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Mandiri adjusts to new normal as ‘honeymoon period is over’
Kartika “Tiko” Wiroadmodjo (JP/ Wienda Parwitasari)The 20 percent plus annual loan growth seen in 2010 to 2014 is nowhere to be seen in the near future as banks adjust to the new normal in lending, Bank Mandiri president director Kartika “Tiko” Wirjoatmodjo told The Jakarta Post’s Esther Samboh and Grace D
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Kartika “Tiko” Wiroadmodjo (JP/ Wienda Parwitasari)
The 20 percent plus annual loan growth seen in 2010 to 2014 is nowhere to be seen in the near future as banks adjust to the new normal in lending, Bank Mandiri president director Kartika “Tiko” Wirjoatmodjo told The Jakarta Post’s Esther Samboh and Grace D. Amianti in a recent interview. The rise of bad loans has made banks more cautious in disbursing loans amid an already weak demand for lending against the backdrop of sluggish domestic and global economic activities. This development emerges as Tiko, who was appointed to lead the nation’s largest lender by assets in March this year, aspires for a regional expansion drive with plans of operating in Southeast Asian neighbors Malaysia, Vietnam, the Philippines and Myanmar. Below is an edited excerpt of the interview.
Question: What is your view on the two main challenges facing domestic banks: bad loans and weak demand?
Answer: Banks always follow the economic cycle. As an institution, we have to be sustainable. We have a long-term vision to be one of the best banks in ASEAN, however, we always have to be realistic toward the economic cycle.
The banking system in the country has changed drastically. Our honeymoon period is over. There is no more 20 percent growth in loans, 6 percent net interest margin (NIM) or 20 percent ROE (return on equity). The economic structure has changed, and we can’t predict loan growth, NIM and ROE in one to two years ahead. There will be a new normal, right? Especially in loan growth. Twenty percent loan growth will never happen again. It’s hard to achieve it as our loan to deposit ratio (LDR) has reached 91 percent. The maximum growth in the future is about 15 percent.
What will Bank Mandiri do to cope with these challenges?
There are three short-term priorities. First, to handle non-performing loans (NPL) faster and more efficiently since the rise in NPL was 3.2 percent as of March and it might even increase to more than 3.5 percent. And actually the economic slowdown mostly affected the commercial sector. Thus, our first step is in the first week is to set up a special management unit like in 1998 and 2005, in which we move the accounts at risk of NPL and those that are already included as NPL.
The second strategy is making sure our portfolio grows in the short term while keeping it in line with the market and being prudent. So, we have to realign our portfolio focus first — assess in which segment we could grow. We have three segments that are still growing strong. One of them is the corporate segment. This includes state-owned enterprises (BUMN). Besides corporations, the consumer segment is also resilient. Motorcycle and car loans, non-collateral loans (KTA), even mortgages still record healthy growth and its NPL is still controllable. The third one is micro. In the past year, it was still able to grow above 20 percent, even close to 30 percent. The NPL is still low as well.
With those three segments, we believe we can achieve our 10 to 12 percent target. The market in April was 7.9 percent, which was very sluggish. We hope that we can grow above the market. We recognized that in the first quarter, growth was a bit slow because we had not solved the NPL and growth, so we need time to tidy it up. We believe that from May to December, we will be at full-speed again for the healthy business segments.
During the economic slowdown, I will take the opportunity to improve our backbone infrastructure, primarily in IT and human capital. In two years, I will improve the things related to IT such as internet banking, mobile banking and cash management. Human capital also has to be strengthened because prior to this, the organization has grown so fast and recruited a lot of juniors. We need to retrain them and reinforce our culture so when the economy improves, our junior officers will be ready to perform.
How are your regional expansion plans positioned against that backdrop?
In the long term, we will carry out regional expansion. I have also set up a team to begin exploring this potential. We are currently holding a discussion on Qualified ASEAN bank (QAB) with Malaysia. This is under the Financial Services Authority’s (OJK) g-to-g (government-to-government) scheme. We are also in negotiations for our license in Malaysia. That one is probably more immediate.
For our mid-term regional expansion plan, we will send out an advanced team to start exploring Vietnam, Philippines and Myanmar markets. One of the reasons is because banking industry growth in Indonesia has slowed down. In 2005 to 2010, it had been really high. Vietnam and Myanmar have now shown signs of increase. So with the current cycle in Indonesia, it is a right time for us to enter the emerging markets. Vietnam and Myanmar are interesting for the long-term, five to 10 years. We have to invest there.
We have to see whether it is going to be bank license, multifinance or insurance. We are currently reviewing it. And we have to start executing this within two years. But this is an opportunity and we have big capital of Rp 150 trillion. Our CAR was 20 percent after asset reevaluation last time. So actually we have enough capital to carry out an acquisition when there is a chance. So besides mulling it, we are also discussing this with some banks and multifinance companies in the ASEAN region. Who knows, some want to exit or do a joint venture (JV). We always see that as an opportunity.
But we will change the pattern. We don’t want to start from zero. It has been proven that if we start from nothing, it will be hard to grow. So we are going toward acquisition or JV. The important thing is to find a great partner.
Our regional expansion is not strictly in the form of banks. Motorcycle and car financing in Myanmar, for the example, have not developed yet. In Vietnam and Myanmar, the potential for multifinance to grow is still big. As for Thailand, the market is very competitive, and its big lenders, such as Krung Thai, Bangkok Bank and Siam Commercial Bank have been very dominant. So we are finding opportunities in other segments in the financial sector.
How will Bank Mandiri finance this expansion agenda, including the plan to see lending growth of 10 to 12 percent this year?
We will focus more on third-party funds, but we will also undertake several strategies other than that, such as increasing bonds due to the expiration of some subordinated bonds, and compiling our Liquidity Coverage Ratio (LCR). We are processing the issuance of several bonds. This year, we will issue bonds of Rp 5 trillion, and we are also looking to issue continuous bonds amounting to Rp 13 trillion. The Rp 5 trillion bonds are expected to proceed in next September.
