Achieving Credit Growth

Target in the New Normal

Jakarta, 2 December 2020

Adnan Qayum Khan

Chief Risk Officer & Director
PT Bank Danamon Indonesia Tbk

PT Bank Danamon Tbk terdaftar dan diawasi oleh OJK

 GDP Growth

Actual GDP Forecast GDP

• Economies in various countries in Q3-2020 were better than Q2-2020. However, these Q3/19 Q4/20
improvements are still hampered by the high number of Covid-19 cases.
Q2/20 Q1/21
• Indonesia’s economic growth is projected to still be in negative territory for the next two Q3/20 Q2/21
quarters. Then comes a full recovery in Q2-21, assuming vaccine distribution begins early-2021.

China Vietnam South Korea Indonesia US Hongkong Europe Singapore

7.3
6 5.0
4.9
3.2 2.6 2 1.9 2.1 1.7
0.4 0.7
1 2 3 4 5 6 7 8
-1.3 -1-0.4
-2.7 -3.5 -2.9 -2.8 -3.4
-3.9
-5.3
-7
-9 -9

-13.9 -13.3

Total Covid-19 Confirmed Case

Q2-20 83 K Q2-20 0.3 K Q2-20 13 K Q2-20 56 K Q2-20 2,653K Q2-20 1.2 K Q2-20 2,597 K Q2-20 43 K

Q3-20 85 K Q3-20 1.1 K Q3-20 24 K Q3-20 287 K Q3-20 7,262K Q3-20 5.1 K Q3-20 5,403 K Q3-20 57 K

Source: Badan Pusat Statistik (BPS), Danamon Economist Team

2
 Macro Economic Overview

Trade Balance & Net Portfolio Flow IDR/USD

USD bn IDR/USD
Trade Balance Net Portfolio Flow 17,000 IDR/USD Monthly Avg
5
16,000
-
15,000

(5) 14,000

(10) 13,000
Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 10-Jun-19 10-Oct-19 10-Feb-20 10-Jun-20 10-Oct-20

Trade surplus to sustain until domestic demand recovers. As of 18

There are no significant factors that may give pressure to the IDR in the
November 2020, bond and equity market have experienced net inflow
near term.
amounting to USD1.16bn m-t-d (vs USD1.23bn in October).

Policy Rate & Inflation Real Policy Rate & Covered Interest Parity*
6.00% Inflation (yoy) 3.6 3.9
RPR CIP
5.00% BI 7D RRR (p.a.)
3.75% 1.6 1.7
3.49% 1.2
2.82% 0.3 0.3 0.6 0.2 0.6
0.0 0.0
1.59%
-0.6
Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 -1.6
Thailand South Malaysia Philippines China Indonesia India
Korea

Policy rate will remain low in the foreseeable future amidst low inflation and Current interest rate differentials shows limited room for monetary easing
stable currency. but relies on liquidity channel to support the economy. Yield valuation is
still attractive compared to peers but slightly lower than India.

Source: Bloomberg, BPS, Bank Indonesia, Danamon Economist Team *18-Nov-2020

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 Foreign Trade of Goods & Services

Export & Import Growth Trade of Goods

yoy Trade Balance (rhs) Export Import USD bn
Goods (USD bn) 9M19 9M20 Δ
40% 5

3
Export 125.1 117.2 -7.9
20%
1 Base Metal 9.8 11.7 1.9
0%
(1) Palm Oils 10.3 11.5 1.2
-20%
(3)
Natural Gas 5.7 3.9 -1.8
-40% (5)
Textile 9.8 8.0 -1.9
-60% (7)
Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Coal 16.5 12.3 -4.2
Weakening domestic demand led to a deep drop in import, resulting in 6
Other Exported Goods 73.0 69.8 -3.1
consecutive months of trade surpluses.

