Good morning. Thank you for joining our analyst meeting. I'd like to make a couple pointers before we begin. First, for everyone who's joining on the Zoom call, I would strongly encourage you to download a copy of our presentation materials, which are currently available from the Investor Relations homepage of Bank Rakyat or from the email which we sent this morning. Second, in the interest of those analysts and investors joining, I'd like to ask all of you to state your name and company when asking questions during the Q&A segment. I would now like to introduce Ir Sunarso, our President Director, to begin the meeting.
Thank you, Bret. Ladies and gentlemen, let me start with a brief highlight of the macro situation and outlook. Indonesia's macro situation and outlook is stronger than we previously thought. The economy grew a healthy 5.17% in the second quarter of 2023. Therefore, we now predict the economy will grow at an accelerated rate of 4.9%-5.3%. The accelerated growth is driven by two key factors. First, is that the unrealized state budget remained quite large. By the end of June 2023, the state budget remained at a surplus of IDR 152.3 trillion, or 71 basis points of GDP. Meanwhile, the government plans to have a fiscal deficit of IDR 486.4 trillion, or 2.28% of GDP by the end of the year.
Therefore, we would expect state budget realization will accelerate in the second half of the year, in line with historical trend. Furthermore, the realization of government spending in the second half of the year is not expected to increase inflation. Currently, we expect inflation to remain low, likely below 3.5%, barring any major supply chain issues. The likelihood of increased liquidity could help stabilizing funding costs, a benefit for our liability-sensitive balance sheet. Second, we anticipate election spending to pick up in the fourth quarter, which should support the grassroots level, where many of our micro and small customers are located. Finally, financially, our consolidated numbers continue to normalize as we move further away from the pandemic. We book year-on-year loan growth of 8.8%, with our consolidated loan reaching IDR 1, 202 trillion.
Our micro loan increased to 48.1% of total loan in the second quarter of 2023, up from 47% in the year-ago period. Our proportion of low-cost funds continued to improve, increasing to 65.5% from 65.1% year-on-year, while interest rates have increased by 225 basis points during the recent rate hike cycle. In this current environment, we continue to see the resilience of our net interest margin, which stand at 7.85%, well within our guidance and with an outlook to rise in the second semester. An accrued KUR subsidy income of IDR 715 billion would have increased our net interest margin by 9 basis points to 7.94%.
Our cost-to-income ratio improved to 41.79% from 41.94% in the years ago period, as our OpEx only increased by 5.6% year-on-year. Our gross NPL ratio was 2.95% in the first half 2023, an improvement of 31 basis points from 3.26% in the first half of 2022. Our profitability metric continued to improve as our return on asset increased to 3.23% from 3% in the years ago period, and our return on equity increased by 253 basis points to 20%, from 17.5% last year. Leverage employees increased to 6 times from 5.8 times in the years ago period.
Finally, our net profit in the first half of 2023 increased by 18.8% to IDR 29.56 trillion, primarily due to efficiency gains and lower cost of credit year-on-year. The key strengths we note in the quarter were our ability to continue to rebalance our loan portfolio across multiple levels. First, our ratio of micro loan to total loan increased to 48.1% and should surpass 50% by 2025. Second, our higher yielding Kupedes loan have increased to 39% of bank-only micro loan from 30% in the year-ago period. Furthermore, Pegadaian and PNM now account for 9% of total loan, up from 8.5% a year ago.
From a net interest income perspective, PNM and Pegadaian contributed 70.7% of net interest income in first half 2023, compared to only 15.4% in first half 2022. Our cost of credit continues to improve and now stands at 2.24%, and is expected to be within our range of 2.2%-2.4% for the year. We expect that cost of credit can continue to improve as we have built adequate reserve on our balance sheet to absorb any losses from COVID restructured loan. Our net interest margin remains manageable at 7.85% and is anticipated to rise throughout second half 2023.
We should surpass our full year 2023 net interest margin target of 7.7%-7.9%, as we did not accrue over IDR 700 billion in subsidy interest income in first half 2023, which we anticipate could be accrued in second half 2023, following the government issuance of the final subsidy rate for KUR. Also, we already identified what actually the challenge we face, and the key challenge that we identified is the decision to pay up for funding to support a higher level of loan growth. We noted earlier this year that we were seeing funding costs increase as a result of liquidity needs during Ramadan and rising rate. In early third quarter, interest rates have stabilized, and while cost of fund remain below pre-pandemic level, we would like to see funding costs come down.
