being prudent with rising Omicron case across the globe. The fundamental asset quality indicators such as loan at risk was indeed continuing to improve during the quarter. Bottom line -- line profit increased by more than threefold to IDR 10.9 trillion, which we believe in above consensus estimate. And next presentation on third-party fund liquidity update will be delivered by our Managing Director of Treasury and International, Bapak Henry Panjaitan. Please, Pak Henry.

Thank you, Ibu Novi. ladies and gentlemen, in BNI, we were seeing encouraging trend of strong liquidity inflow, especially during the fourth quarter last year. On quarter-on-quarter, we received more than IDR 60 trillion of third-party funds despite of lower rate on time deposit by 10 until 25 bps than in the third quarter. However, on asset side, even though there was loan demand pickup during the last quarter of 2021, we still ended up with massive excess liquidity which we temporarily park it mostly in banks placement and some in short-term fixed income instrument. On one hand, the situation I just described resulted in short-term margin compression where quarterly NIM was only at 4.4%. However, in medium-term horizon, it means that we have a formidable liquidity reserve to -- ready to deploy when loan demand pick up or when bond market turns to more favorable. In other words, we will have more flexibility to manage our net interest margin during uncertain interest rate environment this year. Cost of fund on the fourth quarter last year, slightly improved by 8 bps, driven by reduction in time deposit rate, effectively by 21 bps quarter-on-quarter, yet we were still seeing strong inflow of third-party fund, not only time deposit, which grew by 10% quarter-on-quarter, but also CASA at 8.7% quarter-on-quarter. As our liquidity remains ample, we make further rate cut in January and February this year. Interest rate on high-tier business, saving counter rate which total amount is around IDR 25 trillion is reduced by 115 bps, as you could see on the gray line of the bottom right chart on your screen. Interest rate on high tier saving account is also reduced by 40 bps. This high tier saving account nominal amount is around IDR 29 trillion. Lastly, we also lowered time deposit rate by 25 until 35 bps to be 2.25%. We hope our strategy will translate to margin improvement in the first half this year. As a result of stronger-than-expected fund flow to our bank, Loan-to-deposit ratio declined to 79.7% by December last year. This is a very healthy level of LDR to begin the year of 2020. Low LDR level will allow us to be more flexible in navigating the rising interest rate environment in order to optimize our margin. Liquidity position, as mentioned by liquidity coverage ratio and net stable funding ratio at the top of the slide remains strong. Next presentation about asset quality, risk management and loan restructuring will be delivered by our MD of Risk Management, Pak David. Please, Pak David.

Thank you, Pak Henry. Ladies and gentlemen, as expected, the total amount of COVID restructured loan continued to decline. The biggest improvement quarter-on-quarter came from our corporate segment, especially from customers in construction and electricity, gas and water sector. As of December last year, COVID restructured book represented 12.4% of total loan, with the majority of these borrowers have already started regular installment payment. This could be a proxy that default rate from this restructured loan could be very low once the [ OJK ] relaxation will be removed by April 2023. Total loan at risk on December last year was 23.3%, down from 25.2% in September 2021 and decline quite significantly from its peak at 28.7% in December 2020. The improvement in total loan at risk was driven mainly by improvement in collectability 2 ratio as well as restructured collectability 1, considering initial concern on asset quality during the third quarter of 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. Despite good economic recovery and encouraging trend on asset quality, we still built higher loan at risk coverage at 37% and NPL coverage at 2.3x by December 2021. As the world is still grappling with Omicron, we prefer to maintain the coverage level more or less at this level. Combining it with expectation of gradual reduction in loan at risk, it should translate to material reduction in credit cost this year. Next presentation on digital initiative will be delivered by our MD of IT, Bapak Y.B. Hariantono. Please, Pak Y.B.

