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 or BNI, 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 here with us in our headquarter on BNI earnings call for the full year of 2024. It's been a while since we're together. It's nice to see you all. We hope that you are as excited as we are for what promises to be an insightful and productive gathering. Please give a round of applause for all of us. It's a real pleasure to have analysts and shareholders here as we gather to reflect on BNI's progress, share some exciting and wonderful updates and discuss the outlook together, whether you traveled a long distance, especially to those who came all the way from Singapore, thank you so much. We deeply appreciate the time and effort that you have invested in being here. And for audience on Zoom, welcome, and thank you for making the time for BNI. We've 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. I would like to remind you that this is more than just a gathering. It's also a platform to exchange ideas. So I encourage you to ask questions, share your insights after the presentation. And for Zoom audience, just simply type your questions into the Q&A box on your Zoom apps. We have an exciting lineup of speakers and presentations tailored to provide followable perspectives. And of course, there will be plenty of time to network and engage with one another during the break. But before that, I'd like to introduce our Board of Directors who are here with us. First, our President Director, Baba Royke; Deputy President Director, Baa Putrama; Digital and Integrated Transaction Banking Director, Baba Paolo; Finance Director, Ibu Novita; Risk Management Director, Baba David; and the rest of our BOD and senior executives are here as well with us. For our Zoom audience, we have uploaded our latest corporate presentations in the chat room, also on our website, www.bni.co.id and then choose our Investor Relations menu. If you have any technical issues, please reach out to our team on our e-mail address, [email protected] or into the Q&A box. As usual, Ba Royke, our CEO, will begin the sharing session with our management highlights, which one of them will convey on the results of BNI corporate transformation in the last 4 years. And then Paolo will continue with some updates on wonder by BNI and its grab -- impact towards our saving accounts. And after that, Ibu Novita will proceed with our financial performance highlights, and Ba David will conclude the presentation with our asset quality updates. And after that, we will have a Q&A session. And now without further ado, I would like to ask Ba Royke to start the session. Please, Ba Royke.

Thank you. Good afternoon, everyone. Thank you for attending BNI earnings calls today. We are glad to see there are more participants coming offline today, with some of you coming from Singapore. I will start the session by giving some brief update on our latest quarter development, where our core business remained resilient. Quarterly PPOP grew by 9% year-on-year and reaching new high level at IDR 9.5 trillion. Savings grew by 11% year-on-year, higher than industry growth at 6.6% as of November. Loan growth was also at 12%, supported by our core segment, Corporate and Consumers. If you recall, last year, we are struggling with our NIM, which fell on 4% on first semester. Entering the second semester, our NIM started to rebound with exit quarterly NIM at 4.5% and full year 2024 NIM at 4.2%. Asset quality improved further with NPL ratio just below 2%, and loan-at-risk ratio declined to 10.3%. Despite resilient asset quality, we see that it's wise to continue being prudent and conservative during current global environment. Last quarter, we got revenue windfall from core subsidy around IDR 500 billion. We choose to use this windfall to book general provisioning charge using management discretion. I want to share a flashback of our transformation journey and the new corporate direction going forward. Since 2020, we have made progresses on multiple aspects of the bank, starting from solidifying capital, where now we stand at 21% total CAR and 20% Tier 1 CAR. Asset portfolio mix has shifted towards higher risk-adjusted return segment, where Corporate and Consumers grew by 12% CAGR, while small and middle segment were flattish at new loan replaces legacy portfolio. As a result of this portfolio strategy, risk weighting for loan book improved from 82% on 2020 to 70% as last year. This translated cost of credit reduction toward this 1.1% level. On enabler side, we invested a lot in IT capability and digital offerings to our clients with the launching of wondr mobile apps last year. We, at the management team, are fully aware the culture transformation is crucial to make sure continuity of transformation spirit. We emphasize on building this culture and reward top performing employees accordingly by implementing performance-based remuneration. Number-wise, we managed to increase ROE toward 14.2% last year and double dividend payout from 25% to 50% last year. Starting on this year, we are shifting gear to funding franchise as our key focus for the next 5 years. We believe bank's profitability will be sustainable only we have a low-cost funding advantage. Everything else will follow automatically. This year, we have strategic initiative