Good morning, everyone, and thank you all for joining BRI's third quarter 2026 earnings call. Before we begin, please allow me to introduce the members of the board of directors who are with us today. Our Group CEO, Pak Hery Gunardi.
Good morning, everyone.
Our Director of Finance Strategy, Pak Achmad Royadi.
Good morning, everyone.
Our Director of Micro, Pak Akhmad Purwakajaya.
Good morning, everyone.
Last but not least, our Director of Risk Management, Ibu Ety.
Morning, everybody.
Before we move into presentation, just a couple of quick housekeeping points. First, we encourage you to download the presentation materials or the financial update presentation available on our IR website that we uploaded this morning. Secondly, during the presentation or the Q&A session, please submit your questions to the Zoom chat box, and then afterwards, we will address them during the session. With that, I will now hand over the presentation to Pak Hery Gunardi, our Group CEO, to begin the presentation. Please, Pak.
Thank you, Siaga. Again, yeah, very good morning, everyone. It is a pleasure to be here with you today, and thank you for joining us. Before turning to our Q3 2026 performance, please let me first set the context with a brief overview of Indonesia macroeconomic environment, where Indonesian GDP stand resilient by growing at 5.45% year-on-year in the third quarter 2026. Aside from the household consumption that anchor the growth, investment growth pick up, supported by higher spending on vehicle, particularly motorcycle, which recorded their highest growth rate in 2026, in September 2026, signaling a stronger household purchasing power and business confidence. The next slide is we talk about the fiscal and monetary policy.
On the domestic policy front, we remain continuously optimistic that Indonesia can navigate the current period of volatility with fiscal and monetary policies working together for sustained growth and preserve macroeconomic stability. The government focus on the spending prioritization alongside BI-targeted liquidity measures should help ease funding pressures, improving banking system liquidity, and create greater capacity for lending, particularly to the MSME sectors. Ladies and gentlemen, the macroeconomic resilience is also well reflected in banking industry as it demonstrates healthy growth and strong fundamental. BRI is keeping pace with industry loan growth while outperforming on deposit and CASA growth. Combined with our structural NIM advantage, healthy liquidity level, and strong buffer, this put us in a strong position to sustain profitability and capture future growth opportunities. The next one is, we like to reiterate our commitment and consistency to execute our strategic priorities under BRIvolution Reignite.
Our focus is on discipline and consistent execution with clear result across each of our strategic priorities. Number one is the strengthening our funding franchise by unlocking the full potential of our extensive distribution network, more than 7,300 branches across the country, a large number of the RM, and also very massive customer base. We are fixing the fundamental through simplified product, better digital journey, and stronger security. For instance, merchant onboarding now take less than 10 minute, while now BRImo account opening can be completed in a minute with more initiative feature. These improvements are translating into result. Saving has regained its market leadership for the first time since 2022. CASA ratio has increased by 238 basis points year-on-year to 70%, and cost of fund has declined by 43 basis points year-on-year to 2.6%.
We are also gaining transaction in urban market, where our saving market share has risen from around 10% to 11.4%. This gives us further room to deepen customer relationship, improve funding productivity, and capture a larger share of the retail funding market. The second one is the way we are revamping our core business and diversify growth. In micro, we are taking end-to-end approach across people, business process, and also risk management. We have redesigned the loan officer role to improve productivity and collection effectiveness while introducing smarter plafond limit, stop-and-go mechanism, and more granular risk acceptance criteria. This initiative quickly is translating into result with a net NPL downgrade and also cost of credit on a declining trend since fourth quarter 2025. More importantly, micro loan returned to positive year-on-year growth of 0.3% in the third quarter 2026, the first time since December 2024.
While still modest, this marks an important inflection point as we accelerated the resolution of legacy 2023, 2024 Covid vintage and shift growth towards healthier new loan cohort. For our new growth engine, we are capturing opportunities in higher growth segment and compelling the value chains across our businesses. In consumer, we are improving risk selection with higher tier 1 developer customer disbursement around 24.1% in September 2026 versus 13.5% in September last year, while leveraging our wholesale relationship to grow both payroll loan and also deposit. At Pegadaian, we are deepening integration and cross-selling through gold services on BRImo, leveraging our 26 million active customers to drive growth in gold saving about positive 41.2% year- on-y ear and gold installment grew 91.1% year on year. The tangible result we are delivering today are not coincidence.
They reflect the strength of BRIvolution Reignite as a comprehensive organization-wide transformation that goes far beyond business performance. Our progress is driven not only by sharper business strategies, but also by the fundamental strengthening of the capabilities that power their execution. At the heart of this transformation are six critical enabler, which are human capital, risk management, IT and digital, distribution, operation, and rebranding. Together, they are helping us build a stronger, more agile, and more resilient BRI position for sustainable growth. If you look at the result, yeah, our third quarter 2026 consolidated result continue progress of BRIvolution Reignite with a stronger funding, improving asset quality, and diversified growth engine driving resilient performance despite a macroeconomic volatility. We proactively front-load deposit mobilization in September 2026 ahead of seasonality tight liquidity condition in the fourth quarter 2026.