In response to this, we have focused on expanding our CASA deposit and increasing CASA-related KPI weighting. Later in the presentation, Pak Andrianto will discuss our CASA strategy. 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 earning to investor and to increase loan growth in the coming years. From a merger and acquisition perspective, we will be prudent in managing our excess capital, and focus would be on small acquisition at either our insurance or finance company subsidiaries. Our subsidiaries cost-to-income ratio is elevated, as Pegadaian and PNM stand at 55.5% and 71% respectively. Part of this is due to the cost of fund being high due to rate hikes.
We anticipate that digitalization is improving the cost-to-income ratio, but it is being offset by limited cost improvement due to offsite funding costs that should come down if rates fall. We have now increased cashless disbursement at PNM to 42.5% of total, or IDR 2.1 trillion cashless disbursement. We are exploring initiatives that will allow BRI to lend more to these subsidiaries and lower their cost of fund, driving revenues higher and lowering their cost-to-income ratio. Based on our strong financial that I just highlighted, we feel we are on track to meet our full years 2023 guidance. As you can see from the result, our first half was aligned with this target.
Since the first quarter, we have been emphasizing to investors that we can surpass our net interest margin target of 7.7%-7.9%, as our loan growth target will likely be 10%-11%, remaining in line with our guidance. We continue to maintain our credit cost and NPL target at 2.2%-2.4% and 2.6%-2.8%, respectively. Although our cost-to-income ratio of 37.9% is well below our guidance, we anticipate higher cost-to-income ratio in the second semester 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 are two regulations that will impact 2023, and there are a few other proposed regulations that are in the news lately. The adjustment to the KUR subsidized lending scheme represents a new policy where KUR loans are provided to customers who have never had commercial loans. We are seeing KUR focus now more directly on increasing financial inclusion. In addition, Bank Indonesia plans to provide additional reserve requirement incentives for banks that meet certain criteria, supporting higher loan growth through increased liquidity. As we are in line to the micro MSME 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%, compared to the normalized reserve requirement of 9%.
I would like to briefly discuss the two potential regulations that the government and OJK might implement on write-off and dividends. Currently, criteria are being set up to avoid moral hazard from the write-off regulation, and while it will open up more lending opportunities, we will be prudent in our underwriting process. For the proposed dividend policy, we continue to support the prudential framework for a dividend policy that takes into account the different size of bank and their capital need. We hope that OJK implements different tiers of capital adequacy ratio level. We believe that regulations should be balanced in terms of maintaining adequate capital adequacy ratio and shareholder return oriented. I would like to turn the presentation to our CFO, Bu Vivi, to discuss the financial.
Okay. Thank you, Pak Sunarso. I will walk you through our balance sheet and also, PNL posture as of June 2023. Our total asset increased 9.2% year-on-year, and earning assets still representing around, 92%, out of our total asset. It's higher if we compare with, the same period in 2022. Loan and financing, close to 67% of the total asset, similar to our pre-pandemic level, and we will discuss about the portfolio mix in the following slides. Our cash position increased 41% year-on-year, quite significant, and the biggest contributor actually is coming from the increase in the statutory reserve requirement. That increased 42% year-on-year. In terms of deposit growth, we grew 9.5%, led by CASA, that increased even higher, around 10% year-on-year.
Our current account grew 24.3% year-on-year, while the industry only growing around 9.6%. Our saving account grew 3.3% year-on-year, while the industry, on average, they grew around 2.97%. The growth pattern that we saw in our current account and also saving account actually gave us more confidence going forward, that actually, Rakyat on the right track, to achieve our aspiration to strengthen retail banking capability. I would note that, we are modestly increasing our leverage. On June 2023, this led to our, leverage, rising to 6x from, 5.8x, a year ago. We anticipate that over the next 18 months, we can continue to increase our leverage, but still, we will continue, to remain, relatively conservative in a capital management.
Our loan book in the first half increased by 8.8% year-on-year, which is still below our guidance of 10%-12%. We believe that we will be able to reach the lower end of our guidance in a full year 2023, considering several things, such as more economic activities approaching to the elections, more working days for sure, then additional growth from our second engine of growth like consumer, and also optimizing the room that we still have from our wholesale businesses. Our decision to accelerate write-off in micro segment and micro business has pushed our micro loan grew less than 12%. However, please note that our micro loan mix continue to be better, where koperasi continue to accelerate.
