Thank you all for joining us for Bank Rakyat Indonesia's Q3 2023 Earnings Call. We would like to begin the call now. First, I would like to thank our board members who have joined and introduce them to you. Our CEO, Pak Sunarso, our CFO, Bu Vivi, our Director of Risk, Pak Agus Sudiarto, our Director of Micro, Pak Supari, our Director of Networks, Pak Andrijanto, our Director of Consumer, Ibu Handayani, our Director of IT, Pak Arga, our Director of SME, Pak Amam, our Director of Corporate, Pak Agus Noorsanto, our Director of Compliance, Pak Solihin, 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 either from the Investor Relations homepage of Bank Rakyat at ir-bri.com, or from the link we sent this morning. Second, as this is in a webinar format, for Q&A, we will invite you as a speaker to the panel. Please accept that invitation after we start the Q&A, and when called upon, please unmute your microphone, and please state your name and company before you're asking a question during the Q&A segment. I would now like to hand the call over to our CEO, Pak Sunarso, to discuss our financials.
Thank you, Brett. Let me start with a brief highlight of the macro situation and outlook. Indonesia's macro situation remains stable, and outlook is strong, although global tension, higher oil prices, and risk of modest food price inflation are top of mind. The economy grew a healthy 5.17% in Q2 of 2023. Therefore, we now predict the economy will grow at an accelerated rate of 4.9%-5.2%. The accelerated growth is driven by two key factors. First, is that the unrealized state budget remained quite large. At the end of August 2023, the state budget remained at a surplus of IDR 147.32 trillion , or 70 basis point of GDP. We would expect state budget realization will continue to accelerate it in the Q4.
The increased price of rice due to El Niño, along with higher oil prices due to global production and instability in the Middle East, is expected to place pressure on domestic inflation by a combined 0.6% by the end of 2023. Therefore, our economists forecast that inflation outlook for 2023 to be 3.1%-3.6%, well within Bank Indonesia's range of 2%-4%. The likelihood of increased liquidity could help stabilizing funding costs, a benefit for our liability-sensitive balance sheet. Additionally, while the rupiah has depreciated against the dollar, it continues to outperform most regional currencies. Second, we anticipate election spending to pick up in the Q4 , which should support the grassroots level, where many of our micro and small customers are located.
In the year before an election, we have seen 32 basis point boost to GDP, while the years of the election, we see a 23 basis point increase in GDP, both years reflect a positive impact. Financially, our consolidated number continued to normalize as we move further away from the pandemic. We booked stronger than anticipated year-on-year loan growth of 12.5%, with our consolidated loan reaching IDR 1,250 trillion s. Our micro loans stand at 47.2% of total loan, relatively flat year-on-year. Given the elevated rate environment, we have seen our proportion of low-cost fund decrease year-on-year, but remaining well above pre-COVID level.
The CASA ratio stand at 63.6%, down from 65.4% year-on-year, while interest rate have increased by 225 basis points during the recent rate hike cycle. Despite this current environment, we continue to see the resilience of our net interest margin, which stand at 8.05%, well above our guidance, and is well-positioned to meet our full year guidance of 7.7%-7.9%. Our cost-to-income ratio improved to 41.28% from 42.55% in the years ago period, as our OpEx only increased by 5.3% year-on-year. Our gross NPL ratio was 3.07% in the first nine months of 2023, an improvement of two basis points year-on-year.
Our profitability metric continued to improve, as our return on asset increased to 3.21% from 3.15% in the year-ago period, and our return on equity increased by 143 basis point to 19.69% from 18.16% last year. Leverage employs increased to 5.9x from 5.6x in the year-ago period. Finally, our net profit in the first nine months of 2023 increased by 12.5% to IDR 44.21 trillion, primarily due to margin expansion and efficiency gains year-on-year. The key strength we note in the quarter were our loan growth, cost control, and strong net interest margin.
First, our loan growth is now at the 12.5% year-on-year and above our full year 2023 target. We are seeing solid growth across all our segments year-on-year, and anticipate that full year growth will be well within our target of 10%-12%. At the ultra micro level, we are seeing higher growth, currently at 14.8%. Our cost control remain disciplined as we are seeing costs increasing a modest 5.6% and cost-to-income ratio of 37.6% at the bank-only level. Our net interest margin continues to move higher in the Q3 , reaching 8.5% in the quarter on reported basis and 8.05% year-to-date.