Trade by Country
USD Bn 9M19 9M20 Δ
Trade Volume 227.3 204.4 -23.0 Import 111.2 93.2 -18.0
America 27.0 26.7 -0.4
Europe 25.4 24.6 -0.8 Agriculture Products 7.3 6.6 -0.7
Asia and Middle East 164.2 143.6 -20.7 Manufacture Products 100.3 83.3 -17.0
Australia and Oceania 6.3 5.8 -0.5
Mining Products 1.8 1.9 0.1
Africa 3.4 3.2 -0.2

Unclassified 1.0 0.5 -0.5 Other Imported Goods 1.9 1.5 -0.4
Trade volume dropped by USD 23 bn as of 9M20 due to COVID-19.
Indonesia’s trade with Asian countries was hit the most.

Source: BPS. Bank Indonesia

4
 Macro Economic Forecast

Macro Economic Drivers Macro Economic Indicator 2019 2020 2021

Global
➢ Global economic recovery trend continued in Q3-
US GDP (% yoy) 2.16 -6.30 5.90
20. PMI manufacturing Indices for China, US, and
EU have entered expansive territory since July-20 US Fed Fund Rate (% pa) 1.75 0.25 0.25
Global with increasing trend.
Economy Avg Brent Oil Price (USD/bbl) 65 38 46
➢ MUFG forecasted that global growth will recover
from -3.7% this year to 5.1% in 2021.

Indonesia
Real GDP growth (% yoy) 5.02 -1.78 3.43
Consumer price index (% yoy) 2.72 2.26 3.58
➢ Trade surplus may reverse when the economy FX rate (IDR/USD) 13,901 14,364 14,427
recovers in 2021, providing pressure to the IDR,
despite at a lower volatility compared to this year. O/N deposit facility rate (% pa) 4.25 2.75 2.75
BI 7D RRR (% pa) 5.00 3.50 3.50
Domestic ➢ National economic recovery program will continue
Economy 12M RRR (% pa) 5.19 3.74 3.87
in 2021 with IDR357tn budget approved by
parliament, at 5.7% budget deficit. LPS rate (% pa) 6.25 4.50 4.75
10Y Govies Fair Yield (% pa) 7.26 6.19 6.70
➢ Domestic economic recovery could have an
adverse implication towards IDR bond market, as
banks convert its bond holding to finance loan.
Loan growth (% yoy) 6.08 -1.72 4.97
Third Party Fund growth (% yoy) 6.54 10.92 4.63

Source: Bank Indonesia, MoF, BPS, MUFG, Danamon Economist Team

5
 Covid-19 Update in Indonesia

Total Cases
▪ The total accumulation of
positive cases since COVID-19 was
discovered in Indonesia has reached
538,883 people as of 30 Nov 2020.

▪ Number of deaths are 16,945 while

number of recovered 450,418.

Daily New Cases

▪ A new milestone has been reached in
daily number of coronavirus cases
after adding 6,267 new cases on 29
Nov 2020, the third time it broke its
own daily record during the past
week alone.

Source: WHO, Worldometer

6
 Loan Growth & NPL Trend

Indonesia Commercial Bank (2015-2020)

3.1%3.2%
8,000 3.5%

7,500 3.1% 2.9% 3.0% 2.8% 3.0%

7,000 2.5% 2.6% 2.7% 2.5%
2.5%
6,500
2.4% 2.5%

6,000
2.0%
5,500
5,468 5,617 5,712 5,549 5,5221.5%
5,000
5,295
4,500
4,974
4,738 1.0%
4,377 4,491
4,000
4,168
4,058 0.5%
3,500

3,000 0.0%
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Aug-20

Covid 19
hit Indonesia
Total Loan NPL%
in IDR tio

▪ After Covid 19 Pandemic outbreak entered Indonesia in March 2020, the banking loan growth tend to decreased gradually.

▪ Although NPL% tend to increase during Covid-19 outbreak, but government stimulus help preventing the NPL deterioration not as
severe as in 2008-2009 (NPL: ± 4%) or even in 2005 (NPL: ± 8%).

