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

Good afternoon, ladies and gentlemen. Welcome to BBNI First Quarter of 2023 Earnings Call. We hope that wherever you are, you're always in such a good health. And thank you so much for your attendance. Before we reveal our latest results, please allow me to introduce BNI directors who are here with us. First, we have Vice President Director; Bu Adi Sulistyowati or Bu Susi; Bu Corina, Digital and Integrated Transaction Banking Director; Bu Novita, Finance Director, Pak David, Risk Management Director, Bu Ita, SEVP of Treasury. Joining virtually on Zoom, we have Pak Putrama, Retail Banking Director; Pak Mucharom, Human Capital and Compliance Director, Pak Iqbal, Institutional Banking Director; Pak Ronny, Network and Services Director; and Pak Sis Apik, Enterprise and Commercial Banking Director. Ladies and gentlemen, our latest corporate presentation can be downloaded through the link that we provide in the chat room or you may access our corporate presentation and other official publications on our website, www.bni.co.id. We also provide the QR code for you to download our corporate materials. I'm giving you 3 seconds to scan the QR from your screen. If you have any issues, please kindly reach out to Investor Relations team through our e-mail address, [email protected]. After the presentation, we will have 20 minutes of Q&A session. If you have anything that you would like to ask to our management, please submit your questions in the Q&A box on your Zoom apps. As you already noticed that for today, we provide a translator for Zoom audience. You may click interpretation button on your Zoom apps and 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 BNI IR team through our e-mail address, [email protected]. Bu Susi will begin the presentation by discussing our management highlights, which include our business transformation progress. And then Bu Corina will deliver her vision on her new role in BNI. Bu Novita will present our financial performance. Bu Ita will proceed the presentation with our liquidity update and to conclude the presentation, Pak David will convey our asset quality update. And now I would like Bu Susi to start the presentation. Please, Bu.

Thank you, Moderator. Good afternoon for all analysts, shareholders and rating agencies. I really appreciate your attention here in BNI First quarter 2023 Earnings Call. Allow me to open the discussion by highlighting a summary of our performance. BNI booked IDR 5.2 trillion earning after tax on first quarter '23 growing by 32% year-on-year. This is higher quarterly profit we've ever booked so far. The strong profit growth came from quality-focused route, which means that we certainly picked high quality pro order -- order while growing our loan portfolio. As a result of this strategy, our loan growth has been at a good level, 7.2% year-on-year, but credit costs improved sharply from 2.5% a year, a growth of only 1.4% last quarter supported by improvement in loan at this ratio from 22.1% last year to 16.3% on March this year. On funding side, CASA growth of 6.9% year-on-year was in line with the loan growth rate. Cost of third-party funds as anticipated picked up by 46 basis points quarter-on-quarter, due to 3 reasons: one, rising rates environment; two, high reserve requirement ratio of -- by Central Bank; and three, seasonal liquidity buffer. We need to prepare ahead long Eid holiday. Net interest income grew quite healthy by 12.7% year-on-year, while PPOP growth of only 1.4% was due to high base effect in base income -- fee-based income last year. Later on, our CFO, Bu Novita, will explain the detail of this. We're glad to see that Ministry of State Owned Enterprise continue to support our transformation program by ensuring stability of management team composition announced on our AGM last month. With this general management structure, we did several change of executive roles in order to align with our strategic direction going forward. As we want to be the most preferred corporate bank in the country, we executed function into Corporate banking led by Pak Silvano Rumantir. This will ensure smooth coordination to optimize cross-selling of services to our corporate banking clients. Certainly, services to corporate client is very strategic, given that corporate customers are considered. And the anchor for BNI client base, which is the future, we will capture their value chain business. In addition, our international network spread across several financial centers in the world and also within the same chain of command with Corporate banking. This is important as growing numbers of Indonesia businesses are expanding globally. Another mission that we want to accomplish is to build a stronger funding structure comprising of sticky CASA from client transaction and less relation on special rate funding that will ultimately lead to lower cost of fund in the long term. To do this, we create a new Director-in-charge of Digital and Transaction Bank, led by Bu Corina which has a long experience in consumer banking. In other words, we won a digitalization process to be distant from customer point of view to meet what our customers want from us. Ladies and gentlemen, after we do realignment of responsibility within center management team, we also equipped them with stronger team at BOD Minus 1 Level. Certainly, internal talents at BNI include comprehensive training program, sharpening PPI and a performance-based incentive system in line with this. We also bring in some professional talent from outside to boost the transition progress and to bring a new and fresh perspective to assisting internal talents. BNI is probably the most active bank in Indonesia in terms of investing in new talents since we start our step transformation on 2020. In this opportunity, I would like to introduce 4 key persons who onboard the bank of the -- beginning of this year. First, we have Victor Korompis, as Senior Executive Vice President, in-charge of IT. He has worked previously in Bank Mandiri, DBS and Danamon. He will work in tandem with our digital teams to speed up delivery of our various digital initiatives. Second, we have Billie Stetiawan, as a Head of Data Management and Analytics with his extensive experience in Bank Mandiri, Danamon and Citi Bank. He will help BNI to improve data-driven decision-making and to fit within unit teams with potential customer lead to optimize product holding ratio in BNI. Third, we bring Yogi Bima Sakti from Bank of America to lead the growth in Enterprise Banking segment, whose client base are mostly coming from the value chain of Corporate Banking segment. Lastly, to improve our international banking contribution, we have Vilia Husin to lead our New York branch. She has in depth finance related experience as CFO at Astra Infra, Group Treasurer of Astra Group as well as Corporate Finance at Jardine Pacific in Hong Kong. We hope by onboarding this 4 high profile new team members, we will able to deliver our transformation initiative faster. Next, I would like to pass the floor to Bu Corina Leyla Karnalies, who previously was our Consumer Banking Director and now with a new role as a Digital and Integrated Transaction Banking Director. Please Bu Corina.

