Interview: Batara Sianturi
How would you assess international investor appetite for Indonesian debt and equities in 2020?
BATARA SIANTURI: Since late January 2020 investors have taken a cautious stance towards emerging market assets due to concerns regarding the impact of Covid-19 on economic growth. We saw inflows into the bond market in January, but flow has since reversed, with year-todate outflows of Rp140trn ($9.9bn) as of May 2020. With the current economic uncertainties and weak risk sentiment, securing inflows into emerging markets will be challenging – especially for those that run both current account and fiscal account deficits.
To what extent is digital technology transforming retail and corporate services?
SIANTURI: The future of the country’s digital economy will be a seamless network, encompassing business-to-business (B2B) to consumer-to-consumer (C2C) services. Ride-hailing apps and e-commerce platforms such as Gojek and Tokopedia already have suppliers and connect with their end users. On the C2C side, users manage e-wallets, which can be topped up. A tech firm that introduces a B2B application programme interface also needs to do so on the business-to-consumer side. Every player involved – whether local or foreign – needs to realise that no single company can do everything. Banks have capital limitations, as well as a specific target segment. The segments that are not covered by a multinational like Citibank will be targeted by stateowned, local or provincial banks. The same applies to financial technology (fintech) players. At the end of the day, fintech firms and banks will collaborate and work towards increasing Indonesia’s banking penetration.
Covid-19 will undoubtedly accelerate digital adoption in Indonesia. This will happen not just in the realm of banking services but also in manufacturing, as well as in wholesale and retail trade. The acceleration of progress in the latter, in the form of e-commerce, will naturally stimulate progress in the adoption of digital payments.
In which ways will credit grow in the longer term?
SIANTURI: Companies from Asia invest heavily in Indonesia. These companies wish to invest new capital into Indonesia or open new businesses. Additionally, the US-China trade war saw higher tariffs placed on items manufactured in China, which led many companies to relocate some of their manufacturing centres to ASEAN markets. On a regional level, the challenge will be competing with countries such as Thailand and Vietnam. In terms of corporate loans, infrastructure projects are expected to spur growth. It has historically been difficult for commercial banks to finance greenfield projects due to long-term financing risks. However, under the second term of President Joko Widodo, better known as President Jokowi, numerous greenfield projects have turned or are set to turn into brownfield projects, and thereby become less risky to finance.
What is the outlook for non-performing loans (NPLs), and how can banks reduce risk in this area?
SIANTURI: While it is still too early to assess how much Covid-19 disruptions have impacted the banking sector, liquidity and capital ratios are in good shape. Although the decline in economic activity during the Covid-19 outbreak has affected nearly all businesses, micro-, small and medium-sized enterprises (MSMEs) have generally faced greater challenges than larger, more established corporates. This is in light of differences in the efficiency of operations, production costs, and the extent of diversification of customer bases and suppliers – as well as the availability of funding sources. A number of MSMEs across the industry have asked for a restructuring of their loans. There is regulatory forbearance from the authorities such that these restructured loans need not be classified as NPLs.
In a post-Covid-19 world, many business models could be rendered obsolete. Thus, some degree of consolidation within industries will be unavoidable. Banks may have to increase loan provisioning to anticipate this.
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