Jakarta develops a vibrant outlook in time of change

Published: 12 February 2010

Bank Ekonomi purchase was 'game-changer'

Exciting is the word senior HSBC executives like to use to describe the Bank's prospects in Indonesia. The increasing confidence of overseas investors, an expanding middle class, the Bank's leadership role in Islamic banking, a stable government, a robust economy and, perhaps most importantly, the recent acquisition of a domestic bank, all mean there is a great deal to be excited about.

"Both the positioning of HSBC and the way the Bank is perceived in Indonesia is changing," said the Chief Executive of HSBC Indonesia, Rakesh Bhatia. "We are now a leading bank in Indonesia, not just a niche foreign player."

The 'game-changer' as Mr Bhatia puts it, was the recent USD607.5 million acquisition of Bank Ekonomi, a domestic lender with strong links to the country's entrepreneur community.

"It changes the nature of our target market and competition," he explained. "We already have 115 outlets in 10 major cities in Indonesia, the most for a foreign bank and the largest number of HSBC branches in any country outside Hong Kong.

"Bank Ekonomi adds another 94 branches in 27 cities. We now have a truly national presence. It's a period of enormous change and opportunity and we plan to take full advantage."

Bank Ekonomi has a strong presence in the small- and medium-enterprise (SME) loan market, complementing HSBC's portfolio of banking services to retail and commercial clients, international corporations, state-owned enterprises and Islamic customers. The acquisition is further evidence of HSBC's strategy to expand in emerging market economies and follows recent investments in Vietnam, Taiwan and India.

With a history in Indonesia that goes back 125 years, HSBC has amassed a wealth of local knowledge that is underpinned by the Bank's global brand.

"The strength of the HSBC brand was a big help during the recent financial crisis, and more so now that the Bank has emerged even stronger," Mr Bhatia said. "The fact that we made a big investment to buy Bank Ekonomi at the height of the crisis sent a strong signal about our intentions to become a major player in Indonesia."

The country weathered the financial storm better than many of its neighbours in South-East Asia, largely because the economy is far less dependent on exports and there is widespread confidence in the government of Indonesian President Susilo Bambang Yudhoyono. President Yudhoyono's cabinet includes Vice President Boediono, a former central bank governor, and Finance Minister Sri Mulyani Indrawati, a former executive director at the International Monetary Fund who has held the key economic portfolio since 2005.

South-East Asia's largest economy expanded 4.2 per cent in the third quarter of 2009 from a year earlier and the government is forecasting 5.5 per cent GDP growth in 2010. In addition, the Jakarta Composite Index outperformed all other stock market benchmarks in the region during 2009 as investors sought returns in one of the few economies in the region to avoid recession.

Growth in Indonesia's economy has been supported by rising consumer confidence, which, according to a central bank index, climbed to a five-year high in July 2009 when President Yudhoyono won re-election. Lower borrowing costs have also helped increase spending on homes and cars. Bank Indonesia cut its benchmark interest rate nine times between December 2008 and August 2009, a cumulative easing of 300 basis points. On 4 February 2010, the central bank maintained its key rate at 6.5 per cent for the sixth consecutive month.

The robust state of the domestic economy plays directly into another of HSBC's strength in Indonesia – credit cards. The Bank has seven per cent of the card market but 13 per cent of the total card spend, which reflects the high-end nature of its customers. In 2010, HSBC plans to expand its retail services into the mid-market segment to capture the opportunities offered by the increased spending power of the growing middle class. It also plans to increase its insurance business and financial services in general.

Another area of growth is expected to be project financing. Indonesia has substantial infrastructure needs and HSBC has already been successful in arranging finance in the telecom and power sectors. The Bank expects project financing to be an important revenue driver in the next three to five years as Indonesia builds much-needed roads, bridges and power stations.

But if there is one area that HSBC has really differentiated itself from the competition it is Islamic banking, or Shariah financing.

"We already have five Shariah branches and are the only foreign bank to have these facilities," Mr Bhatia said. "We are also expanding these services into the broader retail segment. We are in a very good position to take more market share and are rolling out more products and expanding into the mid-market to tap into the largest Muslim population in the world.

"We take pride in the fact that we are playing an important role in developing this type of banking in Indonesia. The banking regulator in Indonesia points to our modern, progressive branches as an example for the rest of the industry.

"The attractive, contemporary image we have created at our branches is another important advantage HSBC has across the whole retail sector. We offer world-class banking for the middle market. We call it Mercedes-class banking at the cost of a Camry. If you look at the overall picture of our business here, these are indeed very exciting times in Indonesia."