Deposit grew 12% year- on- year, accelerating from 6.7% in June 2026, while CASA grew 15.9% and the CASA ratio improved 238 basis points to 70%. This brought our LDR down 30 basis points quarter to quarter to 87.8%, while LCR and NSFR remain comfortably well above regulatory requirement, providing ample liquidity buffer heading into the year end. Despite the deposit front-loading strategy, our core earning remain relatively insulated. Net interest income still grew by 6.2% year- on- year, supported by robust 14.5% loan growth, stronger funding mix, and 3.9% year-on-year growth on the non-interest income. Combined with the disciplined OPEX management, this drove PPOP growth of 10.9% year- on- year to IDR 96.1 trillion. This demonstrate our ability to maintain earning growth momentum while strengthening liquidity buffer amid funding cost pressure. Beyond the headline growth number, what is equally encouraging is the improvement in the quality of our earning.
Our profitability and asset quality metrics continue to improve. Net interest margin stands at 7.4% within full year 2026 guidance, albeit at the lower end, as portfolio diversification continues to moderate yield. While some margin pressure is expected to persist, we see opportunities to support net interest margin in the fourth quarter 2026 through loan repricing, continued recovery in micro loan, and also lower reserve requirement, which should broaden liquidity condition. On the funding side, continued saving growth should help contain cost of fund despite intensifying competition for deposit. Asset quality continued to improve with NPL declining 22 basis points year-on-year and 4 basis points quarter-to-quarter to 2.9%, while loan at risk moderated to 9.9% year-on-year and cost of credit significantly improved to 2.8%, down by 41 basis points year-on-year. This reflects lower new NPL formation and improving portfolio quality.
Earning conversion improved as lower funding cost and also the credit cost more than offset NIM normalization, supporting stronger profitability and balance sheet efficiency. Return on equity increased to 19.2%, progressing toward our minimum 20% target, while ROA reached 2.8%, reflecting improved return from our balance sheet and capital. Overall, we are pleased with our third quarter 2026 performance, with the benefit of our transformation increasingly evident across business growth, funding quality, asset quality, and profitability. We will discuss our full year 2026 guidance and also the outlook later in the presentation. First, I would like to invite Pak Royadi, our CFO, to walk you through the financial performance in more detail. Pak Royadi, please.
Thank you, Pak Hery. Let me walk you through how the transformation strategies are translating into concrete results. First, transforming the funding franchise. Our efforts are translating into tangible results with CASA reaching 70% and cost of fund declined to 2.6%. Higher customer activity and transaction volumes are further expanding opportunities to capture low-cost funding. Second, revamping micro, our core franchise. We are improving credit discipline end-to-end, from pre-screening and underwriting to collection. Real results are visible. Micro returned to positive growth, 0.3% year-on-year, while Kupedes disbursement grew 3.5% quarter-on-quarter. Lower net NPL downgrade, -28.5% year-on-year, and write-off -13.7% year-on-year, supported by weaker runoff 2023, 2024 batches, and better new vintages, contributing to micro COC improving to 3.6% and the NPL formation declining to 4.1%. Third, accelerating consumer and gold as new growth engines.
We are leveraging payroll and BRI's broader ecosystem to acquire higher quality customers and deepen relationships. Payroll saving balance reached IDR 78.4 trillion, or increased 12.9% year-on-year, alongside continued momentum in gold sales and gold installment. Finally, capturing targeted growth in corporate and commercial. Through initiative One BRI Solution, we are moving beyond lending to capture broader value chain opportunities across financing, transaction banking, payroll, and CASA. Diving deeper to funding, our priority is clear. We want to build a stronger and more sustainable funding franchise, and the progress as of September 2026 is further encouraging. BRImo remains a key growth engine, driving stronger customer engagement, transaction volume, and fee income. This is complemented by our expanding EDC and QRIS ecosystem and extensive BRILink agent networks, which continue to accelerate merchant acquisition and CASA generation. Our funding strategy focuses on two fronts.
First, defending our leadership in rural market while expanding in the urban area, particularly in Jakarta, which represent 38% of national savings balance. Our urban market shares has reached 11.4% with further rooms to grow. Importantly, these initiatives are delivering tangible result. Retail CASA growth accelerated to 17.6% year-on-year, ahead of wholesale CASA at 12.7%. BRI also regained its position as Indonesia number one saving bank with the highest saving balance and growth among peers. We have also front-loaded low-cost funding ahead of seasonality tighter liquidity in fourth quarter 2026 and first quarter next year. Cost of fund increased to 2.6% as of second quarter 2026. BI rate hike started to materialize, partly cushioned by stronger customer mobilization. LDR declined to 87.8% or -30 basis point quarter-on-quarter, providing additional funding flexibility heading into a tighter period.
