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Edited Transcript of BNGA.JK earnings conference call or presentation 19-Feb-20 9:00am GMT

Full Year 2019 Bank CIMB Niaga Tbk PT Earnings Call

Jakarta Mar 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Bank Cimb Niaga Tbk PT earnings conference call or presentation Wednesday, February 19, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Helen Stella Maris

PT Bank CIMB Niaga Tbk - Head of Business Planning & Network Management - Consumer Banking

* Lee Kai Kwong

PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director

* Tigor Marsahala Siahaan

PT Bank CIMB Niaga Tbk - President Director & CEO

* Vera Handajani

PT Bank CIMB Niaga Tbk - Risk Management Director & Director

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Conference Call Participants

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* Ben Shane Lim

Macquarie Research - Research Analyst

* Danny Goh

Crédit Suisse AG, Research Division - Director

* Harsh Shah

JP Morgan Chase & Co, Research Division - Analyst

* Peter Kong

CLSA Limited, Research Division - Research Analyst

* Robert P Kong

Citigroup Inc, Research Division - Director and Deputy Head of Regional Financial Institutions

* Tjandra Lienandjaja

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

* Wai Yen Leong

RHB Research Institute Sdn Bhd - Head of Regional Banks

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to CIMB Niaga Full Year '19 Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would like to hand the conference over to your first speaker today, Ms. Helen Maris, Head of Finance of PT Bank CIMB Niaga. Thank you. Please go ahead.

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Helen Stella Maris, PT Bank CIMB Niaga Tbk - Head of Business Planning & Network Management - Consumer Banking [2]

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Ladies and gentlemen and all participants, welcome to the conference call of PT Bank CIMB Niaga. Our agenda today, 19 of February 2020, is to disclose the bank's full year 2019 financial results. The company's presentation material has been released and is now available to download on our website http://investor.cimbniaga.co.id.

This presentation will be presented by Bapak Tigor M. Siahaan, CEO of CIMB Niaga; and Bapak Lee Kai Kwong, CFO of CIMB Niaga, along with members of Board of Directors and other senior management. The total time for this call is about 1 hour, which will begin with presentation by our CEO, followed by a brief question-and-answer session.

Ladies and gentlemen and all participants, today we are pleased to introduce Bapak Tigor M. Siahaan as President, Director; Bapak Lee Kai Kwong, as CFO; Ibu Lani Darmawan as Consumer Banking Director; Ibu Vera Handajani as Risk Management Director; along with other executive members.

Ladies and gentlemen, we draw your attention to the disclaimer to say that some statements made during this conference call may be forward-looking in nature, and that actual results could differ materially from projection during today's call. This presentation is not intended to form the basis of any investment decision with respect to CIMB Niaga, neither this presentation shall form the basis of any contract or commitment whatsoever.

Now without further ado, I would like to turn this presentation over to Bapak Tigor for his remarks. Pak Tigor, the time is yours.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [3]

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Thank you very much, Helen. Good afternoon, ladies and gentlemen. Thank you for joining us today in our 2019 financial results announcement, along with our senior management here.

I'll start quickly on Page 3 and briefly on the macro. The global economic situation throughout '19 reflected Indonesia's GDP growth that slowed down each quarter; however, still resulting in about 5% GDP growth level by the end of 2019. It is a bit lower than the government's target of about 5.3%. However, we've seen that the expectations in domestic growth and rupiah remained stable. As we all know, the rupiah has been -- has strengthened over the past 4 to 6 weeks to about IDR 13,600, IDR 13,700 level.

As the new Cabinet has already formed with some notable ministers' appointment, hopefully, we can see a positive trend going forward. Obviously, we're still watching very, very carefully on the coronavirus and its effect on the economy in the short and the medium term.

Moving on to the banking industry on Page 4, just quickly. We've seen that the country's slower-than-expected growth is reflected in the industry's loans and deposit growth. As for CIMB Niaga, our focus on CASA and enhancing our digital banking capabilities has resulted in CASA growth of close to 8%, surpassing the industry of 5.9%. Our NIM has improved to about 5.3%, higher than the comps at the industry. NPL ratio has also improved year-on-year to get to about 2.8%, narrowing the gap to about industry level. Overall, we've closed 2019 with our PBT growth higher than the average industry at about 9.5%.

Next page is -- our business has been focusing on expanding the CASA franchise, growing our consumer and SME business, and continue to develop features and capabilities of our digital banking services to provide more engaging customer experience.

