Datuk Khairussaleh Ramli (pic), president director of PT Bank Internasional Indonesia Tbk (BII). has been a career chief finance officer (CFO) but now has been given the big task of driving Maybank’s banking business in Indonesia. The following are excerpts of the interview with StarBizWeek.
Has it been hard to run a business?
It has been interesting. It’s been about learning a lot of things in the last 8-9 months, managing expectations with Indonesia being a high growth country. What keeps me going is knowing you can make a difference by changing and leading things to be better. The challenges are a lot but we have a fairly good set of young people who are excited. People here are quite passionate, so if you share with them your vision and direction, they will be with you.
As CFO of Maybank you knew how the business was run back home. How different is it here?
A lot of difference. Maybank is number one in Malaysia and people come to you. Here we are not, and I will put BII here as an attacker and as an aspirer.
There are many things to think about. First is our presence – a better presence so that people know we are here and for the long term.
We do a lot of CSR programmes so people understand and notice we are here. We have scholarships for one student in each of the 34 regions. We also have the Bali marathon. We had our first one this year and we are going to make this a yearly event based on our aim to be in the communities.
Second, it’s from a business angle. If you look at some of the banks, the spectrum of customer segment is so wide. It’s from micro which is different from consumer loans because of their characteristics, the normal consumer, retail SME, SME and the corporate.
So, we are still not in all the segments. We are not in micro. There are two parts in the micro segment which is the fastest growing segment. The regulator is pushing for more banks to focus on micro. If we don’t do that business, we will be left behind not just from the community perspective but in terms of our growth as well. It’s different characteristics and we need to build a presence in each region.
It is simpler in Malaysia. Here, with the different regions and 240 million people, you will see the biggest growth in terms of the rise in affluence.
What are the three top distinctions between Malaysia and Indonesia when it comes to banking?
One is growth. The growth rate, consumer spending, the growth rate in affluence and the rising middle class. That alone is huge. And the pace of that growth is fast.
Two is the lower income segment. In Malaysia, you don’t finance people who buy motorcycles. But here we do. There is a huge pocket of low-income segment that is not in Malaysia. You might have some micro in Malaysia but the scale is different and so are the opportunities.
On the bigger picture, as the country grows, it will need a lot of infrastructure. How can the government and the financial services industry support that growth? I think we are only seeing the beginning of that. But in Malaysia, that is fairly matured. Are there things you can duplicate in Indonesia?
I will categorise it differently. You must have local content, know what is happening on the ground. But in terms of best practices, policies, framework and infrastructure, that is something we can easily learn from Maybank like risk management. But that needs to be tailored to cater to the local requirement.
What have you shown as a long-term player in Indonesia?
Wearing a hat as a shareholder, we have put in additional money as capital. We have been opening branches. That is a big investment and a commitment. Investing in IT and people as well. Have you seen a notable increase in productivity or morale?
The attitude is getting better. I try to speak the language. It’s a journey, but to me it’s two ways. We need to demonstrate that there is value in whatever we have brought here. It’s not about control but value.
We implemented the front-end treasury system. They can see value because now we are able to see our position on a real-time basis. Last time we had to wait for a batch and could only see our positions at T+1.
We have also done work on risk management and our people here have seen the value. To me there is no issue as long as important things of creating value is done.
In terms of creating value, there is also cost involved. Is there a considerable amount of money that needs to be invested to the level you are happy with?
It’s not a major cost. We have to invest in IT and branches but we assess it from a business point of view, when we invest we expect a return as well. As long as the return is justified, the investment should be made.
Are you seeing the tangible improvements that make you believe that whatever long-term targets will be attained?
I’m optimistic. This is a journey and we put a programme to make sure there is visibility in terms of value creation. People need to see that but there are certain things BII will be an example to the Maybank group. It’s not just one way. One thing we have exported is our supply chain. We have a good business model for supply chain and indeed it’s being replicated for the group.
We will have a principal, which is normally a corporate customer who will have a supplier, distributor and buyer. We will link them all. We will have a customer base and a system that will interface with the customer’s system.
When you look at the strengths of BII, what gives you confidence you are ahead of the competition?
We have been strong in the affluent, high net worth, and the SME business where relationship is important. We want to build on that strength using relationship in that segment. In the last 2-3 years, SME has been the strongest growth for us. We want to keep that relationship.
When I came in, my tagline was to be the leading relationship bank in Indonesia, leveraging off our strength in that segment.
The other thing we want to stress on is being in the community. I think in Indonesia, you need to truly understand who is in your community. The community can be broad-based; it can be the supply chain community, the micro community. We may not be an expert in the micro segment but we want to work in that community. We want to work with a regional bank who understands the characteristics of the consumers and borrowers there instead of lending directly.