Next, our micro business continue to recover with improving loan growth and tangible progress in asset quality. First, loan disbursement in gaining momentum, growing 6.4% quarter-on-quarter, reflecting a gradual recovery in micro lending. Second, asset quality continues to improve. Net NPL formation has declined significantly from its peaks of 6.6% September last year to 4.1% in September this year. While cost of credit has steadily improved to 3.6%, reflecting stronger credit discipline and more effective collection. This reflects structural improvement in our credit process, including analytic-led pre-screening, mandatory on-site verification, tighter underwriting, and stronger collection. We have also optimized loan officer productivity and span of control to strengthen customer engagement. Importantly, new loan vintages are showing better quality with lower special mention loan formation compared to previous cohorts. While the turnaround remain ongoing, this improvement reinforce our confidence in building a healthier, more resilient, and sustainable microfinance.
On the second engine performance, these initiatives are starting to deliver result, as reflected in the consistent growth of our consumer and gold-based lending and saving, driven by focus on high-quality customer and improved portfolio traction. Consumer loan grew 9.9% year-on-year, supported by overall growth across our secure and payroll lending businesses. Payroll loan increased 8.9%, while mortgages grew 13.1%. Importantly, this growth was driven by a continued focus on high-quality borrowers, including higher balance private payroll customer and greater exposure to tier 1 developers. As a result, we have been seeing better vintages across our mortgage. Auto loans also rose a significant 300% year-on-year of a low base. Growth is being directed towards stronger segment with the BRI Group ecosystem through integrated underwriting and dealer collaboration.
In wealth management, fund under management grew 5.3% year-on-year, while fee income increased 10.3% year-on-year, or grow double digit, supported by deeper cross-segment relationship. Going forward, we aim to further accelerate fee income growth through expanded investment offerings, stronger wealth management execution, and enhanced cross-referrals cross-segment. In the gold businesses, our gold business continue to gain strong momentum. Gold saving grew 41.2%, with active customer more than double, while gold installment loan increased significantly 91% year-on-year, targeting from mass affluent to high net worth customers, complementing continued growth in pawn lending. This momentum is supported by expanded sales channels, B2B transaction, cross-sales opportunities, cross-BRI Group, leveraging our extensive distribution networks. Next, we discuss about our corporate and commercial segment. Our corporate and commercial segment strategy goes beyond lending growth.
Through One BRI Solution initiative, we aim to capture a greater share of clients' banking needs, cross-financing, transaction banking, and CASA. Corporate lending provides long-term relationship with 57% allocated to investment loan, while commercial focuses on 11 priority sectors, with over 70% in working capital, embedding BRI in clients' daily business activities. We are increasingly converting this lending relationship into ecosystem funding, capturing depositors from both anchor client and their value chains. Ecosystem deposit grew quite significant, 134%, creating deeper transaction visibility and broader financing opportunities. We are piloting this model with selected anchor clients. As of September 2026, One BRI Solution ecosystem has generated IDR 36.2 trillion in digital transaction, IDR 3.2 trillion in CASA, and IDR 100 billion in value chain financing, demonstrating our ability to capture value beyond the initial lending relationship. We also repricing loans upward to help cushion NIM pressure, particularly in corporate segments.
This is beginning to translate into gradual improvement in quarterly corporate loan yield, while maintaining disciplined underwriting with the segment NPL ratio remain low at around 1.26% in 9M 2026. Now, we turning to funding. Strengthen our funding franchise remain a key strategic priority, with progress accelerating despite tighter system liquidity. We deliberately accelerate deposit mobilization ahead of expected liquidity headwinds. Deposit grew 12%, up from 6.7% in June, while CASA grew 16%, lifting the CASA ratio by 238 basis points to 70%. Sequentially, CASA increased 8.2% QoQ, supported by 3% QoQ saving growth, reflecting continuous traction from our retail funding initiative. Funding growth is increasingly driven by retail segment. Retail CASA grew 17.6%, significantly outpacing wholesale CASA, reflecting stronger customer engagement and providing a more granular, stable funding base across interest rate cycle.
Cost of fund increased 2.6% from first half 2026 as the impact of higher interest rate materialized, but remain 43 basis points lower year-on-year. This reflect our ability to front-load it, loan low-cost funding and manage deposit pricing despite a more competitive liquidity environment. In our loan portfolio, micro remain the core of BRI's business, counting for 43% of total loans. Encouragingly, the business is showing early sign of stabilization, with bank-only micro returning to positive growth of 0.3% year-on-year in 9/9/2026 for the first time since December 2024, while quarterly growth accelerated to 1.2%. The recovery was supported by stronger KUR disbursement, that grew 20.4% QoQ. Beyond improving business processes, risk management, and field productivity, we are revamping the Kupedes product proposition to better address evolving customer needs.
