BFIN Higher Write-Offs, Lower Bad-Loan Ratio - Is a Lender Curing Debt or Erasing It?

Higher Write-Offs, Lower Bad-Loan Ratio

Q1 2021's post ended on an open question management itself had raised: the deck expected "more repossession and collateral disposal activities" in the months ahead, which management said would push Net Credit Loss (NCL) higher and NPF^» lower at the same time. Six months later, that is exactly what happened. The NCL ratio more than doubled quarter-over-quarter, from 2.00% to 5.01%, while NPF improved from 2.26% to 2.15% - the first quarterly improvement in the ratio since Q4 2020. Read next to each other, these two moves describe the same mechanism from opposite ends: the accounts that fell out of Covid-19 restructuring and turned non-performing in Q1 are now being resolved the hard way - written off, repossessed, sold - rather than cured back to normal payment. That's a real improvement in balance-sheet cleanliness, but it is not the same thing as the loans getting better.

The cure-rate figure that drove last quarter's skepticism moved in the same direction for the first time in this backlog: 89.2% of restructured loans had returned to normal payment as of 30 June 2021, down from 92% at Q1 - a small dip, but a dip nonetheless, after two straight quarters of the number climbing. Combined with the NCL spike, the picture this quarter is less ambiguous than Q1's: a real (if modest) share of the loans that exited restructuring didn't cure and are now working through collections rather than repayment. The outstanding restructured balance kept shrinking regardless - down to Rp2.7 trillion (20.2% of managed receivables) from Q1's Rp3.6 trillion (26.5%), and less than half the August 2020 peak of Rp5.3 trillion - so whatever isn't curing is a shrinking problem in absolute terms, even if it isn't a vanishing one.

The Prescription

Disclose the NCL-to-restructured-exit linkage as plainly as the cure-rate figure itself. Management flagged the NCL/NPF trade-off as a forecast last quarter and it played out almost exactly as described - that's a rare case of a company's own guidance being directly checkable against next quarter's numbers, and it checked out. The next step is connecting the dots explicitly: state what share of this quarter's write-offs and repossessions came from the restructured population specifically, rather than leaving a reader to infer the connection from two separate ratios moving in opposite directions.

What it should stop doing: treating a falling cure rate as a footnote inside the "Return to normal payment, 89.2%" pie-chart label, rather than calling out that the number moved backward for the first time. The deck's framing ("O/S Restructured Loans managed down by 1/2... from Rp5.3tn to Rp2.7tn") leads with the shrinking-balance story and buries the cure-rate reversal - a reader skimming the growth bullets alone would miss that the metric this backlog has been tracking since Q4 2020 just went the wrong way for the first time.

Key Financial Metrics

Six months ended 30 June 2021 vs. six months ended 30 June 2020

FX: Rp14,602 = USD 1 (30 June 2021 month-end rate). Both periods below are converted at this same rate for comparability, following the convention used throughout this backlog - it is not a historical rate for the 2020 column.

Metric	1H 2021 (IDR)	1H 2021 (USD)	1H 2020 (IDR)	YoY
Total Income ("Net Revenue" equivalent)	Rp1,959,693M	~$134.2M	Rp2,438,517M	⚠️ -19.6%
Profit Before Tax ("Operating Income" equivalent)	Rp618,248M	~$42.3M	Rp423,921M	✅ +45.8%
Net Income	Rp487,422M	~$33.4M	Rp332,036M	✅ +46.8%
Total Cash and Cash Equivalents	Rp616,376M	~$42.2M	Rp1,339,780M	⚠️ -54.0%

Profit before tax remains the closest operating-income equivalent for this lender, as established throughout this backlog. The 26 July 2021 presentation is the source for the management-commentary content below; the financial-statement analysis draws on the company's unaudited consolidated interim financial statements for the six months ended 30 June 2021, with comparatives for 31 December 2020 and the six months ended 30 June 2020.

Total Income's -19.6% YoY decline is a base-effect continuation of Q1's pattern: 1H 2020's managed receivables were still running down the pre-pandemic book before Covid-19 booking freezes took hold. But net income still grew 46.8% - the driver is Cost of Credit, which the deck reports falling 463 basis points YoY to 2.37% (from 7.00%), a far larger swing than the revenue decline. Operating cash flow eased from 1H 2020's Rp1,975,498M inflow, but that isn't a sign of deterioration: 1H 2020's figure was inflated by new lending essentially stopping for a full quarter (Q2 2020's Rp57 billion in bookings), so collections ran almost entirely uncontested by new disbursements. With new bookings restarting - Rp6,095 billion for 1H 2021, up 48.7% YoY - cash is being deployed into new financing again, which is the business functioning normally, not deteriorating. A Rp269,359M cash dividend (Rp18/share, a 38.39% payout of FY2020 net profit, approved at the 25 May 2021 AGM) was also paid during the half, a further draw on the cash balance.

