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

Good afternoon, ladies and gentlemen. On behalf of PT Bank Negara Indonesia (Persero) Tbk, I'd like to extend a warm welcome to each of you. We are thrilled to have such a distinguished group of partners and colleagues joining us today on BI Earnings Call for the Third Quarter of 2024. It's a real pleasure to have valued analysts and shareholders here as we gather to reflect on BI's progress, share some exciting and wonderful updates and discuss the outlook together. We got a lot of important information to share with you, insights into our strategy, financial performance and future plans. So we hope that you'll find today both informative and also engaging. [Operator Instructions] We have a translator. So when or if our director answer your question in Bahasa Indonesia, you can still listen to English. Now I'd like to introduce our Board of Directors who are here with us. First, our President Director or CEO, Baba Royke Tumilaar; VP, President and Director, Baba Putrama Wahju Setyawan; Baba Paolo Kartadjoemena, Digital and Integrated Transaction Banking Director; Ibu Corina Leyla Karnalies, Retail Banking Director; Ibu Novita Widya Anggraini, Finance Director; Baba David Pirzada, Risk Management Director; and the rest of our BoD joining us well. If you would like to see our most recent corporate presentation, you may do so by downloading it from the chat room or by visiting our website, www.bni.co.id, and click the Investor Relations item. You can also find financial statement and other official publications. If you have any technical issues, please reach out to our team on e-mail address, [email protected] or into the Q&A box. Our CEO, Ba Royke will begin the sharing session by discussing our management highlights and then continues by Ba Paolo with some wonderful news and our latest digital initiatives. And after that, Ibu Corina will highlights BNI Xpora performance. Ibu Novita will proceed with our financial performance highlights. And Ba David will conclude the session by sharing our ESG implementation and asset quality update. And now to kick things off, please Ba Royke, the floor is yours.

Thank you. Good afternoon, everyone. Thank you for joining our third quarter earnings call. I will start today's session with -- by sharing how BNI sees the new organization and its impact on our business, which is probably also one of our -- one of your big questions this month. President Prabowo is a nationalist with ambitious vision for the country. He has been combining his vision to bring Indonesia GDP growth to 8%, achieve 0 poverty rate and bring the country to be a developed economy by 2045. Out of the government policies that often being communicated, we want to highlight several areas that economic priorities that are relevant to our business. The new administration wants to focus more on the areas such as food sales efficiency, infrastructure, energy security, accretive economy, downstream industry, include agriculture and fishery, and affordable housing and MSME empowerment. To deliver these goals timely and effectively, the government is expanding the number of ministries that will be -- will improve their focus on delivering economic agenda. These include coordinating Ministries of Food Affairs, coordinating Ministry for Infrastructure and Regular Development, Ministry of Creative Economy, Ministry of MSME, Ministry of Tourism, Ministry of Social Affairs and Ministry of Housing Settlement. All of these are strong signal that government -- that people welfare is their main priority. For a lot of corporation in real sector, there will be ample new business opportunities. For consumers, the [ saving ] power will gradually improve and enable them to access banking services. We believe the outlook for banking sector in terms of loan demand is quite prospective. Since our last earnings call 3 months ago, operating environment have been becoming more positive. Loan growth was 9.5% year-on-year. Note that this growth rate was understated by the impact of currency translation as IDR strengthened during third quarter, and about 20% of our loan book in is in U.S. dollar. We continue to optimize our LDR at elevated level, 95% by September, taking advantage of BI incentive on reserve requirement. CASA demand grew by 5.5% year-on-year, of which the biggest growth came from the saving account at 7.4% year-on-year. Out of all key financial indicators, NIM ratio is the one that improved the most during quarter 3. The previous earning calls, we mentioned that we aim to achieve around 4.2% NIM in semester 2. So far in quarter 3 alone, we managed to deliver NIM ratio at 4.4%, slightly better than our initial expectation. With loan at risk continue to come off, now stands at 11.8% of total loan book, our credit cost remains low at only 1% level. Rebound in the top line revenue, coupled with the consistently low cost -- low credit costs, have allowed BNI to deliver IDR 16.3 trillion net profit, which is in line with consensus expectation. I internally skipped the discussion in previous slides because I want to elaborate more in this slide. Our third quarter PPOP, IDR 8.8 trillion, has rebounded well compared to the previous quarter. Now our PPOP has almost back to last year all-time high, back then was IDR 8.9 trillion in the third quarter last year, right when our NIM was peaking at 4.8% on the quarter alone. Strong quarterly PPOP came from the -- both net interest income and noninterest income. Our NIM last year on third quarter was 4.4% or 40 basis points higher than quarter-on-quarter. Higher NIM was supported by both loan yield improvement of 36 basis points quarter-on-quarter as well as lower cost of 1 by 12 basis points quarter-on-quarter. Our noninterest income grew by 8% quarter-on-quarter driven by loan recovery income as well as banking activities fee income mainly from trade finance and bill payment done through new mobile banking apps, wondr by BNI. Starting on this year, for you who follow us closely, you may often have about our new transformation focused on funding structure improvement. We want to have better funding sources diversification. One of the metrics that we monitor its retail funding contribution to third-party funds. Year-to-date, retail funding proportion has improved to 38%. Another indicator is by looking at daily average saving balance, which increased meaningfully by 9.5% year-to-date. We will discuss more detail around our initiatives related to the saving account and current account in the next slides. Ba Paolo, Digital -- Director of Digital and Integrated transaction banking will elaborate this. Please continue Ba Paolo.

