Call Girls Near Delhi Pride Hotel, New Delhi|9873777170
Andalusia Antar Benua
1.
2. EXECUTIVE SUMMARY
1. Bank in Indonesia is facing an opportunity to double its market capitalization by building a
dominant presence in the Indonesian Mass Market
2. We completed our assessment of the Mass Market by mapping the Rp50-200 million Small
Business loan segment. This segment is very attractive:
• The size of the market is significant (revenue pool of ~IDR8 trillion, to be added to the
IDR50 trillion represented by Micro Business, Credit Class, and Lower Mass segments)
• The segment is under-penetrated (only 25% of potential customers are served today)
• Customers are neither sophisticated nor price sensitive
• There is an additional opportunity – not quantified in this document – to capture deposit
revenue by consolidating the wallet of credit customers (mostly from BCA)
3. Small Business customers require a simple value proposition:
• User-friendly – documentation requirements and turnaround time
• Accessibility – with simpler collateral requirements
• Convenience – Location close to these customers
• Simplicity – Products targeted specifically to the needs of Small Business sub-segments
3. EXECUTIVE SUMMARY
4. To capture the Mass Market opportunity, We needs to build a fundamentally new
delivery engine combining acquisition of “good” BANKs and/or building Bank “Units”
from scratch
• ~600 Units will give us 20% of the existing mass market (IDR10 trillion assets)
• Depending on execution speed, the project NPV is in the IDR6-9 trillion range
• Cash outlay is in the IDR100-600 billion range depending on the speed of the rollout.
5. Overall, banking industry remains in a stable condition and convinced to be run
prudently, which is reflected in the well-maintained CAR and safe level of NPL.
Improved market confidence also bring more optimism to further Banking
Intermediation function, Going forward, BI will keep a close watch on bank lending
growth to keep it within the range envisaged in the Bank Business Plans. Special
efforts will be devoted to increase credit for productive purposes.
4. Introduction Overview Indonesia is set to be one of the economic
powerhouses •
Indonesia’s banking sector has stabilised, ready for rapid of the twenty-first
century •
The country is the fourth most future growth. Bad debt ratios are declining,
demand is populous in the world, is rich in oil, coal and rising and balance sheet
quality has improved; minerals (including gold, copper and the world’s largest tin •
By 2050, Indonesia’s economy could be bigger than projected domestic credit is
expected to be some the UK or Germany times •
Although international organisations have built up a significant INVESTMENT •
Acquisition (up to 99% foreign ownership permitted) presence in the Indonesian
banking sector is VERY PROMISING through the sale could prove a relatively quick
and effective way to of banks •
Now, Indonesia is moving to the centre of the radar as interest •
For example, a survey of 230 financial executives from across – Significant foreign investment in
banking sector: Bank Central Asia 2002 51% Farallon Capital
Bank Niaga 2002 51% Commerce Asset Ventures Sdn
Bhd
Bank Danamon 2003 51% Temasek/Deutsche
Bank Internasional Indonesia 2003 51%
Temasek/Kookmin
Bank Lippo 2004 52% Swiss Bank Consortium
Bank NISP 2004/05 71% OCBC
Bank Buana 2004/05 61% UOB
Bank Permata 2004 51% Standard
Chartered/Astra
Bank Lippo 2005 83% Khazanah Nasional Bhd.
Financial Services Investment prospects
in the Indonesian banking sector
5. Having largely recovered from the impact of the Asian •
The corollary of this immense economic potential will be financial crisis of
1997, the Indonesian economy is now transformational long-term growth in demand
for banking pushing forward into a period of strong and sustained services •
PricewaterhouseCoopers research indicates that growth. GDP expanded by 5.5% in
2012 and is expected to by 2050, Indonesia will have developed a banking sector increase
by an average of 5.8% until the end of the decade comparable in scale to a major European
economy such as •
Inflation has fallen from a high of 18% in late Greek or Italy
Source: Economist Intelligence Unit, „Country Profile‟
Indonesia, 21.05.012
Investment Environment
6. • Opportunities in the Small Business market
• Developing the model to capture opportunities
in the Mass Market and Small Businesses
• Next steps
• Appendix
Content
7. OVERVIEW OF INDONESIA’S BANKING
SEGMENTS
ROUGH
ESTIMATE
Target
segment
Affluen
t
Mass
affluent
Mas
s
Unbankable
s
Segment
s
Commercia
l banks
BRI
and
BPRs
Annual
house- hold
income
threshold
IDR million
No. of
household
s Millions
Potential
loan range
IDR millions
~0.
