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

[Foreign Language] Good afternoon, ladies and gentlemen, who are joining virtually on Zoom. And also good morning to those in Europe and U.S. We hope that wherever you are, you always set in such a good health, and we are looking forward to seeing you in person as soon as possible. And thank you so much for your attendance. [Foreign Language] please allow me to introduce B&I directors who are here with us Royke Tumilaar, our CEO. [Foreign Language] Ladies and gentlemen, our corporate presentations can be downloaded through the link that we provide in the chatroom or you may access our corporate presentations and other official publications on our website www.bni.co.id. And if you have any issues, please kindly reach out to Investor Relations team through our e-mail address, [email protected]. [Foreign Language] And for those who are joining virtually, you may submit your questions in the Q&A box on your Zoom apps. As you already noticed for today, we provide a translator for our Zoom audience. You may click the interpretation button on your Zoom apps and then choose English. You will be able to listen to the English version of anything that we discuss here in Bahasa Indonesia. If you have any trouble, please don't hesitate to reach B&I IR team through our e-mail address, [email protected]. [Foreign Language]

[Foreign Language].

Thank you. Royka, good afternoon. All analysts, shareholders, rating agencies, definitely good to see some physical presence this time around. So thanks very much for taking the time. By now, you would have seen our results for last year. I think to all of us here, it was definitely a year to remember as we continue with our derisking and sustainable growth agenda. With the backdrop of the strong financial results last year, we firmly believe that the positive momentum will continue this year. And as you've seen, we are maintaining our loan growth and credit cost guidance that we have shared with all of you in October last year. And some notable points to share. In the current liquidity environment where minimum reserve requirement is at an all-time high of 9% and the Central Bank is still expected to raise benchmark rates. We think for this year 2023, a 7% to 9% loan growth is a range we can quietly but confidently deliver while we continue our derisking strategy and trying to be prudent in terms of our client selection going forward. We also believe that credit costs should go down even further below 1.5% and given our persistent effort in shifting loan portfolio to the lower-risk segment. On margins, we're getting more optimistic with the year's outlook, and we believe we could maintain stable margins this year, similar with 2022, if not a slight improvement. And so we have revised our NIM guidance to above 4.7% and and that's an upgrade compared to the initial guidance of between 4.5% to 4.7%. In relation to NIM, last quarter, was a good proxy of how margins have played out amidst cost of fund increase throughout the year. In Q4 alone, our margin was still at 4.85% despite a 35 basis point increase in cost of fund. Now this is thanks to loan yield, where we saw a pickup of around 25 basis points Q-on-Q. Now this increase in loan yield was mainly due to loan repricing of about 23% of our loan book, which is basically the floating rate based loans both JIBOR and a SOFR base. And as you can see from the chart, on the top right. Both JIBOR and SOFR went up by about 100 to 130 basis points during Q3 of last year, and that translated into loan repricing in the quarter following. Aside from the floating rate book, as some of you know, we also have about 60% of our loan book under a so-called managed rate portfolio. Now for this bucket, we have done and will continue to do manual repricing on a gradual basis to make sure we retain our pricing competitiveness, especially among the top tiers and at the same time, maintaining our debtors capacity to repay. Now so far, we've successfully executed first stage of this repricing in November last year or a small portion of the managed rate loan book. And this year, we'll continue to do hopefully, a lot more, and we'll try to front load it in the first half of this year as much as possible. In addition to loan pricing, consistent improvement in loan at risk, which is a key part of our agenda will also provide support for our margins this year. Talking a little bit about ESG beyond financials. We also want to highlight that we're very committed to push ourselves towards global sustainability agenda, where we have started last year to offer sustainability-linked loans. We disbursed no less than USD 355 million of SLLs towards top-tier players in various industries. We also gave them some pricing sweetener as an incentive for our clients to improve their ESG metrics in a pre-agreed time frame. Now in the long term, we want to scale up this initiative in order to be the bank with the best ESG practice in Indonesia. You will note that our current ESG rating from MSCI is A, and it's already one of the highest ratings among major Indonesian banks. For the next section of the presentation, which will highlight the latest development of our digital bank initiatives will be delivered by our Vice CEO, Ibu Susi. Please Susi.

Thank you, [indiscernible]. Ladies and gentlemen, last year, [indiscernible] made an announcement to acquire Bank Mayora with ultimate call to transform it to BNSME, focused digital bank as it a [indiscernible] long-term growth engine. We would like to give you an update that we recently appointed a new management team for the bank. The CEO is Bu Jenny, which currently is in this room with you. Ms. Bu Jenny, you may standup. Bu Jenny has long experienced SME financing as Retail Banking Director at May bank and CEO at Batumbu is leading market marketplace for financing of small- and medium-sized companies. There are 2 other Board members helping her, one is Prihadiyanto, who is Managing Director at central Indonesia. And another one is Andy Andres, who has achieved product and innovation at industry. This year, the bank will do a company rebranding, launching pilot project and several collateral-based SME financing and launching the first phase of mobile banking apps. We continue to engage with CE Limited to develop the technological aspect to the bank. Ladies and gentlemen, I would like to use this session to share some important regulatory change that affect our banks on the positive side. First is a change in operational risk RWA effective on January this year and we'll increase our capital ratio around 200 basis points. The methodology simply measure operational risk RWA by using one proxy, which is total gross income. The new methodology, our core standardized approach is more granular as it's considered a different nature of gross income, such as interest income versus fee income versus trading income as well as taking into account its bank historical data related loss from operational risk. The second important inclusion is regarding an extension of corporate restructure stimulus to certain borrowers such as the tourist-related industry, textile industry, MSME business and borrowers in Bali. Around 39% of our corporate restructure book met this criteria and eligible for an extension. Next, our CEO, Bu Novita, will discuss our financial in detail. Please continue Bu Novita.

