Interview: Achmad Baiquni
How do you evaluate the performance of Indonesia’s banking sector in 2018?
ACHMAD BAIQUNI: Compared to other ASEAN markets, Indonesia is able to maintain double-digit growth, between 12-14%, in terms of lending. In fact, among the G20 nations, Indonesia is third only to China and India in terms of GDP growth. In view of the ongoing US-China trade dispute and the tightening of the US Federal Reserve, the Indonesian government is trying to minimise the impact of such external shocks. This is reflected by the fact that Indonesia has accounted for stable loan growth as well as a capital adequacy ratio of above 20%. One of the engines of loan growth has been the state-owned banks’ support of export-oriented small and medium-sized enterprises through export credit and non-cash loans such as letters of credit.
Moreover, as Rp5519trn ($391.3bn) is expected to be required to finance the government’s infrastructure ambitions under the National Medium-Term Development Plan, infrastructure project financing remains the number one priority for state-owned banks. However, financing for construction, and oil and gas projects also remains crucial in terms of lending.
With the government looking to boost value added in various industries’ downstream capacities, financing for plantations has also taken centre stage. The plantations sector is promising due to its high margins and the potential to utilise derivative products of crude palm oil, particularly biodiesel, domestically. Therefore, many banks now focus on corporate banking and select customers or industries, as well as looking to the supply chain as a way to expand their business.
In what ways are Indonesian banks looking to expand, both domestically and globally?
BAIQUNI: The biggest opportunities for Indonesian banks can be found domestically rather than regionally or globally. This is largely due to the country’s sheer market size and vast untapped potential in more remote areas. In other countries, most banks are more focused on remittance customers and are reluctant to open branches overseas as the margins would be too low.
However, global expansion would certainly be an option for Indonesian banks once they are more consolidated. The consolidation process is relatively slow due to a mismatch between bank owners’ high acquisition price demands and investors’ low capital injection benchmark. Although numerous state-owned banks have taken corporate action to acquire smaller banks and financial services players, it remains challenging to identify the right targets.
To what extent is financial technology (fintech) penetrating underserved markets, and where is there potential for further growth?
BAIQUNI: Indonesia currently boasts four unicorn companies and all major banks have established relationships with these players. BNI is the first Indonesian bank to launch a QR-code payment system that enables three sources of funding: credit card, debit card and electronic money. For now, the fintech sector is in its early stages and remains fragmented, but the required ecosystem is already in place.
Fintech is currently driven by the private sector, although the bulk of lending emanates from stateowned enterprises. In addition, fintech players are more concerned about companies’ market cap than actual revenues. Yet, aside from the new fintech frontier, the key to financial inclusion is a sophisticated digital banking portfolio. Another way for banks to tap underserved markets in remote areas is to use agents or micro-businesses to carry out deposits or cash withdrawals. The advantage is that a branch does not have to be established for customers to access basic services, while the appointed agent also sells food vouchers, cement or other goods. This will help banks penetrate underserved markets in the meantime, as it will take time for fintech to fully take off in Indonesia.
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