Good afternoon, ladies and gentlemen. Welcome to the earnings call for the first half of 2023, PT Bank Negara Indonesia, or BNI. We hope that you are doing well, and we really appreciate your attendance. Before we disclose our latest result, please allow me to introduce BNI directors who present here with us. First, we have Bapak Royke Tumilaar, our President Director. Ibu Adi Sulistyowati, Deputy President Director. Ibu Novita Widya Anggraini, Finance Director. Bapak Silvano Winston Rumantir, Wholesale and International Banking Director. Bapak David Pirzada, Risk Management Director. Ibu Corina Leyla Karnalies, Digital and Integrated Transaction Banking Director. Bapak Sis Apik Wijayanto, Enterprise and Commercial Banking Director. Bapak Putrama Wahju Setyawan, Retail Banking Director. Bapak Muhammad Iqbal, Institutional Banking Director. Bapak Ronny Venir, Network and Services Director. Bapak Mucharom, Human Capital and Compliance Director. Last but definitely not least, Bapak Toto Prasetio, Technology and Operations Director.
Our most recent corporate presentation can be downloaded using the link that we provide in the chat room, or you can find it and also other official publications on our website, www.bni.co.id. We also provide a QR code for you to use in order to download our corporate presentations. I will give you three seconds to scan the QR code on your screen. If you have any issues, please kindly reach out to our investor relations team through our email address, ir@bni.co.id. After the presentation, we will have around 20 minutes of Q&A sessions. If you have anything that you would like to ask to our management, please kindly submit your questions in the Q&A box on your Zoom apps. As usual, we have a translator for our Zoom audience. You may click the interpretation button on your Zoom apps and then choose English.
You will be able to listen to the English versions of anything that we discuss here in Bahasa Indonesia. If you have any trouble, please reach out to BNI IR team through our email address, ir@bni.co.id. Pak Royke will begin the session by discussing our management highlights, continued by Pak Silvano, and then Bu Corina will present some important updates on our newly digital bank. Bu Novita will proceed with our financial performance, and then Pak David with our asset quality updates, and Bu Novita will conclude today's earnings call with our new guidance. Now I would like Pak Royke to begin the sharing session. Please, Pak.
Thank you, moderator. Good afternoon for all distinguished analysts, shareholders, and rating agencies. I really appreciate your attendance here in BNI first half of 2023 earnings call. Allow me to open the discussion by highlighting a summary of our performance. In first half 2023, we managed to deliver double-digit profit growth at 17% year-on-year, thanks to consistent execution of our selective growth strategy, which resulted in better asset quality. Cost of Credit improved to 1.4% from 2.2% a year ago. We are getting closer towards our 2025 target of 1% Cost of Credit. Going to the top line, our loan book grew by 4.9% year-on-year, supported by 11% CASA growth. Putting focus on CASA growth was very important during first half of this year to manage our margin as a funding cost pressure in time deposit instrument still prolonged.
Our net interest income grew by 5.1% year-on-year, while PPOP growth was only flat because of some delay of in fee income realization. Indonesia inflation rate and currency have been performing quite well so far due to the government discipline monetary and fiscal policies. On the monetary side, central bank has been increasing benchmark rate and statutory reserve requirement to an all-time high level since the beginning of the pandemic. On fiscal side, government has been running budget surplus until first half of the year, which was an unusual pattern as compared to the previous year. Money supply as measured by M2 only grew by 6.1% year-on-year, the lowest growth since pandemic. Looking into the overall banking sectors, third-party fund was contracting by 1.9% year-to-date, the first time it happened in the past four years.
The gap between loan growth and the third-party funds was expanding, that it started to affect funding costs in the banking system. On year-on-year basis, our blended costs of third-party funds increased by 60 basis points from 1.4% on the first half last year to almost 2% this year. The pickup was notably coming from time deposit rate, which increased by 130 basis points year-on-year. On the other hand, cost of CASA only increased by 30 basis points year-on-year. As part of our stage one transformation, we want to build more sustainable funding structure. We continuously monitor CASA to loan ratio, which continue improve from only 70% before the transformation started, to now at 82%. More and more of our loan is funded by CASA, and we reduce reliance from time deposit.
We also would like to highlight that despite of our selective growth strategy, we have been able to maintain loan yield of our portfolio at a healthy level. Year-on-year blended loan yield was increasing by 30 basis points. At the beginning of today earnings call session, we already discussed that monetary and fiscal tightening has been affecting growth in the banking industry, third-party funds, and its impact to funding costs. On the loan growth aspect, knowing that we are facing some macro headwind, we deliberately choose to be disciplined with selective expansion, focusing on the long-term profitability. This year, we have to face the fact that GDP growth is slowing down from 5.3% last year to below 5% this year. This is partly driven by sharp correction commodity prices, such as palm oil and coal.
