Rabu, 29 Februari 2012

BRI TO FACE RP 1000 TRILLION ASSETS; WHICH BANKS ARE MAJOR COMPETITORS?

by Karnoto Mohamad



Amid emerging giant banks competition, Bank Rakyat Indonesia (BRI) shows a good performance. Having penetrating consumer banking domain and receiving succeed, ‘the king’ in micro banking becomes more agile and turns into a new challenger in transaction banking industries. Other banks should be vigilant to BRI because this new challenger possesses ‘power within’ to get rid of its rivals. Secretly, the bank also has ambition to get Rp 1000 trillion assets at least in 2017. How other banks compete with BRI? Which banks can achieve Rp 1000 trillion assets more quickly?

Most bankers ended 2011 with smiles on their faces. Although, the financial audit has not finished, they are optimist that the year’s performance will be as good as the previous years. They believe that they will make great profit. And among the bankers, the banker from BRI is the one having biggest grin.

BRI’s profit in 2011 is believed to have grown fantastically. Sofyan Basir, BRI’s ‘captain’ told journalists in the mid of January that he was optimistic of the bank’s ability to gain profit up to Rp 20 trillion.  When BRI reaches that amount of profit, it means that the bank’s profit has increased 74%. Then, it can be guaranteed that it has been grown higher than the industrial profit.  In other words, BRI does not only maintain its position as the biggest profit maker bank but also as a bank having wider and wider segment.
Many analysts expect the BRI can make profits of up to Rp15 trillion. When BRI reaches that amount of profit, it means that the bank’s profit has increased 40%. Then, it can be guaranteed that it has been grown higher than the industrial profit.  In other words, BRI does not only maintain its position as the biggest profit maker bank but also as a bank having wider and wider segment.  In 2010, banking profit reached Rp 57.31 trillion, and 20% of it was from BRI’s profit.

Bankers of other big banks should admit the beauty of BRI’s performance, especially Bank Negara Indonesia (BNI) whose asset belongings have been overtaken by BRI since 2007 and Bank Central Asia (BCA) which has been overtaken 2008. Seeing the growth of BRI’s asset in the last four years that is, on average, 25.12% per year, so BCA and BNI have to restrain first when they want to overtake BRI. Unless, these two banks make a strategic action by acquiring other major banks.  

Bank Mandiri as the biggest bank in Indonesia must not also take the growth of BRI’s business in granted. Bank Mandiri, which has sublime targets to venture into a regional market and to become one of Top five banks in ASEAN in 2014 and Top three banks in ASEAN in 2020, has to carefully observe quick progress and performance of BRI during the last five years.
                       
Besides, BRI has an ambitious target that is to reach Rp 1,000 trillion in 2017. When Infobank asked a confirmation on the case, Sofyan Basir did not deny it. The man who is the former of Bank Bukopin’s general manager even said that he was sure that target can be fulfilled in 2017. “It can be achieved five years from now,” he told Darto Wiryosukarto from Infobank last month.
 
It is clear that the ambitious target of Bank Mandiri and BRI seems like a competition between two ‘red plate banks.’ Besides, there are still BCA, BNI, and Bank CIMB Niaga which are considered to be the most prominent competitors for Bank Mandiri and BRI in regional market.

In the field of transactional banking, BCA is a bank retail which is advanced in term of its electronic delivery channel. Although the bank’s offices networks are only around 900 or less than networks of BRI or Mandiri, which are 6,542 and 1,430, but BCA is still capable of being ruler of the market (market leader), especially for low-cost fund savings.

Jahja Setiaatmadja, the president director of BCA, said that he did not want to comment on an ambitious steps taken by BRI and Bank Mandiri. When he was questioned over the chance of the achievement assets summed of Rp 1,000 trillion, Jahja calculated it could be reached in 2018. "In the next five years, BCA’s assets will be estimated around Rp 750 trillion. And Rp 1000 trillion assets will be achieved by 2018," he told Dwi Setiawati from Infobank last months.

According to Jahja, the growth of gross domestic product (GDP) will greatly affect banking business growth. Jahja is optimistic, when GDP is able to grow 8.5% per year, the plan to achieve Rp 1,000 trillion of assets can be manifest more quickly.

Then, how about BNI, which has ever been nicknamed as the largest bank in Indonesia? Considering reviews on the business growth over the last 10 years, BNI has not seemed to have the provision to declare that such bold target aspired by BRI.
           
