Good morning. We would like to thank you for joining us for Bank Rakyat Indonesia's full year 2023 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, Bu Vivi, our Director of Risk, Pak Agus Sudiarto, our Director of Micro, Pak Supari, Director of Networks, Pak Andrijanto, Director of Consumer, Ibu Handayani, our Director of SME, Pak Amam Sukriyanto, our Director of Corporate Banking, Pak Agus Noorsanto, 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 encourage you to download a copy of our presentation materials currently available from either the IR homepage or bank, at Bank Rakyat, or from the link we sent you this morning. Second, as this is in a webinar format, for the question and answer section, we will invite you as a speaker to the panel. When called upon, we will ask you to please unmute your microphone, and then please state your name and company before asking questions during this Q&A segment. I would now like to introduce Pak , our President Director, to begin the meeting.
Thank you, Bret. Let me start with a brief highlight of the macro situation and outlook. Indonesia's macro situation remains stable, and the outlook remain attractive, with our projection of 2024 GDP growth of 4.8%-5.1%, which is slightly below our 2023 GDP growth forecast of 4.9%-5.2%. Our 2024 forecast will be supported by a larger projected fiscal deficit of 2.29%, representing a sizable increase from 1.65% in 2023. More importantly, for our customer base, subsidy spending is anticipated to increase by nearly 27% year-on-year, based on the government target. 2023 inflation increased by 2.61% due to limited government spending and falling commodity prices.
For 2024, we are expecting inflation will increase to 3%-3.5%, as increased government spending, election spending, and higher commodity prices due to global tension will impact this figure. Additionally, state budget spending and KUR subsidy spending are both anticipated to be front-loaded, with stronger spending in first quarter 2024, compared to first quarter 2023, which should support growth along with the impact from the election spending. The currency in a falling rate environment should be able to appreciate against the US dollar back to the 15,100-15,400 range, as we are anticipating continuous inflows from foreign direct investment, as mineral downstreaming moves to higher value product and lower rate drives more risk-on appetite.
Finally, the election spending has continued to pick up in the last month, which should support the grassroots level, where many of our micro and small customers are located. Historically, in the year of an election, we see a 23 basis point increase in GDP. Financially, we feel our 2023 consolidated financial were quite strong, validating our portfolio shift to higher yielding asset. We book in -line year-on-year loan growth of 11.2%, with our consolidated loan reaching IDR 1,266.4 trillion, or micro loans stand at 48.3% of total loans. Despite this current high rate environment, we continue to see the resilience of our net interest margin, which stand at 7.95%, above our guidance of 7.7%-7.9%.
We are seeing continued improvement in our earning asset mix and lower modification losses. Given the elevated rate environment and competition for funding, our current and savings account ( CASA) ratio, declined to 64.35%, down from 66.7% year-on-year. Our cost to income ratio improved to 41.9% from 44.9% in the year ago period. Our increased digitalization is deriving consistent operating efficiencies, as operating expenses only increased 3.3% year-on-year. Our gross NPL ratio was 2.95%, in line with our adjusted guidance as corporate NPLs continue to improve.
Our profitability metrics continue to improve as our return on assets increased to 3.24% from 3.01% in the year-ago period, and our return on equity increased by 232 basis points to 20% from 17.6% last year. Leverage employed increased to 6.2x from 6.1x in the year-ago period. Finally, our net profit in 2023 increased by 17.5% to IDR 60.43 trillion, primarily due to margin expansion and efficiency gains year-on-year. The key strengths we note in the quarter were our continued benefits from the mix shift in our loan portfolio, efficiency gains, and profitability improvement. Our asset shift is supporting higher yield.
This is being led by loan to earning asset increase to 70.7% from 68.4% in the year-ago period, with a lending yield of 13.18%, + 88 basis points year-on-year, further supported by portfolio rebalancing in micro and minimal modification losses in 2023. Furthermore, our ultra-micro subsidiaries, PNM and Pegadaian, have increased by 12.8% year-on-year and now account for 9.1% of total loan and 18.2% of net interest income. Secondly, digitalization has improved our cost-to-income ratio, as the consolidated cost-to-income ratio improved by 298 basis points to 41.9%. Branch network efficiencies have been supported by increased agent banking capacities and digital infrastructure improvement. The two above points contribute to profitability metric that we believe are positioned to move higher.