The significant growth of koperasi has pushed non-KUR composition to 62% of our consolidated micro loan versus 54% in December 2022, and we will see this trend continue going forward. PNM and Pegadaian continue to grow double-digit, 18.6% and 14% year-on-year, respectively. These two engines basically help to increase the composition of micro segment by more than 100 basis points to 48%. We anticipate that full year 2023, the micro loan growth will be driven by koperasi, that potentially grows over than 60% year-on-year. PNM should be growing in high teens, and Pegadaian at least 12% year-on-year. Moving to our profit and loss.
Our net interest income increased 1.4% year-on-year because we tend to have a liability sensitive balance sheet. The higher cost of fund in the first half this year impacted our net interest income growth. We note that the interest income continue to benefit coming from our mix shift to micro to be focused more on a corporate desk, then optimizing our earning asset, repricing some of our loan portfolio. Therefore, our yield actually is increasing to 12.87%, the highest it has been at since 2017. This growth is compensating the growth in interest expense, therefore, our consolidated net interest margin stood at 7.85% in the first half, while bank-only was 6.81%.
As the NII at our PNM and Pegadaian subsidiaries contribute close to 140 basis points to our consolidated net interest income. We would anticipate that our interest income growth will increase going forward as we realize higher and expecting higher loan to deposit ratio and also higher yielding earning asset. Our bank basically is liability sensitive, so the ability to maintain a net interest margin at nearly 7.9% in this difficult environment, we feel so bold well about our future growth. We are talking about our non-interest income that increased to 22.9% year-on-year. Our reported fee and commission income was primarily driven by the growth in trade finance and international business, and also loan administration related fees, which increased around 50% and 37% respectively.
We believe that this reflecting the strength of our investment in a wholesale transaction banking business as an effort to support our corporate clients. Furthermore, we also continue to see a strong recovery income, which increased by 32% to IDR 6.7 trillion, supported by strong recoveries from micro and also small business. On our operating expense, while our OpEx increased a modest 5.6% year-on-year, we continue to see improvement as our cost to income ratio declined to 38.9% bank only, and around 41.79% consolidated. The consolidated figures increased primarily due to PNM and Pegadaian, which remain, especially PNM, which remain highly labor-intensive business. Cost to asset annualized stand at 3.27% bank only level, and 4.06% consolidated.
This led to our PPOP increasing 6.2% year-on-year, supported by 18.3% decline in provision expense, and leading to a strong 18.8% net profit growth. Thank you, and I would pass to Pak Andrianto to explain about our funding strategy.
Thank you, Bu Vivi. I will share some discussion a bit in the CASA strategy, because, this is part of that, we are trying to stabilize our growth. We are working diligently to improve our CASA strategy. Our overall deposits, growth continues to remain strong at 9.5% year-on-year. The growth is driven by CASA, that's, around 10.1% to IDR 815.4 trillion, increasing the CASA ratio by 37 basis points to 65.5%. So our current account has dominated the growth, up 24% year-on-year. On our saving account, growth was driven by retail, which increased by 8.4% year-on-year, while micro growth was flat.
Interestingly, as our mortgage loans increased by 16.5% year-on-year, we are seeing average deposit balance of our mortgage customer of IDR 24.2 million rupiahs, which is nearly twice the average balance of our regular customer. On the wholesale side, we believe that we are on the right path to transforming our wholesale banking capabilities to play a more prominent role on funding and transaction. That's previous, Bu Vivi already explained that we got more... The other side, from the wholesale is not just the funding, also, that we get more from the fees that come from. In addition, we are working on the initiative across the business to increase CASA growth and to manage our cost of fund as part of our aspiration to strengthen our retail banking capabilities....
In this rising rate environment, we have been able to maintain CASA, and it's driven by a number of digital initiatives to further increase our nearly 15% market share in EDC or point of sales machine Indonesia. This is quite a huge number, I think, growth. We are seeing strong growth, not only in our EDC penetration and market share, but also in the utilization of the product, because the sales volumes of merchant is now 363.2 million IDR, or increase 18% year-on-year. It's quite big. We are seeing a solid transformation as customer become more sophisticated and switch to BRImo from using cash in past transaction.