▪ However, Banks still need to manage and anticipate when the stimulus package period ends in March 2022

Source: OJK SPI

7
 Electronic Cards Transaction

Indonesia Commercial Bank (2007-2020) ATM/Debit Credit Card

80%

60%

40%

20%

0%

-20%

-40%

-60%
Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Oct-18 Oct-19 Oct-20

▪ Debit and credit card transactions have plunged sharply since COVID-19 outbreak.

▪ Debit card transactions have shown gradual improvement along with less mobility restriction.

▪ Credit card transactions dipped again in Oct-20, in-line with social restriction.

Source: OJK SPI

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 OJK Stimulus related to Credit

POJK No.11/POJK.03/2020
regarding National economy stimulus as the Covid-19 outbreak impact counter cyclical

Determination of Asset Quality

• For credits to affected debtors of up to IDR 10 billion, the determination of credit quality may only be based
on the timely/punctuality payments of principal and/or interest.

Determination of the Collectability of a Restructured Credit

• The quality of the credit or financing (granted to an affected debtor) that is restructured after the relevant
debtor is affected by Covid-19 will be determined as 'current' (lancar) as of the restructuring process.
• As of 20 Nov 2020, Total Restructure has reached IDR 932 trillion / USD 66 billion (from 7.5 million
debtors):
✓ MSME: IDR 370tn (5.8 million debtors)
✓ Non-MSME: IDR 562tn (1.7 million debtors)

Granting of new credits

• Banks may provide new credit/financing or other funding to affected debtors and the determination of
collectability of such new credit/financing or other funding will be separated from the existing
credit/financing of such debtor.

Source: OJK, CNBC

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 Habits that align with Post – Pandemic Values

Prioritising safety
The main by products of the coronavirus (plastic packaging, preserves, disposable masks, etc.) have a
significant influence on the justification for long-term thinking.

Sustainability
The decrease in air pollution from transport and industrial activity was clear for all to see. This can all provide
evidence of the harmful impacts of human activity and provide new impetus for green movements.

Slowdown, spirituality
Society living in quarantine opened the door to spiritual attitudes since in the given situation we were all
asking “why”, and many of us experienced a period of introspection.

Social responsibility
The role of social responsibility has appreciated under the current circumstances since many organisations
or groups are in need of support.

Religious Activity
The global pandemic triggered a huge change in religious customs too.

Source: PWC
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 COVID-19 Increases the Importance of Sustainable Finance

Expanding Trend for Green Recovery

• There are a move toward green based economic recovery
• Hundred global companies have signed the statement that urges governments around the world to align their COVID-
19 economic recovery efforts with the latest climate science in line with the target of reaching net-zero emissions well
before 2050

Growing Focus on ‘S’ Factors

• The spread of COVID-19 triggered an increased attention to the S factors which used to have a relatively lower profile
among the three factors of the ESG
• Interest in the S factors has grown on a wide range of areas from medical and health care and welfare to the right of
labor, education, and gender equality

Covid-19 is a New ‘Green Swan’ Events

• BIS present covid-19 as a ‘Green Swan’ which is environmental problems that will surely occur, albeit its timing
unpredictable, bringing extremely adverse effects
• The banking supervisors around the world as well as financial markets and financial institutions will be forced to be
aware of COVID-19 as an event that is involved in the E factor of ESG

Source: IIMA
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 Some Winners from Covid-19 Outbreak

E-Commerce (Marketplace)
“Tokopedia partner increased 2 million during pandemic”

Logistics
“Si Cepat revenue increased 159% as of Jun 2020”

Food Material
“Food material sales volume increased 54% during Pandemic”

Hygiene Products (i.e. Masks, Soap, etc)

“69% people wash their hands more because of the crisis”

Covid-19 Test Kits

“Requirement to have Rapid Test / PCR for certain activities ”

Online video conferencing and

education platforms
“32 million Number of new Microsoft Teams users in March”

Source: Various Sources

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 Banking Industry faces many challenges