Thank you, Bu Susi. Ladies and gentlemen, based on BNI AGM result on March this year, I have been appointed for a new role as a Digital and Integrated Transaction Banking Director. Surely, it is an exciting role, given how fast Indonesia Digital Banking is evolving. We realize that our digital services need to be enhanced such as seamless customer experience from the account opening, day-to-day transaction, as well as value-added services, which are not covered by other banks. Our mission is to make BNI as the preferred transaction bank. This will translate into increase in CASA market share and fee-based income. Together with Pak Toto in IT Directorate, we have a priority this year to ensure the increasing in IT investment, resulting in effective outcome and scale up our digital deliveries. We start with optimizing our champion products, such as BNI Mobile Banking, BNI Direct, Branchless Banking, and Open Banking Ecosystem. In parallel, we're also upgrading our IT platform in order to meet customer expectation for multiple years ahead. We believe that we're currently on the right track with our plan. Next, our CFO, Bu Novita will continue the earnings call discussion. Please Bu Novita.

Thank you, Bu Corina. Ladies and gentleman, continuing our discussion about corporate transformation, we emphasize the importance of being disciplined in shifting our loan portfolio in order to deliver higher and sustainable return to shareholder. 2 years ago, only 61% of our portfolio was ready to grow while the remaining around 39% was still suffering from the asset quality problem. On one hand, we grew aggressively with 15% CAGR for the growth portfolio. While on the other hand, we down size the selective portfolio by 9% CAGR within the same period. Net-net bankwide loan growth was only 6% CAGR over the past 2 years. However, as a result of this hard-to-do approach, we managed to improve our loan portfolio risk profile as shown by RWA density that declined from 81% to be 76%. The improvement in risk profile not only resulted in strong net profit growth in the past 2 years, but also in the future, it will reduce our profit volatility during economic down cycle. This is what we want to see a sustainable and elevated level of ROE. We still have homework to do within selective portfolio despite major improvement in the past 2 years. We still have around IDR 49 trillion worth of loan at risk within a selective portfolio that we need to phase out gradually. As it may take a few more years to do so, we continue to use our PPOP to build higher provisioning coverage, which now stands at 46% LAR coverage. Next, now the composition of our growth portfolio has becoming more dominant at 71% of total portfolio from only 61% 2 years ago. It means we should have more room to grow if macro condition remains supportive. We bring this discussion in the interim earnings call session to highlight that BNI is taking different approach from our peers. Our top line growth may not be necessarily above industry, but our bottom line growth will continue to be strong. At the beginning of this year, we grew our loan book by 7.2% year-on-year, in line with our guidance for the full year of 7% up to 9% growth. The split between growing segment and contracting segment is still consistent with our strategy. Private sector corporates, which consists of largely blue chip companies, led the growth at 21% year-on-year followed by their value chain within Enterprise segment, which grew by 13% year-on-year. Consumer segment, which is approximately of purchasing power in the country grew solid at 12% year-on-year, driven by lower risk personal loan and mortgage. Our exposure to