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Edited Transcript of BNGA.JK earnings conference call or presentation 31-Oct-19 8:00am GMT

Nine Months 2019 Bank CIMB Niaga Tbk PT Earnings Call

Jakarta Nov 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Bank Cimb Niaga Tbk PT earnings conference call or presentation Thursday, October 31, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Lani Darmawan

PT Bank CIMB Niaga Tbk - Director of Consumer Banking & Director

* Lee Kai Kwong

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

* Lianawaty Mihardja

PT Bank CIMB Niaga Tbk - Management Reporting & Analysis Head

* Tigor Marsahala Siahaan

PT Bank CIMB Niaga Tbk - President Director & CEO

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Conference Call Participants

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* Danny Goh

Crédit Suisse AG, Research Division - Director

* Harsh Shah

JP Morgan Chase & Co, Research Division - Analyst

* Robert P Kong

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

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Presentation

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Lianawaty Mihardja, PT Bank CIMB Niaga Tbk - Management Reporting & Analysis Head [1]

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Ladies and gentlemen...

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Operator [2]

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Welcome. Please go ahead, ma'am. Please go ahead. Please go ahead.

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Lianawaty Mihardja, PT Bank CIMB Niaga Tbk - Management Reporting & Analysis Head [3]

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Okay. Okay. Ladies and gentlemen, and all participants, welcome to the conference call of PT Bank CIMB Niaga Tbk, CIMB Niaga. Our agenda today, October 31, 2019, is to disclose the bank's 9 months or third quarter 2019 financial results. The company's presentation material was released and is now available to download on our website investor.cimbniaga.co.id.

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

Ladies and gentlemen, and all participants, today, we are pleased to introduce Pak Tigor M. Siahaan as President Director; Lee Kai Kwong as Finance Director; Rahardja Alimhamzah as Business Banking Director; Ms. Lani Darmawan as Consumer Banking 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 projections 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 Pak 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 [4]

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Thank you, Liana. Good afternoon, ladies and gentlemen. Thank you for joining us today in CIMB Niaga's 9 months 2019 financial results announcement.

I'll just go through a few items and the key highlights here, and we go to Page 2. We see that the expectations on domestic growth and rupiah remain stable. And as key political events come to an end, there is a positive expectation from the new cabinet that was just announced in October to carry out the cohesive reforms and targets for the next 5 years.

On our key highlights, CIMB Niaga has recorded higher operating income, mainly driven by NoII, net -- noninterest income, which grew handsomely at about 12% contributed from recovery income from NPLs, one of our initiatives in managing our asset qualities asides from the other initiatives that we do have. This is also supported with the NII growth of about 5%. Our NIM increased by about 25 bps year-on-year to the level of 5.37%. This compared to last year's 9 months, NIM at about 5.12%.

Loan growth in key focus areas were showing good traction, such as corporate, which is growing about 8.3%; mortgage, that's growing at about 12% to 13%; cards growing at about 11%; SMEs at about 4%, which totals close to 5% year-on-year growth. This is also followed by positive results from the auto loan recalibration of 1.6% Q-on-Q growth in third quarter 2019.

Our focus and efforts on asset quality has resulted in an improvement in gross NPL by about 79 bps, which ran at about 2.62% in September 2019. The gross impairment ratio improved to a level of about 3.1% from 4.3% in the previous year.

Excluding a one-off expense of about IDR 360 billion, arising from Mutual Separation Scheme, CIMB Niaga reported soft PBT growth of about 10.7% to IDR 4 trillion with higher ROA to about 1.5% and ROE to about 9.5%.

Our healthy capital ratio rose about 180 basis points to about 21.2%. And the CET1 stands at about 19.96%.

With that key highlights, I will hand it over to Pak KK, our CFO, to continue with the presentation.

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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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Thank you, Pak Tigor, and good afternoon, everybody during the call. I'll just run through with you the income statement first on Page 4.

