With two-thirds of its profits made in Asia, but only 3% of the market share in Southeast Asia’s largest economy, UK-based Standard Chartered Bank is set to increase its presence in Indonesia. Capitalizing on the country’s accelerating economy, low borrowing costs and high consumer spending might just be the right move at the right time.
“There is room to grow in Indonesia. Standard Chartered has a small market share of Indonesia's banking system and it is operating in a growing economy. We need to increase that market share,” states Tom Aaker, the new chairman of Standard Chartered in Jakarta.
To ensure that target becomes a reality, Standard Chartered Bank, which currently has 17 branches in Indonesia, plans to add seven more by the end of the year; one in Makassar, South Sulawesi, and six other branches in Greater Jakarta, including in Permata Hijau, South Jakarta.
Expanding its presence is part of the bank’s plan to appeal to small- and medium-scale companies and consumers, a market that has never been a core focus for Standard Chartered, says Aaker.
The new business strategy includes offering microfinance loans, which will see it competing with lenders such as PT Bank Rakyat Indonesia Tbk. (BRI), PT Bank Danamon Indonesia Tbk. and HSBC, among others.
With branches in isolated districts of the country like East Flores and Papua, microfinance is the main focus of BRI, Indonesia's version of Bangladesh’s Grameen Bank. Two years ago, HSBC, Europe’s largest bank by market value, paid $607.5 million to buy control of Bank Ekonomi to enter the same market.
Standard Chartered’s entry into Indonesia’s microfinance business, however, won’t see it dominating market share, says Yap Swie Cu, a banking analyst at PT Amcapital Indonesia in Jakarta. “The market is so huge,'' explains Swie Cu. Indonesia’s economy, where private consumption accounts for two-thirds of GDP, is forecast to expand by 6% this year and 6.5% next year, meaning StanChart’s expansion plan could be the right move at the right time.
Outside of China and India, Indonesia was the only economy in the region that grew by more than 4% last year. Indonesia's central bank has opted to spur economic growth rather than respond to faster inflation, holding out as its counterparts including South Korea, India and Malaysia raised borrowing costs, keeping its benchmark rate at a record low of 6.5%.
Indonesian policymakers have repeatedly said that Indonesia's faster inflation in recent months is a temporary phenomenon, while an appreciating currency may temper price increases.
“Consumer demand still drives economic growth in Indonesia,” Darmin Nasution, Governor of Bank Indonesia, stated on September 4, suggesting that banks, including Standard Chartered, that have extended lending to Indonesian consumers should benefit from rising consumer demand in Indonesia.
Record low borrowing costs have helped many Indonesian lenders, including BRI, PT Bank Mandiri Tbk. and PT Bank Central Asia Tbk. (BCA) benefit from the increasing demand for loans.
Mandiri reported net profit of Rp4.03 trillion in the first half of this year, while BCA recorded total net income of Rp3.9 trillion in the same period. BRI posted a net profit of Rp4.18 trillion. These positive results stemmed from increasing loan demand from small- and medium-sized companies in Indonesia, Amcapital's Swie Cu explains.
In the neighborhood
Standard Chartered is also planning to take advantage of increasing interest from Indian and Chinese companies to buy more assets in Indonesia, including coal mining and resource-related assets in Borneo.
“Standard Chartered has a strong presence in India and China. Several companies have approached Standard Chartered in India asking for help and we have given them advice,'' says Aaker, declining to name the interested parties.
National Aluminium Co., India’s second-largest producer of the metal, may spend $3.8 billion buying a coal mine in Indonesia to secure fuel for its planned power plant in East Kalimantan. The company is in talks with Indonesian firms, Bloomberg reported early September. National Aluminium plans to spend another $4 billion building an aluminum smelter and coal-fired power plant in East Kalimantan in a joint venture and is expanding overseas to tap rising demand from automakers and builders in emerging markets and China.
In Indonesia, Standard Chartered and PT Astra International Tbk. have a combined stake of 89% in PT Bank Permata Tbk. The bank was formed in September 2002 through the merger of PT Bank Bali, PT Bank Universal, PT Bank Arthamedia, PT Bank Prima Express and PT Bank Patriot.
With a deepening interest in the country, Standard Chartered is confident the strength of the economy, especially the telecommunications and resource-based industries, will remain strong. “We believe that with such projects Indonesia's economy will grow by more than more than 6% while others will grow below that rate,” Aaker sums up the logic.
From GlobeAsia.com
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