Good morning, ladies and gentlemen. Welcome to Bank Negara Indonesia first half 2025 earnings call. Thank you for joining today. We are pleased to have you with us to review our performance as of the first half of 2025, to share key developments, and to also address your questions. I would like to start by warmly welcoming our directors who are joining us this morning. First, Ibu Alexandra Askandar, Vice President Director. Bapak Abu Santosa Sudradjat, Treasury and International Banking Director. Bapak Muhammad Iqbal, Commercial Banking Director. Bapak Hussein Paolo Kartadjoemena, Finance and Strategy Director. Bapak David Pirzada, Risk Management Director. And the rest of our BOD and SEVP are on the call as well. Thank you all for being here. In today's session, we will cover the following key areas, a brief of our key results as of June 25, and also digital strategies.
This will be addressed by Bu Sandra, and then Pak Abu will give us an update on our liquidity position. Pak Iqbal will convey on our strategies to revive middle and small segment, and then a detailed look into our financial performance and new key targets by Pak Paolo. And finally, a review of our asset quality, risk management, and an update on our ESG implementation by Pak David. Without further ado, I would like to hand over the presentation to our directors to walk us through this morning. Starting with Bu Sandra, you may have the floor.
Thank you. Good morning, everyone. Thank you for joining us today. Let me start by sharing how BNI performed in the second quarter of 2025, along with the current challenges we are facing in this economic environment. As you know, this year has been tough for banks, including BNI. Our net interest margin has come under pressure, declining to 3.8% in the first half of the year. This is mainly because deposit competition has become very intense while the economy remains weak. Unfortunately, this has also led to a 5.6% decrease in our net profit compared to last year. But I want you to know that we are working hard to improve this situation. We are focusing on two key areas, improving our loan yields and optimizing our funding structure. I am happy to share some positive developments.
Our loan growth reached 7.1%, and what is encouraging is that we are seeing better balance across our business segments. We are becoming less dependent on corporate loans, with more contribution now coming from SME loans outside the KUR program. Also, our middle segment, which had been shrinking deeply, is now showing signs of recovery. In fact, we expect this segment to return to growth by the end of this year. Our commercial banking director will share more details about this later.
Another area where we are making good progress is our CASA deposit. For the first time in a while, our CASA growth of 18.7% is actually outpacing our loan growth of 7.1%. This is a significant improvement from our historical pattern and shows our efforts to build a stronger deposit base are working. Finally, I want to highlight our strong asset quality, which remains one of BNI's key strengths.
Our credit costs have stayed stable at around 1%, and our loan-at-risk ratio has improved to 11% from 12.3% a year ago. This shows we are maintaining good discipline in risk management, even in these challenging times. We know there are still challenges ahead, but we are confident in our strategy and our team's ability to navigate this environment. At BNI, we are working hard to grow our low-cost deposits through digital banking, and we will keep you updated on our progress. First, on BNIdirect, which is used for corporate and business banking clients, our cash management platform, BNIdirect, now serves over 200,000 users, up 20% from last year. Transaction values have grown even faster, rising 22%, helping drive an 18% increase in transactional current accounts. To make our CASA base even stronger, we are expanding beyond large corporates.
We have just launched BNIdirect Business this month, a version tailored for SMEs. Smaller businesses tend to hold stable balances, which helps lower our funding costs over time. Lastly, on wondr app for retail banking customers, engagement is the key. The more customers use wondr, the more their deposits grow. wondr continues to build strong momentum with 8.6 million registered users and a 60% year-on-year increase in transaction value, reflecting rising user trust and platform stickiness. We have seen a clear trend that customers who use digital channels save more. Today, users rely on it for everything from QR payments to e-wallet top-ups. But what excites us most is that they are starting to use wondr for investments like mutual funds and bonds. This deeper engagement strengthens their relationship with BNI and supports sustainable deposit growth.
Next, our Director of Treasury and International Banking, Pak Abu Santosa, will elaborate more on previous quarter liquidity condition and its outlook in second semester. Please, Pak Abu.
Thank you, Ibu Alexandra. Since the pandemic, money supply growth has slowed significantly, only single digit through June this year. The situation has made it harder for banks to gather deposits, pushing the banking system's loan-to-deposit ratio, or LDR, up to 86% by June 2025. As one of Indonesia's leading banks, we take our role in maintaining financial stability seriously. Therefore, despite intense deposit competitions, we have maintained our discipline. In the first half of the year, our average LDR ran at 93.6%, but by June, we are proactively build up liquidity buffers, bringing it down to 86%. This prudence came at a cost. Our funding expenses rose slightly in second quarter, also partly due to a seasonal trend. However, as we enter the second half of 2025, we see reasons for optimism. The first one is SRBI yields and volumes are declining, easing pressure on deposit rates.