In 2023, our return on asset increased by 23 basis points to 3.24% year-on-year, and our return on equity increased by 232 basis points to 20%. We face challenges as asset quality remain at the upper range of our 2023 target. Our strategy to expedite the resolution of COVID -restructure loan, El Niño, and low government spending negatively, negatively impacted our micro and small business portfolio, increasing SML and NPL in this segment. That said, we maintain ample NPL coverage at 229.1% and loan loss reserve at 6.8%, well above the pre-COVID level of below 4.5%.
Our second challenge in 2023 was the tight liquidity environment resulting from the regulation, rising interest rate, and higher system competition for funding in 2023, leading to a rise in our cost of fund to 3%. In first half 2024, we are caution of our funding costs, as we will pay dividend, Ramadan cash need, and dividend repatriation. Our third concern is our elevated capital level, as our Tier I capital adequacy ratio stand at 26.1%, among the highest in Indonesia. We have increased our leverage and plan for this to rise closer to 6.5x to 7 point something in the medium term. Next, I would like to first review our 2023 guidance and how we perform.
We guided to loan growth of 10%-11%, and we were in line as we achieved 11.2% loan growth. We guided to a net interest margin of 7.7%-7.9%, and we beat this guidance with 7.95% NIM. Our credit cost was 2.2%-2.4%, and we were in line with this guidance at 2.38%. On NPLs, we adjusted our guidance in the years to 2.8%-3% NPL ratio, and we were in line at 2.95%. Finally, for our cost-to-income ratio, we guided to 40%-41.5% for bank only, and we beat this guidance by reporting 37.7% bank only cost-to-income ratio. Now, let's discuss 2024 guidance.
As I noted earlier, we anticipate slightly lower GDP growth in 2024 compared to 2023, and we believe that this will lead to loan growth in the 11%-12% range. We anticipate this growth will be driven by our consumer and SME segment, while micro will grow in line with the portfolio, and corporate will grow at a slower pace. We think there could be some slowdown in corporate due to the presidential transition process. Our net interest margin should be maintained in the 7.9%-8% level, as we anticipate that the loan mix shift away from corporate, along with further shift within micro to higher yielding Kupedes loan, will offset the higher cost of fund we see entering 2024.
Our net interest margin guidance is based on forecast of 50 basis point rate cut in second half 2024, but we are cautious on cost of fund in first half 2024. We project that our cost of credit will continue to improve and come down to 2.2%-2.3% for 2024, as we continue to see the COVID -restructure portfolio declining and our loan at risk improving year-on-year. Similarly, we project our NPL rate will be 2.7%-2.9% in 2024, as we see improvement are likely across SME and corporate on the asset quality. Our consolidated cost-to-income ratio guidance is 41%-42% for 2024, remaining relatively stable on a consolidated basis from our 2023 result.
I would now like to turn the call over to Bu Vivi, our CFO, to discuss our financials in more detail.
Thank you, Pak Sunarso. Good morning, everyone. I would like now to discuss about our balance sheet. And as you can see, our total asset basically grew 5.3%, supported by our strong earning asset that grew 7.5% year-on-year. And this increased the earning asset to 91.1% of our total asset. If we are looking at our loan and financing, we grew by 11.2% year-on-year, as higher yielding loans increased to 70% of our earning asset. This support actually our earning asset yield expansions. And we also note that the contributions from PNM and Pegadaian still stood at 9.1% of total loans, and helped to drive loan growth at the micro level going forward as well.
Our loan loss reserve decreased by 8% year-on-year, as we strategically built the reserve during the pandemic, and now, using it to offset some of the COVID restructure portfolio write-offs, likely to help us contain our COC as well in 2024. Our deposit increased by 3.9% as we decided to push our loan-to-deposit ratio higher year-on-year to 84.2%, increased by 540 basis points. I would note that we are modestly increasing our leverage. At the year-end 2023, our leverage rose to 6.2x from 6.1x in a year ago period. We anticipate as well that over the next 12 months, we can continue to increase our leverage, but we will remain relatively conservative in capital management.