And also, we bring BRImo more competitive in the market, and we equip BRImo with many capabilities, because we have some in online onboarding financial super store. We have, like, an international transfer as well, and we have the capabilities in digital lending, because we have integration of our personal loans. So, we have some that immediate demand of loans, so the user can use it when they get the loans. Lifestyle ecosystem and also the investment ecosystem and customer engagement, that is the current that we have, the features that users can use in the digital banking, so you can use it for the check balance or also the transaction.
And the last one, I think, we're trying to bring more, the product of subsidiary in our BRImo. This is like, the saving also in the gold, our Pegadaian product. And our challenges are unique in the way we are working to keep money in the microsystem longer and less of the chance in attracting those funds in the first place. We can see the CASA retention strategy is starting to show dividends as the monthly cash withdrawal trend is declining. You see that, the graph, because after the first quarter is getting plateauing or flattening. If we can increase the digital transaction, so it will lower our cash carry costs, increase our CASA ratio, and lower our cost-to-income ratio.
We are focusing on the ecosystem and return acquisition, that the previous one I already talking about, to boost the CASA base. The ecosystem where we see opportunity include trade center, fintech, gas station, the fuel distribution location, among others. And our, our merchant acquisition focus on the increased penetration within some those of the ecosystem. The next, I would like to turn the presentation to Pak Agus Sudiarto, talking about our asset quality. Please, Pak.
Thank you, Pak Andrianto. Now I would like to share a little bit information about our asset quality. Our NPL ratio decreased 31 basis point to 2.95% year-on-year, as we saw improvement across our small, medium, and corporate segment, along with lower NPLs on our subsidiaries. However, in our corporate portfolio, we had two downgrades that totally IDR 2 trillion in the second quarter of this year. We anticipate that with the loan growth picking up throughout the year and improvement in our micro portfolio, that we will see a decrease in our NPL ratio in the second half this year, and that consolidated NPLs should be in line with the higher end of our guidance of 2.6%-2.8%.
In our special mention loans, we are seeing a slight increase in the quarter on a consolidated basis to 5.75% from 5.42% year-on-year. We would focus more on the bank-only figure, which increased by 30 basis point to 5.58%, as we saw higher downgrades in micro and small business, driving the increase year-on-year. As mentioned in the first quarter, on the subsidiaries in 2023, we adjusted Pegadaian's pawn financing 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 lead to a decrease in their NPL ratio, but increase their special mention loans. Our provision for loan and financing stood at IDR 88.2 trillion, and this represent 7.3% of total loans.
Over the 10 years of pre-COVID, this reserve stood at 3.5%-4.2% of total loan. We anticipate that as we work through our COVID restructure portfolio, that this reserve will revert back to a level closer to our pre-pandemic ratio of loan loss reserve to loan, implying a likelihood that credit costs continue to improve over the next few years.
Our coverage ratio is starting to move closer to normalized levels as it decreased to 248.5%, 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 loans at risk, the ratio has declined to 14.9% from 16.4% quarter-on-quarter, and we anticipate it will continue to decline as we expedite our resolution of COVID restructured loan in the next 12-18 months. We have seen solid improvement in loan at risk since 2020, as our micro and small business portfolio are down. Our cost of credit stand at 2.26% at the lower end of our full year 2023 guidance.
We maintain cost of credit guidance of 2.2%-2.4% for this year, noting that if we earn at the higher end of guidance, it would likely be if our loan growth does not fall within our guided range. We are in the process of finalizing the restructuring of some of the state-owned company contractors that should be completed in the coming quarter. Companies that we have with a provision to over 84% against these exposures. We would note that we front-loaded our write-off in the first half of this year, and our full year target is for IDR 28 trillion in write-offs. This should not impact our cost of credit, as we have built our outside provision on our balance sheet.
We did see a decline in the recovery rate of re-- on written-off loans in the quarter, but that is more due to the front-loading of write-off. Supporting this, in July, the recovery rate increased to 43.8% bank only. In second quarter this year, the total outstanding COVID-19 restructured loan decreased to 7.6% of total loan, and 5.4% of the total borrower from 10.4% and 7.7%, respectively, at December 31 last year. The COVID-19 restructured portfolio totaling IDR 83.2 trillion at the end of the second quarter, representing a decline of 17% quarter-on-quarter. We anticipate the majority of this restructured book will be resolved in the next 12 to 18 months from now.