In Q3 2023, one of interest income from the KUR subsidy accrual was a primary driver of the higher interest income. We also face some challenges in asset quality, funding costs, and capital level. On asset quality, we are focused on resolve the COVID restructured loan portfolio. We have begun to more aggressively downgrade and write off loan to clean up the bad loan, but saw an additional impact in Q3 2023 from El Niño. In early Q3, interest rate began to stabilize, but rates increased slightly as our cost of fund increased by five basis points to 2.84% from H1 2023. In response to this, we continued to focus on expanding our CASA deposit and increasing CASA-related KPI, KPI weighting.
Our capital remains above optimal level, as we would like to see capital adequacy ratio move toward our longer-term target of 20%. In response, we will work to pay out a higher share of our earnings to investors and to increase loan growth in the coming years. Based on our visibility into Q4 2023, we feel we can make some minor adjustments to our guidance. Our loan growth guidance of 10%-12% will remain, and we anticipate we will be in line. Our net interest margin will be at the higher range of our guidance as we see continued strong margin through Q4 2023 and limited modification losses. We continue to maintain our credit cost target at 2.2%-2.4%, but anticipate to be at the higher end of this target.
We are increasing our NPL ratio target to 2.8%- 3.0% from 2.6%-2.8%. We are expediting the resolution of our COVID restructured loan portfolio and will downgrade primary micro and SME loan at an elevated level. In addition, we are seeing the impact of a very dry El Niño on the southern part of Indonesia, which is putting pressure on micro and small borrowers. We anticipate the weather condition will improve in November with increased rainfall. Although our cost to income ratio of 37.6% is well, is well below our guidance, we anticipate higher cost to income ratio in the Q4 and full year cost to income ratio of 40%-41.5% at the bank-only level.
I will finish up with some thoughts on the regulatory environment, as there were two regulatory items in Q3 2023 that will likely have an impact on BRI. But first, I want to provide some color on the impact of the KUR regulation from January 2023. The adjustment to the KUR subsidized lending scheme represent an aligned policies, where KUR loans are provided to customers who have never had commercial loan. We are seeing KUR focus now more directly on increasing financial inclusion. In Q3 2023, Bank Indonesia provided additional reserve requirement incentive for banks that meet certain criteria, supporting higher loan growth through increased liquidity.
As BRI lends to the micro and SME segment, ultra micro segment, and priority segment, the impact to BRI is that our reserve requirement would decrease by 40 basis points to 6.1%. In addition, OJK released a new dividend policy, which we believe will have limited impact on BRI. We continue to expect to maintain our payout in a similar range to historical level. I would now like to turn the presentation to our CFO, Bu Vivi, to discuss the financial in detail. Bu Vivi?
Thank you. Thank you, Pak Sunarso. Good afternoon, everyone. I would like to proceed to the balance sheet and also P&L in more details numbers. Year-on-year, our total asset increased by 9.9%. Loan and financing grew 12.5% year-on-year, contributed by the bank that grew 12.8% year-on-year. And if we can see that the contribution from PNM and Pegadaian continue to be at 8.9% out of our total loan and financing. And earning asset provisions decreased year-on-year, because we continue to use loan and financing provisions to do the write-off. Our write-off level in the Q3 was around IDR 25 trillion as a group.
On the liability side, the strong deposit growth of 13.2% was led by the current accounts that increased 28.1%. However, our CASA ratio decreased in the Q3 to around 64%, leading to our cost of fund to rise 5 basis points to 2.84%. I would note that we are modestly increasing our leverage from 5.6x in the year-ago period; now it's like 5.9x. We anticipate that over the next 15 months, we can continue to increase our leverage, but we will continue to remain relatively conservative in capital management. And if we are looking on it in our portfolio, loan portfolio, our loan book in the Q3 now is above our guidance, 10%-12%.
We believe we will be able to reach the midpoint of our guidance in full year 2023. I would like to provide more details on the growth of two important segment in this quarter. The first one is our corporate portfolio. Growth rate in the Q3 was 20.6% year-on-year. This was driven by the corporate loan growth in a bank-only level, around 21%. There are several reasons for this. The first one, if you recall, last year in theQ3, we have, like, some modification loss, so it's mainly a low base effect. And the second one, at the parent level, our subsidiaries basically taking more loans from us, so PNM and BRI Finance, for example.
I think the last one, it is expected that in the second half of this year, the corporate loan will grow higher, because in the first half, they only growing around 1%. And the corporate loan primarily dispersed to Pertamina and also Bulog, due to the public service obligations of rice import to mitigate the risk of El Niño. And the second one is the micro growth. The micro growth is still in line with our target if we adjust for the accelerated write-off in the nine months of 2023. The micro and ultra micro segment growth continue to be driven by PNM and Pegadaian, contribute 8.9% of our total loans.