Okay, if we are looking at our loan portfolio, our loan book at year-end 2023 was in line with our guidance, growing 11.2%. I would like to provide more details on this. Our corporate portfolio's growth rate in 2023 was 13.8% year-on-year, slightly higher than our guidance. There are a few reasons for this elevated growth. First, if you remember, in 2022, we have several significant modification loss, so the low base effect because of the modification loss from 2022, that's the first reasons. The second one, in our portfolio, corporate portfolio, consists of disbursing loans to our subsidiaries, namely PNM, Pegadaian, and BRI Finance, that also are growing quite significant in 2023.
Micro growth is in line with our target, if we adjust for the accelerated write-off in 2023. On the micro portfolio, our write-off year-to-date stood at 3.2% of bank-only micro loan, compared to only 1.7%, in a year-ago period. Excluding this event, micro loan growth would have been over 12%. The micro and ultra-micro segment growth continue to be driven by PNM and Pegadaian, contribute 9.1% of our total loan. In addition, Kupedes, our commercial micro loan, has increased by around 64% year-on-year. This is, this growth, the Kupedes growth, has pushed non-KUR compositions to 64% of our consolidated micro loan. If we recall, like year-ago period is only 54.4%.
We anticipate that the full year 2024 micro loan growth will be driven by Kupedes growth still, and that should bring consolidated commercial micro up to around 70%-75% of total consolidated micro loans. If we are talking our deposit compositions, so our overall deposits grew 3.9% year-on-year, and our CASA growth was flat. Our CASA ratio decreased year-on-year by 240 basis points to 64.3%. But still, at this level is higher than our historical level, around 60%. Demand deposit decreased by 1% year-on-year, as we receive a sizable deposit from one of our wholesale depositors, around IDR 46 trillion in the very end of 2022. And yet, in 2023, we received only around IDR 14 trillion from the same depositor.
We are able to maintain the cost of CASA around 1%, as 60% of our CASA basically is coming from our savings account. Given the upcoming dividend payment, then Ramadan, then also dividend repatriations, we do expect that the cost of fund can adjust modestly higher in the first quarter in 2024. So for Rakyat, basically, the first quarter, cost of fund and also net interest margin will be very critical to determine our 2024 guidance for NIM. The recent pick-up in government and election spending focus at the grassroots level could bode well our savings balance going forward. We are working on initiatives across business segment to increase CASA growth and manage our cost of fund as a part of our aspiration in 2024 to strengthen our retail banking capabilities.
Our capital position remain elevated, with total CAR of 27.3%. We paid out dividend interim in January 18, roughly around IDR 84 per share, IDR 84 per share, or equal with 21% payout ratio. And we also want to clarify that one of the drivers of the increase in CAR is that the risk weighting of the risk -weighted assets for our Kupedes portfolio has decreased from 75%, now it's roughly around 55%, as a result of the insurance on the product of Kupedes. And over the medium term, we would like to see our CAR to decrease from current level to closer to 20%-21%.
Moving to our P&L, our net interest income increased by 8.5% year-on-year, and we would note that the interest income continue to benefit from our mix shift to Kupedes, and not having modification losses in 2023. There were several modification losses, but very, very small, and not as significant as 2022. And together, this helped increase interest income by 17.9%, and this helped us basically to offset the increase in interest expense of 61% due to rising interest rate. Our non-interest income was up 17.3%, as was, as we continue to see a strong recovery income growth, and we will explain later.
And our costs were well controlled, increasing a modest 3.3%, and helping to achieve a consolidated cost-to-income ratio well below our target at 41.9%. And this led to PPOP increasing 16.7% year-on-year and translating into a strong 17.5% net profit growth. Our consolidated net interest margin was 7.95% in 2023, while bank-only NIM is only 6.8%. The contributions from PNM and Pegadaian subsidiaries increased quite significant, contribute 103 basis point to our consolidated NIM, and up 6 basis point from 97 basis point last year. Our 2023 lending yield increased to 13.18%, like I mentioned previously, because of the mix shift and also limited modification loss.
