Independent research and advisory firm Financial Insights, an IDC company, announced Monday a set of guidelines for banks and service providers that want to take advantage of the strong growth prospects in Indonesia's banking sector.
In a research document called Indonesian Banking in 2007: Take Note of These Ten Important Issues, the Financial Insights Asia/Pacific team enumerates strategic issues that define competition in Indonesia's banking sector today.
"These 10 issues should be the basis of any plan of action of both banks and technology vendors in Indonesia," said Cyrus Daruwala, managing director of Financial Insights Asia/Pacific.
Below are the top five issues identified by the report:
1. Consolidation is set to intensify. Bank Indonesia, the central bank, continues to release regulatory guidance concerning the Indonesia Banking Architecture, the master plan to encourage consolidation in the country's banking industry.
Several small and medium banks are yet to articulate their plans to meet minimum capital requirements, but are intently looking at mergers or acquisitions in the months ahead.
Also, the country's largest banks have indicated interest in acquiring other banks in the near term, with Bank Mandiri explicitly stating that it is looking at an acquisition in 2008.
2. Different factors will converge to increase bank lending. Financial Insights expects bank lending to grow by at least 18 percent in 2007 on the back of more dynamic economic activity.
Changes to rules and benchmark rates tied to Bank of Indonesia Certificates (SBI) will also encourage banks to focus on core lending, instead of just relying on interest from government certificates and bonds.
3. Lower deposit insurance limits will give an advantage to incumbents. The ceiling for deposit insurance has been lowered recently, underscoring that the industry has indeed recovered from the financial crisis, and signaling more frenzied competition for customer deposits.
4. Foreign players are getting ready to launch more aggressive tactics. Foreign players will see lending growth rates this year of more than 23 percent -- much higher than the sector average. They will focus on small and medium enterprise lending, particularly in cash management and receivables management, and in some consumer banking products.
5. Retail banking takes the spotlight. Taking advantage of the impressive expansion of bank branches and the roll-out of ATM networks, several banks will enlarge their retail loan books considerably.
The need for effective risk management systems is reflected in most Indonesian banks' information technology budgets in the medium term.
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