5
+15
0
~2 ~50-150
(+ credit
cards)
~4
1
~1-
50
~1
2
–
~40
0
~15
0
~5
Target segment
consist of
approximately ~40
million households
Source: Asian Demographics; team
analysis
8. Busines
s
Individua
l
Small
business
Credit
class
• Profile: Small shop
owners
• Profile: Middle-working class
(typically white collar)
• Household income: IDR 25-
150 million
• Loan range: IDR8-10 million
• Typical products: Credit
cards,
Debit cards, unsecured loans
• Household income: IDR25-
150
million
• Loan range: IDR30-40 m
• Typical products: Small
loans, for
investments, working capitalMicro
business
Lower
mass
• Profile: Stall
owners, small
traders, farmers
• Profile: Government
servants, blue collar workers
• Household income: IDR5-25
million
• Loan range: IDR1-2 million
• Typical products: Emergency
loans,
small consumption credit loans
• Household income: IDR5-25
million
• Loan range: IDR 3-5
million
• Typical products: Working
capital, smallloan
s
~15
0
~2
5
~5
EXAMPLE
S
Annual
household
income threshold
(in IDR million)
Source: Team analysis; site
visits
MASS SEGMENT CAN BE FURTHER BROKEN
DOWN IN FOUR DISTINCTIVE SUB-SEGMENTS
9. Number of loan accounts between IDR50-IDR200 million
Thousand of businesses or accounts
Most banks have "commercial lending" approach which makes serving Small Businesses
inefficient
•Cumbersome processes and long turnaround time (typically
53
7
70
0
Total number
of loans IDR
50-200
million
• Stringent collateral requirement
• High operating cost
Market is only 25% penetrated
BPRs and BRI unit desas do not go beyond IDR50M loan
size
163
• BRI holds ~19% market share
• Bank has ~17,000 loan accounts in this
segment (~6% market share)
Source: Asian Demographics; BPS; US AID; Bank Indonesia; team analysis
Total number
of businesses
Untapped
businesse
s
>2
weeks)
THE SMALL BUSINESS SEGMENT IS
CURRENTLY UNDER-PENETRATED …
10. • Small
business
• Credit
class
• Micro
business
• Lower mass
Segmen
t
No. of
HH/business
Million units
2.5
2.9
16.
3
19.
2
Annual revenue
poolsize
IDR
trillions
~23.0-
31.0
~7.0-
9.0
~15.0-
25.0
~6.0-
12.0
Current
players
• BRI, BPR
• BCA, Mandiri, BNI,
Danamon, BII, othe
r banks and non-
bank FIs (e.g. GE
Capital)
• BRI, BPR
• BRI, BP
R
~41 million
household
s
IDR 50-80
trillion
p.a.
ROUGH
ESTIMATE
Key
question:
How much
potential can
we capture?
Source: Asian Demographics; annual reports; site visits; team analysis
OPPORTUNITIES ARE HIDDEN IN THE LOWER
INCOME SUB-SEGMENTS WITH FEWER
COMPETITORS
11. ROUGH
ESTIMATE
Number of loan accounts IDR 50
million Million households/accounts
26.
0
15.
0
3.
1 1.
8
10.
1
41.
0
Source: BI; annual reports; site visits; team analysis
Total no. Untapped Total no. BRI BPR BPD,
of HH in potential of loans commer-
mass IDR 50 cial
segment million banks
ROUGHLY 26 MILLION HOUSEHOLDS IN MASS
SEGMENT CURRENTLY UNTAPPED
12. * For secured lending; assumptions: mortgage rate currently at approx. 15%, deposit interest rate at
approx. 7%
** For good BPRs, NPLs as low as 2-4%
Player
s
23
22
BRI
BPR
(overall
industry)
Interest spread for
loans IDR 50
millions Percent
1.6
~9*
*
NPL
ratio
Percent
~8*Industry
average
~7
Source: Annual reports; field visits; team analysis
MASS MARKET HAS ATTRACTIVE ECONOMICS
WITH LOW NPL LEVELS POSSIBLE
13. Previously reviewed
New segment
explored
Small
busines
s
Profes
-
sionals
Unbankabl
e
Micro
busines
s
Credi
t
class
Turnover of
IDR350-1,000 million
Small family-owned
businesses, mainly
in
retail and
trading, typically
with <20 employees
Loan size
IDR
millions
20
0
50
5
1
Low - Middle
working
class (white
collar
workers)
Governmen
t servants,
blue collar
workers
Lowe
r
mass
SME,
commercial
, corporate
Affluen
t
Household
income
IDR millions
150-
400
25-
150
5-
25
Self -
employed
Employee
s
Turnover of
IDR10-350 million
Micro
enterprises, mainl
y stall owners
& petty
traders
>40
0
Affluen
t
Source: Asian Demographics; Bank Indonesia; BPS; team analysis
Mass
affluen
t
Mas
s
Unban
- kable
MASS MARKET SEGMENTATION OVERVIEW
14. Number of
entities
Millions
* Lower target spread are for current tapped market. Assume that banks can charge a higher rate for untapped
customers
** Includes micro and what was formerly known as small businesses (turnover IDR50 – 350m) in earlier progress
review
Average loan
size
IDR millions
Total loan
potential
IDR trillions
Loan
spread
Percent
Revenue
pool
IDR trillions
E
M
P
L
O
Y
E
E
S
Credi
t
class
Lowe
r
mass
S
E
L
F
E
M
P
L
O
Y
E
D
Small
busines
s
Micro
business*
*
2.9
19.
