Bank Reboot

2 years ago . 7 min read
Bank Reboot

Tigor Siahaan has revitalized the performance of CIMB Niaga bank.

When Tigor Siahaan took over as president director of PT CIMB Niaga in June 2015, the bank was under pressure. Indonesia’s GDP growth rate had dropped below 5% that year, hit by the commodity downturn and other factors. The bank had seen net profit for the year drop 82% to Rp 428 billion. The stock had fallen from about Rp 1,200 in May 2013 to just Rp 500 in May 2015—a decline of 58%. Bank CIMB Niaga’s current account and saving account ratio (CASA), a vital funding source, had fallen to 47%, below the industry average of 50%.

Tigor, however, was a veteran banker who had spent two decades rising up through the ranks at Citibank, with his last position as Citi’s Indonesian country head for four years (the first Indonesian in that position). Tigor rolled up his sleeves and got to work. Tigor’s ability to affect a turnaround was critically important to CIMB Niaga’s parent firm, Malaysian financial firm CIMB Group Holdings Bhd (which holds 92.5% of CIMB Niaga). While Citi’s Indonesian unit was a big operation, it was only one of dozens of countries where Citi, one of the world’s largest banks, operated. By contrast, CIMB Niaga was CIMB’s largest operation of its five main markets—it is Indonesia’s fifth largest bank by assets. Whatever Tigor’s did—or did not—do would have a major impact on the parent firm’s results.

Fast forward to today—the results speak for themselves. CIMB Niaga’s CASA was 55% during the first quarter of 2018, up from 53% at the end of 2017. For its last full year results in 2017, net profit rose 43% to Rp 2.98 trillion, while outstanding loans stood at Rp 185 trillion (up 3% year-on-year) with a gross NPL of just 3.75%, down from 3.89% a year before. The stock now stands at about Rp 1,000, double its low of May 2015. To be sure, it also helped that the GDP growth rate rose above 5% from 2016 onward, but Tigor’s reform efforts also ensured that CIMB Niaga made the most of that recovery.

One of Tigor’s biggest ongoing efforts is the digital transformation of the bank, putting CIMB on the forefront of a revolution disrupting the global financial services industry. CIMB Niaga’s annual report for 2017 says that the bank wants to “become Indonesia’s leading digital banking company,” and the bank has set aside about Rp 2 trillion for this effort. “With our digital focus, we hope to have more partnerships with fintech, e-commerce and other non-traditional financial institutions. We feel that we have the opportunity to set up a new ecosystem there,” says Tigor. The bank has long history of digital firsts in the country: in 1987, it was the first bank to have an ATM, in 1991 the first to have online services, in 2011 with the first mobile banking service, and in 2013 with the launch of an e-wallet where a person’s phone number was their account number.

The change is already well under way, with 92% of all customer banking transactions now being done via branchless banking, including Internet banking, mobile banking, ATM and rekening ponsel (mobile e-wallet accounts). “We expect that figure to increase to 95% in the next one or two years,” says Tigor, 46.

In order to get there, CIMB Niaga has taken various digital banking services initiatives with an emphasis on branchless banking, and improving its online customer service, digital sales and mobile banking systems. Last year, the bank launched BizChannel@CIMB for Business, an Internet banking system for business customers. This service was part of the BizChannel@CIMB product line, that includes BizChannel@CIMB for Enterprise for corporate customers. Last year, the bank also improved its Go Mobile, a mobile banking service, with increased security features.

It also reducing its brick-and-mortar traditional branch offices, down 9% in the first quarter year-on-year to 469 branches, while increasing ATMs 18% in the same period to 4,502. One interesting concept is what the bank calls Digital Lounges, dubbed the “branch of the future” by the bank. These lounges, now 25 across the country, use mostly ATMs and other technology to provide fast digitally-based banking services at a physical location. They have a service desk with a digital banking manager, where the bank promises to open a new account in 15 minutes or less. These lounges are typically located in malls, for the customer’s convenience, and normally open daily from 10:00 am to 9 pm (even on holidays). Not surprisingly, these lounges are especially popular with tech-savvy millennials.