Interest income improved year-on-year by 8.2%, while interest expense accelerated to about 12.9% overall with the NII improvement of 5.1%. Our noninterest income has jumped up 12.1% is a little aided by the recovery income from the loans that Pak Tigor has mentioned a little earlier. Operating income overall, up 6.8%, where operating expense before the impact of the Mutual Separation Scheme is at 4.4% given the positive jaw of 2.4%. So pre-provision in operating profit is up 9.2%.

Overall PBT is up 10.7% before the impact of MSS. And full impact of MSS is running at about 1%. The net profit is up 13.7% on a BDU basis, whereas as reported is 3.4%, with earnings per share up 3.3% to IDR 107.44.

On the balance sheet, this focused on the loans and deposit trend. Loans is up 4.9%, mainly driven by corporate banking loans growth together with 2 products and particularly in the retail bank, credit card as well as home mortgages. In deposits, we contracted 2.1% from a year ago and 3.8% from the last quarter as competition always begins to heat up a little in the third quarter.

To the next page, some of the key ratios. ROA is up to 1.48% right now, but we are extremely happy with the NIM being up 25 basis points, while the balances will not grow, but the overall (inaudible) I tried to show the cost of improvement. Loan-to-deposit ratio increased to 99.02% as the deposits have reached (inaudible) we need to get intensified to improve this number. Overall loan loss coverage stood at 111.86% as more provisions put in, in anticipation.

Next page, Page 7, quarterly earnings. We like the trend. It's been up 4 quarters -- 3 quarters in a row, quarter-on-quarter on revenue. In the first quarter, you see a little bit on profit before tax. That's because of a slightly higher provision number that we put in, in the third quarter.

Next slide, Page 8, a little bit more detail on NIM. NIM is actually at 5.37% up 25 basis points, a little bit there from quarter-to-quarter as the competition for deposits, in fact, we had to price higher and it affected our NIM a little bit.

Next page on noninterest income. Noninterest income is driven mainly by a couple of things. The recovery income from the loan sale. This is a partial recovery, partial fees from the recovery income. And also on card-related fees, that is also showing a great traction as we continue to invest in our merchant acquiring business.

Operating expense, Page 10. Operating expense, looking at the cost-to-income ratio, we continue to improve the further operational efficiencies. We applied a lot more discipline initiative internally to consolidate the branch, back office, using our older buildings and more efficiently by carpooling and a host of other initiatives that we are running in the third quarter. So total, excluding the MSS, we are up 4.4%.

Loans growth by segment is on the next page. This is a little bit update on where the loans growth are coming from. As mentioned earlier, mortgages, credit cards, SME as well as corporate banking. These are the key drivers in our overall loans growth of 4.9%.

Asset quality remains a key focus area for us. In spite of the challenging market environment, we managed to maintain or improve our asset quality. NPL ratio is down to 2.62% compared to 3.41% from a year ago.

Next page, Page 13, asset quality by segment. Commercial banking and MSME, consumer all recorded much better NPL ratios. The one that took in a little impact hit was corporate where it moved from 1.5% to 1.9% on a year-on-year basis.

Capital ratio is another thing that we're happy about. It's up to 21.21% right now.

So just to highlight on the key segments. Mortgage continues to be a driver for the consumer business platform acquisition for us. On a year-on-year basis, mortgage is up 12.2% (sic) [12.6%]. Credit cards, gaining a lot of traction at our digital strategy and also payment strategies kicked in. Auto finance, we have been recalibrating for the last 18 to 24 months, has turned the corner. On a quarter-on-quarter basis, it's up 1.6%, and this can become an engine of growth as well for us coming into 2020.

Some details on mortgages, on Page 17. So market share is at 8.3%; quarter-on-quarter grew 3.4%; and on a year-on-year basis, we are slightly ahead of our market growth at 12.6%. We will continue to focus on property developers and property agents as a source of referral for our business growth.