In addition, Kupedes our commercial micro loan product, has increased 57.5% year-on-year, and this was very significant growth of Kupedes. And it has been. It has pushed non-KUR compositions to 64% of our consolidated micro loans. If you remember, like, a year ago, it's like 55.7%. We anticipate that full year 2023 micro loan growth will be still driven by Kupedes, around 60% growth year-on-year. Our overall deposit growth continues to remain strong, 13.2% year-on-year, and our CASA growing up to 10.1%, now is IDR 821 trillion. And given the recent rate hike, we do expect that the cost of fund can adjust modestly higher. Our current account has dominated the growth up to 28%.
On our savings account, we continue to see growth driven by the retail segment, and still limited expansion from our micro savings. Our capital positions remain elevated, with total capital adequacy ratio 27.5%. We paid out interim dividend in the q4 last year, and we paid in January this year. This is something that the management will consider in the Q4 2023 as well... Over the medium term, we would like to see our total capital adequacy ratio decrease from the current level to closer to 20%, through stronger future loan growth, and continue to return cash to the shareholders. I would like to now discuss about the income statement. Moving to the P&L, with a short overview before we discuss the key line items.
Our net interest income increased 4.9% year-on-year. We would note that interest income continued to benefit from our mix shift to micro segment, to be specifically to KOPERDES, and increasing 14.4% year-on-year. Our non-interest income was up 18.3% year-on-year, and OpEx, operating expense, increased a modest 5.3% year-on-year. This led to PPOP increasing 10.9% year-on-year, and leading to a strong 12.4% net profit growth. Next, we will talking about our net interest margin. Our consolidated net interest margin stood at 8.05%, while bank-only net interest margin was 6.97%.
As the net interest margin in PNM and Pegadaian contributed increased contribution, I think 99 basis points to our consolidated net interest margin. If we are looking at our lending yield, our lending yield as of September increased to 13.12%. I think we had a one-off item that impact the Q3 number. This is the accrual of the KUR subsidy from the H1. In addition, we booked some increase in interest income due to the re-pricing up in our corporate and medium borrowers. Our cost of fund as of September increased around 5 basis points to 2.84% from the H1 . As a liability-sensitive bank, we are able to manage the increase in interest expense on quarterly basis.
If you see, our interest expenses grew to 0.7%, quarter-on-quarter, decreased from 7.1% in the Q2 . Talking about the other interest, sorry, other operating income and operating expenses, non-interest income and OpEx remain very strong in the first nine months. The non-interest income increased by 18.3%, supported by fees and commissions. Additionally, the recoveries on return of asset remain strong, increasing around 25% year-on-year, to around IDR 10.9 trillion. On the operating expense side, costs continue to remain well controlled, with the total OpEx up 5.3% year-on-year.
We anticipate the slower growth in salaries and employee benefits that we saw in the nine months to seasonally increase in the Q4, while G&A probably is still in the same pace like the previous quarter. If we are looking at our reported fee and commission income, primarily driven by the growth in trade finance and loan administration fees, which decreased by 39.9% and 35.1% respectively. The two segment composition of fee income stood at around 25%. Furthermore, we continue to see strong recovery income that increased 25.3%. On our OpEx, we continue to see improvement as our cost-to-income ratio declined to 37.6% bank-only. And as a group, we our cost-to-income ratio was 41.3% consolidated.
The consolidated numbers increased primarily due to PNM, which still remain a highly labor-intensive business. And as such, the cost to asset stand around 3.2% bank-only, and 4.4% consolidated. And I think it's still aligned with our aspirations to keep the cost to asset at roughly around 3%-4.5%, cost to asset. Now I will hand over to Pak Agus Sudiarto to discuss more details on the asset quality. Thank you.
Thank you, Bu Vivi, and good day to all of you. Now, I would like to discuss our asset quality and give an update on our outlook for the rest of 2023. Our NPL ratio decreased 2 basis points to 3.07% year-on-year, as we saw improvement across our small and medium segment, along with lower NPLs at our subsidiaries. However, our bank-only micro portfolio continues to experience post-pandemic pressure, and NPLs are up 29 basis points year-on-year, primarily due to downgrades of COVID restructure loan, as we have guided to. While in our special mention loans, we reported a bank-only special mention loan ratio increase of 44 basis points year-on-year to 5.53%. The increase was led by higher downgrades in the micro, small, and consumer businesses, while we saw improvement in our corporate and medium businesses clients.
