WHO says banking has become boring again? For Malaysian banks, it is back to basics but the playground has indeed been enlarged.
Those with foresight have gone regional with Indonesia as the emerging star market. In fact, Malaysian banks with a strong Indonesian presence are expected to announce increasing profit contributions.
“All the big names in global banking are here,’’ a Malaysian bank official based in Jakarta told StarBiz recently. “This is where the next banking battleground will be.’’
That sounds far from boring. Malaysian banks - MALAYAN BANKING BHD (Maybank) and CIMB Bhd which have stakes in Bank Internasional Indonesia (BII) and PT Bank Niaga respectively - will have to fight neck-to-neck with big local names like PT Bank Mandiri, PT Bank Central Asia (BCA), PT Bank Negara Indonesia (BNI), PT Bank Rakyat Indonesia (BRI) and PT Bank Danamon Indonesia.
The branch network of their Indonesian rivals may dwarf that of BII and Niaga with just 231 and 240 branches respectively but the excitement over the fight for the Indonesian wallet is just beginning.
Towering above BII and Niaga are the branch networks of Mandiri (924); BCA (791); BNI (971); BRI (4,900) and Danamon (1,107) but Malaysian bankers take comfort in the fact that the under-banked market in Indonesia offers tremendous medium to long term potential.
In recent interviews, Maybank CEO Datuk Seri Abdul Wahid Omar had highlighted that banking penetration in Indonesia was just 33% to gross domestic product and that banking margins were around 5.5% compared with 2.5% back home. The big push will not be just in conventional but also Islamic banking, in which Maybank has built up considerable strength.
Maybank Investment Bank CEO Mohammed Rashdan Yusof, in his aim to create a name in investment banking, saw the growth driver coming from Indonesia.
CIMB Group chief executive Datuk Seri Nazir Razak had also said in a recent interview: “The sharpest growth will come from other markets.’ Describing the environment in Indonesia as high growth, Nazir had said: “The potential there for us is huge.’’
The first quarter results for the Bumiputra-Commerce Holdings Bhd (BCHB) group indicated a significant turnaround for CIMB Niaga which reported a net profit of 263 billion rupiah (RM89.75mil) compared with a loss of 288 billion rupiah in the previous quarter due to merger costs and higher provisions.
The parent BCHB’s net profit had surged 15% to RM613.94mil during the period, from RM535.33mil in the corresponding quarter of 2008, largely due to improved performance from most of its divisions and a one-off gain of RM26mil from merger and acquisition-related ctivities.
In the case of Maybank’s investment in BII, profitability in the true sense of the word may take some time to be enjoyed.
BII did earn a net profit of RM170mil last year. However, there are interest charges of around RM540mil based on a 6% coupon rate on the RM9.1bil of hybrid securities issued. Assuming a 15% long-term return on investment (ROI) of RM8.6bil, there is already a shortfall of RM1bil compared with the RM170mil it is getting. Maybank’s new management at BII is expected to set ROI targets at year-end.
Nevertheless, the challenge can best be described as tough but certainly not boring!
Latest economic reports indicate that Indonesia’s economy grew at the fastest pace in South-East Asia, at 4% in the second quarter compared with 4.4% gain in the previous quarter.
In fact, it is not just Indonesia alone that is catching the eyes of Malaysian bankers who nowadays adopt an international outlook in their vision and strategies.
The risks will always be there and the board and management will have to make careful assessments, cautioned Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz.
“There are also opportunities in greater Asia and emerging economies in other parts of the world. Already, there exists close cooperation with regulators in the respective jurisdictions to ensure that the banking institutions that have foreign presence have the capacity to manage their risk exposure,’’ she had told StarBiz in a recent interview.
·Senior business editor Yap Leng Kuen finds that people who think positively will always see a rainbow somewhere. They may not make a huge pile of money but good enough to sustain.