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Edited Transcript of BDMN.JK earnings conference call or presentation 23-Oct-19 10:00am GMT

Q3 2019 Bank Danamon Indonesia Tbk PT Earnings Call

Jakarta Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Bank Danamon Indonesia Tbk PT earnings conference call or presentation Wednesday, October 23, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Reza Iskandar

PT Bank Danamon Indonesia Tbk - Head of IR & Corporate Planning

* Tjandra Muljono

PT Bank Danamon Indonesia Tbk - Chief Finance Officer

* Yasushi Itagaki

PT Bank Danamon Indonesia Tbk - President Director

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Conference Call Participants

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* Mulya Chandra

Morgan Stanley, Research Division - Equity Analyst

* Tjandra Lienandjaja

PT Mandiri Sekuritas, Research Division - Deputy Head of Equity Research

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Presentation

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Reza Iskandar, PT Bank Danamon Indonesia Tbk - Head of IR & Corporate Planning [1]

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Good afternoon. Thank you, and welcome to our 9 Months 2019 Analyst Briefing Presentation. I will hand it over to our new CEO, Pak Yasushi Itagaki, for some opening remarks.

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Yasushi Itagaki, PT Bank Danamon Indonesia Tbk - President Director [2]

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Sure.

(foreign language) members of analysts, welcome to Bank Danamon's Third Quarter Financial Results Announcement. So thank you for coming here.

It is my great, great pleasure to meet with each one of you as -- first time as the President Director of Bank Danamon since my appointment back on October 1 at our extraordinary meeting for shareholders.

Taking this opportunity, I'm pleased to introduce to you the new members of our Board of Directors. The first, Pak Honggo Widjojo Kangmasto as Vice President Director. Thank you.

Next, Pak Muljono, Tjandra as our Chief Financial Officer Director.

And third, Pak Naoki Mizoguchi as a Global Alliance Strategy Director.

By the way, all of us, all of these appointments, including myself, are subject to fulfillment of regulatory requirements. Is that -- yes, I thank you.

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Reza Iskandar, PT Bank Danamon Indonesia Tbk - Head of IR & Corporate Planning [3]

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Thank you, Pak Yas. Without further ado, I will hand it over to Pak Muljono, Tjandra to take us through the financial results.

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Tjandra Muljono, PT Bank Danamon Indonesia Tbk - Chief Finance Officer [4]

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Good afternoon, everyone. We will have to report -- actually, we have a strong growth on the -- we go through to the Page #1 with strong growth on the funding to support the loan expansion. Our granular funding, CASA and TD regular increased by 14% year-on-year. TD regular represent low ticket size of TD and booked through our branches or online and generally, lower cost of fund. We are talking about like 50 to 70 basis points lower than deposit cap.

We continue focusing on institutional CASA growth initiative through FSC, payroll and digital banking and partnerships.

RIM is very healthy at 97.4%. All key engines following a healthy growth. Excluding Micro, loan and trade grew 9% year-on-year. Mortgage and auto-registered grew 20% and 8%, respectively. EB and SME increased 10% year-on-year, enhanced by MUFG collaborations. We would like to share that the successful operation integration following legal module with BNP, 32 branches converted into Danamon network.

Next, on a 9-month summary of our balance sheet showing 10% increase on the assets year-on-year.

Next, the 9-month 2019, our NPAT, IDR 2.596 trillion or lower 15% year-on-year, mainly due to NIM compression and higher cost of credit.

OpEx is well under control. So going forward, any interest rate cut will benefit us. And therefore, we expect the -- our NIM is getting better.

Next, on the key ratio, where NIM on year-on-year basis declined due to reason mentioned previously. On a Q-on-Q basis, we start to see some improvement. Capital ratio is slightly lower compared to last year but again, continues to improve each quarter. As I mentioned, RIM is healthy at 97.4%. NPL slightly increased from 3% to 3.2%. The condition, however, is projected to improve in Q4 2019 as a result of the various initiatives launched between Q1 and Q3 2019. CAR is still very strong.

Next, the benefit from Micro Banking rundown. Without Micro, our cost-to-income ratio would have improved from 50.7% to 48.4%. NPBT improved from IDR 3.734 billion -- IDR 3.734 trillion to IDR 3.865 trillion. And ROA also improved by 40 basis points. Next, on Page #6, show very strong funding growth, both from CASA and regular TD, as I mentioned earlier. In addition to this and part of our funding strategy, we issued one of IDR 2 trillion in May under SEMM program with the total program of IDR 5 trillion. So additional IDR 3 trillion is available to support the growth going forward. Our RIM in IDR remains healthy.

