Rabobank Group of the Netherlands is a global financial services provider with particular strength in banking in the food and agrobusiness sectors.

Founded in 1898 through the merger of Utrecht's Co”peratieve Centrale Raiffeisen-Bank and Eindhoven's Co”peratieve Centrale Boerenleenbank, it now comprises 218 local banks with operations in 42 countries.

It continues to operate a personal-style and sustainability-oriented approach for its clients, as well as cooperative principles in accordance to its historic roots of rural communities providing financial support to each other.

In Indonesia, Rabobank started operations in 1990, and last year took on an expansion decision by acquiring Djarum Group's small-sized lenders Hagabank and Bank Hagakita, which focus on retail banking for small and medium-sized enterprises (SMEs).

Rabobank International Indonesia president Antonio da Silva Costa recently had the time to talk with The Jakarta Post on the bank's strategy and banking opportunities in the country.

The following are excerpts of the interview:

Question: Could you explain Rabobank's operations in Indonesia so far and what you expect ahead? What were Rabobank's considerations in acquiring Hagabank and Bank Hagakita?

Answer: Rabobank received its license in 1989 and started operations in 1990. We have a very strong focus in the agrobusiness, and up until last year, we were mostly focused in corporate banking through our only office in Jakarta.

Last year, we decided to invest further in Indonesia, we wanted to expand our activities, we want to go beyond corporate banking and into SMEs.

There was the option of opening our own branches, and an opportunity to acquire two local small banks -- Haga Bank and Hagakita -- which we took, and which are now under the process of integration into one bank.

We felt that these two particular banks fit our criteria. We didn't want to buy banks that were too big. We also felt their cultures were similar to ours: they are very conservative, their strategy is to be close to their clients.

And their focus is in SMEs, which gives them the expertise that we were looking for, and would fit with our corporate expertise.

Are there any plans to acquire other banks like Haga Bank, which focuses mostly on local SMEs?

Most of Haga Bank's branches are in Java, and there are also six in Lampung, two in Palembang, one branch in Bali, and one in Medan.

Going forward, we want to continue to open in Java, but we also want to focus on Sumatra and Kalimantan, because we feel the food and agrobusiness sector has large potential in those two regions.

I think we have to finish the integration first, so that it works smoothly in terms of systems, but more importantly in the people. After that, we will see other opportunities to buy banks that fit in terms of the regional network. We will try to find small banks that fit the criteria.

Speaking of Rabobank's business in terms of lending figures, how is it so far? What sectors have you mostly provided your banking services to?

Our lending portfolio today is about 60 percent in the food and agrobusiness sector. Going forward, we will continue to focus on that sector, and also on SMEs.

We also focus a lot on trade in agriculture commodities, like pepper, sugar and palm oil, of course. We have industry knowledge, so we feel we have a competitive advantage in these sectors.

Our loan portfolio, after the merger is completed next year, is going to be about Rp 10.3 trillion (US$1.1 billion). Last year it was some Rp 3 trillion. We're going to be a mid-sized bank.

In the next five years, we would like to have 35 percent corporate, 55 percent SMEs, and 10 percent consumer lending.

How do you see the potential for more lending in food and agrobusiness?

The potential is still quite big, as agrobusiness in Indonesia is still an important component of the overall economy.

There is also still a big potential in Indonesia to increase productivity. The land is rich, the climate is good, Indonesia should actually be exporting food to the rest of Asia.

I think now is a good time to invest for the bad times. Invest in machinery and so on, to become more efficient.

The palm oil sector I think is already competitive worldwide, with existing large plantations and modern agriculture techniques.

But many other sectors, like sugar, cocoa and coffee, are still mostly smaller farms, and there is a need to invest in better seedlings, fertilizers, and machinery.

What kind of problems do you see in providing loans to SMEs, and what will Rabobank do to overcome them?

I think the big issue for most SMEs when going to banks for lending is collateral, what kind of collateral can they give.

But I think banks now are also starting to look at the cashflow and the operations of the company, and not just collateral.

When banks get more used to this concept, then SMEs can get more access to financing. A lot of banks are starting to install credit risk weighting systems based on cashflow, so hopefully with time, SMEs will have more access to the banking system.

SMEs themselves also have to learn modern management techniques and utilize information systems, and the banks can also play a role by teaching the SMEs.

Haga Bank which we acquired has been developing a lot of relationships based on how the SMEs are doing besides collateral. We plan to expand on that over time.

Coming back to the lending focus, what other sectors does Rabobank see as having potential and plan to expand to as well?

No sectors specifically, but we are looking at the distribution sector related to agrobusiness sector.

The telecommunications and pharmaceutical industries are also prospective industries.

The telecommunications market is dominated by big players who have easier access to the financial markets, so there are limited opportunities for banking, but there are still smaller players with the potential for that.

The pharmaceutical industry is still too fragmented, too many small companies, so there should be a consolidation process to improve the economy of scale and provide opportunities for financing through the banking system.

We will be careful in the real estate sector. We think the sector is expanding very fast, so banks have to be careful, because the experience of the 1997 (Asian financial) crisis was only ten years ago.