A couple of years ago, PricewaterhouseCoopers International predicted that by 2050, the size of the Indonesian banking sector could rival that of France or Italy, while returns could be considerably higher.
Indonesia’s growing middle class, favorable interest rate environment, and the high profit margin for banks due to their concentration on consumer and retail banking certainly suggest a very bright future for the banking industry.
In its most recent assessment, rating agency Moody’s Investors Service said in December that the outlook for the sector remained stable in contrast to its neighbors. Beatrice Woo, a Moody’s Vice-President, said: “We expect the [Indonesian] banks’ positive credit attributes such as high loan growth, wide interest margins and low provisioning costs owing to good asset quality to continue in the next 12 to 18 months and sustain the system’s resilience.”
Darmin Nasution, Governor of Bank Indonesia, attributes the relative ease with which the country’s financial system weathered recent global turbulences to action taken since the Asian financial crisis of 1997-98. “This goes back to more than a decade of repairs and improvement since the Asian crisis which has made our financial system, including the banking sector, more resilient and able to absorb instability risk.”
The stability of the banks today is indicated by a capital adequacy ratio securely above the minimum level—reaching 16% at the end of 2011—and gross non-performing loans managed comfortably at 3%.
Milan Zavadjil, the IMF’s Senior Resident Representative in Indonesia, points out that while growth in the most advanced countries has been falling, Indonesia has been outpaced only by China and India. “I think Indonesia is the only country that saw its public debt compared to GDP fall. In a world where debt is the problem, the Indonesian story really differentiates it from much of the rest of the world.”
Zulkifli Zaini, President Director of Bank Mandiri, Indonesia’s largest bank by assets, loans and deposits, says Indonesia’s prudent fiscal policy has given the banks “a strong growth opportunity”.
Like other Indonesian banks, state-owned Bank Mandiri has been expanding into a domestic market that still has plenty of potential for growth; about 40% of Indonesia's huge population of 240 million has yet to open a bank account.
A decade ago the bank had virtually no presence in retail banking. Now it has more than 1,500 branches spread all over Indonesia, almost 9,000 ATMs and 100,000 EDCs (electronic data captures). “We want to be dominant in credit cards, mortgages and business banking as well as micro financing,” says Zulkifli Zaini.
The bank is committed to expanding its loan portfolio, which grew by more than 25% last year. “It appears high, compared to banks in other countries, but we believe we increased our loan book prudently. In 2012 the government is making a concerted effort to push infrastructure development, and we think it is possible for Bank Mandiri to take part in lending to finance infrastructure.”
In addition to supporting economic development at home, Bank Mandiri is expanding its business to allow it to compete in the regional market. It aims to become one of the top five regional banks by 2014.
(Source: World Folio)