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ith Rp 672.17 trillion (US$59.21 billion) in resources as of June 2013, state-owned lender Bank Mandiri is today the biggest bank by assets in the country. Bank Mandiri president director Budi Gunadi Sadikin recently talked to The Jakarta Post'€™s Tassia Sipahutar about challenges in the banking industry and other issues.

Question: What is your opinion about the current banking industry situation, especially given the macroeconomic challenges?

Answer: I think overall the situation has improved. This is a good moment for us to fix the fundamentals of our economy. Our main macroeconomic problems are our current account deficit and inflation, while in banking, we have three things we need to monitor: liquidity in the US dollar and the rupiah, credit quality and net margin. And they come in that order.

We need to be on the lookout for an increase in the NPL [non performing loan] ratio because with a higher interest rate and a slowdown in the economy, people who have invested a lot may not gain as they had predicted before. Interest expenses will also be higher.

But so far, the NPL is still relatively maintained. I haven'€™t seen an uptick, but of course, this [the situation] will likely change soon. Maybe we'€™ll see an increase in the NPL within the next two to three months. Right now our NPL is around 1-2 percent. It will probably rise to 3 percent. That would still be better than in 2008 when the average NPL was already 3.2 percent. So I think it'€™s better for us to be conservative in the target.

Mandiri'€™s business units are well diversified. You have a securities firm, a sharia bank, a joint venture in life insurance, a financing company and a subsidiary bank, which specifically operates in micro and small markets. What else do you want to establish?

We would like to establish a Mandiri research institute. The commercial objective behind it is to help investors know Indonesia better, so that they can invest. We already have Mandiri Sekuritas, which provides corporate analysis, but as a bank we also have bankers that can provide other insights. Why not combine the two sources of information to come up with more thorough and detailed reviews?

Meanwhile, the non-commercial objective [of this research unit] is to use the institute as a lobbying tool with its economic research. Say, for example, we have ideas that we think can be considered in policymaking. The research can support these ideas.

When will the institute be realized?

I want it to be realized this year. Our team is carrying out assessments. We have to have prominent economic figures in the institute and we plan to hold an annual event and invite foreign experts to come and give us insights.

So, how is your overseas expansion plan going?

We'€™re still working on our efforts to expand to Singapore and Malaysia. That'€™s our priority. I think people have misconstrued us. They say: '€œWhy expand overseas when the biggest market is in Indonesia?'€ The expansion and the market are two different things.

Of course, our focus is in Indonesia, but we have to be prepared for the upcoming ASEAN banking integration in 2020 and we plan to be the best ASEAN bank by then. So we need to have enough presence in Singapore because it'€™s one of the business hubs in the region, and in Malaysia because there are many Indonesians in that country. We plan to cater to the Indonesians and their businesses there.

We don'€™t plan to swarm Singapore and Malaysia with our ATMs or branches. Don'€™t worry, it won'€™t happen. If I were able to install 1,000 ATMs, I'€™d rather do it in Indonesia, but please don'€™t say that we cannot even install an ATM there. It'€™s a matter of perception and lack of trust.

They [Malaysia and Singapore] say that Indonesia is too protective of its banking industry. According to my data, in Indonesia, OCBC [NISP], whose majority shares are owned by Singapore-based banking firm OCBC, has more than 300 branches.

Singapore'€™s UOB [United Overseas Bank] has more than 200 branches, Malaysia'€™s CIMB [Niaga] has more than 500 branches, [BII] Maybank, which is controlled by Malaysia'€™s Maybank, has more than 451 branches and Singapore'€™s DBS has more than 40 branches.

Now, look at us. We'€™ve been trying to expand, but only have one branch each in Singapore and Malaysia. You tell me, who'€™s being protective now?