PT Bank Rakyat Indonesia (Persero) Tbk (BBRI) Earnings Call Transcript & Summary

Good morning. We would like to thank you for joining us for Bank Rakyat Indonesia's First Half 2024 Earnings Call. We would like to begin the meeting now. First, I would like to introduce the members of our Board of Directors who are joining us today: our CEO, Pak Sunarso; our Vice CEO, Pak Catur; our CFO, Ibu Vivi; our Director of Risk, Pak Agus Sudiarto; our Director of Micro, Pak Supari; our Director of Networks, Pak Adrijanto; our Director of Consumer, Ibu Handayani; Director of SME, Pak Amam Sukriyanto; Director of Corporate, Pak Agus Noorsanto; our Director of IT and Digital Banking, Pak Arga; and our Director of Human Capital, Pak Agus Winardono. I would like to mention a few points before we get started. First, for everyone joining us on the Zoom call, I would strongly recommend that you download a copy of our presentation materials currently available either from the Investor Relations homepage of Bank Rakyat or from the link we sent to you this morning. Second, as this is a webinar format, for questions and answers, we will invite you as a speaker to the panel. [Operator Instructions] I would now like to introduce Pak Sunarso, our President Director, to begin the meeting.

Okay. Thank you, Bret. Good morning, everyone. First of all, I would say thank you for joining this session. Firstly, I would explain the macro situation in Indonesia. Indonesia macro situation remains stable and the outlook is attractive with our projection of 2024 GDP growth of 4.77% to 5.03%, representing a modest decline from reported Q1 '24 GDP growth of 5.11%. Some near-term factors that could impact our performance. First, the government is projecting a larger fiscal deficit at 2.7% of GDP in 2024, up from 1.65% in 2023. This would provide a buffer for economic growth in second half '24. Second, inflation in June 2024 decline in volatile item, including food prices fell to 5.96% year-on-year growth from 10.33% in March 2024. From a historical perspective, falling food prices should have supported our micro customers. Third, domestic consumption continued to weaken, reflected in lower car and motorcycle sales, among other key metrics. Additionally, the income gap between lower and middle class and upper class has been widening post-pandemic as signified by the Gini ratio increased from 0.376% in 2020 to 0.388% in December 2023. Fourth, the currency has been under pressure in Q2 and decreased by 3.2% to IDR 16,174 per U.S. dollar. Rupiah depreciation could lead to Bank Indonesia maintaining tight monetary policy. Bank Indonesia's policy is likely to keep funding costs high. We continue to monitor global interest rate trend driven by the tight monetary policy, an obstacle for China to boost its economy despite its fiscal stimulus effort. On the domestic front, we are observing government policies that may spark a recovery in consumer purchasing power. Our first half '24 consolidated results were impacted from the macroeconomic items mentioned and continue to feel pressure from our micro asset quality. We booked in line year-on-year loan growth of 11.2%, with our consolidated loan reaching IDR 1,336.8 billion. Our corporate portfolio grew by 29.2% year-on-year. There are a few reasons for this elevated growth. First, overall, we are seeing more opportunities in corporate lending. And specifically to that, in the first half of 2024, the largest [ crowd ] on loan came from BULOG, the State Logistics Agency, increasing by IDR 11.3 trillion year-on-year; and fast-moving consumer good borrower increasing by IDR 8 trillion; and top-tier client in agribusiness sector increasing by IDR 11.1 trillion. Our micro loan decreased to 46.6% of total loans, down by nearly 150 basis points year-on-year as we are focusing on collection and tightening risk criteria. In the current high interest rate environment, our net interest margins stand at 7.64%, which is in line with our guidance for 2024, while onetime modification losses could impact second half of 