BFIN Bad Loans Improved This Quarter - So Why Does the Cure Rate Keep Falling?

NPF and NCL Improve Together - But the Cure Rate Doesn't

Q2 2021's post described a trade-off: NPF^» improved only because the Net Credit Loss (NCL) ratio - loans actually written off or repossessed, as distinct from NPF's measure of what's still on the books as non-performing - more than doubled, from 2.00% to 5.01%, as accounts that fell out of Covid-19 restructuring were resolved the hard way rather than cured. This quarter, that trade-off didn't repeat. NPF improved again, from 2.15% to 1.97%, and NCL fell right alongside it, from 5.01% to 2.72% - both moving the same direction for the first time since this backlog started tracking the pair. On the surface, that reads as a cleaner quarter: fewer new problem loans, and less need to resolve old ones by force.

But the metric that actually measures whether restructured borrowers are recovering - the disclosed cure rate - moved the wrong way for the second consecutive quarter: 86.8% of restructured loans had returned to normal payment as of 30 September 2021, down from 89.2% at Q2 and 92% at Q1. And the accounts that aren't curing aren't all being written off either - the share granted a second restructuring climbed to 12.9% of the restructured pool, up from 10.2% at Q2 and 6.5% at Q1, "with strict review" per management's own language. Read together with NCL's improvement, that's a different explanation for the same shrinking restructured balance than last quarter's: instead of exiting into either cure or charge-off, a growing share of the hardest accounts is being kept in restructuring longer rather than being pushed to a resolution either way.

The Prescription

Disclose what "strict review" for a second restructuring actually means in practice - underwriting criteria, provisioning treatment, expected resolution timeline - rather than leaving it as a single adjective in a pie-chart label. The second-restructuring share has now grown for three straight quarters (6.5% → 10.2% → 12.9%) even as the total restructured pool has shrunk by more than half over the same period. That combination - a shrinking pool with a growing hard-core inside it - is exactly the pattern a reader needs more disclosure on to distinguish "prudent extra time for a genuinely recoverable borrower" from "extend-and-pretend on an account that should already be resolved."

What it should stop doing: presenting the cure-rate decline as a rounding footnote inside an improving-headline-ratio story. NPF and NCL both improving gives the deck a clean "continued improvement in asset quality" framing this quarter (see Management's Reading below) - but the cure rate falling for two quarters running, inside a pool where the second-restructuring share keeps climbing, is the one number in this backlog that hasn't been improving. It deserves its own line in the narrative, not a chart label.

Key Financial Metrics

Nine months ended 30 September 2021 vs. nine months ended 30 September 2020

FX: Rp14,328.6 = USD 1 (30 September 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	9M 2021 (IDR)	9M 2021 (USD)	9M 2020 (IDR)	YoY
Total Income ("Net Revenue" equivalent)	Rp2,373,000M	~$165.6M	Rp2,729,000M	⚠️ -13.1%
Profit Before Tax ("Operating Income" equivalent)	Rp999,688M	~$69.8M	Rp661,690M	✅ +51.1%
Net Income	Rp796,012M	~$55.6M	Rp520,629M	✅ +52.9%
Total Cash and Cash Equivalents	Rp825,182M	~$57.6M	Rp1,414,691M*	⚠️ -41.7%*

*Cash comparison is against 31 December 2020, not a nine-month-earlier balance - this filing's comparative balance-sheet date is year-end, consistent with the convention used throughout this backlog.

Profit before tax remains the closest operating-income equivalent for this lender, as established throughout this backlog. The 25 October 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 nine months ended 30 September 2021, with comparatives for 31 December 2020 and the nine months ended 30 September 2020.

Total Income's -13.1% YoY decline continues the 1H 2021 pattern of a smaller receivables base still running down the pre-pandemic book. Net income still grew 52.9%, on Cost of Credit falling from 6.35% to 1.75% cumulative - a much larger swing than the revenue decline, and the same dynamic driving profitability all year. A Rp269,359M cash dividend (Rp18/share, paid 25 June 2021, unchanged from the figure reported last quarter) remains the only dividend event disclosed for the period - no new distribution was declared this quarter.

