Good afternoon, ladies and gentlemen. I would like to welcome the respected investors and analysts. Thank you for joining PT Bank Danamon Indonesia Tbk's investor and analyst briefing first half 2024 financial results. Before we begin, I would like to emphasize on the following information. We encourage participants to join this event by using laptop and use a headset to optimize the audio quality. Please ensure that you are joining from a closed room and quiet environment with a stable internet connection. During the event, please kindly mute your microphone and turn off your camera. Please also put your mobile phone in silent mode to avoid echo sound and do not access the Microsoft Teams link simultaneously in more than one device.
When we enter the Q&A session, you can type your name, company, and questions through the chat box menu, and I will read each question and our BOD members will respond to your questions. Please also note that this event is live stream and accessible via Stockbit's YouTube channel and apps. Ladies and gentlemen, I would like to welcome and thank our respected investors and analysts for joining PT Bank Danamon Indonesia Tbk's investor and analyst briefing first half 2024 financial results. Today, I will be your host, and please allow me to quickly introduce myself. My name is Marcella Tanamas, investor relations of Danamon. I would like to welcome Danamon's board of directors, board of management, and also president director of our subsidiary, Adira Finance, who have joined from their respective locations.
Signifying our strategy, before we start the presentation session, let us have a look at our new clip on Danamon to grow as a financial group.
[Presentation]
Ladies and gentlemen, before we present the detail of PT Bank Danamon Indonesia Tbk's financial result for first half 2024, I would like to invite Bapak Daisuke Ejima as our President Director to deliver his remarks, highlighting the progress of our three key strategies. Pak Ejima, the screen is yours.
Thank you, Marcella. Good afternoon from us all investors and analysts, and thank you for all your support in joining this virtual conference briefing session for the first half of 2024, the financial result of PT Bank Danamon Indonesia. Next page, please. Let me start off through the macroeconomy and some industry data. We saw solid GDP growth at 5.1% level. Also, inflation rate is well managed at 5% level, meaning overall macroeconomy, we are seeing a good solid growth continuing. However, looking at the bottom part, left side, banking business, the lending average growth was 13.2% and funding was also 8.2%, meaning fierce competition in financial industry still continues. Right side is showing the automobile industries in Indonesia. Two-wheelers slight minus and four-wheelers significant minus at 20.9% year-on-year basis. Next page, please. Left side, I would like to recap the Danamon strategies for next three years until 2026.
In three years, we want to continue double-digit growth in lending and funding with sustainable profitabilities growth. Four business engines still remain same, Enterprise Banking, Small Medium Enterprise, Consumer Banking, and Adira Finance. We also have three strategic themes, namely the ecosystems and building ecosystems on a dominant manner, and also unique MUFG propositions and data analytics and process improvement. Also, second pillar is the foundation for building a solid one financial group. Also, core banking enhancement continues in people, IT, digital, branding and branches. We will cover these three pillars themes in next three slide, but before that, let me explain the right side, the quick peek of our first half financial result. Lending, we continue to grow +15% year-on-year basis. To support that funding side, we also saw a growth in 15%, the similar level. NPAT, we saw a slight minus.
This is reflecting the lower risk-adjusted net interest margin and cost of credit due to sluggish automobile market, which I explained in previous page. Other key metrics such as non-performing loan ratio, et cetera, are solid and consistently healthy. Next page. Firstly, this is the ecosystem focus on our business. Left side top, automotive ecosystems. We continue to see a good collaboration between Danamon and Adira. We saw a 37% growth on loan disbursement through the synergy collaboration. We also had co-sponsored the IIMS event and also had several car event including BYD test drive in our branches, et cetera. Right side top, we also started to pick up the Hajj and Umrah ecosystems. We started new initiatives, launched Danamon BISA Haji for special hajj, and managed event. Real estate ecosystem also saw a good healthy growth.
We have partnered with 17 Japanese developers and have 39 residential project continue to grow through the new partners. This resulted in significant increase in real estate loans, particularly for Japanese developers corridors. Next page, please. This is the page about foundation building for one financial group. You see a big circle in the page in the center, centering around Danamon. On the top side from left, you see PT Mandala Multifinance Tbk, which recently joined us through this first half. We also have Adira Finance, the core subsidiaries. They are in automobile industries. We also added the Home Credit Indonesia since last year. They are strong in smartphone financing and durable goods. Zurich Finance, they are all our group companies. Going to right bottom, we also have strategic partners, Grab, Akulaku, GarudaFund, Manulife.