Within the COVID restructured portfolio, it is composed primarily of small and micro loan that account of 69.1% of the total loan. At the second quarter this year, the majority of the COVID restructured loan, or 60.1%, are current in payment, with 77.27% in special mention and 12.9% in NPL. Our coverage of the portfolio continues to increase. Currently, it's up to 28.9% of the total COVID-19 restructured loan. We feel this reserve is more than adequate to absorb any losses. Now, I would like to turn the presentation over to Pak Supari to discuss our micro portfolio. Please, Pak Supari.
Thank you, Pak Agus Sudiarto. Let's discuss the scope of the BRI Ultra Micro Ecosystem. Through BRI, Pegadaian, and PNM, currently, we serve over 36 million micro and ultra micro borrowers. In the micro business, we are focusing on growing our Kupedes product and limit subsidized micro loan KUR group, in line with the soft landing strategy. During the pandemic, BRI added more than 5 million new KUR customers. In the future, in the future, this customer can graduate to become Kupedes customers. At the income level in micro BRI, offer life, health, property, and house insurance, strategically developed to address the micro customer needs. Within BRI bank only micro figure, the micro business overall growth in the first half of 2023 was 10.4% year-on-year to IDR 469.5 trillion rupiahs.
Our Kupedes loan book is supporting the overall growth, up 43% year-on-year, as we transition back to our core commercial micro product with a more attractive profitability composition. Our subsidized portfolio decreased 2.5% year-on-year. We are seeing the number of Kupedes borrowers increase by 57% year-on-year to 4.1 million borrowers, with a 28.2% reduction rate from subsidized micro to Kupedes. Within the ultra-micro segment, loan outstanding at BRI Micro, PNM, and Pegadaian increased by 11.4% year-on-year to IDR 577.9 trillion. PNM led the growth, increasing by 18.8% year-on-year, as the women lending business showed strong growth of 29.5%.
We anticipate that the women lending business will grow to over 90% of PNM loans over the next 12 months. Cost of funds have improved dramatically at PNM and Pegadaian since we acquired them in the third quarter of 2021. In a period where the reference rate increased by 225 basis points, cost of funds at PNM and Pegadaian have improved by 180 basis points and 40 basis points, respectively. This decrease is primarily because they are now under the BRI Group, with improved governance and transparency as a public company. I would now like to turn the presentation back to Pak Bret to organize the Q&A.
Thank you. Before Bret continue, we apologize because, Bret or me, forgot to introduce board members that we have in this meeting. So I think, yeah, I would like to introduce board members. On my right side, we have Pak Catur Budi Harto as the Vice President Director. And then, yes, we have Pak Supari as Micro Director, and also Pak Agus Noorsanto, Managing Director, who lead Institution and Wholesale directorate. And we have Pak Amam Sukrianto. Amam, Managing Director, that lead micro and... Sorry, Small and Medium Enterprises Directorate. And we have Pak Solihin. Pak Solihin, Compliance Director.
And of course, we have Bu Vivi as a CFO, Finance Director, and we have Bu Handayani, Consumer Director, and Pak Agus Sudiarto, Risk Management Director, Pak Andrianto, Network and Service Director, and also we have Pak Agus Winardono, Human Capital Director, and Pak Arga Mahanana Nugraha as the Digital and IT Director. Thank you. So I think, back to Bret to continue this meeting.
Thank you, Pak Sunarso. I would like to now begin the question and answer segment of our call. Please raise your hand in the chat, in the Zoom meeting, and we'll invite you to join as a panelist to ask questions, or please type your question into the chat. So, we'll take a moment to organize that, and then we'll take our first question. Just give us a second to organize. We'll take the first question from Ferry Wong.
Hi, yeah, can you hear me?
Yes, we can hear you.
Yeah. Hi, hi. Thanks, Brett. Thanks for BRI management. A couple of questions from me, Brett and management. Well, first-
Ferry, I think you hit mute on your phone. Are you on?
Okay. Yeah. Hi, hi. Yes. So, yeah. Yeah, a couple of questions from me. One is on the, provision. Basically, your provision jumped to about IDR 9.45 trillion. Could you please elaborate more on, on that? And then I have seen that you also have a large write-off in the second quarter, amounting to around IDR 13 trillion. Could you please elaborate a little bit more on that front? And my second question is on the PNM Mekaar Group lending. You have about IDR 39.6 trillion and about 14.7 million borrower. Could you please highlight on the credit costs on the PNM Mekaar, and then the NPL on that specific segment, the PNM Mekaar itself?
And then the last one is on strategy, basically in terms of how to improve your CASA moving forward, and then in terms of your improving your transactional banking purposes. Thank you.