There is also policy uncertainty regarding KUR subsidi rate that requires us to reevaluate risk reward of KUR products. As immediate reaction, we slow down KUR disbursement until we get more clarity on the subsidy rate. As a result, KUR portfolio was contracting by 1% year-on-year as compared to 20%-50% growth rate in the past two years. The sudden reversal from a skyrocketing growth to a contracting of KUR portfolio has been affecting our overall bank-wide loan growth. Out of the 4.9% bank-wide loan growth, the boost came from our core segment, namely blue-chip private corporate segment, which grew by 17% year-on-year, followed by consumer lending at around 12% year-on-year. We are still downsizing our exposure into higher risk segment. As a result, we continue to see stronger foundation of our loan asset quality where RWA density credit risk for loan portfolio improve every year.
This will enable us to deliver our midterm 1% Cost of Credit target. While margin and growth were negatively affected by external factors, we continue to report defensive and improving asset quality indicators. NPL and LAR ratio are in a declining trend. The provision coverage continue to be at an elevated level. We receive a lot of concern and feedback from various stakeholders regarding ongoing restructuring on two SOE contractors. To provide more confidence to our shareholders, we increase provision coverage for these debtors to 53.5% level, which we and our auditor believe is very sufficient level of coverage. Despite the provision buildup, BNI still delivers Cost of Credit at 1.4% better than our guidance. Thanks to fundamental improvement in the rest of the loan portfolio. The presentation will continue by Wholesale and International Banking Director. Please, Pak Silvano.
Thank you, Pak Royke. Ladies and gentlemen, on the brighter side of today's earnings call, we believe that the outlook of macro backdrop should be more positive. We believe there will be reversal of monetary policy to be more expansionary next year. Inflation rate has been lower, currency has been stable, and market expects that the Fed fund rate cut to happen starting around March next year. On the fiscal side, based on the government's recent spending outlook, there will be government spending boost by almost 50% in the second half of this year as compared to the spending in the first half. We also estimate less crowding out effect, especially on fourth quarter of this year, where we forecast weekly bond auction to decline to around IDR 7 trillion-IDR 8 trillion as compared to IDR 13 trillion-IDR 14 trillion per week on the first half of this year.
Not to mention, we are also entering election period. What is unique this time around is that Indonesia will have its regional election by the end of 2024, on top of presidential and parliamentary elections in the early part of next year. All of these factors should translate to more supportive operating environment for the banking industry. Some updates on our digital bank progress. As some of you know, we just rebranded the bank. It is now called hibank, starting in May this year. Parallel with the development of our core banking and digital capability, the management of hibank quickly expanded the business through the ecosystem-based financing model. On the first half of this year alone, the bank disperse no less than IDR 600 billion of new SME loans in various business ecosystems, mainly in FMCG.
This is a journey and learning curve that we have to go through before coming up with a total digital solution for SME clients. Right now, the bank showed encouraging indicators, such as 50% loan growth year to date, and 35% CASA growth year to date. While its loan-to-deposit ratio remain low at 61%. For the next topic, our financial performance highlights will be conveyed by our CFO, Ibu Novita. Please, Ibu.
Thank you, Pak Silvano. Ladies and gentlemen, consistent with our portfolio de-risking strategy, we grew corporate segment loan book by 16.6% year-on-year, and consumer loan book by 11.7% year-on-year. Our subsidiary, hibank, growing by 75% year-on-year, 57% year-on-year also contributed to our consolidated book. Exposure toward SOEs, commercial, and SME segment contracted year-on-year as we are still focusing to strengthen the fundamental. As previously mentioned, we have been reducing our KUR disbursement temporarily while waiting clarify on subsidy rate. Despite our aggressive push into low-risk blue chip corporate segment that resulted in asset quality improvement, we still see healthy pricing environment where loan yield was higher by 25 basis points Q-o-Q, and 30 basis points year to date. Loan yield pressure was seen in SME segment as we did not accrue unpaid subsidy portion of the KUR book. Overall loan yield was relatively stable.
In first half of this year, our net interest income grew by 5.1% year-on-year with external factor causing a major increase in interest expense. Non-interest income was still weak due to lack of trading income that we expect to pick up in second half if bond yield continue to decline. However, we saw encouraging trend where on Q-o-Q basis, we book 14% growth in non-interest income. Recovery income down by 6.5% year-on-year due to some delays in selling of collateral asset. We are optimistic to close the gap in second half with full year recovery income is targeted to grow by 20% year-on-year. As operating income only grew by 1.1% year-on-year, we want to be more disciplined on OpEx side by doing some adjustment on variable component. OpEx grew by 2.1% year-on-year, bringing our PPOP to grow by 0.3% year-on-year.