Our cost of fund increased 94 basis points and was under pressure in the fourth quarter 2023 due to liquidity moving to other higher-yielding product. If we are looking on our other operating income and also other operating expense here, non-interest income continues to report strong growth, while operating expense growth was very well managed. The non-interest income increased by 16.6%, supported by fee income and also recoveries, especially coming from recoveries. Recoveries on return of assets had a greater impact on the non-interest income, increased by 35% year-on-year.... and now it's like roughly around IDR 16.8 trillion. On the OpEx side, costs continue to remain well controlled, with total OpEx up 3.3% year-on-year to IDR 76.8 trillion.
And if we are looking at our OpEx, we continue to see improvement as our costs to asset being managed around 3%-4%. We reported bank-only cost-to-income ratio has declined to 37.7% and 41.9% consolidated. We have continued to see efficiency improvement in our micro businesses through enhancement in BRISPOT utilizations. And also going forward, we are also expecting business process improvement in PNM. I would now like to turn the presentations over to our Director of Risk, Pak Agus Sudiarto, to discuss about our asset quality. Thank you.
Thank you, Bu Vivi. I would like to discuss our asset quality and give an update on our outlook for 2024. The NPL ratio increased by 28 basis points to 2.95% year-on-year, as we strategically decided to accelerate downgrades of our COVID restructured loans book. The increase was primarily across our micro and small business segment, rising 73 basis points and 58 basis points respectively, while our corporate and subsidiaries reported NPLs improving. The Special Mention Loans increased to 4.87% from 3.9% in the year ago period. The increase was primarily driven by higher downgrades in the micro and small segment, particularly in loans impacted by the pandemic. As a reminder, at the subsidiary level, last year, we adjusted per guidance on financing asset quality categories to 60 days for NPLs, versus 30 days past due historically.
This is a metric that remains more conservative than banks, yet still led to a decrease in their NPL ratio, but increase in their Special Mention Loans. Our provision for loans and financing stood at IDR 85.5 trillion, representing 6.8% of total loans. From 2015 to 2019, before the pandemic, our loan loss reserve to loans never surpassed 4.4%, and we anticipate that as we work through our COVID restructured portfolio, that this, this reserve will revert back to a level closer to our pre-pandemic ratio of loan loss reserve to loans, implying a likelihood that the credit costs continue to improve or not improve over the next few years.
While our coverage ratio is starting to move closer to normalized levels, as it decreased to 229.1%, and we would expect this can continue to move lower over the next 12-18 months as loan at-risk and COVID restructured loans continue to decline. Loan at-risk ratio has declined to 12.5% from 16.5% year-on-year, and we anticipate it will continue to decline. We have seen solid improvements in large since 2020, as our restructured loans continue to decline. Cost of credit stands at 2.38%, while our net cost of credit is less than 1%.
This is in line with our full year 2023 guidance, and as Pak Sunarso stated earlier, we anticipate our cost of credit to improve in 2024 to 2.2%-2.3%. We did not have any sizable modification losses in this year, and expect any restructuring related to the SOE business contractor to occur in the first half, 2024. We have built up provision to over 75% against this exposure. For 2023, we write off IDR 33.1 trillion, and for 2024, we anticipate write off of around IDR 30 trillion-IDR 34 trillion. We did see an increase in the recovery rate on return of loans in the quarter, which now stand at 50.9%, up from 43.3% in third quarter last year.
At year-end 2023, total outstanding COVID-19 restructured loan decreased to 4.8% of total loan and 3.2% of total borrower from 10.4% and 7.7%, respectively, in the year-ago period. The COVID-19 restructured portfolio totaled IDR 54.5 trillion at year-end, representing a decline of 23.1% quarter-on-quarter, mostly driven by improvement in small and corporate segments. We anticipate the majority of this restructured book will be resolved in the next 12 months. Within the COVID restructured portfolio, it is composed primarily of small and micro loans that account for 64% of the total. At year-end 2023, 51.3% were current in payment, with 30.9% in special mention and 17.8% in non-performing loan.
We feel the coverage of 36.7% is more than adequate to absorb of any losses. I would now like to turn the presentation over to Pak Supari to discuss our micro portfolio.