Thank you for the question, Ferry. I think, we'll start with your first question, and, Bu Vivi will answer that.
I think for respond to first question is Bu Vivi, and about the question about the CASA strategy, I think Pak Andrianto. Yeah.
Okay. So, Pak Ferry, thank you for the questions. So for the total provisions, yes, it's an increased bit, coming from the non-cash loan provision, because we give additional overlay, basically more provisions, to some of our corporate clients in infrastructures. So we increase around, I think, more than IDR 2 trillion to add more provision for non-cash loan. So that's why the provision is increasing. And also, about the write-off, you are right, that in the first half, we accelerate our write off, so we write off around IDR 60 trillion as a group. And I think most of it contributed to micro segment and also small segment, because if you remember, starting last year, actually, we start to do our soft lending strategy.
We accelerating the downgrade for the restructured loan caused by COVID-19, and I think this year, we are using the provisions to written off some of the loans, that basically we believe that, do not have, prospective of, businesses going forward. What is the following question? Oh, sorry, it's the PNM loan quality. So, the PNM non-performing loan in total still well-maintained below 1% in our first half, and this is contributed to the group lending or you call Mekaar. So I think the credit cost in PNM, especially in Mekaar, will continue to decline this year. In the first half, the cost of credit of PNM is roughly around close to 3%, 2.97%, decline from last year that...
Because last year, they are booking a very high provision. So this year probably is not to be the case. So that's why the non-performing loan and the cost of credit, especially in Mekaar, we can believe that it will be better managed. I think that's... Hopefully, that's answering your question on the loan quality, and I think for the CASA strategy, please, Andre. Thank you.
Yeah. Thank you, Bu Viv i. Hi, Ferry. I'm talking about the, that you are concerned about the, our CASA strategy. You know, that the previous, when I explained about the CASA, I just put some of the, our strategy that focus on digital transaction, because, you know, one of the, our purpose of using the digital transaction is trying to getting more using users and also the transaction also put on there. And also, we have some that we trying to handle our problem with the our cash withdrawal. You know, that one that cash withdrawal still happens, so we try to keep and maintain the numbers still in the our level, you know?
And the next one is, we're trying to optimizing the existing customer value chain because, you know, we have the so many range of our segment from the bottom to the top. This is, every segment or every layer brings more the transaction, so we're trying to keep they are still in our system. And the next one, I think, once we have so many data, because you know that we have account, I think, 150 accounts. This is so many. So we can use it as our potentials to make something that's connected each other, because, you know, that's every account, so many potentials there. So by using that all, we're trying to bring them using this ecosystem that we have.
We're trying to more deeper for the ecosystem because we're trying to put some of ecosystem that we choose, transportation, hospital, ecosystem, education, trade centers, fintechs, that I already said previous one in the BRImo, we put up some fintechs on board and gas station. And the last, I think, is the most is like fast moving and consumer goods. And also, we not, we cannot forget for the transaction devices, so you can use it more EDC or POS that we put on the some in the traders in the market. So, our merchant focus is based on the previous one, is trying to use that we have in the in the trade center. We're trying to getting more and deep the transaction.
We're trying to keep the money still in our system. So that's, that's part of our strategy to make the money still in our system. Very well. Thank you.
Thank you. I believe that covered all the questions for Ferry. Is that everything, Ferry, or do you have any follow-up? Okay, maybe we'll move on to the next question in the queue, Melissa, Melissa Kuang. Okay, maybe you're not in the queue. Sorry, let's move on to the next one, then, Harsh. Oh, Melissa, there you are.
Oh.
Okay. Sorry.
Hi, sorry about that. Thank you for taking my questions. I just want to ask a little bit on the KUR. Can we confirm or do you know when, you know, the subsidy rate might be confirmed? Also, just a quick question about, you know, the change in government that, that you might have next year. What is the risk that the KUR loans, in terms of the subsidy, might not be continued, so the loans that you have already given out? I suppose the loans are roughly about 3-5 years, so the subsidy should continue until then. So just wondering, is there a risk that if there is a change in government, these subsidies might not be continued? That's my first question.
Second question, early on, you spoke about, you know, in terms of the use of your capital and the loan acceleration that you would want to do next year. Can you give a bit of flavor as to what type of a loans growth are you planning to have in the years ahead? And then also in terms of that, you mentioned about acquisition in small bolt-Ons in the insurance space. Can you talk a little bit about that on your aspirations of these insurance acquisitions that you wanna do? What type of products, what type of focus are you looking for? That's all the questions I have. Thank you.