Balance sheet metric	30 Jun 2021 (IDR)	30 Jun 2021 (USD)	31 Dec 2020 (IDR)	Change
Total Assets	Rp14,211,476M	~$973.2M	Rp15,200,531M	⚠️ -6.5%
Financing Receivables (gross)	Rp16,751,540M	~$1,147.3M	Rp17,050,711M	⚠️ -1.8%
Total Liabilities	Rp7,336,941M	~$502.4M	Rp8,594,377M	✅ -14.6%
Fund Borrowings (net)	Rp4,539,956M	~$310.9M	Rp4,794,844M	✅ -5.3%
Securities Issued (bonds, net)	Rp2,058,547M	~$140.9M	Rp2,978,631M	✅ -30.9%
Total Equity	Rp6,874,535M	~$470.8M	Rp6,606,154M	✅ +4.1%

Debt-to-equity, on the same gross basis used throughout this backlog (fund borrowings plus securities issued, both net of unamortized costs, against equity), ticked up to ~0.96x from Q1's ~0.94x - a small move, but the first increase after five straight quarters of deleveraging. The cause: BFI issued a new Rp600 billion bond (Obligasi Berkelanjutan V, PUB V) during the quarter - a two-tranche deal (1-year at 6.00% coupon, 3-year at 7.75%) priced well inside the company's September 2020 issuance (8.00% and 9.50% respectively), with total book-building demand over 5x the offered amount - which offset most of the quarter's scheduled bond repayments. The related-party working-capital facility from PT United Tractors Tbk - flagged since Q1 2020 - continued amortizing on its unchanged 4 March 2023 maturity, down to Rp426,746M from Q1's Rp452,421M.

Key Operational Metrics

• New financing originations: Rp6,095 billion for 1H 2021 (Rp3,158 billion in Q2 alone, up 7.5% QoQ from Q1's Rp2,937 billion), up 48.7% YoY - the fourth consecutive period of booking recovery, continuing Q1's third-quarter recovery.
• Managed receivables (including off-balance-sheet joint financing, per the deck): Rp13,628 billion, essentially flat QoQ (-0.1%) from Q1's Rp13,647 billion but still down 16.4% YoY.
• Non-Performing Financing (NPF) (company's own disclosed figure^», calculated on total managed receivables including off-balance-sheet joint financing): 2.15% at Q2 2021, improved from 2.26% at Q1 2021 - the first quarterly improvement since Q4 2020, but see above for why this move can't be read in isolation from the NCL spike below.
• Receivables overdue more than 90 days (calculated from the filed statement's own overdue-day disclosure, on-balance-sheet gross financing receivables only - the narrower convention used throughout this backlog): 1.74% of gross financing receivables (Rp291,398M of Rp16,751,540M), improved from 1.84% at Q1 2021.
• Receivables 1-30 days overdue: 15.94% of gross financing receivables, improved from Q1's 17.22%; the 31-90 day bucket also improved, to 4.28% from 5.44% - every overdue bucket moved the right direction this quarter, unlike Q1's mixed picture.
• Net Credit Loss (NCL) ratio (annualized; measures loans actually charged off or repossessed, as distinct from NPF's measure of what's still on the books as non-performing): 5.01% for Q2 2021, more than doubling from Q1's 2.00% and up from 1H 2020's 1.82% on a cumulative basis - management's own forecast from last quarter's post that repossession activity would push NCL higher played out almost exactly as described.
• Cost of Credit (COC): 1.63% for Q2 2021 (annualized), down sharply from Q1's 3.12% and 1H 2020's 7.00% cumulative rate - COC and NCL are moving in opposite directions this quarter, consistent with problem loans already being provisioned for and now simply being resolved (charged off) rather than newly provisioned.
• Loan loss reserve (LLR) and coverage: LLR eased to 6.7% of receivables (company's own managed-receivables basis) from Q1's 7.5%; coverage of non-performing loans eased further to 3.1x from Q1's 3.3x, though still well above 1H 2020's 1.6x.
• Debt-to-Equity Ratio (DER)^»: ~0.96x on a gross basis (see Key Financial Metrics above). The company's own "Net Gearing Ratio" rose to 0.9x from Q1's 0.8x, still well below 1H 2020's 1.5x.
• Net Interest Spread: 11.24% for 1H 2021 (11.22% in Q2 alone), down from 1H 2020's 12.07%, driven by a lower proportion of higher-yielding motorcycle (NDF) financing in the book.
• Cost to Income: 49.32% for 1H 2021, roughly flat with Q1's 49.45% and worse than 1H 2020's 44.40% - the smaller revenue base is still being run against a similar absolute opex level.
• Return on average assets (ROAA, before tax): 8.56% for 1H 2021, up from 4.58% a year earlier.
• Return on average equity (ROAE, after tax): 14.58% for 1H 2021, up from 10.87% a year earlier but still below pre-pandemic run rates - Q1's 13.82% was itself well below Q1 2020's 21.17%.
• Earnings per share: Rp33 basic for 1H 2021, up from Rp22 a year earlier, on an unchanged 14,964,383,620 weighted-average shares outstanding net of treasury stock.