2024. We are seeing continuous improvement in our earning asset mix, and our CASA ratio increased by 151 basis points quarter-on-quarter to 63.17%, while total deposit increased by 11.6% year-on-year. Our cost-to-income ratio increased quarter-on-quarter as we anticipated it would increase but remain lower year-on-year, now at 41% from 41.8% in the year-ago period. Our cost of credit was 3.48% in first half '24 and decreased to 3.13% in Q2 '24. Net cost of credit in first half '24 was 1.93% and gross NPL ratio was 3.05%, all improvement from Q1 '24. Our profitability metrics were in line as our return on assets stood at 3.02% (sic) [ 3.01% ], and our return on equity was 19.2%. Leverage employed increased to 6.3x from 6.0x in the year-ago period. Finally, our net profit in first half '24 increased by 1.1% to IDR 29.89 billion. The key strengths we note in the first half were slower micro loan growth as a result of our asset quality focus, strong year-on-year PPOP growth and strong capital level. Bank only micro loan growth slowed to 5.7% year-on-year compared to 10.4% in June '23 as management is focusing on asset quality and recoveries, with net NPL downgrade improving Q-to-Q to IDR 9.9 trillion from IDR 12.4 trillion led by the micro segment. Additionally, we saw a sizable increase in recoveries in the quarter, this to support strong PPOP growth of 11.7% year-on-year. Additionally, we believe our elevated capital position can support higher dividend payout if approved. Primary approval, we have to get approval from FSA. Some challenges we faced were the high cost of credit and higher cost of funds. Gross cost of credit at first half '24 was 3.48% supported by a decline to 3.13% in Q2 '24. This figure remains above our full year '24 guidance as we front-loaded provision for the micro and small business portfolios to curb the impact of potential deterioration. Furthermore, net cost of credit in Q2 '24 decreased to 1.42%. Rakyat still maintains ample NPL coverage at 211.6%, and our loan loss reserve is 6.5%, well above the pre-COVID level of below 4.5%. Our bank only cost of fund increased by 10 basis points to 3.53% in Q2 '24. But the outlook for [ recap ] and the decrease in weekly SRBI auction are signs that could a little bit alleviate some of this pressure. Turning to our guidance for the remainder of 2024. We are not making any changes in this time. We are seeing the portfolio move in line with our adjustment from Q1 '24, and we anticipate that our guidance will be met. For our loan growth, we are seeing micro slowdown in line with our target. And in second half '24, we would note, too, there is a best effort on our corporate loan book, which should lower this segment growth from current level. As we have mentioned in meeting and on call with many of you over the last quarter, we could see loan growth at the low end of our guidance in 2024. On our net interest margin, we anticipated some support to our lending yield in second half '24 because of a few cash basis borrowers that will pay in Q3 '24. We continue to monitor funding costs, which we believe can stabilize in second half '24 but are unlikely to decrease from current level. We have seen some success in lowering our cost of time deposit by shifting to retail from institutional. We would note that there could be an impact to reported net interest margin by modification losses that could impact second half of '24. Our cost of credit improved in Q2 '24, but we are still cautious on our guidance for full year '24. This could be higher than 3% if we do not meet loan growth target. Restructuring target in Q4 '23 vintage deteriorated faster than historical projection. Our cost-to-income ratio should be maintained at 41% to 42% for 2024, in line with our guidance. So now I would like to turn the call over to Bu Vivi and other Board members. Bu Vivi will discuss our financials in more detail. But before that, I think I'll apologize because I cannot join the session fully because I have to join a high-level meeting with the Minister. Thank you very much.

