Long-term investment is what people want to see: Banker
Dadan Wijaksana, The Jakarta Post, Jakarta
As in most sectors in this country, the issue of foreign ownership in the Indonesian banking sector is always a sensitive one. Rowdy protest demonstrations usually break out when foreign investors vie for a stake in domestic banks.
But, with many banks currently scrambling to meet the central bank's capital requirements -- which has been imposed to solidify the industry -- mergers and acquisitions are likely to become an option those banks would prefer to take, a move that may lead to more foreign investors coming to Indonesia.
According to Bank Indonesia, about 48 percent of banks in Indonesia currently have some foreign ownership.
The Jakarta Post talked recently with Simon Morris, CEO of Standard Chartered Bank Indonesia, to share his views on that particular issue, as well as other issues in the banking industry and the economy as a whole, against the backdrop of the economic growth, which took a hit after the government's decisions to twice hike fuel prices last year.
Standard Chartered Bank Indonesia -- in partnership with Astra International -- controls the majority stake in Bank Permata; successfully acquiring the top-ten bank two years ago.
Question: How do you see Indonesia's economy performing?
Answer: I think the government, to their credit, took some courageous decisions last year. And the benefits of some of those decisions are coming through, as we see it from a banking perspective, in the form of a stronger rupiah, which I think was one of best performing currencies globally last year. The interest rates have also gone not quite as high as we expected
So all in all, we think there were some tough decisions made. There are some short-term impacts, but in terms of the well-being of the economy, we think it was the right step to take. The current high inflation rate will be short term. It's only a spike really, and it is our view that inflation will be single digit by the end of this year -- which is a view that is very commonly shared these days.
And despite brave decisions being taken and resulting short-term impact, the projection for economic growth is still quite strong ... it's anywhere between a range of 5 percent - 5.5 percent. That's still a very satisfactory performance under the circumstances.
How about in making a climate here more conducive to investment? It there any headway? And will the current economic condition affect investors' appetite to invest in the banking sector?
The investment climate has been a problem here. But look at it this way, currently, we are one of the largest British investors in Indonesia. We have increased our investment significantly over the last two or three years and we have done this on the background and a track record of more than 130 years in Indonesia.
My point is that, sometimes the roads are not easy but I think from the Standard Chartered's perspective, we are making continued efforts to increase direct investment in the country. And by doing so, it is our hope that we will encourage others to do the same in Indonesia.
BI governor, several months ago, said that 48 percent of Indonesian banks are in foreign ownership. It's a recognition really that Indonesia is a good place to invest in and I think we should be more upbeat about focusing on the things that have gone well, because by nature, we sometimes picture on the things that are a bit negative or a bit challenging.
Broadly speaking, the people who live and work here will know what the real issues are, but it's also important to convince and nurture people overseas to have a better idea of how to differentiate between myth and reality.
Perception, Because I think perception in a lot of environments tends to focus only on the very negative side, which is actually a small part of the whole.
What the figure of 48 percent shows is that there is a huge amount of interest of people investing in Indonesia.
How will Indonesians benefit from that?
High levels of foreign ownership will increase competition within the market place, which should benefit clients eventually, because it will make banks more responsive, make banks more competitive and make banks more creative as they try to differentiate themselves from their competitors.
You have international banks like ourselves and regional banks are also coming, we'll get the transfer of knowledge from other areas of expertise, like internet banking, or whatever it is, to just make clients' lives a little bit easier.
Under the Indonesian Banking Architecture (API)'s requirements, there are quite a number of banks that do not meet the required capital, which opens up the opportunity for new investors to come in. Can we expect new foreign investment from this?
Well, if I was an outsider looking in, I'd think that Indonesia represents a good investment opportunity, but we've seen quite an amount of foreign investment in a short period of time recently, but whether a lot more will follow I think only time will tell.
If you come back to the figure, the higher level of foreign investment in Indonesian banks is actually a testament to the attractiveness of Indonesia as a destination for FDI.
But here in Indonesia, negative sentiment (among Indonesian nationalists) usually arises when a foreigner is looking to buy local assets. What do you think of it and how to change this?
I think, in many countries there will be people like that, but it depends on the performance of the individual bank itself. In the case of StanChart, people will know that this is not a bank with a short-term commitment.
We try to build a franchise that Indonesians could be proud of, we're looking increasingly to make sure that our Indonesian colleagues can get global exposure, they get postings overseas so that we have a good balance in the bank. It's pretty much a partnership that we like it to be an ongoing one -- be it with our clients, with the regulators and the society where we operate.
I can understand people who are upset in some countries when they see indications that some financial institutions are pretty much there for the short term. It is a long-term investment that local people, wherever they are, would want to see.
In the context of StanChart in Indonesia, we're pretty much here as a long-term partner for our staff, for our clients, for the community. I think we have a track record, which will stand the test of the time on that.
Any plans for StanChart to acquire more banks in Indonesia?
From my perspective, all I can say is that we've got an excellent opportunity here for StanChart to grow organically and to make sure we are well-placed to do that through our network, and in doing so we will give services to our clients with competitive facilities.
For StanChart, it is a very complimentary relationship with Permata. We can leverage off each other's strengths very well. If you look at Indonesia, we have 13 branches, but Permata has 311 branches. The acquisition gives a great opportunity in the partnership and synergy, where we can pretty much broaden our services to clients. We at StanChart are very upbeat about the opportunity.