As a reminder, at the subsidiary level, in 2023, we adjusted Pegadaian pawn financing asset quality categories to 60 days for NPLs versus 30 days past due historically. This is a metric that remained more conservative than banks, yet still led to a decrease in their NPL ratio, but increased their special mention loan. Our provision for loan and financing stood at IDR 87.9 trillion, and this represents 7% of total loans. While over the 10 years average pre-COVID, this reserve stood at 3.5%-4.2% of total loans. We anticipate that as we work through our COVID restructured portfolio, that this reserve will revert back to a level closer to our pre-pandemic ratio of loan loss, implying a likelihood that credit costs continue to improve over the next few years.
Our coverage ratio is starting to move closer to normalized level, as it decreased to 228.7%, 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. Looking at the loan at-risk, we... The ratio has declined to 13.8% from 14.9% quarter-on-quarter, and we anticipate it will continue to decline. We have seen solid improvement in loan at-risk since 2020, as our micro and small business portfolio are down. Our cost of credit stands at 2.44%. This is slightly above our full year 2023 guidance, but anticipated to improve in Q4 2023.
Thereby, we are maintaining Cost of Credit guidance to 2.2%-2.4% for 2023. We do not anticipate any sizable modification losses in Q4 , as we believe that the restructuring of some of the SOE contractors will not be completed until the H1 2024 or the next year. We have built up provision to over 75.5% against this exposure. We are slightly increasing our full year write off target to IDR 32 trillion. As we noted last quarter, this should not impact our Cost of Credit, as we have built outsized provision on our balance sheet during the pandemic. We would anticipate a decrease in the full year 2023 loan loss reserve-to-loan of 80-100 basis points.
We did see an increase in the recovery rate on written off, on written off loans in the quarter, which now stand at 43.3% in bank only. In Q3 2023, total outstanding COVID-19 restructure, restructured loan decreased to 6.2% of total loans and 4.2% of total loan borrower from 10.1% and 7.7%, respectively, at 31 December last year. The COVID-19 restructured portfolio totaled IDR 70.9 trillion at the end of the Q3, representing a decline of 14.8% quarter on quarter. We anticipate the majority of the... This restructured book will be resolved in the next 12-15 months. Within the COVID restructured portfolio, it is composed primarily of small and micro loans that account over 65.7% of the total loan.
At third quarter 2023, the majority of the COVID restructured loans, or 52.9%, are current in payment, with 24.7% in special mention and 22.4% in NPL. So our coverage of the portfolio continues to increase. Currently, it is up to 34.7% of total COVID-19 restructured loan. We feel this reserve is more than adequate to absorb any losses. And next, I would now like to turn the presentation over to Pak Supari to discuss our micro portfolio. Thank you.
Thank you, Pak Agus. Let's discuss the scope of the ultra-micro ecosystem. Through BRI, Pegadaian, and PNM, we serve more than 30 million micro and ultra-micro borrowers with lending and insurance products. In the micro business, we are focusing on growing our corporate product in the coming years. We added five million new subsidized loan customers during the pandemic. These customers can graduate and become corporate customers in the future. In line with our business plan, the ultra-micro ecosystem growth is higher than BRI consolidated loan growth. PNM and Pegadaian contribution to consolidated micro loan increased to 18.8% from 18.3% last year. At PNM, the growth slowed to 11.3%, as the women group lending business grew 19.1%, while ULaMM decreased by 27.4%. ULaMM will decline as we integrate it into corporate.
Women group lending will grow to over 19% of PNM loan in 2024. The cashless disbursement are over 94% of total PNM disbursement in September. Cost of fund have improved at PNM and Bank Adira since we acquire them in the third quarter of 2021. In the last two years, cost of fund at PNM and Bank Adira have improved by 173 basis points and 36 basis points, respectively. This decrease is primarily because they are under the BRI group, with improved governance and transparency as a public company. We anticipate a falling rate environment that funding costs will decline further.
Our microloan growth is driven by Kupedes, which is up 57.5% year-on-year, as we transition back to our core commercial micro product with more attractive profitability composition, or subsidized portfolio is down 9.1% year-on-year. We are seeing the number of Kupedes borrowers increase by 58% year-on-year to 4.5 million borrowers, with a 27.9% graduation rate from subsidized microloan to commercial Kupedes. Furthermore, our business process digitalization has borne fruit in terms of increasing loan officer productivity, which allows us to grow our micro portfolio without having to add significant amount of loan officers. I would now like to turn the presentation back to Pak Brett to organize the question and answer segment.