to do branch transformations. Successful branch transformation will result in retail, transactional CASA as well as more diversified asset growth, including SME and Consumer segments. As for 2025 corporate guidance, we are looking to grow our loan book by 8% to 10%, assuming third-party fund growth by -- at 10%. If the system liquidity improves, loan growth realization could be stronger given strong underlying loan demand. However, if system liquidity deteriorates, we will be focused more on NIM than loan growth. Credit cost is targeted at around 1% level as asset quality is already becoming our hygiene factor in running business. Net interest margin may range between 4% to 4.2%, similar with last year seasonality. NIM may be a bit weak in first semester before improving in second semester. The reason we set a conservative guidance on NIM because we see cost of fund remains a key challenge in this year. Exchange rate is still volatile with downward trend. This situation may result in less room for Central Bank to do monetary easing, especially with U.S. rate expectation higher for longer. Money supply growth may be challenging in the first semester due to risk crowding out effect from delayed government spending and front-loaded bond issuance. While there is a [ lag ] catalyst on cost of fund from macroeconomic standpoint, we have to have a company-specific strategy to win CASA market share and improve our funding structure. I will ask Ba Paolo, Director of Digital, to share on this. Please, Ba Paolo.

Thank you, Ba Royke. The basic principle of our strategy is to strengthen funding franchise by increasing consumer engagement to do transactions through our digital platforms. Within the Wholesale segment, the number of users for BNI Direct has reached 173,000 users or an increase of 15% year-on-year, and the number of transactions increased by 37% year-on-year. As a result, the average balance of our current accounts rose 6% year-on-year during 2024. Aligned with our goal to boost transactional accounts and reduce our dependency on special rate current accounts, at the end of 2024, transactional current accounts represented about 72% of our total current accounts versus 66% the year before. Within Retail Banking, the number of mobile app users has reached 23.4 million consumers or a 44% year-on-year increase. And the number of transaction has also grown at 51% year-on-year. At the end of 2024, our savings growth was 11% year-on-year, above the industry growth rate. On this occasion, I will also spend more time elaborating on the progress of our mobile app, wondr by BNI, and the recent positive trends on savings growth. Since its launching in July of last year, wondr has been gaining momentum with 5.3 million registered users as of December 2024. We added almost 1 million users on a monthly basis. What's interesting is the active user rate in wondr is 65% versus our previous mobile banking app, which is around 30% active user rate. This indicates that more consumers are pleased with the new application and also shown by the increase in the number of transaction frequency, where last quarter, on average, wondr users did 35 transactions per quarter versus 19 transactions in the previous app. Note that both the previous mobile banking app and wondr is still coexisting while we phase out the previous app. We are going to increase consumer engagement in wondr by doing a series of promotions as well as improving the features of the application. One of the new features will make wondr have a more global payment capability through multicurrency account, cross-border QR payments as well as tap-to-pay NFC. Other aspects of feature updates will include improved wealth management function with multiple investment product options as well as personalized product management. The management team of BNI has started to shift priority to focus on low-cost funding, and loan growth will follow. I want to highlight recent positive development where our savings growth was growing at 11% year-on-year last year. And most of the savings growth actually came in the second semester, coincidentally after we launched wondr by BNI. While there must be multiple factors contributing to this positive trend in savings, we cannot downplay wondr's impact on this. In terms of new-to-bank customer acquisition, we also saw a much stronger trend in the second semester last year with 1.6 million new customer acquisition versus 1.2 million in the first semester. We believe the key to build a stronger CASA franchise is by increasing customer engagement. In the previous slide, we showed data where wondr consumers transacted almost twice as frequent as non-wondr customers. This higher customer engagement rate translates to higher savings balance, where the average wallet size among wondr users is around IDR 17 million or significantly higher than non-wondr users. We also pay attention on the importance of having a very well-diversified funding base. Last year, we made remarkable progress where within savings accounts, the majority of the growth came from retail customers, growing at 17% year-on-year. Wealth management client savings was flat as they are more focused on investment products. Next, Ibu Novita will continue the presentation with our financial performance. Please, Ibu Novita. Thank you.