Auto finance, I mentioned earlier, 1.6% growth quarter-on-quarter. We are actually -- while the market actually contracted about 20%. With our growth strategy going into the fourth quarter, you will see further growth in this segment.

And the card business, overall leveling at growth on the card business, this is [7.3%]. This is mainly driven by credit card, credit card is up by 11%, and the total card transaction of volume is also up on a year-on-year basis.

Next page, on -- still on consumer. One thing that we continue to invest on is our digital enablement on the digital touch points. Clicks continues to grow at a CAGR of 8.3%. However, it's even more interesting in the growth of the usage of our Go Mobile, the app. The growth, this has now far outpaced usage, it's far outpaced the clicks to 142%. Users -- notice our active users has also grown at more than 20%.

Okay. MSME. There's really 2 separate segments, the small and medium segment's up 4.1%; whereas, the micro linkage segment is down 2.1%. So MSME is one area that we will focus about the growth in our transformation.

Next one, commercial loans. Commercial loans, we still are focused on areas and industries that have a strong potential for growth. So year-on-year, it's not showing the growth yet. But for the investment loans, we are showing some positive signs, where investment goes up 0.2%.

Corporate banking. The composition of the corporate banking, loans have shifted quite significantly. Corporate banking, investment loans up 26% year-on-year, contributing 60% of the overall corporate banking loans. And this is one area -- one segment that we'll continue to invest in, increasing the portion of loans in stable enterprises in anticipation of further increase in government funding and infrastructure projects.

Next on Page 28, a little bit on Syariah financing -- or Syariah Banking. Total financing is up 21% (sic) [29%]. So there is a drive within the organization to focus more on Syariah Banking as we continue to offer Syariah Banking -- innovative Syariah Banking product. Deposits, it's also keeping pace. Deposits was keeping pace to Syariah Banking. We want the Syariah to self-fund the loans business, our financing business.

And that's all for the financials and the [analysis] of the different segments. I'll pass this session back to Pak Tigor for his final remarks.

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

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Thanks, Pak KK. So ladies and gentlemen, before we go to Q&A, I'll just touch on a few words, so -- on the final remarks.

We have encouraging 9 months. Revenue growth momentum going into the fourth quarter with a few of our engines, including consumer leading the way. The regulatory actions in the third quarter is expected to favor more of an economic expansion going forward.

Going into the end of 2019, asset quality is expected to remain a key focus as well as a focus in 2020 with prudent asset expansion and strength and early warning alerts.

CIMB Niaga transformation is on track. Going forward, focus will intensify on CASA growth, transaction banking, data analytics, customer experience through digital enablement and engagement will enable a focus on operation efficiency, automation and developing 3D human capital.

Now we hope to continue this momentum towards the end of 2019.

With that, thank you. We'll take the Q&A part.

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Lianawaty Mihardja, PT Bank CIMB Niaga Tbk - Management Reporting & Analysis Head [7]

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Thank you, Pak Tigor. Now we'd like to open the Q&A session. Before raising your questions, please mention your name and your company. 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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Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) We have the first one coming from the line of Robert Kong from Citigroup.

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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'm going to ask 3 questions, if I may. The first question is, could you give us a bit more detail on the size of the NPL sale? So what value of sale? What sort of type of loans that were being sold? What kind of haircut I guess? And what the actual recovery amount was? Because, obviously, the whole amount that you show in the deck is everything, but there must have been a specific recovery from this portfolio. And of course, whether there's more to come?

And related to that, can you just also disclose, as other Indonesian banks have been disclosing, what your IFRS 9 capital impact or book value impact will be?

The second question is could you just talk a bit more about your NIM direction? The NIMs have held up fairly well, but your LDR is very tight now. It'd just be interesting to see what you're guiding for loan yields and cost of funds in terms of your NIM direction.