On top of that left side bottom, we have the region and global networks through MUFG partner bank. With this combination of all group companies together on right side, we are now able to cover a whole segment of customers, not only bank, but underbank and unbanked even. Not only digital and branch network in banking business, we are also able to support the offline business through Home Credit activities in shopping malls, et cetera. Back to left side, we have synergy loan growth and very large, about 48% year-on-year basis. Also, the IBR at IDR 26 trillion in synergy loan is accounted about 14%, one-four percent, of our total loan portfolio now. Number of synergy deal also increased by 16% year-on-year basis. Next page. The page is about foundation building for our banking infrastructures. Left side top first, D-Bank PRO.
This is our mobile banking applications, mainly for our consumer retail customers, that has been brushed up and added many good new features in the first half. Number of users, number of transaction, and transaction values, you see all positive growth during first half year-on-year basis. On the left side bottom, we also have Danamon Cash Connect, which is the online banking solution for corporate clients. Again, we saw number of users, number of transactions, and transaction values. We saw a healthy, good growth in the first half. We also launched new features to support BPJS Ketenagakerjaan payment. Moving to the right side top, we continue to transform our branches, funding loan disbursement and new customers to the bank. All we are seeing good growth through this transformed branches activities, mainly.
In first half alone, we held total 159 community events, such as inviting kindergarten kids to feel and touch the banking activities. We also held overseas study session for our customers, healthcare session, et cetera. Lastly, right side bottom, people management side. We try to do HR activities all together with our group company that I mentioned in previous pages, Danamon, Adira Finance, Home Credit, Zurich, and of course, MUFG, all are doing some joint recruiting activities and leadership training, et cetera. This is a key high-level summary for the first half activities. Now, let me pass to Pak Muljono Tjandra, Danamon's Finance Director, who will share details of Danamon's first half financial result. Thank you.
Thank you, Pak Ejima. Let me share on the financial highlights for the six-month period ended June 30th, 2024. We maintained the double-digit growth in loan and fundings. On the top left chart showing strong growth in loan and trade finance, growth by 14% year-on-year, supported by all engines. We see that our wholesale business grew by 11% year-on-year, and consumer grew by 19% year-on-year. On the bottom left table, showing asset quality. Healthy asset quality with the loan growth, with the loan at risk improved by 90 basis points from 12.9%- 12%. NPL console gross improved by 10 basis points to 2.2%, and our coverage ratio also increased to 263%.
Funding on the top right table, our total deposit grew by 15% and supported by growing in our granular funding by 10%. Bottom right tables showing our operating income grew by 8% to IDR 9.4 trillion. PPOP grew by 10% year-on-year to IDR 4.3 trillion, and NPAT reached IDR 1.5 trillion for the six-month period. Next, on the balance sheets. Our total asset grew by 14%, supported by loan and government bonds. On the funding sides, including our Adira borrowings, increased by 19% year-on-year to support our loan growth. We see that this big increase on the term deposit, while our CASA decreased by 5%. Next, on the profit and loss.
As discussed earlier that our operating income grew by 8% year-on-year, supported by increase in net interest income by 5% and non-interest income by 21% year-on-year. Our operating expenses increased by 6%, so we are able to maintain a positive growth by 2%, despite the investment commitments. With that, we deliver PPOP amounted to IDR 4.3 trillion or grew by 10% year-on-year. Our CoC increased by 28%, mainly coming from Adira portfolios, especially in the commercial vehicle, due to the weakening economic conditions. So we identify as well as rectify the issue and ready to move forward. With that, we deliver NPAT for the half year amounted to IDR 1.5 trillion. Next. This is our key financial ratios. NIM year-on-year declined by 70 basis points, mainly due to increase in cost of funds.
And also increase in borrowing in Adira due to the increase in benchmark rate as well as competitions. As Pak Ejima mentioned just now that we see that growth in the lending in the industry is significantly higher than the growth in funding. So of course there will be competition in pricings as well as some of the customer move to the higher yield, which is to the wealth management product and as well as SRBI. Our CoC year-on-year increased by 30 basis point due to the same reasons. Cost to income ratio improved by 80 basis point to 54.8%. Despite that, we have continued commitment on the invest to sustain our growth going forward. NPL console gross improved by 10 basis point to 2.2%, so very healthy. And loan loss coverage increased to 263%, and loan at risk coverage remained at 47.2%.
