Major banks in Indonesia expect loan disbursement to accelerate this year driven by a rising demand in the trading and construction sectors, Erwin Rijanto, Bank Indonesia's deputy governor said on Monday (13/02). (JG Photo/ Dhana Kencana)

Management Shake-Up at Indonesia’s Top Banks as 2015 Unfolds Into a Tough Year

BY :MUHAMAD AL AZHARI & TABITA DIELA

MARCH 01, 2015

Jakarta. Some of Indonesia’s top lenders are heading for a management shake-up to replace existing leaders at a time when the sector is overshadowed by challenges, including falling profitability, slow economic growth and currency depreciation.

Some banks have suffered as a result of the tougher economic conditions prevailing since last year, while others managed to weather the difficulties during 2014, maintaining high margins as they trimmed costs.

This year, there is the risk of tighter liquidity and rupiah volatility on the back of possible capital outflows when the United States Federal Reserve raises its interest rates ­— a move predicted by analysts to take place in the middle of the year.

Meanwhile, on the domestic side, expectations of slower growth also pose the risk of weaker loan demand and higher non-performing loans.

Bankers in Indonesia admit that 2014 was “challenging” while this year isn’t likely to be any easier. Also complicating the matters in 2015 are changes likely to occur at the top of a number of banks, while others will leave their current bosses in place in the hope their experience will help them at least conserve profitability.

Wanted: Bank CEOs

Indonesia is home to 119 commercial banks, but about 70 percent of the more than Rp 5,000 trillion ($385 billion) worth of total banking assets is controlled by just 10 lenders. And the top three — Bank Rakyat Indonesia (BRI), Bank Negara Indonesia (BNI) and Bank CIMB Niaga — are expected to get new leaders.

Another three — Bank Danamon, Bank Permata and Bank Pan Indonesia (Bank Panin) — have either just replaced their chief executives or announced successors. The remaining four will stay with their current top officials.

BRI announced in January that it has appointed Asmawi Syam as acting president director, replacing Sofyan Basir, who was moved to head state power utility PLN.  Shareholders at the bank are scheduled to hold a meeting in March to discuss, among other points, the appointment of a permanent CEO.

“Sofyan has left BRI with a sound legacy. The fundamentals are good. The bank’s performance has beaten Bank Mandiri and our challenge in the future is to introduce BRI to the international [banking] sector,” said Enny Sri Hartati, an economist with the Institute for Development of Economics and Finance (Indef), as quoted by Metrotvnews.com.

She suggested for the government, the controlling shareholder, to select a new leader from the ranks of the bank’s own senior personnel.

“Looking at BRI’s current condition, there are some [officials] who have the capability [to act as CEO]. It only needs to be seen whether they have the vision and mission to take BRI international,” said Enny.

The government has yet to announce its candidate BRI chief.

The lender posted solid profit growth last year. Net income rose 13.6 percent toRp 24.4 trillion, thanks to a 16.6 percent increase in net interest income to Rp 51.44 trillion. The second biggest lender by asset value maintained its status as the king of micro-lending in Indonesia.

Still, loan growth proved to be disappointing, landing lower than the average growth projected by Bank Indonesia for 2014.

BRI’s outstanding loans grew 14 percent last year to Rp 495.1 trillion, below the 15 percent to 17 percent central bank projection for the year’s average loan growth. And while the bank maintained a strong net interest margin of 8.51 percent, it saw gross non-performing loans (NPL) rise by 14 basis points to 1.69 percent.

Still, none of this rendered BRI’s stocks less attractive. In an equity research note released on Jan. 29, Valbury Asia Securities said it maintained its “buy” recommendation for BRI, with a target price steady at Rp12,500 per share. BRI’s shares closed at Rp12,475 on Feb. 8 at the Indonesia Stock Exchange (IDX).

Another major lender expecting a new leader is state-controlled BNI. President director Gatot Suwondo wraps up his term after leading the bank since February 2008. He says his successor should be chosen from the lender’s current line-up of directors.

Gatot has presented the government with a list of names to replace him, but declined to reveal them.

“If this was my company, I would want an insider to be the president director so that there is continuity,” he said.

The media has dubbed Gatot the “savior” who pulled BNI out of a financial crisis by restructuring its cost structure and funding costs.

BNI, the country’s fourth largest lender by assets, booked a solid 19 percent rise in net income to Rp 10.8 trillion last year, thanks to strong net interest income growth. Outstanding loans grew 11 percent to Rp 277.6 trillion, also lower than the central bank’s 2014 projection for national loan growth.