And the third and final question is, there is a fairly significant new Japanese player in town, basically, from this quarter because there's new management, and I believe they're going to have very aggressive growth plans. What impact do you think that will have on your growth in your key spaces? Those are the 3 questions.

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

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Thanks, Robert. I'll take a stab on some of this, and I'll ask my colleagues to help out with this as a [battery]. So just based on -- I'll take the last one first. And you mentioned Japanese investor and so forth. I think the market is competitive as it is. And I think with regards to that specific sort of a player, I think they're more focused on the auto right now. I think the auto is a biggest portion of their business. Of the rest, there remains might be too strong a player, let's say, for example, the mortgage space and the corporate space, as well as the transaction banking. So I think it's -- obviously, there's going to be a new focus there. But I think we will compete in different segments of each business with against different players out there.

Now with regards to the NIM direction. We have been able to expand this NIM. But going forward, I think there's going to be a lot more pressure for this NIM to come down. So the direction is we are trying to hold it as much as possible, but there could be a direction where this is going to come further down. But we hope to be able to continue to prop this up with our intensification as well as asset selection in the consumer and MSME space.

Now with regard to the loan sale, actually, the loan sale is not -- it's not material if you compare to our loan book. It's much less than 1% of our book. So -- and, as you know with our workout and recovery strategies, there's scale within our workout or options or -- we do all kinds of recovery actions throughout our portfolio. And there is a little bit more this quarter, but it's not a significant chunk of our loans sort of percentage, if you look at the whole thing.

With regard to IFRS, maybe I'll hand it over to KK.

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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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Thank you, Pak Tigor. Yes, so IFRS 9, I wouldn't want to come with a sort of number right now because we are still in the final stages of the validation process. In fact, we have actually engaged an independent party to do that. We do have a number, but I think when we are ready to disclose it, you will hear it well in the market.

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Robert P Kong, Citigroup Inc, Research Division - Director and Deputy Head of Regional Financial Institutions [5]

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Can I just follow up and just get some clarity? So for the loans sale, can you at least give some discussion about what sector, segment, what kind of loans were sold?

And on the IFRS 9, I know you can't disclose a number, but could you just clarify how it will be accounted for? In other words, will there be a reduction in book value? So there's a shift up in money from retained earnings to provisions? Is that how it's accounted for? Again, this is a pure accounting question.

And then just on the NIM, could you guide on the NIM about, is it the loan yield coming off? Or is it the cost of funds going up and driving your NIM down?

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

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Yes. So on the loans, I think a big chunk of it is the SME portfolio and -- most of it and having a little bit of in the commercial portfolio.

And with regards to the NIM, I think, as you know, the LDR of the industry itself is getting tighter. The LDR as a whole is about 94-ish-percent as an industry. So there is a little bit of a pressure on the deposit side. So there is tightening, obviously, on the cost of fund. And the yield on the loans, also, we try to hold it as much as possible. But I think given the rates are coming down, the expectation by finance that this will also continue to come down.

And as you know, Robert, in the beginning of the year throughout maybe 8, 9 months into the year, there's a lot of the retail bonds that come out from the government, from the Ministry of Finance that sucks up some of the deposits from the banking sector into the government.

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Lee Kai Kwong, PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director [7]

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And then I'll just add on IFRS?

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [8]

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Yes, on the IFRS.

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Lee Kai Kwong, PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director [9]

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Yes. With IFRS accounting question, we will drop out our group office, that means it's taking the charge into the retail earnings. Even when we do that, we will not restate prior year's equity levels.

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Operator [10]

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We have the next question coming from the line of Danny Goh from Crédit Suisse.

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Danny Goh, Crédit Suisse AG, Research Division - Director [11]

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I have 4 questions. The first one is with regards to the auto loan segment. I think if I hear you correctly, you mentioned that you're looking to further increase your auto loan portfolio. I'm just interested to hear from you as to whether -- which segments within the auto loan portfolio are you looking to target? Is it more used cars or new cars?