Balance sheet metric	30 Sep 2021 (IDR)	30 Sep 2021 (USD)	31 Dec 2020 (IDR)	Change
Total Assets	Rp14,645,086M	~$1,022.1M	Rp15,200,531M	⚠️ -3.7%
Financing Receivables (gross)	Rp16,971,551M	~$1,184.6M	Rp17,050,711M	⚠️ -0.5%
Total Liabilities	Rp7,455,414M	~$520.3M	Rp8,594,377M	✅ -13.3%
Fund Borrowings (net)	Rp4,002,060M	~$279.3M	Rp4,794,844M	✅ -16.5%
Securities Issued (bonds, net)	Rp2,619,098M	~$182.8M	Rp2,978,631M	✅ -12.1%
Total Equity	Rp7,189,672M	~$501.8M	Rp6,606,154M	✅ +8.8%

Debt-to-equity^», on the same gross basis used throughout this backlog (fund borrowings plus securities issued, both net of unamortized costs, against equity), fell back to ~0.92x from Q2's ~0.96x - fully reversing last quarter's first leverage uptick in five quarters. No new bond was issued in the quarter to offset scheduled repayments this time; instead, the company drew down its first US-dollar syndicated loan since the pandemic began (see Beyond the Usual below) while continuing to amortize existing facilities. 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 Rp389,218M from Q2's Rp426,746M.

Key Operational Metrics

• New financing originations: Rp9,387 billion for 9M 2021 (Rp3,292 billion in Q3 alone, up 4.2% QoQ from Q2's Rp3,158 billion), up 72.7% YoY - a fifth consecutive period of booking recovery, continuing 1H's fourth-consecutive-quarter trend.
• Managed receivables (including off-balance-sheet joint financing, per the deck): Rp13,748 billion, up 0.9% QoQ from Q2's Rp13,628 billion but still down 7.3% YoY.
• Non-Performing Financing (NPF) (company's own disclosed figure^», calculated on total managed receivables including off-balance-sheet joint financing): 1.97% at Q3 2021, improved from 2.15% at Q2 2021 and 2.67% a year earlier - see above for why this improvement, unlike Q2's, moved in the same direction as NCL rather than trading off against it.
• 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): 1.59% of gross financing receivables (Rp269,000M of Rp16,971,551M), improved from 1.74% at Q2 2021.
• Receivables 1-30 days overdue: 14.83% of gross financing receivables, improved from Q2's 15.94%; the 31-90 day bucket also improved, to 3.37% from 4.28% - every overdue bucket kept moving the right direction this quarter.
• Net Credit Loss (NCL) ratio (annualized; measures loans actually charged off or repossessed): 2.72% for Q3 2021, down from Q2's 5.01% but still slightly above Q3 2020's 2.62% - the first quarter since Q4 2020 where NCL fell rather than rose, per management's own framing (see Management's Reading below).
• Cost of Credit (COC - provisioning expense as a share of average receivables): 0.49% for Q3 2021 (annualized), down sharply from Q2's 1.63% and 6.35% cumulative a year earlier; 1.75% on a 9M 2021 cumulative basis.
• Loan loss reserve and coverage: loan loss reserve eased to 6.3% of receivables (company's own managed-receivables basis) from Q2's 6.7%; coverage of non-performing loans improved to 3.2x from Q2's 3.1x, continuing to build above 1H 2020's 1.6x.
• Debt-to-Equity Ratio (DER)^»: ~0.92x on a gross basis (see Key Financial Metrics above). The company's own "Net Gearing Ratio" fell to 0.8x from Q2's 0.9x, continuing to track well below 1H 2020's 1.3x.
• Net Interest Spread: 11.33% for 9M 2021 (11.49% in Q3 alone, up from Q2's 11.22%), still down from 9M 2020's 11.94%.
• Cost to Income: 49.67% for 9M 2021 (50.34% in Q3 alone, up from Q2's 49.19%), worse than 9M 2020's 45.44% - the smaller revenue base is still being run against a similar absolute opex level.
• Return on average assets (before tax): 8.65% for Q3 alone (7.38% cumulative for 9M 2021), up from Q2's 7.32% and well above 9M 2020's 3.90%.
• Return on average equity (after tax): 17.76% for Q3 alone (15.65% cumulative for 9M 2021), up from Q2's 15.28% and above 9M 2020's 11.33% - but Q2's 14.58% half-year figure was itself well below 1H 2019's run rate, so this remains a recovery still catching up to pre-pandemic levels.
• Earnings per share: Rp53 basic for 9M 2021, up from Rp35 a year earlier, on an unchanged 14,964,383,620 weighted-average shares outstanding net of treasury stock.

