NISP sees lively business in manufacturing sector next year

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.