2
~0.
7
18.
8
1-
2
~8
4
7-
9***
19-
38
~5
8
123-
180
32
%
9%-
15%*
27%-
32%
36-
53
8-
10
23-
29
32
%
7-
9
6-
12
~8
SMALL BUSINESSES ADD IDR8 TRILLION REVENUE TO THE
IDR50 TRILLION OF THE REMAINING MASS SEGMENTS
15. * BNI built 76 micro-banking units to attack loans IDR50 million
** Play through Swamitra (196 units to Indonesia)
5,00
0
1,00
0
20
0
50
* **
Mandiri
BN
I
BC
A
BR
I
BII
Bukopi
n
NIS
P
Lipp
o
Buana Danamon
BPR
s
Low focus High
focus
SUCH SMALL BUSINESS LOANS ARE
NOT THE FOCUS FOR MOST BANKS
16. * In bracket is proportion of the project that can be financed by bank
** Can make exceptions and loan up to 15 years
Source: Branch Visits/Interviews
BRI BNI Bukopin NISP Buana Danamon
• Product name Kredit Ritel Kredit Produktif Kredit Usaha Kecil KRK (WC), Kredit
Aksep (Inv.)
KRK (WC),
Angsuran (Inv.)
KAB & KRK
(micro)
• Size of Loan 50 – 5 billion 50 million – 5 billion 100 million – 1.5
billion
50 m – 5 billion N/A 50 – 200 million
• Duration
– Working Capital*
1 year (100%) 1 year (100%) 1 year (80%) 1 year (100%) 1 year (70%) 1 year (75%)
– Investment* <5 years (65%) <5 years** (65%) <5 years (70%) <5 years (70%) <5 years (70%) <5 years (75%)
• Pricing
– Interest
17-19% 16.5% 18.5% 15.5% 17% 18.5%
– Provision 1% (0.5% for 1% 1-3% by loan 1% 1% 1%
extension) duration
– Admin. Fee Maximum 150 Maximum 150 Maximum 250 0.1% 0.1% 0.2%
thousand thousand thousand
• Collateral Land/Building Land/Building (HGB) Land/Building Only land with “Hak Pakai” Land/Building
(HGB) (70-80%); (100%), inventory; (HGB) (80%); building (85%). acceptable (70%) (Hak Milik) (75%);
Secondary: Auto Secondary: Auto Secondary: Auto Secondary: Land Auto and
(60%) (60%) (80%) only and auto receivable as
(negotiable) secondary
collateral
• Credit Process
– In branch
Branch Retaill Business Ctr Regional Office Branch Regional office Branch
– Approval time 1-2 months 2-3 weeks 3-4 weeks 3 weeks 2-3 weeks 3-4 weeks
• Other conditions Be in business Be in business for 2 Be in business for Be in business for Accept 1 year Be in business for
profitably for 2 years. Only borrow 2 years 2 years. business 2 years
years from BNI experience.
• Distribution point Lending Branch
(larger branches)
Retail business
centers (e.g. only
Regional office Limited branch Regional office 170 lending branch
four in Jakarta)
MARKET LANDSCAPE : NO ONE HAS A
REAL DISTINCTIVE OFFERING FOR THEM
17. Both potential and existing
customers prefer simplicity
over price
* Clearly unaware that 16%
flat rate is approximately
equivalent to 29% effective
“Which of the hypothetical packages do you
prefer?”
Percent respondent (by group)
Potential
customers
“I am thinking of switching to BRI.
They have a product offering
interest 16% flat, while in
Indonesia is 19% effective”*
“I make more money than the
interest payments. I get a loan –
I make money. Just by being
able to pay cash to my suppliers,
I may have recouped the interest
expenses.”
“When I borrow money, it is
typically because of cash-flow
problem. I don’t mind paying a bit
more if they give me money
faster.”
