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

Good morning, everyone, and welcome to BNI's First Half of 2026 Earnings Call. My name is Sigit, and I'm proud to be your host today. Thank you for your continued interest and support for us, BNI. And today, we will discuss our financial performance in the first half of 2026, how we navigated the evolving macroeconomic environment and the progress we have made in strengthening our core business fundamentals. We are pleased to be joined today by our members of BNI's Board of Directors. First, we have Bapak Putrama Wahju Setyawan, President Director; Ibu Alexandra Askandar, Deputy President Director; Bapak Hussein Paolo Kartadjoemena, Finance and Strategy Director; Bapak David Pirzada, Risk Management Director; and the other members of BNI's management team also here, thank you so much. And today's presentation will cover on BNI's financial performance in the first half of 2026, our view on the liquidity environment, progress in our branch transformation and digital engagement initiatives and our performance against the full year 2026 guidance and key strategic commitments. To begin today's presentation, it's my pleasure to invite Bapak Putrama, President Director of BNI, to deliver his takes on the main highlights of our results. Bapak Putrama, the floor is yours.

Thank you, Pak Sigit. Good morning, everyone. Thank you for joining us today. Let me start with our first half results. Then I'll share how we see the rest of the year. In the first half of 2026, our core profit, we call it PPOP, reached IDR 18.5 trillion. That is our highest level in the past 5 years. And what makes me even happier is the trend behind it. For 4 years, our PPOP did not grow much. Now we are finally seeing strong growth again, up 14.5% from last year. This growth is real. It comes from our core business, not from cutting costs. Our net interest income grew 14.2%. Our fee income grew 14.2% to reach record levels. Now let me talk about where this growth came from. Our loan book grew by IDR 190 trillion this year. That is 24% year-on-year growth. Most of it, about 85% came from our core segment, large corporate, enterprise and government-linked programs. Within this, our private sector loans, enterprise and large corporate together grew by about IDR 86 trillion. That's actually bigger than our growth to related parties like SOEs and government programs, which was around IDR 76 trillion. For retail banking, we choose to be more selective, so the growth rate is lower. Now wholesale loans usually come at lower pricing, but I want to show you something important. BNI is not just lending money here, we are capturing the full relationship with our wholesale clients. Third-party funds from this segment grew 39% year-on-year. Fee income grew 24% and profit before tax grew 23%. We see an even stronger story in our newest growth engine, the enterprise segment. Here, CASA, our low-cost funding, grew 172%. Fee income tripled and profit before tax grew 92%. Now when we talk about growth, we also need to talk about the other side, asset quality. I'm happy to say our asset quality is stable and even improving. Our loan at risk ratio improved from 11% to 8.1%. Our NPL ratio stayed steady at 1.9%. And it is not just the ratio that looks healthy. We also keep a strong buffer. Our loan loss reserve is at 3.8%, which is 20 basis points higher than our peers. To keep this buffer strong, we made a choice. We choose to raise our provisioning even though it means slower profit growth in the short term. Our credit cost is now 1.1% that is higher than last year, but still within our full year guidance. Because of this choice, our net profit grew 6.6%, much lower than our PPOP growth. This might look strange at first, but we believe this is the right way to grow, one that lasts over the long run. Now I would like to update on something we are proud of, our transformation. In our last earnings calls, we talk about BRAVE that stands for Branch, Region, Area, Value, Empowerment. Through BRAVE, we want each branch to run more like its own small business. Each branch now has its own profit and loss, so they can take more ownership. This year, we asked our branches to focus on one thing, growing CASA, our low-cost funds. I'm happy to share that BRAVE is now running nationwide. Next, let me give you some updates on our digital ecosystem. wondr, our mobile apps, grew 76% users in this year. More than half of these new users are new to BNI. Another good sign, BNIdirect, our platform for business clients, grew 21% in users. This led to 50% growth in average balance for current accounts from BNIDirect users. Now later in this presentation, you will see our overall current account growth is only around 12% where the gap between 50% and 12%, is simple. We are letting go of some non-transactional current accounts, the ones that usually cost us more. Over time, we want to build stronger transactional current accounts and slowly replace the more expensive ones. So far, I have shared mostly good news. We had a strong first half, our best PPOP in years that give us room to also do something early like raising our provisioning to make our asset quality even stronger going forward. But I want to be honest with you, the second half of this year will be more challenging, especially in managing our cost of funds. A few things are driving this. In the U.S., rates are expected to stay higher for longer. Our Central Bank has also been focused on keeping the exchange rate stable, so SRBI yield and volume have been going up. At the same time, loan-to-deposit ratio across the industry has been creeping up. All of this is pushing cost of funds higher for the whole industry, not just us. We expect this to continue through the second half year. So what are we doing about it? Two things. First, we are being more selective and repricing some loans. Second, we are slowing the pace of loan growth, so it stay in line with how fast our third-party funds are growing. I will let our CFO, Paolo, walk you through the numbers in more detail. Thank you.

