• Pre-Provision Operating Profit (PPOP): Increased by 15.9% quarter-on-quarter to IDR87.5 trillion.
• Net Interest Margin (NIM): Remained strong at 7.8% for the quarter.
• Return on Assets (ROA): Stable at 3.2%.
• Return on Equity (ROE): Increased to 19.2%.
• Loan Growth: 8.2% year-on-year, reaching IDR1353.4 trillion.
• Net Profit: Increased by 2% to IDR45.1 trillion for the nine months of 2024.
• Cost to Income Ratio: Decreased to 42.4% quarter-on-quarter, with a nine-month ratio of 41.3%.
• Gross Non-Performing Loan (NPL) Ratio: Improved to 2.9%.
• Net Cost of Credit: Decreased to 0.93% in Q3 2024.
• Deposit Growth: 5.6% year-on-year, with CASA ratio increasing to 64.2%.
• Loan Loss Reserve: 6.2% of total loans.
• Capital Adequacy Ratio (CAR): 26.8%.

• Warning! GuruFocus has detected 3 Warning Sign with BKRKF.

Release Date: October 30, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• PT Bank Rakyat Indonesia (Persero) Tbk (BKRKF) reported a 15.9% quarter-on-quarter growth in pre-provision operating profit, reaching IDR87.5 trillion.
• The bank's net interest margin remained strong at 7.8% for the quarter, aligning with their guidance.
• Return on equity increased by 20 basis points from Q3 2023, indicating improved profitability.
• The bank's cost-to-income ratio decreased to 42.4% quarter-on-quarter, showing improved operational efficiency.
• Net profit for the first nine months of 2024 increased by 2% to IDR45.1 trillion, supported by strong recovery income.

Negative Points

• Domestic consumption remains weak, with households shifting to lower-priced alternatives.
• The bank's corporate portfolio growth slowed to 16.9% year-on-year, impacting overall loan growth.
• Microloan growth decreased to 46.4% of total loans, reflecting tighter scoring standards and a focus on collections.
• The cost of credit remains elevated, with a 3.39% rate for the first nine months of 2024, above full-year guidance.
• Subsidiaries' cost of credit increased significantly, particularly in P&M, due to provisions for group lending schemes.

Q & A Highlights

Q: Has the Loan-to-Deposit Ratio (LDR) bottomed out, and what is the source of the increase in subsidiaries' cost of credit? A: The cost of funds (COF) is expected to continue decreasing, as the marginal cost of deposits has been declining. Subsidiaries' credit costs saw a spike due to provisions in P&M, particularly in group lending schemes. This is part of a cleanup process for loans restructured multiple times due to COVID-19. The overall group cost of credit is expected to remain around 3% due to several factors, including write-offs and downgrades to NPLs.

Q: With improvements in the cooperative segment, could 2025 credit costs be lower than this year's guidance? What needs to change for growth in this segment? A: If the current trends continue, there is potential for lower credit costs in 2025. For growth in the cooperative segment, improvements in asset quality vintages and the success of capability-building programs for loan officers are crucial. Additionally, enhancements in scoring and underwriting models will be monitored.

Q: Why is there an increase in special mention loans in the medium segment? A: The increase is due to administrative errors involving five customers, which will be corrected by the end of the month, returning these loans to their proper classification.

Q: Can you provide more color on the credit cost outlook for P&M and the overall group for Q4 2024 and 2025? A: P&M's credit costs are expected to decrease in Q4 2024, with a full-year estimate of around 7%. For 2025, credit costs should be lower than 7%. The overall group credit cost guidance remains at 3%, with potential reductions due to modification losses and macroeconomic assumption adjustments.

Q: What are the expectations for the macroeconomic assumptions impacting provisions in Q4 2024? A: The macroeconomic assumptions will be reviewed in November or December, potentially leading to reversals in provisions. This review is expected to support the overall provisions strategy for the fourth quarter.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.