Thank you, Ba Royke. Ladies and gentlemen, our funding structure transformation focuses on building a stronger retail savings account franchise as it has the lowest cost of fund among all type of funding. Out of many strategic initiatives that we will implement in phases, I want to highlight on 2 initiatives that we are starting this year. The first one involves branch transformation. There are numerous initiatives related to brands transformation that will, in phases, be implemented over the next several years. One of the initiatives that we are starting this year is changing the role of branches from transaction and services into sales. We have migrated more than 70% of our frontliners, mostly customer service as well as tellers, into general sales force. The second initiative was the launching of our new mobile banking application, wondr by BNI, in July this year. Since its launching, wondr by BNI has shown good progress that we have tracked through several indicators, such as the number of new customer acquisitions and the number of transaction frequency. Both indicators have shown good momentum every month since the launching of wondr last July. I'd also like to highlight that year-to-date growth of our savings accounts have reached 3.1%. This is the highest level of savings growth in the past 4 years. Since the launching of the new application wondr by BNI, the pace of acquisition of new savings accounts opening has accelerated. During the first and second quarter, on average, we opened around 600,000 new savings accounts per quarter. Last quarter, we managed to record almost a 50% increase. If we dissect our year-to-date savings growth by customer type, savings from retail customers grew by 6.5% year-to-date, while savings from wealth management customers decreased by 4.7% year-to-date. This is part of our strategy to improve our funding diversification into more retail customers. Looking further into the IDR 10 trillion growth in retail customer savings, 77% of it came from new-to-bank customers, a testament to BNI's competitive in building a new customer base. Another area to improve in funding structure is on the transactional current accounts from our wholesale clients. BNIDirect is our main channel for cash management and transaction banking services. It is key -- a key service that brings together all our transactional current accounts. As of September, the number of users for BNI Cash Management grew by 8% year-on-year, reaching 161,000 customers. Meanwhile, transaction volume grew by 29% year-on-year. Impact on P&L can be seen from the fee income line from the collection, API and cash pooling, which has more than doubled year-on-year. Today, around 90% of our current accounts at BNI comes from Cash Management clients. Hence, we believe the revamp in BNIDirect could strategically position ourselves to grab an even bigger market share in transactional current accounts. Recently, we did a rebranding and launching of the new BNIDirect as an integrated corporate portal for our wholesale solutions. The new BNIDirect uses a single access to do various transactions that were previously split into 5 different portals, namely Cash Management, supply chain, trade, foreign exchange and virtual accounts. With this, our corporate clients will be able to access a 360-degree view of the financial dashboard, in addition to a more reliable and stable system with an enhanced IT security. As with the wondr by BNI initiative, the revamp of BNIDirect will be done in stages. Going forward, we are going to focus on adding new features as well as customization of services to cater to different client needs. Ibu Corina will continue the presentation with the update on Xpora. Please, Ibu Corina.