SOE, Commercial and SME segment was still contracting year-on-year, as we're still yet to see consistency in asset quality before deciding to grow again. More detail of this will be discussed later on our chief -- by our Chief Risk Officer. Loan yield in Wholesale segment was increasing in line with rising rate environment and our effort to do loan repricing on gradual basis. We expect more yield pick up for the next quarter. On the other hand, the yield in small segment was not optimal due to increase in loan at risk in category and that category that triggered us to stop interest accrual for the affected portfolio. Our net profit after tax last quarter was IDR 5.2 trillion, growing by 32% year-on-year. The growth in profit came as a result of discipline and selective loan booking, especially in Wholesale segment, which result in 40% lower provisioning charges year-on-year during this quarter -- during last quarter. Top line growth or net interest income grew by 12.7% year-on-year, supported by moderate loan growth and NIM expansion from loan repricing strategy. Non-interest income was contracting by 20% year-on-year due to high base effect last year, more details on the following slide. Fee income from recurring banking activities grew moderately by 7.4% year-on-year. We saw strong contribution coming from Retail business through mobile banking, bill payment feature as well as from Wholesale business through trade finance and syndication. The contraction in e-Channel fee income by 15% year-on-year came from more adoption of BI Fast feature for interbank transfer, which right now represent around 80% of the interbank transfer transaction. Note that in the -- transaction volume in our e-Channel grew by around 15% year-on-year. The culprit for the weak fee income came from trading activities, contracting by 47% year-on-year due to high base effect last year as we front load the scale of marketable securities in anticipation of yield pickup afterward. Bu Ita, our SEVP of Treasury will proceed the presentation with highlighting our funding and liquidity update. Please Bu Ita.

Thank you, Bu Novi. Ladies and gentlemen. Last quarter, our CASA grew by 6.9% year-on-year. As we're preparing for extra liquidity buffer ahead of long holiday on April, we have to collect time deposit, while the momentum was still available. Time deposits grew by 8.4% year-on-year. And overall, third-party fund grew by 7.4% year-on-year, in line with our loan growth. Overall CASA funds increased by 17 basis points quarter-on-quarter to 1.9% on first quarter 2023, driven by time deposit and special demand deposits. Last quarter, a freight cost of time deposit was 3.5% and for demand deposit was 1.8%. Cost of savings account remained stable at 61 basis points only, and we want to gradually boost sticky CASA coming from client transaction. Last quarter, retail transaction value in our mobile banking apps increased by 53% year-on-year, while wholesale transaction value in BNI cash management increased by 38% year-on-year. Our loan-to-deposit ratio as of March was at 85%, with IDR LDR at 88% and foreign currency LDR at 78%. We deliberately lower our loan-to-deposit ratio as we need to prepare extra buffer for long holiday preparation. So this is seasonal. Under normal circumstance, our LDR will be hovering around 90%. BNI liquidity position is very good with liquidity coverage ratio above 200% and net stable funding ratio at 154.1% as of March. We believe our conservative approach in liquidity management will protect as well from ongoing global bank increases in other countries. Next, our asset quality update will be presented by Risk Management Director, Pak David Pirzada.