According to a BNI internal source, after the tangled case of L/C fictitious Rp1.7 trillion in 2004, BNI seems to lose courage. According to Infobank Research Bureau data, among the 10 biggest banks, the average asset growth of BNI on the last five years is relatively low. However, in recent years the red plate bank is starting to be aggressive mainly to boost consumer banking market by recruiting experienced bankers from other banks. Last year, the business contribution from consumers in BNI is 17.9%, while the rest is corporation.

According to Gatot M Suwondo, the president director of BNI, the bank focuses on strengthening the fundamental finance and changing the business approach. "From product to customer centrix, centrix customer operating model is built and since 2010 the implementation process has been already underway. We expect it will fully be implemented in 2014," he told Jennar Siantang from Infobank via short message service last January.
Gatot added that the bank now having 1675 network outlets would focus on financing the superior industry, with value chain to develop consumer business and retail banking.

A main competitor of the top chart banks is CIMB Niaga. In terms of size, the bank ranks the fifth and its assets are far below Bank Mandiri or BRI with hundreds of trillion rupiahs gap. However, people should not take those facts for granted since CIMB group of Malaysia fully supports this bank—a bank's merger of Bank Niaga and LippoBank.

Another importance, in addition to having experience in regional area with its vision of becoming the most valued universal banking in Southeast Asia, CIMB Group is a business organization that aggressively acquiring other companies. CIMB Bank has opened branches in Singapore and has acquired banks in Thailand, Cambodia, and aiming at the Vietnamese market.

If among the existing areas Indonesian market has the best prospect, the parents company surely has a serious development plan for CIMB Niaga. Moreover, CIMB Group has targeted the increase in contribution of Bank CIMB Niaga in Indonesia, from 22% last year to 40% in 2015.

It is true indeed that there are no figures of the amount of assets that the bank wants to achieve. However, when Infobank was discussing with several directors of Bank CIMB Niaga in 2010, it came out a desire that the bank wanted to become the fourth largest bank in Indonesia. CIMB Niaga’s targeted position is still occupied by BNI. According to Infobank’s note, the excess of assets between CIMB Niaga and BNI is still more than Rp 100 trillion.

If relying on organic growth, CIMB Niaga needs more than 10 years to overtake BNI. However, if CIMB Niaga acquires banks with assets more than Rp 100 trillion, CIMB Niaga's desire to overtake BNI will be achieved in a short time. Moreover, if the merger plan between CIMB Niaga with Bank International Indonesia (BII)—as a last year’s growing issue—comes true. The merger discourse is very likely considering the BII is a bank-owned by Maybank, both of the banks come from Malaysia.

Arwin Rashid, the president director of Bank CIMB Niaga, was reluctant to respond to the discourse. But, when Infobank asked him couple time ago, he said the bank was possible for acquiring. “We don’t close the possibility for Bank CIMB Niaga to make acquisitions (over other banks) as a step of acquisition itself has become a behavioral CIMB Group to expand," he said.

Although only BRI puts a clear target on the attainment value of assets, business plans of those giant banks certainly illustrate the growth of assets to Rp 1,000 trillion. The question is: which bank can reach Rp 1,000 trillion of assets first?

According to calculations done by Infobank Research Bureau based on the assumption of the asset growth last four years, BRI will become the first bank which reaches Rp 1,000 trillion assets. BRI can accomplish assets worth Rp 1,232.83 trillion at the end of 2016, or a year faster than the business plan created by BRI. 

In the same year, Bank Mandiri’s assets will manage through Rp 1,002.41 trillion. For BCA, the achievement of Rp 1,000 trillion of assets can only be achieved by 2019. Meanwhile, for BNI and Bank Niaga, having assets of Rp 1,000 trillion is difficult to occur before 2020 if only relying on organic growth.

What power possessed by BRI so that it becomes the fastest bank heading to Rp 1,000 trillion? Corporate loans accounted 20% of the bank’s credit. However, the segments of micro credit, small and medium enterprises (UMKM) which offer more attractive margins will still be the land nurturing productive assets of BRI.

This kind of segments is indeed being contended among other competitors such as Bank Danamon, Bank Tabungan Pensiunan Nasional (BPTN), Bank Pundi, Bank Mega Syariah, and Bank Mandiri. Recenty, Bank CIMB Niaga also joins the rivalry.