Thank you, Pak David. Ladies and gentlemen, digital transformation is crucial not only to stay relevant in the business, but also could be a game changer to win the competition in the longer term. Besides taking an early initiative towards digital bank development, we keep executing organic growth on our digital transformations within the BNI itself with 3 focus areas, which are to digitize the internal platform, develop digital native products and modernize existing services and to leverage digital ecosystem with API Open Banking. For retail, we continue to elevate our mobile banking applications. The number of BNI mobile banking customers continued to grow by 38.9% year-on-year, reaching 10.9 million users, which is bigger than most other digital bank users in Indonesia. Our strength and advantage compared to peers is the completeness of features in it. The number of transactions made through BNI Mobile Banking was 434 million in 2021, an increase of 43% year-on-year. Furthermore, transaction value in the fourth quarter reached IDR 160 trillion, surpassing our ATM transactions. For further improvement, our mobile banking users will have complete financial and lifestyle features, personal financial management and SME Solutions integration. Besides retail customers, we also keep improving our products and services for our business banking clients through digital platform as well. For business banking clients, BNI offer its cash management flagship product called BNI Direct available in both mobile apps and web-based. 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, even this platform has covered our subsidiaries products and services. One example of our key features often getting complimented by our clients is the integrated taxation management platform within the BNI Direct itself. For SME clients, BNI Direct cannot be a powerful platform not only for regular banking transactions, but also for export/import transactions, including bank guarantee, foreign exchange and trade services. Number-wise, we still see strong momentum of our wholesale cash management platform with 17.8% year-on-year growth in the number of users. With also a significant of 115.3% growth of transaction numbers. This led to the growth of transaction value that reached 14.2% year-on-year. The spike in the number of transactions is due to the increasing contributions of our digital clients, namely Fintech and e-commerce. More importantly, the room for growth is still ample as the penetration rate of our clients is 21.5%. Ultimately, the question is, what is the impact to us? Are the results in line with the efforts to boost transaction from customers? In this slide, we show that other than fee income, better customer experience in doing transactions ultimately brings the key CASA, which enables us to maintain or even expand our margin. Now this, 55.6% of our saving balance comes from regular mobile app users. This percentage is much improved as compared to only 44.6% a year ago. For current account, 89% 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, our year-to-date cost of fund for current account is only 1.27% until December 2021 as compared to 1.9% a year ago. Overall, this should help our bank to maintain leadership in low-cost funding, to support the long-term strategy that our CEO already explained, which is shifting asset mix to lower-risk customers. To generate superior fee income and credit costs in order to deliver sustainable best-in-class ROE. This is the end of our full year 2021 results presentations. The next, moderator, we can coordinate for the Q&A session.

Thank you, Bapak and Ibu for the insightful presentations. [Operator Instructions] The first question that we have received is probably the trending topic in the market recently. And I suppose it will be best if Pak Royke could give us the insightful explanation for this. The question is from Angus Mackintosh from Smartkarma and [ Baruna Arcasatil ] from Bahana Sekuritas. The question is, what's the latest update on BBNI inorganic growth related to digital banks? Please, Pak Royke. Thank you.

Thank you. The latest update that -- we had just published the announcement, the [ transition plan ] last week. We acquired a majority share of Mayora. The transaction value will be IDR 3.5 trillion, equivalent to [indiscernible] multiple. The acquisition plan will need shareholder approval, the upcoming AGM and OJK approval. Any other subsequent transaction related to change that order composition will be covered in a separate announcement. I think this is the latest update, then we're still [Foreign Language].

Thank you for the clear answer, Pak Royke. And the next question is still regarding the digital bank. The question is still from Angus and also from [ Baruna. ] What is BNI's view of the digital banking environment? And do you see that the new banks taking shares from the existing mainstream banks? And if so, in which areas do you see the most impact? Please, Pak Royke.

[Foreign Language].

Yes, I think -- thank you, Pak. If I may add, I think maybe -- let's just see on the Indonesian customer behavior. I think here in Indonesia, mostly the people will have more than -- relationship with 1 bank, yes? So if we can divide it into 2, the first bank they bank with is the bank that they trust, yes, they put the portfolio and doing transaction with that bank because they trust the bank. The second relations they have is that -- banks that are based on the benefit they're having. So people put the money, transacting with that bank because of the benefit that they are having and they put their money as on needed basis, because of the benefit, high interest rate or any discounts that the bank is giving, yes. Even it's not just banks but also for e-wallets, yes. This is the behavior of the consumer, so 2 types of behavior. When we see of the Indonesian banking landscape itself, we are, as you know, Indonesia has more than 100 banks, yes. So -- and also with the new digital banks coming in, it will be more banks to come in, into the banking landscapes. But we -- when we are talking about the digital bank itself, it is not just new, the bank -- digital bank has already been in the country for a few years already. And we don't see actually a significant increase of the market share of them, yes. If we goes back seeing about what happened in the 1 to 2 decades in Indonesia, the top 4 banks gaining market share consistently growing higher and higher in the market share, yes. And then we see that with the many banks that already been in Indonesia, these top 4 banks still growing their market share. When we check on our own data in BNI itself, yes, we see that just like what we show you just now, the growth of transactions, the growth of users on our digital channels has already been growing tremendously, yes. So we see that the [ traction ] of disruption of digital bank itself, it doesn't really disrupt the banking relationship with traditional banks like us that is doing also digital transformation and giving digital proposition for our customers, yes. So we see that with all these new players coming in, it gives us a good flavor of competitions in the market but knowing with all the development that we are doing, the transformation that we've done. And we also see the result on the data that also we show to you just now, we are very confident on seeing the competition in the future with all the new Fintechs, new digital banks coming in. I think maybe that's our view.