And in line with the transformation agenda of CIMB group, whereby CIMB Niaga is seen an important entity in the scale and accelerate bucket, we've entered 2019 as our first year of a transformation period towards the Forward23 target that we have. Our transformation blueprint delivered in 3 stages: funding the journey, winning in the medium-term, and capability and change management. 104 initiatives were launched in 2019, 39 has been completed, 65 are a work in progress with expected impact delivery in 2020.

So with that, I'll hand it over to Pak KK, our CFO, to continue the presentation with our financial update.

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Lee Kai Kwong, PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director [4]

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Okay. Thank you for that, Pak Tigor. I will first provide you with the key financial highlights, looking at the balance sheet and the P&L and then some ratios.

CASA, like Pak Tigor has mentioned, has had a pretty good traction. Our digital initiatives has been paying off. CASA growth outperformed market, up 7.9% year-on-year. Loans up 3.5 -- 3.1%, narrowing the difference between what the industry usually do against us. So we actually are higher against -- higher growth compared to the previous year. Revenues, mainly driven from the higher spreads that we are getting, higher NIMs that Pak Tigor has showed you earlier, up 6.3% overall revenue. Whereas OpEx is well contained at 3.9%, giving us a JAW of about 2.4% year-on-year. PBT as a consequence is up about 9.5%.

NPL ratios continued to improve, down to about 2.79%, whereas impaired ratio was down 24 basis points to 3.81%. ROA is up 13 basis points. ROE inching up 26 basis point and a very healthy CAR level at 21.47%.

Let's look at the consolidated balance sheet, I think, next page, Page 11. Okay. Loans up 3.1% to IDR 194.2 trillion, mainly driven by top 5 -- by these top 5: manufacturing, agriculture, services, construction, mining and quarry contributing to that growth. As for deposits, good traction in current and savings account in the fourth quarter. We started to lower our time deposit rates towards the fourth quarter, hence, we had a little dip in time deposits. But what we are very encouraged from the business that our current and savings are growing very nicely. So equity, as a consequence of the profit, up to IDR 43.29 trillion.

Next, on Page 12, income statement. Net interest income, we had a challenging year on net interest income, simply because there were 4 rate cuts to what's -- from the start of the third quarter all the way to the fourth quarter. So we still managed to maintain a strong NIM at the 5.3%, but interest expense has crept up at 10.1%. Interest income is up 6.9%. Overall, net interest income is 4.6% higher.

Noninterest income, a bit slightly better at 11.6%, contributed to better recoveries in the third quarter. Operating expense maintained to a pretty flat level. Bearing in mind, also, we are in the first year of our transformation. So like Pak Tigor says, the first part of our transformation process is funding the journey. So a lot of the uplift that we are getting from the transformation is funding the journey, hence, we try to keep operating expense even with transformation at 3.9%.

Some challenges in provisions this year, especially on the corporate banking side. So we still managed to offset most of these challenges with a very strong performance in consumer asset quality. Overall, provisions still up 7.5% to IDR 3.25 trillion. PBT, excluding the onetime MSS costs, is up 9.5%, with a net profit up 12.4% to IDR 3.9 trillion level.

Some of the key ratios on Page 13. Some of the notables here. I think CASA ratio, we have made good strides from 52.61% to 55.36%. Loan loss coverage is up to about 113%. Impaired ratios -- coverage ratios are still up. Cost of credit, I did mention that we have a little bit of challenges on the corporate account, so it's up to 1.75% now. But the NPL, we brought it down to 2.79%. Loan-to-deposit ratio is pretty much level to what we were last year.

Okay. Next one is quarterly earnings trend. Encouraging signs across the last 4 quarters. Every quarter from first, second and third being up. On the fourth quarter, I think one of the major impact was the 4 rate cuts hitting us from the third to the fourth quarter. So it's down but still up against the fourth quarter from the previous year by about IDR 200 billion. And overall, the profitability remained strong at IDR 1.3 trillion for the fourth quarter.

Okay. On NIMs, on Page 15. NIMs continued to improve, and from 19 basis points year-on-year. We did mention that on the first quarter of last year 2019, we began repricing our loans up. So you can see the uptrend from March, and that benefited the second quarter up to June. And then the rate cuts started coming, that's when we started to contract a little bit. The loans were repriced much faster than the deposits. Deposit levels continue to maintain at a relatively flattish levels because it was not repriced -- market wasn't repricing the deposits as fast as the loans. Hence, there was some impact on our NIMs towards the fourth quarter.