CAR console remains strong at 25.9%. Next. So this is the picture of our granular funding. So we see that we continue focusing in growing our granular fundings. As shown in the top left charts, grew by 10% year-on-year, supported by healthy LCR and also NSFR. So refers to the top right chart. Strong capital, as I mentioned earlier, as shown in the bottom table, with almost 100% in the form of Tier 1 capital. Next. So this is the detail of our loan portfolio. So you see that the loan composition, if you like, is remain unchanged. With the four major engine on the top right table, like EBFI, SME, Consumer, and Adira Finance, all showing very nice growth, with EBFI grew by 12%, SME 9%, Consumer 32%, and Adira Finance by 15%.
So we also provide the detail of loan by sector, which is pretty much similar with the previous years, as well as loan by purpose. So heavily more than 50% in the form of working capital loans. Next. And this is the picture of the Adira Finance. So we see that the industry for the two-wheelers and four-wheelers both have big challenges, as Pak Ejima mentioned. And despite that, Adira, for the six-month period, are able to show a decent growth by 15%, supported by all products. Two-wheelers grew by 16%, and four-wheelers grew by 10%, and multipurpose loan grew by 26%. Despite that, the new financing, if you compare to the like for like compared to last year, we are slightly dropped by 2%. Next.
This is the net interest income. We see that our net interest income or fee income year-on-year grew by 21%, supported by all type of fee, credit related and non-credit related, which is related to the Bancassurance, Wealth Management, and Cash Management, all showing nice growth. Our treasury also grew nicely. Next. This is the asset quality. We see that both our NPL ratio at 2.2% and SM ratio at 8.5%. Both ratio improved by 10 basis points compared to the same period last year. Loan at risk, bottom left table, bottom left charts
In percentage, improved by 90 basis points from 12.9%- 12%, and our NPL coverage also increased to 26.3%, refers to the top right table. Cost of credit for the first half at 2.8%, increased from last year at 2.6%. Next. That's pretty much the summary of our highlight result for the first half 2024. With that, I'll pass it to Marcella for further guidance.
Thank you, Pak Ejima, Pak Mul, for your explanation. Before we start the Q&A session, I would like to introduce our BOD members and also our subsidiary president director. Honggo Widjojo Kangmasto, our Vice President Director. Bapak Hafid Hadeli, Vice President Director. Bapak Herry Hykmanto, Syariah & Sustainability Finance Director. Ibu Rita Mirasari, Compliance Director. Bapak Dadi Budiana, Risk Management Director. Bapak Thomas Sudarma, Enterprise Banking and Financial Institution Director. Bapak Jin Yoshida, Global Alliance Strategy Director. Also I Dewa Made Susila, President Director of PT Adira Dinamika Multifinance Tbk.
[inaudible ]
Ladies and gentlemen, now it is the time for us to start the Q&A session. Please write down your name, company, and questions on the chat box venue, and I will read the questions. This month, celebrating our 68th anniversary, we held the DXPO to continue engaging our customers and communities where we operate. While waiting for the incoming questions, let us have a lo ok at a short clip on the DXPO event.
[Non-English content ] We invite Mr. Daisuke Ejima, as President Director of PT Bank Danamon Indonesia Tbk to deliver his opening remarks.
This is the unwavering commitment for us to continue to be innovative and customer-centric organization to serve the country better through the financial activity.
[Presentation]
Now, let's start our Q&A session with the first question is from Irvan from Pangolin Investment. May I know the full year outlook for Adira this year, new booking target, NPL, and et cetera. Thank you. How is the market?
Yeah, thank you. Okay, let's start with the outlook of the sales of our domestic two-wheeler and four-wheeler. Number one, with regard to the outlook of the domestic sales of two-wheeler, we expect flat or slightly negative growth as compared to last year, while the sales of new car is expected to drop double digit. As you see that right now, passenger car dropped by 11%, and then commercial car already dropped by 20%. With that kind of situation, coupled with a challenging situation, we are expecting our new booking will be flat compared to last year. In the first half, Adira already booked around IDR 20 trillion of new booking, and we expect probably toward the end of the year is around IDR 40 trillion- IDR 41 trillion. With that, we expect our loans still growing single digit.
With regard to NPL, NPL of Adira is hover around 2%, in part because we are doing disciplined write-off, and resolution of problem loan. I think that's the question, right? Thank you.
Thank you, Pak Made, for your explanation. Let's wait for another question. There's another incoming question from Ibu Yolinda. The first question, may I know what caused the higher NPL formation and CoC of Adira?
The automotive sector Indonesia right now is having a lot of headwind. Number one is weakening purchasing power of consumer, particularly on the Middle to Lower segment, as well as Commercial segment. We see a weakness in demo purchasing power as well as creditworthiness. This is partly due to lower commodity prices and much higher inflation, particularly food and energy prices for the Mass Market segment. As a result of that, we see that the demand is already weakened, as well as a pressure on the asset quality. On top of that, we see also higher loss on repossessed asset. Even though we may need to repossess the asset because of the soft automotive sector, we see that the loss is higher than the normal rate. That is resulting in higher cost of credit as compared to the last year.