Second, liquidity is improving as some of SRBI maturities flow back into the system, lowering short-term borrowing costs like the INDONIA rate. The third one is government spending is expected to pick up, which could further boost system liquidity. That said, these positive trends haven't yet translated into lower funding costs for banks. For a real sustained improvement, we'll need a combination of continued monetary easing from Bank Indonesia, stronger fiscal stimulus to inject liquidity, and more rational loan growth appetite across the industry. We are closely monitoring these developments and remain ready to adapt as conditions evolve. Next, our Director of Commercial Banking will present about middle and small segment. Please, Pak Iqbal.
Thank you, Pak Abu. Let me take a moment to update you on how we are executing our strategy to enhance NIM through targeted growth in the MSME segment. This is an important priority for us, and we have been laying the groundwork carefully to ensure sustainable success. We have made significant organizational changes to support this initiative, including appointment of senior executive roles at the SEVP level. This is intended to develop our value chain banking capabilities and build on BNI's strong relationship with large corporate clients and government institution into commercial and SMB banking business. I want to emphasize that while we are pursuing growth aggressively, we are doing so with prudent risk management at the forefront. We have strengthened our risk framework substantially. Each business segment now has its own dedicated risk team, and we have added experienced risk professionals across the organization.
Our credit score system for SMEs implemented last year is already showing positive results in improving asset quality. We also improve organizational design in retail collection and recovery aimed at enhancing productivity across all regions. The early indicators are encouraging. Our SMB non-KUR loan portfolio has shown positive growth thanks to strong loan disbursement of IDR 8.8 trillion year to date that offset run-off and write-off. Perhaps more importantly, our vintage analysis shows meaningful improvement in NPL formation since we introduced credit scoring, clear evidence that we are growing this business responsibly. Looking ahead, we plan to apply these successful approaches to our middle segment, which includes our enterprise and commercial banking clients. However, I want to reassure you that we will continue to align our growth ambition with the broader macroeconomic environment. Our focus remains on achieving sustainable and profitable expansion rather than pursuing growth at any cost.
This balanced approach reflects BNI's commitment to building long-term value while navigating current market conditions wisely. We are confident that this strategic investment in our MSME business will contribute meaningfully to improving our NIM over time. Next, our CFO will explain more about our financial performance. Please, Pak Paolo.
Thank you, Pak Iqbal. Let us now discuss more on our financial performance for the first half of 2025. In the first six months of this year, were defined by our focus on building a robust liquidity buffer, as mentioned by Pak Abu, to navigate the uncertain economic climate. This strategy translated to strong deposit growth of 16.5% year-on-year, well ahead of our loan growth of 7.1%. To ensure flexibility, we deployed excess liquidity into short-term, highly liquid instruments, positioning us to support loan demand in the second half of the year. Within deposits, we saw particularly strong momentum in CASA, up 19% year-on-year, and term deposits up 11% year-on-year, a trend that we will explore in more detail later. Turning to our profit and loss, our top line growth was subdued, with net interest income rising just 2% year-on-year, which reflected tighter margins. Non-interest income decreased by 3% year-over-year.
This is caused by moderate fee income growth, delayed cash recoveries income, and the implementation of IFRS 17 in our insurance subsidiary, which weighed on revenue. We expect to see some improvement in the second half. On the expense side, we maintain strong discipline despite higher investments in digitalization, transaction banking, and customer acquisition. OpEX grew 3% year-over-year, a relatively controlled increase compared to industry peers, but still outpaced revenue growth. As a result, our pre-provision operating profit or PPOP, declined by 1.7% year-on-year. Provisions rose 7.9%, keeping pace with loan growth as we continue to prudently build loan loss reserves in line with our risk framework. The operating environment in the first half was undeniably challenging. Soft GDP growth and global uncertainties dampened business activity and customer sentiment. These headwinds ultimately contributed to a 5.6% decline in net profit year-over-year.