Thank you, Pak Royke and Pak Y.B. for the clear answer. [Operator Instructions] The next question is from Sarina Lesmina from CLSA. Still regarding the digital bank. The question is on digital bank joint venture, will the joint venture require to do asset cleanup of the legacy loan in Bank Mayora, Pak David, would you like to take this one, Pak? Thank you.

Okay, thank you. Thank you, Sarina, for the question. On this asset cleanup -- on the issue on the asset cleanup in the Bank Mayora, we actually did due diligence and -- quite comprehensive and deep due diligence, which covered a majority of the loan book. And we have also been assisted by 1 of the big 4 accounting firms when doing the due diligence. And based on this due diligence results, the potential NPL under our conservative scenario is much well below 5%. And most importantly that there is no requirement to book any material, additional provisioning to the book as the provision coverage is considered sufficient. Hence, the acquisition will not have any adverse impact to our overall asset quality. Thank you.

Thank you, Pak David. The next question is regarding the right issue. The question came from Jayden Vantarakis from Macquarie. The question is, what is the latest with the right issues plan in terms of size and timing? Does the state budget have room for an equity injection for BNI? Or are there other priorities for the government. Ibu Novi, would you like to cover this question, Ibu?

Thank you, moderator. We expect the government will allocate around IDR 3.5 trillion capital to participate if we do right issue. So we expect our amount of right issue is around IDR 8 trillion, up to IDR 11 trillion on the size, including government portion. And the timing should be in second half of this year. And maybe I will explain more detail about this right issue. Our right issue plan is, right now, our balance sheet is strong -- strong structure balance sheet. And we are doing prudent growth to our business with focus on sustainability performance. And we are not seeing any near-term risk of having inadequate capital as our profitability should be improved over the next few years. And we just successfully issued AT1 capital last year. However, we should also note that as an SOE, we might have limited flexibility in terms of capitalizing. So we need majority shareholder support and commitment. This time around, we are grateful that government is very supportive with our capital raise plan. But we should take advantage of this rare opportunity. And having a slightly bigger capital is beneficial for us in several ways. And it allows us to do flexibility in our business plan. One of them, which you might already hear is related to digital bank development. If the business plan of the digital bank works and the bank grow in the future, we may need more capital injection to prepare and we want to anticipate the risk that emerging market is usually at risk of U.S. taper tantrum and it might also impact its credit rating. We estimate that the impact of Indonesia will be more moderate than we had in the past, we need to prepare the worst case, for example, if the sovereign rating get downgraded as the result of macro volatility, it may result in significant increase in the [indiscernible] of our exposure to government and may affect our credit rating. But we want to ensure that there is no intention to use capital [ raising to provide for prior ] loan book. We have been doing multiple exercise to get the best understanding of our asset quality, including by conducting survey, up to 19% of our borrowers. And so far, the evidence we have are pointing to 1 direction which is better asset quality outlook in the absence of massive external risk, such as prolonged pandemic. And maybe -- that's it, moderator.

Thank you, Ibu Novi, for the comprehensive answer. The next question is probably one of the highlights in the market also. The question came from Aryana Paramita from Sinarmas Sekuritas. How will BBNI utilize the possibility of Bank Indonesia rate hike to boost loan growth? Pak Silvano, would you please answer this one, Pak? Thank you.

Okay. Thank you. So -- we think BI rate hike is usually followed by lending rate adjustment. The magnitude of lending rate adjustment could vary from just enough to cover the increase in funding costs or if the market backdrop is very strong, rate hike could translate into higher NIM, which is, of course, the best case scenario. Now we do not want rate hike to hurt our clients' capacity to repay their obligations because we're looking to optimize our customers' lifetime value, not only short-term profit opportunity. So any lending rate adjustment will be done on a selective basis. Another way to mitigate rate hike impact or margin is by having higher CASA from our clients' transactions in BNI. And so the increase in -- so the increase in lending rate might be imposed mainly for those clients who do not transact with BNI sufficiently. Now our cost of fund, as you know, right now is very competitive among Indonesian banks. We could use this cost of fund advantage to gain lending market share in the industry during rate hike cycle as most banks in Indonesia might not have as much flexibility as we do. In terms of not only the level of funding costs, but also in terms of room for expansion or improvement. Now I just want to reiterate again what I've mentioned at the beginning of the presentation that in Corporate Banking segment, we have increased our CASA to loan ratio from 52% to 67% in the past 12 months. And this is one of the examples that -- of the progress that we've been making in terms of building a stronger CASA franchise. Now in our 5-year corporate plan, if I may reiterate our CEO explanation earlier, we aim to have best-in-class ROE on a sustainable basis. So we do not want to see profit volatility from time to time as we have observed in the past. Now to achieve this, we have to gradually build a good low-risk customer base. This is very important. A good low-risk customer base that have resilient business model and proven to survive various economic turbulence in the past as well as very good reputation and character which is probably equally, if not more important. We're fully aware that by doing this strategy, our margin might not look the best among peers, but it will be compensated by lower credit costs as well as room to boost fee income prospects. Thank you.