Meanwhile, corporate and commercial, as well as Pegadaian, remain the main driver of loan growth. Together, this segment supported consolidated loan growth of 14.5% year-on-year. Now we move to income statement. Our 9/9/2026 performance reflect stronger earning generation from our strategic initiative. Net interest income grew 6.2%, supported by healthy loan growth and disciplined funding management with cost of fund of 2.6%. While corporate and commercial lending carry lower yield, they deepen client relationship, expand the transaction banking, and generate sustainable CASA. Recovery income declined due to weaker recovery in SME and consumer segment. This was partly offset by stronger micro collection, supported by addition of 500 field collection staff. As a result, micro collection increased 34% year-on-year to IDR 3.3 trillion. Operating expenses declined 1.4% year-on-year, partly reflect a higher personnel expenses base in first half 2025.
This provided room to invest in business and enablers while keeping CIR at 40% below our guidance. Overall, resilient net interest income, non-interest income, and disciplined cost management drove 10.9% PPOP growth and 16.8% net profit growth. We have proactively secured funding ahead of anticipated seasonal pressure while continuing to grow our saving franchise. Stronger CASA growth and lower LDR provide a more comfortable liquidity position as we enter fourth quarter 2026. Consolidated NIM stood at 7.4% within full year 2026 guidance. Earning diversification also remains supportive, with Pegadaian contributing 15.5% of consolidated NII, up 225 basis points year- on- year, although it contributed moderate quarter on quarter following softer gold price. NIM pressure in the third quarter 2026 largely reflected the delayed transmission of the BI rate hike in second quarter 2026, alongside the shift toward lower yielding corporate and commercial loans.
Looking ahead, we see several levers to support margin in the fourth quarter 2026. First, stronger micro growth. Second, continued loan pricing across segments. Third, further saving growth to support funding costs and lower reserve requirement from central bank. Our LDR remained comfortable at 87%, combined with more granular retail funding base and the liquidity accumulated through our third quarter 2026 funding initiative. This provides flexibility to manage seasonal liquidity requirement in the fourth quarter 2026 and early next year. Next, we discuss with liquidity condition. Liquidity remained a key strength in the third quarter 2026, with LDR around 87.8%, down 30 basis points QoQ , consistent with our earlier communication on proactively front-loading funding ahead of anticipated liquidity pressure.
Our optimal LDR range remains 90%-92%, indicating room to redeploy approximately IDR 50 trillion up to IDR 60 trillion of deposit into productive assets while remaining a balanced funding position. Meanwhile, cost of fund increased QoQ as higher interest rate continued to materialize, but remained 43 basis points lower at 2.6% year- on- year. This reflects ongoing improvement in our funding franchise, particularly retail CASA and saving. Moreover, revised BI regulation are expected to provide further liquidity support. The 200 basis point reserve requirement reduction from 9% to 7%, partially offset by lower KLM initiative, translated into estimated 100 basis point net reduction for BI reserve requirement to around 2.13%. This is potentially generating IDR 30 trillion in additional excess liquidity and improving LCR by 3% up to 4% in December 2026, providing greater flexibility to support loan growth.
Our liquidity buffer also remained comfortably above regulatory requirement, with an NSFR at 121.4% and LCR at 144.4%. Importantly, BRI continued to hold general governmental placement of approximately IDR 79 trillion as of September 2026. Excluding this placement, LDR will be 92.7%, LCR 130%, and NSFR 119%, still above the respective regulatory minimums. Moving to non-interest income. Non-interest income continued to grow, supported by stronger fee income and gold-related revenue. Pegadaian remained a key contributor, leveraging its expanding ecosystem and BRImo distribution channel to drive net gold fee income to IDR 2.5 trillion, or increase 95.7% year- on- year. Recovery income moderated year on year. However, recovery trends have continued to improve sequentially, with the recovery rate increasing to 47.8% in 9/9/2026 from 44.4% in last quarter.
Looking ahead, we remain committed to disciplined cost management, targeting an OPEX to asset ratio of 3%-4% and CIR at 41%-43%. In the capital area, our capital position remains strong with CAR at 23%, comfortably above the minimum 14.70% regulatory requirement, and our internal risk appetite of around 17%, providing ample capacity to support future growth. Over the medium term, we aim to maintain CAR at around 20% level. Following the full year 2025 final dividend payment in April 2026, capital moderate as expected, but should rebuild organically through continued earning generation. On dividends, full year 2025 marked the fifth consecutive year of elevated payout following the 2021 right issue, when BRI established the ultra-micro holding. With the integration phase completed, we intend to gradually normalize the payout from 2026, but this depend on the approval from our OJK and our Danantara as our shareholders.
On the other hand, also we want to maintain the dividend per share similar compared to last year. Now, let's move on to our ultra-micro and micro business performance. I'd like to hand over to Pak Akhmad to take us through the details. Pak Akhmad, please.