However, BRI has been strong in this segment. Its competitors may innovate and expand aggressively in micro businesses. Yet, they cannot easily penetrate the blockade made by BRI's widespread network, comprising more than 40,000 permanent employees. Up to the end of the last year, BRI has had 424 branches office, 480 auxiliary branches offices, 4,766 BRI units, 854 cash offices, plus 1,195 Teras BRI.

 Even if its competitors join forces to besiege BRI, the "king" of micro banking still has the "power within." That is the power of cheap funds to lower lending rates. It should be noted, the weakness of banks focusing on the micro market is in the race for low-cost funds such as savings. If BRI’s mortgages interest rates are lower than those offered by its competitors do, they will be overwhelmed.

The structure of third party funds of BRI has been stronger since the bank entered the consumer banking business in 2007. BRI’s strategy in consumer banking is not only strengthening the bank’s liability, but also consumer loans such as housing loans and credit cards. Yet, based on the portfolios, the two items are still below its competitors’ products.

Recently, BRI has developed a new item which is in transactional banking business. BCA and Bank Mandiri are banks who are most serious working on the payment business. They should consider BRI as the tough rival.

Now, BCA is still in the forefront with the biggest income in electronic transactions. The same case occurs to Bank Mandiri which is serious in strengthening the infrastructure of payment business with budgeted capital expenditure payment of up to US$ 100 million per year.

However, BRI has bigger and broader customers bases. It becomes a nice point for developing a payment business. "My goal is to guarantee payments. I want to change people’s dependence on BCA. The bank has only had 11 million customers. My (BRI’s) customers are 25 million. Someday, people will flock to ATM BCA machine, but there are ATM BRI cards inside their wallets,” said Sofyan Basir.

Customers’ strength is what has driven BRI to launch electronic money (e-money). The money will be a retail payment instrument in the future. BCA has Flazz cards and Bank Mandiri has e-Toll cards. BRI has also had BRIZZI cards which circulated up to 95 thousand cards last year. BRIZZI cards are targeted to have circulated up to 250 thousand by the end of this year.

BRI ‘s steps to widen its business domains are contrary to what its competitors do. For example in term of business payment or consumer banking. The same case also occurs to the bank’s old business such as UMKM and corporate banking. However, BRI’s achievements in the two domains make the bank to be optimistic in gaining assets amounting Rp 1000 trillion.

BRI’s target to boost its assets up to Rp 1,000 trillion has surprised many competitors. However, there is more astonishing plan BRI wanting to do. Having successfully acquired Agro Bank and Bank Jasa Arta (later changed to BRI Syariah) and failed to acquire Bukopin, BRI secretly desires to go global. In the future, the bank plans to buy banks in Vietnam or the Philippines.

If BRI can make the plan come true, the bank will create a greater breakthrough than Bank Mandiri desiring to open offices in neighbor countries such as Malaysia.

BRI is aware that more stringent competition will be faced in the regional market. Yet, the bank is optimistic. Considering the bank’s long experience in micro banking, the bank indeed deserves to be in that state.

Appreciable ambition to explore overseas markets such as those BRI and Bank Mandiri are planning to do needs surely to be supported. Therefore, Indonesia will have banks which are not only heroes in ‘their own cage’. However, national banks should not ignore the domestic banking markets. There are still many opportunities in this country. The space for doing market penetration is still vast. National banks have also to keep eye in this matter; otherwise, the market will be taken by banks owned by foreign investors.

While striving to manifest their magnificent ideals, BRI and Bank Mandiri should also strive to be leading banks in meeting the needs of regulators and the people. The needs are to improve efficiency and offer cheaper interest rates to spur the country’s economic growth.


Rabu, 22 Februari 2012

Customers’ loyalty swayed by curbs on rewards and gifts

By Karnoto Mohamad

Banks’ hankering to boost their profits may be hampered by Bank Indonesia’s policy urging them to cut interest rates and limit them in providing customers gifts. This situation becomes a new challenge for banks, as their competition is getting more brutal. They should strive so hard to nurture their customers’ loyalty. How is banks customers’ loyalty map in 2012?     