Thank you, Bu Ita. Ladies and gentlemen, I will now give regular updates on our asset quality. Last quarter, the balance of COVID restructured book continued to decline by almost IDR 4 trillion. It now stands at IDR 45.8 trillion or equals to 7.3% of the total loans. Out of this amount, IDR 19.1 trillion is under Stage 1 classification, and there are good candidates to be gradually taken out from LAR classification once the restructuring terms expires. Another IDR 22.5 trillion is under Stage 2 classification and we estimate the majority of these borrowers will continue to stay under restructuring category. Some of the names here include the SOEs, like Waskita, or Group Sritex and GMF AeroAsia and also to mitigate P&L risk, we already built a high provision coverage averaging at 41.6% for the Stage 2 bucket. Loan at risk ratio as of this March this year was at 16.3%, which is way better as compared to 22.1% a year ago. And if we look on quarter-on-quarter basis, there was a bit of increase in LAR ratio by 30 bps quarter-on-quarter, but this was driven by an increase of collectability to ratio from Commercial and mostly from SME segment. But we should note that we continue to reduce our exposure in these 2 segments, now accounting for 16% of loan book versus 20% 2 years ago. In short term, we expect to continue seeing portfolio reduction of these 2 segments until we see more convincing data points on their asset quality. Despite overall asset quality remains stable, we will continue to build higher provisioning coverage. As of March, LAR coverage was 48.9%, and NPL coverage was 237%, both are all-time high coverage level in BNI. For Stage 2 loan, we assigned 27.7% provision coverage and for Stage 3 loan, we assigned 80.4% coverage. To give some color on how conservative our provisioning policy, out of IDR 50 trillion cumulative provisioning, IDR 21 trillion is the level of provision required by regulator while the rest is management decision to add extra provision for conservatism purpose. Ladies and gentlemen, this is the end of first quarter 2023 result presentation. Next, moderator will lead the Q&A session. Thank you.

Thank you, Pak and Bu for the insightful presentation. Ladies and gentlemen, we're now entering the Q&A session. If you have any questions, please send it to our e-mail address, [email protected], or you may send your question in the Q&A box on your Zoom apps. If our directors answer in Bahasa, Indonesia, you are able to listen to the English version, please click the interpretation button on your Zoom apps an choose English. We have already received several questions. The first one came from Sangameshwar Iyer from Consilium. The question is regarding the outlook for 2023 loan and asset quality. Is there any revision in the full year 2023 guidance? Bu Novi, please kindly answer this question Bu. Thank you.

Thank you. To answer the question from Sangameshwar Iyer from Consilium. In our results in the first quarter, our loan grew by 7.2% year-on-year. On the segment-wise, we continue to be disciplined with our portfolio de-risking strategy. Corporate profit grew by 21.2% year-on-year followed by Enterprise 13.2% year-on-year, KUR by 7.8% and Consumer Loan by 12% year-on-year. Other segment that we classify as selective growth portfolio still recorded contraction year-on-year. Asset quality remains -- remain a key focus within this selective portfolio. So far, we're still seeing good demand for loan. And based on our observation, we see that Indonesia will avoid recession and continue to experience positive growth at close to 5%. There are new economic sector that could be long-term catalysts for our loan demand, such as downstream mining and renewable energy sector. Average increase in nationwide minimum wage this year is around 7%, which is higher than inflation rate estimated at below 4%. Banks have not aggressively increased lending rate to that point that it kills loan demand. During our first quarter '23, our loan at risk has been stable as compared to December last year. Corporate segment showed solid asset quality trend while medium Commercial and SME segment situation was not as convincing in -- as in Corporate segment. And the good thing is that by design, our loan -- our growth strategy is motorized by Corporate segment while we're still de-emphasizing medium Commercial and SME segment. We believe our asset quality will continue to improve. And to answer your question about the revision of our full year '23 guidance, we still maintain our guidance for full year '23 from loan growth, 7% up to 9%, NIM at least 4.7% and credit costs, we expect below 1.5%. Thank you.

Thank you Bu Novi for the answer. Next question came from Felicia Budiman from Eastspring. The question is, would you mind explaining talent pool and structure for corporate banking, especially at Board Minus 1 level? I believe Bu Susi will give an insightful answer for this one. Please Bu Susi.