Thank you, Pak Royadi. As we see in this slide, as of September 26, consolidated micro loan reached IDR 706.3 trillion, growing 5.6% year-on-year, with different growth dynamics across BRI Micro, Pegadaian, and PNM. The micro portfolio is showing early signs of recovery. Core grew 15.5% year-on-year, while micro payroll grew 0.9%. This reflects stronger disbursements across micro, +5% year-on-year, alongside lower micro portfolio runoff, with a rate of declines 13.7% year-on-year as the inventory of weaker legacy loans continues to shrink. Pegadaian continued to grow strongly at 32.7% year-on-year, although loans declined 8% quarter-on-quarter, reflecting moderation in gold prices. Importantly, this has not translated into higher credit costs. Despite an increase in LAR, cost of credit improved by 32 basis points quarter-on-quarter to 0.9%.
Its predominantly gold-backed portfolio, 627.5% NPL coverage and 28.4 LAR coverage provide substantial buffer, with estimated LGD of around 8%. Beyond its core pawn business, Pegadaian continues to develop its longer-term franchise through bullion banking, business-to-business partnerships, and digital capabilities, further diversifying its earnings base and supporting its role within the ultra-micro ecosystem. Asset quality across the micro ecosystem also continues to improve. PNM's LAR declined 100.5 basis point year-on-year to 8.47%, supported by 92.9% LAR coverage, while Pegadaian's cost of credit improved to 0.9%. As communicated previously, we expect Pegadaian's growth to gradually normalize alongside gold prices. For BRI Micro and PNM, improving operating trends are encouraging. Nevertheless, amid geopolitical uncertainty and tighter liquidity, our priority remains asset quality over volume. This slide, we're turning to BRI Bank's micro portfolio. Outstanding loans stood at IDR 512.6 trillion.
Following our deliberate focus on asset quality, the portfolio continued to recover in third quarter 2026, delivering 0.3% year-on-year and 1.2% quarter-on-quarter growth, marking the first positive year-on-year growth since December 2024. Our priority remains sustainable growth from a healthier portfolio. This recovery reflects improvements in underwriting, pre-screening, and analytics through BRISPOT, alongside stronger field execution and portfolio monitoring. Borrowers per loan officer declined from 484 to 454, while outstanding per officer increased to IDR 19 billion from IDR 18.8 billion in first half 2026, reflecting improved field productivity. KUR grew 15.5% year-on-year, with disbursements reaching IDR 167 trillion, or 88% of annual quota, excluding KPP, 90.6%. Looking ahead, we are shifting from implementing micro transformation initiatives to scaling their impact. This includes revamping Kupedes to better match customers' needs and business cycles with more flexible cash flow-based working capital, longer tenor investment financing, value chain lending, and transaction-based financing.
Our focus on sustainable growth goes hand-in-hand with our commitment to maintaining sound asset quality. To elaborate further, I would like now to invite our Director of Risk, Ibu Ety, to walk us through our asset quality performance. Please, Ibu Ety.
Okay. Thank you, Pak Akhmad. Good morning. Let me continue to discuss asset quality. During third quarter this year, NPL improved steadily, while in the SML side, we see significant jump in subsidiaries SML from 3.98% to 10.27% quarter-on-quarter due to Pegadaian gold bond business, as domestic gold price declined by 16% since the peak in January 2026, with roughly like IDR 3.1 million per gram. On the NPL side, consolidated NPL continues to lower from 3.08% last year and 2.90% in June to 2.85% in September, majority driven by improvement in the bank-only micro and PNM, as well as SME and corporate segment in the bank-only as well. I will discuss later about the improvement in micro NPL. Back to SML issues at Pegadaian.
We deliberately delay the asset sales of the gold bond financing, as we actually expect that domestic gold price will be steady since June, and then slightly up by end of December this year. As a result, SML increased from IDR 5.7 trillion to IDR 19 trillion, mostly in our gold bond financing, coming from booking mostly in January and February 2026. In October, the SML balance has declined to roughly IDR 11.6 trillion due to three strategy. The first strategy is special auction program of interest discount. So in October alone, we successfully sell around IDR 9.4 trillion of the gold in collateral, and some of the collateral is absorbed by Galeri 24 because Pegadaian has the gold sales shop as well, and minting operation as well. L argely, the remaining is absorbed by regional gold shop.
They are partnering with us because it is difficult to transport the collateral from the region to head office as well. The second strategy is to set up the task force in collection because we expect slightly decline in the booking side in the fourth quarter this year. Then we also add some tasks to the appraisal, the gold appraisal, to collect manually to our customer. The third one is to restructure some of the portfolio. We target around IDR 9 trillion to be lengthened until 12 months, until June next year. Based on the loan-to-value calculation, Pegadaian is actually use 20% discount from internal market price that is referring to domestic market price. Furthermore, the provision coverage for Pegadaian is also strong. The current LAR coverage ratio is 28%, and NPL coverage ratio is above 600%.
We still believe that the market risk factor is relatively manageable. Back to the improvement in the micro segment, I will touch briefly. NPL in September increased 10 basis points year-on-year. However, quarter-on-quarter basis is actually declined almost 20 basis points. SML in September also fell close to 200 basis points year-on-year and almost 60 basis points quarter-on-quarter. If you look at loan at-risk position, it is also improved significantly from 12% last year in September to 10.7% in September this year. On the flow side, if we look at NPL downgrades, year-on-year fell significantly by close to 30% year-on-year from roughly IDR 22 trillion during the first nine month last year to almost IDR 16 trillion during the first nine month this year.
