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The persistent drop in central bank Bank Indonesia's
short-term promissory notes (the BI rate) during the second half of
2006 will undoubtedly create a better chance for the country's banking
industry to speed up its lending growth, which suffered a major setback
during the year.
The BI rate, which climbed as high as 17 percent in the first months of
2006, gradually declined in the second half, reaching 9.75 percent in
November as inflation eased.
PT DBS Bank Indonesia has also made a number of concrete plans to
benefit from the improved economic conditions.
The bank's president director, Scott Amstrong, shared his optimism and
plans with The Jakarta Post in an interview recently. Below are
excerpts.
Can you tell us about your performance so far in Indonesia? PT DBS Bank
Indonesia, which is a subsidiary of the Singapore-based DBS Group
Holdings Ltd, has been operating in Indonesia since 1997. We have been
through a couple of incarnations, changing from PT Mitsubishi Buana
Bank when it was taken over to PT Bank DBS Buana in 1997, and again to
DBS Bank Indonesia in 2000 when its ownership share in the bank
increased from the previous 85 percent to 99 percent.
When it was taken over by DBS, the business was very small. We grew the
business after the crisis as a small competitor in the industry. The
business stayed reasonably simple for the next four or five years.
But then in 2003, we saw an opportunity in corporate lending, since
there was increasing demand from companies. We did it quite
aggressively. So from 2003 to 2004 and 2005 DBS went through
significant growth, in corporate lending, growing the trade business
and growing the market business. That's been quite successful.
Can you describe the growth during the last few years? From 2003 to
2005, we've been growing between 80 and 100 percent per year. Our
corporate lending last year amounted to around Rp 7 trillion (US$778
million).
This year is a little bit different. This year we've been working on
new business and consolidating after rapid growth during the last three
years. But this year, after the rise of fuel prices, we saw
double-digit inflation, double-digit interest rates, falling consumer
demand, and also a change in the regulations affecting credit cards. We
definitely saw investments slow down.
Where did your loans mostly go during the last three years? We're not
too heavy in one or two sectors. Our loans are widely diversified among
many sectors. Although the manufacturing sector did not perform well
this year we still have our loans channeled to that sector. But
agriculture and mining are the biggest recipients; they have about 25
percent of our loans. We've been involved in financing palm oil in
Sumatra and Kalimantan, coal and nickel mining in Kalimantan.
This year we're continuing to grow in agriculture, but we're a bit
cautious about mining because commodity prices were topping out at the
end of 2005 and early 2006.
How do you see the real sector up until now? The real sector in 2005
was still quite active. In 2006 it slowed down, and that's driven by
the reduction in consumer demand. There were also concerns over
inflation and high interest rate. But I think we've now seen things
start to reverse. Interest rates are down, inflation is down. We're
looking at single digits. Economic growth during the last 12 months I
think was much stronger than expected.
And the signs for 2007 are quite strong. Not across the board, but
generally quite strong. We've seen some parts of the economy where
consumers' demand has returned and they're buying again. But some other
parts are seeing slower demand.
There are a lot of issues there facing the real sector. But I think
people operating in Indonesia have accepted a variety of issues and
accepted a degree of reform. And we've seen reform happen.
How much will your business expand in the year ahead? We expect a much
stronger year. Inflation is down, the interest rate is declining, and
consumer demand is growing. This year alone we expect to reach the
target of 25 percent growth in our corporate lending.
On the business side we're looking for two new business lines, both
management and mid-cap sector, to contribute significantly. We expect
that our growth for the next three years will be greatly driven by the
mid-cap sector.
We're looking for historically strong markets, corporate, capital,
financial and trade, which continue to do very well. And we're looking
at our geographic diversity. Currently we operate in five cities:
Jakarta, Surabaya, Medan, Semarang and Bandung. Probably, three or four
more cities next year. Maybe one more in Sumatra, one on Bintan Island,
one in Kalimantan, and perhaps one in Sulawesi.
Is there any plan to take over small banks here? For the last three
years our bank has been growing on an organic basis. And we believe we
can continue to grow to become a much more important bank in Indonesia.
We're very keen to look at all opportunities that are available. We're
always looking for opportunities. And if those fit with our strategy
and philosophy, of course, we'll give them serious consideration.
Are any banks currently under negotiation? Ha ha ha ... I can't tell
you that.
Do you also provide loans to small and medium enterprises (SMEs)? About
five percent of our loans are going to small and medium enterprises
this year. We hope to increase the amount next year. But we can't
accommodate the demand for very small loans. We don't have the network
and infrastructure for that kind of financing. So, we'll focus on the
medium part of SMEs rather than the small part.
What is the percentage of DBS group's income from Indonesia? I don't
have an exact number. But DBS Indonesia is the third biggest
contributor, after Singapore and Hong Kong, to DBS group in terms of
profit. And I can tell you that it will be a much bigger percentage
next year and a much bigger percentage the year after. We want more
from Indonesia. We want Indonesia to become a more significant
contributor to DBS group. And that's our challenge, to realize that.
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