Good afternoon, ladies and gentlemen. Welcome to PT Bank Negara Indonesia, or BBNI, analyst meeting for the third quarter of 2022. Thank you for your participation, and we believe you are in such good health. Before we head to the presentation, please allow me to introduce all of our board of directors who are here with us. First, we have Bapak Royke Tumilaar, our President Director or CEO. Ibu Adi Sulistyowati, Vice President Director. Ibu Novita Widya Anggraini, Finance Director. Bapak David Pirzada, Risk Management Director. Bapak Muhammad Iqbal, Enterprise and Commercial Banking Director. Bapak Ronny Venir, Services and Network Director. Ibu Corina Leyla Karnalies, Consumer Banking Director. Bapak Putrama Wahju Setyawan, Treasury Director. Bapak Mucharom, Human Capital and Compliance Director. Bapak Toto Prasetio, Technology and Operations Director. Ladies and gentlemen, our presentation for today will be started by Bapak Royke with several management highlights.
Muhammad Iqbal will proceed with BNI growth strategy, focusing on risk-adjusted net interest margin, loan at-risk improvement, and our strategy on building new stream. Continued by Ibu Novita with our corporate guidance and financial performance. To conclude the presentation, Bapak David will present our asset quality update. Ladies and gentlemen, our corporate presentation can be downloaded through the link that we provide in the chat room, or you may access our corporate presentation and other official publication on our website, www.bni.co.id. If you have any issues, please kindly reach out to our investor relation team at ir@bni.co.id. Any questions are appreciated. Please send your question to our email address, or you can simply send your question in the Q&A box on your Zoom apps during the Q&A session. Please remain silent during the presentation, which will last around 30 minutes.
For today's event, we provide interpretation feature for you. However, all presentation will be in English. Therefore, all attendees do not have to click the interpreter button during the presentation. The interpretation feature will only work during the Q&A session if the answer delivered in Bahasa Indonesia. Now to begin the presentation, please welcome our CEO, Bapak Royke Tumilaar.
Thank you, moderator. Good afternoon for all analysts, shareholders, and rating agencies. I really appreciate your attendance here in BNI third quarter 2022 earning calls. Allow me to open the discussion by highlighting a summary of our performance. As of September 2022, our loan book grew by 9.1% year on year in line with our guidance. CASA grew by 4.3% year on year as we are in the process of building transaction-based CASA. CASA ratio for the very first time reached above 70%. Year on year, cost of third-party funds improved by 23 basis points. As we expected, cost of fund was already reached its bottom level and may start to increase fourth quarter 2022. PPOP grew by 9.7% year on year, supported by net interest income growth of 5.2% and fee income growth of 7.8% year on year.
Loan at risk improved further to 19.3% of total loan and credit cost on third quarter was only 1.6%, as we feel that provision coverage level is already sufficient. Net profit at IDR 13.7 trillion is 77% higher year-on-year. We are on track to meet consensus profit estimate, which now stand at IDR 16.7 trillion. Entering last quarter of this year and looking forward to 2023, we are anticipating a more challenging time ahead with rising global uncertainties triggered by China's zero COVID policy, Europe geopolitical tension, and unprecedented monetary tightening in various countries. Fortunately, we still see domestic economy outlook is fairly healthy relative to the other countries. During this global economic turbulence, we are consistently adopting conservative growth strategy, focusing on segment with attractive risk-adjusted margin. We believe in the long-term, it will translate to superior and sustainable return to our shareholders.
We are in a strong capital position with Tier 1 CAR at 17%. Note that there will be a change in operational risk calculation that will increase our Tier 1 CAR by 100 to 150 basis points on January next year. Strong capital position and gradual improvement in ROE give us some room to increase dividend payout next year, subject to AGM approval. As we are entering rising interest rate environment, we expect to see higher cost of funds starting on fourth quarter this year. Margin will be impacted as we need some time to adjust lending rate, taking into account our customer condition as well as competitive environment. This month, we start to do loan repricing, and we will carefully monitor the progress in the next few quarters. Liquidity position remains solid with LDR, LCR, and NSFR ratio better than regulatory requirement. Asset quality continue to be our focus.