Thank you, Paolo. Now we will discuss more details on our financial results of 2024. our balance sheet management strategy last year was focusing on efficiency in terms of funding and lending. As we received RRR incentive from Central Bank of around 3 percentage points, we can reduce current account and placement in Central Bank and then use proceeds to fund our loan growth at 11.6% year-on-year. And taking advantage on RRR incentive, we could increase our LDR towards 96%. We deliberately managed our special rate, current accounts. So the total current account special rate declined by 11.5% year-on-year. The contraction in current account happened at the same time, our saving growth was quite strong at 11% year-on-year. So net-net, overall third-party fund flat year-on-year. The quarterly trends seem encouraging, with both net interest income and PPOP showed consistent improvement every quarter. Our exit quarterly NEE and PPOP on quarter 4 loan grew by 9% as compared to fourth quarter 2023. This comes after series of loan repricing as well as disciplined funding mix shift toward low-cost deposit. Our fee income grew by 10.2% year-on-year, driven by marketable securities, foreign currency business and bill payment transaction via wondr apps. Recovery income increased by almost 20% year-on-year as we speed up legacy portfolio cleanup by doing aggressive write-off last year. Operating expense grew by 6.9% higher than revenue growth as we are still investing a lot on digitalization with the launching of wondr apps and BNI Direct last year. Anomaly in our fourth quarter provision charges, which was around IDR 1 trillion higher than previous quarter, there are two reasons behind this. First, we use revenue windfall from KUR subsidy payment around IDR 500 billion as management discretion provisioning. So this is purely for conservatism purpose. And then second, we did write-off for Sritex Group exposure that [ Royke ] required us to increase provision level beforehand. Net income increased by 2.7% year-on-year. BNI loan growth last year was 11.6% year-on-year, driven by Corporate segment with 17.6% growth, followed by Consumer loan at 14.5% growth rate. Medium segment still contracted by 2%. SME segment declined by 10.8%, driven by sharp reduction in KUR portfolio, minus 24.8% year-on-year. Our subsidiaries continue to contribute more to group level Hibank grew by 76% year-on-year. BNI Finance growth was 88% year-on-year. Even though the subsidiaries are still new, they are already profitable. Loan yield trend was generally stable compared with our last quarter last year. Some pressure on foreign exchange loan yield was due to SOFR rate reduction last quarter. On a full-year basis, our loan yield was also stable despite concern on aggressive competition in Corporate segment. Our exit quarterly cost of fund last year was 2.65%, slightly higher than third quarter cost of fund, but still lower as we compare to first semester. The small increase in cost of fund because of competition for funding as well as higher SRBI yield, which increased by 32 basis points during last quarter towards [ 7.25% ] by end of December last year. Saving growth, 11% year-on-year. So thanks to this growth, we had some room to manage out [ special ] current account as well as less dependent on term deposit. Next, Ba David will proceed with our asset quality update. Please, Ba David.

Thank you, Ibu Novita. During 2024, our asset quality was generally trending better. Loan-at-risk ratio declined from 12.9% to 10.3% from across all segments. NPL ratio was slightly improved from 2.1% with notable improvement in Corporate segment, while we still need to do more homework in medium and small segments. Write-off last year was IDR 18.7 trillion, equivalent to 2.5% of loan book, but we believe that this was already at its peak and will come off this year. As part of our effort to clean up our balance sheet faster, we downgraded and wrote off around 2.5% loan book during 2024. While this seems high, we want to reassure that around 75% of the NPL and formation write-off were coming from legacy portfolio. In other words, the NPL formation and write-off from new portfolio was only around 0.6% of the loan book. Hence, we could reiterate that our steady-state credit cost in the long run will remain low at 1% only. At the end of last year, our NPL coverage was 256% and LAR coverage was 49%. These ratios will gradually decline along with lower NPL and also a reduction in LAR ratio, but we are going to maintain it at a healthy level above pre-pandemic. NPL coverage ratio will be maintained above 200%. And also, LAR coverage ratio will be maintained above 40% level. Overall loan loss reserve to total loan now stands at 5%, which we believe is more than sufficient given our conservative loan underwriting policy.