Bank Danamon to remain focussed on consumers, SME loans

Bank Danamon to remain focussed on consumers, SME loans

Bank Danamon, the country's fifth largest bank in terms of
assets, is currently undergoing a reevaluation of its business
strategy after Asia Financial Indonesia Pte. Ltd (AFI), a
consortium of Temasek Holdings Pte. Ltd. and Deutsche Bank,
became its new owner in June, following the purchase of a 51
percent stake from the Indonesian Bank Restructuring Agency
(IBRA).

The Jakarta Post's Rendi A. Witular interviewed Francis Andrew
Rozario, president of Danamon, to get a hint of the strategies
and expectations of the new owner.

The following is the excerpt of the interview.

QUESTION: What is Danamon's new business strategy?

ANSWER: My first priority is to understand the quality of the
organization, to visit regions to understand how we operate.
Danamon has a very wide network, so I need to go out there and
understand what businesses we do in the region and to get to know
the people.

While that is happening, we are doing a very detailed
assessment of our portfolios, to understand the customers and to
enhance the quality of our resources by being absolutely sure
that we had regraded all the portfolios based on international
standards.

I guess the difference between what we do and what was done
previously is that we do not classify our borrowers just on the
basis of their payment performance. We take into account the
quality of their credit. We are willing to downgrade some of the
names and take additional reserves; that applies across the
business sector.

The other initiative we are taking is to start a whole
strategic planning effort, and we are still in the middle of it.
It is a little premature to talk about what will be the final
outcome of the strategy reevaluation. But I think it would be
quite fair for me to say that our strategy will not change, we
will remain very committed to the consumer sector, and in this
regard we will focus (our lending) on various sub-segments within
the consumer market. We have not been very active in the mass
consumer and the affluent segment. We have been underweight in
those areas. For the middle income (segment) I think we have a
fairly decent franchise.

The other aspect of the strategy will be the small and medium-
sized enterprises (SMEs). For this sector we will give a bigger
focus on the commercial end of the SMEs, which is the upper end.
We are still underweight. Our goal is to try to build that up
from where it is today.

The corporate business will be a specialized business. It will
require us to develop much more sophisticated products and
services. We remain committed to this sector. We think it is a
good market if it is managed carefully and exposed it to the
right people.

I think given the current weighting and expected scale of the
opportunities, my own guess is that the consumer segment and SMEs
will be about 80 percent of our lending business, and the
remainder will be for the corporate sector. We are now running at
that level and all businesses will grow by maintaining that
composition. I think that is a good composition.

What makes you think that it is good?

Because we want to have broad exposure rather than a highly
concentrated one. Generally, corporate business by nature creates
concentration. A lot of companies are still restructuring, and
haven't completed the process. Not all of them are performing
successfully. So there is a lot to be done by the corporate
sector to improve their performance and remedy their balance
sheet. There are a lot of good companies, and we are hoping to
support them.

The revival of the corporate sector has started, but how long
it will take for them to be eligible to get loans from Danamon is
hard to say. It depends on the people behind the companies and
how they had handled their previous relationships with the bank;
that is the most important.

How would you distinguish Danamon from other banks that engage in
the same business?

I think those are the very precise things that we are still
trying to find out. It will take us six months to complete our
strategy reevaluation. By the end of January it should be done.
But the roll out will not be all overnight, I have even told the
analyst community that the full impact of what we do will be seen
in 2005, not immediately. So it's a very deliberate process.

What will be your market share target?

We have today about 3 percent to 5 percent market share. I
don't think there is any area where we have more than 5 percent
of the market share. We would like to double the market share in
five years time.

What will be your profit and loan growth this year?

For the third quarter of this year we have already booked a 44
percent increase (in profit) compared to last year, and we hope
to sustain that until the end of this year. As for loans, they
may grow by around 25 percent.

What about next year?

We have not finalized it yet, but I think we should grow by at
least 20 percent next year. I don't think the general election
next year will dent our target. In some way it may lead to
additional consumption as many people feel there will be a lot of
activities.

Can you explain the bank's future revenue composition?

Around 80 percent to 90 percent of our revenue will be from
the lending (business), while the remaining will be from the
recapitalization bonds. Our recap bonds carry a floating rate, in
which the return is very close to those of the Sertifikat Bank
Indonesia (Bank Indonesia SBI promissory notes). So we cannot
earn a lot from them. We now only have a smaller portfolio of
fixed-rate bonds because we have sold some of them. We can't sell
the floating-rate recap bonds because no one will buy them. So we
don't put a high percentage on earnings from bonds. Protecting
ourselves from losing money because of volatility is our primary
objective.

Will AFI further increase its stake in Danamon?

They now have 62 percent. There will be no plan to increase it
if the government decides to sell their shares again. I think it
is good to have a float of Danamon shares in the (capital)
market.