Package 1
•1% monthly rate
•Cumbersome loan
process and
requirements
14
%
86
%
Package 2
•1.5% monthly rate
•Simple loan
process** and
requirements
Current
customers
40
%
60
%
Quotes from
customers
Source: Customer interviews; mystery shopping
SMALL BUSINESS CUSTOMERS ARE NEITHER
SOPHISTICATED NOR PRICE SENSITIVE
18. Deposit needs already
fulfilled by BCA and
other commercial
banks
Gap in
Loan
Needs
Deposi
t
• Savings
account
• Current account
Credi
t
• Loa
n– Working
Capital
– Investment
MOREOVER, THERE IS POTENTIAL TO CAPTURE THE WHOLE
WALLET BY FULFILLING THE LOAN GAP
19. – Head of retail banking of a competing bank
– North Sulawesi head of Regional Chamber of Commerce
– 1 senior account officer of a leading bank
– 1 notary
* 16 commercial banks, 2 BPRs and 2 Swamitra (Bukopin‟s
Key success
factor
• User-friendly
documentation
requirements
and turnaround
time
• Accessibility
with simpler
collateral
requirements
• Convenience
Location close
to these
customers
• Simplicity
Products
targeted
specifically to
the needs of
Small Business
sub- segments
35 customer interviews
conducted
20 branches
visited
6 other interviews conducted
– 2 in Indonesia branch managers
1
2
3
+
+
4
Source: Team interviews, mystery shopping
FURTHER STUDY INTO THIS SEGMENT
REVEALS 4 KEY SUCCESS FACTOR
20. USER FRIENDLY DOCUMENTATION AND FAST
TURNAROUND
“When I need to borrow, I‟d rather pick a bank that can process my loan application
faster”
* 4-6 documents; including a certificate from the Ministry of Justice
** In addition: premise diagram, map of location
*** With complete documentation. When incomplete, may take a few months
Business Document
•Application form
•Tax registration
(NPWP)
•Company registration
(TDP)
•Business operation
registration (SIUP)
•Location approval
(Surat domisili)
•Incorporation letters*
•Personal
identification
•Current account
records
•Financial statements
• Production records
• Purchasing records
• Family certificate
(KK)
• Marriage certificate
(Surat nikah)
Collateral Document
•Licenses (Hak Pakai/
SUB/SHM)
•Sales contract (AJB)
•License to build
(IMB**)
•Property tax (PBB)
•Insurance
. . . But documentation requirements
by banks are daunting and process is
slow
Check
list:
“I never do a cash flow or balance sheet
statements. My income statement is also
incomplete. If I have to do these
documentations, I will not apply for a loan.”
Customers demand simple
documentation and fast turnaround . . .
Typical turn-
around time >2
weeks***
1
Source: Customer
21. 20
ACCESSIBLE AND SIMPLE COLLATERAL
REQUIREMENTS
* Tanah Helikopter is ancestral land and is not located by the street (a major requirement for
many banks)
** Buana accepts hak Pakai as 70% collateral, HGB as 80%, and Hak Milik as 100% Source:
Customer & branch interviews
Customers often have different
collateral…
Accepted as collateral by commercial
banks
“I want to borrow but I have only Hak
Pakai (Right to use
- for the shop). Banks cannot accept
this as collateral. Thus, I cannot
borrow”
“Many of the potential customers have houses on
Tanah Helikopter*. To cover these customers, we
must accept their simpler collateral”
Danamon Branch Manager
Full
ownership
Lease
Not
accepted as
collateral by
commercial
banks
… than those accepted by
banks
• Hak Guna Bangunan is more
common in Jakarta
• Hak Pakai is more common
outside Jakarta (e.g.
Kotamadya Surabaya
predominantly issues Hak
Pakai)
“We have to take Hak Pakai because this is the
only collateral most of these people have.”
Bank Buana Account Officer
2
Sertifikat Hak Milik
•Certificate of
ownership
•No time-limit
•Only available for
Indonesia citizen
Hak Guna
Bangunan(HGB)
•“Right-to-use” issued
by the government
•20-30 years
duration
•Can be extended
Tanah Adat
•“Ancestral land”
•No time-limit
•More common
outside Java
Hak Pakai**
•“Right-to-use” typically
issued by SOEs and
provincial governments
•20-30 years duration
•Can be extended
22. CONVENIENT ACCESS TO BRANCHES AND BANK STAFF
“I need the bank to be near my customers (small
clove sellers in the market).”
A clove trader
“I have to man this shop. I do not have people I
can trust to bring the payment back to branch.
If I go to a far-away bank, I loose money”
Owner of an electrical shop, Surabaya
“I do my business on cash basis. I need the
bank to be near the shop”
Owner of a
gold shop, Bekasi
“We go out to the shops to visit customers and get
the business. They cannot leave their shops
during business hours.”
NISP Account Officer (Face-to-face interview)
“I and my friends join NISP because they come
and offer the loan products to our shops.”