We want to make sure our growth level and margin trend are balanced with asset quality improvement. Taking into account the end of OJK restructuring relaxation next March, we still expect our NPL ratio to decline around 2.5% from currently at 3%. Even though domestic economy outlook may not be as rosy as what we have seen on the first half of this year, we still see the macroeconomic indicators will be fairly healthy relatively the other countries. There are only very few countries that are projected to have GDP growth at 5% or above, and Indonesia is one of them. As of September 2022, headline inflation was still manageable at 6%, which is not extraordinarily high for emerging economies. Despite global slowdown, Indonesia economy is relatively stable as export contribution to GDP is only 22%. The biggest contribution to GDP is still household consumption.
We appreciate well-coordinated government policies aimed to maintaining economic stability. Central bank has started to do monetary tightening to control core inflation next year to be within their target of below 4%. Ministry of Finance of the Republic of Indonesia has maintained their discipline in bringing budget deficit back to be below 3% of the GDP. Government has launched various support scheme for vulnerable segment, such as Kartu Prakerja and village funds. To support MSME businesses, government continues their subsidized microloan program and launch a procurement policy focusing on product made in Indonesia. Lastly, we believe that Indonesia external sustainability indicators have improved, especially from strong FX reserve and low-level foreign debt exposure. Next, Bapak Muhammad Iqbal, Enterprise and Commercial Banking Director, will highlight our growth strategy focusing on risk-adjusted NIM. Please, Pak Iqbal.
Okay. Thank you, Pak Royke. Ladies and gentlemen, in this occasion, we would like to emphasize that we are looking at risk-adjusted NIM to monitor the execution of our portfolio strategy, which focuses on low-risk segments. If we continue to be disciplined in doing portfolio de-risking, moderate level of headline NIM will be compensated by consistent low cost of credit. This also means that our profitability will be less volatile in the long-term, and we believe this is the right thing to do in order to deliver optimal return to our shareholders. As you may aware, during the first nine months of this year, our loan growth was coming from low-risk segments such as blue-chip corporates and its value chain in large commercial segments, as well as subsidized microloan and payroll loan.
All of them have been growing by more than 20% year-on-year as compared to 9.1% bankwide loan growth. Specific on wholesale segment, its overall growth may look moderate at 8.2% year-on-year. However, the biggest growth came from top-tier clients and key industry players, which grew by 36% versus the rest of the clients, which was relatively flat. We have elaborated several times that the size of loan at risk continues to decline. What is new in today's presentation is the fact that not only the LAR volume is declining, but the yield of LAR portfolio is also improving. Our latest data show that yield on LAR was at 4.4%, or 60 basis point higher than last year. This is an encouraging development that more and more of LAR customers are recovering. This will also provide some support for our NIM in the next couple of years.
As you may already be aware, BNI is in the process of doing five-year corporate transformation. The transformation at group also involves our subsidiaries, which have their own specific strategic role within the group. BNI Sekuritas, led by Agung Prabowo, a veteran investment banker from UBS, has delivered solid progress in rebuilding wholesale banking business for BNI. One of the proxies is loan syndication fee income, which almost doubled year-on-year. While BNI Multifinance also gets new leadership under Yenanto, who was a board member at PT JACCS Mitra Pinasthika Mustika Finance Indonesia, one of the leading multi-finance companies in the country. The aim is to transform itself to be market leader in customer finance, equipping product offerings from BNI customer loan. BNI Securities Singapore, led by an experienced investment banker from Standard Chartered Singapore, will act as an offshore hub for BNI international capital market activities.
Lastly, we just recently established a venture capital subsidiary to accelerate innovation and digital transformation in BNI Group. BNI Ventures is led by Eddi Danusaputro, who previously was CEO at Mandiri Capital Indonesia. Year to date, the cumulative profit from all subsidiaries have grown by more than two times from last year. It is only the beginning. We expect more in upcoming years. Next, Ibu Novita, our finance director, will continue the presentation on our financial performance highlights. Please, Ibu Novi.
