Last year, Indonesia and Thailand celebrated their 70th anniversary of diplomatic relations. The celebration was coincidently followed by historical business ties as Thailand's oldest family bank, the Bangkok Bank Public Company Limited (Bangkok Bank), took over 89.12% stakes in Indonesia's PT Bank Permata. In May, Bangkok Bank paid $2.7 billion to Bank Permata's previous owners Standard Chartered Bank and Astra International, marking it as the first major acquisition of an Indonesian bank by a Thai bank. Not long after the purchase, the Bangkok Bank Indonesia branch merged into Bank Permata.
Bangkok Bank is one of the largest commercial banks in Thailand, with total assets of around $108 billion in 2019. The Thai-Chinese Sophonpanich family established the bank in 1944. The lender's current president is Chartsiri Sophonpanich, the grandson of its founder and former president Chin Sophonpanich and the son of former president Chatri Sophonpanich. The bank is also known to have a long historical relationship with Indonesian conglomerates, including with the late Salim Group founder Sudono Salim. Richard Borsuk and Nancy Chng's in Liem Sioe Liong's Salim Group: The Business Pillar of Suharto's Indonesia mentioned that Salim - who is known to be the rainmaker for the former President Soeharto - often relied on Chin and his Bangkok Bank to finance critical projects, including when he was building his cement venture.
"The acquisition is mutually beneficial," says Bank Permata's president director Ridha Wirakusumah.
Having long business ties with Indonesian tycoons, Bangkok Bank is undoubtedly aware of the country's potential, which can't be tapped with only three branch offices in Jakarta, Medan, and Surabaya that they previously have. So acquiring Bank Permata opens up the window for Bangkok Bank to access over 3 million existing customers and presence in 62 cities in the country through over 300 branches, as well as offering a full-fledged banking service to the market. Moreover, Bank Permata has been in excellent shape after Ridha successfully led the restructuring efforts. The bank suffered Rp 6 trillion loss due to a bad loan spike in 2016, which is the biggest loss ever recorded in Indonesian banking history. Bank Permata's non-performing loan (NPL) ratio improved to 2.6% at the end of 2017, from 8.8% the year before. With its capability, Bank Permata could also take advantage of Bangkok Bank's firm grip in wholesale banking, offering these loyal corporate clients various banking products and services.
"We want to build a financing ecosystem. For example, Bangkok Bank has a line with the Salim Group, and we want to offer them beyond loans. We could provide financing to Indomaret franchisees or the suppliers, those who haven't been touched before by Bangkok Bank. The wholesale banking will lead, and the SME and retail will follow as well," Ridha says.
Moreover, the acquisition will be used by Bangkok Bank to gain the advantage of certain key trends happening in ASEAN and Asia. As the region becomes a more unified market, the two banks' synergy could help businesses from the region partner with Indonesian companies and vice-versa.
Another aspect that both banks could mutually benefit from the acquisition is the rise of digital banking trends. Bank Permata is known to be one of the pioneers in mobile banking services in the country and is continuously developing its capabilities in retail banking technology. For example, in 2006, the bank introduced a service that allows customers to withdraw money from ATMs using their mobile phones, the first to provide such services. Bangkok Bank is also keen on developing its digital capabilities. In November, Bangkok Bank announced that it was set to roll out a blockchain-based letter of credit to increase its trade finance business. Thus, both can synergize to improve their digital services in wholesale and retail banking.
"We have significant investment in people and hardware (for digital transformation). We now have senior management dedicated to digital, and we are looking at it as holistic. Bangkok Bank likes what we do, and they've asked us to help improve their digital network across Asia. They plan to open in Myanmar, and they've asked us to help, and also to improve their digital banking service in Thailand," Ridha says.
Besides the synergy, Ridha also says that Bangkok Bank will also focus on building a rock-solid balance sheet to weather future risks.
In November, Bank Permata's NPL coverage is already 140%, on par with the country's largest lender Bank Mandiri. After the merger in December, the NPL coverage jumped to 220%, and Ridha says Bangkok Bank wants it to be maintained above 200%, equal to the provisions held by Bank Central Asia, which is currently Indonesia's largest private lender. After the merger, Bank Permata's core capital increased to over Rp 30 trillion, which upgraded it to the Buku IV category.
The bank's capital adequacy ratio also jumped to around 33% or far above the authority's minimum requirement. With it, Bank Permata will certainly have the confidence for growth this year. Ridha also mentions the bank has laid eyes on several promising sectors going forward, which are natural resources since Indonesia remains one of the largest suppliers globally, demography related like the mortgage and car loans, healthcare industry, and modernization related like telecommunication sector.
"There is also a unique yet potential sector and related to Thailand: the creative industry. Our creative industry has huge potential but unexplored. It's more organized in Thailand as well," Ridha says.
Head of research at Praus Capital Alfred Nainggolan says Permata's performance will not immediately accelerate after the acquisition. This is because the banking sector remains challenging next year due to the global economic slowdown, trade wars, and negative sentiment from the COVID-19 pandemic. However, he agrees that Bank Permata can thrive despite the challenges with the large capital support from the Bangkok Bank.
"If we look at Bangkok Bank's business, they don't have many overseas portfolios other than in Indonesia. It looks like they can focus more on Bank Permata, and that could be a positive side," he says