Arwin calls it a day

Next in line for a new leader is Bank CIMB Niaga, the local unit of Malaysia’s CIMB Group. President director Arwin Rasyid filed his resignation last year after leading the bank since November 2008. Arwin will reportedly step down from his post in April.

“I have [been president director] for two periods and it was extended a year, so it will end after the shareholders’ meeting in April,” he said.

Lo Pain Khing, CIMB Niaga’s deputy president director, notified the IDX of Arwin’s resignation in a filing on Feb. 6, which also confirmed the time line.

Indonesia’s fifth-largest lender by assets posted a 46 percent decline in net profit in 2014 as inflation dragged on interest income growth and the slowing economy increased the number of bad loans, forcing the lender to put aside higher provisions. The bank posted Rp 2.3 trillion in consolidated net income last year, compared to Rp 4.3 trillion in 2013.

Arwin said has conceded the lender last year faced challenges stemming from a pick-up in inflation and higher interest rates, which raised funding costs. A fluctuating exchange rate and weakening commodity prices also undermined CIMB Niaga’s asset quality, he added.

Loans at CIMB Niaga rose 12 percent to Rp176.4 trillion in 2014. Gross non-performing loans rose to 3.9 percent from 2.2 percent in 2013.

Neither Bank CIMB Niaga nor its parent company in Malaysia have announced a nominee for the bank’s top post.

Settling in

While BRI, BNI and CIMB Niaga are expecting new leaders, three rivals — Bank Danamon, Bank Permata and Bank Panin — changed or announced their future chiefs last year.

Bank Danamon, the country’s sixth-largest lender, announced in December that it will have a new president director soon as current chief Henry Ho was set to retire. Sng Seow Wah, a banker with more than 26 years experience at several well-respected regional and international banks, has been appointed to replace Ho.

Shareholders of Bank Danamon approved Sng’s appointment on Friday. Sng was the group chief executive and director of Alliance Bank Malaysia and Alliance Financial Group, which he joined in 2010.

Sng is set to face a number of challenges at Danamon as the lender is currently grappling with falling profitability. The bank saw its profit decline by 36 percent to Rp 2.6 trillion last year, a massive drop from Rp 4 trillion in 2013.

Chief financial officer Vera Eve Lim attributes the profit slump to a regulatory change in accounting for automotive insurers imposed by the Financial Services Authority (OJK) last year. Still, even discounting the regulatory change, the lender’s net income would have been Rp3.54 trillion, 15 percent lower than in 2013.

The country’s economic slowdown and a high interest-rate environment dragged Bank Danamon’s lending growth down last year, which in turn also affected the lender’s profitability, said Vera. In a statement sent to GlobeAsia Friday, Sng voiced his optimism over the sector.

“The Indonesian banking industry still offers various opportunities for growth, particularly in the micro, small and medium enterprises sector,” Sng wrote. “I am looking forward to expand Danamon’s presence in the industry and its contribution to this growing economy.”

At Bank Permata, the seventh largest lender by assets, a new chief is just settling in. Shareholders approved the appointment of Roy Arman Arfandy last November for president director, replacing David Fletcher, who had led the bank since 2009.

Roy joined Bank Permata in 2007 and has since served in various strategic positions, including vice president director, director for wholesale banking, head of client relationships and head of credit services.

Bank Permata is a joint venture between British lender Standard Chartered Bank and Indonesia’s automotive giant Astra International. Its bottom-line performance last year was less than impressive, with net income dropping 9.65 percent to Rp 1.59 trillion.

“2014 was challenging as the banking industry faced higher cost of funds and slower business growth as a result of inflationary pressures and weakening of the rupiah,” said Sandeep Jain, finance director of Bank Permata. However despite last year’s headwinds, “Permata remained healthy, well-capitalized and liquid.”

New CEO Roy was upbeat about 2015, saying: “We remain cautiously optimistic in 2015 as the banking industry, regulatory landscape and technology continue to change and grow. Yet, by sticking to our strategy, remaining true to our values and by being innovative and adaptive, I am confident that Permata is well-positioned to continue to grow even stronger.”

Meanwhile Bank Panin, the nation’s eighth largest lender by assets, also made a bold move last year. It replaced its long-time chief Rostian Sjamsudin with Herwidayatmo, a top official from a rival bank.