Next, showing the various initiatives to improve our granular funding through Danamon Way and establish digital platform. With this, we are to improve NTB acquisition and customer penetration on digital. TD online portfolio improved 125% year-on-year, which is we're talking about the lower ticket size and lower [RIM] as well and also enabling access to e-commerce and e-wallet.

Next, on the capital structure. Our capital remains solid with a total CAR of 22.5% conso and almost 100% Tier 1 capital.

Next, on Page #9, showing the deferred loan composition and loan growth by segment. The 4 engine, Adira Finance, EB, FI and SME consumers showing very good fractions. So all of those are showing healthy growth.

Next, on the auto business. Despite the auto industry slowdown, Adira Finance able to deliver 8% loan growth year-on-year.

So we move to the NPL. NPL and special mention, stable Q-on-Q. However, we focused on monitoring the asset quality. This has become our focus going forward and always there.

And the next is on Page #12. NPL and special mention, stable Q-on-Q. And as I mentioned, we will focus on monitoring the asset quality.

Next to Page #14 and the last slide on the fee income. The fee income grew 5% year-on-year, mainly supported by the growth in noncredit related, so such as General Insurance and treasury-related year.

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Reza Iskandar, PT Bank Danamon Indonesia Tbk - Head of IR & Corporate Planning [5]

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Thank you, Pak Mul. As usual, we will open the floor for questions either in the room, from the room or also from the WebEx. Yes.

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Questions and Answers

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Mulya Chandra, Morgan Stanley, Research Division - Equity Analyst [1]

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My name is Mulya Chandra from Morgan Stanley. So I think my question is pretty brief, is basically just curious on what will be the key difference from Danamon in the past and Danamon in the future, especially with the integration of MUFG link.

Also, like what kind of new business model Danamon will go into? We previously know Danamon in the past as a micro bank, but in recent few years, actually, transformed into SME and a bit of housing. Just want to know what's the vision of Danamon going to the future.

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Yasushi Itagaki, PT Bank Danamon Indonesia Tbk - President Director [2]

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Thank you for the question. You have questioned us about our sort of a new strategy direction going forward under this new shareholder, MUFG.

I think even after this strategic partnership with MUFG, we remain focused on our, what we call, full growth engines, which are consumer, SME, Enterprise Banking and auto financing through Adira Finance. But what will be changing going forward is we put more efforts to accelerate the growth through leveraging our unique position, unique hybrid bank position with both local and global capabilities. For example, we try to increase our loan across ecosystems. Ecosystems in many ways, but one way is financial supply chain. MUFG is quite strong in dealing with global or Japanese corporate customers. But they're operating in Indonesia with suppliers, with distributors and through to end-users. So this business chain or supply chain is exactly the market that we, Danamon, try to capture.

We are very strong at transaction banking, data finance system, supplier finance system, and we have Adira Finances. So by collaboration with MUFG, we try to capture this entire chain as sort of a one-stop seamless services. We also try to capture this payroll banking because MUFG has very [breadth] of client relationship for global corporates and Japanese corporates. We have good solutions. We have Syariah products. We have Adira Finance, Adira Insurances. So we are able to present on better proposition to those employee banking.

On digital space, also, we accelerate our digital banking. Not only developing our digital platform, but also, we are trying to engage in so-called digital partnership. MUFG has its own corporate venture capital, which is keen to look at investing opportunity in Indonesia, the fast-growing digital economy in ASEAN. So we, Danamon, would collaborate and would get some commercial benefit out of that MUFG's investment in e-commerce.

So such a -- the sort of new strategic direction or sort of business initiatives that are under discussion and under implementation right now.

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Tjandra Lienandjaja, PT Mandiri Sekuritas, Research Division - Deputy Head of Equity Research [3]

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Tjandra from Mandiri Sekuritas. Two questions from me. One is on your RIM. Your RIM is about 97%. I believe this is consolidated. Like, what's the RIM for the bank-only? And is there a target for that based on the new way of calculating the RIM itself?

Second question is the sale of Adira Insurance. It's already been almost a year, and we haven't got anything on that one. So when do you think that you're going to conclude the transaction? And what sort of gain that you expect from that one? Yes.

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Yasushi Itagaki, PT Bank Danamon Indonesia Tbk - President Director [4]

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I think on the -- let me answer the first question on the RIM side. So normally, we see our RIM ranging between 94% to 96% on a bank-only basis. Just to remind, bank-only includes a portion of Adira Finance, joint financing that is booked on our balance sheet. So when we talk about consolidated versus bank financing, it's still the bank-only to include the part of the Adira book. So normally, we have a maximum appetite in terms of risk appetite statement in the bank. So it should not cross 99%. And we have a separate threshold for rupiah RIM versus U.S. dollar RIM. Currently, we see our liquidity is quite stable. So between 94% to 96% is what we are currently looking at.

