The top 15 lenders continue to be considered systemically important in Indonesia, controlling 74% of banking assets as of September 2012. The majority of the market is still controlled by the top 10, which held 65.4% of deposits, 64.1% of loans and 64.8% of bank assets in April 2012 according to Pefindo, a credit ratings agency. These shares rise to above 80% for the sector’s top 24 banks. Only four of the leading banks are foreign linked – the fifth (CIMB Niaga), sixth (Danamon, part-owned by the Development Bank of Singapore, DBS), eighth (Permata, linked to Standard Chartered) and ninth (Bank International Indonesia, part-owned by Maybank) by value of loans outstanding in May 2012. The market dominance of the four largest banks, three of which are state-owned, is entrenched, although CIMB Niaga trails Bank Negara Indonesia (BNI) closely. This entrenched position has allowed them to invest more heavily in expanding their geographical reach and scope of operations. Ratings agency Fitch has consistently noted the loss-absorption buffers of the leading Indonesian banks, which it argues would be able to absorb a significant rise in non-performing loan (NPL) ratios in coming years. Yet as competition from increasingly aggressive foreign players heats up, market leaders will need to control costs as they expand towards the mass market to remain competitive.
BANK MANDIRI: Established as part of the government’s intervention and reform of the banking sector following the Asian financial crisis in 1998, Bank Mandiri remains 60% owned by the government despite being listed on the Indonesian Stock Exchange (IDX) in 2003. Traditionally focused on wholesale banking, given its position as a state development bank and with a dominant share of the large corporate market, the lender has gradually expanded into retail and micro-finance, with over 8m customers. It has also expanded with subsidiaries in stock-broking, mutual funds, sharia-compliant banking and insurance. The bank operated 1548 branches and 8996 ATMs in May 2012, an extensive network that has allowed it to leverage higher transaction revenue from credit cards and remittances, which account for a third of its revenue. With roughly 13% of the sector’s assets (Rp588trn, or $58.8bn, in September 2012), 12.6% of loans and 12.7% of deposits, Mandiri remains by far the leading force in the market.
The bank’s returns on equity (ROE) has remained in the industry’s top tier, averaging 20.7% in the year to October 2012, although it is still under below the industry’s weighted average of 22.2%, according data from to the ratings agency AM Best. “THE PEOPLE’S BANK”: The second-largest lender, also state-owned with a government share of 57%, is Bank Rakyat Indonesia (BRI) – known as “the people’s bank”. Originally established in 1895, nationalised in 1950 and with 30% of its shares listed on IDX in 2003, BRI has expanded its focus from micro and rural banking towards small and medium-sized enterprises (SMEs), state-owned enterprises and the mass market in recent years, although micro and payroll loans continued to account for over half its loan book in 2011. The bank developed a decentralised network of rural units in the 1970s, which have contributed to its identity as a rural bank specialised in microfinance, with the largest reach. Although it operates only 1080 branches and 8836 ATMs, the lender has the biggest geographical reach with its 4051 “BRI units”, which are located in small rural communities and are dedicated to micro-banking. It counted 30m depositors and 2.4m borrowers in 2011. With Rp483trn ($48.3bn) in assets in September 2012, 12.5% of loans and 12.4% of deposits, the bank’s traditional market has been in microfinance and rural areas. The lender’s ROE has led the industry consistently in recent years, reaching 28.9% in the year to October 2012, and the bank’s extensive reach presents strong prospects for growing fee-based income.