Bankers stare giddily at 2012 calendar. They are not worried of an escalating Europe crisis predicted in the middle of the year. They are afraid that their desire to make huge profits may be obstructed by Bank Indonesia (BI)’s policy ‘forcing’ banks to decrease interest rates and improve intermediation function.
Previously, BI had tried to reduce banks lending rates. In March 2011, BI issued a policy requiring banks to announce their base rates loan (SBDK). The policy could not reduce bank lending rates. However, BI does not give up.
The example was BI’s shocking step to cut benchmark interest rates from 50 basis points to 6% in the beginning of November. Some experts consider the step as too brave, because it is done in middle of the crisis escalating threat. BI also continuously criticizes efficiency problem and excessive profit margin resulting in the high interest rates loan.
At the Bankers Dinner on December 9, Bank Indonesia Governor Darmin Nasution reiterated that banks should show efficiency. BI requires banks to write loan interest rates in the Business Plan Bank (RBB). Besides, BI examines the practice of giving interest rates higher than the Deposit Insurance Agency (LPS), as well as limiting gifts to customers.
Darmin said that in other countries, banks are prohibited to offers their customers lottery or cash money. If the banks are promoting themselves, they should conduct it using proper promotion mechanisms instead of giving lottery and cash money, he said.
There is no doubt that banking industries in this country have been enjoying net interest margin (NIM) which is bigger than other countries. In October, the banking NIM was 5,95%. The number is likely to increase amid SBDK policy to decrease NIM. Previously, the banking NIM was 5,59% in the initial of 2011. Then, it reached 5,88% in March of the same year.
The big amount of NIM is supported by the high lending rates. Meanwhile, banking income is still dominated by net interest income rather than fee based income. In general, banks’ profit margins are taken from interest rates subtracted with banks’ costs of fund, their operating costs (overhead costs), and risks premium. Therefore, in order to decrease lending rates, BI urges banks to reduce their operating costs and costs of fund.
Besides, the high operating costs also indicate that the banks are not efficient. In this country, banks’ operating funds compared to their operating incomes (BOPO) are on average above 85%. The number is higher than average BOPO in Asia banking areas which range from 40% to 60%.
The problem is that overheard costs and costs of fund of banks are not the same. It depends on the bank’s size, its positioning and the bank’s business target. Banks focusing on mass markets such as micro and small segments will be desperate if they are forced to lower their NIM and BOPO. It is because operating costs for this kind of segments are high. Besides, banks working on the micro segments usually unable to compete in seizing cheap funds. Hence, a storebox of the third party fund (DPK) is dominated by expensive fare deposits. Not to mention that banks have to expand their official networks to enlarge their market penetration.  
Another hard challenge faced by banks is that they are prohibited to give any gifts and rewards, especially if it is for savings products. The absenteeism of gifts will not only affect small banks customers’ loyalty, but also customers’ loyalty of big banks such as Bank Central Asia (BCA). BCA has been becoming the market leader in savings. However, there is no guarantee that the bank, with its Tahapan BCA, will be able to keep the title when the bank’s iconic sparkling gifts and rewards are vanished.  On the other hand, banking industries which have been struggling for cheap funds throughout 2011 should work hard to maintain their customers’ loyalty. The customers’ loyalty is a precious matter for banks. Unfortunately, the loyalty is hard to create. According to MarkPlus Insight survey entitled Indonesian Bank Loyalty Index (IBLI) 2012, there is a decrease in banks customers’ loyalty in 2011.      
The research shows that despite customers’ satisfaction index increased, their loyalty index decreased.  It means that various sparkling gifts, good service innovation, and visionary loyalty programs cannot directly make the customers loyal. That is too bad because the banks have spent a lot of money for the projects.
There is no doubt that customers prefer instant gifts and rewards. The IBLI study shows the indication. During years, customers’ loyalty has correlated more with instant gifts or reward, than discount programs, special products offering with mortgages, or entertainment tickets.
A regulation to decrease banks’ interest rate and to omit cash back and gifts will surely bring new challenge for banks on maintaining their customers’ loyalty. The decrease of interest rate will likely have an impact on deposits customers’ loyalty. While, the customers’ motives will shift from investment to transactional needs. Therefore, they will not be too elastic to the decline in yield of saving products. The limitation in giving gifts and rewards, which have sweetened saving products, may put banks customers’ loyalty on a stake.
Therefore, it is no surprise that banking industries object the idea on limiting gifts or rewards. They consider BI as too interfering micro segments. They say that banks need to strengthen cheap funds structure. Besides, banks need to create good promotion programs to expand their market in this stringent competition world. In other words, gifts programs aim at pressing their costs of fund along with the increase in savings and the decrease in deposits. 