We are also in line with where we want to be in terms of contribution by the segments. We wanted more than 50% of our interest income or income coming from the consumer and SME segments, and we are at 55% right now. Our intent is to grow it to above 60% in the near future.

On the noninterest income, all right, the biggest growth here is actually the recovery income, up about 75% year-on-year. We did have a pretty good year also on syndication and arranger fee. So overall, year-on-year, we're up 11.6%, mainly driven by the top 2 items in the table.

Next on operating expense, Page 17. We set out to maintain or at least bring down the CIR to below 50%, and we have achieved that. What we wanted to do was try to maintain our other expenses to include basically the general and admin expenses as well as marketing expenses to a level that we feel comfortable with in spite of our additional investment in transformation. Personnel costs is the main driver for the increase in expenses. As we start our investment in personnel with 3D capability, basically data, digital, design and disruption capability, we find that the cost of the investments of this personnel is a lot higher compared to our traditional banking employees. So overall, we are still quite comfortable in terms of our overall expense.

Next is on Page 18. Now loans growth was at 3.1%, but what we actually like is our focus areas are growing in double digits. The mortgage is in double digit. Credit cards in double digit. Auto, which we have more than, what, 36 months of downward trend, has turned around in the second quarter, now at 3.9% year-on-year. What is not shown in this table on Page 18 is that the SME, if you take out the M and just look at S and E, retail and program lending is up double digits as well. So the areas we are focusing on is growing at double digit. Whereas the other areas, we will see an improvement also going into this quarter in 2020.

Asset quality. Asset quality on the overall, we improved NPL by 2.7 -- from 3.11% to 2.79%. So we were down to about 2.62% in the third quarter, 1 or 2 accounts in the fourth quarter, moving back to about 2.79%. Still a level that we are happy with. And against the market, we are much closer to the industry NPL ratios. Loan loss coverage continued to increase to about 113.6% from 105% the year -- 106% the year before.

And Page 20, we give you a segment view of the NPL ratios. Encouraging signs from the commercial, SME as well as the consumer, but there's some increases in corporate on 1 or 2 chunky accounts.

Next page, on Page 21, capital ratios. Capital, very comfortable level at 21.5% right now. So you look at the trend, the consistent earnings that we are getting is pushing our CAR ratio to its highest level ever.

Now a little bit on the segments. One of the segment that we have done very well is on the consumer, and consumer loans have led the way in terms of asset growth. Consumer loans grew about 10.6%, mainly driven by the biggest balance sheet, which is in mortgage book. Credit card was also very strong at 12.8%. Auto loans, like I mentioned, has turned around, and the turnaround actually came in the last quarter, is up 3% quarter-on-quarter. The other loans, personnel -- personal loans is about 2.3% year-on-year.

Let's focus a little bit on mortgage. The mortgage strategy is paying off now. Mortgage market share has grown quite tremendously in the 1-year period. We have moved from 8.1% market share to 8.7%. NPL ratio is going down, which is not a very good sign because we are focusing on partnership with platinum developers, getting the right customers and diversifying our portfolio across primary and secondary as well as refinancing existing loans of those customers who have a good payment record. So mortgage, we are very happy with the performance so far.

Credit cards on the next page. We've invested quite a bit on our merchant acquisition strategy. It's now also showing its results for the credit card issuing business. On the issuing side, cards is up 1.7% -- the number of card is up 1.7%. But what is more interesting is that the outstanding balance of receivables is up 12.8%. This is amongst industry leaders in terms of year-on-year growth of our receivables. Card volumes, transaction volumes is up 13.5%. The ticket size per transaction is also up. So overall, we are showing good traction for cards in terms of market share for number of transactions, market share for receivables and also improvement in our card-issuing business.

Auto loans. Auto loans are -- I think the worst is behind us. I think the turnaround is complete right now. Balance sheet is up. NPL ratio is down to 0.6%. And if the balance sheet is growing right now, the NPL ratio will even go down further. So overall, the CNAF booking composition has improved because we are also doing a lot of referrals from the bank side, even though this is a -- mainly a multi-finance booking engine. So most of the loans coming from the bank has showed better asset quality performance.

We're also moving in segments that are more desirable. On-the-road price for the loan now is about IDR 370 million, going higher scale type of loans. Some changes also in the acquiring side, acquisition side using digital technology, 1-hour approval, better customer experience to get the dealers and also the recommendation from dealers to our business.

