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.