BANK CENTRAL ASIA (BCA): The agro-industrial conglomerate Salim Group originally established the largest private-sector bank, BCA, in 1957. Nationalised following the Asian financial crisis, the lender was sold off in 2002 to a venture by the US-based hedge fund Farindo Investment (controlled by the Hartono family, owners of cigarette producer Djarum), which still owns 45.13% of the bank. With Rp427trn ($42.7bn) in assets as of September 2012, BCA is the third-largest lender on the market, with 8.8% of loans and 11.6% of deposits, operating 946 branches and 8341 ATMs. Its traditional market has been ethnic-Chinese Indonesians, who still account for around 60% of its clients, but it has successfully expanded to the mass market. Its share of the wholesale segment has dropped consistently since 2008, now accounting for a third of loans, while its lending to retail, SMEs and the micro segment has grown consistently, with total consumer lending rising 36% in 2011. Controlling the country’s largest base of cards and a closed clearing and settlement system, BCA has grown into the dominant player in transaction banking with 32-35% market share, according to DBS in October 2012. Staging the most dramatic turnaround since the crisis, BCA has achieved the lowest NPL ratio in the industry, at around 0.6%, while its cost of funding is the lowest in the industry at 2.5%, given that its share of current-account-savings-account (CASA) funding is the sector’s highest, at 75%, according to DBS figures. With subsidiaries in general insurance and mutual funds, the bank has expanded by acquiring a bank and restructuring it into a sharia-compliant lender in 2009, buying a stock broker in 2011 and it intends to buy a life insurer in the coming year. The bank achieved the second-highest ROE of leading banks, at 25.2% in the year to October 2012.
BNI: The last member of the leading quartet is BNI – the first state-owned lender, established in 1946. Still 60% held by the government and the first state-owned bank to list on the stock exchange in 1996, BNI has develop a strong edge in corporate and infrastructure loans, which account for around 35% of its loan book, as well as SMEs, which account for another 37%. With assets of Rp310trn ($31bn) as of September 2012, the lender holds a 7% share of loans and 7.8% of deposits. While it has remained relatively less profitable than its peers, with ROE of 16.1% in the year to October 2012, BNI has managed to reduce its cost of funding somewhat from 3.5% in 2011 to 3% in the first half of 2012, according to AM Best. While BNI appears as the most vulnerable to competition from smaller but more aggressive foreign-linked banks, it still has considerable reach, with 934 branches and 6368 ATMs and subsidiaries in securities, life insurance, sharia-compliant banking and leasing. The fourth-largest lender has made a push to attract Japanese clients, concluding cooperation agreements with 42 Japanese banks. It has sold a 25% stake in its securities subsidiary to a Japanese broker in April 2011 and in 2012 was considering selling a 25% stake in its life insurance subsidiary to Japanese insurers.
BANK CIMB NIAGA: In fifth place and the largest foreign bank, Bank CIMB Niaga is 77.24% owned by the Malaysian lender that is owned by the country’s public investment fund, Khazanah Nasional. The bank is a product of a 2007 merger between Bank Niaga, 64% acquired by CIMB in 2002, and Bank Lippo, of which Khazanah held 87.5%, which was done to comply with the single presence policy requiring investors to consolidate their holdings under one banking licence. With assets of Rp191trn ($19.1bn) in September 2012, CIMB has a 5.4% share of loans and 4.6% of deposits. Having aggressively expanded its sharia-banking division, the lender has carved out a leading position in this segment and derives most of its fee revenue from bancassurance relationships, leveraging its 627 branches and 1749 ATMs as of May 2012. Focusing on more profitable segments from automotive loans to credit cards rather than lower-margin mortgages, the bank’s loan growth was below industry average in 2011 at 20% year-on-year (y-o-y), yet its net interest margin of between 5.5% and 5.6% has proved resilient as its share of CASA has grown faster than the industry average.
SMALL, BUT MIGHTY: The smaller five among the top 10 are dominated by joint ventures with foreign banks, which have expanded their retail lending significantly and moved closer to the 100% loan-to-deposit ratio (LDR) mark and away from reliance on wholesale lending. “Foreign and joint-venture banks are more aggressive than domestic banks in their lending growth, with a number exceeding 100% LDR,” Damayanti told OBG. “Bank Indonesia (BI) is now pushing them to raise more capital.” A new draft bill, under consideration by parliament in late January 2013, would also require all these foreign banks to convert into local, or "PT", institutions, in order to continue operations.