Next on the deposits for retail. The digital agenda, as I said earlier, is paying off in many different ways, right, the Go Mobile. Go Mobile is basically a phone device app that we have. That one is showing a great traction, 18.8% year-on-year growth on the number of users. Transaction is up over 100%. Go Mobile transaction right now almost more than double the Clicks transactions. So the migration from the bank based to mobile based is a very, very impressive right now.

And what does that tell us? Total customer, right, we broke it down to customers who engage with us using the digital channel: Clicks, Go Mobile, ATM and [mobile]. They are the ones that are growing in terms of average deposits, right, 19% deposit growth from those customers who are digitally engaged with us. Whereas for those who are not, actually the growth is a lot more muted at 5.6%. Fee income continued to inch up more than double, 125% up year-on-year.

On SME or MSME. MSME, I would like to break this view to 2, one is program lending versus non-program lending. Program lending typically are those facilities types that we can use a scorecard to give out loans. That means the business unit themselves without credit underwriting of -- can -- not to say fairly -- without credit [provisioning] can just approve these loans. So this is typically for loans that are USD 1 million or IDR 15 billion in nature. So that one has grown about 50%. So we are targeting this.

From there, also, we can see that the spread from these loans are better, right? So deliberately, we are focusing SME into program lending and begin to move some of this nonprogram lending into our commercial banking space.

On commercial banking, focus is more on asset quality and profitability. We realize it doesn't really need to increase the balance sheet to be more profitable. We look out for quality accounts, all right? NPL ratios have been consistently improving. 6 quarters ago maybe they're at 10%, now they're at 4.6%. We cut out NPL by almost 50%. NPL balance is about 50%. We're going to grow CASA in -- amongst our commercial banking customers as well. CASA growth is up 11 -- year-on-year about 4.8%, but the average of our CASA deposit is up 11%. So selective lending still, but a stronger credit underwriting and loan monitoring is what we continue to enforce.

On the corporate banking space, Page 33. At corporate banking, we break it down to investment loans and working capital loans. You can see that there's a strong focus right now to get more sustainable long-term balance sheet growth by focusing on investments. Investment went up 31%. Working capital, which typically have a 12-month revolving line, is down 23%. So here, what we are focusing on is really on sustainable growth for the corporate side. And CASA also, we did have some choppy times on CASA growth. But this year, we're showing a much better traction, outperforming industry in terms of CASA by 5.6% to about IDR 24.5 trillion.

Syariah. Syariah on Page 35. Syariah, they are still right -- yes, right #1 now amongst UUS, which is the global banking leverage model. Loans growth are up 25%, deposit growth up 37%. We did have a mismatch of LDR or loan-to-deposit ratio. Now it's almost 100% self-funded. The deposit is IDR 32.6 trillion, whereas the loans is about IDR 33.1 trillion. So we had about IDR 3 billion gap the year before. So Syariah contribution -- Syariah Bank is increasingly important to CIMB Niaga. Its contribution to the PBT is about 21.6% in 2019 compared to 14.5% from a year ago.

Okay. That will -- that's the last slide I have. Maybe I'll just pass it back to Pak Tigor for his final remarks and some guidance on 2020.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [5]

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Thank you. Thank you very much, KK.

So ladies and gentlemen, before we go to Q&A, I'll just touch on a few words here. As you can see, we have encouraging top line performance with steady NIMs throughout 2019, much better than we expected in the beginning of the year last year as we are able to hold up our NIM throughout.

Disciplined cost management and operating expense growth pretty much under control. Loan growth is moderate in 2019 at about 3.1%. Actually, if we look at the rupiah loan growth, it's about 5.8%. And it's led by the focus areas, as KK has mentioned, which is the consumer banking expansion as well as the program lending and SME.

In 2020, our focus continues to be CASA growth to support business expansion, asset quality monitoring and deeper digital engagement. CIMB Niaga transformation progressing as planned. Dozens of initiatives impacting consumer and SME in sales productivity, journeys, capability building and cross-sell is ongoing and are a work in progress.

Now as I mentioned, a lot of things that we've done, a lot of recalibration, intensive focus in business, which results to improving key indicators. Entering 2020, along with our transformation, we're optimistic that we're going to deliver a much better result.

With that, we'll take Q&A.