External Pressures Internal Pressures

Unprecendented Disruption Data Driven Culture

Changing Customer Behaviour Business Complexity & Open Banking

Economic Uncertainty Digital & Agile

Regulation Talents

• These challenges, added with Covid-19 outbreak, will have a pressure to Credit Quality

• Therefore Cost Optimization is a must for the Bank

Source: Indef 13
 Meanwhile, Customers’ Needs Keep Evolving

Customers are much more Customers are empowered and

judicious in their spending informed
Today, customers throughout the world are more
Customers’ fluctuating confidence in the
likely to consider user reviews through social
economy means spare cash is often being
media, online forums, comparison Web sites, and
saved, not spent.
other Internet research as part of their decision.

Customers are more distrusting Customers value corporate

of large institutions responsibility

Customers are more trusting of content they Customers, especially “millennials,” are
can find on their own terms, rather than that increasingly sensitive to company’s focus on
which is pushed out to them by brands. environmental sustainability, community support,
and other forms of corporate social responsibility

Source: KPMG 14
 Customers Prefer Digital Transaction

Changes in the Way Consumer Bank in Long Term Beyond Covid-19

(% of respondents)

Greater use of internet banking 67%

Greater use of mobile banking 56%
Greater use of phone banking 33%

No physical branch visit 28%

Switch to Bank with lower fee or 26%
better rates
Switch to Bank that is more digital 26%
Greater use of video calling to
connect with my Bank
23%
Switch to a Bank with greater 21%
flexibility or personalization
Switch to a Bank where I can 15%
connect to real person
0% 10% 20% 30% 40% 50% 60% 70% 80%

▪ Customers prefer digital interactions even for complex transactions.

▪ However, they still want personal contact through telephone banking.

Source: EY – Future Consumer Index 2020 15

 Fintech Disrupting Banking Industry

P2P Lending Growth

▪ P2P Lending Growth of 45x in the span of 18

months.

▪ As of June 20: Loans disbursed stand at

IDR113T, Borrowers 25.7mio and Lenders 659K

▪ Productive to Consumptive Ration 30:70

P2P Lending Growth

PAYLATER Trend :
▪ Fintech also started the Paylater Trend, white-label capability for E-Commerce /
• OVO Paylater (in Tokopedia)
OTA / Ride Hailing / Wallet Players
• Shopee Paylater
▪ Fintech’s underwriting capability build stronger through leveraging alternative
• Gojek Paylater
data and technology
• Taveloka Paylter
• Bllibli Paylater

Source: Danamon SME Team, various sources

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 How to Achieve Loan Growth Target in the New Normal

Challenges & Pressures Customer Need

Banking industries has already faced many challenges Customers’ needs have evolved during New Normal

1 2 3
Define Business Goals Define Client Target Market Re-evaluate Credit Appetite

• Start with Strategy • Define Segments • Invest in Deeper

Have a clear view of your credit strategy How the Bank segments it’s customer Understanding of Market
and ensure it is consistently understood base as well as identify which ➢ Invests on industry’s resilience, specific
geography, business segments.
across the organisation segments should be emphasized
➢ Expect the market performance to
• Identify Industries change overtime.
• Aim High
Identify which industries to extend
Be bold, be brave and be creative – use ➢ Replace standard deterministic model
additional financing supports
technology, innovation and new ways of with a statistical model.
working to radically optimize the cost base
• Expand Product • Establish Credit Appetite
Understand financial supply chain ➢ Set expectation on how restrictive or
• Set Priorities and Targets (ecosystem), collaboration with expansive a Bank will be in markets.
Understanding strategic priorities and Fintech, ESG sectors, etc
➢ Set how aggressively the Bank will
set financial target take risks and increase its portfolio.