Thank you, Pak Putrama. Good morning, everyone. Let me walk you through the numbers in more detail behind what our CEO just shared. Our loan portfolio grew by 24.4% year-on-year, broadly in line with third-party funds that grew by 22.3%. One number I would like to explain, so it's not misread, our time deposits grew by 50.7% year-on-year. A large part of this, about IDR 76 trillion came from the SAL or Ministry of Finance Fund placement. If we set this amount aside, our adjusted time deposit growth is closer to 20% year-on-year, which is still healthy, but I want you to have the adjusted number. On profitability, net interest income grew by 14.2% and fee income grew by 14.2% year-on-year as well. Together, our operating income grew by 13.6% year-on-year. After OpEx and provisioning, net profit reached IDR 10.8 trillion, up 6.6% from last year. These are numbers we are pleased with, but let me take a few minutes to walk through what sits behind them, so you have the full picture, not just the headline. Let me first start with liquidity since this is a theme on everyone's mind across the industry at the moment. Industry loan-to-deposit ratio has moved above 90% and cost of funds has been rising for most banks as competition for deposits intensifies. Against that backdrop, our liquidity position remains solid. Our loan-to-deposit ratio is 87.7%, still below the industry average of 91.7%. Our LCR is at 129.8% and our NSFR at 132.3%, both comfortably above the regulatory minimum. This gives us reasonable room to manage our funding even as conditions become more competitive. Let me also touch on net interest margin since I know this is also top of mind for many of you. Year-on-year, our net interest margin came down from 3.8% to 3.6%. This is a trend we are seeing across the industry this year, driven mainly by rising cost of funds and to some extent, loan yield pressure as well. But if you look at quarter-on-quarter, the picture is a bit more encouraging. Our NIM was 3.6% in the first quarter and held at 3.6% also in the second quarter. Our loan yield has also stayed steady at 6.9% in both quarters. So even with funding cost pressure building across the industry, we have been able to hold our pricing discipline on the lending side. We view this as a modest cushion should cost of fund pressure become more pronounced in the second half. This is also part of why later in this call, you'll hear we have revised our full year NIM aspiration from 3.5% to 3.8%, down to 3.3% to 3.5%. We would rather share this with you now with the reasoning behind it than have it come as a surprise later in the year. Net interest income grew 14.2% to IDR 22.3 trillion. Noninterest income grew 12.5%, mainly on fee-based income, which grew 14.2%. Together, operating income grew by 13.6% to IDR 34 trillion. Our OpEx grew by 12.6%. I will be candid with you, we have made a deliberate choice to front-load some of our OpEx in the first half, while our revenue momentum was strong. You'll see this reflected mainly in other allowance within the personnel expense item. Even with this front loading, our OpEx growth still came a bit lower than income growth. So PPOP grew by 14.5% to IDR 18.5 trillion, the number our CEO already highlighted. It tells us our core business is healthy and growing. Below that line, provisioning charges grew by 42.1%. As Pak Putrama mentioned, this too is a choice that we have made. Rather -- we would rather build a stronger buffer now while our core profit gives us the room to do so than defer this decision to later. Because of this, our net income growth came in at 6.6%, lower than our PPOP growth. We see this as a trade-off worth making. It protects us and keeps our growth on a more sustainable footing. Let me give you a bit more color on where our loan growth came from and revisit loan pricing from a slightly different perspective. On loan yield, quarter-on-quarter, our blended yield has held steady at 6.9% in both the first and second quarter. This supports what I mentioned earlier, our loan yield is stabilizing even as our loan mix continues to shift toward wholesale segments. On the loan growth itself, out of our IDR 190 trillion in net expansion this year, a meaningful part came from SOE-related corporate loans, including financing to Agrinas. If we set aside the Agrinas portion and look only at our core SOE book, the adjusted growth is around 17%, coming mainly from our top-tier SOE clients, names we have had long established relationships with. I do want to be transparent about one thing. Our total loan growth at 24.4% year-on-year is well above our full year guidance of 8% to 10%. This is by design. In the second half, you will see us moderate the pace, being more selective and aligning our loan growth more closely with how fast our third-party funds are growing. Our CASA grew by 11.2% year-on-year, which we believe compares favorably to what most of our peers are seeing in this environment. What I find particularly encouraging is our savings account growth at 9.6% year-on-year. It tells us that our retail funding franchise continues to hold up even as deposit competition across the industry gets tougher. On current accounts, you will notice a 4.1% decline quarter-on-quarter. Let me explain this, so it is not misread. This quarter, we saw a meaningful price competition for current account deposits. Some of this balance is what we would describe as non-transactional, funds that sit with us mainly for yield and move easily to whoever offers the higher rate. We made a deliberate choice here. Rather than compete aggressively on price to retain the more expensive non-transactional funds, we chose to let some of it go to other banks. What matters more to us is our transactional current account, the balances tied to real business activity, payroll and cash management. And here, the picture remains very encouraging. Through BNIDirect, our transactional current account balance grew 50% year-on-year. So while the headline current account number looks softer this quarter, the underlying quality and the transactional core of our current account franchise is getting stronger. Lastly, I want to be upfront that cost of third-party funds did pick up in the second quarter to 2.63% from 2.49% in the first quarter. This is consistent with what was mentioned earlier, funding competition is intensifying industry-wide. We are watching this closely and managing it as best as we can, mainly by directing our growth towards stickier transactional deposits like the ones I described as well as moderation in loan expansion amount. With that, I will hand over to our Chief Risk Officer, Pak David, who will walk you through our asset quality in more detail.