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Helen Stella Maris, PT Bank CIMB Niaga Tbk - Head of Business Planning & Network Management - Consumer Banking [6]

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Okay. Thank you, Pak Tigor. Now let us open the Q&A session. (Operator Instructions) Operator, may we have the first question, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Robert Kong from Citi Research.

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Robert P Kong, Citigroup Inc, Research Division - Director and Deputy Head of Regional Financial Institutions [2]

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I have a couple of questions, please. First of all, can you give some precise guidance on what your IFRS 9 adjustment will be? So in terms of how many percentage points of your capital will it use and what will be the adjustment to your book value. So to give you an example. I think some of the state banks guided earlier that it would impact their capital by 2.5 percentage points and the book value about 10% to 15%. So I'd just like to understand the numbers for yourself.

Second of all, in terms of your guidance for 2020. Could you guide also on what sort of credit cost level you expect to have, obviously, after IFRS 9 is implemented? And also within the NIM guidance, what -- how many rate cuts are you expecting? Or how much are you factoring in with that 5% NIM guidance? And the final question is, I see that you have a CAR guidance of 18% for next year. What is the minimum capital that is optimal for the bank? Because your capital has been very strong, but it also means it hurts your ROE. So what's the minimum or optimal capital level that you'd like to see? So those are the 3 questions.

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Lee Kai Kwong, PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director [3]

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So I'll take the one on IFRS 9 impact. I haven't seen some of -- what the other banks' impacts are. So for CIMB Niaga, not 100% precise yet, but we are saying that it's about 200 basis points for CIMB Niaga. The final disclosure will come out in our first quarter report. Yes. So it's about 200 basis points. On the CAR ratio, the amount is about IDR 5 trillion. So what is its impact on our valuation? It's about 12% [diversified] book value.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [4]

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Okay. And in terms of rate cuts there?

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Lee Kai Kwong, PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director [5]

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Yes. So on NIMS rate cuts expecting, we have at group analysts and we have local analysts' view as well. So between -- at most, one rate cut and how will this factor into our NIMs? Our NIMs are pretty strong actually. I think there are still opportunities for us to grow our NIM because I think in the fourth quarter, we were actually impacted by -- impacted not so much on the rate cuts on the loan side, but the deposit side did not ease. And we are seeing an easing on some deposit rates right now in the first 2 months. So when the deposit cost starts to come down and because we are repricing the loan rate cuts already last year, we do see stability, if not a slight increase in our NIM. So our fourth quarter NIM was 5.14% in our bank. So that we expect to be at least above 5% throughout 2020.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [6]

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I think the last is on the CAR, right, what kind of minimum CAR ratio that we expect. Obviously, you're right, Rob. I mean it's -- at one point, if it's too much of equity, then it's going to be a drag for us. So we think, at this point, around 18% is what is palatable from all angles. We look at our sort of friends and peers as well, and they are around that or even higher level, right? So we are projecting at about 18% by the end of the year.

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Robert P Kong, Citigroup Inc, Research Division - Director and Deputy Head of Regional Financial Institutions [7]

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One more for you on...

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Lee Kai Kwong, PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director [8]

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Okay. Thank you. Just on the -- yes.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [9]

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Sorry, Rob.

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Robert P Kong, Citigroup Inc, Research Division - Director and Deputy Head of Regional Financial Institutions [10]

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Right. So I also asked...

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Lee Kai Kwong, PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director [11]

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Credit costs is...

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [12]

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Yes, guide on credit costs. That's the other guidance, please?

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Lee Kai Kwong, PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director [13]

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Yes, credit cost. I think credit cost, there are still quite a number of moving parts, right? We got the day 1 impact that we put into the retail and it will not impact all the loans that we have booked in this year -- last year and then you have the time before that. So impact on the new bookings. But at the same time, also, when we look at credit costs, we are also doing a lot of refinements to some of this IFRS 9 provision model. So hence, a balancing act, right, between what the real credit cost is for the new bookings and also what we can do in terms of improving or being more granular with our loan provisioning model. So we will continue to see credit costs at its existing level or if not better.

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Operator [14]

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Your next question comes from the line of Ben Shane Lim from Macquarie.

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Ben Shane Lim, Macquarie Research - Research Analyst [15]

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Just 2 questions from me. The first question is around the loans growth projection you're giving. Could you just give some color on what segments will be driving that? And the second one is I noticed that your special mentions are up quite a bit. Could you give some color on that as well?

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [16]

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So -- go ahead.