Thank you, Pak Supari. We would now like to move to the Q&A segment. At this time, 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 begin by inviting three initial analysts and then continue, time permitting. When called upon, please unmute your microphone, and please state your name and company before asking your question. So the first three will be Handy, and then Harsh, and Melissa. Handy, we're gonna invite... We're gonna invite all three of you to the room, and then you can begin asking your question. Handy first, and then Harsh, and then Melissa. Just give us a moment.
Hi, Brett. Can you hear me?
Yeah, Handayani, if you please go ahead.
Okay, thanks for taking my question, and congrats for BRI management for the good result. I have two question. The first one is with regards to the credit costs. We saw that the quarterly credit cost is rising on the Q&Q basis. I understand that the guidance is remain the same, 2.2%-2.4% for the year. So what is the likely credit costs plan we should expect going into 2024? And then my second question with regards to the NPL coverage. We saw that the coverage is trending down in the last few quarters. So what is the comfortable level of coverage in the medium to long term? Yeah, that's all from me. Thank you.
Okay, great. Pak Sunarso will,
Yeah, I think Pak Agus Sudiarto will explain that about likelihood of cost of credit, and also maybe in what level we are confident with NPL coverage. Pak Agus or Bu Vivi. Pak Agus, first.
I have the first.
Okay, thank you.
Okay, thank you, Pak Sunarso. Thank you, Handy, for the questions. In terms of credit costs, yes, we understand, during up to the Q3 this year, it's even still in line with the guidance, but at the higher level, higher range. We believe that, up to the end of this year, we will get the cost of credit still in the level in line with the guidance, which is 2.2%-2.4%. We don't know about next year. First, before the geopolitical increase, we optimistic that will improve the cost of credit. But as you may aware, to calculate the cost of credit, it depend also for the, from the macroeconomic variable.
So we still wait from the economist, our chief economist, to exercising some projection about the next year condition of macroeconomic. But again, on the credit quality, I think the credit cost will still remain or maybe still down a little lower than this year. Yes. Thank you, Danny.
About what level we confident to make some reserve for NPL, I think Bu Vivi maybe can explain.
Thank you, Pak Sunarso. So, our NPL coverage now is like 217%. And I think most of, the coverage for each segment, the NPL average for each segment is already above 180%, and I think we only left, like, the small segment with around 160% NPL coverage. So if we are looking at this trend, so basically now, as a part of the soft lending strategy, Rakyat is ready to normalize our NPL coverage ratio. So if you guys recall our NPL coverage ratio before the pandemic, so it's like roughly around 185%. So if you are asking me what is the appetite level, basically it's like 145%-200% NPL coverage is something that we are comfortable. Thank you.
The decrease of our reserve actually should not for maybe increasing our profit, but actually to clean up our portfolio impacted by the COVID-19. Okay? It's important.
Thank you, Pak Agus Sudiarto, Pak Sunarso, and Bu Vivi. Now, the next question is coming from Harsh Mody. Harsh, you can unmute your line.
Hi, thanks for allowing me to ask question. A couple of questions. One, just wanted to check on margins. Is it about IDR 1 trillion that was the subsidy in Q3 ? So how much would that impact your net interest income and hence margin in Q3 ? And second, can I push a bit more on provisions? I understand that macroeconomic variable is tougher, but between doing a much bigger cleanup this year and spreading it out between this year and next year, how are you thinking between the trade-off? And is it possible that we end up getting much larger, let's say, 250-260 basis points this year, and next year is lower than 200 basis points?
Or would be as you are currently guiding, 2.20%-2.40% this year, likely toward the 2.40%, and even next year stays above 2%. Thank you.
Thank you, Harsh. I think Bu Vivi will answer this question, and then, maybe Pak Sunarso will add a little bit to that, or Pak Agus Sudiarto.
Bu Vivi will respond all Harsh concern.
Thank you, Harsh. The first question is on the net interest margin. Yes, we have a one-off event. It's a KUR subsidy. I think the number is roughly around IDR 750 billion KUR subsidy from the H1 disbursement. I think the impact to our margin. Historically net interest margin is around six basis point. But if you are talking about quarterly, it should be roughly around 17-20 basis point. For the second one, sorry, what is the question for the second one? It's the provisions guidance? Oh, okay.
So if we are looking at the current trend of our vintage analysis, especially in a small and also the micro segment, I think in term of the provision guidance, in term of credit costs, this year, probably like we will end up around 2.3%-2.4%, probably at the 2.4%. So next year we might be still in the same level, Harsh, probably still 2.2%-2.4%. And based on our analysis, we might take 12-18 months, basically, to clean up the book from the portfolio in small and micro segment coming from the COVID-19 restructuring loan. So that's basically our high-level guidance.