Thank you, Pak Sunarso. Good morning, everyone. Thank you for joining the call. So we would like to start with our balance sheet. So year-on-year, our total asset growth was 9.5%, of course, supported by the loan growth of 11.2%. And if we saw here the loans to earning assets, actually, it's increasing to 73% from 72% in the year-ago period. Moreover, we continue to make our balance sheet more efficient as earning assets increased to around 92.5% of total assets from 91.7% in a year-ago period. At the consolidated level, the contribution from PNM and Pegadaian are still around 9.4% of our total loans and helped to drive loan growth at the micro level. As you may also be aware, the bank only micro is only growing at around 5%. But in a consolidated level, together with Pegadaian and PNM, the micro segment can grow to around 7%. And we also note that one of our subsidiaries in micro, or Ultra Micro in this case, is PNM. The PNM loan grew, as of June, 8% and it is significantly lower than our expectations when we acquired PNM. And if we break it down, I think the women group lending business still continues to grow close to 12%, but the ULaMM, the individual lending, declined by 26% year-on-year. I would also want to convey a message that the macro or the external factors that currently cause out the deterioration in BRI asset quality was also impacting PNM, might also be impacting PNM. Deposit growth remained strong year-on-year, rising 11.6%, and CASA increased 7.7%, leading to a strategic increase in our loan-to-deposit ratio to 86.6% from first quarter 2024. We still see room to increase the LDR further in third quarter 2024. And hopefully, it will help our net interest margin. If we deep dive into our loan book, in the second quarter, it was in line with our guidance, growing 11.2% year-on-year. Our consumer portfolio increased 11.5% year-on-year. And like you can see here, the small segment increased by 2%, medium increased by 31.6% and corporate portfolio growth rate in the first half was roughly around 29.2%. And most of the corporate disbursement coming from agri-related sectors were BULOG and also a big retailer, I think, contributed roughly around 35% of the corporate disbursement year-on-year. As Pak Sunarso stated earlier, we will slow our micro growth as we focus on collections and improving asset quality. We continue to expect micro loan growth will be driven by Kupedes. But in this case, probably, we will be more focused on top-up Kupedes or Kupedes that we will disburse to our healthy existing customers. Within micro, we have implemented a number of new policies to improve collections and performance that Pak Supari will discuss later in the call, and these initiatives can impact our full year micro loan growth. Even if we are seeing improvement in the net downgrade to SML or NPL, like explained by Pak Sunarso, it is still very early for us to conclude that we are able, basically, to completely resolve the problem. We maintain our intention to resolve within 2 years, so this year and next year. So in the medium term, our COC will be normalized. If we are looking at our posture of our third-party fund, our overall deposit growth was 11.6% year-on-year, and CASA decreased 2.3% year-on-year. Our CASA ratio decreased year-on-year by 230 basis points to 63.2% but still remains well above our historical level of below 60%. Our cost of CASA actually stood at 1.52% because close to 60% of our CASA is saving account with an average of interest expense of roughly around 0.28%. I think you're also aware that the increase in the cost of CASA is more driven by the increase in the composition of higher cost current account. We are still cautious with the cost of fund given that we are yet to see a rate cut. And furthermore, the recent comments on the expansionary government spending to 2.7% fiscal deficit could help, but we remain cautious at steady growth, especially if micro segment remains weak. We are working on initiatives across the business to increase CASA growth and to manage our cost of fund as a part of our aspirations to strengthen our retail banking capabilities. And if we are looking at our capital level here, the capital position remains allocated with a total CAR of 25%. And I think we anticipate that it will be increased throughout the year. We believe we could increase our dividend payout ratio in 2024 to 85% or higher. It will really depend on our consultations with the MSME as well. Over the medium term, we would like to see our total CAR decrease from the current level to close to around 20% because the appetite for us basically for Tier 1 is roughly around 19%. And we plan to do this by finding a stronger future loan growth and continuing to return cash to our shareholders. I would like now to discuss about our income statement and key items that are impacting our growth. Our net interest income increased around 7% year-on-year. We would note that the interest income is benefited coming from the elevated loan growth, but the overall margin actually has been coming down as our NIM fell 28 basis points year-on-year. We continue to see the funding cost, the cost of fund, outstripping earning asset yield as our interest income increased by 15%, while the interest expense increased by 43% year-on-year. Our noninterest income increased close to 19% year-on-year as we continue to see strong recovery income growth and expect this level of growth could be maintained for the next few years. Our costs started to normalize. Like we discussed last quarter, the first quarter cost basically is like seasonal, so now our cost started to normalize. As we guided to investors, the OpEx usually will be roughly around 6% to 8%. And if you see the cost-to-income ratio here, the cost-to-income ratio is 41%, in line with our full year target of 41% to 42%. This led PPOP increasing around 12% year-on-year. And this rise was primarily offset by the increase in the loan provisions cost around 70% year-on-year, and it brings year-on-year net profit growth to 1.1%. If we are looking at our earning asset yield and margin, our consolidated NIM stood at 7.6% in the first half 2024, while the bank only was 6.4%. The NIM from PNM and Pegadaian continue to contribute roughly around 100 to 112 basis points to our consolidated NIM, increased 9 basis points actually from the year-ago period. Our lending yield in the first half, roughly around 13.3%, represents a decrease of approximately 26 basis points quarter-on-quarter. As a liability-sensitive bank, we are able to manage the increase in the interest expense quite well, as reflected by our reported NIM. If we are looking at the other operating income, the noninterest income continued to report strong growth, while the operating expense growth was roughly well managed. The noninterest income increased close to 20% supported by strong recovery, up 50.5%, now it's around IDR 10.1 trillion, and our target for 2024 is around IDR 20 trillion to IDR 24 trillion. And I think the recoveries on written-off assets now account for roughly around 40% of noninterest income. A year ago, it's only like around 31%. On the OpEx side, the costs continue to remain reasonably well controlled with total OpEx up to 8% year-on-year close to IDR 40 trillion. There is some seasonality to our OpEx this quarter. And we do anticipate the full growth in 2024, roughly around 6% to 8% range. And we anticipate the OpEx efficiency gain will continue as we are targeting 41% to 42% consolidated cost-to-income ratio. We are seeing normalization in our OpEx, like I mentioned earlier. As we noted, our costs would pick up starting in the second quarter 2024. This led to an increase in the cost to asset of 32 basis points quarter-on-quarter to 3.21%. We guide you with OpEx to asset usually like 3% to 4%. Both consolidated and bank only are well below in terms of cost-to-income ratio compared with the year-ago period. The increase in the personnel expenses are a result of a timing issue related to bonus payment that had an impact in the second quarter numbers. And also the first half 2024 cost-to-income ratio was impacted by one-off appreciation bonus paid in February 2023 and was not recurring in 2024. I would like now to turn the presentation over to our Director of Risk, Pak Agus Sudiarto.