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Lee Kai Kwong, PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director [17]

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Okay. I'll maybe start with the segments for loans growth. No different from what it is in 2019. Focus areas: mortgages, we still expect double-digit growth; credit card, maybe low double-digit growth. But the inflection point from -- for auto is part of that really. So we are actually expecting high double-digit growth for auto.

For the consumer loans side, we are expecting almost, for the 3 key products that we have right now, having double-digit growth. We also wanted to focus more on our retail lending program or program lending for the SME. That should also be tracking very well because we have continued to see traction. A lot of things that we are doing in transformation to be more efficient in SME lending, that will help us. So these are the key segments that will drive loans growth.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [18]

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Yes. On the special mention, there's a chunky loan, basically, that gets into the special mention category as of December '19. But we believe that all other costs in terms of our special mention category has remained fairly stable.

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Ben Shane Lim, Macquarie Research - Research Analyst [19]

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Could you give a bit of color on what this chunky loan pertains to?

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [20]

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Yes, it's a loan that's basically just been restructured, and this is something that we think is still going to be a special mention for now.

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Ben Shane Lim, Macquarie Research - Research Analyst [21]

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What industry?

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [22]

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Steel.

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Operator [23]

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Your next question comes from the line of Jihyun Cho from JPMorgan.

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Harsh Shah, JP Morgan Chase & Co, Research Division - Analyst [24]

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This is Harsh. A few questions. Firstly, dividend payout. 2018, if I'm not wrong, was 22%. We are looking at 40% now. So going forward, should we expect a similar degree of payout? Or will you be more keen to target absolute dividend per share? And I will go on questions one by one.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [25]

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So you're talking about dividend payout, Harsh?

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Harsh Shah, JP Morgan Chase & Co, Research Division - Analyst [26]

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Yes. So is it 40% is what we should see going forward as the new normal? Or should I expect more the absolute dividend per share that you pay, that you would try to defend that over a period of time?

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [27]

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Yes. As you know, last year, we paid out at about 20% of our previous year earnings. And this year, we expect -- our guidance is up to 40%. And this year, we are still finalizing but we are projecting it to be a higher payout than last year.

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Harsh Shah, JP Morgan Chase & Co, Research Division - Analyst [28]

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Right. So I understand that. And that's a very welcome change. You have a lot of capital even after, therefore, it's fine. If you're 200 bps down, you would still be -- so now I get the context of above 18% CAR, but should we expect -- rather than committing to a number on payout, should we expect that absolute dividends is where you would go in line? But just on an absolute basis, we should not expect dividend going down? Or if, let's say, for whatever reason, if earnings fluctuated meaningfully, would you stick more to a particular payout ratio, and that is not formed as yet as of now?

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [29]

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Yes. Well, Harsh, right now, it's a work in progress. But as of now, the thinking is on a percentage in terms of a dividend payout ratio. Obviously, it is something that's still being discussed. But what I can tell you is the -- it's 20% last year, and we expect this to be higher this year.

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Harsh Shah, JP Morgan Chase & Co, Research Division - Analyst [30]

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Okay, okay. That's helpful. The other one, commercial loans. Loan growth is still slow. NPL is still heading -- still 2.8%, 2.9%, still high. I see you've made a lot of changes to the non-program in SME. I mean how do I think about commercial lending in terms of your ability to drive growth? And what about asset quality?

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [31]

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Yes. On the commercial loans side, I think this is a -- 2019, we are not focusing on growth. We're focusing on really recalibrating the portfolio, really working on the people placement. We have a new head of commercial just installed pretty much maybe about middle of last year. And we're making some changes in terms of the process, in terms of the risk acceptance criteria, in terms of client management, asset quality management and so forth. So I think, as for 2020, I would not expect this to be a big engine of growth for us. But we expect this to continue to be managed more in a lean way. So the NPL ratio, it is still very high actually, it's still 4.6%, but it came down from about 8% from last year, and we expect this to be continuing to be managed very, very carefully.

So I think one area of focus though on the commercial portfolio is on the funding. So on the funding side, in the CASA, especially in the CAR, I think that's one of the key focus. For example, all this time -- so commercial is basically a lot of the mid-segment all across the country. For example, there's a lot of commercial portfolio where we're the main bank, but we're not the main funding bank. And just basic blocking and tackling, focusing on the cross-sell, focusing on the funding side, I think we can improve a lot of our CAR in the funding side in commercial.