Rostian, who had been serving as the president director at the family-controlled lender since June 1994, can finally enjoy his retirement after shareholders approved the appointment of Herwidayatmo, former vice president director of Bank Permata, as CEO last September.

The lender, one of the oldest in Indonesia, is controlled by Mu’min Ali Gunawan, a tycoon who owns a diversified range of business, interests, including insurance and property.

Panin was one of the major banks to report profit growth, though at a modest rate. The lender booked profit of Rp 2.36 trillion last year, up 4 percent from 2013, with net interest income moving up only 2 percent  to Rp 6.21 trillion.

The old guard

The remaining four of the top 10 lenders still have members of the old guard to deal with their respective challenges.

Bank Mandiri, the biggest lender by assets, got a new chief in 2013, when Budi Gunadi Sadikin was appointed to lead the bank until 2016.

Budi, the managing director of micro and  retail banking at Mandiri from 2006 to 2013, helped the lender sail through a difficult 2014.

Net profit grew by a respectable 9.2 percent on a solid net interest margin, but Budi admitted that it was not all smooth sailing.

“It was a tough year for the banking industry in 2014 and while 2015 will be less tough, it won’t be as good as 2011,” he told reporters in Jakarta on Feb. 11.

Bank Internasional Indonesia, which is controlled by Malaysia’s biggest bank, Malayan Banking (Maybank), changed its chief in September 2013. Shareholders of the bank appointed Taswin Zakaria, a seasoned investment banker who had served as president director of state-owned Indonesia Infrastructure Finance from 2010 to 2011, to replace Khairussaleh Ramli.

Taswin will have his work cut out for him in reviving the lender’s profitability. Profit of the country’s ninth-biggest lender by assets fell by more than half last year due to rising interest costs and slowing loan expansion. BII booked consolidated net income of Rp 699 billion in 2014, compared to Rp 1.54 trillion in 2013, according to a statement from the lender.

Loans expanded just 4.2 percent to Rp 106.3 trillion, while gross non-performing loans increased to 2.2 percent of total lending, up from 2.1 percent in 2013.

State lender Bank Tabungan Negara (BTN) and family-controlled Bank Central Asia have the longest-serving chiefs out of the top 10. Veteran banker Maryono, who was appointed to head BTN in 2012, is slated to remain in his post until 2017.

BTN has yet to announce its full-year earnings for 2014, but January-September figures have already signaled that profit likely tumbled.

In the first nine months of last year, profit dropped 29 percent as the lender, which concentrates on home loans, suffered from the negative impact of tight liquidity. Net income fell to Rp 755 billion in the January-September period from Rp 1.06 trillion in the same period in 2013.

The inauguration of President Joko Widodo and his administration has given hope that BTN can soon expect better times. As the biggest home lender in Indonesia, analysts say it should benefit from the government’s plan to build one million houses this year to reduce the housing backlog of as many as 15 million units needed by Indonesian families.

Still, some questions have been raised over the plan to build so many dwellings at a time when property developers have been struggling with high interest rates, slowing economic growth and tougher government regulations.

Last in the big league is Indonesian banking giant BCA, watched over by president director Jahja Setiaatmadja, who has been in charge of the lender since May 2011. BCA, known as a bank strong in deposit products, has also yet to reveal its 2014 full-year earnings at the time of writing, but its January-September performance suggests the bank has done well.

Net income at BCA, the third-biggest lender by assets in the country, rose 17.7 percent to Rp12.2 trillion in the first nine months of 2014, compared to the same period in 2013.

Still, in a note released on Jan. 25, JP Morgan highlighted the fact that the bank makes most of its money in the form of deposit spreads. These margins are increasingly coming under pressure and it “increases the need for the bank to change its main strategy, including to boost its loan-to-deposit ratio and to boost its non-interest income,” the investment bank said.

While the top 10 banks in Indonesia are each facing their unique challenges, Angga Aditya Assaf, an analyst with Trimegah Securities, hasn’t abandoned his optimism about the sector’s prospects.

“We think that the worst will pass as we overlook a better growth period this year, following some policies to be implemented by the government,” he said on Jan. 22.

He mentioned prospects of strong loan demand for loans to infrastructure, maritime, and agriculture sectors. President Joko has pledged that these three sectors will become the key focus of development under his administration.

But Angga didn’t deny that risks still linger, saying: “Risks to our call include a possible Fed fund rate hike in the second half of 2015; a delay in the implementation of the government’s infrastructure and maritime programs; adverse rise in industry’s non-performing loans and slower industry deposit growth.”

GlobeAsia

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