Thank you, Susi. May be we can jump into our healthy growth from lower segment -- lower re-segment. Last year, our loan grew by 10.9% year-on-year, slightly ahead of our guidance. Thanks to strong growth in private sector corporate, large commercial, which is direct value chain of corporate clients as well as personal loan. These 3 segments all grew by more than 20% year-on-year. On the other hand, the exposure towards SOE, middle commercial, SME non-KUR were still contracting. It is by design in order to achieve optimum portfolio mix which focus on risk-adjusted return in terms of type of usage, most of our loan growth came from working capital loan as this type of loan will bring transaction of us, which will have to grow our transaction-based CASA in the long term. Loan yield was increased by 25 basis points Q-on-Q. This is because repricing of our floating rate book following JIBOR and SOFR movement. On year-on-year basis, our PPOP grew by 10.8%, supported by 8% growth in net interest income 9% growth in fee income and strong cash recovery growth of 47%. We kept OpEx growth below revenue growth, we want to maintain positive [indiscernible]. Provisioning charges declined by 37% year-on-year, resulting in 68% bottom line growth. More interesting analysts is on the latest quarter of last year, where cost of funds started to pick up. Our interest expense increased by IDR 1.1 trillion Q-on-Q, but we mean it to cover it from interest income growth. Our interest income growth Q-on-Q is IDR 1.6 trillion. And therefore, we still experienced a 5% growth in net interest income quarter-on-quarter operating expense was seasonally high on the last quarter in every year -- of every year, making our PPOP only flat Q-on-Q. Despite sharp improvement in LAR, we conservatively booked stable amount of provisioning charges, similar amount with that in our third quarter last year. Net profit for the quarter was down 5.5% Q-on-Q, but full year profit, it is IDR 18.3 billion consolidated was above consensus estimate. We are in the process of building stronger CASA as main source of funding to finance our loan growth. Last year, CASA grew by 10% year-on-year, while time deposits declined by 5% year-on-year. As a result, our CASA ratio increased 72.4% or 4 percentage points higher year-on-year. During previous earning call, we gave color that our cost of fund may start to pick up in fourth quarter. It is because due to higher reserve requirement and rising benchmark trend. Cost of fund increased by 35 basis points Q-on-Q, driven by 100 basis point increase in time deposit rate, especially U.S. dollar time deposit to improve our loan-to-deposit ratio in USD. We increased U.S. dollar TD rate twice in the second half of 2022. The first 1 was up to 30 basis points effective on September and the latest adjustment was up to 100 basis points effective on November 22. As the result, we were able to lower foreign exchange LDR to be 92% on December, down from its peak of 113% on June 22. We also experienced a 12 basis point increase in demand deposit costs in the last quarter last year, triggered by competition for large-sized demand deposits from big institutions. This pressure in cost of fund may continue this year, but the delta of the increase should be more benign as we believe benchmark rate adjustment this year should be less aggressive as compared to last year adjustment. We factor in 50 basis points higher benchmark rate this year in our margin guidance. What we need is to focus in short term is to speed up loan repricing and in the long term to continue building transaction-based CASA. And now our Risk Management Director, Pak David, will proceed the presentation. Please continue Pak David.

Thank you, Bu Novi. Ladies and gentlemen, I will now give regular updates on our asset quality. As we expect the total amount of COVID restructured loan continued to decline. Which is currently stands at 7.8% of total loan as of December 2022. As we have always maintained our conservatism in terms of collectability classification. We already classified the nonpaying loan as both NPL and collectibility too and they represented around 14% of the COVID restructured loan. Furthermore, half of the remaining COVID restructured book have already paid above base lending rate. Thus, there will be good candidates for unflagging in the near future. We hope this explanation could bring confidence among analysts that we have good understanding of the risk profile of our COVID structured book. As to the loan at risk, Total loan at risk in December 2022 was 16%, which is a significant drop by 7.3% from 2021 at the level of 23.3%. This is driven by restructured loans and collectibility to upgrades, mostly came from the hotel sector trading construction sector, textile industries and also agricultural sector. Related to provisioning, despite a positive trend in our asset quality, we consistently maintain an elevated level of provision coverage with 2.8x and loan at risk coverage at 49% in December 2022. Combined with expectation of gradual reduction in loan at risk, this should translate to material reduction in credit cost this year. And we will continue to assign a conservative provision coverage which as can be seen, [ thus ] in NPL category, we assigned 82% in average. Which we deem sufficient, considering LGD rate of around 60% to 70%. For those in collectibility to the provisioning coverage was 66%, which is much more conservative than regulatory suggestion and provisioning coverage for current resulted loan was 22%. And as we believe only a small portion of this bucket having high risk of downgrade to collectibility too. So ladies and gentlemen, this is the end of full year 2022 result presentation. next moderator will lead the Q&A session. Thank you.