Update on Loan Restructuring

• Restructured balance: Rp2,746,104M as of 30 June 2021, equal to 20.2% of managed receivables (company's own denominator, consistent with the NPF convention above) - down from Q1 2021's Rp3.6 trillion (26.5%) and less than half the August 2020 peak of Rp5.3 trillion.
• Cure rate: 89.2% of restructured accounts had returned to normal payment as of 30 June 2021, down from Q1's 92% - the first quarterly decline in this figure in this backlog, and the clearest single number tying this quarter's NCL spike back to the restructured book specifically (see above).
• Remaining restructured book breakdown: of the accounts still restructured, 0.6% remain under an active grace period and 10.2% have been granted a second restructuring "with very strict review" - both figures up from Q1's 1% and 6.5%, meaning the share of the shrinking restructured pool needing a second round of relief actually grew.
• Rescheduling program remains closed since August 2020 - all restructuring activity this quarter is existing accounts working through relief already granted, not new Covid-19 volume.

Three Segments: Cars and Motorcycles Carry the Recovery, Others Reverses Hard

The company reports Cars, Motorcycles, and Others on a semi-annual basis in the filed statements, unchanged from every prior quarter in this backlog.

Cars - still the largest segment: Rp1,356,070M of income (69.2% of total, up from 66.8% a year earlier), with profit before tax up 96.0% YoY to Rp448,014M from Rp228,612M - the segment's margin (PBT/income) nearly tripled, from 14.0% to 33.0%, almost entirely on the collapse in Cost of Credit discussed above.

Motorcycles - Rp362,276M of income (18.5% of total, down from 21.4%), with profit before tax up 63.0% YoY to Rp124,490M from Rp76,369M, margin improving to 34.4% from 14.6% on the same credit-cost dynamic.

Others (heavy equipment/machinery, property, and sharia financing, plus corporate tax) - Rp241,347M of income (12.3% of total, up from 11.8%), but profit before tax fell 61.5% YoY to Rp45,744M from Rp118,940M, and net profit fell 61.3% to Rp36,065M from Rp93,159M - the only one of the three segments moving in the opposite direction from the consolidated business this half. Others' margin compressed from 41.5% to 19.0%, the sharpest reversal of any segment this backlog has tracked; the filed statement doesn't break out why Others' credit-cost dynamics ran opposite to Cars and Motorcycles this half, which is worth watching in Q3.

Beyond the Usual

Off-balance-sheet joint financing exposure halved again, down 53.8% in a single half

Joint financing receivables - the off-balance-sheet arrangements this backlog's footnote-mining methodology specifically tracks as a source of hidden leverage - fell to Rp118,625M (net) from Rp257,001M six months earlier, continuing Q1's 30.8% quarterly decline at an even faster pace. PT Bank Rakyat Indonesia (Persero) Tbk remains the primary joint financing partner, still structured without recourse to BFI if a customer defaults.

New USD lenders diversify BFI's funding away from bank-only facilities for the first time in this backlog

Three new US-dollar credit facilities were signed in April 2021 with responsAbility SICAV (Lux) - Micro and SME Finance (USD 13.3 million), responsAbility SICAV (Lux) - Financial Inclusion Fund (USD 11.7 million), and MultiConcept Fund Management S.A. (USD 10.0 million) - all Luxembourg-domiciled impact-investment fund managers rather than commercial banks, a first for the borrowings note in this backlog, which has otherwise been a list of syndicated bank facilities (BCA, Standard Chartered, ANZ) since 2015. Combined drawn balance across the three as of 30 June 2021 was Rp507,360M.