And the other question, I think, on Adira Insurance, you asked. So nothing has really changed in terms of the economics. Whatever announcement we made when we signed the agreement with [Messrs] Zurich International last year. The price is actually the same. The transaction is still pending OJK final approval. And OJK approval, we still have till year-end to conclude that because our agreement with Zurich is still valid. So as soon as we get OJK approval, then we will obviously make a formal announcement of the transaction.

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Reza Iskandar, PT Bank Danamon Indonesia Tbk - Head of IR & Corporate Planning [5]

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Thank you. Any other questions?

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Unidentified Analyst, [6]

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My name is [Issy] from Trimegah Sekuritas. Just one question. I'm wondering, I'm curious about the payroll accounts with new business strategy, if you are going to tap into. Actually, which income segment are you targeting? Is it low to middle or middle to up? And is it the whole employees for one company? I think that's it.

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Unidentified Company Representative, [7]

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So basically, we -- by partnering with -- as part of MUFG, we are able to go after the payroll of the bigger companies, the big corporate, which is, obviously, including all of them. I think what we offer that is different than the other is that we will take all the payroll from that company, whether from the senior management to the -- all the levels. And we believe this is a strong proposition. So obviously, when you offer it to the whole company, you have a mix of market segments in terms of you have emerging affluent. You also probably would get some of the mass market as well. But we believe we have the right product as well as solution to capture and process these clients.

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Reza Iskandar, PT Bank Danamon Indonesia Tbk - Head of IR & Corporate Planning [8]

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So we have some questions from the web. Some banks have lowered mortgage rate. Will Danamon do the same as well? And then the second question is overall guidance for 2020 financial years.

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Unidentified Company Representative, [9]

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. So in mortgage, it's a very highly competitive market. So even in the past whereby the rate has increased substantially, we actually never matched the life in the cost of fund. So we are monitoring very closely. And obviously, our strategy is to remain competitive. And in order to do that, in some cases, we will reduce the rates as part of the promotion or the working with the -- easily with the developers.

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Tjandra Muljono, PT Bank Danamon Indonesia Tbk - Chief Finance Officer [10]

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On the 2020 financial year, we are now in the process of preparing our 2020 budget. And I guess we will also closely monitor the progress on the interest rate, yes. So basically, what happened, any interest rate cut will always benefiting us. That's why we see our Q-on-Q NIM improve. Thank you.

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Reza Iskandar, PT Bank Danamon Indonesia Tbk - Head of IR & Corporate Planning [11]

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There's also one question from Jayden from Macquarie. What is the plan for the proceed of the Adira Insurance divestment?

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Yasushi Itagaki, PT Bank Danamon Indonesia Tbk - President Director [12]

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Yes. I think currently, we don't have any sort of strategic announcement to make on that. Obviously, after the divestment, we look at all the options. Currently, we will deploy the liquidity that we will receive and a mix of probably in some bonds and other short-term placements. But if you're asking the question is that do we have any big strategic plan for that, currently, there is no such announcement.

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Reza Iskandar, PT Bank Danamon Indonesia Tbk - Head of IR & Corporate Planning [13]

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Thank you, [partner].

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Tjandra Lienandjaja, PT Mandiri Sekuritas, Research Division - Deputy Head of Equity Research [14]

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I have follow-up questions on Adira Finance here. White goods and others seems to be declining every quarter, yes, in the past few quarters. What's the plan for this white goods and others then in Adira?

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Tjandra Muljono, PT Bank Danamon Indonesia Tbk - Chief Finance Officer [15]

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It is -- actually, it consists of multi-purpose loan and (inaudible). Okay. So this -- of course, the strategy is we are going to expand more on the multi-purpose loan. So we are going to speed up the process for approving the multi-purpose as well as expanding our agents for acquisitions of new customers.

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Reza Iskandar, PT Bank Danamon Indonesia Tbk - Head of IR & Corporate Planning [16]

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Thank you, [Tjandra]. You have any more questions?

There's a question from Robert Kong from Citi. What is the guidance on IFRS implementation for Danamon?

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Tjandra Muljono, PT Bank Danamon Indonesia Tbk - Chief Finance Officer [17]

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On the IFRS implementation on the bank, we are in the process of testing and calculating as well the impact. And in our initial calculation, it would impact to our CAR less than 1%, yes. So it's very small.

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Reza Iskandar, PT Bank Danamon Indonesia Tbk - Head of IR & Corporate Planning [18]

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Yes. Okay. Any other question from the floor? So if there is no more question, we will end the event. Thank you again for coming and attending.