Thank you, Pak Paolo. BNI's asset quality remains resilient. Our loan at risk ratio improved to 8.1% as of June 2026 from 11% a year ago. This is driven mainly by a reduction in restructured loans and special mention balance. Our NPL ratio has held stable at 1.9%, a level that we view as an appropriate balance between risk discipline and growth. We still have work to do in the consumer segment, where NPL, special mention loan and also LAR ratio continue to trend upward. We are also taking a more cautious stance in small segment. Its asset quality metrics are not as weak as consumer, but they are not yet strong enough to justify accelerating growth there. That is reflected in small segment loan growth of just 4.9% year-on-year. On this slide, these highlights are showing our consistent progress in lowering new NPL formation over the past 2 years. In the first half of this year, new NPL formation was IDR 5.8 trillion. This is down 26% year-on-year. On an annualized basis, that is 1.3% of our loan book versus 2.1% a year ago, which is why we view our credit cost of 1.1% as already conservative. The write-off trend also tells us the same story, IDR 4.5 trillion in the first half, which is down 44% year-on-year. With loan at risk and NPL ratio continued to improve, we've been gradually recalibrating our coverage levels accordingly. LAR coverage stood at 47% and NPL coverage at 198%. Both levels we consider sufficient, particularly when benchmarked against our pre-pandemic coverage ratio. I will now hand over again to our CFO to continue. Thank you.

Thank you, Pak David. Our CEO has already shared his view on the banking industry and how we are navigating the current situation. We delivered robust profitability in the first half of the year, supported by volume growth and resilient asset quality. That said, having observed an intensifying deposit competition since June, we have decided to recalibrate our guidance. We are revising our NIM guidance down to 3.3% to 3.5% from a first half realization of 3.6%. This revision assumes a full withdrawal of the Ministry of Finance's SAL placements this year in line with their scheduled maturity, which will raise our cost of funds in the second half. The upside is that this is a known one-off adjustment. Once it plays out, we begin next year with a more diversified deposit base and a less volatile funding cost trajectory. Loan growth was strong at 7.7% year-to-date. We are maintaining our full year guidance range of 8% to 10%, reflecting a more measured pace of net loan expansion in the second half. Credit cost guidance remains unchanged at 1% to 1.2%. This brings us to the end of our presentation. I will now return the floor to the moderator for Q&A. Thank you.