While these results reflect near-term pressures, we are confident that our liquidity management, cost discipline, and risk controls position us well for the remainder of this year. Let me briefly walk you through the key takeaways from this detailed financial overview. As we have discussed, profitability faced pressure this quarter, primarily due to compressed margins, a challenge that we are actively addressing. With that said, I am pleased to highlight several areas of strength. Asset quality remains robust, and our risk management director will provide deeper insights later on. We have made significant progress in strengthening our liquidity position with the loan-to-deposit ratio improving sharply to 86% by end of June, positioning us well for growth in the second half. Our liquidity coverage, LCR, and stable funding NSFR ratios remain solidly above 100%, reflecting prudent balance sheet management.
Most importantly, our capital position remains very strong with Tier 1 CAR at 19.7% post-dividend payment and total CAR at 21.1%. This robust capital base not only supports our growth story ahead, but also provides flexibility for consistent dividend payouts moving forward. Our loan portfolio shows encouraging signs of more balanced growth across segments, with several strategic developments worth highlighting. The corporate segment expanded by 10% year-on-year, marking a more sustainable pace compared to previous year's rapid growth. This measured approach extends to our consumer book as well, which grew 10.7% while we maintain our focus on asset quality. A deliberate choice given the ongoing industry challenges in consumer credit. Two areas demonstrate particularly strong momentum. One is commercial banking loans grew 5.5% year-on-year, and our SME non-KUR portfolio also increased by 9%.
The KUR portfolio continues its planned contraction as we uphold strict underwriting standards with repayments outpacing new disbursements. Our subsidiaries are also emerging as a significant contributor with overall lending growth of 27%. Hibank, our commercial and SME-focused subsidiary, stands out with 31% loan book expansion, accounting for about two-thirds of our subsidiary's portfolio. Despite the strong growth rate at Hibank, its NPL remains very controlled below 1%, stable on a year-on-year basis. Portfolio yields average 7.3% in the first half, reflecting a 20-basis point decline from last year. This primarily stems from a lower SOFR rates affecting our foreign currency loans, which comprises about 20% of the total portfolio, as well as competitive pressures that compress medium segment yields by 30 basis points. This diversified growth pattern, combined with our disciplined risk approach, creates a solid foundation for continued sustainable expansion.
Building on our earlier discussion about liquidity management, I'd like to provide more color on our deposit gathering efforts. In June, we took proactive steps to strengthen our funding position in anticipation of typically stronger loan disbursement in the second half. This strategic move resulted in a 16.5% year-on-year growth in total third-party funds. A closer look at the composition shows particularly strong performance in our priority segments. Savings deposits, which remain our key focus, grew 10.5% year-on-year. Current accounts expanded by an impressive 25%, although we caution that our wholesale banking operations naturally see more volatility from large institutional flows. Term deposits also increased by 11% as we balance our funding mix. This front-loading approach did come with some cost pressure. Our average deposit cost in the second quarter reached 2.8%, reflecting a modest increase of nine basis points quarter-over-quarter and nine basis points year-over-year.
The upward movement was primarily driven by term deposit costs at 5.1% and savings deposits at 1.06% as we actively rebuild market share following the launch of wondr app last year. The funding environment remained highly competitive throughout the second quarter, though we are beginning to see early signs of easing in the third quarter following the Central Bank's adjustments to SRBI policies. With our healthy LDR at 86%, we are well-positioned to optimize our deposit and loan growth in the coming months while maintaining prudent liquidity management. After reviewing our first-half performance, we are adjusting our full-year NIM outlook downward by 20 basis points to 3.8% for 2025. This revised target assumes that we maintain our margins in the second half with some potential to improve.
We are maintaining our loan growth guidance of 8%-10%, with expectation of more balanced growth contribution across segments as we execute our strategy to enhance blended loan yields. Our credit cost guidance remains unchanged at approximately 1%, as asset quality trends continue to align with our projections. For a deeper dive into our ESG initiatives as well as asset quality metrics, I'll now hand over to our Risk Management Director, Pak David.
Thank you, Pak Paolo. Before the discussion on asset quality indicators, let me give you a brief update on our ESG initiatives. At BNI, we see ESG not as a checkbox, but as a strategic foundation. While short-term ESG trend may fluctuate globally, we remain committed to integrating ESG practices as a long-term value driver for our business and stakeholders. This is reflected in our continued progress and proactive initiatives, particularly through our sustainability bond issuance and the improvement in our MSCI ESG rating. To support our ESG agenda, BNI launched a sustainability bond self-offering with a total fundraising target of IDR 15 trillion over two years. In the first phase in June 2025, we successfully issued IDR 5 trillion, aiming to refinance our matured green bond and reinforce our commitment to generating measurable ESG impact.