Owner of house-ware shop
3
Source: Customer interviews; mystery shopping
23. FURTHERMORE, PRODUCTS CAN BE MORE TAILORED
TO SPECIFIC CUSTOMER NEEDS
* May have borrowed through BPR previously
Rocketer
s
• Typically younger, 2-3 years in
business
• Rent premises
• First time bank borrowers*
• Not price-sensitive
• Borrows mostly for
– Growth working capital
– Investment in expanding business
Orbiter
s
• Typically older, 5-20 years in business
• Own premises
• May have borrowed from banks before
• Slightly more price-sensitive
• Borrows mostly for
– Overdraft for emergencies
– Short-term loans for predictable
business cycles (e.g., Hari Raya
peaks)
4
24. • Opportunities in the Small Business market
• Developing the model to capture opportunities in
the Mass Market and Small Businesses
• Next steps
• Appendix
CONTENT
25. * Excluding credit class
Requirements to serve mass*
and small business segments
profitably
• Location close to
small
businesses
• Low-cost
infrastructure
• Options
1 Acquire existing good
BANKs and turn them around
• Lower cost of funds
• Lower operating cost
• Enhance revenue
2 Build Prospective Bank
• Units greenfield
• Set up infrastructure
• Recruit good staff locally
• Gradually build customer
base and presence
Infrastructur
e
• Community knowledge
and
network
• Simple and fast
processes
• Flexible collateral
requirements
Busines
s system
Source: McKinsey
TO SERVE MASS* AND SMALL BUSINESS SEGMENTS,
A FUNDAMENTALLY NEW DELIVERY MODEL IS REQUIRED
27. Overhead
s
Back-
office
Front-
line
Teller Account
officers
8 Charging of fees
for other
services
7 Improved
inter- bank
funding cost
6 Lower
deposit
rate
1
Streamlin
e
overhead
s
2
Streamlin
e back-
office
5 Improve
deposit mix
from TD to
savings
3 Replace least
productive AO
4 Increase
account
loading from 110 to
180 (BRI unit desa
benchmark is 400)
PROSPECTIVE BANK CAN PULL 8 LEVERS TO
IMPROVE UPON THE TRADITIONAL BANK
29. Source: HCI analysis
ECONOMICS OF TURNAROUND ACQUIRED BPR
CASH FLOW VALUATION (million IDR) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Residual
(bn IDR)
NPV
(bn IDR)Net cash flow from operation Year 0 1,045 1,748 2,561 3,019 3,019
Investment (3,377) 21.56 15.15
NET CASH FLOW (2,333) 1,748 2,561 3,019 3,019
Profit & Loss Statement (million IDR) Year 1 Year 2 Year 3 Year 4 Year 5
Interest income Year 0 2,497 3,290 4,481 5,174 5,174
Interest expense 865 1,032 1,426 1,731 1,731
Fee income 25 66 157 259 259
Gross income 1,657 2,324 3,212 3,702 3,702
Operating expense 595 505 521 521 521
Provisions 134 191 276 328 328
NET INCOME BEFORE TAX 929 1,628 2,414 2,853 2,853
Balance Sheet (million IDR) Year 1 Year 2 Year 3 Year 4 Year 5
Loan balance 5,500 7,850 11,200 16,400 16,400 16,400
Cash 1,650 2,355 3,360 4,920 4,920 4,920
Deposit balance 4,895 5,070 7,620 8,670 8,670 8,670
Borrowings 1,766 4,628 6,178 11,783 11,783 11,783
Capital 490 507 762 867 867 867
Key Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
# of account officers 5 4 5 5 5 5
# loan accounts
- < IDR 50 million 550 575 700 800 800 800
- IDR 50 - 200 million - 25 50 100 100 100
# deposit accounts 2,675 3,855 3,855 5,790 5,790 5,790
Loan-to-Deposit Ratio 112% 155% 147% 189% 189% 189%
Cost of Fund n/a 10.6% 8.8% 8.3% 8.5% 8.5%
Load 110 150 150 180 180 180
ECONOMICS OF ACQUIRING AND TURNING
AROUND A “GOOD” BANK
30. Source: McKinsey Analysis
OVERALL ECONOMICS
CASH FLOW VALUATION (bn IDR) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
0 Residual
(tn IDR)
NPV
(tn IDR)Net cash flow from operation 20 175 562 1,088 1,521 1,722 1,762
Investment (178) (312) (284) - - - - 12.59 7.70
NET CASH FLOW (157) (137) 277 1,088 1,521 1,722 1,762
Profit & Loss Statement (bn IDR) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Interest income 80 473 1,201 2,029 2,684 2,992 3,053
Interest expense 28 156 380 642 874 995 1,021
Fee income 2 11 33 70 115 145 153
Gross income 54 328 855 1,457 1,924 2,141 2,184
Operating expense 40 157 278 319 324 326 327
Provisions 5 27 71 124 168 189 194
NET INCOME BEFORE TAX 10 144 506 1,014 1,433 1,626 1,664
Balance Sheet (bn IDR) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Loan balance 339 1,489 3,360 6,147 8,471 9,676 9,676
Cash 102 447 1,008 1,844 2,541 2,903 2,903
Deposit balance 230 1,036 2,215 3,546 4,478 5,115 5,115
Borrowings 188 795 1,931 4,090 6,086 6,952 6,952
Capital 23 104 222 355 448 512 512
Projected Market Share 0.68% 2.98% 6.72% 12.29% 16.94% 19.35% 19.35%
CORRESPONDING OVERALL ECONOMICS
31. Acquisitio
n of good
BANKs
Pr
o
Co
n
Recommended
share of total
• Leverage
existing market
knowledge
• Existing
customer base
and loan book
• Local franchise
• Potentially
expensive
acquisition
premium
• Lack of quality
candidates willing
to sell
• Lack of
transparency
• Difficulty to prevent
previous owners to
restart and poach
customer base
1/3
Greenfield
developmen
t of
Prospective
Bank Units
• Avoid
acquisition
premium
• No culture
shock
• No legacy
NPLs
• Take time to
build customer
base
• Challenge in
recruiting skilled
account officers
2/3
Estimated NPV
(IDR billion)
15.