Thank you, Pak Iqbal. As we are approaching the end of the year and global economy is facing bigger uncertainties, it may be a good time for us to provide what we envision for next year. Loan growth target for 2023 is 7%-9%, taking into account moderate deceleration in GDP growth due to global slowdown and weaker commodity prices. We believe focusing on quality over quantity is the right thing to do during this situation. Net interest margin is estimated between 4.5%-4.7%. The low end of the guidance is assuming tough competitive environment in which we only reprice a small fraction of the loan book and tough competition on funding costs. The upper range of the guidance is assuming more rational behavior from key players in banking industry, in which banks altogether are doing loan repricing and not too aggressive on loan growth.
We are still on progress to build a better loan portfolio consisting of top-tier clients and key industry players. During the process, our margin will continue to face headwinds. However, in the long-term, this strategy will result in much stronger funding profile, consisting mainly of transaction-based CASA. Credit cost is one area in which we have high confidence level. Two years of conservative growth strategy finally bears fruit, where we expect credit costs to fall below 1.5% in 2023. This is also coming with NPL improvement from 3% to around 2.5%. Consequently, risk-adjusted NIM, as we highlighted before as our focus, will also get better in 2023. We are fully aware that the economic situation will still have room for big swing in the short term, so that's why we will revisit the guidance from time to time. Now we move into financial performance presentation.
Year-on-year, we grew our loan book by 9.1%, in line with our guidance. CASA growth was 4.3% year-on-year, in which we are focusing on transaction-based CASA. Time deposit by design was contracting by 1.6% year-on-year and 6.2% quarter-on-quarter, as we are pushing for higher CASA ratio to optimize our cost of fund and prop up our margin. Net interest income grew by 5.2% year-on-year and 2% quarter- on- quarter. The quarter-on-quarter growth was driven by loan repricing in our floating rate loan portfolio as both JIBOR and SOFR reference rate got higher during third quarter.
Non-interest income grew by 7.8% year-on-year, driven by strong growth in loan syndication, part of wholesale banking fee income, aligned with our strategy to cross-sell between loan and loan product in order to compensate for low loan yield when we tap into blue-chip corporate clients. Quarter-on-quarter, we saw a bit of weakness in fee income coming from slow foreign exchange trading fees. Operating expense, as anticipated, grew by 7.8% as we continue to invest in human capital and digitalization. Bottom line profit grew by 77% year-on-year, thanks to 9.7% PPOP growth and 35% contraction in provisioning charges. BNI's CASA ratio in September 2022 reached above 70% level, and cost of third party fund, as expected, was bottoming on third quarter 2022 and may start to pick up on fourth quarter 2022.
Net interest margin on third quarter was higher 10 basis points quarter-on-quarter, reaching 5% due to higher JIBOR and SOFR benchmark rate that pushed up loan yield in floating rate portfolio. Cumulative nine months margin was at 4.8% at the upper range of our guidance. Accounting ROE was at 15.2%, bringing us closer toward our long-term target of 18%. Asset quality indicator are showing improvement trend. More detail will be elaborated with our Chief Risk Officer. Liquidity ratio were at optimum level with LDR at 91%. LCR and NSFR ratio were all well above regulatory requirement. We continue to maintain ample capital position with Tier 1 CAR at 70% and total CAR at 18.9%.
Consistent with our strategy to do portfolio de-risking, our loan growth was coming from blue chip corporates, growing by 20% year-on-year, and their blue chain in large commercial segment growing by 22% year-on-year. Subsidized micro loan grew by 24%, and payroll loan grew by 21%. We see ample room for growth in payroll loan product, as we have 3.8 million payroll account, out of which only 8% took payroll loan from us. Loan yield saw eight basis point pick up on quarter-on-quarter, thanks to repricing in floating loan book, rate loan book from JIBOR and SOFR rate increase. Year-on-year, we grew CASA by 4.3%, mostly coming from saving account growing by 8.2% year-on-year. Time deposit, on the other hand, was contracted by 1.6%, bringing our CASA ratio to 70.9%.