Hence, we also use less write-off budget, which is fell roughly 13.7% year-on-year from IDR 17 trillion nine month last year to IDR 15 trillion nine month this year. This has translated into better NPL formation. September 2026 is 4.1% and declined from 5.6% in September last year. However, it is still higher than pre-pandemic level of 2.5%. As a result, micro COC continues to improve, declining year-on-year roughly 75 basis points to 3.6%, reflecting lower loss formation and the gradual impact of stronger underwriting and collection efforts. In the fourth quarter, we still expect stable loan quality performance as we see that addition of field collection officer has indirect improve on balance sheet collection as well to the loan officer. Moreover, we currently deploy 1,240 loan officers specifically handles the balance sheet collection for SML and NPL with average of 270 customer per officer. Next page.
Here we discuss about Kupedes, and you can see that the disbursement trend in 2026 has improved steadily since first quarter, although we expect 40% annual decline year-on-year by end of December. While the six-month vintage under bottom right side showing the default rate has improved continuously since second quarter last year of 3.3% to 1.6% in the first quarter this year. In this page, we also show you that the remaining Kupedes 2023 and 2024 vintages, the balance that has remaining outstanding of IDR 49 trillion and IDR 17 trillion already in classified loan. We expect that remaining outstanding by end of December will be around IDR 40 trillion and with 15% is under classified loan. Next page.
As a result of better asset quality management since mid-2025 last year, the NPL coverage ratio has improved steadily from 178% in December to 180% in June, and again in September increased to 184%. This is due to stable NPL nominal since December 2025. On the loan at-risk coverage, it declines from 57% in June to 53% in September, largely due to increasing SML in Pegadaian gold pawn financing, as I explained earlier. After audit adjustment in June and followed by limited review in September, our loan loss reserve stood at IDR 86.6 trillion and still consistently increasing since December last year, with loan loss reserve at 5.26%, a slight increase compared to June to better prepare imported inflation impact and rising cost of fund in the fourth quarter. Next, the final page, we will discuss about write-off and credit cost.
As a result of steady improvement in NPL formation as well as loan at-risk formation, our gross COC improved from 3.2% to 2.8%, driven by BRI Bank NBNM and beating our guidance. This year, we allocate write-off budget around IDR 45 trillion. As of September, we have used IDR 30.6 trillion, and it is actually much lower compared to September last year of IDR 34 trillion. In terms of recovery, our recovery income slightly increased by 1.5% quarter-on-quarter, reaching almost IDR 15 trillion. While the consumer and SME recovery softened, micro recovery continue to improve, supported by dedicated field collection officer. Since third quarter last year, we have deployed more than 5,000 field collection, and in the fourth quarter, we assume that recovery from claim is steady. Thus, we expect slight increase in recovery income, especially coming from corporate segment, towards our recovery target of around IDR 21 trillion this year.
Regarding the El Niño impact to micro, out of KUR and Kupedes outstanding in September of IDR 410 trillion, the seasonal agriculture-related loan portfolio stood at IDR 61 trillion. From the El Niño heat map, we expect that roughly IDR 10 trillion will be under dry and very dry category. And based on the weather bureau projection, the El Niño will delay the start of rainy season roughly two weeks to one month, hence potentially lower rice harvest productivity in October by 15%. Or if we use annualized number or annualized impact is roughly 5% lower than last year productivity. We expect that the lower productivity will trigger into new LAR around IDR 1 trillion or 10% of the region under dry and very dry, and therefore rising COC by roughly IDR 70 billion or perhaps 0.5 basis points to BRI Bank only COC.
Because the lower productivity in rice, we also expect indirect impact of rising rice price, probably starting next year as rice is our main consumption. We predict that there will potentially 10-20 basis points potential impact from inflation from October 3.23% to probably 3.35%-3.4% in December. And this may impact some of the sector like retail trading and food and beverage in 2027. Beyond micro, we have also mapped potential exposure among corporate borrowers, particularly the agriculture and palm oil sectors, amounting to approximately IDR 17.5 trillion. We continue to monitor this exposure closely and take preventive measures to mitigate potential impacts on repayment capacity and asset quality. With that, I would like to hand it back to our Group CEO, Pak Hery, to take us through 2026 guidance and the key message from the third quarter performance. Please, Pak Hery.
Thank you, Ibu Ety. Let me now turn into our full year 2026 guidance. Following our solid nine-month 2026 performance, we are maintaining all guidance indicators with overall profitability remaining our key area of focus amid global uncertainty, rising interest rate environment, and also tighter liquidity. For loan growth, momentum is maintained, with micro returning to yearly positive growth, commercial remaining strong, and consumer and gold providing additional contribution. Government-led investment in downstreaming and B50, alongside with a stronger fiscal spending, create further financing opportunities across key value chains. We will capture this selectively while maintaining risk discipline. Net interest margin. We maintain our 7.4%-7.8% guidance, with numbers in nine-month 2026 at 7.4%. While portfolio mix shift and higher funding costs remain headwind, we see four levers to defend margin. Number one is loan repricing across the segment.