2
16.
9
ROLLOUT OF PROSPECTIVE BANK UNITS SHOULD COMBINE
BANK ACQUISITIONS AND GREENFIELD DEVELOPMENT
32. • Opportunities in the Small Business market
• Developing the model to capture opportunities in
the Mass Market and Small Businesses
• Next steps
• Appendix
CONTENT
33. We recommend Prospective Investor to take the following no-regret / low-risk steps to:
INVEST …!
•Launch quantitative market research (will be done by AAB)
– to confirm customer preferences, segmentation and price sensitivity
– to refine the economic model
•Select a target market and scan for potential Bank acquisitions (for example by asking
AAB to recommend potential targets) :
– Develop acquisition criteria
– Identify high-potential candidates and conduct due-dilligence
•Prepare a business case for discussion with the Board
In about 2 months, Prospective Bank Management should be in position to make the first
Go
/ No Go decision to proceed with building Prospective Bank Unit pilots and acquiring a
small
number (e.g., 3-5) pilot BANKs.
About 4 months later, Prospective Bank Management should review the progress of
these 2 initiatives, update the business case and make the definitive Go / No Go decision
to proceed with the overall rollout of the Mass Market strategy.
IMMEDIATE NEXT STEPS
34. • Opportunities in the Small Business market
• Developing the model to capture opportunities in
the Mass Market and Small Businesses
• Next steps
• Appendix
CONTENT
35.
36. Industry split
Number of entities
Geography split
Number of
entities
Trading
,59 hotel,
and
restauran
t
100% =
700,000
Processin
g
industry
Transportatio
n and
commu-
nication
Service
s
Mining and
digging
Constructio
n
Jav
a
100% =
700,000
Sumatr
a
Bali and
Nusa
Tenggara
Sulawes
i
Kalimanta
n
Maluku
and
Papua
Percentag
e
66
15
11
6 21
17
12
10
11
Source: BIRO; BPS; USAID; Asian Demographics; HCI analysis
SMALL BUSINESS SEGMENT IS CONCENTRATED IN JAVA
AND SUMATRA AND ARE MAINLY IN TRADING
38. The upper end of the Indonesian banking sector is relatively concentrated, with the top 10 banks accounting
for more than 60% of total assets and credit. However, with 130 commercial banks in all, the sector as a
whole is overcrowded. Many of the smaller institutions are poorly capitalised.
The government is therefore seeking to promote consolidation and strengthen capitalisation through a policy
framework known as the Indonesian Banking Architecture (API). The API includes new capital tiers for
banks that wish to operate internationally, nationally or
regionally.
Underpinning the API is the Single Presence Policy (SPP), which would prohibit shareholders from having a
controlling stake in more than one bank by the end of 2010.
The SPP would have the particular benefit of enhancing regulatory oversight by reducing the number of
separate entities that need to be supervised, especially the extensive array of multiple stakes held by
conglomerates.
The Indonesian government and Bank Indonesia also recognise the importance of improved transparency,
governance and risk management in winning the confidence of investors.
Recent reforms include tighter controls on lending, greater nonexecutive scrutiny, the requirement to have
formal risk committees in place and mandatory good corporate governance standards, along with curbs on
the number of related family members that can
hold board-level positions.
2008 marked the beginning of the introduction of Basel II in Indonesia. Ultimately, the embedding of robust
standards of governance will come down to the culture of the organisation as much as regulatory
supervision.
Sources: „Indonesian Banking Statistics‟, Bank Indonesia – May 2007.
Bank Indonesia Regulation Number 8/16/PBI/2006. Bank Indonesia Regulation Number 8/4/PBI/2006. Investment prospects in the Indonesian banking sector
Regulation and Consolidation
39. Although still small in relation to the size of the population, While product choice and
distribution options on the the Indonesian banking sector is already generating a strong
consumer side are still relatively limited, development return on assets is beginning to
gather pace.
For example, Bank Mandiri, Indonesia’s largest bank, has built a successful Banking
sector overview (May 007) bancassurance platform. Assets US$188 billion Having been
subdued in the aftermath of the 1997 crisis and subsequent global downturn in 2002 and
2003, corporate Deposits US$142 billion banking in Indonesia is now coming back to
life.
