Lippo aims to become major player in payment services

Lippo aims to become major player in payment services

Bank Lippo has frequently been the target of criticism and
hectic public scrutiny. Market uproar flared up early last year
in response to its famous dual financial reports, which led to a
shakeup in the bank's management. Jos Luhukay was appointed bank
president to help clean up the mess and embark on an image-
rebuilding process. A consortium, Swissasia, is in the final
stage of acquiring a controlling stake in the bank. Jos talked
with The Jakarta Post's Dadan Wijaksana in an interview last week
about this and other issues. The following is an excerpt of the
interview:

Question: How is the bank's business?

Answer: Overall, it's good. This year we plan to expand our
credit facility. Our (loan-to-deposit ratio) LDR stands at 22
percent currently, so we have room for significant growth. We
have all the networks and strategies in place and we have the
systems to support them. The IT system, the people, all are
already in place, so I guess this is indeed the time to pursue
growth in that area.

Do you have any growth target figures?

I can't talk about that. In the near future we'll have a
shareholders meeting, at which the new managing board will
probably determine them.

But basically, we're pretty optimistic over (growth) because
we're backed up by a solid strategy. Our strategy, unlike other
banks, is not to focus on attracting new "walk-in" customers.
We're not following current trends and aiming at the retail
sector because other banks are already better placed to do this.
Like (Bank Rakyat Indonesia) BRI, Mandiri or Bank Central Asia
(BCA) and others. It's hard for us to compete with them on that
footing.

What we plan to do is expand our business service
relationships with our existing customers, which number 2.6
million identities, both corporations and individuals.

That's from the credit side, what about from the funding side?

From the funding side, more than 70 percent is in the form of
savings, our deposits are small, consequently the cost of
handling funds is small as well -- one of the cheapest in the
country because of the small interest. This is in line with our
strategy to become a major player in payment services.

We're opening up accounts for clients to be used not only to
save money but also to do payment transactions. So, we're aiming
at group-based customers -- groups of distributors to certain
manufacturing companies for example. We have packaged-food firms
that involve thousands of distributors, or those who produce
consumer goods such as soap, toothbrushes, who also have
distributors in their thousands.

That's our focus.

Are major industry players using Lippo's payment services
currently?

We have customers in four major industrial sectors.

First, in the distribution of fast-moving consumer goods and
products such as houses, property, and cars. The second is in
health services, from hospitals to jamu whose distribution lines
are in the thousands also. The third are in education services,
funding schemes to colleges and the like. The fourth is
information services.

The important thing for us is to maintain our status as a
major player in payment services. In 2003, payments made through
Lippo averaged Rp 300 trillion (about US$35 billion) per month,
one of the largest in the country. And the funds are mostly
circulating in the bank which is why we are so liquid.

That's where our prospects lie.

So, do you think the bank can reap profits for this year?

It should do. Because we have cleared most of the bank's
obligations, which were the reasons why we suffered losses in
2003 (net losses stood at Rp 516 billion).

What exactly are the reasons for the losses, why did you not
extend credit as aggressively as other banks?

Last year, we concentrated on three things, none of them to do
with credit expansion. The first three months after I (became
bank president), we focused on how to clear the 2002 financial
reports, which at the time were at the center of a debate. The
second step, which started in June, was to increase the value of
shares ahead of the divestment program. When I arrived, each
share was priced at Rp 210, much lower than Rp 591 per share when
the bank was tendered to the Swissasia group.

The third step, in September, was facilitating the divestment.
So, basically we worked for only six months during 2003. It's not
an excuse, but we focused on consolidation important to regain
market trust, which was declining at the time all the hype about
Lippo occurred. Back then, when I joined the bank, 10 to 12
percent of deposits had been withdrawn.

And the losses?

Were mostly because we had to cover the deferred tax assets and
the interest payments of Rp 2.3 trillion of foreclosed assets we
acquired in 1998, which had been delayed for five years.

Deferred tax assets occur when a company suffers losses -- it
can delay income tax payments. Under a common accounting
practice, the delayed tax can be included on the balance sheet as
assets, called deferred tax assets. In Lippo's case, we had to
eventually release more than Rp 300 billion worth last year.

Can you see yourself feature in the next board of directors after
the acquisition of a majority stake in Lippo by Swissasia?

It's up to the new owners. I'm not going to steal the thunder
from the next board, I'm sure they will have good programs of
their own.

But, (if I had to leave) I would say that I'm leaving the
bank in good shape.