Thank you, Bu Vivi. I would like now to discuss on our asset quality. The nonperforming loan ratio increased by 10 basis points to 3.05% year-on-year as we continue to see accelerated downgrades of our COVID restructured loan book and are seeing NPLs from the 2023 micro disbursement. The increase in NPLs year-on-year was primarily across our micro and small segment, rising 72 basis points and 76 basis points, respectively; while in our corporate, reported NPS improving by 176 basis points. Special mention loans are improving, decreasing to 5.41% from 5.75% in the year-ago period. The decrease was primarily driven by higher restructuring of over IDR 11 trillion in loans during the first half '24, while write-off increased by 30% or IDR 4.9 trillion year-on-year to IDR 21.2 trillion. The provision for loan and financing stood at IDR 86.4 trillion, representing 6.5% of total loans. From 2015 to 2019 before the pandemic, our loan loss reserve to loans never surpass 4.4%, and we anticipate that this reserve will revert back to a level closer to our pre-pandemic ratio of loan loss reserve to loans. Our coverage ratio is starting to move closer to normalized levels as it decreased to 211.6%. And we would expect this can continue to move lower over 2024, likely to 190% or 200%, or higher as our portfolio is much less tied to corporate lending than our peers. Loan at risk decreased to 12% from 12.7% at March 2024 as the increase in special mention loans and restructured loans decreased. That said, we expect the decreasing trend in loan at risk to continue but in a slower manner over the next 18 months as we are seeing a higher rate of restructuring in the micro segment. And our cost of credit has decreased in second quarter '24 to 3.13% in the quarter and 3.47% in the first half '24, in line with our guidance of an improvement in cost of credit going into second half '24. Our net cost of credit is 1.93% year-to-date but, only in second quarter, decreased to 1.41%. We are on pace to reach our write-off target of IDR 36 trillion to IDR 40 trillion and recoveries of IDR 22 trillion to IDR 24 trillion. Also, based on our data to date, we see the asset quality make an improvement during the second quarter this year. But it is too early to claim that there is an improvement in total in our portfolio. That's why we do believe that the cost of credit will still remain elevated through the remainder of 2024, likely meeting our 3% guidance unless loan growth slows further and restructuring of approximately IDR 23 is not met. In the first semester of 2024, we wrote off IDR 21.2 trillion, which represent over 50% of our revised write-off target. We reported recoveries of IDR 10.1 trillion and, in the last 2 months, have averaged of INR 2.2 trillion per month of recoveries. At the end of the first half of 2024, the total outstanding COVID-19 restructured loans decreased to 2.67% of total loans and 1.8% of total borrowers from 4.8% and 3.2%, respectively, at December 2023. The COVID-19 restructured portfolio totaled IDR 31.8 trillion in the first half of 2024, representing a decline of 41.6% year-to-date, mostly driven by improvement in micro and small segment and write-off of INR 7.8 trillion. We anticipate that the COVID restructured loan portfolio will decrease to IDR 20 trillion or IDR 22 trillion by the end of this year. Within the COVID restructured portfolio, it is composed primarily of small and micro loans that account for 59.8% of the total. At June 2024, 40.7% were current in payment, with 24.5% in special mention and 34.8% in nonperforming loans. We feel the coverage of 33.4% is adequate to absorb any losses as 28% of the loans are corporate restructuring that we do not foresee heavy impairment issues. I would now like to turn the presentation over the Pak Supari to discuss our micro portfolio. Please, Pak Supari?