My second question relates to the MSS. Can you just give us a little bit of color on the percentage of your staff force that took the MSS? And also some guidance on the savings that you expect to come from the MSS next year and the estimated kind of break-even period? I understand it's typically about 19 to 20 months.

And then my third question is on net interest margin. I think for a long time, your guidance has always been that you expecting NIM to actually compress towards the 5% level. Is that where you still expect to see it within the next 3 to 6 months? Or have you changed that guidance?

And also related to NIM, how sensitive is your net interest margin when interest rates continue to fall?

And lastly, on provisions. I was just wondering whether you are at liberty to share what your provisions will look like in terms of credit costs, under IFRS 9 regime. I mean, it's more pertinent to some of us who actually monitor your group provision levels, which follow IFRS 9 standards.

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

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Okay. I'll try to take a stab at it and my colleagues will follow. I'll take the last one first, on the provision level. As Pak KK mentioned, I think the -- currently, a day one sort of impact, obviously, that we're still -- it's a number we're still [highlighting], along with our consultants. But with regard to going forward, we expect that the provision level in terms of cost of credit would remain to be better than what we've been projecting for 2019. So we expect this continuous improvement in our asset quality management will continue going forward.

So part of the -- the group has followed the IFRS 9 since January 2018. And a lot of the stuff that we need to do and the time to make sure that we're in tandem, so it's not like a completely fresh start for a bank like us, given the group has started 1.5 years earlier.

With regards to the NIM, yes, we have been -- we had been guiding 5%, and we try to keep it above 5%, and we've been surprising people on the upside. But I think maybe a little bit higher than 5% as the guideline. We don't think it'll go to the below 5% in the next few quarters, but we hope, as much as possible, to hang on to the level that we have right now about 5.3%.

MSS, it's about 1,000 plus people. So call it, 7%, 8% of our people. And then it is about 18-months payback period. So it's not bad. You're right, that usually by '19, '20, we'll be getting a little bit earlier, about '18 when -- and we expect the savings will start to come in from possibly March or April next year. So the people that are leading this on this MSS are going to be staggered. And the full effect will start probably in March or April next year.

With regard to auto loan, as you know, that we have been recalibrating the segment. There's been troubles in the past and we've been communicating with people that we are trying to recalibrate it. And as of for the past couple of years, I think the results are showing now with regards to the loans or assets in the auto portfolio, it's begun to be stable starting in May or June. So going forward, I think this is going to be -- we think that we get the right formula now for going forward. Mostly it's in the new car, even though there's used cars at certain segments that we're going after. But the formula is probably the one that we like right now going forward.

Anybody else? Do you want --Lani's our Consumer Director, maybe you want to add a little bit on the auto?

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Lani Darmawan, PT Bank CIMB Niaga Tbk - Director of Consumer Banking & Director [13]

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Yes, Danny, just to add to what Pak Tigor has been explaining. So actually, you were asking about the new or used cars. Yes, I don't majority is for the new car, but the model that we changed with the recalibration of the business, it's because of originality, which is actually regulatory-wise is also about. And I think in term of margin, it's also much larger.

So going forward, which is actually now the reshaping of the portfolio, because the -- I think we're almost about 60-40, we'll be 60 on the new and 40 is on the (inaudible) stock used and our financing [wisdom]. So I think looking at the rate year-on-year, it is still lower in term of our portfolio, about 7.9%. But we can see the tractions on Q-on-Q basis, 1.6% increase, and we expect positive growth year-on-year by the end of the year. So this is one of the areas that we are profiting even for the future year growth as well in the high (inaudible) good driver of business.

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Danny Goh, Crédit Suisse AG, Research Division - Director [14]

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I have a follow-up question on net interest margin. Am I right to assume that your margins are relatively neutral to risk changes?