Thank you, Melissa. I think on the first... Well, the second part of your question with the loan growth outlook going forward and the composition, Bu Vivi can handle that. And then also talking about anything on the microfinance, sorry, the multi-finance or insurance that we would be looking at at our subsidiaries, Bu Vivi can answer that as well. And then Pak Supari will take your question on the recent KUR announcements.
Thank you, Bret. Thank you, Melissa. Probably, I will try to answer all of the your questions. So the first one is about the final subsidy rate. So you have same question, just like my question every day to Pak Supari here, when actually the government will give the final announcement about the final subsidy rate. So, based on the current information, it is still being discussed and waiting for the signature from the Ministry of Finance. So hopefully, they will announce the final subsidy rate soon. And the second one, about the continuity on the subsidy of KUR if there is a changing in the government.
So I think we already prepare for those kind of situations, even though if you are seeing in our President speech in August 16th in the state budget draft 2024, they still provide a subsidy for KUR, roughly around IDR 48 trillion, increasing 17% year-on-year from this year. So we still have an allocation for KUR subsidy for 2024. But looking at the subsidy for 2024, it seems that the quota probably will not as high as 2022. But let's see how the government will announce the final subsidy rate for this year and also the final quota for this year. Because the quota for this year, for example, like more than IDR 400 trillion, right?
But until now, without certainty in the subsidy rate in 2023, I believe it's not only Rakyat, but also all banks who disperse KUR also start to rethinking how they should manage the disbursement of KUR. So that's why we also believe that the government will also announce the final quota of this year of KUR, that—and that might impact the 2024, impact for a quota. However, please note, Melissa, that starting this year, I believe that without KUR, Kupedes can take up the growth very well. So we also ready if, for example, the government did the same thing like in 2015, when they stopped KUR, we have a Kupedes Rakyat at that time.
So we also ready if 2024, for example, the government stop subsidy and also then also not giving a quota for KUR, that's also for Rakyat, that's even better. So the compositions of our Kupedes will continue to increase if we compare with, during the pandemic level. And then I think the third question is related, with the capital management. You are asking about aspiration of loan growth, like probably going forward. So, this year, 10%-12%. We, I think we might end up somewhere around 10% year-on-year this year, and we are currently still finalizing our budget for 2024. We still expect that the total loan continue to grow double-digit in 2024.
We will announce in the full year 2023 analyst meeting. But just to give you more color on this, we are expecting still somewhere, probably like 11%-12% for BRI, for Rakyat, total loan growth as a group. Yeah?
Thank you, Bu Vivi.
Oh, the last one.
Yeah.
Sorry, Melissa, I forgot your last question. So, okay, yeah. So the non-organic growth that currently we are having in our table is basically related more on a subsidiaries level, because some of our subsidiaries we already acquired them more than 5 years. And some of those subsidiaries has not achieved our expected level yet in term of growth and also size. So we are thinking about accelerating their growth using the non-organic growth. So probably like multi-finance, the finance company is one of the priority, and also the other subsidiaries that works in, for example, like asset management is also one of our priority on how to accelerate the growth in subsidiaries so they can contribute more to the group. Thank you, Melissa.
Thank you, Bu Vivi. The next question will be from Harsh Mody. Harsh, please, also remember to unmute your line when you go into the panel.
Hi, thanks. Thanks for the question for allowing me to ask question. Couple of questions, more focus on NII. Why is loan growth only 10% this year? I know your target is 10-12, but why such a low number? The big promise post Pegadaian PNM was you broaden the base, and the growth can be much higher. GDP growth is normally around 7-8. So, why just 10? Even next year, the guidance seems to be maybe 11, max 12. What's stopping the bank from growing at 20%? Why is all of... Despite all of the liquidity, the capital, can't the bank grow at much higher levels compared to where we are? That's the first one. I'll ask the next one in a bit.
Okay. Thank you, Harsh. So for next year growth, next year growth, I think if we are looking historically, like during the election years, our loan growth basically is a little, slightly decreased or flat, compare, compare with the previous year. So that's why, I'm telling you, the conservative growth of our loan growth, going forward. For this year, it's only like around 10%, Harsh. The first one is, if you remember that, of course, the PNM and Pegadaian will grow higher if we compare with even the micro in rakyat level in the parent entity. So, PNM, sorry, Pegadaian will grow at least 12%. That's our estimate, by the end of this year. Then PNM will grow high teens by the end of this year.