We will finalize the guidance for 2024 when we release our full year result on January 2024.
Thank you, Harsh. Next question from Melissa. Please unmute your line.
Hi, thank you for letting me ask a question. Just back on Harsh's question, in terms of the KUR subsidy that you recognize, is that the full subsidy that you have already done this quarter, going back in history for this year, or will there be more of the recognition next quarter? Then in terms of margins, as we see rate being hiked, and just again, sorry, I didn't, maybe didn't catch it earlier, what are you expecting for rate hikes for the rest of the year, and what do you think that will be as an impact for your NIMs? Then lastly, in terms of the Pegadaian and PNM, you are now lending loans to them or deposits to them?
In terms of that, you know, how much more can they take from you, and how much more can we see their funding costs taper off? Thanks.
Thank you, Melissa. Bu Vivi will start with the answers on this, and then we can continue from there. Thank you.
Yeah. Thank you, Brett. So in term of the KUR subsidy, this quarter, basically, we booked the KUR subsidy from the KUR that being disbursed from March to August. And I think, after that, like, you know, like this month, for example, we will accrue normally. There will be no right, one-off, basically, Melissa, because the regulations about the rate of the subsidy already being released by the Ministry of Finance. So it's like only this quarter we are recognizing the KUR that being disbursed from March to August. And for the second questions about rate hike impact to our net interest margin, because we are liability sensitive, so the impact of the interest rate hike basically will be negatively impacting our margin.
Based on our sensitivity, every 25 basis points of increase in the interest rate will be impacting our margin roughly around 4-6 basis points. For the next questions, it's for the loan to PNM and Pegadaian. So basically, the PNM and Pegadaian, because they're our subsidiary, Melissa, so the maximum amount that we are eligible to disburse to our subsidiaries basically is 10% from our capital. Our capital now roughly is around probably IDR 290 trillion, so 10% is around IDR 29 trillion. I think it's already being used by several of subsidiaries. So I think probably, we still have a room, probably around IDR 10 trillion, less than IDR 10 trillion, if we want to add loan to Pegadaian and PNM.
Currently, we provide limit of Pegadaian around IDR 6 trillion, and PNM is around IDR 4 trillion. Sorry, IDR 3 trillion on PNM, and Pegadaian is IDR 5.2 trillion. So, we still have room less than IDR 10 trillion above that, Melissa.
Thank you, Bu Vivi.
Thank you.
Melissa, do you have any other questions, or did that cover everything?
I just yes, maybe if I can follow up on the NIM. So, I mean, you expect your NIM's guidance to still, you know, be at the high end. I just wondered, like, are you expecting then the change in the loan book mix to help offset any anticipated rate hikes that might come?
Yeah. So, Melissa, we will continue. Of course, we are expecting that the cost of fund will increase this quarter because of the interest rate hike. So how we will mitigate that? Yes, you're right, we will continue to do the mix shift, especially in the micro, so you might see that the Kupedes will continue to increase. The second one, basically, is we probably are not very aggressive on repricing up our loans in SME and corporate segment in the last quarter. So that's probably become our priority this quarter, basically to increase or to reprice up the loan in corporate and SME segment that belongs to the category. So we have three categories: fixed, floating, and managed rate.
This managed rate basically is around 33% of our portfolio, and we will selectively rising the lending rate in this managed rate compositions.
Thank you.
Thank you, Melissa. The next question will come from Selvie. Selvie, please unmute your line. Selvie, unmute your line. Selvie, we can't hear you. Okay. Selvie, maybe you can type your question in the group because it's not coming through. We have, we have another question from Bo at NT Asset. Bo, please unmute your line and go ahead with your question.
Hey, thanks, Brad. Thank you for the presentation. I got a few question on the asset quality. So on slide 23 on the NPL and special mention, I'm relatively new to BRI, so maybe just a few basic questions from me. So first of all, why is the special mention for micro and small quite a lot higher than the consumer and the medium segment? So that's my question number one. And my question number two is: what's the loan size like for like micro consumer, small, medium? And my last question is again on the micro segment. Like, given a lot of talks about the ramp-up in government spending and pre-election spending to help the mass market, have you seen any improvement in the micro segment yet? Thank you.
Thank you, Bo. I think first, Pak Agus Sudiarto will take the question, and then, maybe Bu Vivi will add to that.