As we anticipated, cost of fund is already bottoming and may start to increase in our fourth quarter. Cost of third party fund during this quarter was 1.4%. We want to position ourselves as a top-of-mind transaction banking for our clients. The more transaction done via our platform will translate to sticky CASA in the bank. Mobile banking application and BNIDirect are playing a crucial role in building transaction CASA. More than 60% of retail saving comes from mobile banking, and 94% of demand deposit comes from BNIDirect. We closely monitor the growth of transaction in both platform, where until September 2022, mobile banking and BNIDirect transaction grew by 27% and 38% year-on-year. Risk Management Director, Pak David, will proceed the presentation with our asset quality update. Please continue, Pak David.
Okay. Thank you, Ibu Novita. Ladies and gentlemen, I will now give regular updates on our asset quality. As expected, the total amount of COVID restructured loan continued to decline. One of the indicators of improvement in our underlying asset quality is the continued decline of COVID restructured loan amount, which currently stands at below 10%, or at 9.6% of total loan. We always maintain our conservatism in term of collectability classification. While OJK relaxation period still valid until March next year, we already classified the non-paying loan as both NPL and collectability two, as they represented 17% of the COVID restructured loan. On the donut chart in the upper right corner, we can see that 64% of the COVID restructured loan is paying at above base lending rate, which means they are good candidates for unflagging in the near term.
For those who are paying at below base lending rate, this represents a third of the COVID restructured loan, which we already set aside 21% of the provision coverage, and we will add more for the rest of this year. We hope this explanation could bring confidence among analysts that we have a good understanding of the risk profile of our COVID restructured book. Despite the positive trend in asset quality, we consistently maintain an elevated level of provision coverage at 2.7x and loan at risk coverage at 43% as of September 2022. Combined with expectation of gradual reduction in loan at risk, this should translate to material reduction in credit cost this year. We continue to assign a conservative provision coverage of 81% on average for those in NPL category, which we deem sufficient considering LGD rate of around 60%-70%.
For those in collectibility two, the provision coverage was 64%, which is much more conservative than regulatory suggestion, and provision coverage for current reset loan, which is 18.4%, as we believe only a small portion of this bucket having high risk of downgrade to collectibility two. Ladies and gentlemen, this is the end of third quarter of 2022 result presentation. Next, moderator will coordinate for the Q&A session. Thank you.
Thank you, Bapak and Ibu, for the insightful presentation. Ladies and gentlemen, we are now entering the Q&A session. If you have any question, please send it to our email address, ir@bni.co.id, or you may send your question in the Q&A box on your Zoom apps. If our directors answer the question in Bahasa Indonesia, you are able to listen to the English version, please click the interpretation button on your Zoom apps and choose English, and then click Mute Original Audio. We received several questions for various topics from liquidity in the market, our capital outlook, asset quality, and loan growth outlook. Let's begin with the first question. This is from Handy Noverdanius from CGS-CIMB, specifically to Pak Royke. The question is, how BNI see the current liquidity on the market? Should we expect the time deposit rate to return to pre-pandemic?
How BNI positions our strategy to reprice the lending yield? Please, Pak Royke.
Thank you, Handy, and thank you, moderator. Average daily market liquidity for rupiah in the past three months is still around IDR 125 trillion. However, we see that liquidity could be lingering concern for the bank since the new regulation of higher reserve requirement takes into the effect. On the ground, we notice that pricing competition for special rate funding is getting more intense as banks are trying to deliver their loan growth target this year. As for deposit rate, there is a possibility it comes back to the pre-pandemic level since all the banks are still aggressive in credit growth in the next year. Our loan book consists of 15% fixed rate, 20% floating rate, and 65% managed rates. The floating rate part has already automatically adjusted aligned with the rising JIBOR and SOFR benchmark rate. Now the focus is on managed rate part.
Cost of fund already start to pick up, and we start to reprice small portion of managed rate book in Q4. We expect some pressure on margin in the short term as there will be some time lag for the loan repricing. We should not rush when doing loan repricing, as we want to make sure that it will not come to the expense of asset quality. Note that we are also still in progress replacing our legacy book with top-tier client and key industry players. Pricing needs to remain competitive. As for now, loan repricing in US dollar book is higher than in rupiah book, considering the FX LDR, which is already quite high.