BANK DANAMON: The sixth-largest lender, Bank Danamon, has been at the centre of controversy in 2012 as DBS moved to acquire a majority stake in the bank with plans to merge DBS’s full Indonesian subsidiary with Danamon. Singapore’s public investment vehicle Temasek, majority owner of DBS, unveiled plans in the first quarter of 2012 to sell its 67.37% stake in Danamon to DBS, which would then make a cash-takeover bid for the remaining shares (valuing Danamon at S$9.1bn) before consolidating its two banks under the Danamon licence in line with the single presence policy. Originally established in 1956, Danamon became one of the first foreign-exchange banks following wide-ranging reforms in 1988 and has established a niche, with 20% of its loans now to self-employed entrepreneurs. It has expanded into the mass market, through its subsidiary Adira Finance, with 40% of its loan book to two- and four-wheel vehicles as of May 2012, making it the second-largest auto lender. Its assets of Rp150trn ($15bn) would exceed CIMB Niaga’s following the merger. While the takeover has been delayed by the issuance of new ownership rules, bankers expect the deal to be successful in 2013.
BANK PAN INDONESIA (PANIN BANK): The second-largest majority family-owned bank is Panin Bank, with assets of Rp142trn ($14.2bn) in September 2012, 3.4% of loans and 3.1% of deposits, a higher share than Danamon. With subsidiaries in sharia-compliant banking and two in multifinance, the lender has focused on the SME and mid-consumer segments (with SMEs accounting for 40% of loans) through its 450 branches and 1190 ATMs. Held 45.94% by Panin Financial, a vehicle representing two families including the founders Gunawan, the bank is also backed by Australia and New Zealand Bank, which holds 38.82%, and has a mere 15.24% free float. It sustained its expansion throughout 2012, with assets growing 26% y-o-y by the third quarter, while its NPL ratio went to 1.64%. While its net interest margins narrowed below the sector’s average to 4.18% in the third quarter of 2011, the bank rebalanced its deposit base towards CASA, which accounted for 60% of third-quarter deposits. The lender raised Rp4trn ($400m) in five- and seven-year tenor bonds in late 2012.
PERMATA BANK: The eighth lender by size of assets is Permata Bank, with Standard Chartered Bank and automotive conglomerate Astra International each controlling a 45% stake. With assets of Rp115trn ($11.5bn) in September 2012, a 3.2% share of lending and 2.6% of deposits, the bank will likely hold steady, but its Rp700bn ($70m) bond issue in June 2012 and Rp1.8trn ($180m) issue in December will allow it to sustain loan growth projected at 20% y-o-y for 2012 as a whole.
BANK INTERNASIONAL INDONESIA: Bank Internasional Indonesia, 97% held by Malayan Banking ( Maybank) group since 2008, when it acquired the stake from Temasek, is the ninth-largest bank with Rp106trn ($10.6bn) in assets, 2.8% of loans and 2.5% of deposits. While the lender is key to Maybank’s regional growth aspirations, the Malaysian group has been looking to dispose of 20% of its stake since January 2012 to comply with BI’s 80% cap on the bank’s stake.
BANK TABUNGAN NEGARA (BTN): The final top-tier bank, BTN, is the state-owned mortgage lender with Rp99trn ($9.9bn) in assets, a 2.7% share of loans and 2.2% of deposits. The government reduced its stake in the lender from 71.9% to 60% in November 2012 with a secondary rights issue on IDX, which will raise its capital adequacy ratio from 15.6% in 2012 to 19% by 2016. Its 204 branches and 700 ATMs give it a more limited reach than its competitors, but it has a significant edge in low- and mid-income mortgages, which accounted for 86% of its loan book in the third quarter of 2012, supported loan growth of 29% y-o-y in that quarter.
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