Okay. Thank you, Brad. Thank you, Bo, for the questions. I think, why the question from... Why SML from micro and small a lot higher than consumer and medium? Yes, according to our historical data, the lower, the lowest, portfolio NPL ratio is from micro and then the consumer. And right now, as you may aware, during the pandemic, the micro segment is deeply hit by the pandemic. So right now, we, as we also stated during the NDR, we implemented what we call as a soft landing strategy. So we are now pushing the debtor from the micro and also the small, that no prospect to extract it more, to push into the NPL.
And before NPL, maybe they will first in the small special mention first, and then to the NPL. Finally, we will written off that account, and we'll collect as a recovery. For additional information, even now, the micro has IDR 32 trillion of special mention loan, but IDR 7 trillion of them is only small arrears, small arrears. So, with the better collection, we hope at the end of this year, the special mention in micro still remain at our guideline. Thank you.
The size, ticket size of consumer and medium, I think it's Pak Amam, maybe.
Thanks, Pak Sunarso. Thanks, both for the questions. First, about the ticket size. Probably I'll start with the ticket size for the micro loan. Now, the ticket size for the micro loans is about IDR 500 million maximum, and it's divided into two segment, actually. First, the ultra micro, with ticket size of maximum but only IDR 10 million. While above that, the small segment, the ticket size is about IDR 500 million, up to IDR 25 billion, and the medium size is above twenty-five billion rupiahs, up to two hundred... Sorry, now it's IDR 500 billion. While for consumers, I think it's depending on the...
I mean, no specific ticket size, but, roughly, it's, I mean, like for the, salary-based loans, it's based, really based on the salary, which is, roughly about IDR 175 million. And the mortgage, the average ticket size now is, IDR 360 million. And for corporate, it's above the, medium level, which is, above IDR 500 billion. Thank you.
Thank you, Pak Amam. And to respond, how will election spending help the micro segment? I think Bu Vivi will respond it.
Yeah. Thank you, Pak Sunarso. So historically, the election will give a positive impact to the MSME business, because a lot of spending. I think this year, the spending for the election, especially that the money come into the small segment and micro segment, was probably a little bit late, but it will disperse this quarter. So we might expect that it will boost basically the demand, especially coming from the grassroots. So we saw this in the previous election, and we believe that it will help the micro segment to grow in the Q4 . So if you remember, the around 11.6% growth in our micro segment is already taking into account the write-off. Write-off for micro is roughly around 10% or 12%, around IDR 12 trillion.
So if you add that back, probably like the micro segment probably is growing probably 12%-13%. So, we do hope that, as a total positive impact, usually there will be an additional growth, or in GDP, roughly around 0.23% historically, and that will impacting the growth in our micro segment as well.
Thank you for the question. Now we're going to move back to Selvie from Morgan Stanley.
Hi.
Hopefully it works this time.
Can you hear me now?
Yes, we can hear you.
Okay. Thank you for, thank you for the time, and sorry for the error earlier. So I have two questions. The first one is on the deposit side. I think for the quarter, the time deposits grew a lot stronger. Is it more like proactive in nature? And also, if you could, let me know which segment it is from. And I guess linked to that, could you just elaborate in terms of, like, the micro CASA, how's the growth been or the movement? And I think, given that the government spending is a bit slower, do you see that impacting the CASA for the micro side? And then the second part, maybe if I could just ask on the payout. So what's any changes in the payout, stance, or is it still how we were thinking about it in the last quarter?
That's all my question. Thank you.
Bu Vivi, I think thank you, Selvie. I think, Bu Vivi will take this question. There were three parts to it. As we understand, there was time deposits on where they're coming from, which segment. Also on, you know, CASA and how much of the CASA is coming from micro, and the breakdown of where CASA is coming from. The third part was on the payout, and what the outlook is for the payout ratio.
Okay, so I would start with the last questions. It's probably easier for me to answer. So the payout stance, yes, there is no changes. We'll still be able basically to pay higher than 75%, so we might expect 80% or 85% for the payout ratio, probably in the next five years. And the second one is the deposit growth. It's like the deposit growth is coming from the time deposit. The time deposit but grew very significant, and it is mainly coming from the retail time deposit. So our retail time deposit's growing, like, 20%.
So I think that was by choice, Selvie, because rather than growing in a time deposit in a wholesale segment or even current account in a wholesale segment, growing in a retail time deposit basically is more effective for Rakyat, because I think, you know, we have a lot of branches all over Indonesia, so it should be, you know, it should be not difficult basically for Rakyat to grab retail funding. And then for your second questions, basically is about the micro CASA. I think the limited cash subsidy and also government spending has been impacting the lower market, in this case is the micro segment.
