Banking
From The Report: Indonesia 2014
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Banking remains a highly profitable sector in Indonesia despite being limited in its reach. Leading banks’ average profits were the highest amongst major economies in 2012, according to Bloomberg data, a remarkable feat in an era of falling bank profits globally. Credit plays a modest role in the Indonesian economy, with loans amounting to 32.85% of GDP. This is considerably lower than in many neighbouring countries such as Malaysia (113.5%) and China (130%). Total credit has been growing rapidly in recent years, with a 24.4% increase in 2011, 23.9% in 2012 and 20.7% growth in the first half of 2013. Bank profits have remained consistently high, with a return-on-assets ratio of 3.09% by October 2013, which is more than double the regional average. Although rapid growth has put some strain on the banking sector, Indonesian banks continue to be well capitalised, with a capital adequacy ratio of 18.48% in October 2013, well above the central bank’s floor. Following over a decade of high profitability and fragmentation, the banking sector faces the twin challenges of increasing intermediation with the real economy and gradually lowering margins. As larger, more efficient banks capitalise on their positions, smaller lenders will need to innovate and study potential mergers and acquisitions to sustain their positions. Over the medium term, as the banking system faces increased ASEAN-wide competition, Indonesian banks will need to work at improving their efficiency.
This chapter contains a banking viewpoint from Agus D W Martowardojo, Governor, Bank Indonesia; and an interview with Alan Richards, CEO, HSBC Indonesia.

Articles from this Chapter

Overview

Strong fundamentals: The sector is well positioned to experience sustained growth
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Banking remains a highly profitable sector in Indonesia despite being limited in its reach. Leading banks’ average profits were the highest amongst major economies in 2012, according to Bloomberg data, a remarkable feat in an era of falling bank profits globally. Credit and savings remain marginal, however, with loans accounting for 32.85% of GDP and deposits 39.13% by December 2012, according to the central bank, Bank Indonesia (BI). Although lending has grown by an average of 20% annually in…

Analysis

Supporting SMEs: Efforts are being made to improve access for smaller businesses
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Accounting for some 91% of employment, 57% of GDP and 20% of exports by value in 2012, according to Bank Indonesia (BI) statistics, micro, small and medium-sized enterprises (MSMEs) form the backbone of Indonesia’s economy. Yet the predominantly informal nature of such companies has constrained their access to funding and scope for growth. Although lending to the segment accounted for roughly 18.63% of all outstanding loans by October 2013, aggregate figures obscure significant divergences between…

Viewpoint

Agus D W Martowardojo, Governor, Bank Indonesia, on how to encourage development in middle- and low-income countries
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Infrastructure provision remains a big challenge, from project design and prioritisation through to financing and delivery. There is a need to boost investment in infrastructure to raise growth prospects, both in the shortterm to insulate against a global slowing of growth and for the long-term benefits of boosting the supply capacity of our economies. Infrastructure investment can also help channel excess global savings – a more productive pursuit than short-term asset price speculation. To support…

Interview

Alan Richards, CEO, HSBC Indonesia: Interview
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Interview:Alan Richards What is your forecast for Indonesia’s banking sector, given the revised economic outlook? How will it impact lending over the next 18 months? ALAN RICHARDS: With GDP forecasts suggesting a slowdown in the economy – with Bank Indonesia (BI), the central bank, putting it at 5.5-5.8% – and interest rates still rising to stave off inflationary pressures, it is clear that BI is focused on financial stability. As a consequence, BI is targeting a slowdown in balance…

Analysis

Alternate channel growth: Mobile payment systems promise to expand the sector’s reach
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As banks seek to increase efficiency while expanding their reach, Bank Indonesia’s (BI) push towards mobile payments systems holds potential in a country whose under-banked population is spread over some 6000 inhabited islands and is largely rural. Mobile payments hold the promise of cutting costs, expanding access and driving banks’ fee revenue. While telecoms operators’ e-wallet initiatives have met limited success, new guidelines in early 2013 hold promise to expand reach through networks…