Thank you, Pak Agus. Let's discuss the scope of the Ultra Micro Ecosystem, micro business performance in 2023, and our outlook in 2024. First, I would like to discuss the Ultra Micro Ecosystem. Through BRI, Pegadaian, and PNM, we serve more than 36.9 million borrowers with lending and insurance products. The contribution of PNM and Pegadaian to consolidated micro loans increased to 18.8%. At PNM, the loan growth 10.6%, as the women group lending business grew 17.2%, while ULaMM decreased by 27.1%. Women group lending is currently 89% of PNM total loans. Pegadaian grew 14.4%, with Pegadaian non-pawn lending as the main contributor, rising 58.3%, while pawn lending grew 8%.
At year-end, 2024, we expect non-pawn lending could reach nearly 20% of Pegadaian loans. Cost of, cost of funds have improved at PNM and Pegadaian since we acquired them in the third quarter of 2021. Since acquisition, the cost of funds at PNM and Pegadaian have improved by 119 basis points to 6.8%, and 29 basis points to 5.9% as respectively. This improvement is primarily because they are under the BRI group, with improved governance and transparency. Apart from that, PNM business process are getting better, with 99% of PNM cashless distribution by the end of 2023. Our micro loan growth in 2023 is driven by Kupedes, increasing 64.3% year-on-year.
As we transition back to our core commercial and more profitable micro loan, our subsidized portfolio known as KUR is down 12.6% year-on-year. We are seeing the number of Kupedes borrowers increase by 64% year-on-year to 4.7 million borrowers, with a 30% graduation rate from KUR to Kupedes. Furthermore, our business process digitalization reflects strong results through increasing the productivity of micro officers. The government has released the 2024 KUR policy and allocate IDR 165 trillion for BRI. The policy continues that financial inclusion focused by targeting disbursement, graduation, and loan cycle limitation for borrowers. Actually, this provide an attractive environment for maintaining sustainable commercial non-subsidized Kupedes growth. We expect to meet the KUR disbursement target while continuing to see non-subsidized micro loan increase to 60% or higher of micro loan.
I would now like to turn the presentation back to Pak Bret to organize the Q&A segment. Thank you.
Thank you, Pak Supari. We would now like to move on to the Q&A segment. Please raise your hand if you would like to ask a question. As this is a webinar format, for Q&A, we will invite you as a speaker to the panel. Please accept this invitation. We will invite three analysts to start, and then we'll continue, time permitting. When called upon, please unmute your microphone, and please state your name and company before asking your question. We'll take a minute or so just to compile the questions. Thanks. So we'll start. We have a question coming from online first. Micro growth was slower first in the fiscal year 2023, and is expected to be in line with the portfolio in fiscal year 2024. What is causing the slowdown?
Is it high inflation or is it the asset quality?
Okay. So, for our micro growth in 2023, if we normalize with the level of write-off, basically, they are growing still in line with our aspiration, roughly around 12%. However, you can see that our write-off level in 2023 was significantly high. So yes, this is because of the lingering effect of COVID-19 restructuring loan in micro. So we write off a very significant portion that causing the micro loan growth, slower in 2023. And then also, if you remember, that the regulations for KUR basically just finalized in third quarter, third quarter of 2023, so that's also impacting, basically, how our micro business responses to the regulations as well.
Thank you, Bu Vivi.
And sorry, because this is consolidated numbers, so please note that in PNM, PNM only growing roughly around 10.56% year-on-year in 2023, and this is, as a result of, product alignment, where basically they decrease their exposure on individual lending or ULaMM. So ULaMM decreased by 20% year-on-year, but the group lending, Mekaar, still grew 17.2%. Thank you.
Thank you, Bu Vivi. We'll take the next question from Selvie. Please unmute your line.
Hi, can you hear me?
Yes, we can hear you.
Thanks, Bret. Thanks, management. Congrats on the results. I just have a couple of question. Maybe the first few questions on the results first. In terms of the recovery income, what has been driving it? What has actually changed that causes the recovery income? And for next year, do you expect that to continue? And also, the next question pertaining to the results also, in terms of the cost-to-income ratio, within, what has been largely driving that cost-to-income ratio uplift? Has it been mainly on the subsidiaries level and going? So where do you think that will come through from?
And lastly, my question with regards to KUR, given that this is an election year, and typically, like, the quota, the quota for KUR in election years tends to be a little lower, how do you expect things playing out after election in terms of KUR and Kupedes? If... I know, like, it's probably still, like, more than 12 months away, but just curious about your thoughts around there. Thank you.