Thank you, Felicia. I will answer your questions. We have designed the organizational structure of corporate banking to be more agile and adapting to labor-based practice into it, where we reorganized our corporate RM teams into 3 groups with different industries, sectors, and specialization and we deliberately create the several new industry focus, including digital economy and sustainability finance as we believe these 2 sectors will be growing rapidly ahead. The split of Corporate banking team into 3 sectors position is not static. It will evolve according to our business expansion. Apart from the RM team, Wholesale and International Banking Director also supervise Syndication and Structural Finance, International Banking and Treasury. Thus, we can focus on end-to-end solution for the wholesale client with cross-selling services in Corporate, International and Treasury. Under Director of Wholesale and International Banking, there are 2 senior SVPs. One is in charge of Treasury and another one is in charge of Corporate Banking. This reorganization must then be bolstered by establishing a deep talent pool. Several C Minus 1 and C Minus 2 positions in Corporate Banking are even occupied by millionaires. Our GM position, our Head of Division are consisting of new talent, which we operated since we start the transformation on 2020. As we're in the midst of transformation and need to accelerate the progress, we also invest in professional talent or pro-hire. The combination of these 2 talent pools will enhance our capacity to provide corporate clients with holistic solution in the long run, no matter who Director-in-charge is. Thank you.

Thank you Bu Susi for the clear answer. The third question came from Johanes of BCA Sekuritas. The question is, what is your strategy to increase foreign exchange liquidity further this year? Considering the nature of this question, which is liquidity, I believe Bu Ita will give a clear answer for Johanes. Please Bu Ita.

Thank you, Johanes, for your question about a strategy to increase foreign currency liquidity. In this first quarter, we managed to lower our foreign currency LDR from 92% last year to now at 78%. We deliberately maintained excess foreign currency liquidity as globally the interest rate environment is still high, which might trigger capital outflow from Indonesia. In addition to the funding strategy on the lending side, our strategy is to selective profile foreign currency loan and pursue debtor to convert their foreign currency loan to IDR if it suites to the customer business profile. This foreign currency LDR ratio might increase ahead, but we want to ensure that it remains sufficient relative to regulatory requirement and our appetite. Our strategy involves optimizing the transactional funding of clients. So we also have several alternative funding instruments in the form of non-conventional funding such as bilateral loans, syndication loan, repo and other sustainability funding program, which we can implement based on liquidity condition and market condition. Thank you.

Thank you, Bu Ita. Next question came from Sarah Jane Mahmud of Bloomberg Intelligence. The question is, could you please give us an update on your sustainable lending activities in the first quarter of 2023? Near-term goals and plans for 2023, and midterm to 2025? Pak David, would you please answer the question? Pak? Thank you.

Okay. Thank you, moderator. Thank you for the question, Sarah Jane. So in line with the government target to net 0 emission by 2060, we're committed to align it with our business strategy. BNI sustainable portfolio using OJK framework amounted to IDR 179 trillion or equals to 28.5% of the total loans. This also includes IDR 120 trillion loan to empower MSME business and IDR 60 trillion loan related to green financing. Within the IDR 60 trillion green financing loan, 20% of it is specifically for renewable energy sector, such as hydro, solar and biogas power plant projects. Even though the demand is still quite limited nowadays, we still believe that sustainable finance will be growing rapidly, and we want to be the most active banks in this space. And also in addition to improving our ESG practices within the bank, we also want to encourage our clients to gradually adopt ESG into their business. To do this, we actively introduced SLL or Sustainability Linked Loan since last year. As of this March, we have around USD 400 million of SLL towards key industry players in various sectors, such as agro industry, cement and steel manufacturing. We give pricing sweetener as an incentive for the borrowers to improve their ESG metric in a pre-agreed time frame. In the longer term, we want to scale up this initiative in order to be the bank with the best ESG practice in this country. We're currently rated single A by MSCI ESG Rating. Several initiatives are also taken such as strengthening risk acceptance criteria, considering risk mitigation for climate change, calculating emission resulted from financing activities and also implementation of environmentally friendly program in BNI to reduce carbon emission. Thank you.

Thank you Pak David for the clear answer. Next question came from Kresna Hutabarat from Mandiri Sekuritas. The question is, what is the target of loan at risk balance by 2023 and 2024 end? And which business segments that are seeing loan at risk reduction in the first quarter of 2023? And in the upcoming quarters, should we view that future loan at risk ratio and loan at risk coverage trends in the context of ongoing loan restructuring program by one of the major SOE construction companies? Given the main topic of this question, I'm sure that Pak David can clarify. Please, Pak David.