Thank you, Pak Made. I believe the next question is still related to Adira. Are you planning to do channeling with Home Credit?
Right now we have a framework of collaboration within the group. We will continue to look any opportunity to do lot of cooperation among the group, not only about business, but also another non-business aspect. One, the area that we do is probably cross-sell between a product of Adira to customer of HCI, as well as selling HCI product to customer of Adira. That is being now is planned and then trying to be executed as soon as possible.
Thank you, Pak Made. The last questions from Ibu Yolinda is related to the corporate loan. What is your current corporate loan yield?
Hi. Yes. The corporate loan yield, we see is slightly increasing trend. Currently, the yield is about 8.3%.
Thank you, Bapak Thomas Sudarma.
Maybe that's it for the IDR. For USD, maybe Thomas, we also see the same trend for USD. The rate is increased, is hovering around more than 6% or 6.3%.
Yeah.
Okay. Thank you, Bapak Thomas Sudarma, Bapak Muljono Tjandra. We are still waiting for another incoming questions. You may type your questions on the chat box. Okay, there is another follow-up questions from Ibu Yolinda. Which segment show the highest increase in Adira Finance financing? Is it from the two-wheelers or four-wheelers, dealer or non-dealer?
Yeah. Overall, we see a higher Cost of Credit this year across all products, but the higher increase coming from Commercial segment, that we are basically financing mostly in the commodity related area. So that is driven by two. One is higher write-off, as well as when we sell the product, the loss rate is higher. It could be double than the normal rate around 20%. So that is the segment. But the other segment is we see some pickup, but still very manageable and profitable.
Okay. Thank you, Bapak I Dewa Made Susila. We have another questions from Bapak Krisna. I will read the questions one by one. The first question is regarding the NPL coverage. NPL coverage has been held relatively steady at 250%-260% level in the past one year. Can management please remind us what would be the NPL coverage target in 2024 and 2025? What indicators does management watch before considering NPL coverage and credit cost reduction in the next one or two years?
Sure. Thank you, Marcella Tanamas. Thank you, Bapak Krisna. In terms of the NPL coverage itself, we are looking at the level of anywhere between 200%- 220% this year, from this year actually to 2025. So that is the level of the NPL coverage that we are aiming at. I think your next question is on what is the reason for us to actually determine that level of NPL coverage. Basically, for us, it is our aim to maintain a sufficient level of coverage, basically. The sufficient level of reserve for our loan losses. So, we would like to have it at that level, the level that we believe is adequate. We do not actually think that there will actually be, let us say, to your next question, of CoC reduction, that may actually result in a reduction of NPL coverage also.
If I'm not really getting your question, the second part of your question, please let me know again because I'm not too sure where exactly you were getting to. Marcella, probably if you can, you can repeat the question again. But I think Pak Krisna was asking about the reduction of CoC, right? And how it actually affects the NPL coverage, isn't it?
Yes. The second question is, what indicators does management watch before considering NPL coverage and credit cost reduction in the next one to two years?
Oh, okay. All right. Yeah. I think in terms of the credit cost itself, our credit cost remains the same. The projections at the 2.5% level, actually. So that remains very much for 2025. But for 2026, because of the increased level of credit cost in Adira, so we are looking at the slightly higher CoC level, than 2.5% that we are aiming for to 2024 earlier. So that will probably be around 2.7%-2.8%. That was because of the pressure in Adira side that Pak Made has earlier explained. But on the NPL coverage itself, despite the higher CoC level this year, we remain confident that the NPL coverage will be at the level that we are aiming at 200%-220% level. Thank you.
Thank you, Pak Dadi. So let's move on to the next question from Pak Krisna. How much of the strong loan growth in EBFI was driven by business CapEx cycle versus market share gain from other banks or corporate bond market?
Let me try to answer this question. Basically our year-on-year growth on the what you call corporate banking loan, EBFI, 12%, and some of the commercials also large commercial 9%, mainly from the business growth. Today, if we compare the working capital versus the investment loan, our composition, 57% is the working capital loan and 43% investment loan. This investment loan growth quite nicely. I would say most of the growth of the corporate loan is coming from the business driven instead of taking over from the other banks. Then our corporate bond market. Danamon is not so much in the corporate bond. Our corporate bond exposure is very small. The replacement of the corporate bond market, basically we are giving to the corporate customers are very small.