Thank you, Pak Agus. Good morning, everyone. I would like to discuss about the contribution on PNM and Pegadaian and detail micro loan portfolio. The contribution of PNM and Pegadaian to consolidated micro loan increased to 20.3%. At PNM, the group slowed to 8% as the women group lending business grew 11.9%. While ULaMM decreased by 26.1%, women group lending is currently over 9% of PNM total loan. Pegadaian grew 22.5%, with Pegadaian non-bond lending as the main contributor, rising 45%, while bond lending grew 18%. At year-end 2024, we expect non-bond lending could reach nearly 20% of Pegadaian loan. Our micro loan group in the first half of 2024 increased by only 5.7% as we have tightened lending standards and required loan officer with offer of 5% NPL ratio to focus on collection and funding. The modest growth is driven by Kupedes increasing 60.1% year-on-year as we transition back to our core commercial and more profitable micro loan. Our subsidized portfolio non-micro increased by 1.3% year-on-year. We are seeing the number of Kupedes borrowers remain flat quarter-on-quarter with a 26% graduation rate from KUR to Kupedes. We expect to meet the KUR disbursement target of IDR 150 trillion for micro and super micro KUR while continuing to see nonsubsidized micro loan increase to 65% or higher of micro loan. I would like to share granularly on our Kupedes 2023 disbursement and the breakdown of this loan across vintage and performance bucket. In 2023, we disbursed IDR 201 trillion in Kupedes loan and currently, IDR 116 trillion remain on our balance sheet at first half 2024. The disbursement was broken down by 53% from Kupedes top-up loan or refinancing, 30% from KUR graduate to Kupedes and 60% new borrower. Within this, we saw weaker asset quality than 2022 filtered across all segments. And particularly in the new borrower segment where 6.01% are in NPL. The bottom table shows the current NPL, SML, restructured and write-off of the 2023 and 2024 disbursement. We would note that data will continue to inform as the vintage age and the nearest comparable data we can provide is at 3 months on book for the entire portfolio that is provided at the bottom. Of the IDR 116 trillion remaining from 2023 disbursement, there are currently 11.3% in SML, 3.58% in NPL and 0.87% has been written off. We would note that this portfolio is not fully seasoned as we tend to see more clarity of performance and [ don't treat ] closer to 12-month post-disbursement. So we remain cautious on fourth quarter 2023 disbursement that have only been on book for 6 to 8 months. In addition, we are actively restructuring loans via tenor extension. As of first half 2024, we have restructured INR 5.8 trillion of Kupedes disbursed in 2023, and we could potentially restructure IDR 15 trillion to IDR 20 trillion by year-end. We see opportunity of restructuring [ when fitting ], and we would note a higher success in post-COVID restructuring. Internally, we believe that the restructuring is more sophisticated than those completed during the pandemic, as completed before annualized of the turnover, and expect better performance. I would now like to turn the presentation back to Pak Bret to organize the question-and-answer segment. Thank you.