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [15]

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It is relatively neutral to positive. Actually, assuming there's no added pressure on the liquidity in the industry. So it's neutral to positive on a BAU basis.

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Danny Goh, Crédit Suisse AG, Research Division - Director [16]

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Okay. And just finally, on provisions. I know you mentioned that you expect credit costs to continue to improve going forward. Is there a steady-state level that you can guide us on?

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [17]

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That's a 64 million dollar question. I think like we are at about 170-odd, 175 basis points in terms of credit costs. The best years that we've had, I think it was about 90 basis points, so somewhere in between then.

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Operator [18]

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[Operators Instruction] We have the next question coming from the line of [Yujing Shah] from JP Morgan.

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Harsh Shah, JP Morgan Chase & Co, Research Division - Analyst [19]

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This is Harsh here. A quick one. You're creating a ton of capital. Any thoughts on dividend payout ratios changing?

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

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Thanks, Harsh. Right now, I think as of now we have been paying dividends for the past 3 years, right? And our guideline is (inaudible).

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Lee Kai Kwong, PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director [21]

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Yes. So [80%] of our PT Bank. [30%] of our (inaudible). That's our guideline right now, Harsh.

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

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So we are still looking at that guideline. But obviously, depending on how the day one impact would be, we'll see how much capital we'll have, and depending on how the situation is. So this is something dynamics that we look at, that we could look at it.

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Harsh Shah, JP Morgan Chase & Co, Research Division - Analyst [23]

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I'm sorry, I joined the call a bit later. Have you clarified how much is your day one CT1 impact?

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [24]

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Yes. We just mentioned that. Look this is in the finalization stage. We're looking at it, and it's probably too early for us to come up with a number to show everyone.

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Harsh Shah, JP Morgan Chase & Co, Research Division - Analyst [25]

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Any range you would be also have (inaudible).

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [26]

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Man, you don't give up. I think it's too early, right. But I'd rather have it validated first because I don't want to say something here and then the validation comes in and that is totally different. I'll feel more comfortable if it's validated.

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Harsh Shah, JP Morgan Chase & Co, Research Division - Analyst [27]

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No problem. And if I may, again, apologies if this question has been asked, but Krakatau, it seems you and one more bank, foreign bank, were the only ones who were not part of the settlement. Any revaluation of that [impasse] and any impact, if at all, on the financials due to that?

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [28]

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Well, Harsh, actually, we signed an actual agreement with these guys. And we're still in discussions with the company on professional and restructuring and what kind of terms and structure and so forth. So we are technically still in the center, and the discussion's still ongoing.

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Operator [29]

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We have our next question coming from the line of Robert Kong from Citi.

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Robert P Kong, Citigroup Inc, Research Division - Director and Deputy Head of Regional Financial Institutions [30]

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Just a couple of follow-ups. Just to clarify what you said earlier on the NIM. The rate cut itself is not the delta to your NIM. You said it's broadly neutral. It's actually the liquidity pressures. Is that correct?

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

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Yes. So the -- if it's actually a rate cut, for us, it's neutral to positive, assuming everything else the same.

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Robert P Kong, Citigroup Inc, Research Division - Director and Deputy Head of Regional Financial Institutions [32]

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Right. So the problem you're perceiving is that some of your peers because, as you said, the industry LDR is already very tight. Some of your peers are actually bidding up deposits, and that's what's affecting you?

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

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Correct.

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Robert P Kong, Citigroup Inc, Research Division - Director and Deputy Head of Regional Financial Institutions [34]

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Okay. And then on the CET1, just to follow up what Harsh said, do you -- what is the minimum CET1 ratio that you were -- minimum, I guess, that's specified by Bank Indonesia. But obviously, you never go right to the minimum, you'll have some buffer. So what is the minimum CET1 that you would say is ample for running your business? 20% must be too high, but I don't know what the -- what level in the teens was a level that you say is, okay, this is our optimal operating level for CET1?