Thank you, Ba Paolo. Focusing on SMEs with potential to go global, we launched Xpora in September 2021, which offer a comprehensive solution for SME exporters beyond lending, including business matching, business advisory, global market access and also payment solution. We over-bundled financial products with attractive discount for LC discounting, discounting LC collection and remittance. Even the loan application process is simplified. Besides business matching features, Xpora also provide other features that can be assessed by Xpora members, such as training, financial solution and other features related to Xpora. Three years afterwards, we want to provide an update of the Xpora at BNI. As of September 22, total loan for export-oriented reached IDR 31 trillion, which grew by 19.2% CAGR, with trade volume at IDR 74.8 trillion and 44,000 SME debtors. BNI Xpora has gathered total CASA worth IDR 5.2 trillion, grew 22% CAGR compared to the end of 2021. While all of our branches are able to provide assistant for the Xpora, currently, we have 7 physical hub and Xpora portal to support these initiatives spread across Indonesia. To support Indonesian entrepreneurs to expand their business overseas and to capture business opportunities in Australian market potential, we inaugurated BNI Sydney representative office in September 2024. With this outstanding performance, we believe the BNI Xpora will be one of our future growth engines and will strengthen the BNI's strategic positioning as a global bank and could increase our sustainable SME portfolio in the future. As a systemic national bank, we always aim to provide a more comprehensive and unique service to fulfill customer needs to do their business. Next, Ibu Novita will continue the presentation with our financial performance highlights. Please Ibu Novita.

Thank you, Ibu Corina. Ladies and gentlemen, this year, our balance sheet strategic management team has been focusing on delivering moderate growth on the asset side while optimizing our funding composition. Our loan growth was 9.5% year-on-year, while third-party funds growth was 3%. The difference in growth rate between our asset and liabilities was enabled by RRR incentive from Central Bank effective on July this year. Slower growth on [ third-party ] fund was part of our effort to actually improve our NIM through LDR and cost of fund optimization. On cost of fund optimization, we use extra liquidity from RRR incentive to manage out expensive funding, mainly time deposit. As a result, our time deposit was contracting by 2.6% year-on-year, while CASA growth was stronger at 5.5% year-on-year. On P&L, we see meaningful improvement in revenues driven by NIM expansion and strong fee income realization. Our quarterly NIM on third quarter was 4.4% or 40 basis points higher than our NIM in the first semester of this year. Noninterest income grew by 15% year-on-year, driven by 50% growth in trading income from bonds and currency as well as 31% growth in cash recovery income. Other than these 2 items, we also experienced a major growth in fee income coming from loan syndication, growing by 25% year-on-year; as well as from bill payment through wondr application, growing by 29% year-on-year. Operating expense grew by 7.4% year-on-year. It was mainly driven by our investment in transaction banking platform, wondr and BNIDirect, including their promotional budget and IT specialist hiring. As we speed up our digitalization process, we also invest a significant amount of budget into cybersecurity that covers not only technology, but also its organizational design. Our PPOP for 9 months '24, was still contracting by 3.6% year-on-year due to weak NIM on the first semester. With recent improvement in operating environment, our quarterly PPOP was almost baked into its all-time high. With stable credit costs at 1% level, we managed to deliver 3.5% growth in earnings after tax. Now we are going to deep dive into our loan growth and yield by segment. Corporate segment remain our major growth contributor, expanding by 15% year-on-year. The quarterly growth rate at 1.5% seems slow because of currency translation impact of around IDR 11.7 trillion during third quarter. Excluding this, the Corporate segment growth would have been around 4.4% Q-on-Q, while bank-wide loan growth at around 2.7% Q-on-Q. Consumer segment was our second growth engine, growing by 15% year-on-year with balanced contribution from mortgage and payroll loan. As we communicated earlier this year, we continue to be disciplined in transforming our SME segment. KUR portfolio, by design, decreased by 22% year-on-year and recently still contracting by 7% Q-on-Q. On the other hand, as a result of end-to-end credit process improving relying on new credit scoring, our SME non-KUR has stopped its contraction. The only thing that put constraint on its growth trajectory is elevated write-off from legacy portfolio, which is expected to be completed by first half of next year. Loan yields start to pick up after 3 executive quarter on pressure. Quarter 3 loan yield was at 7.7% or 30 basis points higher Q-on-Q, driven by corporate loan repricing, mainly on USD book. Funding cost improvement on last quarter came from a combination of funding mix changes as well as lower pricing. On funding mix, we're carefully managing out expensive funding, such as time deposits which declined by 2.6% year-on-year. Current account only grew by 4% year-on-year as we reduced the proportion of special rate account. All this could come through thanks to saving account growth at 7.4% year-on-year, a growth rate we rarely seen in BNI in the past few years. Except for the pandemic 2020, funding growth in BNI in the past 3 years has been driven mainly by time deposit or special current account. Pricing on rate-sensitive funding also came down. Time deposit costs declined by 32 basis points Q-on-Q, bringing overall cost of third-party fund to improve by 12 basis points Q-on-Q, now stand at 2.6%. Ba David, Risk Management Director, will proceed with our ESG and asset quality update. Please, Ba David.