A new Rp600 billion bond priced meaningfully cheaper than BFI's last issuance, a market signal on credit quality

The Obligasi Berkelanjutan V ("PUB V") shelf bond issued in the quarter priced its 1-year tranche at 6.00% and its 3-year tranche at 7.75%, both well below the 8.00% and 9.50% coupons on the company's prior issuance in September 2020, with book-building demand exceeding 5x the offered Rp600 billion - a market read on improving credit quality that lines up with Fitch's stable-outlook affirmation flagged last quarter. Subsequent events disclose a further Rp1 trillion PUB V Phase II issuance already in process as of the report date, against total investor commitments of over Rp3 trillion.

BFI signed a new bilateral facility with Bank Jago, a digital-banking counterparty new to this backlog

BFI signed a Rp600 billion bilateral loan facility with PT Bank Jago Tbk during the quarter, with additional capacity earmarked for joint financing arrangements. Bank Jago - the digital-banking vehicle that would go on to become closely associated with GoTo's ecosystem - hadn't previously appeared as a funding counterparty in this backlog; the relationship is disclosed only as a management highlight in the presentation, not yet reflected in the borrowings note's drawn-balance table as of 30 June 2021.

Management's Reading of Its Own Quarter

The 26 July 2021 presentation frames 1H 2021 as "Entering New Normal," leading with the booking recovery (+48.7% YoY, +7.5% QoQ) and the halving of the restructured book since its August 2020 peak. On asset quality, management explicitly connects this quarter's NCL increase to expected "repossession and collateral disposal activities," and frames the resulting lower NPF as the intended outcome - the same forecast made in Q1's presentation, delivered almost to the letter. What the deck doesn't address directly: the cure rate's first-ever quarterly decline (92% to 89.2%), which sits in the same slide as the "89.2%, return to normal payment" pie chart without being framed as a reversal - see The Prescription above for why that framing gap matters.

Stock Price: A Post-Vaccine Rally That Kept Going

BFI Finance shares closed at Rp890 on 30 June 2021, up 35.9% from Q1's Rp655 and the highest close in this backlog's history. Over the two-year window (July 2019 through June 2021), the stock ranged from Rp890 (June 2021) to the March 2020 crash low of Rp240, a 270.8% peak-to-trough swing - by far the widest range this backlog has tracked, well past the >30-40% threshold applied throughout. The rally has now run for four straight months (April's Rp675 to June's Rp890, +31.9%) with no sign of slowing, even as this quarter's own numbers - the cure-rate dip, the first leverage uptick in five quarters, Others' segment reversal - are the first genuinely mixed signals since the pandemic-era recovery began. That gap between share-price momentum and business-fundamentals momentum is exactly what the valuation section below has to weigh.

Target Valuation Range

Market cap ~Rp13,318,301M (~$912.1M) at ~15.5x TTM P/E and ~1.94x P/B - BFI is priced for a recovery that's further along than this quarter's own numbers - a cure-rate reversal, a leverage uptick, a segment going the wrong way - actually support; the rally has outrun the fundamentals for the first time in this backlog.

Using 14,964,383,620 weighted-average shares outstanding net of treasury stock (unchanged since December 2019) and the Rp890 closing price:

Market cap buildup	Q2 2021
Share price (period-end)	Rp890
Shares outstanding	14,964,383,620
Market capitalization	Rp13,318,301M (~$912.1M)
Book value (total equity)	Rp6,874,535M

Peer-multiple sanity check	Q1 2021	Q2 2021	Change
P/E (TTM)	~16.2x	~15.5x	down slightly - trailing earnings grew faster than the share price
P/B	~1.43x	~1.94x	up sharply - price gain far outran equity's 0.1% growth

Market cap is up 35.9% from Q1's ~Rp9,801,671M. TTM P/E uses TTM net income of Rp856,978M (FY2020's Rp701,592M, less 1H2020's Rp332,036M, plus 1H2021's Rp487,422M) - a genuine trailing-four-quarter figure, not an annualized half. On an earnings basis alone, BFI doesn't look more expensive than three months ago. P/B tells a different story: at ~1.94x book, BFI is now priced above where it traded through most of the pre-pandemic period covered by this backlog, on a ROAE (14.58%) that is still meaningfully below 2019's run rate. That combination - a rich book multiple, earnings not yet back to pre-pandemic levels, and this quarter's own cure-rate/leverage/segment signals all pointing to a recovery that isn't purely linear - is the case for caution here. It isn't a case for calling the stock overvalued outright: NPF improved, write-offs are resolving legacy problem loans rather than accumulating new ones, and the PUB V bond's pricing suggests the credit market agrees BFI's risk has eased. The peer-multiple read has shifted from Q1's "priced for continued recovery" to something closer to "priced for the recovery to be mostly done," a materially higher bar for the stock to keep clearing.

---