In its core banking franchise, Tigor is making other changes. CIMB’s consumer loan growth is down by 6% year-on-year in the first quarter due to the bank exiting the highly competitive microfinance business and a reduction of its auto financing business. Instead, Tigor is boosting the mortgage business, up 10% year-on-year in the first quarter to Rp 27 trillion in loans. Overall, Tigor would like to grow consumer loans by 10%.

Tigor sees promise in the MSME segment—last year this segment grew 4.3% and is expected to grow more this year. “The MSME market in Indonesia is still huge, in fact, this segment is still the backbone of Indonesia’s economy,” says Tigor. Also, as MSMEs grow, they have the potential to become a larger corporate client of the bank.

Meanwhile, commercial banking showed steady performance. Its profit before tax increased to almost Rp 400 billion, in the midst of tight competition and challenging economic conditions. Loan growth was focused on locations with good local GDP and in sectors with strong potential, such as manufacturing, construction and agriculture.

In the corporate banking segment, commercial loans increased by 6.9% to Rp 31.9 trillion in 2017 by targeting selective industries in selected regions. CIMB Niaga also plans to boost its infrastructure lending to above 10% during this year to support ongoing infrastructure projects. Tigor stated that the company’s credit portfolio wasn’t in line with current company targets. At the end of last year, the bank participated in the recent LRT financing for Rp 2.78 trillion, which is one of the biggest government infrastructure projects and is considering further participation in the infrastructure sector as a further loan growth driver in 2018. “Besides the LRT project, we are also financing the Trans Sumatera toll road and there will be more to come. We are very excited about infrastructure financing,” says Tigor.

On the LRT project, CIMB and six other financial institutions acted as Joint Mandate Lead Arranger and Bookrunner (JMLAB). The syndicated credit facility provided by JMLAB in the first phase Jabodetabek LRT project to PT Kereta Api Indonesia amounted to Rp 19.25 trillion. Meanwhile, the syndicated loan agreement of the Trans Sumatra toll road project of the Bakauheni-Terbanggi Besar section with PT Hutama Karya was signed on December 2017. Total syndicated investment credit provided by banks amounted to Rp 8 trillion. For this project, CIMB Niaga had a participation of Rp 1 trillion.

While infrastructure funding kept increasing this year, on the other hand, the bank will be selective in disbursing loans in the mining sector, due to many problems in this segment. According to the financial services authority OJK, loan growth in the mining segment is decreasing drastically, by 21.8% year on year.

Another bright spot is the bank’s sharia banking. CIMB Niaga’s Sharia banking increased its volume of financing by 64% last year. The growth is mainly driven by the corporate segment, which increased 77% last year to Rp 5.95 trillion in financing. Meanwhile, customer deposits in sharia banking accounts in 2017 recorded 87% growth to Rp 20 trillion. Commercial sharia financing grew by 89% to Rp 2.3 trillion, while MSME and consumer financing both grew at 57% and 49% respectively. This year, the sharia business unit will disburse at least Rp 4 trillion in funds to infrastructure projects, including toll roads, power plants, and construction.

Tigor is also encouraged by trends in the global economy. Last year, the U.S. economy grew 2.3% in 2017; meanwhile the European Union economy grew by 2.5%—the highest in the past 10 years. These good global trends helped domestic economic growth, which grew by 5.1% last year. Unfortunately, Tigor feels the economy may be slowing down with the onset of regional elections and the presidential election next year. The possibility of higher interest rates in the U.S. may also slow fund flows to emerging markets like Indonesia. The banking industry saw loan distribution grow only 8.2% in February—lower than the government goal of at least 10%, with the central bank taking steps in January to spur higher loan growth. “This slowdown is affected by the political uncertainty due to the regional elections which will be held this year,” says Tigor. Despite the cautious outlook, Tigor has put CIMB Niaga on a much better footing now to handle any downturn from the dark days of 2015.

Written By
Ulisari Eslita