The second one is continue retail CASA growth to contain cost of fund. The third one is the recovering micro contribution, and the last one is lower reserve requirement. Improving also corporate loan yield already indicate that repricing is gaining the transaction. The asset quality and cost-to-income ratio, with a COC at 2.8% and a cost-to-income ratio at 40%, both remain within the expectation, supported by lower NPL formation and disciplined cost of management. Overall, we enter the final quarter with a solid business momentum, a stronger funding franchise, and improving asset quality. While net interest margin remain our key watch point, we believe our retail funding and portfolio mix lever provide room to maintain profitability within the full year's guidance 2026.
Actually, BRIvolution Reignite is the translating transformation into tangible result and reinforcing BRI resilience. Our core is getting healthier, better risk selection, stronger credit process, and improved productivity are driving consistent asset quality improvement, while micro is beginning to regain positive growth momentum. The second one is our funding franchise is becoming stronger and more efficient. CASA lead growth, supported by digital channel and transaction banking, is deepening customer relationship and reducing reliance on aggressive deposit pricing. The third one is our growth and earning are becoming more diversified. Corporates, commercial, consumer, gold, and transaction banking are complementing our micro franchise, while resilient margin and strong capital continue to protect profitability. This improvement are reflected in 16.8% year-on-year net profit growth to IDR 48.2 trillion. Amid macroeconomic uncertainty, BRI remain resilient, backed by strong capital and ample liquidity buffers.
We remain focused on executing our strategy, deepening our funding franchise, and diversifying growth to build a stronger, more resilient franchise. We can now turn to the Q&A session. Thank you very much.
Thank you, Pak Hery. We will now move to the Q&A session. I will start with the two questions from the submitted questions pre-earnings call, and then follow up with another two questions submitted during the call. The first questions, there is like three bullet points actually. The first is the improvement in micro security driven by healthier borrowers or write-offs, and what does this imply for 2027 credit costs? When do you expect corporate lending to recover, and what conditions must improve before you accelerate disbursements? The last one is, can lower funding costs offset loan yield pressure, and what is your NIM outlook for 2027? Pak Hery, may I invite you to assign the question and responses, please.
All right. Thank you, Andre Wijaya. I think Ibu Ety can respond the question from Andy. Especially in the micro asset quality and also the Kupedes lending recover. Please.
Regarding the question about the asset quality in micro, on year-on-year basis, we continue to see improvement in micro net downgrade and NPL downgrade is improved close to 30% year on year, or decline around IDR 6.3 trillion. It is actually a result of many strategies that we done in 2025 and continued until 2026. We believe that this progress is mostly reflects the structural improvement, which is more granular pre-screening, analytics risk scoring, and also mandatory on-site verification. Also more specialized operating model across the origination. In terms of consumer loan, also we do our consumer loan in micro, we also do some improvement in the payroll lending detection. W e detect now payroll saving account, and also the addition of recovery and collection teams that handles the off-balance sheet.
It also have indirect impact, as I mentioned earlier in the presentation, that the loan officer in micro now have more time to collect the SML and NPL on balance sheet that resulting into better LAR formation and also better NPL formation. We continue to run the strategy until maybe next year in terms of micro, we will expect the COC to continue to improve in micro until 2027 as well, f ollowed as well by the lower Kupedes 2023 and 2024 vintages. In terms of Kupedes booking, we still book negative growth of minus 22% year- on- year. The disbursement has continued to improve quarterly on quarterly basis in the first quarter 2026. We expect probably the increase also still moderate in the fourth quarter, maybe close to IDR 17 trillion in one quarter only for this year.
Resulting in - 40% disbursement actually if we compare to 2025 of above IDR 100 trillion in one year. We still are quite cautious in growing the Kupedes, although if you look at the trend since first quarter this year, it is already showing a positive trend. We expect to continue the positive trend until 2027, and probably we can start to see year-on-year outstanding growth positively in 2027 as well. Thank you.
All right. Come back to the questions. The question number three, can lower funding cost offset loan yield? Pak Royadi can respond the questions, please.
Yes. Thank you, Pak Hery. Thank you, Andy, for the question. I think related with the question, can lower funding cost and offset lower yield? I think there are several things here in order to maintain or manage the NIM, especially in fourth quarter and going forward. I think there are several aspects here. First, we keep improving our funding franchise. By this initiative, we expect we can maintain the momentum that we can grow CASA more and more. Of course, it will support our funding cost. Second one in fourth quarter, we start to selectively normalize our special rate in the funding. We believe the highest one we already passed in the end of June and also third quarter. Fourth quarter, we start to normalize some of the special deposit rate in the funding. Related with the asset.