Selvie, I think, because your question had multiple parts, first, maybe Pak Agus Sudiarto can talk about the recoveries
Yeah
... and the asset quality. And then following that, Bu Vivi can add about the cost-to-income ratio and the other aspects.
Thank you, Bret. I think, I want to talk about the recovery income, as asking by Selvie. First, the recovery rate increased, supported by Ultra Micro segment, which increased 53.3% quarter-on-quarter. This year, we have an aspiration to recovery up to IDR 20 trillion. It reflects more than 50% recovery rate of the total bank. We feel confident to achieve the target with the some develop a new organization for the recovery, especially for the SME. We have a pipeline for the corporate segment that we expect can give us the substantial recovery during this year. Thank you, Bret.
Okay. Hi, Mbak Selvie. Hope you are okay. So for the cost-to-income ratio uplift, the first reason is because of the increase that we saw in net interest income. That increased 8.5% year-on-year because of the mix shift in the micro segment, and also higher contributions from Pegadaian and PNM. So their contributions on Pegadaian, their contribution basically increased, now it's roughly around 18% to our NAE. That's the first drivers. The second one, of course, is our manageable OpEx growth, especially coming from the bank level and also from Pegadaian. So, from the bank level, if we are looking at the posture of the operating expenses, one that we probably... You can note that there were several one-off on the personnel expenses.
So if you remember, in 2021 or 2022, we booked a reserve for contractual workers severance payments. Now, these numbers already calculated, recalculated by the actuary. So basically that, then we reverse some of the contractual workers' severance payment. And we also, if you remember, we have performance-driven culture, basically. So our incentive and bonus payment now, are based on performance. So that's why, the cost-to-income ratio in 2023 is improving. Your last questions on KUR. So the coordinating ministry has determined that 2024 KUR distributions policy will adopt the 2023 policy. So there is no change in the content of the policy. So far, that's what we already conclude with the KUR committee.
The national KUR quota 2024 will be roughly around IDR 280 trillion, and BRI will absorb roughly around 58%-59%, or roughly around IDR 160 trillion-IDR 165 trillion. And if we are looking on the conditions now approaching to the elections, we are assuming this whole year 2024 with IDR 160 trillion-IDR 165 trillion of KUR. So we are still confident that we will continue the accelerations on Kupedes growth. We estimated that the Kupedes will grow roughly around 33%-35% year-on-year, this year. And I think our capacity in term of the loan officer in micro still sufficient to disburse Kupedes larger than KUR.
So we anticipate that by the end of this year, the non-KUR in our portfolio bank only, roughly around 60%. So I think that's... One more thing, probably you can note that the subsidy for KUR in 2024, I think it's only, like, IDR 47.7 trillion, including the lingering effect of KUR 2023. So, so that's basically the overall posture of KUR and how Rakyat will guide the micro business expansions in 2024.
I think, let me, reemphasize what, Bu Vivi and Pak Supari, shared. First, I think on, KUR, I think, so now we just, maybe follow and based on existing regulation, primarily on, in terms of, subsidy and also, target. So now, in 2024, our target actually is IDR 165 trillion. And it's a rule of thumb, we have to- we now, I'm, aiming to maybe to, achieve the target, not more than, September. Because I think, when new president inauguration, let's say on October, I think we already completes it, completes our, target. That is a rule of thumb for KUR.
For the recovery income, I think we will continue to get the recovery income effectively, because, last year, we write that off, right on, write off, the portfolio, so ample. So now we already have the source of recovery, I think it's, so ample, due to our, policy to, make a write-off our portfolio, primarily in micro and SME. That's... I think we're still optimistic to, achieve the target on, in term of, recovery income. Yeah.
Thank you, Pak. Next question we'll take from Harsh Modi. Harsh, can you hear me? You can unmute your line.
Yes, I was able to unmute myself. Thank you for that, Bret. Bu Vivi, thank you, and, and Pak Sunarso, also thanks for the call. Simple question on margins. As we think about the 7.9%-8%, I'm more interested in, in course of the year, how will the margin progress? Is it fair to say that, first half of the year, given the repatriation and Lebaran , we can have a, a consistent tightness in cost of fund, and, hence, margins may be under pressure with a pickup in second half as liquidity improves? Or do you think you will be able to have fairly-
Hi, Harsh. Can you hear me? I think we lost you for a few minutes.