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 Analysis on Wholesale Banking & SME Segments

Segment Impact from Covid-19 Strategy

▪ Many companies will need additional loans to Focus on sector and balance sheet strength, lend where
Wholesale continue to operate credit fundamentals support
Banking ▪ Some sectors do not see a meaningful ▪ Extending credit to less-leveraged companies with solid balance
recovery (e.g. tourism, aviation). sheets in sectors with long-term prospects

▪ Whilst others are able to operate at close to ▪ Companies in sectors supported by Covid-19 trends can also
“Heavily Sector or above pre-Covid levels (e.g. agriculture, support loan growth
Specific Outlook, manufacturing), but with lower demand and
Demand Remains investment appetite likely demand for lending ▪ Ability to forecast client financials accurately under a range of
but Heigthened remains limited economic scenarios becomes more important
Credit Risk”
▪ Distribution needs to be more risk aware, and also to focus on
sectors supported by longer-term industrial trends

▪ Similar with Wholesale Banking, the impact is Depends on risk appetite and distribution; selective
SME sector specific approach to both sector and individual companies

▪ Difference to Wholesale Banking is that ▪ Performing companies, have strong balance sheets and/or are in
heavier concentration makes for a more advantaged sectors can be attractive opportunities for new lending
extreme experience, with higher credit losses
“Heavily Affected the likely outcome ▪ High risk of adverse selection –forward-looking cashflow-based
Sector” credit underwriting is essential

▪ New SMEs could be created to take advantage of disruption in the

economy – these could be worth supporting and be a source of
loan growth

Source: Oliver Wyman

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 Industry Sector Outlook

It is estimated that several industrial sectors will still be under pressure as the pandemic is not over yet

Very High High Medium Low Neutral

• Airport • Retail trade • Advertising / printing • Food and beverage • Healthcare

• Tourism • Building construction • Houseware • Wholesale durable • Pharmaceutical
• Financial institution • Tobaco manufacture and non durable • Telecommunication
• Restaurant
• Coal mining • Chemical goods
• Hotel
• Crude petroleum
• Transportation • Computer and • Energy
• Land/stone quarying
• Metal mining service • Plantation
• Automotive & • Machinery • Crops
component • Heavy equipment • Animal Feed
• Cement • Metal & allied • Animal Husbandry
• Ceramics glass products • Cable
porcelain • Wood industry
• Cosmetic
• Pulp and paper
• Fishery
• Other consumer
• Footwear
• Textile / Garment goods
• Property • Plastic packaging
• Toll Road
• Harbour

Still have a very Still have a impact to Business performance Business performance Business performance will
significant impact to business performance will recover on the new will return to normal in return to normal and tend to
business performance on the new normal normal the new normal improve in the new normal
on the new normal

Source: Pefindo
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 Understand Supply Chain and Collaboration with Fintech

Challenges Strategy

▪ Growing loan by pushing the utilisation New client acquisition through ecosystem (Supply Chain)
Supply from existing clients may not be
▪ By working closely with merchants, distributors, and suppliers,
enough, as their business volume also
Chain dropped during Covid-19.
Bank gain increased visibility into stock and turnover so they can
provide the right amount of working capital. Suppliers will no longer
need to extend credit to the merchants they work with, which frees
▪ Hence Bank needs to widen their client
up funds in the supply chain.
based, but pro hire RM is limited while
still need to do cost optimization.

Buy, Build, and Partner with Fintech Company

▪ Customers prefer digital transaction
than traditional face to face ▪ Buy:
transaction. ✓ BCA bought Royal Bank to change it into Digital Bank
Digital
▪ P2P lending has been growing ▪ Build: lending capabilities in their own/separate app and online by
leveraging Alternative Credit Scoring to improve TAT.
significantly which offer numerous
✓ Tunaiku by Amar Bank
advantages over banking services i.e. ✓ Pinang by BRI Agro
its flexibility allows it to channel capital
to virtually anyone, effectively and ▪ Loan Channeling:
✓ BCA x Modalku ✓ Danamon x Investree
transparently, at low interest rate. ✓ OCBC NISP x Akulaku
✓ Mandiri x Investree, Amartha
✓ Permata x Kredivo ✓ BTPN x KreditPintar

Source: Oliver Wyman

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SAATNYA PEGANG KENDALI

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