I think from the asset side, like discussed before, we start to repricing our lending rate, especially in the commercial, corporate, and SME, around 25, 50, 70 basis points. It is depend on the customer and condition. I think it will support our margin. Second one from the asset side, like discussed before, we expect there is some support to our margin coming from the growth acceleration in micro, like discussed before, and also in consumer, especially in the payroll loan, because micro and the payroll loan, those two segment give us the highest yield. With this growth acceleration momentum, I think it will support our margin. Third one is the reserve requirement from BI relaxation policy. Based on our calculation, with this new regulation, our reserve requirement will decline from around 3.1% September to November, decline to 2.1%.
Around 100 basis point decline in the reserve requirement. It will release around IDR 10 trillion-IDR 13 trillion. If we place, for example, government bond or, for example, in the loan, it gives us a yield around 7%-10%. It will be annualized, it can support our NIM around maybe 7 and 8 basis point. The other is, we still can room to optimizing our LDR. Our LDR currently 87%, 88%, so we can optimize it so our net interest income will be improved. I think that is the answer for the number three. Thank you.
Okay. Yeah. Thank you, Pak Royadi. I think we will move on to the next two questions submitted to the chat box. The first one is coming from Jayden. On slide 30, there is a pickup in loan at risk. How much of this is from the state contractor resulting program versus other segments? What of the pickup in special mention loans? Is there a target LAR coverage level? Thank you.
I think you have the data, right?
Yeah.
Yeah, Sila. Sila, please.
Thank you, Pak. As I mentioned earlier, Jayden, the increase in LAR is primarily driven by subsidiaries, Pegadaian, which is SML, which is the increase is coming from the gold pawn business. There is actually just a normalization toward the gold price, as you also see that in January and February, we have a peak of the gold price in Indonesia, roughly like IDR 3.1 million per grams, and current price is around IDR 2.5 million. That is why the customer choose not to repay the loan timely. We actually plan to, some of them, plan to restructure until June next year, but some of them we already do acceleration on the collateral selling as well in the auction program that I mentioned earlier. We already sell around IDR 9.4 trillion in October alone.
Roughly, the IDR 400 billion is we sell slightly below the principal amount, but largely or majority is actually just a discount of interest. If you see that the current gold price should be normalized or stabilized until end of the year, maybe we expect some a little bit increase in December as well as in the fourth quarter next year. We have some times to sell the collateral as well. In terms of risk management limit, we have 20% a discount or maximum loan-to-value is actually 80% compared to the calculation of the market price.
Therefore, with loan at risk coverage ratio of 28%, we still see that the risk is still manageable, and therefore, we can expect it is probably only time difference until June 2027, until the loan at risk in Pegadaian normalize back to the previous level. Assuming that everything is stay as projected, yeah, and the gold price is stabilizing until next year.
Okay. Yeah. Thank you. I think the next one is going to be the last question for today. It is coming from Melissa. The first one is margins. You mentioned earlier there is a scope for loan repricing and there is easing of funding costs. Would you say third quarter is the point of inflection for NIMs? Secondly, is capital you mentioned previously, lower DPR going forward, is that still strategy going forward? Thank you.
All right. Pak Royadi, maybe you can take the answer the questions, one and two. Please, Pak.
Okay. Thank you. Thank you, Melissa, for the question. Like discussed before, we have several initiative in order, and have several support to our NIM in the fourth quarter. With that, like Pak Hery mentioned, the guidance for the NIM still 7.4%-7.8%, but we still try to maintain our margin, our NIMs in the fourth quarter within the guidance, maybe like in the lower of the guidance, 7.4%. So, like discussed before, there are several factors that we can support our NIM in the fourth quarter and going forward. I think that. Then maybe related with the capital, yeah. The first one, of course, we will maintain capital that we can support our sustainable growth. This is the first one. Second one is we also want to manage our CAR is around 20% level.
It means that next year, we still can maintain our payout at least the same like this year. Even though it is translated, maybe dividend payout probably gradually lower. A gain, it still under discussion with our shareholders, and of course, it will need approval from our OJK. I think that, again, in general, we want to maintain our CAR going forward around 20% level.
Thank you. Thank you for the questions. For the questions that we didn't get to today, we'll be happy to follow up after the call. I will now return the session back to Pak Hery for his closing remarks.
All right. Thank you, Siaga. We come to the end of the sessions. Let me give a closing statement this morning. Despite a challenging external environment, BRI fundamentals continue to strengthen, supported by disciplined execution of our transformations. Progress in funding, asset quality getting better, and business diversification is translating into stronger and more sustainable performance. Our net profit continue to deliver solid double-digit growth, backed by healthy capital and also the liquidity position. Moving forward, our focus remain on sustaining growth momentum, strengthening our core franchise, and delivering resilient profitability and long-term shareholder value. Thank you for your continued trust for us, for BRI, and your great support for us. Have a very good day, everyone. Thank you very much.