Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on April 3 - 9, 2017.

 

MALAYAN Banking Bhd (Maybank) is proving its critics wrong with the good performance of its Indonesian unit, PT Bank Maybank Indonesia Tbk.

The 2008 acquisition of Maybank Indonesia, known as PT Bank Internasional Indonesia Tbk before its rebranding exercise in 2015, came under fire as the market deemed that Maybank had paid too high a price for the financial institution at 4.6 times book at the height of the global financial crisis. Eventually, the price-to-book valuation was brought down to 4.1 times and Maybank had a rights issue to average down its cost further.

Nine years on, however, Maybank Indonesia has become a meaningful contributor to the largest banking group in the country. For the financial year ended Dec 31, 2016, its contribution was nearly at par with its Singapore market, which has traditionally been the second largest contributor to the banking group’s bottom line.

Maybank Indonesia president director Taswin Zakaria attributes the improvement to the major transformation initiatives that it has undertaken since 2014. “It is something you want to be happy about. Going into the third year of implementation, we have seen positive results. We are not quite where we want to be … But if financial performance is a good indicator of that transformation, I would say it is gaining traction,” he tells The Edge in an exclusive interview.

Maybank Indonesia contributed about 8.9% to the banking group’s profit before tax for FY2016. By comparison, Singapore’s contribution was 9.9%. A year earlier, Indonesia only contributed 5.2% while Singapore’s contribution was 15.1%.

Maybank Indonesia’s return on equity improved to 11.85% from 8.47% in 2015 while net interest margin (NIM) expanded to 4.61% from 4.45% during the period. Its consolidated non-performing loan (NPL) level was lower at 3.42% (gross) and 2.28% (net) last year compared with 2015’s 3.67% (gross) and 2.42% (net).

Indeed, Maybank Indonesia posted its best ever results in FY2016, registering a net profit of IDR1.95 trillion, or a 71% increase from a year earlier. The results were driven by higher net interest income, good cost management and lower provisions for NPLs.

Taswin believes that the key drivers of Maybank Indonesia’s better results were a sharper focus on leadership and better business planning. “There is heightened awareness of leadership and better business planning. We have equipped people in branches with skills to identify the economy of their own region. That is the core of the initiative — for each region to be able to identify its economic opportunities and strengths. Indonesia is big — we are the biggest in Asean — and the government divided it into five economic corridors, each with its own distinct characteristics,” he says.

“[When I took over], I noted that we were operating in a centralised way when the economies are different from west to east. I asked, ‘Why do we have only one business model when Indonesia’s economy is so varied across the country? We can no longer operate as a product pusher ... we must identify what the economy is. Just like when bankers say we want to understand the customers — we want to tailor what we do to what our customers want. We do not talk enough about how to do business according to the economy in which we operate.”

 

No walk in the park

Taswin took the helm at Maybank Indonesia in 2013, when banks were experiencing a slowdown in earnings after enjoying a good run. “The timing was a bit unfortunate,” he acknowledges.

The 48-year-old banker was appointed president director on Nov 11 that year. Prior to that, he had served as an independent member of Maybank Indonesia’s Board of Commissioners since 2003.

Not only was the external environment volatile in 2013, the Indonesian government also reversed policies and there was a liquidity crunch. “It was quite a challenging situation going into my first year on the job,” Taswin laughs.

“I remember there was a point when we stopped lending. We stopped approving loan applications for a month or two in 2014, simply because the incremental liquidity cost exceeded the loan pricing that you can charge customers. There was no way to grow with negative margins like that.”

What complicated things in late 2013 and 2014 was the need for transformation at Maybank Indonesia. Taswin says it was like having to fly an aircraft and change the engine at the same time.

“I was weighing our options at the time, whether to push full steam for the transformation or wait for the situation to improve a bit ... We decided to go full speed, including the transformation, which we introduced in 2014.

“It was basically dealing with the transformation of leadership and business planning for all our regional branches across Indonesia. It also involved re-profiling our global and corporate banking portfolios and target markets and overhauling our risk management system.

“Last but not least was the SCMP — the strategy cost management programme that we have been implementing. We continued to reinforce that in the light of the situation. When your top line and growth are being challenged, one of the first things you look at is how you manage your operating costs.”

Today, Maybank Indonesia is focusing on businesses that are capital efficient and give better returns. One of its measures has been the disposal of assets such as its auto financing arm, WOM Finance, which was sold for less than its acquisition price.

When asked why the bank had sold WOM Finance at a lower price, Taswin says, “We want to grow where the charges to the capital are friendlier”.

On M&A talks for such assets, he says, “We are constantly on the lookout … when the opportunity arises, we do not close our eyes to that ... We want to diversify our business and maximise the return on capital.”

Can Maybank Indonesia sustain its growth momentum? In this context, Taswin believes that this year will be marked by both internal and external challenges. And in such trying times, he is not sitting on his laurels.

