The subsided concern over the steadily increasing foreign ownership in Indonesian banking assets has recently heated up again, sparked by Infobank research that shows foreign ownership has now reached 47 percent from 20 percent prior to the massive Asian crisis.
As quoted in a national newspaper, Bank Indonesia Deputy Governor Muliaman Hadad said the performance of these banks are continuously monitored to determine the long-term benefit. The Jakarta Post in its Sept. 10 editorial also highlighted the upside and emphasized a robust supervisory function. Others argued, however, that regulation for foreign ownership must be made more stringent.
Backtracking is not an option, and being defensive is simply counterproductive. On the contrary, we'd be better off by increasing the effort to harness the full potential of the situation in the best interests of our economy.
Possibilities abound, apart from capital injection.
First, foreign acquisition opens the door for domestic banks to gain instant access to global expertise and best practices of their holding parents, from which they can derive product features, replicate systems or adopt operational setups. Riding on a tested-and-proven backbone we should expect faster time-to-market for launching of new products or services, even with some local customization.
On the other hand, being part of a global group of financial institutions also means there are ample opportunities for Indonesian banks to be referred to on their best practices, especially by subsidiaries from less developed markets, such as Vietnam or Cambodia. Successful business models can be redeployed in banks from neighboring countries, with Indonesian bankers acting as subject matter experts.
Foreign investors are likely to keep keen eyes on cost-to-income ratio. Having been resting on their laurels during the banking heyday of the '80s and '90s, domestic banks must now acknowledge that efficiency, in all aspects, is the new business imperative. Amid a constricted interest margin, most are resorting to stricter cost management and sweeping transformation initiatives, with the single objective of improving operational efficiency.
Some incorporate Six Sigma methodology, for instance, to inculcate a continuous improvement culture within the organization. Domestic banks need to embrace this as the momentum to boost their competitive edge -- to be at least par with their regional counterparts. This is also in line with the management pillar of the Indonesian Banking Architecture.
Another niche that's worth delving into is offshore outsourcing or shared service centers. Given their sheer size and considerable experience in commercial banking, Indonesian banks are in fact well-positioned to provide numerous back-office services for their overseas sisters, or other financial institutions in more mature markets.
The best candidate for this cross-border arrangement would be paperwork processing of retail banking products, such as consumer loans and payments, which generally have a low degree of customization, are high in volume, and for which standardized workflows are akin to conveyor belts in manufacturing environments.
It resembles a "factory" design, just like in footwear and textile industries where Indonesia first set foot long time ago, sans the risk of hazardous chemicals.
A key success factor in this endeavor is the ability to provide reliable services in a cost-effective manner so that offshoring to Indonesia poses an economically justifiable option. India is one good example.
Taking advantage of their English proficiency and time difference, the country spearheaded this trend where calls coming in to numerous U.S. or UK companies with 24-hour customer service, including banks, are rerouted to call centers located in cities such as Bangalore. Productivity, accuracy and service level are of pivotal importance, along with assurance on legal issues such as data protection and information security.
Taking in additional overseas work volumes would maximize economies of scale and optimize usage of physical infrastructure such as core system, communication lines and building premises. Additionally, it would create fresh employment opportunities for sufficiently educated Indonesian citizens as well.
Furthermore, we should not miss out on the unparalleled chance for human resource development made available through integration of domestic banks into global groups; i.e. career enrichment for local bankers through sustainable programs such as regional level training, cross-posting, short attachment or assignment.
This would amount to an immense quality improvement among our professionals. The arrival of foreign bankers should not be a deterrent either. Instead, their presence is better viewed as a medium for knowledge transfer and gaining insight into the global perspective.
If regulated and managed well, it can actually push back the current boundaries and present lucrative opportunities for both the national industry and people involved in it. Profit is blind when it comes to nationality. Thus, the real focus should be put on preserving mutual benefit and maximizing the value of all shareholders: The investors, the customers and the employees. Along with a robust regulatory framework, this should lead to the attainment of a sound and sustainable banking industry.
The writer is a banking practitioner. This article reflects personal opinion of the writer. She can be reached at luci_annas@yahoo.co.uk
