Banking promotion: A measured approach

Elvyn G Masassya, Analyst, Jakarta

Indonesia's banking crisis isn't over quite yet.

This is painfully clear, as the performance of the banking sector is only just above water.

The Capital Adequacy Ratio (CAR) of various banks, for example, is still close to eight percent.

In some cases, however, the CAR is even less.

If requirements were properly followed, these banks would be liquidated. But since they to fall under the supervision of the Indonesian Bank Restructuring Agency (IBRA) management at a time when IBRA officials plan to merge, they can avoid liquidation.

Besides the CAR, the banking sector's less-than-satisfactory condition can also be viewed from its intermediary function, particularly in channeling loans.

Until now, the banks' intermediary function has not returned to normal. The figure of the Loan to Deposit Ratio (LDR) or the comparison between the loans channeled and the funds collected is still below 50 percent.

In fact, the LDR is the main indicator of banks' intermediary function. Even a close look at the banking sector's balance sheets will show that some bonds (in recapitalized banks) and Bank Indonesia's promissory notes will still dominate the composition of banks' assets.

This means that banks have yet to make productive use of public funds. This reality shows that, until early 2002, the country's national banking condition has yet to be completely sound.

Strangely, although banking financial conditions seem to be just above water, a number of banks have been intensifying their promotional activities. They adopt patterns of promotion in the below-the-line or above-the-line format, using various methods of communication.

Some banks have bought air time for spots on some television programs for their special features to sell their name.

This phenomenon has raised important questions: What are these banks looking for? Why are they willing to spend so much money on promotional activities even though they are not fully recovered? What's behind all this?

The answers vary. Some banks wish simply to attract new customers so that they can conduct more intense advertising campaigns, thus drawing more business.

The formula for this is easy. The banks just boost name recognition by putting all their money and resources into advertising, so that theirs' is the one people recognize.

Irrespective of methods or motivations, national banking seems to be undergoing a shift of orientation.

Many banks used to perform only in the corporate segment before the onset of the crisis. But afterwards, a lot of banks have changed their vision, and entered the retail sector.

Strictly speaking, national banks are now virtually going retail.

Why is this so? The economic crisis, it seems, has taught banks that the corporate sector is the most vulnerable to the whims of the international marketplace.

Although the crisis of the late 90s also affected the retail segment, its impact there was less far less severe than that on the corporate one. This condition has alerted banks to the reality that they need to pay more heed to the retail sector.

The implication of going retail has surely led to some changes in banks' strategies, including in strategies to collect public funds.

Many banks have adopted the one-on-one approach and provided private facilities while still in the corporate market.

Yet this pattern is obviously irrelevant when they play in the retail sector. Thus, it isn't strange if nowadays quite a few banks lure their would-be customers with a variety of offerings.

Banks have also designed television programs to draw attention, though they sometimes have no relation at all to banking. The banks just sponsor the programs.

They expect these programs to improve their image and, in turn, influence fund owners to choose them.

The problem is whether this pattern of promotion, which is rather superficial, will prove effective enough to positively influence the banks' business.

In effect, this does not always happen.

Even though banks sponsor a number of television programs -- from music shows to talk shows to quiz shows among others, they are, at the least, only able to create brand awareness.

These programs will not be able to automatically convince people to switch banks, as the nature of banking in Indonesia is a very specific one.

People's reasoning behind choosing their banks often varies. The banks must, at the very least, offer assurances of safety and convenience, which includes satisfactory service.

The role of these two factors cannot be exaggerated through promotion. Only experience can lead to true assurance.

So does this mean that the pattern of this mass campaign carried out by banks is useless? Of course not.

Mass promotion and image building remain vital. Many remain traumatized by various cases of bank liquidation in recent years. This is why public confidence in banks must be maintained.

The way to develop this confidence, however, should be measured and smart. Such a philosophy should also prevail when strategies for banking promotion are formulated.

In the end, attracting customers by giving out prizes or undertaking mass promotional campaigns is not incorrect.

Yet these programs cannot be expected to guarantee that the banks' achievements in business will be strong.

And let's not forget that those who are targeted by banking ads, are also divided into categories.

Some of them share common traits when selecting banks: What, for example, are the benefits? Should they obtain high interest rates, security, services or rewards?

A broad ad campaign is therefore not merely a stimulus to draw customers to a bank. Whether this mindset can be converted into action will depend on each person's individual experience.

Perhaps, in the months or years to come, a more educational approach will be taken toward advertising.

Just scripting television ads without smartly packaging them will only misfire.