“We aim to maintain the momentum we achieved last year. We will intensify our focus and efforts to improve and diversify revenue streams and strengthen our organisational capabilities and enterprise business leadership in the midst of increasing competition while closely monitoring our asset quality. We will focus on digitalisation for business and channel efficiency,” he says.

“We will also strengthen our involvement in the financing of infrastructure projects to support the government’s economic development agenda. Business banking will continue to be the main contributor in generating revenue, with its focus on the SME segment. In addition, sharpening our business focus on the retail segment and the development of competitive retail products will be a key priority this year.”

Loan growth is forecast to grow 10% to 12% this year, but it depends on how fast the economic activities recover, says Taswin. “Deposit growth is estimated to be in line with the bank’s loan growth, with an emphasis on current and savings account (CASA) growth. Cost of funding is estimated to be stable (in 2016, it was 4.6%).

“The bank will defend its NIM through tight liquidity management and disciplined pricing. We are optimistic that asset quality can be further improved and maintained at a healthy level, subject to various factors such as gradual economic expansion recovery and improving commodity prices.”

Taswin admits that a lot more needs to be done to achieve the targets set under the transformation programme by 2020. But on a happier note, some of the targets have been achieved earlier than expected. These include increasing the profit contribution to the Maybank group.

Another achievement was a lower cost-to-income ratio. “We have been able to grow our operating income with disciplined cost management. Since 2013, I have instructed the team not to attack expenses on a piecemeal basis, but look at the structure of the organisation. Every cost has its originator. Look at the source and question yourself every time — do you need that?

“We have been dealing with that (cost) ... either through process re-engineering or some efficiency measures. We also centralised back-office operations into three hubs in Sumatra, Jakarta and East Java. And that created a lot of efficiency.”

He adds that there was also a focus on streamlining credit operations for its subsidiaries.

Maybank Indonesia closed FY2016 with a cost-to-income ratio of 52% — the lowest in its history. “We had not been able to break below 60% in the history of the bank until two years ago. We used to have the highest cost-to-income ratio in the industry. Our target was to get to 55%, but we closed last year at 52%. So, that is quite a big achievement,” says Taswin.

“We also measured productivity by profit before tax (PBT) per staff. For the first time in Indonesia, we broke the one time PBT for FY2015 and 1.2 times for FY2016. That was a big achievement. Before that, we were not able to break 0.5 to 0.6 times.”

Maybank Indonesia is gaining traction. Going by the growing view among industry observers and players that the banking sector has begun to perk up after three years in the doldrums, the bank may continue to surprise the market on the upside.

 

 

Well-equipped to handle crises

Taswin Zakaria, president director of PT Bank Maybank Indonesia Tbk, is no stranger to financial crises and bank restructuring. At 48, he has navigated through two financial calamities — the 1997/98 Asian financial crisis and 2008 global meltdown.

Taswin started his career as a banker after he graduated from university in the early 1990s, cutting his teeth on remedial work — something that was considered boring back then. It was a time of market growth and robust lending activity. There were not many cases of stressed loans that needed restructuring.

He joined the corporate restructuring and project finance unit of Citibank in 1992 and headed the remedial unit from 1994 to 1996. He  served as an independent commissioner at Maybank Indonesia (then known as PT Bank Internasional Indonesia) from 2003.  

“When I started, not many people wanted to be in the remedial unit. I was there when Indonesia was going through a peak period in lending, leading up to 1995. Morgan Stanley, Lehman Brothers … they were all there,” says Taswin.

“Jakarta was the place to be … that was where some of the major deals took place. But there I was in the remedial room, watching everyone party. I remember telling my boss, ‘I guess I am going to keep my job because give them another three years and the party may be over.’ That was in 1995.”

The music stopped in 1997 and many were caught wrong-footed by the Asian financial crisis. And the rest is history.

Looking back, Taswin says it was one of the best experiences one could have in banking. “That is why I tell every trainee that if you are given a chance to do remedial work, never hesitate to take it. You will learn … good accounts do not teach you much. But when bad accounts happen, you get to find out what went wrong. That is the deep end. It is not glamourous.”

Taswin left Citibank for Deutsche Bank in 1997.

Compared with the Asian financial crisis, the 2013/14 slowdown was relatively mild, he says. “What we had in 2013/14 was not just a commodity downturn, domestically, we saw a reversal of policy by the government. There was also a liquidity crunch.”

Taswin’s experience as head of corporate restructuring in his early years has stood him in good stead. “Anyone who has run a remedial outfit will know what to do in a liquidity crunch and what to focus on to make sure your business stays afloat,” he says.

Tough decisions had to be made, such as whether to push full steam ahead with a major transformation exercise for Maybank Indonesia when the banking sector was facing turbulence. Taswin decided to bite the bullet and today, the bank is already seeing the fruits of the transformation exercise.

What lies ahead? He says while the operating environment is moving, there are still challenges. He will be on his guard.

 

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