Thank you, Pak Supari. [Operator Instructions] We will aggregate the questions. We do have a few questions from Zoom that we will address first. I think the first question we have here is from Gaurav at JPMorgan. The first question is on Slide 29, on details around Kupedes' disbursements. Why is downgrade to SML 3 months on book higher at 1.5% for 4Q '23? Do you expect NPL, SML to increase eventually for the second and third quarter vintages? And there's a second question from Gaurav as well. Is the decline in quarter-over-quarter NIM due to higher corporate loan growth? Or are there other drivers as well for the decline? Bu Vivi, do you want to take the first question?

Okay. Gaurav, thank you for the questions. For Slide 29, if we are talking about the disbursement for every fourth quarter, every year, at least since 2021, where basically this is the first time we try to monitor our vintage, the vintage for the loan disbursed in the fourth quarter usually is the worst every year. So this is like a trend basically every year, the fourth quarter disbursement. Usually, the asset quality is the lowest among the quarters within a year. And I think the fourth quarter 2023 also was facing similar experience. However, if we want to deep dive on this number, if we see the fourth quarter 2023, actually, it had a better vintage compared to fourth quarter 2021 disbursement at 1.78%. However, I mean, the fourth quarter 2021 is still the best vintage so far. So the fourth quarter 2023 actually is better than the fourth quarter 2022, but not as good as fourth quarter 2021. And for your next question is the decline in net interest margin Q-on-Q. First, the main reason, of course, is about the increase in the cost of fund because our cost of fund is managing at least now around 3.6% for bank only. And please note that in the first quarter 2024, we have one-off [ EPAM ] is coming from the corporate client that impact our interest income as well. And I think the other reasons for this one, actually, for micro, for example, the micro yield itself actually is increasing. So this is mainly because of the cost of fund and the second one is the one-off in the first quarter coming from our corporate client.

Thank you, Bu Vivi. Now we will move to the next question. We'll take one from the attendees who have raised their hands. The first person from Ferry Wong. Ferry, could you unmute your microphone?

Can you hear me?

Yes, we can hear you clearly.

Yes. I have three questions. The first one, could you please explain the non-loan provision expense in the second quarter of 2024? And the second one with regards to the KUR, yes, for example, if the government actually will allocate more KUR going into 2025, are you going to accelerate your KUR growth going into 2025? And the third one, any guidance on the credit cost in 2025 because Pak Sunarso mentioned that there could be a possibility that the credit cost could exceed the 3% level in 2024, if loan's growth is not being achieved, so what about 2025 outlook for credit costs? Well, basically, I think I wanted to see whether you wanted to increase your credit cost, i.e., to 3.5% in 2024, then you start clean in 2025. That's all.

Thank you, Ferry. Bu Vivi, do you want to take the first part and then go from there?

Okay. So thank you, Ferry. So I will answer your first two questions. And I think the last question, Pak Agus Sudiarto will help me. For the non-loan provision expense, basically, we have reversal. It is coming from our corporate clients. The reversal is around IDR 2.6 trillion. And usually, this is the provisions that we provide for noncash loan like guaranteed bank and refinance. I think this first half, we reversed the non-loan provisions, for example, the WIKA. The WIKA loan, basically, sit most of their loan in Rakyat, sit in noncash. So when the scheme change into the cash loan, so WIKA loan then change it into a cash loan. We reversed the provision in noncash loan and add it back to the cash loan provisions. For KUR 2025, I think at the current moment, for us, it is still very early to discuss the 2025 budget plan. And I think we're still on the process of negotiations with the KUR committee, including with the transition government. And this process usually will be finalized in fourth quarter 2024. But so far, in a very high-level discussion, actually, we do not have any intentions to increase the absorption of KUR. But that will really depend on the discussion later on in 2024. Agus?