Besides, costs spend to give gifts are relative small. They range from 0,2% to 0,3%. “BCA has spent 0,25% from costs of fund for savings gifts. That is relatively small for a big bank like BCA,” General Director BCA Jahja Setiaatmadja texted Infobank last month.
Jahja said that he did not reject the idea of removing the gifts or rewards giving for customers making savings in banks. However, he said that the removal should be done simultaneously by banks. “We will do it if other banks are consistent in impeding giving gifts to customers,” Jahja stipulated.        
BCA maintains its position as a market leader in the savings market. So far, the achievement is the result of good promotion strategies, supported with electronic distribution networks (electronic delivery channel). BCA’s cheap funds structures are also stronger comparing to its competitors. Infobank Research Bureau records that per September 2011, the portion of savings in DPK BCA reached 54,18%.
BCA’s mastery of savings market is surely supported by the bank’s loyal customers. According to IBLI 2012, BCA becomes the bank with the highest index on customers’ loyalty. Yet, the index has been decreasing comparing to the last year’s index. Bank Mandiri has been consistently in the second position for six years in term of customers’ loyalty index. 
IBLI research does not merely evaluate loyalty index of customers. The research covering banking industries areas such as relationship, partnership, and satisfaction also measures loyalty index of credit card holders.
A tight competition between BCA and Bank Mandiri is vividly seen through customers’ loyalty and credit card holders ’ loyalty. The two banks seem wanting to prove which one is the best in the transactional world. Seeing from the number of automatic teller machine (ATM), Bank Mandiri has surpassed BCA. In 2011, the number of Bank Mandiri’s ATMs reached 9000 units.    
The credit cards holders’ level of loyalty between BCA and Bank Mandiri are almost equal. However, BCA is strong and hard to be surpassed by Bank Mandiri in term of credit cards business. Now, BCA has the highest loyalty index of the credit cards holders. In IBLI 2011 and 2010, Bank Mandiri was in the position. BCA, Bank Mandiri, and most of prominent banks releasing credit cards have experienced a decrease in customers’ loyalty index. In other words, banks issuing credit cards find difficulties in maintaining their customers.
The case of Irzen Octa, a credit card holder of Citibank who was allegedly abused to death by debt collectors, has made people cautious and reluctant to have or change credit cards. Besides, races on discount programs held by banks also make people do the same.
As it has happened in previous years, IBLI 2012 also calculates loyalty index of Islamic Banking Institution. For five years, two giants of Islamic Banking Institution which are Bank Mualamat and Bank Syariah Mandiri (BSM) are competing strenuously to maintain loyalty of their customers. The loyalty index between the two banks are tried to surpass one another. Three and two years ago, Bank Mualamat held the highest loyalty index. Last year, BSM was the champion. And this year, IBLI records that Bank Mualamat acquires the highest loyalty index.     
For the first time, IBLI 2012 gauges the loyalty index customers in the regional development banks (BPD). However, IBLI 2012 has only surveyed six BPD of 26 BPD. Bank Jateng reaches the highest loyalty index, followed by Bank DKI and Bank Jabar Banten.
It is a hard work for BPD to build customers’ loyalty, because the banks have captive market. Moreover, the banks have often been criticized on their service quality. The critics say that the banks’ service quality is less comparable to big and prominent banks. Therefore, it can be understood that the customers’ loyalty level of the banks are far less than other banks. For BPD that their services are still underestimated, the plan to limit gifts and rewards will make the banks more difficult to build customers’ loyalty.    
BI’s plan to limit gifts or rewards indeed has a positive purpose. That is to lower interest rates loan, so this country’s economic situation will be able to move smoothly and quickly. That is because when gifts and rewards are offered excessively, they will affect on interest rates loan. That kind of gifts and rewards will create unhealthy competition. Besides, they do not educate people.
Elimination and limitation of gifts and rewards do not only influence customers’ loyalty, but also affect in banking liquidity wholly. Based on Infobank Research Bureau, the needs of liquidity are influenced by two factors. First factor is the high credits growth. Credits grow faster than funds. This situation is like what have been occurring in a few recent years. Loans has grown 25,69% year on year since October. Meawhile, at the same time, DPK has only increased 19,02%.      
Second factor is to anticipate the possibility of global economic crisis, as the recovery of the European crisis is still uncertain. The condition will affect the drying up of the banking liquidity. When the crisis shakes this country’s financial stability, there can be funds withdrawal to be exchanged with foreign currency. Banks have diverse durability. Supposed a bank is swayed, there will be an emerging of systemic impact and migration of funds to some of the most trusted banks (flight to quality). 


(This article has been published in Infobank Magazine - No 394 January 2012)