For the micro itself, like I mentioned, Kupedes will grow probably more than 40% or 60%, I believe, by the end of this year. But if you remember, for other businesses like small, yeah, we are only targeting a single-digit growth, because this segment, the SME segment, basically, we are still working around with the underwriting and also the business process. And we are also capping the growth in wholesale banking relatively around 4%-7% year-on-year for this year. So, that's why we are estimating somewhere around 10% by the end of this year. So...
Next year, I think, because we are still in the process of finalizing our budget, so that 11%-12% basically is coming from our estimation from historically from our previous election years, where every election years, usually our loan growth is slightly below or flat, if we compare with the one year before the elections. Thank you, Harsh.
Okay, we'll move on to the next question. Harsh, do you have one more question, or is that it?
Yeah, I just have one more, if I may.
Okay.
So, so, so effectively, what you are saying is, in segments where you want to grow, you're growing at 20, 25, and in segments which you want to de-emphasize, it's closer to 5, and hence, 10, 12, which makes sense. So the second question then is on the margins. If I could just break it up between the cost of fund trends, it seems CASA, every big bank is trying for that. Your LDR is quite high. And with every big bank now being able to curate the pricing, figure out the data analytics, how to capture wallet share, it seems very tough that every bank will be able to see their CASA go up. So, what else can you do in terms of...
Can you reduce your interest rates on any of the deposits, time or savings accounts? Can you sell any stakes and use that, free up that capital to use as funding? So what else can you do other than the CASA strategy that was outlined earlier to manage the cost of fund? And asset yield, with the mix change that you outlined on higher yield Kupedes, is that enough to offset any kind of cost of fund increase? Thank you.
Yeah, thank you, Harsh. So basically, as you see in the first half of this year, where, basically, our increase in the interest income in our lending yield, in our yield, 12.87%, basically, we've tried hard, actually, to compensate that to compensate with the highest, the high, the increase in the cost of fund. The cost of fund increased quite significant. It's now it's around 2.7% cost of fund, and then, with a lot of repricing coming from asset side, including shifting to Kupedes, shifting more to loan in our earning asset, that helps the yield increase. So that's why the net interest income, basically, we can still growing one point... around 1.4% year-on-year.
Going forward, this year, we believe that we still able, basically, to manage the growth of the net interest income, even though we are seeing that probably the cost of funds still continue in this level. But we still have some room in term of yield going forward. So first, of course, if the government announcing the final subsidy on KUR, so then we can book our unaccrued KUR subsidy to our book. That will help, basically, even more to compensate the increase in the cost of fund. And we still have an opportunity to reprice some of our loan portfolio, especially in our wholesale and also medium, that will help boosting the increase in lending yield. And hopefully, that will help to manage the net interest income growth going forward.
So, so far, you are right that the battle that we have in the low-cost fund, I think, is very, very intense. So we'll try to balance here between the growth and also the growth that we want from asset side, and also the growth in the cost of fund to be able to get the right or manageable net interest margin. Aside from the CASA, you know, just I want you to know that basically, our current account and saving account grew higher than the industry. So this give us confidence, actually, Harsh, that we are in the right track going forward. Yeah, even though the competition is intense, but we are growing above the industry.
In fact, our savings account growth in urban area growing even higher, around 8% year-on-year. So it means that, yeah, we are there. We are... We do not we do not have any excuse that we cannot compete with other banks. We have infrastructure, we have the system, we have the people, so it's only about the timing on how we actually grabbing more market share. And then, the other strategy that we have, rather than CASA, basically, is we are, the second priority of our funding strategy is coming from our retail time deposit. And this is also s- something that is not difficult for Rakyat to grab more market share in a retail time deposit. But please note our metric basically is the loan to deposit ratio.
Once our loan to deposit ratio is hit somewhere 90%-92%, so we'll start to do this step. So CASA, time deposit, then reprioritizations of the growth in our asset side. Thank you.
Thank you, for the question, Harsh. I think we're going to finish the call here. We will be uploading our complete first half of 2023 presentation at 11 A.M., and you'll find that on our IR website. I'd like to thank all of you for joining us today, and to thank our board of directors for participating and joining as well. I hope you all have a nice day. Thank you.