Thank you so much, Pak Royke. The next question came from Jayden Vantarakis from Macquarie. This is about BNI capital outlook. Given the nature of this question, I believe Ibu Novi will give a comprehensive answer for this question. The question is, please update us on the outlook for capital Tier 1 ratio with upcoming operation risk-weighted asset changes and a higher potential dividend next year. Please, Ibu Novi.
Thank you, Jayden. Our Tier 1 capital ratio right now is at 70%, and the factor that will strengthen our Tier 1 CAR is combine all of the strategy of the ROE improvement. One, we consistent doing portfolio de-risking, not by taking aggressive growth strategy. We improve our profitability through non-interest income fee, and we consistent to do some efficiency on the cost of fund. On top of that, on January 2023, there will be a new methodology in operational risk weighting calculation from basic indicator approach to standardized approach. This is to confirm with Basel III reform. The one-off adjustment is estimated to add around 100 up to 150 basis points to our Tier 1 CAR. Current regulation for us now to have Tier 1 CAR at least 11.8%. So our CAR ratio, our Tier 1 capital ratio 70%, complies with the regulator.
The management team of BNI prefers to have Tier 1 CAR between 16%-17% in the long-term. We currently see room to increase dividend payout on a gradual basis starting next year. We currently factor in 30%-40% payout ratio from 2022 profit. This is subject to AGM approval.
Thank you so much, Ibu Novi. Next question comes from Ryan Lin of Goldman Sachs Asset Management. The question is, please explain about BNI asset quality outlook, right issuing plan, and loan growth outlook. I believe Bapak David Pirzada and Ibu Novi will give a clear answer for this one. Please, Bapak David Pirzada.
Thank you, Ryan. Despite the challenging global macro conditions, we think that the Indonesian domestic economy should perform better than most other countries, thanks to moderate inflation rate, strong household consumption, low dependency on export market, and also healthy level of foreign debt exposure. Specific in BNI, we are comfortable with asset quality outlook, where NPL is estimated to improve from currently 3% to be around 2.5% by the end of 2023. We also believe that the NPL coverage of 270% is already quite sufficient. With the improvement in the asset quality, the implication is next year credit costs also to improve materially, estimated to be below 1.5% from currently at 2%. All these estimates have also already taken into account the relapse rate of COVID restructured loans, as we assume Otoritas Jasa Keuangan is no longer extending relaxation on COVID restructuring policy that will expire on March 2023.
Further, Ibu Novita Widya Anggraini will add related to capital planning and loan growth.
Thank you, Pak David. For right issue plan and loan growth outlook, as I mentioned before, the management team right now is comfortable with our current Tier 1 CAR at 70%, and we are optimistic with its outlook in the near future, mainly due to consistent improvement in profitability metrics. Instead of capitalizing, what we have in mind is to propose higher dividend payout in an upcoming AGM early next year. Loan growth target for 2022 is set at 7%-9%. We are consistent in adopting a conservative growth strategy, focusing our growth on segments with high risk-adjusted margin. This includes blue-chip corporates and its value chain, payroll loans within consumer segment, as well as subsidized micro loan. Thank you, moderator.
Thank you, Bapak David and Ibu Novi. Next question comes from Thalia Riady from Indo Premier Investment Management. The question is, what is the worst scenario for NPL for next year, given the high inflation fear and also recession possibility? Given the main topic of Thalia's question, which is NPL, I believe it will be best if Pak David could respond to Thalia. Please, Pak David.
Okay. Thank you, Thalia. We estimate next year NPL to improve to around 2.5% from currently at 3%. This is taking into account the end of COVID restructuring relaxation policy. Our macro view for next year is already factoring in global and domestic economic slowdown, GDP growth between 4.8%-5.2%, down from this year of 5.1%-5.3%, inflation next year at 3.5%-4%, benchmark rate at 5.25%, and IDR reference rate at just above 15,000. So we believe this is the most likely scenario to happen for next year. We still see there will be continuity in asset quality improvement in BNI as we are making consistent progress in replacing our legacy book with top-quality new loan portfolio. Thank you, Thalia.
