The economic partnership between Indonesia and Japan has strengthened and snowballed. Japan is currently in the top three foreign investors in Indonesia after Singapore and China. According to data from the country’s Investment Coordinating Board (BKPM), foreign direct investment from Japan to Indonesia has increased considerably, totaling $4.3 billion last year. Investment prospects are driven by a burgeoning population, natural resources, and growing infrastructure developments that have also attracted Japanese banks to expand their business in Indonesia.
Since 2014, Japanese financial institutions have paid or pledged billions of US dollars for stakes in several Indonesian lenders through mergers and acquisitions. Some took advantage of the Financial Services Authority’s (OJK) single presence policy, which allows the majority shareholder to own only one banking entity. In February last year, Japan’s megabank Sumitomo Mitsui Banking Corporation (SMBC) took over controlling shares in private lender PT Bank Tabungan Pensiunan Nasional (BTPN). Through its subsidiary, PT Bank Sumitomo Mitsui Indonesia, SMBC now owns a 96.89% of stake in BTPN.
BTPN was established in 1958 as Bank Pensiunan Militer (Bapemil). The lender handled pension payments to retired military personnel and offered loans for business and personal use. The business was a safe bet since the pension payments act as collateral to the credits. Later in 1986, the bank changed its name to Bank Tabungan Pensiunan Nasional and expanded its banking services but still mainly to pensioners. In 2008, the bank was acquired by TPG Nusantara, a subsidiary of the US global private equity TPG Capital. TPG bought 71.6% shares when BTPN listed its shares in the stock exchange.
After the acquisition by TPG, BTPN ventured outside its comfort zone by being very aggressive in expanding its business in the medium, small, and micro-segments. In the retail segment, the bank has also been quite innovative in digital banking by being among the first Indonesian lenders to introduce mobile and app-based banking platforms to extend financial inclusion: BTPN Wow! in 2015 and Jenius in 2016. While the first one provides basic banking services like opening a bank account, saving, and withdrawing money, Jenius provides more sophisticated services for a growing number of digital-savvy millennials who want practicality in banking. Today, there are more than six million BTPN Wow! users, and 2.7 million Jenius users.
“I think we have spent more than Rp 2 trillion in building digital capability if we recall. Right now, the next step is how to combine this digital banking with conventional businesses. We’re not only innovating digital, but we’re also transforming other businesses,” says BTPN’s president director Ongki Wanadjati Dana.
Now, the merger with SMBCI allows BTPN to extend its services in the corporate segment. In recent years, SMBCI were actively engaged in financing infrastructure development, which is the current government’S priority in its economic agenda. Strong capital support from SMBC, also enables BTPN to target its financing to a broader range of projects and industries.
These include food security, energy, and infrastructure. Last year, along with SMBC, BTPN led a syndication loan of 18 global banks and financial institutions for PT Perkebunan Nusantara III, worth of $390.6 million. The bank also participated in a consortium of 12 national and foreign banks to finance the Jambaran-Tiung Biru gas field project owned by PT Pertamina EP Cepu.
Furthermore, since the merger, the corporate banking segment became BTPN’s loan growth generator. As of the end of last year, the bank’s corporate loans grew by 16% from the end of 2018. With the new major shareholder and extended services, BTPN changed its name again into PT Bank BTPN. The change of name shows that the lender has now far moved from its roots serving banking services to pensioners.
“Because of the merger, BTPN can serve SMBC’s corporate banking clients, mostly Japanese companies, big local corporations, from state-owned enterprises to multinationals. We can also access SMBC’s global network,” says Ongki.
Like any other business, BTPN has to face new challenges caused by the global COVID-19 pandemic. Luckily, the bank already invested early in building digital platforms for its services. In the future, Ongki sees an increase in demand in digital banking services with an immediate increase in online transactions since customers have reduced their visits to the bank. Therefore, the company will continue developing the digital channel to support its branchless banking program.
“The COVID-19 pandemic made us realize that digital banking services have become increasingly important in our daily lives. As we advance, we have become more confident in continuously developing this platform to support the retail banking business of Bank BTPN,” he says.
Despite its digital banking readiness, BTPN business remains affected by the economic turbulence caused by the pandemic. As economic activity shrank, loan disbursement also went down. Until the first half of 2020, BTPN’s loan only grew 5% to Rp 150.5 trillion compared to a 10% growth in the same period last year. Most of the increase was driven by financing in the corporate segment, which grew 18% YoY from Rp 75.2 trillion growth to Rp 88.6 trillion.
The slowdown in lending, coupled with a decrease in interest income and a 63% increase in the cost of credit, has dragged down the lender’s bottom line. BTPN’s net profit after tax in the first semester of 2020 was down 9% from the same period last year to Rp 1.12 trillion. In terms of portfolio quality, the non-performing loan ratio increased to 1.12%, compared to 0.81% in the previous year, which is better than the industry’s 2.89 %.
BTPN has also taken restructuring measures by optimizing OJK’s new rule of loan relaxation program. By the end of June 2020, total loans approved for restructuring were Rp 4.1 trillion or around 3% of the total loan portfolio. This year, Ongki expects borrowers’ appetite for lending to remain weak in line with declining purchasing power. However, he still sees the potential uptick in corporate financing.
“Corporate banking is the least affected by the coronavirus, and we still see some demand for the new loan. I think that is the driver of the growth of our bank this year. On the other hand, SME, micro business, and retail are the segments that are most affected by this pandemic,” Ongki says.