Proposed Loans US$90 billion initial public offerings include Adaro Indonesia, one of the
Number of banks 130 world’s largest producers of thermal coal, which if it goes ahead will
be the country’s biggest ever flotation.
Other Number of offices 9,110 opportunities opening up as the economy gathers speed
Gross non-performing loans 6.1% range from derivatives to help control the volatility of
the Capital Adequacy Ratio 22% Rupiah and interest rates, to the fast-growing demand
for
Return on assets 2.98% SME credit and advisory services.
Source: Bank Indonesia „Indonesian Banking Statistics‟, May 2007. in what is the world‟s largest Muslim country. However, a number of providers are looking
to extend the
range of Sharia-compliant products. The resurgence of the economy is leading to an acceleration in credit
demand.
Market Environment
40. M&A activities Many of Indonesia’s leading banks, including Bank Mandiri, in Indonesia over the next five
years. Among respondents are state-owned, though the government from Indonesia itself, 56% expect to
undergo significant appears keen to renew privatisation.
Prospective entrants include private equity and other financial buyers. International groups
that have banking subsidiaries in In May 2007, for example, US private equity company TPG
Indonesia include Rabobank, DBS Bank, Commonwealth (formerly Texas Pacific Group), agreed to acquire a
majority Bank of Australia and the Australia and New Zealand stake in Bank Tabungan Pensiunan Nasional,
a niche bank Banking Group.
A number of international groups, including that mainly serves retired people. HSBC, Citibank, ABN Amro and
Standard Chartered have also established branch operations. Renewed interest from regional and global
groups is now evident as the economy and credit
markets continue to grow.
For example, a survey of 230 financial executives from across – Significant foreign investment in banking
sector:
Bank Central Asia 2002 51% Farallon Capital
Bank Niaga 2002 51% Commerce Asset Ventures Sdn Bhd
Bank Danamon 2003 51% Temasek/Deutsche
Bank Internasional Indonesia 2003 51% Temasek/Kookmin
Bank Lippo 2004 52% Swiss Bank Consortium
Bank NISP 2004/05 71% OCBC
Bank Buana 2004/05 61% UOB
Bank Permata 2004 51% Standard Chartered/Astra
Bank Lippo 2005 83% Khazanah Nasional Bhd.
Ownership and Investment Indonesia
41. Companies looking to control a banking operation in Indonesia have three main options:
establishing a new bank,
Acquiring an existing institution opening a branch of a foreign bank or
acquiring an existing Acquisition (up to 99% foreign ownership permitted) offers institution.
Investors need to weigh up a number of regulatory an established customer base, existing operational systems and
operational factors before choosing which route to take. and distribution channels. While target identification through Option 1 to
due diligence, negotiation and sale can take four to six months,
this is still considerably less than the greenfield Establishing a new bank route.
Bank Indonesia is also far more likely to grant approval. Greenfield entry (up to 99% foreign ownership permitted) naturally
provides the flexibility of starting afresh and On the flip side, buyers run the risk of taking on unwanted eliminates the risk of
liabilities from past activities. However, liabilities from the past.
Moreover, acquisition prices have companies must provide more than US$330 million in paid-up been running at 2.5 to 3 times
net book value, reflecting the capital, which could be a sizeable disincentive.
Establishing increasing demand for banks across this fast-growth region a new business also tends to be more time-
consuming than and, within Indonesia itself, the shortage of available supply acquisition.
Now, studies, licence applications (120 days at least), recruitment, however, both privatisation and the
impact of the Single IT and marketing development. Even then, gaining approval Presence Policy are
adding to the supply of potential for a new start-up may be difficult at a time when Bank targets. The relatively fast turnaround of
private equity Indonesia is looking to reduce the number of banks. In this investment could also mean that recently acquired
entities respect, it is notable that no new banking licences have could soon be back on the market. Developments in price been
issued since 1999 and availability may encourage more acquisitions as an alternative to greenfield start-ups.
Option 2 Opening a branch of a foreign bank If the bank is one of the global top 200, by assets, it can open a branch in
Indonesia. This route does away with the need to find a local partner and comes with no risk from past activities. However, the
paid-up capital requirement (US$330 million) is the same as greenfield entry. The nature, extent and time needed to complete the
operational and regulatory preparations are also similar. Although current regulations permit this approach, the fact that Bank
Indonesia has issued no new branch licences since 2003 would suggest that gaining its approval may be difficult.
Entry Strategies
42. The Indonesian banking sector is set to be transformed over those
spearheading investment and development are likely the next few years as
the number of banks decreases, to include financial buyers, capable of
turning around under- foreign investment continues to increase and
institutions performing institutions ready for selling on to more long-term
respond to the impact of the API, Basel II and other pressing acquirers.
The longer term investors are likely to include the regulatory
developments.
The result is likely to be a more key regional and, increasingly, global
players attracted to the competitive market, marked by heightened
pressure to huge potential of what is set to become one of the world’s
improve efficiency, drive down payroll and other costs, and
biggest banking markets. generate greater product and service differentiation.