The top 4 have reacted to what foreign-owned banks are trying to do in Indonesia. Do you feel whatever expertise and advantages you have is getting neutralised by their actions?
I wouldn’t say neutralised. They have a huge advantage in the low cost of funds. That’s why we need to see how we can grow our low cost funding and at the same time supplement our growth with the higher yielding assets.
Scale is important. What is BII doing to get that?
On the lower segment, we will be opening branches and work with regional banks and the communities. In fact, we also have our 2 wheel outfit, WOM, which is more in the micro segment and they have more than 1 million customers which we can tap.
The other angle is working with customers who have point of sales throughout the country. How can we use travel agents, dealers for mobile phone top-ups to become our agents.
The other thing is e-channels. How can we use Internet banking, EDC terminals not just for payments but also for banking purposes? In fact, the regulator is also in the mood to promote branchless banking. Details have yet to come out but the framework can be more of e-channels and perhaps working with the partners for that, which is beneficial for people like us.
People prefer mobile banking rather than the Internet. For us, we want to see how we can use M2U here as well from the branding and functionality point of view as well. Once people are comfortable, then the potential can be huge.
What is the potential for Islamic finance in Indonesia?
It’s huge. I think in Malaysia, total assets that are Islamic as a total banking industry is already close to 20%. In Indonesia, it is only 4% and 95% of the population here is Muslim.
Syariah business is growing faster than conventional and one day when the various authorities can figure out how to put some incentives and framework like what Malaysia has done, I think then the growth will be even faster.
Is Indonesia pushing for syariah like what we did?
They are. I believe there will be more later, in particular, part of the other authorities. It cannot all be on the shoulders of the central bank. Like for tax breaks, the tax authorities have to come in.
In Indonesia, the requirement is to spin off the syariah business by 2013. Hopefully we will share with the regulators our success of the Malaysian model.
If the syariah business is spun off, that will require more capital?
Are you prepared for that?
We will cross the road with the details depending on what is adopted. Spin off is okay but the question is whether we can leverage off the infrastructure of the conventional business like what we have done in Malaysia.
If we have to replicate the infrastructure, then that’s something we will have to review.
Do you expect the progress of Islamic finance in Indonesia to mirror that of Malaysia?
Over time, it will grow better. It’s also about the industry players developing the industry together with the regulators.
What’s it going to take for BII to achieve a ROE of 17%?
Obviously we have to grow our assets, improve our non-interest income. As part of our transformation, there is also account planning on the corporate side, credit cards, banassurance etc.
Under the transformation programme, one of the things is to improve the productivity of the branches. Yes, we have been opening branches to have a footprint and presence but we want to make sure the productivity of each branch is at least the same with industry, if not higher.
We even have a programme of finding how every one to read off the same script, talking with customers and think about the catchment area for a branch. Sometimes our sales people tend to go to catchment areas of other branches and vice versa. When we open a branch, we already have a certain assumption of business from the area alone. If people keep going out from the area, then we are not really utilising the potential of that area.
We are even looking at relocating branches. I believe one of the main assets are the branches and the sales people. How can we make our branches and sales people more productive. When you look at Maybank, there was a transformation. Same thing going to be done at BII?
In the principal the same thing is going to be done here; in terms of improving productivity. And in productivity, its more towards generating more CASA (current account savings account).
Currently we are working on a pilot. We have six branches which we are giving them tools on how to plan everyday, how to call and manage leads.
This is the first time that every morning everyone in the branch comes together in a huddle. Previously it used to be only the sales team that will talk among themselves. Operations people, the tellers and customer service staff did not know what is happening. Being a pilot programme, its about bringing people together and everyone will have the same clarity on what is being done and potentially, customer service or back office will have leads on what to sell to people. Then sales people can follow up on those leads.
Yes. We have more accounts now being generated. I don’t want to mention numbers because the base is low and people are excited when multiples are high. Over time it will taper off into a more sustainable basis. If we can get two times better productivity from this I will be happy.
We started with 6 and will be rolling out to a further 51 branches in January.
There is a lot more dynamism that can come from BII. We saw the recent results of BII and with all of these plans being executed, will that keep the improvement going?
I told people in KL they cannot expect 60% (growth in pre-tax profit) every year. This year, apart from the topline we also benefited from the better asset quality which is quite significant. I think in the next few years if we can achieve above 20% profit growth, that will be good and sustainable.
What are the strengths and weaknesses of BII and what segments do you want to grow?