Thank you, Pak Silvano. Still from Aryana, the next question is about Xpora, and we believe Pak Iqbal can give us some color for this question. Pak Iqbal, would you please explain to us the latest update on Xpora? Thank you, Pak.

Okay. Thank you, Aryana. And as previously explained by Pak Silvano during his presentation, Xpora has been one of our future engine growth in advancing SMEs. 6 months after the launch, it's BNI Xpora has promoted almost 600 SMEs to go global, and we have channeled for about IDR 2.4 trillion of loan to them. Apart from lending, we also developed SMEs capacity through [ trade expo ] and training, supported by several agencies, [ Entrepreneurial ] association and e-commerce. As an update, BNI Xpora just started a collaboration with Shopee, one of the leading global e-commerce players to facilitate our SMEs to tap into export market, especially ASEAN and Taiwan. In addition to that, with the support of our overseas branches and the Indonesian [ Embassy ] Networks we continue to accomplish a number of business matching to connect our customers with the global buyers. So far, we have succeeded in connecting our SMEs with buyers from South Korea, U.K., Philippines, Malaysia, Hong Kong, Japan and Singapore. Thank you.

Thank you, Pak Iqbal for the clear answer. The next question comes from Thalia Riyadi from Indo Premier Investment Management. Any forecast rate for NPL rate this year? Pak David, would you please cover this question, Pak? Thank you.

Thank you, Thalia, for the question. So for the NPL overall loan at risk, right now, we feel much more comfortable with the asset quality situation. And we believe that the worst has been behind us. As of December 2021, the asset quality, as we mentioned before, continued to be resilient and improved. Loan at risk has declined quite significantly from 28% to 23.3% of the total portfolio, which is 5.4% lower year-on-year and improvement is also across all components. NPL improved by 60 basis points year-on-year to 3.7%. So for 2022, we think that NPL should improve close to 3% or below which is supported by broad economic recovery and stringent underwriting process. And we could also mention here that 89% or 90% of our COVID restructured book is considered low risk because these borrowers already started regular installment payment. So we think that the possibility or the potential of the downgrading of these borrowers quite minimum. And also additionally, around 75% of our loan at risk book is in the economic sector that has shown and indicated recovery and pickup demand. So we think that the 2022, our NPL and loan at risk should improve quite significantly. Thank you.

Thank you, Pak David. Ladies and gentlemen, the next question came from Weldon. When you say assets shift to low-risk customers, can you clarify which is the low-risk segments that you are targeting? And what is the percentage of each segment of total book that you are aiming for? How fast this will happen? And will we see strong growth of this low-risk segment this year? Can you also clarify the impact alone on 2022 net interest margin due to [indiscernible] low risk segments? And do you see that -- does your NIM guidance given already include the assumption of 50 basis points by Indonesia rate hikes? And what is the sensitivity of each 25 basis point Bank Indonesia rate hike to our net interest margin. Pak Royke, would you like to take this one, Pak? Thank you.

Thank you [Foreign Language].

Thank you, so much, Pak Royke. The next question came from Joshua Tanja from UBS. The question is, can we get more color on the very low effective tax rate in full year 2021, about 13% only -- 13% only. And in the fourth quarter of 2021, tax credits, is this something that will be continued in the first quarter of 2022 and full year of 2022. Ibu Novita, would you please answer this question? Ibu, thank you.

Thank you, Joshua. I will answer it in Bahasa. [Foreign Language]

Thank you, Ibu Novi. Ladies and gentlemen, as we are reaching the end of our Analyst Meeting today, we hope that we have delivered our financial results for the 2021 to all the attendees. Any questions that have not been answered, our Investor Relations team will gladly accommodate the answer for you. If you need further information, please contact us at [email protected]. We would like to express our gratitude for your participation today. You may now leave the webinar room. Thank you. Stay safe, and have a great day.