Thank you so much, Pak David. We received several questions from Q&A box from all the attendees. I believe the next question will be from Yolanda from BNI Sekuritas, specifically to Ibu Novita. The question is about LDR assumption for end of 2023, and also for benchmark rate assumption for 2023. Please, Ibu Novi.
Thank you, Yolanda. We assume LDR by 2023 is around 87%, as we want to maintain slightly more liquidity during this economic situation. Our assumption for BI 7-Day Repo Rate next year is 5.25%, 50 basis points higher than the current level, taking into account moderating inflation level due to oil price normalization as a result of global economic slowdown.
Thank you so much, Ibu Novi. Next question, this is regarding our CASA ratio and also time deposit rate. The question coming from Adi Prabowo from Trimegah Sekuritas. The first question is, are there any internal target for our CASA ratio? Has the bank had any major revisions in time deposit rate given the recent Bank Indonesia rate increase? The next question, on loan repricing, are these just the hedged loans? How many percent of the loans has been repriced, and is it in line with Bank Indonesia rate increase? I believe Ibu Novita will give a clear answer to Mas Adi. Please, Ibu Novita. Thank you.
Thank you, Adi. We want to maintain our CASA ratio up to 70%, and maybe higher than 70% in the short term. Sorry, in the short term, up to 70%, and higher in the long-term. Higher than 70% in the long-term. Because we want to be consistent to change our strategy to more focus on the transaction CASA. Right now, we recently adjust rupiah time deposit rate by 25 basis points for short tenor of three months, and 50 basis points for long tenor of 12 months or longer. This adjustment is effective on November 2022. For USD funding, we did adjustment for both current account and time deposit around 15 basis points adjustment for USD current account since September 2022. Around 5 basis points adjustment for USD time deposit tenor one month and three months since October 2022. The question on loan repricing.
So far, repricing happened in floating rate book in line with JIBOR. On top of that, also a small fraction of managed rate book as first stage repricing, focusing on those clients with small transaction with us. We still continue to not reprice our loan rate if the debtor is doing transaction with us and is classified as our blue-chip company.
Thank you, Ibu Novita, and we hope that can clear things out. The next question from Ferry Wong. Still regarding on time deposit. The question is maybe on LDR. BNI LDR is on the high side and looks like you need to increase time deposit composition. Could you comment on that? What is the cost of fund increase going to be in the first quarter of 2023? I believe Ibu Novita can respond to Ferry. Please, Ibu Novita.
As I mentioned before, LDR, we want to maintain at 87% or below 90% by 2023. We expect conservative on the cost of fund during full year 2023 may increase to be 1.7% up to 1.8% from currently 1.4% only.
Thank you, Ibu Novita and Ferry. We hope that can clear things out for you. We have another question. This is from Edward. Still specifically to Ibu Novita. Our cost-to-income ratio increased to 43% in the third quarter of 2022. How much portion of this increase coming from digital bank marketing campaign? Do you see that BNI cost-to-income ratio to continue to be at this level for next year, Ibu Novita? Please. Thank you.
Cost-to-income ratio increase will continue in this level next year. I think we want to maintain our cost-to-income ratio is around 42% up to 43%. The most portion proposition of this cost-to-income ratio is due to our strategy to strengthen our human capital capability. We raise our budget to doing training program for our talent, both of digital talent, data analytic talent, as well as transaction to upscale the competency on the transaction. Next year, we want to maintain this, so the focus on the cost portion is digital section and on the human capital.
Thank you, Ibu Novi. That was the last question for today. Thank you to all of our directors for the presentation and also for the Q&A session. Ladies and gentlemen, as we are reaching the end of our analyst meeting for the third quarter of 2022, we hope that we have delivered our third quarter of 2022 financial results to all of you. Any questions that have not been answered, our investor relation team will happily accommodate the answer for you. Or if you would like to have a face-to-face discussion or virtual meetings, please, you may reach us through our email address, ir@bni.co.id. We would like to express our gratitude for your participation, and we hope things are getting better, and we will be able to see you as soon as possible. You may now leave the webinar room. Thank you, and stay safe.