W

ith strong financial fundamentals and an effective banking system, it'€™s time for Indonesian banks to prepare to be global players.

The old saying about being a big fish in a small pond or a small fish in the ocean can be used in reference to the Indonesian banking sector. Most lenders in the country enjoy a huge customer base and a lucrative market due to the size of the population. But whether they are ready to play greater roles on the international stage remains to be seen.

There are currently more than 100 commercial banks in the country that are mostly private but include a few state-owned ones, and they are all in stable condition.

Moody'€™s Investors Service said earlier this year that the outlook on the Indonesian banking system remained stable, reflecting Moody'€™s expectation that the country'€™s banks will continue to report strong financial fundamentals, including high profitability and capital levels, despite an economic slowdown that will put some pressure on asset quality. The overall stable outlook for the banking system has been effective since January 2010.

Indonesian banks will also maintain healthy capital ratios even under an adverse scenario, where non-performing loans are assumed to rise to about six times the current level. In addition, the banks'€™ liquidity profiles should remain stable until next year, given that loan growth is expected to slow down. On profitability, according to Moody'€™s, Indonesian banks will remain among the most profitable globally.

As an example, Bank Mandiri, the country'€™s largest lender by assets, reported a 15.6 percent rise in its net profit to Rp 9.58 trillion during the first six months of this year compared to the same period in the previous year. The increase was due to growth in net interest income and net interest margin, according to the state-owned bank.

Mandiri is now eyeing to buy one of the top 20 banks in Indonesia as part of its business expansion in the country. The plan, according to the bank, will increase its assets and improve its competitiveness regionally.

Another state-owned bank, BRI, also reported robust growth in its profit in the first half of this year. The bank, the world'€™s largest micro lender and the country'€™s most profitable bank, saw a 17 percent increase in profits to Rp 11.7 trillion in the first six months of 2014, compared to the corresponding period last year.

BRI, which plans to operate its own artificial satellite in the next couple of years, has presently the largest branch network and electronic channel coverage among all lenders. It operates more than 9,800 outlets, consisting of branches, sub-branches, cash offices and other units. The bank is one of the potential buyers in the ongoing Bank Mutiara bid.

State-owned BNI, the fourth-largest lender in the country, netted a profit of Rp 4.94 trillion in the first half of this year, up by 15.4 percent from the same period in 2013.

Publicly listed Bank Central Asia (BCA), the nation'€™s third-largest lender, in the meantime, posted a net profit of Rp 7.85 trillion in the first six months of this year, a 24.2 percent rise compared to the corresponding period last year.

The growth of the five banks to some extent demonstrates the dynamic banking industry in Indonesia, even though only a few lenders in the country have overseas branches, given the fact that there are big challenges for them to run offices in overseas countries.

In the banking industry in ASEAN, Malaysia and Singapore are probably better known, with their banks investing and operating in other counties in the region. With its large population, Indonesia is indeed a great market for foreign players. Investors from Australia, Britain, India, Japan, India, Switzerland and the United Arab Emirates operate in the archipelago through the acquisition and control of local lenders.

Only a few Indonesian banks, on the other hand, have overseas outlets. Among them are Mandiri, BRI and BNI.

Mandiri operates overseas units in the Cayman Islands, Shanghai, Hong Kong, Singapore, Dili, London and Kuala Lumpur. BRI has a representative office in Hong Kong, a branch in the Cayman Islands and an agency in New York. BNI has branches in Singapore, Hong Kong, Tokyo, London and New York, and plans to opens units in Myanmar and Saudi Arabia.

BCA, on the other hand, has a different view on overseas branches. The bank'€™s president director, Jahja Setiaatmadja, said BCA preferred to strengthen its position in the country by adding more branches across Indonesia and improving human resources as well as improving infrastructure, such as its ATM network, Internet banking and mobile banking.

In a presidential debate on the economy, then-frontrunner Joko '€œJokowi'€ Widodo said Indonesia must protect its domestic economy when the ASEAN Economic Community is realized at the end of next year. Doing so would offer protection to the prospective banking sector. He said a reciprocity principle should apply because, unlike their foreign counterparts, Indonesian banks find it difficult to open branches abroad.

When entering other countries, any Indonesian bank will need the expertise to grab the market, and apply high banking standards such as outstanding financial soundness, strict data protection, bank-client confidentiality as well as other values and ethical norms. If not, they will be out of the game.  (I. Christianto)