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

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Yes. I mean, I agree with you, Rob. I mean, 20% seems a lot, right? Somewhere in the mid-teens is probably more appropriate. But we also -- it's not only how we run the business. But also against our peers, right? So -- and this is something the regulators look at. There's no harm in (inaudible) in terms of what's the expected level. But I agree with you that we don't need to be at 20%.

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Robert P Kong, Citigroup Inc, Research Division - Director and Deputy Head of Regional Financial Institutions [36]

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Okay. And then just one final sort of small question. On Slide 9, where you have your noninterest income, some strange odd numbers. So your transaction banking is down 20%, your bancassurance is down 18%. I just wondered if you could just give some color on what's going on in these line items.

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Lee Kai Kwong, PT Bank CIMB Niaga Tbk - CFO, Head of Finance & Strategic Procurement and Admin Property Management and Director [37]

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So maybe I'll start with the bancassurance. The bancassurance is also performance based and we do have agreement with our product providers on the milestone payments. So in the same period last year, we have managed to reach those milestones. And then these milestones have increased year-on-year. So at this juncture, in the first 9 months, we have not reached those milestones yet because we've got to catch up at least those milestones and when those milestones has been caught up, this gap may be narrowed.

As for transaction banking, that has a lower tractional -- a lower catch-up on the trade financing side. And hence, that is a reduction of about 20% year-on-year. So the decrease is due to lower -- I think maybe the 3 quarters, the lower LC in quarter [about] IDR 16 billion that's probably -- IDR 16 billion and also bank, admin fees are also down to the [IDR 2.2 billion]. So that's the main contributor for that year-on-year contraction.

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Robert P Kong, Citigroup Inc, Research Division - Director and Deputy Head of Regional Financial Institutions [38]

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Okay. Sorry, just one small final question. I noticed that in your corporate and commercial strategy, you're really shifting back to the investment term type lending. It probably was a couple of years ago when it was the other way around; you were trying to reduce that term lending and speak to the shorter term, so-called higher quality working capital. So I just want to understand what -- how your thinking has changed. I could be wrong, but I remember the direction was a different -- a different way the other time in the past. So what's the change in view there?

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [39]

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Yes, a very good question, Rob. And there's a couple of things. One is with regards to the investments that we do. We are actually doing some of these things in line with the infrastructure projects, right? And where we have the ability to pick which infrastructure projects that we would like to be in. So, so far, some of them are actually -- some are even government at least. Some are very good projects. But again, these are investments. So there's a little bit of a push there internally that are trying to get the infrastructure.

With regard to the working capital itself, some of these working capitals are pretty unprofitable working capital rates. Sometimes the rates that are very odd that the -- it's even at the anchor rate for like a 1-week money provides 2 weeks money and that kind of stuff. So we decided, look, this doesn't smell right. So we let go of some of these unprofitable high credit, very good credit, but unprofitable 1-week, 2-week loans that -- one even 1 month, that don't make sense. So that's why the composition has changed a little bit.

In terms of the risk, I would say we're looking at in terms of the risk rating on each client and everything. In terms of the risk profile, it's not really changed. But in terms of the tenor, it has shifted a little bit more on the investment side.

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Operator [40]

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(Operator Instructions) Or maybe you do not have any further questions at this point. I'd like to hand the conference back to you. Please go ahead.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [41]

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Okay. Thank you.

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Lianawaty Mihardja, PT Bank CIMB Niaga Tbk - Management Reporting & Analysis Head [42]

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Ladies and gentlemen, this ends our session for today. Thank you very much for your participation in our conference call today. We will be updating you again for our next analyst meeting presentation, which will be announced in early next year. Thank you.

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Tigor Marsahala Siahaan, PT Bank CIMB Niaga Tbk - President Director & CEO [43]

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Thank You.

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Operator [44]

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Ladies and gentlemen, that concludes our conference for today. Thank you all for your participation. You may disconnect now.