The Way Forward
43. I
• The economy grew by 6.2% in 02-2010. The whole year it forecasted to grow within the range of 5.5%-6.0% by the end of
2010, and estimated to reach the upper limit projection, bolstered by Indones ia's external sector performance, investment , and
consumer spending .
• The latest macro economic indicators supported us to believe that the economy , in line with the development in the global
economy, is steadily moving on an upward trend accompanied by financia l system stability . It bolstered Indonesia's external
sector performance and investment, with domestic recovery gaining strength as the economy is no longer reliant solely on
consumption. The optimism also supported by latest deve lopment in the perception indicators such as an upgrade to
investment grade, yield spread , CDS, CRC-OECD , etc. An assessment of economic developments during July 2010 points to
improvement in the domestic economy amid persistent risks of global uncertainties.
• On July 13th 2010,Japan Credit Rating Agency (JCR) upgraded Indonesia's sovereign rating to Investment Grade , from BB+ to
BBB-.This upgrade was the first investment grade for Indonesia in 13 years . Currently,the Republic of Indonesia's sovereign rating BB+
/Stable from Fitch , BB+/Stable from R&l, BB/Positive from S&P, and Ba2/positive from Moody's.
• The latest Board Meeting convened in A ugust 2010 resolved to hold the 81 Rate at 6.5%. For the time being, the current rate
considers adequate to safeguard future inflation expectations. However, Bl is taking careful note of the recent onset of higher
inflationary pressure and will pursue the necessary monetary and banking policy actions to ensure that future inflation remains on track
with the established target at 5% :1% for 20 10 and 201 1. Bl w ill soon respond w ith measures to tighten liquidity
management without disruption to the bank intermediation function, implemented through changes in the statutory reserve
requirement.
• Regarding prices, the Board of Governors is closely monitoring the onset of rising inflationary pressure. July 2010
recorded fairly brisk CP I inflation at 1.57% (mtm) or 6.22% (yoy). Inflationary pressure was driven mainly by higher inflation in the
foodstuffs category and particularly rice, due to seasonal uncertainties. In contrast , pressure from core inflation has been kept at
modest levels as a result of adequate supply-side response to increases in demand and the appreciating trend in the exchange
rate.
Executive Summary
44. • Overall, banking industry remains in a stable condition and convince d to be run prudently, which is reflected in
the well- maintained Capital Adequacy Ratio of 17.4%, and safe level of Non-Performing Loans at 3.3% , as of end of
June 2010 . By end of 2010 , lending growth is projected to reach 22%-24%. Up to July 20 10, banking industry has
reached the remarkable lending growth at 19.6%. Improved market confidence also bring more optimism to
further banking intermediation function . Going forward, Bl will keep a close watch on bank lending growth
to keep it within the range envisaged in the Bank Business Plans. Special efforts will be devoted to increase credit
for productive purposes. The purpose of these measures is to ensure that deman d-side increase will be adequately
offset on the supply-side and thus not generate excessive inflationary pressure.
• Balance of payments has posted a significant surplus over 02-2010 at US$5.4 billion. The surplus was
contributed from both the current account and capita l and financial account. The current account posted a US$1.8 billion
surplus , bolstered from upbeat performance in non-oil/gas trade balance, the gas trade balance and the current
transfers balance. The ongoing world economic recovery has strengthened non-oil/gas exports w ith growth
outperforming non-oil/gas imports. The capital and financial account recorded a US$3.3 billion surplus distributed
fairly among all major components . renewed growth in capital inflows in response to the upward revision of the credit
rating outlook and more upbeat internationa l perceptions .
• International reserves position at 30 July 2010 reached USD78.8 billion, equivalent to 6.03 months of imports and
servicing
of official external debt. This helped the rupiah to maintain stable movement throughout July 2010 with an appreciating
trend.
• In May 2010. the parliament approved 2010 revised budget proposed by the government . The revision is
perceived as a necessary measure to adjust the current economic conditions especially changes m the
macroeconomic assumptions . The proposed budget adJustment would mcreased deficit from 1.6 to 2.1%, in
order to contain increasing subsidies figures due to rising commodity prices mainly from oil.
I
Executive Summary
50. I
Unique Value Proposition
We will combined the two objectives to achieve:
1. An increase in the number of AAB Locations by 20,000 in 2015
2. An increase in the foot traffic visiting AAB Locations
3. A mutual increase in transactions due to these strategic changes
4. Continuing expansion as new outlets
5. Incentive programmes and value adds that will attract and retain
customers
We will combined the two objectives to offer:
1. Special discounts from PP
2. Rewards provided by both AAB and Prospective Partner
3. Targeted voucher campaigns by MDF
4. Over the counter campaigns by MDF
5. Raffles and give aways by AAB
6. Customer protection
7. Membership cards