I think several research, you know, done by the central bank or also other institution, also mentioned that the growth in the micro segment... Sorry, the micro saving industry-wise basically is very, very low, and in fact, it's negative growth, industry-wise. So that, of course, impacting our micro saving as well. So, what's for Rakyat now? Now, the homework for Rakyat is basically how we can tailor the ecosystem end to end, from the wholesale segment until the micro segment. So the goals basically is how to extend or how to keep the money as long as possible within our ecosystem.
So that's why we are now doing the aspiration on how to strengthen our retail banking, because we want to keep the money within our ecosystem as long as possible. Thank you.
Thank you for the question, Selvi. The last question in the queue that we have will be from Weldon. Please unmute your microphone and ask your question.
Hi, thank you for taking my questions. I'm sorry, I'm not sure about the capital. I think one of the things you said just now is the raise of your leverage as a structural improvement. So do you have an indication of how much more leverage you want to raise? And I don't know if previously you've discussed this before, but would you consider giving a special in maybe the next few years? So that's the first question. And then the second question is the KUR quota. So how much of the KUR quota have you dispersed this year? And do you need to complete it if you have not finished dispersing it in the Q4 ? And if you don't really need to meet it, then does the quota matter much next year?
And then, maybe the last question is, given the downgrade of your NPL guidance... So presumably, since you downgraded it, it's above, you know, the experience of the exit of the program is worse than you initially expected. So maybe just some color on what's driving that, worse experience of those coming out of the program. Thank you.
Thank you, Weldon. Just to summarize, your three questions were, one, the target for increasing our leverage, how high we would go. Also asking about if we would consider doing a special dividend over the next few years. Your second question was on the KUR quota for this year, how much of it we've reached and how much we anticipate we will reach for the full year, and also what the KUR quota would be for 2024. And then your third question was on the NPL guidance and, a little bit more detail on the granularity of the NPLs in the year to date.
Okay, thanks, Weldon. So talking about the leverage, we are aiming to have, you know, our 7x leverage. So if you remember, like, couple years back, 7x leverage is something that basically Rakyat able to achieve. And we are confidence that with PNM and also Pegadaian, that now become the subsidiaries and are building the Ultra micro holding together. So in the longer term, 7x leverage basically is not something that very difficult to be achieved. So special dividend. Yeah, unfortunately, at this moment, still... If I may say, there is no discussion about a special dividend, especially with the Ministry of SOE. We tried, but still no, no room for that so far, and that's for the special dividend. And the next question is about the KUR quota.
Early of this year, our quota basically is, like, IDR 270 trillion out of IDR 450 trillion. And then I think the government already decreased the quota for KUR from IDR 270 trillion. Now, I think our quota is IDR 190 trillion , our quota. So based on our calculation, from IDR 190 trillion quota, we might be only able to distribute around IDR 160-165 trillion. And this, this will answering your question, if we cannot meet the quota, so basically there will be no penalty from the government. In fact, basically, the penalty is-- will be coming to us only if we do not meet the target for graduation-
Yeah.
- and the new borrowers of KUR. No penalty for not meeting the target of KUR disbursement. And 2024, if we are looking at the budget from the government, from, for the 2024 government budget, they allocate around IDR 47 trillion as a KUR subsidy. So if we calculate back, including the, you know, the, rollover, rollover, subsidy from the KUR from previous year, Our estimations, probably next year, is the KUR allocation is roughly around IDR 290 trillion-IDR 300 trillion. So assuming if Rakyat will only participate 55%-60%, so 2024 KUR probably will be around IDR 160 trillion-IDR 174 trillion. And the last questions is on the NPL.
So, Weldon, more than 50% of our NPL basically coming from the loan that being restructured for COVID-19. Some people ask me why it takes so long for Rakyat basically to write off those loan. So for Rakyat, basically, for us, the, especially in a micro segment, it's not easy to decide that we want to write off the loan, because that will impact the quality of the borrowers. So that's why, the restructuring program in a micro segment basically is, extending the loan tenure, right? And I think now it's the time that we know exactly, which borrowers that basically we cannot save them because of so many extension for the restructuring program. So that's why my colleague here, Pak Supari, already have a map.
So this is the borrowers in the micro segment that whatever we wanna do, these guys will not be able to recover and pay. So that's why now, we are accelerating the level of write off. And I think, I think that's the reason why, you know, there is an acceleration in NPL.
Thank you, Weldon, for your question. It looks like there's no more questions in the queue as well. So I'd like to thank our board of directors for participating in the call. And thank you all, and we look forward to speaking to you with our fourth quarter results. Thank you, and have a nice day.