Allo Bank (BBHI) Reveals Strategy Amid Rising Interest Rate Trend

Jakarta - Digital bank issuer PT Allo Bank Indonesia Tbk (BBHI) has revealed the strategy it is pursuing to maintain business performance amid the rising benchmark interest rate trend. This move responds to Bank Indonesia’s (BI) decision to raise the BI-Rate by 25 basis points (bps) to 5.75% during the Board of Governors Meeting on 17-18 June 2013. Cumulatively, BI has raised interest rates by 100 bps since May 2013, including an off-schedule increase on 9 June 2013. Allo Bank’s Independent President Commissioner, Aviliani, stated that the BI-Rate increase does not automatically compel the company to raise the interest rates offered to customers. According to her, such decisions still consider the bank’s cost structure. “With the BI Rate, we do not automatically raise [our rates], but we still look at the costs we incur. So if we look at it, our costs are extraordinarily effective; our BOPO is quite low,” Aviliani said after Allo Bank’s AGM in Jakarta on Thursday (25/6/2013). In addition to the BI-Rate increase, the banking industry is also facing an adjustment to the deposit insurance rate by the Indonesia Deposit Insurance Corporation (LPS). The LPS decided to raise the rate to 3.75% for rupiah deposits at commercial banks, effective for the period 1 July to 30 September 2013. Responding to this, Aviliani noted that each bank has different policies for adjusting deposit interest rates. Adjustments are made by considering the balance between lending and fund collection, but must remain within the limits set by the LPS. “For digital banks, we are usually allowed to offer higher rates compared to conventional commercial banks. At the very least, it is not about being given leeway, but we look at how much credit we provide, which is of course adjusted to the funds,” she added. Looking ahead to 2013, Allo Bank has set a primary strategy of expanding cooperation with business partners. The company considers a partnership-based business model more effective than relying solely on direct lending to individuals. According to Aviliani, channelling financing to customers through business partner ecosystems also has the potential to suppress the risk of non-performing loans (NPL). Amid challenges to public purchasing power, particularly among the middle class, Allo Bank remains committed to selective business expansion. The company emphasised it will remain prudent in disbursing financing by considering the risk profile of each customer. Aviliani explained that cooperation with business partners allows the bank to gain a clearer picture of customer spending patterns and transaction behaviour. Consequently, decisions to grant paylater facilities can be made based on more measurable transaction data. Besides strengthening its paylater business, Allo Bank is also continuing to develop other digital transaction services. The company is expanding its foreign exchange transaction features, bill payments, and various daily transaction services to broaden its network and increase customer activity on the Allo Bank platform. As an illustration, Allo Bank recorded a net profit after tax of Rp 104 billion in the first quarter of 2013. This figure was supported by Allo Bank’s operating income, which rose 23% year-on-year (yoy) to Rp 474 billion.