Yeah.
Yeah, yeah. Okay. So, the guidance for NIM, 7.9%-8% based on several assumptions. The first one, of course, is the assumptions of rate cut roughly around 2x 50 basis points in the second half. And so, I agree with you. Our assumption in this case is we assume that in the first quarter, the liquidity conditions in the environment will be tight. Like you mentioned, Ramadan, and also the dividend repatriations, and also we pay our dividend as well. And we expect that in the second half, the liquidity condition probably will be better. Another assumption on our NIM guidance, not only in the rate cut, but also in the portfolio mix.
So if we can accelerate the disbursement of KUR as planned, that we aim to have Kupedes grow roughly 30%-35% year-on-year this year. So the portfolio size and also contributions from Pegadaian and PNM that would contribute a positive 50 basis points to our margin. But the... I think the negative side is the cost of funds and also we are cautiously watching our asset quality in micro and small segment.
Right. So, given that you would be able to grow corporate faster, will that be enough to offset the cost of funds pressure in first and second quarter? So should we get around 8% NIM, even in first and second quarter, or you think NIM can be a bit weaker over the next couple of quarters before improving later on?
Yeah, it's a very interesting questions. It's not only about the cost of fund, Harsh. As you know, we also still have a challenge coming from the asset quality. So the first quarter net interest margin will be very critical for Rakyat going forward. If we already pass first quarter, probably we will have a more clear picture on the net interest margin. We will cautiously monitor our cost of fund and also our asset quality.
Yeah, Harsh, it's Bret. Sorry, just to add a little bit on what Bu Vivi is mentioning. It's particularly when we look at the lending yield, that we're seeing the mix impacted by the NPLs, whereas we're shifting more and more towards corporates, it's very positive for us. But if the NPLs in micro are elevated, then it tends to offset that a little bit. So I think that's where we're just a little bit cautious when we're looking at the NIM for the first quarter and second quarter of 2024.
Got it.
Thank you for the question.
No, that's all I wanted to know. Thank you so much.
Thank you. The next question we'll take from Raymond Kosasih.
Hi. Morning. Thank you.
Raymond Kosasih , you can take the next question. Sorry, I think my microphone's a little bit broken.
Can you hear me?
Pak Raymond, we cannot hear you.
Can you hear me?
Okay, maybe first we'll go to a question from the audience that we have here that was written in. And the question was asking about the recovery rates across different segments in 2024. And I think, you know, when we're looking at the recoveries, we think it will be probably a write-off number of around IDR 34 trillion, similar to this year. And while we're still looking in the process of where the differences will be, we do think that the write-offs will probably be coming a little bit higher from the micro segment in 2024, and a little bit more of the recoveries probably coming from the micro segment as well.
The reason for this, on the micro segment recoveries being higher, is because of the insurance numbers, continuing to increase for Kupedes, and that should help us to drive higher recoveries in the micro business, particularly. Raymond, I don't know if you can hear me, but, do you still have a question?
Yeah. Can you hear me?
It's very low. If you can try to speak up.
Oh, sorry about that. For some reason, it's trying. My computer. So my apology for that. Yeah. But just very quick, I have three questions. Your CASA growth is practically flat. Yeah. Can you elaborate where the challenge is actually growing, I mean, the slow growth is actually in the rural CASA or in the urban CASA, and how are you gonna attack that? So that's number one. Number two, how much actually from the growth for corporate? And I look at the corporate growth is, it's actually very high. Can you really sustain that growth going into 2024, or you will rely more on the other high yield, like Pegadaian or PNM? The next question is on credit costs. The decline in the credit costs this year is actually very, very small, give or take 10 basis points compared to the guidance.
Is this because you mentioned earlier about the micro asset quality? Or maybe you can give us a color on the vintage analysis by segment, particularly on the micro. What is the NPL for... 2020 onwards, yeah. Because, okay, I understand that the NPL that you face in the micro is historical, but I just want to know from 2020 onwards. Thank you.