This issuance is backed by strong market confidence, as reflected in its triple A rating from PEFINDO. We have ensured that the use of proceeds is aligned with globally recognized standards as reviewed by Sustainalytics, which are allocated to finance and refinance eligible green and social projects. In parallel, BNI's MSCI ESG rating improved from BB B in June 2024 to A in June 2025, driven by stronger governance, risk management, and environmental financing practices. These improvements demonstrate that our ESG practices are not only maturing but also keeping pace with global standards. Now go to our asset quality. Our asset quality remains fundamentally stable, demonstrating the effectiveness of our discipline risk approach, even in this challenging economic climate. The numbers tell an important story about how we are managing portfolio risk across our business segments.
Looking at the broader picture, we have achieved meaningful improvement in our loan at-risk ratio, which now stands at 11%, a solid 130 basis points reduction compared to last year. This progress reflects our continued focus on conservative client selection and careful portfolio management. However, we are closely monitoring developments in our consumer segment, where we have observed some emerging pressure. The segment's NPL ratio currently sits at 2.1%. This is representing a 50 basis points increase year-over-year. Within this portfolio, mortgage loans show the highest NPL ratio at 3%, automotive loans follow at 2.7%, and credit card stands at 2.5%. The personal loan segment continues to perform exceptionally well with just a 1% NPL ratio, thanks to our payroll-based lending model that accounts for 95% of this book. From a quarterly perspective, we have noted a slight increase in the loan at-risk ratio for our medium segment.
Importantly, this movement is not concentrated in any single sector. We are seeing scattered exposures across hospitality, construction, IT services, and aquaculture industries. Our risk management framework remains proactive in identifying and addressing these trends while maintaining our strict underwriting standards. We are confident this approach positions us well to navigate the current environment while also protecting portfolio quality. A particularly revealing perspective emerges when we examine new NPL formation patterns rather than just static ratios. In the first half of 2025, we recorded IDR 7.8 trillion in loan downgrades to NPL status with a striking 76% of this originating from pandemic era or pre-pandemic underwriting. This represents a substantial 23% year-over-year improvement in new NPL formation, which demonstrating the effectiveness of our enhanced credit standards in recent years. The same positive trend appears in our write-off analysis.
Approximately 70% of this year's of IDR 7.9 trillion in write-offs stem from pre-2022 loan vintages, with total write-offs declining 26% compared to the previous year. These metrics collectively validate our sharper risk assessment framework implemented post-pandemic. Our year-to-date provisioning charges total IDR 3.6 trillion, representing a 1% cost of credit. While we utilized IDR 7.9 trillion in reserves for write-offs during this period, our overall reserve positions remain strong. We have maintained healthy coverage ratios with loan loss reserve representing 4.7% of total loans, NPL coverage at 243%, loan at-risk coverage of 43%. These reserve levels, we believe, appropriately reflect our stable asset quality trends. Looking at credit cost by segment reveals some interesting dynamics. The corporate segment continues to show strength, allowing for some provisioning reversals, though at a more modest pace than last year, driven by improving loan at-risk metrics.
Conversely, we have increased provisioning for the consumer segment to 2.7%, up 10 basis points year-over-year. This is in response to emerging pressures in this portfolio. This brings us to the end of our presentation. I will now return the floor to the moderator for Q&A. Thank you.
Thank you, Bapak [inaudible], for the insightful presentation. We will now move on to the Q&A. As a reminder, you may submit your questions into the Q&A box on your Zoom app. Just a quick note, if any responses are delivered in Bahasa Indonesia, a summary translation in English will follow right after. Each question will be addressed by our respective directors, and since there are several questions with the same topic, please allow us to merge the questions into one. All right. Let's begin. The first question is coming from Macquarie, JP Morgan, Spring, Smartkarma, and Ox Capital. The question is: What are the prospects for deposit growth and liquidity in the second half, especially post SRBI net release, and what are the major swing factors for funding costs in the second half? I would like to pass over this question to Pak Abu. Please, Pak.