Thank you, Bu Vivi. Thank you, Ferry, for your question for number three. The guidance of the cost of credit, as mentioned by Pak Sunarso earlier, I think we are still confident on keeping cost of credit on the guidance, 3%. But we still see there is a possibility to be higher than our guidance because there are some conditions. First is the loan growth target. As you understand, initially, we have a target 10% to 12% in the loan growth. But this has not met the target. So the denominator impact will impact also in our cost of credit. Secondly, of course, in our activities in restructuring, starting the 1st May, we implemented our team task force to aggressively restructure our loans, especially in the performing and special mention loan, to help them and to see the opportunity, to help the debtor to fulfill the obligation. So if the two main reasons, loan growth and, secondly, the restructuring activities are met, we are still believe that the guidance for the cost will be achieved. But if not, so maybe there is a higher cost of credit during this year.

The next question will be from Jayden.

Okay. A couple of more questions on Slide 29, obviously, quite topical. Just want to clarify, which of the buckets is the most concerning? Is it the KUR graduates? Or is it the new borrowers? What proportion of them are you sort of watchful on? Because you mentioned that it's the July, August period that we should be seeing some of the seasoning come through. My second question is just on the broader restructuring target for micro. Can I confirm if the IDR 15 trillion to IDR 20 trillion for this year is actually higher than what we were saying earlier? And then following on from that, we never used to restructure micro customers. We'll always just downgrade and write them off, apart from the pandemic in 2015, if I recall correctly. Has something changed? Is this going to be a permanent thing? Or is this sort of a one-off adjustment as well? Those are my questions.

Thank you, Jayden. Maybe I can start with some of it, and then Vivi and Agus Sudiarto can add to that. First, I think on your question, looking at Slide 29 on the seasonality, if you look at the numbers from the fourth quarter of 2022 and fourth quarter of 2021, we also do see usually a higher amount of 3 months on book that are deteriorating or weaker performance from the fourth quarter numbers historically. So there is a little bit of seasonality to that. And I think when we look at those numbers, we're cautious on those fourth quarter, but it is also in line with seasonality, what we've seen in the past. If we look at all these numbers here, where we're most concerned about, if you can see, the new borrowers is definitely the number that has had some of the bigger problems on the 2023 vintages. And you've seen originations for this year have been a lower number of new borrowers as well. The best performing that we see is coming from those that are Kupedes top-up customers or refinancing customers. Those have been performing much better, and that is the largest portion of the borrowers that we're seeing here. We've seen KUR graduates in about 26% in the quarter, moving from KUR to Kupedes. We're trying to be very cautious on this. Also looking at on the micro borrowers restructuring, we never did this before in the past, but we have done it during the pandemic and we will do it a little bit now. Mainly the restructuring that we're doing, though, is tenor extension. Everything that we've done year-to-date has been tenor extension, and we have no plans as of now to change that. This would mainly be current and SML Category 1 loans that we'd be restructuring, for the most part.

Yes. Just to add from Bret's explanation, Jayden, so for restructured loan in micro, I think we learned a lot from the COVID-19 pandemic where basically we still see that our micro customers, actually, they still have a willingness to pay. So if we are talking about the restructuring in the Micro segment going forward, I think we still put limitations. So for example, for KUR, they will only be able to be restructured 2x and Kupedes is 3x. The reason for this is because we do not want to put burden going forward. So we give them an opportunity by restructuring them. With a limit of frequency, we can restructure them. And the other question actually is the IDR 15 trillion to IDR 20 trillion, am I correct? Yes, the IDR 15 trillion and IDR 20 trillion for the micro loan debt, that will be restructured in 2024. Is that higher than earlier? Well, at this moment, to be honest, a lot of moving parts is coming from our part, Jayden. So this IDR 15 trillion to IDR 20 trillion, I will say, yes, it is higher than the previous one. And whether this number will be kind of fixed, let's see. Up to now, our estimation is IDR 15 trillion to IDR 20 trillion micro loan will be restructured. And probably, we can give you a better color in the third quarter or fourth quarter because the mechanism of the restructured loan is like Bret mentioned, it's just extensions of time period. And usually, it's like 6 months and above. For the loan debt being restructured 6 months, probably they will mature in the fourth quarter, so then we can see probably a better color of this loan.