Thank you, Ibu Novita. Ladies and gentlemen, beyond financials, we want to highlight our commitment to push ourselves in the transition towards sustainability, where our dedication to green financing continues to show remarkable results. As of September 2024, we have extended IDR 71 trillion green loans, which is approximately USD 4.6 billion, to our debtors in green sectors such as renewable energy, green building and pollution prevention. This milestone represents 26% CAGR since 2020, underscoring our leadership in sustainable investment. We also encourage our borrowers to use sustainability-linked loan at our SLL program. We give pricing sweetener as an incentive for the borrowers to improve their ESG metric in a pre-agreed time frame. As of September, we disbursed USD 363 million of sustainability-linked loans towards top-tier players in different industry. Additionally, we initiated the first IDR green bond issuance in 2022, amounted to IDR 5 trillion, which has been distributed almost 90% of proceeds towards eligible green projects. In the longer term, we want to scale up those initiatives in order to be the bank with the best ESG practice in the country. Leading the way to the transition, we also actively hold socialization of transition towards our clients. Recently, BNI hosted an ESG event focusing on energy sector's foresight to encounter Indonesian Sustainable Finance Taxonomy. The event brought together key stakeholders, including regulators, environment and energy-related ministries, as well as BNI clients in energy sector, discussing on the evolving sustainable finance taxonomy, the importance of taxonomy and its role in guiding business practices towards sustainability. Not only actively supporting business to adopt sustainable practice, we are also driving the transition by focusing on risk assessment, one of which is related to cybersecurity that becomes a crucial factor nowadays. We put our concern on the increasingly cybersecurity threats within the past few years, and we have been initiating cybersecurity best practices in BNI, in line with our shareholders' focus on encouraging business and management practices that support sustainable practices. We are also strengthening our cybersecurity aligned with global standard practices, and have established a dedicated team for data privacy and cybersecurity in BNI. We also have been regularly evaluated by The National Cyber and Crypto Agency. Our maturity level of several security is at 4.81 out of 5 in 2024, which is reflecting our system readiness and resilience to counter evolving cyber threats. On general, our asset quality trend continued to improve in BNI. Loan net risk ratio was 11.8% and which is a decline by 110 bps year-to-date. The improvement mainly came from a reduction in current restructured loan by 90 bps year-to-date, while the SML and NPL decreased by 10 bps each on year-to-date basis. We are proactively reviewing our restructured loan debtors. And if we find out the debtor situation is not improving, we will not delay the cleanup process. So as a result of this comprehensive review, total write-off also increased. During 9 months of this year, we wrote off IDR 14.2 trillion, which is equal to 41% year-on-year increase. And also, you may remember that this chart that we shared in previous earnings call, now with the updated figures, around 70% to 80% of NPL formation and write-off are coming from loans origination before 2021. Since then, we really see a downgrade of new loan disbursement. And if that happens, usually, it is because of external factors. Aligned with consistent improvement in asset quality and disciplined underwriting on new loan portfolio, we gradually lower our coverage ratio, but still keeping it at a very healthy level. LaR coverage now is at 47% versus pre-pandemic 3-year average of 34%. Similarly, NPL coverage at 28% and versus pre-pandemic 3-year average of 145%. I will stop here and give it back to the moderator for a Q&A session. Thank you.

Thank you, Baba.