Okay. Thank you for the question. Basically, following the recent monetary policy, such as the decrease of SRBI ownership and also yield, as well as recent BI rate cut, we are expecting a gradual improvement in system liquidity in second half of 2025. The unwind of SRBI placements will likely return to some liquidity to the system, potentially supporting the deposit growth and easing pressure on deposit rates. We are optimistic that gradual improvement in system liquidity in second half of 2025 will depend on a combination of a few key factors. First one is related to the monetary policy, that the decrease of SRBI ownership and yield, as well as further rate cuts by Bank Indonesia could ease funding pressures and stimulate both lending and deposit growth, particularly if the policy stance becomes more accommodative. Historically, government spending in the second half are liquidity positive.
Boosting cash circulations in the economy. This often leads to higher deposits inflows into the banking system. Stagnant or slow fiscal disbursements remains a key downside risk. Without acceleration of government spending, liquidity injections into the system may remain limited. While BI currently signals a pro-growth stance, this could shift if global financial conditions deteriorated, particularly if external shocks trigger rupiah depreciation. Moreover, competitive pressure from other banks is also expected to play a significant role in shaping cost of fund outlook for second half of 2025. As competition for liquidity intensifies, especially amid tighter system conditions, banks may face upward pressure on funding costs, which could impact overall margin dynamics. Therefore, we continue to closely monitor and be prepared toward any evolvements. Thank you.
Thank you, Pak Abu, for the reassuring explanations on our liquidity dynamics. I have next question, and I believe this is addressed to Pak Paolo . The question is: What is the outlook for net interest margin in the second half and also for next year, Pak? Are there any changes to our NIM guidance for the remaining of this year, 2025? What are the levers to improve our NIM, whether lower pricing, cost of funds, or mix shift towards higher yielding segments, please, Pak Paolo ?
Yeah, thank you for the question. As mentioned, until the first half of this year, our NIM was at 3.8% due to the dynamics in the deposit market here. In light of the ongoing liquidity, I guess, competition and the persistently elevated cost of funds in the first half, as we have mentioned to some investor meetings, we have revised our NIM guidance in this call downward. We are adjusting our full-year projection from the initial range of 4.0%-4.2% to 3.8%, reflecting a more realistic outlook for margin performance amidst a tighter funding environment. Internally, to support NIM margins, we are actively pursuing strategies to enhance low-cost funding. This is, of course, through stronger transactional CASA growth. As we scale up our transactional CASA base, particularly through our digital platforms and cash management solutions, we expect a structural improvement in cost of funds over time.
With our LDR at 86%, there is room for us to be less aggressive on special rate deposit gathering in the second half, and offering lower rates for new funds. On the asset side, we are also executing a balanced asset mix towards higher yielding segments. As mentioned, there is a more balanced growth across segments. This is particularly in consumer and MSME lending. We are doing so with prudent risk management at the forefront, including the addition of experienced risk professionals across the organization, as well as the implementation of credit scoring for SME, resulting in more acceptable asset quality improvement. We are confident that these strategic changes in our MSME business will contribute meaningfully to improving our margins over time.
Thank you, Pak Paolo . While the revised guidance reflects current realities, it is good to hear that structural efforts, especially the transactional CASA and balance mix, are actively underway to support our margins going forward. I have the next question. This is coming from Kresna Hutabarat from Mandiri Sekuritas, and I believe Bu Sandra will give us a clear answer for this one. Bu Sandra, what is our loan growth outlook for the second half in 2025? What macroeconomics and industry factors are being considered in shaping this outlook? Please, Bu Sandra.
Thank you, Kresna, for the question. We are targeting loan growth in the range of 8%-10% for this year. As the first half of the year, loans have grown by only 0.4% year to date, meaning we will need to grow another 7%-9% in the second half compared to June position. In setting this target, we have taken several factors into consideration. First, liquidity availability, which we believe will not be an issue given our LDR, which has been explained earlier, stood at 86% as of June. Second, credit demand across various segments, which, while not as strong as last year, remains adequate to support high single-digit growth, and we are actively engaging with corporate clients, both from private sector and SOEs. From these discussions, we have built a sizable corporate loan pipeline, especially in sectors such as agriculture, F&B manufacturing, telecommunications, and transportation.
We expect most of this corporate loan growth to be back-ended with the majority materializing in quarter four. Third, we now have new engines for loan growth in the middle and SME segments. As presented earlier in today's earnings call, BNI is ready to scale up in these segments with infrastructure already in place, such as credit scoring implementation, organizational strengthening to capture value chain opportunities from corporate and government institution clients, enhanced human resources for risk management functions, and a well-structured loan management system.