Thank you, Bu Vivi. There's a question from Zoom, from Sarina Lesmina. Can I confirm the statement that COVID restructured loans will drop to IDR 20 trillion to IDR 22 trillion by year-end? Was the intention to clean up COVID restructured loans this year? Yes, so the expectation is that we'll get down to about IDR 20 trillion to IDR 22 trillion by the end of the year. The reason we'll still stay at around that level is we do have close to IDR 10 trillion in corporate restructured loans, and that number will fall a little bit slower than the rest of the portfolio. We would anticipate that the remaining portfolio will probably be resolved by the middle to end of 2025, but that should lead to limited write-offs in the 2025 period coming from that portfolio compared to what we've seen so far this year from that book. We'll take another question from the call. Harsh Modi.

On the provisions, as we restructure, will you take provisions on restructured loans? And how much will be the provisions on these? Or would you wait for the actual performance of these restructured loans in both '24, '25 and progressively will take provision? Basically, what I'm trying to understand is the 300 basis point credit cost guidance, is that a hard target? Or if you think about the two possibilities of having 300 this year and potentially slightly 250 to 300 next year versus doing a bit of a kitchen sinking this year, closer to 350, so that '25 onwards, with higher confidence, you can say credit cost is normalized. So just thinking through the timing of provisions here and how much confidence do we have in dimensioning the entire problem, both from balance sheet and PNM point of view?

Yes. Thanks, Harsh. Maybe I'll just take part of your second question first, and then Bu Vivi can add to that, and answer the first half. I think any problems that we can identify in micro, we would like to resolve them this year. If that implies that we don't see opportunities to restructure to that IDR 20 trillion or more, that would lead to potentially the credit cost being higher this year if the loan growth continues to slow down. When you look at the loan growth, I think, keep in mind, as I believe Pak Sunarso mentioned, that we had a 13.5% corporate loan growth in the third quarter of 2023. When we look at the corporate loan growth year-over-year in 2024, that number probably slows down. So the loan growth number overall probably comes in the third quarter, if we look at what we're seeing as of now, maybe closer to the 10% level instead of over 11% where we stand currently. That would also have a small impact on our cost of credit numbers. But we will continue to review all of the micro loans that we see where we cannot restructure, and those loans we would consider looking at potentially having an impact on the cost of credit being above the 3% target. But I think as you saw in the quarter, for quarter 2, the cost of credit did come down. For the quarter, the number was about a little bit over 3.1%. And we'll monitor that throughout the third quarter. I think we did mention that even with the seasonality in the fourth quarter of 2023 and historical fourth quarter numbers on the vintages, that we'll monitor that to see how that performs throughout particularly the third quarter of this year. Bu Vivi, do you want to add?

Okay. Thanks, Bret. So for the provision, Harsh, actually, the provisions still follow the initial bucket when they start to be restructured. So in a segment like Micro, so the calculations of the [ ECL ], the provisions, basically it's like a collective impairment. So the provisions still follow their initial bucket. However, the management still have an opportunity to add through the management overlay mechanism. So for example, like what we start to do now, actually, we are looking carefully on the loan debt being restructured in micro segment, especially the loan debt going forward. It's not now. I mean, the restructured loan that already being restored twice, for example, so we can add more provisions through the management overlay mechanism.

Maybe I want to just add and explain from Bu Vivi to Harsh. During the pandemic, even though the OJK implemented the relaxation also in calculating with provision, [ we ] still calculate in accordance with the PSAK 71, the IFRS 9. So even though there's a relaxation, we implemented the strict regulation on calculating the provision. So same situation will be implemented under the restructured loan, the micro, in the current situation. Thank you.

Thank you for the question, Harsh. We are running short of time here. So any of the additional questions that we have from Zoom, we will e-mail your responses. I want to thank our Board of Directors and our SEVPs for joining this call and also all of the analysts and investors who joined as well. Please feel free to reach out to us with any additional questions that you have. Apologies if we could not get to any more questions in the time limit. Thank you very much. Have a nice day.