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Harsh Shah, JP Morgan Chase & Co, Research Division - Analyst [32]

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And if I may, just 2 more questions. One is on noninterest income. The -- if I look at admin fees, generally, my sense was they have been coming down for the industry. But for -- you're addressing that, I know you [mentioned] Internet or mobile later, but could just clarify that. Also bancassurance was showing weakness. Cards relatively doing well. So just some more details on noninterest income.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [33]

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So on the noninterest income, if you could see, there's a lot of work on the recovery last year. So we really pushed on our asset quality. So that's a very good performance. Syndication also, we did a few deals -- or a bunch of deals, actually, that really got into the league tables. Now if you look at the transaction banking and trade finance, there is softness there. And this is something we're working on. It's in line with what's going on in terms of the weaker-than-expected sort of growth in the market in terms of trade finance and LCs and so forth.

And if you look at -- what's also been challenging is the bancassurance side. And we think that, hopefully, this year should be a better year. But if you could see that there's a little bit of a dip there. And cards related is actually not bad at about 14% to 15%. So overall, I think there's some notable sort of highlights. Overall, it's about 11.6%, and we expect this double-digit trend to continue in 2020.

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Harsh Shah, JP Morgan Chase & Co, Research Division - Analyst [34]

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But the further issue is one of the large corporate [buy-ins, state-owned corporate buy-ins] have started to really go on the front fort and fight it out, especially on the corporate fees, like in business and also bancassurance there, that are almost [half-captive] bancassurance investment. Is that something which is just like 1-year weakness? Or I'm just trying to figure out your confidence on the double-digit growth. Because it seems from commentary from [your recognized] competitors, that they're serious about it and they are actually going for a market share window differently than in that past.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [35]

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So it's not specifically on bancassurance, Harsh, or...

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Harsh Shah, JP Morgan Chase & Co, Research Division - Analyst [36]

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On bancassurance and corporate transaction and credit finance. Mandiri is basically growing (inaudible) on that front.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [37]

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Right. So on bancassurance, I think this year should be a better year than last year. As you know, we do have a -- we distribute the life insurance as well as the nonlife insurance. We think, Harsh, that this year should be a better year than last. Hopefully, it's a one-off that it drops by that amount. But in terms of the transaction banking and trade finance, this is something that we are -- we know that we have work to do. And this is something that we need to continue to work on with the supply chain management and everything.

So all the -- all this time in terms of the LC issuance and so forth has been weakening, but we're trying to sort of supplement this with the supply chain system. So we expect this to be much better in 2020. And it is a key focus area for us as well. And hopefully, we'll do much better.

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Operator [38]

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(Operator Instructions) Your next question comes from the line of Tjandra Lienandjaja from Mandiri Sekuritas.

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Tjandra Lienandjaja, PT Mandiri Sekuritas, Research Division - Deputy Head of Equity Research [39]

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If you look at Page 20, in term of asset quality in corporate side, that increased from 1.9% to 2.4% in December. May we know what kind of specific sector are they coming from? That's the first question. Second question is if you can reveal your CapEx ratio on the steel company that you just mentioned back in 2019 and after the implementation of the IFRS 9.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [40]

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Thank you for the question. I think quickly on the last question, Krakatau, on the steel company. The coverage ratio should be adequate for the restructuring deal that we signed. And this is something that we've discussed at length and we've cleared with various parties. So it's adequate provisioning. Now with regards to the corporate account, there is a little bit of a jump to about 2.4% as of December 2019. It's actually a couple of factors. And this is...

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Lee Kai Kwong, PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director [41]

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Consumer goods.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [42]

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Yes. It's the consumer goods sector basically.

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Tjandra Lienandjaja, PT Mandiri Sekuritas, Research Division - Deputy Head of Equity Research [43]

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On the steel, do you mean -- adequate meaning it's like 20%, 30%, 50%?

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Lee Kai Kwong, PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director [44]

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Okay. When -- we went into a restructuring with that steel company in January. So what we have done is we looked at the cash flows from the restructuring plan and we basically provided for this account as a consequence of what we feel that restructuring or the cash flow from the restructuring is. So from that, we derived the provision. So yes, if the restructuring happens as what we have signed, then what we have provided will be sufficient.

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Operator [45]

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(Operator Instructions) Your next question comes from the line of Danny Goh from Crédit Suisse.

