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Margin will remain under pressure: BTPN
Micro-and pension-focused Bank Tabungan Pensiunan Nasional (BTPN) foresees that its net interest margin (NIM), an element of profitability which measures the difference between lending rates that banks charge and deposit rates paid to customers, will remain under pressure this year
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Micro-and pension-focused Bank Tabungan Pensiunan Nasional (BTPN) foresees that its net interest margin (NIM), an element of profitability which measures the difference between lending rates that banks charge and deposit rates paid to customers, will remain under pressure this year.
The BTPN, which is 40 percent owned by Japan's Sumitomo Mitsui Banking Corporation (SMBC), expected its NIM not to change much from last year's 11.4 percent given the tight competition to grab customers that has spiked costs of funds ' interest expenses paid by banks to customers.
'We won't see [NIM] rise this year because costs of funds are still high, but we are certain enough that it won't drop further than it has so far,' BTPN finance director Arief Harris Tandjung told The Jakarta Post on Monday.
The bank has enjoyed an interest margin that is almost triple the 4.2 percent average posted by the nationwide commercial banking industry last year, thanks to its focus on micro consumers that tend to be considered high risk and therefore are charged much higher borrowing rates.
However, its financial reports reveal that the BTPN has seen its NIM steadily fall since 2010 as costs of funds have soared.
By the end of 2014, its total costs of funds spiked 200 basis points to 9.3 percent, from 7.3 percent recorded the previous year.
Arief acknowledged that the BTPN's existing funding structure had led the bank to rely on time deposits, which, unlike the less costly savings, are known as 'expensive funds' that are prone to interest rate volatility.
Last year, the BTPN eventually booked high costs of funds that eroded its profitability because time deposits kept on dominating its third-party funds (DPK) portfolio with 85 percent.
'We still recorded growing costs up until the first quarter of 2015. The costs of funds revolved at around 9 percent in the first quarter,' Arief said.
Hence, the BTPN now seeks to boost its CASA portion, composing savings and demand deposits, that carries less interest rates to pay to customers, through new schemes under its own DPK program, called Sinaya.
According to Arief, the schemes will enable the BTPN to gather funds from online or non-branch transactions that will generate more fee-based income for the lender as well.
Data from its 2014 financial report showed that CASA only made up 15 percent of its total customer deposits, while fee-based income accounted to 6 percent to 7 percent of its total income.
The BTPN expects to see its total customer deposits rise by 10 percent to 12 percent this year, up from 2 percent growth only in 2014, assisted by the new schemes.
'But it will probably take us two years until 2017 to start seeing the impact of the new schemes on our fee-based income,' Arief said, adding that the BTPN had not set specific targets for the income component.
In lending, the BTPN hopes to achieve 15 percent growth, a slight increase from 13 percent that it posted in 2014, and in line with broader banking industry estimates.
It claims to already have sufficient funding to back up the lending expansion, with a total of US$300 million in standby loans from the SMBC and International Finance Corporation (IFC).