I think as a commercial bank, we are not in the business of replacing the long term from corporate bond markets. This is mainly from the business-driven. Thank you.
Thank you, Pak Honggo. The third question from Pak Krisna. Any thoughts on NIM impact from potential Fed rate cut and BI rate cut later this year? How much cost of fund improvement can Danamon expect to secure, say, from early 2025 onwards?
Let me take this question. I think it is very hypothetical questions. Any decrease in rates will be benefiting Danamon because the structure of our fundings, where deposit is normally short-term and will reduce faster, decreases faster than loans. The challenges we see that for the first half is, as we have shared, that the loan grew faster than deposits. With that increase the competition of funding in the markets as well as many customer move their better yield, so move their fundings from CASA to TD as well as from TD to wealth management products. Any rate cuts, from Feds, which is, we hope that followed by central bank, will benefiting Danamon. That is the general guidance, if you like.
How much we are benefiting from the rate cut will be depend on how much the rate cut by Fed and followed by central banks, if you like.
Thank you, Pak Mul.
Pak Mul, let me add something here. Basically all the Indonesian banks, if you look at the asset and liability side, the tenor of the asset is longer than the liability. In general, we are having a shorter liability tenors. If there is a rate cut, we are not going to immediately usually pass on the rate. All rate cut will benefit for the banks. I think that's the short answer. Thank you.
Thank you, Pak Honggo. Okay, we have another questions from Handy Noverdanius. It's related to Adira. Adira's Multipurpose segment grew 26% year-on-year as of first half 2024. How do you growing differently on this segment this year versus previous years?
Thank you, Pak Handy. Let me just try to answer this. I think now multipurpose loan will be one of the key pillar for the growth of Adira going forward. It is not only about customer acquisition, but it also to retain customer. As you know that the penetration rate of motorcycle already very, very big. Then based on our survey saying that after they having a vehicle, they typically having another need, such as education, Hajj, these kind of things. Since we are multi-finance, the only cash loan that we can structure is a multipurpose loan. Adira is basically capitalize that opportunity to grow more on this loan as a solution for our customer if they want to adding more vehicles. That is number one. Number two, this is developed strategy because our multipurpose loan is using two strategy.
One is on the retention to assisting customer as well as we also acquire directly customer from the market. We expect this type of loan continue to grow and giving not only growth but also diversification because we know that automotive sector is prone to be very volatile in Indonesia. We expect this also bring more balance in term of portfolio to Adira going forward. Right now, the contribution is slightly above 20%. We expect a third of our business will be non-auto loan. We call it non-auto loan because the purpose is not buying a loan auto, but is using mostly productive usage. Now we also invest in term of capacity to continue grow this business. I think one is strategy, second is execution, and third is capacity build up to grow this business.
Thank you, Pak Made. We have another questions from Pak Rahmanto from Stockbit. I would like to hear about the perspective of Japanese corporations regarding their expansion plans in Indonesia in the near future. Could you please share their general appetite and views on the Indonesian market, along with any concerns they might have? Additionally, how do BDMN and MUFG Group view and position themselves in relation to this trend?
Okay, let me take these questions. Yeah, of course, given the potential of the economic growth in this country, definitely Japanese corporate has the appetite to invest into these countries. Actually, in fact, we also received some consultations from such a Japanese corporate. The MUFG Group, including Danamon, we are one of the largest financial groups in Japan, and also the strong relationship with the Japanese corporate. Of course, we are supporting such appetite and also the activities. That is my answers.
Thank you, Pak Jin. Okay, let's wait for another incoming questions.
Marcella, during the waiting for further questions, let me add the comment on the question in terms of the channeling to the Home Credit.
Sure, Pak Jin.
The Home Credit becomes one of the group companies. We try to support their liquidity and also the reduction of the cost of fund. Any aspect, perhaps including the channeling, we are discussing with the Home Credit to support their needs. Hope it helps for the questions.
Okay. Thank you, Pak Jin, for your explanation. Before we end the Q&A session, I would like to invite respected investor and analyst, if you still have more questions to ask. We are waiting for the final questions. I would like to say thank you to Pak Irvan, Ibu Yolinda, Pak Handy, Pak Krisna, and Rahmanto for the questions. I would like to close the Q&A session. Ladies and gentlemen, the respected investors and analysts, once again, thank you for taking part in the PT Bank Danamon Indonesia Tbk's financial result for first half 2024. For any further interests and questions, please do not hesitate to reach us through our investor relations mailbox at investor.relations@danamon.co.id. See you at the next Danamon's corporate event. Thank you.
Thank you, everyone.