Fresh Perspective
    Category: Financial Revolution By : Ardian Wibisono Read : 1559 Date : Tuesday, March 01, 2017 - 13:02:07

    Toto Santiko Budi / Forbes Indonesia

    The Indonesian banking sector is experiencing a challenging time. The commodity boom has ended and the same goes for the banking sector. The days of 20% annual loan growth are no more. For the last two years, annual loan growth for the entire sector was barely above 10%. Nonperforming loans (NPLs) have slow- ly but surely been go- ing up, now at 4%, just below the 5% threshold set by Bank Indonesia (BI). In this tough situa- tion, the new president director of PT Bank Mandiri (Persero), Kar- tika Wirjoatmodjo, has a signi cant challenge on his hands: leading the country’s largest lend- er—in terms of loans—in a major transformation, which among its goals includes more than doubling Bank Mandiri’s market capitalization to $55 billon by 2020 (as of early February, it was roughly $20 billion).

    Kartika, known as Tiko, now 43, is the youngest ever head of the bank, appointed on March 21, 2016. While young, he has built a good resume. After earning his MBA from the Rotterdam School of Management at Erasmus Huis University, Tiko moved up fast, starting as a tax and accounting consultant in consultancy RSM AAJ in 1995. His last post before becoming president director was as the bank’s chief financial officer for one year.

    So why was a relative newcomer picked for such a big role? “The world is changing drastically, each month there are new issues to deal with, and which cannot be solved in conventional ways. So we need to be able to digest and bring a new point of view to endure and grow in this uncertain situation—we need a fresh perspective,” says Tiko.

    At Bank Mandiri, the last couple years have been tough. In 2015, the lender booked a relatively flat growth of 2.3% in net profit to Rp 20.3 trillion. The bank’s NPLs climbed from 2.6% in 2015 to 4% last year, so the bank set aside a bigger provision, which hit the bottom line. At the end of 2016, Bank Mandiri’s profit was down 32% from the same period in 2015 to Rp 13.8 trillion despite booking an annual loan growth of 11.2% . Bank Mandiri’s stock reflects investor sentiment—in the last three years it is up 20%, but its largest rival, Bank Central Asia, has seen its stock rise 40%. But, when the cost of provisions is excluded, pre-provision operating profit in 2016 was Rp 43.2 trillion, representing annual growth of 12.7%.

    To deal with the situation, Tiko says Bank Mandiri has to make some adjustments on its priorities, especially the short-term ones, to improve its balance sheet and raise the bank’s performance. Tiko notes that Indonesia tends to have a crisis every eight years: the 1997 Asian financial crisis, followed by the 2006 global crisis, and now the current one. He feels that the cycle is different from the previous ones, as it is a long-term slowdown, and has an incremental rather than sudden impact.

    “Therefore we are responding to this situation with moderate steps, since our NPLs are increasing gradually in line with the market conditions,” he says. During boom years, almost all the sectors do well, he says, but now the bank needs to carefully analyze its portfolio. Segments such as commercial property and SMEs are vulnerable, as they tend to have high leverage and fewer resources to survive a downturn and pay off their loans.

    As an immediate step, Bank Mandiri has formed a special assessment unit to deal with the emerging new NPLs and develop solutions to minimize them, including not just restructuring them, but also recovery and collection on severely impaired assets. Over the longer term, Bank Mandiri has started to reallocate its loan portfolio away from vulnerable sectors.

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