WOM is a weakness and we are de-emphasising that. Our strengths will be in the SME. That segment will continue to grow fast. This year alone that segment grew by more than 35%. These are business entrepreneurs. They can be small or medium size. In terms of the bigger ticket items like corporates, that will continue as investments will grow fast here but what we want to do is extend the share of wallet. That’s why we are doing account planning and getting Maybank’s help in that.
On the consumer market, it will continue to focus on the affluent and mass affluent market but also looking at some value proposition for the mass affluent market. We have been strong in the affluent market and we want to go slightly lower to be able to see the potential for deposits. What value add has Maybank done for BII?
Syariah is certainly an area we have been getting support in terms of coming up with a target operating model, and how we want to build the business. In terms of risk management, the policy, the framework, in terms of Basel 2. In terms of business on the wholesale banking, transaction banking, trade finance, investment banking and in terms of the opportunity for us to allow our employees to go overseas.
That helps them to appreciate Maybank better in terms of what kind of value they can do to improve themselves.
Generally, the Maybank brand among the commercial and corporate has been useful because they know Maybank is an institution, a long-term player.
We need capital and Maybank has provided capital and I’m quite optimistic given our growth and prospects that they will continue to support us. Maybank injected US$150mil in 2011.
Are you adopting Basel II?
Maybank group intends to have a certain percentage of its portfolio under Basel II and obviously being a significant entity, BII has to contribute to that portfolio as part of Basel II.
Indonesia has yet to implement IRB for Basel II. What we are doing now is to cater to the requirements of the Maybank Group from Bank Negara but the experience of going through Basel II has been useful for our people.
In terms of thinking about using a score card, how different risk will require different capital and hence different pricing.
Since there is no requirement here to follow Basel rules will that be a setback or an advantage to BII?
I look at it positively. Our people appreciate better in terms of risk based pricing, how doing business affects capital and how different ratings affect different levels of capital. Now we have a regular discussion about the movements of our ratings in our portfolio. It’s difficult to crack the top 4 but do you want to be perceived as a top 4 bank?
No. If we can be No. 1 among the second top 6 we have done a great job already.
Is the acquisition price for BII a millstone around the neck of Maybank and you?
That is history. When I was in Maybank, we had written off some of the goodwill. Even at that time we said look forward. I don’t feel that anymore here. People talk about it externally but can you imagine if we didn’t buy this entity? There is nothing else available now. The expectation between buyer and seller is wide now and there are no national banks available for sale now.
Imagine if we didn’t have this presence in Indonesia and given the growth prospects, what will happen to Maybank?
Even after the write off of goodwill, the valuation of BII has become more reasonable for Maybank.
It’s about 3 times book value which is not bad. Our focus is on the future and growth.
Analysts say in terms of earnings accretion, BII has just about touched the neutral mark now and has come much later then when Maybank thought it would? Why is that the case?
I think it’s about the need to invest. We have been investing a lot. It’s also about putting in place its own strategy here and a lot of clean up had to be done previously. I think the base had to be reset. I think the momentum is there now in terms of ROI after the writedown, our total investment is about RM6bil odd and at the profit we are generating now, it’s close to 5%. And at the rate we are projecting, hopefully in three years time, the ROI can be double-digit.
Margins for BII. Where do you see it moving forward and what sort of pressures will there be on margins going forward?
Now it’s about 5.5%. In Malaysia its about 2.4%-2.5%. But our cost structure is higher. I think our margins will be 5% plus. There will be pressure for contraction, there is no doubt about it as competition gets stiffer but in the last one year or so, we have in fact been able to increase our margins because we were focusing on more lower cost funding. We deliberately moved away from high cost depositors to lower cost depositors.
It’s been only 2 months but there has been an increase in the number of accounts which help in fee income. People here have to pay to maintain accounts. What we need to do more is to penetrate the balance of these accounts. What about loans growth?
We are doing about 20% plus. Our objective is to gain market share but in a way we are rebalancing because we are reducing on the two wheel side and increase the others and penetrate into syariah, micro financing and gold pawn broking.
There will be a time if you strip out the two-wheel financing, we are definitely growing faster than industry.
In terms of expertise and ability, do you have that at BII?
We do and we continue growing and that’s what is important now in terms of developing more people and making sure the people whom we develop are clear about their career path and development programme they are in.
One of my focus areas for capability building for talent development is not just bringing in new talent but enhancing through training as well.
What about the name change?
We will look at re-branding. We have not finalised any new name yet. I think as part of increasing the profile in indonesia, we will try to rebrand but obviously we have to seek the regulators’ approval for the rebranding and name change.
What about credit cards?
My intention is to build that franchise. Apart from business it’s also about profiling through credit cards. If you go to restaurants and hotels, banks selling credit cards are very visible.
There are so many things we want to do and I emphasise to my people that teamwork is very important.
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