Interview: Gatot Suwondo
To what extent is lending still considered conservative? Are we likely to see loan-to-deposit ratios (LDRs) increase over the medium term?
GATOT SUWONDO: Even though more than a decade has passed since the financial crisis of 1998, the banking industry remains prudent when it comes to lending. Our LDR is conservative compared to other countries in the region. However, most banks, including us, derive a significant portion of revenue from loan products and most of the industry is pursuing a strategy of trying to increase loan portfolios.
That said, financial institutions cannot be indiscriminate in choosing to lend money. We feel there are a number of sectors which offer greater returns and more security. For instance, industry has tremendous development potential. Risk for firms in this sector is often easier to measure by identifying and studying cycles and trends. We also feel the country’s further industrialisation will occur not only in Java, but in many other provinces. Therefore, it will be extremely important for the banking sector to identify what the leading industrial segments in each region are going to become over the next five years.
Additionally, over the medium term, there will be ample opportunities for the banking community to provide infrastructure financing. Currently, most projects are funded by large foreign intermediary banks. However, if a local bank has the expertise and ability to analyse a project’s viability, then they bear a level of responsibility to ensure the correct projects are being developed. This applies not only in Java, but in Indonesia’s eastern regions as well.
It is essential that the government aggressively address a variety of infrastructure-related issues. If the state can successfully assemble projects with clear and bankable terms, we will happily provide the necessary funds. I think it would be safe to say that, so long as macro-economic fundamentals remain strong, Indonesian banks will begin to increase their LDRs in order to capitalise on the economic growth of the country.
As per capita income climbs and consumer needs become more sophisticated, will customers increasingly choose to work with foreign banks?
SUWONDO: We are confident local banks will continue to evolve and mature. I believe that, as the sector progresses, more customers will opt to bank with domestic institutions over foreign ones. A major factor will be if banks can begin implementing some more customer-oriented approaches, rather than product-based ones.
Before, the industry was more inclined to develop products and force them on customers. Nowadays, it is essential one identifies the customer’s specific needs and then develops products to meet those needs.
The strategy of foreign banks is to have a presence in the country while the industry evolves. They can offer more sophisticated products and have better access to international markets. However, domestic banks differentiate themselves by giving clients personalised service. In the past, it was common to suffer bureaucratic problems when dealing with state banks, but that is no longer the case. We now have the dynamism and agility of foreign banks, complemented by our understanding of local clients’ culture and needs.
How can banks capitalise on the growth of the small and medium-sized enterprise (SME) sector? How does BNI approach lending to this sector?
SUWONDO: We used to analyse SMEs by assessing only the maximum loan they could receive. We would consider both small companies (which can receive up to $1m in loans), and medium ones (credit between $10 and $15m). I suppose the concept of small and medium companies varies from bank to bank. However, I think overall there is too much emphasis placed on size.
Over time, we have altered our approach to lending.
We now try to focus on the leading industry sectors in Indonesia and participating in financing companies in these sectors, from upstream to downstream. One example is the agro-based industry, where we encourage lending because we find this sector attractive.
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