Improvement in asset quality, which is the core component of our transformation program, translate to 29.5% lower provisioning charges year-on-year. Note that the slight Q-o-Q increase in provisioning expense was coming from provisioning built up for watchlist contractor. Bottom line, our net profit grew by 17% year-on-year. While non-interest income was still contracting by 8% year-on-year, during first half 2023, it is notable to highlight that the latest trend on fee income was encouraging with second quarter alone showed 14% growth Q-o-Q. We already saw the full impact of BI-FAST implementation to our e-channel fee income during first quarter of this year. On second quarter, our e-channel fee income grew by 5.7% Q-o-Q.
Favorable move in bond yield at the end of second quarter enabled us to book stronger trading income with marketable securities fee income grew by 82% year-on-year, and foreign exchange trading fee income grew by 53% year-on-year. Ibu Corina, our Digital and Integrated Transaction Banking Director, will continue the presentation by highlighting our deposit growth. Please, Ibu Corina.
Thank you, Ibu Novita. Ladies and gentlemen, maintaining a sound liquidity level is crucial during monetary and fiscal contraction period. Our third-party funds grew by 10.6% year-on-year, driven by 11.1% growth in CASA, while time deposit grew by 9.3% year-on-year. The growth in saving was rather slow, potentially due to crowding out effect in first half of this year. Leading indicators for our CASA remained good, with mobile banking user grew by 23% year-on-year, mobile banking transaction grew by 65% year-on-year, and cash management transaction grew by 32% year-on-year. As we discussed earlier, cost of time deposit picked up further in second quarter, reaching 3.87%. Overall cost of third-party funds was at 2% on second quarter alone. We believe this situation only temporary. Once government reverse their fiscal and monetary policy to be expansionary again, things will be more favorable for us.
We reiterated that we want to build more sustainable funding structure by leveraging superior transactional capabilities. In the first half of 2023, BNI Mobile Banking introduced numerous innovation, including lifestyle transaction and newly fresh user interface and user experience. BNIdirect, our cash management platform, has been enhanced with online account opening, global platform, and various features to complement BNI Trade Online as a digital trade finance transaction solution. To monitoring our progress in cross-selling, we continue to track our CASA to loan ratio, which has risen by 82% from 75% three years ago. Next, our Risk Management Director, Bapak David Pirzada, will convey our asset quality update. Please, Pak David.
Thank you, Ibu Corina. Ladies and gentlemen, the progress of asset quality improvement within COVID-restructured book has been in line with our expectation. Year-on-year, outstanding COVID-restructured loan has declined from IDR 62 trillion a year ago to IDR 41 trillion in June this year, which is equivalent to 6.3% of the total bank wide loan portfolio. Almost a quarter of the COVID-restructured book is still eligible for OJK stimulus extension until 2024. But we continue to be conservative in terms of provisioning coverage, where we assign 27% coverage for collectibility one, and 52% coverage for collectibility two. We believe there should not be any negative surprise once OJK stimulus program expires next year. Overall loan at risk ratio was at 16.1% as of June this year. This is 3.5 percentage points improvement year- on- year.
Within the LAR loan at risk component, we managed to reduce NPL ratio to only 2.5%, which is faster than initial target, where we formerly expected NPL to reach the 2.5% level by the end of this year. Current restructured loan slightly increased Q-o-Q due to new restructuring for SOE contractors. All of this have been expected. We still managed to book a consistent improvement in credit costs, while at the same time maintaining elevated level of provision coverage. We conservatively assigned 26% coverage for stage two loan and 77% coverage for NPL bucket. Overall NPL coverage now is at 309%, while LAR coverage is at 47%. We want to maintain this level of coverage until our loan at risk ratio came down to single- digit level. Ladies and gentlemen, Ibu Novita will wrap up the presentation by clarifying our guidance. Please, Ibu Novita.
Thank you, Pak David. Ladies and gentlemen, having seen progresses in our business in the first half of this year, we need to revise guidance on margin while maintaining optimist outlook on loan growth and asset quality. Looking into our pipeline, we are still confident to maintain 7% up to 9% loan growth guidance. Ramp up in government spending will also help for robust loan growth environment. We have to revise down margin guidance by 10 basis points to take into account risk of KUR subsidi, as well as with slow third-party fund growth in overall economy.
On credit costs, we are optimistic to deliver below 1.5% CoC, driven by sustainable improvement in risk profile of our new loan portfolio. This guidance already takes into account provision build-up that we are going to allocate to some names in legacy book. This is the end of our first half of 2023 earning call presentation. Next, moderator will lead the Q&A session. Thank you.