NISP sees lively business in manufacturing sector next year

Bank NISP, originally named NV Nederlandsch Indische Spaar En Deposito Bank, is one of few local banks that managed to survive the 1997 Asian financial crisis without government assistance. The ability of the Bandung-based bank to survive the crisis was primarily due to its strong engagement with the small-and-medium enterprise (SME) sector. The Jakarta Post's Rendi A. Witular interviewed the bank's president, Pramukti Surjaudaja, on the business outlook of local SMEs next year and the bank's strategy to tap the market. The following is an excerpt of the interview:

Question: How do you see next year's banking industry in relation to the SME sector?

For this year, we have projected a modest lending growth of between 10 percent and 15 percent, due to the low demand from the business sector following concerns over political uncertainty during the general election. Aside from that, competition between banks in offering loans is also getting stiffer. There are abundant loan facilities provided by banks this year, however, there is a lack of demand from the business sector.

As for next year, I think it is going to be brighter, since the business community realizes that there will be no more political uncertainty after the general election. Political uncertainty is a major concern of businesses.

However, there are still concerns next year over the price of oil, the movement of the rupiah against the U.S. dollar and the lack of foreign direct investment (FDI) in the country. Long-term infrastructure projects will not be planned or constructed unless there is a flow of FDI. More SMEs will emerge if there are infrastructure projects.

We expect our lending to grow by at least between 20 percent and 30 percent next year, or about Rp 3 trillion (US$333 million) to Rp 5 trillion.

We plan to allocate some 31 percent of our lending for the manufacturing sector, 27 percent for the consumer sector, and 20 percent each for the trading sector and the service sector. The figures are relatively the same as this year's allocation.

For manufacturing, we have allocated a larger chunk of the loans for the textile, garment and footwear industries. We are surprised that these industries have actually performed, and that they are not a risky business. What happened is that the industries have undergone, for some time, a filtering of good companies: only companies that perform well have been able to survive.

Many of the textile and garment companies said their sales doubled last year, and that their products can compete with China. So it is a mistake to negate these industries.

Aside from that, agribusiness and mining sectors are also promising. We are confident that investment in the mining sector will flow again next year due to more legal certainty. We expect a lot of SMEs will emerge to support the mining sector.

Our net profit this year is expected to rise by between 30 percent and 40 percent. For 2005, we expect growth to be at least the same as this year.

How will you cope with stiffer competition in the banking sector next year?

We already have a 300,000-strong customer base for lending. We plan to expand it by setting up 30 to 40 new branches, mostly in cities outside Java. In total, we will have 200 branches at the end of 2005 from 160 at the end of this year.

With an expansive lending program next year, we will also try to maintain our capital adequacy ratio (CAR) above 12 percent. Currently, our CAR stands at 14.6 percent. We will try to maintain our CAR at that level by issuing subdebt or selling more of our shares via a rights issue scheme if necessary. Our tier I and tier II capital totals Rp 1.7 trillion.

We are also planning to focus on developing our network outside Java. Regional autonomy has given us the chance to expand into an untapped market. We have projected that several areas with huge natural resources outside Java will become a new economic driver for the country in the next couple of years, and we are currently preparing to tap that market.

We have also projected that our net interest margin may decline to 4 percent next year from 4.6 percent at present as a result of the impact of another rise in U.S. interest rates.

How do you see the trend among local banks engaging in the SME sector?

If the banks originally engaged in the corporate sector, then they will need some time to develop. They will need infrastructure and expertise for that.

However, the definition of SME varies. There are banks that define SMEs as companies with assets below Rp 100 billion. For NISP, we define an SME as an enterprise with assets below Rp 10 billion.

Do you have any plan to merge or acquire any financial institution?

Not at this moment. Our assets only account for 1.5 percent of the total banking market. So we still have room to develop. For Indonesia, the market is still growing. Our priority remains organic growth, since acquisition only fits with a market that has already matured or with little option for growth. In the last five years, we have grown by 45 percent without any acquisitions or mergers because the market is still huge.

Is there any plan on the part of the Overseas-Chinese Banking Corp. Ltd (OCBC), Singapore's third-largest bank, to increase its ownership in NISP? (OCBC at present owns 22.5 percent of NISP)

Neither NISP or the OCBC have closed any opportunity for that. It depends on the needs of NISP. Any plan for the OCBC to increase its stake in NISP remains open, but at present it is uncertain.