Maybe I can first just recap your questions. I think the first question was about CASA growth and what we're expecting for 2024, and the impact that we've seen from where the CASA is coming from. Was it coming from rural, or is it coming from the urban areas where we're having concerns and seeing weakness? Your second question was about the Kupedes growth and whether we can maintain that. Your third question was on the credit cost, the cost of credit. Maybe I can take a little bit of this question on the CASA, and then on Kupedes, Bu Vivi can take that, and then the credit cost, maybe Pak Agus Sudiarto can answer.
On the CASA side of things, we did see slower growth in the rural areas than on the urban, and mainly being reflected when we look at our micro CASA growth, was pretty weak, and the consumer was, you know, relatively just flat for the most part. Our issues with this is, obviously, I think you saw government spending was quite weak in 2023. In addition to that, if you look at the M2 numbers, you know, the most recent ones, you're talking about growth of only, like, 0.5% in November, the month of November. So, that's also having an impact as well. Obviously, you know, the election spending had not really picked up going into the end of the year. We've seen changes in a lot of this in 2024.
We're seeing funding costs coming down a little bit so far, but we're also seeing, you know, government spending really picking up, and the election spending has been picking up as well. When we, you know, look ahead into this year, I think as Pak Sunarso mentioned earlier, the government budget that's allocated towards subsidies is increasing by about 27%. That equals over IDR 200+ trillion . So, that could also provide a boost on the CASA side for us, also maybe helping on the micro asset quality, too. Maybe now, Bu Vivi can talk a little about your question on Kupedes growth and if that can be maintained.
Yes. Pak Raymond, thank you for your questions. If we are looking out at our Kupedes growth, I think this year and going forward, of course, you cannot expect a level of growth like what we had in 2023 because of the high base effect. So, for example, 2024, Kupedes will be growing 30%-35%. Then, if we are talking about what is the kind of normalized growth of Kupedes in the medium and long term, hopefully, we can have, like, 14%-16%, only in Kupedes, probably, like, close to... possible close to 20% if there is a change in the regulation. For example, the aspiration from the government for soft lending of KUR, for example.
So that will minimize, you know, the access to KUR going forward, for example. They started in 2023 by giving KUR only eligible for new -to -bank customer. If they continue to do that, so, the possibility for Kupedes to grow going forward is very, very high. Then, if we are looking at looking at our other source of growth, the PNM, 2023 and 2024, they will still continue their program on product alignment. It means that individual loan, the ULaMM, will continue to decrease because our final goals, basically, is to make this loan close to zero and continue to focus PNM on group lending.
So if they can continue this initiative in 2023 and 2024, you might expect that the PNM growth in the next, like, two or three years will be roughly around 13%-14% before they take off higher than that. And also, if we are looking at Pegadaian, now they are growing beyond our aspirations. Basically, they are growing now roughly around 14%, and they will continue to do that way going forward, to grow 13%-14%. So that's basically the source of growth in our micro segment going forward.
Okay. Thank you, Pak Kosasih . I want to respond about your question in the asset quality and also, about the credit cost. Yes, you true that, our credit cost even, lower than, the last year, but small decrease.
It is because, as we mentioned in our some previous meeting, started last year and will be still continuing this year, we will clean up all the loan restructure during the pandemic. Why? Because we see first, the relaxation regulation from the OJK will be ended in this March, so we will push all the loan COVID restructured loan being an NPL that can be written off. Secondly, we also see the deteriorated in the asset quality in micro and small. We anticipate this first, we review our scoring model. End year, last year, end of last year, we built a new scoring model for the micro, and also the some adjusted in the organization in micro.
As, for example, we appoint the supervisor, to do in the certain unit to focusing on the operational. So the, unit head will focusing on the credit quality. And the small segment, we also, implemented, the new way of business model, what we call the S1. It implemented started in July, last year, and we see from the vintage, if you compare, the old version with the new version, the new version is slightly much better, compared to the NPL ratio. If you see from the as of the December, the NPL ratio from the existing model, from the small segment, the NPL is coming from, 1.6%, while the new model is below than 1%. So we, still focusing and guarding the asset quality during this year. Thank you, Pak.
Thank you, Pak Agus and Bu Vivi, for the answers. Thank you all for joining us. This is the end of our 2023 full year earnings call. We hope you guys have a nice afternoon, and thank you for joining us today, and we look forward to seeing you the first quarter of 2024.