Thank you for the question, Kresna. As mentioned previously that our total LAR of IDR 120 trillion mainly consisted of restructured COVID portfolio, which accounts for around IDR 46 trillion by March 2023. And we have been able to continuously decreasing this restructured profit portfolio consistently since 2021. Our loan at risk outside NPL accounts for IDR 85 trillion, out of it 54% are in restructured COVID portfolio. And we have periodically reviewed the conditions of this portfolio and also the prospect of these debtors to recover their business and potentially to return back to a normal collectibility. From our latest review, there are quite a large chunk that are potentially to be unflagged until end of year 2023. Those -- that are potentially to be unflagged are the ones that have made payments with no arrears and have paid interest rate at the level of commercial rate and also with our assessment that they are under low to medium risk. In the loan at risk, including the NPL category, more than 50% debtors have paid the interest rate at commercial level. And if we combine the category of paying interest rate at commercial level and have made payments with no arrear and under low to medium risk category, there are potentially 40% of the total loan at risk outside the NPL that can be unflagged. However, as also mentioned previously, there are several debtors mainly in the Corporate segment that will continue to be on the loan at risk maybe beyond 2023, especially for the SOEs that may not be unflagged because they are still under restructuring more than a year and several other debtors in Corporate segment. We expect overall -- sorry, overall, the reduction in loan at risk will continue from the unflagging of those debtors in the stated criteria. We expect by end of 2023, we can reduce furthermore our loan at risk at the level of 12% to 13% from the level of 16% in December 2022. In 2024, we also expect that loan at risk will continue to decline with the support of Indonesian economy to continuously to be resilient with GDP growth around 5%. We expect that there will be quite a large chunk of the extended restructured COVID in the sector of hotel accommodation in Bali and also the SMEs is expected to improve their condition and potentially can be unflagged. So this is also including those that are in the restructured COVID and Corporate and Enterprise segment. And as to your question about the restructuring program of one of the major SOE construction companies. Actually, this SOE construction company is already under a LAR category. So they are now under ongoing loan restructuring program and now under review of the MRA. So we think that it will not really impact to our projection of loan at risk ratio until the end of December 2023. Hope this will answer your question, Kresna. Thank you.

Thank you, Pak David. Bu Novi, perhaps you would like to add some color to this topic of LAR coverage book.

Yes. In the LAR coverage, this year, we already booked enough provision to cover our LAR coverage around 46% LAR coverage. And we want to continue to maintain it. In the long term, we want to maintain above 40% across various economic cycles. Within our assumption of this LAR coverage, we already booked enough provision, especially on the SOE construction debtor that now in the restructuring process.

Thank you, Bu Novi and also Pak David. We have another question. This is from Ryan Foo from Bank of America. Ryan here has 2 questions, Pak and Bu. The first one is regarding net interest margin outlook, could management share the view on outlook for loan yields and cost of deposit under a potential rate cut environment? And how will this impact the NIM outlook and guidance for BNI? The second question regarding the capital, what is management's target operating Tier 1 or CAR level and guidance on dividend payout over the medium term? I believe Bu Novi will give the right answer for Ryan. Please Bu Novi.

In our NIM guidance, we expect flat growth NIM if we compare with our last year number, slightly below than last year because in our guidance, our NIM should be 4.7% up to 4.8%. And now we see that our few in benchmark rate, it is to be steady at the current level and some economies on the street may start to assume rate cut. And regarding what is the impact in our loan growth, our loan and third-party fund, especially on the repricing. There is no direct and automatic translation, similar with the rising rate situation in the past 1 year, the decision to adjust pricing on loan and deposit depends on the liquidity situation. Then its impact to our CASA fund and finally we pass through into lending rate. So we want to maintain our stable NIM. And for your question about capital, our capital right now, total CAR at 21.6%. And our target to maintain above 20% in the long term. And we believe that with excess capital and improving profitability outlook, we believe we could maintain our dividend payout at least 40% or even increasing it slightly in upcoming years.

Thank you Bu Novi. Another question coming from Weldon. The question regarding manpower, Bu Novi. The manpower cost growth seems high, could you provide some color around that? Please, Bu Novi.