Thank you, Bu Sandra, for the detailed response. The next question, what is the outlook for credit costs in the second half of 2025 and also for next year? Any revisions to credit cost guidance for the remaining year? Is a sub 1% credit cost achievable through improved underwriting? I will pass over this question to Pak Paolo . Please, Pak.
Yeah, thank you for the question. Our credit cost outlook for the second half remains within our full year guidance of 1%. We do not see any need to revise this guidance. We note that there are slight pressure in certain consumer segments, but the overall bank-wide asset quality remains manageable. As you saw earlier, the stable NPL and LAR levels, loan at risk levels at 11% respectively. Looking ahead to next year, we aim to maintain a credit cost of also 1%, which we consider within our comfortable range and also realistic, given the current portfolio. We are seeking a balance between being conservative and growing our business, but as we have been able to maintain 1% credit costs, it is time for us to start growing in higher yielding segments.
As a result, we continue to evaluate opportunities for improvement through deeper adoption of data-driven credit scoring, proactive risk monitoring, and portfolio mix optimization. All of this while maintaining a prudent provisioning stance in response to the evolving macro and regulatory conditions.
Thank you for the clear answer, Pak Paolo . Since the next question is related to asset quality, I would like to address this question to Pak David. Pak, I have a question from Maynard Arif from DBS and also from Gaurav from JP Morgan. The question is, are there emerging asset quality risks, especially amid slower growth? Is BNI seeing borrower stress in specific segments, and is this within expectations? Please, Pak David.
Okay. Thank you. Thank you for the question. As of mid-2025, BNI continues to maintain stable asset quality, and credit costs also still tracking within our guidance of 1%. New NPL formation declined by 23% year-on-year, and there was no major surprise downgrade. However, we have to remain vigilant amid ongoing macroeconomic headwinds. Some early signs of borrower stress have been observed, particularly in the consumer segment, including mortgage and auto loan products, where we have seen a slight pickup in NPL. This was primarily driven by low-ticket price mortgages, which have been more sensitive to macroeconomic condition and subdued purchasing power. Meanwhile, the corporate portfolio remains resilient with strong fundamentals and low NPL. With relatively weak commodity prices, we are doing closer monitoring on our portfolio. We think palm oil and coal mining exposure should not be an issue.
On the other hand, we proactively help certain clients in nickel value chain, which may need restructuring. In the SME segment, particularly non-KUR loans, we have seen improvements in asset quality supported by the full implementation of prudent credit scoring. Overall, current stress levels are within expectations, and our provisioning and risk buffers remain adequate with 4.7% loan loss reserve and 243% NPL coverage.
Thank you, Pak David, for the clear explanations. The next question is related to one of the government program, which is Village Fund or Koperasi Dana Merah Putih, and I believe I would like to pass over this question to Ibu Sandra. This question is coming from Maynard Arif from DBS, Bu. The question is, any concerns stemming from the exposure to this program, Koperasi Dana Merah Putih? Please, Bu Sandra.
Thank you. During the program design process, SOE banks have actively participated to ensure the schemes accommodate the interest of all stakeholders. Few days ago, legal framework for the program was just released. From risk management side, banks will do their own assessment on the commercial feasibility of loan proposal by taking into account the size village funds received. This is important because the regulation mentions of credit guarantee mechanisms using village funds to mitigate default risk. We really appreciate this and see this as a strong commitment from government to ensure executing banks are able to maintain their asset quality. Liquidity-wise, we are well positioned in terms of liquidity, and the scale of the programs remains within a manageable range, allowing us to participate without disrupting our existing business operations. Thank you.
Thank you, Bu Sandra. It is reassuring to hear that legal framework is now in place and that risk and liquidity considerations have been well addressed. Thank you. The next question is coming from Kate from Ox Capital. The question is addressed to Pak David. Pak David, please give us an update on consumer NPL formation. Please, Pak.
Okay. Thank you for the question. NPL formation in consumer segment increased mostly from June last year until March this year, where NPL ratio increased from 1.6% to 2%. Afterwards, the increase in NPL ratio started to slow down with only 10 basis points increase in the last quarter. Looking closer on the second quarter NPL ratio, the biggest increase came from auto loan, which is 100 basis points higher Q on Q, followed by mortgage, 10 basis points Q on Q, while the personal loans and credit cards saw a stable trend. We are noting that auto loan segment remains a relatively small portion within our consumer portfolio. We will continue to maintain a prudent risk approach with proactive monitoring and early warning systems in place to mitigate further risk. At this stage, we do not see any material concerns regarding consumer asset quality trends. Thank you.