Update on Loan Restructuring

• Restructured balance: approximately Rp2.0 trillion as of 30 September 2021, equal to 14.8% of total receivables - down from Q2 2021's Rp2.7 trillion (20.2%) and less than a third of the August 2020 peak of Rp5.3 trillion.
• Reserve coverage: Rp539 billion, or 26.4% of total restructured loans, has been allocated to cover potential losses on the remaining restructured pool - a newly disclosed figure this quarter.
• Cure rate: 86.8% of restructured accounts had returned to normal payment status as of 30 September 2021, down from Q2's 89.2% and Q1's 92% - the second consecutive quarterly decline in this figure, continuing the reversal first flagged last quarter.
• Remaining restructured book breakdown: of the accounts still restructured, 0.3% remain under an active grace period (down from Q2's 0.6%) and 12.9% have been granted a second restructuring "with strict review" (up from Q2's 10.2% and Q1's 6.5%) - the second-restructuring share has now grown for three straight quarters even as the pool it's drawn from keeps shrinking (see The Prescription above).
• 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 Widens Its Lead, Others Keeps Reversing

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

Cars - still the largest segment: Rp2,054,891M of income (69.2% of total, up from 66.9% a year earlier), with profit before tax up 108.1% YoY to Rp724,042M from Rp347,911M - the segment's margin (PBT/income) more than doubled, from 14.8% to 35.2%, almost entirely on the collapse in Cost of Credit discussed above.

Motorcycles - Rp547,843M of income (18.5% of total, down from 20.7%), with profit before tax up 42.8% YoY to Rp194,846M from Rp136,481M, margin improving to 35.6% from 18.8% on the same credit-cost dynamic.

Others (heavy equipment/machinery, property, and sharia financing, plus corporate tax) - Rp365,758M of income (12.3% of total, roughly flat with 12.4% a year earlier), but profit before tax fell 54.4% YoY to Rp80,800M from Rp177,298M, and net profit fell 53.9% to Rp64,338M from Rp139,501M - the only one of the three segments moving in the opposite direction from the consolidated business this year, continuing the reversal first flagged in Q2. Others' margin compressed from 40.9% to 22.1% on a nine-month basis - somewhat less severe than 1H's compression (41.5% to 19.0%), suggesting Q3 alone was a better quarter for this segment than 1H was, though the filed statement still doesn't break out why Others' credit-cost dynamics continue to run opposite to Cars and Motorcycles.

Beyond the Usual

Off-balance-sheet joint financing exposure keeps shrinking, down another 36% in a single quarter

Joint financing receivables - the off-balance-sheet arrangements this backlog's footnote-mining methodology specifically tracks as a source of hidden leverage - fell to Rp75,866M (net) from Q2's Rp118,625M, and down 70.6% from Rp258,136M a year earlier. PT Bank Rakyat Indonesia (Persero) Tbk remains the primary joint financing partner, still structured without recourse to BFI if a customer defaults.

BFI signed a joint financing agreement with Bank Jago on different terms than its BRI arrangement

On 5 August 2021, BFI signed a Rp150 billion joint financing agreement with PT Bank Jago Tbk under a 10%/90% funding split (BFI/Jago) - a materially different risk-sharing ratio than the 5%/95% split used in the long-running BRI arrangement, meaning BFI is retaining twice the funding share, and therefore twice the first-loss-adjacent exposure, on this newer partner relative to its established one. The Rp600 billion bilateral loan facility BFI signed with Bank Jago back in June 2021 - flagged last quarter as a management-highlight-only item - still shows a zero drawn balance in the borrowings note three months later, while BFI's own time deposit placed with Bank Jago fell to Rp5,000M from Rp50,000M over the same period. Three months in, the relationship looks less like a funding line BFI is actually using and more like a joint-financing and deposit relationship still finding its shape.