Yes. We see in our human capital costs still -- we want -- we have a target double digit -- low double-digit percent growth because right now in our strategy, we want to improve our competency in human capital, not only from the internal talent, but also to attract new talent coming from external that -- so we adjust our remuneration standard. We improved our remuneration structure to be performance-based remuneration. There is a significant difference between average performance if we compare with our top performer in the terms of remuneration. This will translate to stronger financial performance in the long run. In addition, we also upgrade our remuneration scale in BNI to be competitive with market rates. This also enables us to attract pro-hire talent to speed up our transformation and bring fresh new perspective to internal team.

Thank you for the clear answer, Bu Novi. The question keeps coming up. I believe we have another question. This is from Consilium, Pak and Bu. The first question regarding our capital -- our cost-to-income ratio. The question, I believe, will be answered by Bu Novi. The question is, how should one look at cost-to-income ratio going forward? Please Bu Novi.

Cost to income, cost-to-income ratio?

Yes, cost-to-income ratio?

Yes. Our outlook cost-to-income ratio by 2025, if you see the guidance, our corporate plan in '25, we want to achieve 18% ROE. And the assumption is, one, loan growth around 10%. Cost-to-income ratio is around 42%. So in this year, we expect our cost to income, we want to maintain 42%. And the priority is we want to improve our digital capabilities and human capital capabilities. So the driver of this increase in our cost must be coming from the digital and IT costs and human capital costs. And then we will improve our revenue structure. We want to improve our cost-to-income ratio by boost our fee-based income ratio by 25%, around 35%, the composition. So on the -- to answer your question about cost-to-income ratio, this year up to 25% still around 30% -- around 42%. And after that -- after '25, we may expect cost-to-income ratio around 40%.

Thank you, Bu Novi. I hope that can clarify some things out for Consilium. Another question coming up, this is still from Consilium I believe, directed to Pak David. The question is when we expect the NPL to come down incrementally? And why are we guiding for credit cost to increase from current levels? Please Pak David.

Okay. Thank you. So the -- about the credit cost, actually, the credit cost, our guidance for the credit cost until year end of 2023 of 1.5% is actually a reduction compared to the COC last year of 1.8%. And as of first Q 2023, our COC was 1.4%, which is within the guidance until end of the year. And also, this means that we have rooms to book higher provisioning coverage for some debtors in construction sectors, such as the SOE that are now still under restructuring process. But overall, that our COC is decreasing or reducing because of the improvement in the asset quality. And our COC guidance of 1.5% by the end of this year is actually also within our gradual reduction of COC maybe until 2024, 2025 that we're targeting up until 1% of COC. Thank you.

Thank you, Pak David. Another question, this is coming from Weldon. I believe Bu Novi will give the clear answer for Weldon. The question is, can you talk about the loan repricing dynamics? How much and where you can reprice for the rest of the year? Please, Bu Novi.

Our repricing progress of our loan portfolio, an IDR 89 trillion was repriced on fourth quarter 2022 last year by 19 basis points and IDR 67 trillion was repriced on first quarter '23 by 64 basis points. This number were the repricing for the minutes rate book only. So if you look into our loan portfolio right now, the composition is around 20%. Our loan portfolio consists of floating, which is it will reprice automatically. And then 60% of our loan portfolio consists of minutes rate, which is -- this is -- the result is like what I said before. From the 16% minutes rate, we exclude the loan at risk portfolio. So we only reprice the good quality portfolio. And the result right now by first quarter '23, the reprice by 64 basis points. With the expectation that benchmark rate is peaking, the room for further loan repricing is limited, not as big as previous quarter. Thank you.

Thank you Pak and Bu for the insightful Q&A session. Ladies and gentlemen, this is the end of our 2023 first quarter earnings call. Thank you to all of attendees, distinguished investors, analysts and all of BBNI management. If you still have any questions, please reach out to our Investor Relations team on our e-mail address, [email protected]. We can have a virtual discussion or we'd be happy to arrange a face-to-face meeting with you. Before we sign out, please allow me to wish you a joyful Eid Mubarak for those who celebrate. Have a nice holiday, and stay safe.