RI external risk perception is far higher than reality: ANZ-Panin

The Jakarta Post ,  Jakarta   |  Mon, 01/05/2009 11:05 AM  |  Business

The banking sector will be included in the government's top "watch for" list this year as a a major blow in the banking sector could have a devastating effect on the economy, as in the case of the 1997 Asian financial crisis.

The Jakarta Post's Aditya Suharmoko recently talked with ANZ Panin Bank's chief executive officer (CEO) Joseph Abraham about Indonesia's banking sector, and the bank's plan to expand its business in the country.

ANZ Panin is 85 percent owned by ANZ and 15 percent owned by Panin Bank, which is among Indonesia's 10 largest banks. Here are the excerpts from the interview:

Question: What segments of the banking industry are you mostly engaged in? Answer: Our businesses are now more focused on upper-end credit cards, both platinum and gold, along with corporate business and retail business. We are one of the biggest players in the credit card market already. We are the sixth largest player in terms of total number of cards issued, but in platinum cards we are the number one and two. Our customers are more at the upper end.

In the corporate sector we are expanding rapidly. Mining, palm oil, commercial agriculture, energy, infrastructure ... things ANZ has (experience of) from our Australian background.

We are also building relationships with big local companies, such as manufacturers, because Indonesia is such a big domestic economy.

Now in terms of total loans, corporate loans are about 30 or 40 percent and credit cards about 60 percent. How worried are you about the potential rise in bad loans?

I think, frankly, the (commodity) prices were too high, becoming like a bubble. There are too many small players. The fall brings more stability to the market. And long-term players who have the infrastructure, investment and commitment will actually bring an element of stability to the whole natural resources sector. It will make prices more sensitive.

We all have to be careful, but we are quite comfortable. You have to look at long-term players who can weather the ups and downs. That, I think, is the key to managing your risk portfolio. The economic cycle does affect us, but we have been selective. What about bad loans in credit cards?

I think everyone is anticipating that credit cards will be affected. People have not seen that coming through yet, but in 2009 we would see an increase (in negative impacts).

But most people are already taking proactive actions to be much tighter on the acquisition criteria for taking on people to have new cards. Maybe that will help to keep (defaults) down.

Our customers are more in the upper end, so maybe the capability to withstand economic pressure is higher at that (income level). How do you see Indonesia's banking sector in 2009?

Liquidity is the key to banking. Liquidity in the interbank market is a factor of confidence between banks. I think this is slowly returning. For ourselves, the good thing is ANZ is a very strong bank. There are only 14 AA banks in the world now. Because of that people are more confident in lending to AA rated banks.

We are totally committed to continuing our plan to becoming a bank which is strong across Australasia. In Southeast Asia, Indonesia is the key market. So I would say Indonesia right now is one of the highest priority markets for ANZ.

We see the crisis is almost like an opportunity. The word crisis means opportunity and risk.

We see a lot of banks are withdrawing because of troubles in their head office in America. We are continuing to expand. We believe that over time ANZ will look at acquisitions across Asia.

Now as the prices come down, we think the opportunities are there and at a much better price. We will not overpay for anything. Any plans to add stake in Panin Bank or acquire certain banks?

No. We are very happy with our current partnership arrangement. Panin Bank is taking the retail, small and medium enterprise segment and the mass market. ANZ will take the corporate and upper end. We cover both ends with the two vehicles. How do people perceive Indonesia's banking sector?

The external risk perception is far higher than the reality. Indonesia, compared to Malaysia, Vietnam, the Philippines, from its stock market index and political (profile) is more stable. But Indonesia's CDS (credit default swap) is lower.

I think that managing liquidity is important. We have to be careful, and it will be more difficult for local bankers. As (and when) a bank collapses then the issue will be much bigger. 2009 will be a very important year, but I think Indonesia will actually come out well because Indonesia's banking system is quite strong, relatively speaking. What about ANZ's loan growth for 2009?

Loan growth will be reduced because deposits will not grow so fast. Plus, the economic situation may make banks become more careful. But we will continue to grow quite fast.

Last year's loan growth was 70 percent because we were starting from a relatively small base. Deposits were 90 percent, above system growth.

In the next two or three years we will grow like the average banking firm, not so different from other foreign banks. Our capital adequacy ratio last year was 14 to 15 percent. Have you suffered a decline in deposits after the October crisis?

Yes. We had a decline, but it has gone up again. They were careful which banks they should put money in. It was a flight to quality, a flight to safety. What is ANZ's plan for 2009? We will continue to expand the credit card business. But we will continue the corporate business. We will make a more balanced business. The balance would change to 35 percent for credit cards, 40 percent corporate and 25 percent retail. A better balance between all three.

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