BFI closed its first USD syndicated loan since the pandemic began, priced with eight participant banks

On 30 August 2021, BFI signed a Secured Syndicated Term Loan Facility of USD 80 million with Standard Chartered Bank (Hong Kong) Limited as facility agent and PT Bank Central Asia Tbk as security agent - the deal upsized from a USD 50 million launch size to the full USD 80 million with eight other participant banks joining, and represents the first new USD syndicated facility BFI has closed since the pandemic began. Only USD 15 million (Rp214,605M) of the facility was drawn as of 30 September 2021, alongside the three Luxembourg-domiciled impact-investment lenders - responsAbility SICAV (Lux) Micro and SME Finance, responsAbility SICAV (Lux) Financial Inclusion Fund, and MultiConcept Fund Management S.A. - first disclosed last quarter, whose combined balances stayed roughly flat this quarter.

Management's Reading of Its Own Quarter

The 25 October 2021 presentation frames 9M 2021 as continued growth "with continued improvement in asset quality," leading with the booking recovery (+72.7% YoY, +4.2% QoQ) and NPF/NCL both improving together for the first time in this backlog. But one slide title in the same deck cuts against that framing directly: "Higher NPF levels across all segments but expect to improve by end of the year" - management's own acknowledgment that NPF across every product line (motorcycle NDF, dealer, and other channels) remains structurally above pre-pandemic levels even as the quarterly trend improves, a nuance the headline "continued improvement" language doesn't carry. The deck doesn't address the cure rate's second consecutive decline (89.2% to 86.8%) at all, nor the growing second-restructuring share - both sit inside the "86.8%, return to normal payment" pie chart without being framed as continuing the reversal flagged last quarter - see The Prescription above for why that framing gap still matters.

Stock Price: A Rally That Peaked, Then Pulled Back

BFI Finance shares closed at Rp1,005 on 30 September 2021, up 12.9% from Q2's Rp890 but down from an intra-quarter peak of Rp1,120 in August - the stock's highest close in this backlog's history came and went within the same quarter it's being reported in. Over the two-year window (October 2019 through September 2021), the stock ranged from Rp1,120 (August 2021) to the March 2020 crash low of Rp240, a 366.7% peak-to-trough swing - even wider than Q2's 270.8% figure, and still well past the >30-40% threshold applied throughout this backlog. The pullback from August's peak coincides with the same quarter the cure rate kept slipping and the second-restructuring share kept climbing - not proof of cause and effect, but a reminder that the gap between share-price momentum and business-fundamentals momentum flagged last quarter hasn't fully closed either way.

Target Valuation Range

Market cap ~Rp15,039,206M (~$1,049.7M) at ~15.4x TTM P/E and ~2.09x P/B - BFI is priced richer than three months ago on book value even as the TTM P/E holds roughly flat - the market is paying more for the same earnings trajectory, right as the cure-rate and second-restructuring trends this quarter argue for more caution about the restructured book's ultimate fate, not less.

Using 14,964,383,620 weighted-average shares outstanding net of treasury stock (unchanged since December 2019) and the Rp1,005 closing price:

Market cap buildup	Q3 2021
Share price (period-end)	Rp1,005
Shares outstanding	14,964,383,620
Market capitalization	Rp15,039,206M (~$1,049.7M)
Book value (total equity)	Rp7,189,672M

Peer-multiple sanity check	Q2 2021	Q3 2021	Change
P/E (TTM)	~15.5x	~15.4x	essentially unchanged
P/B	~1.94x	~2.09x	up - price gain outran equity's 4.6% growth

Market cap is up 12.9% from Q2's ~Rp13,318,301M. TTM P/E uses TTM net income of Rp976,975M (FY2020's Rp701,592M, less 9M2020's Rp520,629M, plus 9M2021's Rp796,012M) - a genuine trailing-four-quarter figure, not an annualized nine-month. Trailing earnings grew at almost the same pace as the share price this quarter - on an earnings basis alone, BFI isn't meaningfully more expensive than three months ago. P/B tells the same story it told last quarter, just further along: at ~2.09x book, BFI is priced above where it traded through most of the pre-pandemic period this backlog covers, on a Return on average equity (7.38% cumulative before annualizing, 17.76% for Q3 alone) still working back toward pre-pandemic run rates. That combination - a rising book multiple, a flat earnings multiple, and this quarter's own cure-rate and second-restructuring signals both pointing the wrong way even as the headline NPF/NCL pair improved - keeps this backlog's caution from last quarter in place rather than resolving it either way. It still isn't a case for calling the stock overvalued outright: bookings kept recovering, NPF and NCL improved together for the first time, and the balance sheet delevered back below Q1's level.

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