Can you imagine withdrawing money from an ATM without an ATM card?
As little as five years ago that was only a dream, even a joke, but nowadays it has become reality, part of the arsenal of the banking industry rolled out by belligerents battling for market share.
As smartphone penetration has snowballed, a bank’s competitive advantage now relies not merely on product innovation but also on the varied channels — among others IT — used to deliver them.
Bank Permata prides itself on being a leader in innovation and technology, adopting a variety of electronic channels, while at the same time maintaining strength in market awareness.
The bank’s Internet banking system — which can be downloaded for free from the app store — has hundreds of features that make it easy for customers to conduct banking transactions for any purpose.
“While our funding strategy to our existing market will be aggressive, we also provide space to sell our insurance products, bonds and other wealth management products, besides varied services for customer convenience,” Bank Permata retail director Bianto Surodjo says.
As the number of middle-class customers surges, Bianto says the need for wealth management is growing by about 20 percent per year, and this year he targets growth of about 50 percent, despite all the predictions of a slower economy.
The company booked about Rp 1.2 trillion ($98 million) in fee-based income last year from services such as trade financing and foreign exchange, and expects that figure to double in the next two years.
Despite the expectation that tight money policy will continue since the industry’s loan-to-deposit ratio (LDR) is sitting at about 90 percent, Bianto says he believes Bank Permata will still be able to provide loans for its customers, especially in areas such as mortgages, personal loans and automotive credit in cooperation with finance companies.
“Our range of products is diversified, and technology helps these products easily reach out to individual customers. For example our one-day loan service through our unconditional borrowing KTA [home loan] Speed product really does only need one day to process,” Bianto says.
He claims that home loans can be approved and paid out in just five days.
“Amid the relatively tight money policy, each bank has to aggressively identify customer needs while transaction security through technology is also fundamental,” he adds.
Third-party funds have also increased over the past three years, helping the bank to promote its innovative retail products and wholesale services.
As of December last year the total savings absorbed by Indonesian banks had reached about Rp 4.2 trillion with an annual growth rate of about 11 percent for the past three years.
The bank’s chief economist, Joshua Pardede, says he believes that amid the slowdown in lending there are some situations that provide banks with ample opportunities.
“The opportunities for the banking industry this year include the likely relaxation of macro-prudential policy. The Financial Services Authority [OJK] plans to adjust the loan-to-deposit ratio to become a loan-to-funding ratio [LFR], in which bonds, marketable securities, bilateral loans and MTN [medium-term notes] issued by a bank will be included as funding in the LFR calculation. The change will likely benefit some banks that have been issuing bonds or will likely attract banks to issue bonds in order to boost sources of funds,” said Joshua.
The industry also faces a challenge from the potential lowering of net interest margins (NIM). At the same time the authority also plans to urge the banking industry to lower lending rates, following its move to cap time deposit rates in September 2014.
Coordinating Economics Minister Sofyan Djalil has indicated that the government will lobby for an easing of interest rates to boost the economy, as inflation is heading for a comfortable level at around 4 percent.
“Amid the upside risk that Bank Indonesia will likely maintain its tight bias monetary policy, the deposit rate will also likely remain high, suggesting the potential for a lower NIM in 2015,” Joshua adds.
Bank Indonesia dropped its benchmark rate a quarter of a point in mid-February, reflecting lower fuel prices, taking it back to the level of 7.50 percent.
Despite the continuing general economic slowdown, some sectors are expected to be stable and even expand. Joshua adds that in line with slowing private consumption and the slow domestic economy, non-performing loans (NPL) have been rising significantly, from 1.77 percent in December 2013 to 2.36 percent in November 2014.
“We estimate that NPLs will deteriorate further in the first half of 2015 and improve in the second half on the back of improving economic growth, higher loan growth and lower lending rates,” he said.
“We believe that the mining and agriculture sectors will continue to slow down due to the downward trend in commodity prices, while the consumer goods, infrastructure and services sectors will improve.”