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Danny Goh, Crédit Suisse AG, Research Division - Director [46]

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Just 2 quick questions from me. I was just looking at Slide 19, and there's a pretty sharp increase in the gross impairment ratio going from September '19 to December '19. Is that related to the special mention loan pickup that was mentioned earlier? Just wanted to clarify that. And the second thing is just on costs. I think you did mention that there are still cost pressures coming on the digital side of spending. And was wondering whether you can provide some guidance on costs going forward. And when we can expect to see those cost pressures actually tapering off.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [47]

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I'll take the -- thanks for the question, Danny. I'll take the second question first. On the costs side, I'm not sure if there's a -- we mentioned anything digital -- pressure on digital costs. But what's happening is we are -- I think we're managing our costs fairly well, but we expect this to be better in 2020. So it's about 49% cost-to-income ratio at the end of the year, and we expect this to be lower. Now in terms of our digital transformation, we will continue to invest and we'll continue to push towards the development and the rollout and the launches of our digital initiatives. So that's not going to stop.

Now on the first one, the impairment, yes, that's in line with the NPL ratio question. There is a pickup on the impairment which translates -- on the NPL it translates into impairment and some of the consumer goods names. And as a result, the -- there's a pickup in the corporate side to about 3.9% -- 3.8%

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Operator [48]

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Your next question comes from Fiona Leong from RHB Research Malaysia.

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Wai Yen Leong, RHB Research Institute Sdn Bhd - Head of Regional Banks [49]

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Okay. Just one question from me. Just wondering whether you could provide a little bit more color on where you expect the uplift for your ROEs to come from for FY '20, where you're looking at ROEs of 11% to 12% versus 9.35% in FY '19.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [50]

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Yes. Thanks for the question. I think from various angles, obviously. And NII, we expect from the growth of the loan and the deposit CASA ratio, we expect this to be about 56% to 58%. So hopefully, in terms of our cost of funds, we'll be much more competitive resulting in a much better NII. With regards to OpEx, hopefully, we will continue to manage our expenses well to be below 49%. And obviously, in provision, we want to achieve better results from 2019. So all sort of angles, we are expecting to do better in.

And on the revenue side, especially, as I mentioned before, there is a lot more stronger focus in the consumer as well as the program lending SME segments. These produce a higher return for the -- a bigger bang for the buck, so to speak. And so hopefully, the results will be down to the bottom line.

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Operator [51]

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(Operator Instructions) Your next question comes from the line of Peter Kong from CLSA.

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Peter Kong, CLSA Limited, Research Division - Research Analyst [52]

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I just got one small question here that's relating to the use of this program lending. May I just get some clarity whether this is a different way to assess the existing customers or because you are using for them then you need to open up to a whole host of companies that previously you may not have had the ability to assess. Just some details on that, please.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [53]

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Vera, do you want to...

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Vera Handajani, PT Bank CIMB Niaga Tbk - Risk Management Director & Director [54]

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Yes. So we are open for both, whether it's existing customers or also the new customers that meet the qualification that we've got them in.

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Peter Kong, CLSA Limited, Research Division - Research Analyst [55]

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I see. So just the top lending -- program lending doesn't mean that, right now, some customers that you may previously had excluded are now being included, right?

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Vera Handajani, PT Bank CIMB Niaga Tbk - Risk Management Director & Director [56]

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Well, of course, it can be like that as well, because there are [several] criteria that we are actually looking at and we will assess on the dynamic basis. Some of the customers were previously assessed on a one-on-one basis. And because of this program that we introduced, and we have seen the result in the past 3 years, [pure transaction] that they are positive in terms of performance, both contribution to our overall loan growth as well as the asset quality.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [57]

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So just to give a little bit more -- let me just give a little bit more color. So with this program or rank-based lending, we are able to serve our customers quicker. While everything used to be through a one-on-one sort of credit underwriting, right now, given collateral value, how long they've been in business, is this the type of industry we would like to be in, the sponsors involved, yada, yada, yada, this is something that we think that we could deliver very quickly on a secured basis as well as a much better customer experience.

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Operator [58]

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There are no further questions at this time. I would like to hand the conference back to the presenters. Please continue.

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Helen Stella Maris, PT Bank CIMB Niaga Tbk - Head of Business Planning & Network Management - Consumer Banking [59]

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Ladies and gentlemen, that ends our session for today. Thank you very much for participation in today's call. We will be updating you again for our next analyst meeting presentation. It will be sometime in April 2020. Thank you very much.

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Operator [60]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.