Thank you, Pak David. Moving on to Pak Paolo . Again, Pak, I have a question from Felicia from Grow Investment and also from Ferry from CT Corp. The question is, what is BNI's medium-term target for ROE given the current soft macro situation? Please, Pak Paolo .
Yeah. Thank you for the question. For those who have been following us for the past few years, we have mentioned about an aspiration of 18% ROE driven by low credit costs and improving NIM. On the credit cost aspect, we have hit our target of 1% cost of credit, and we are committed to maintaining this going forward. On the margin aspect, as you see, we are still below our target, sending our ROE to lower than the expected level. As we all know, there are multiple factors affecting our bank's margin. From the internal side, we have been making significant progress in terms of launching our digital apps and continuing to add features, which is helping to drive CASA growth. However, external pressure from the macroeconomic backdrop has played quite a significant factor in the NIM challenges this year.
Given the still uncertain global and domestic situation, there is quite a wide range of macroeconomic assumptions with various level of NIM and ROE implications. For us, every 10 basis point improvement in NIM leads to around 60 basis point higher ROE. Our effort to improve NIM and ROE going forward will focus on improving asset yield by growing in the MSME segment on a sustainable basis, as well as consistent efforts to build transactional CASA franchise. Other than that, we also intend to maintain an elevated dividend payout with a Tier 1 capital target of 17%, from currently 19.7%. This may partially help our ROE to a certain extent.
Thank you, Pak Paolo . Please stand by, Pak, because I have another question for you. This is related to dividend payouts. Is there any potential change under the new shareholder? This question is coming from CT and also from DBS. Please, Pak Paolo .
Last year, our dividend payout ratio was 65% from our 2024 profits. This, of course, increased from 50% dividend payout ratio in the previous year. We do intend to maintain this level of payout ratio for the next few years, of course, subject to shareholder approval. Moving forward, this level of payout ratio will be reviewed, considering we do want to maintain Tier 1 capital of at least 17%, which we believe is appropriate to support the bank's expansion going forward, while also maintaining the prudent capital level.
Thank you for the clear answer, Pak Paolo . I have the next question. The question is addressed to Pak David. This is from Kresna Hutabarat from Mandiri Sekuritas, Pak. The question is, Danantara has mentioned about plans to merge their construction SOEs. Any view on what that could mean to our loan at-risk ratio outlook and credit cost outlook in the second half and also for next year, considering that BNI has heavily provisioned some of the construction SOE loans. Please, Pak David.
Okay. Thank you for the question. I think maybe we can see this into two perspective. One, in the short term perspective. I think the merge of the construction SOEs in the short term for BNI portfolio may not change much. Even though the merger of these construction companies will give a positive performance for the construction companies, meaning that they will have better revenue, and also they will have better cash flow. I think in the short term, our outlook on the loan at risk and also credit costs may remain the same. Also our provisioning will remain the same because our restructuring or releasing of provision, we will not release it in the short term.
But in the midterm, maybe, with the stronger performance of the construction companies and also stronger cash flow, there is a possibility that our provisioning will be reduced on these construction companies, and also maybe if the condition will be better, then the collectability also may then become as normal, meaning that we can unflag the restructuring condition position. Thank you.
Thank you, Pak David. I have another question. This is from Handy from CGS Securities , and I believe this question is addressed to Pak Abu. Pak, the question is: have you started to see lower special deposit rate for new bidding in the month of July? What is the comfortable level of LDR in the second half of 2025? Please, Pak Abu.
Okay. Thank you, Handy, for the questions. Basically, we have seen that some normalization in special deposit rates for new bids, especially in July. They are basically gradually trending down. Although it's selectively, as you can see also, our LDR, basically, we are very comfortable in the low to mid-90s range for the second half of 2025. Basically, this is in line with our prudent liquidity management approach. I think that's my answer. Thank you, Handy.
Thank you, Pak Abu. Thank you for the insightful Q&A. That concludes our presentation and also Q&A session for today. On behalf of BNI's management team, thank you once again for your continued trust and also for your support. Since we only have one hour, we will cover the remaining questions after this call. Should you have any follow-up questions, please feel free to reach out to our investor relations team on our email address, ir@bni.co.id. We look forward to staying connected with you on our future updates. Have a good day.