Indonesia: BCA stands out, Mandiri wins big

Indo Premier Sekuritas also takes an award in the country that is home to our overall best bank winner.

In May, FinanceAsia named the winners of its annual Country Awards for Achievement. Last month, winners were given ther awards at our annual awards dinner in Hong Kong. Today, we continue presenting the rationale for our decisions with a look at Indonesia, which is also home to overall Best Bank winner, Bank Central Asia.

Best Bank: Bank Central Asia

For the second year in a row, Bank Central Asia (BCA) is the clear winner thanks to a strategy that has paid increasing dividends for the past decade.

As we highlighted last year, BCA deploys a simple but very effective business model: it takes in as many low-cost deposits as possible and then lends to strategically selected sectors.

Last year, deposits grew 11.9% thanks to repatriated funds as part of the government’s tax amnesty. About 40% of that money flowed through BCA and the bank estimates 20% of the 40% has stuck.

BCA’s successful business model means that while it has a lower share of CASA deposits (ratio of current and savings account deposits to the total) than its two larger public sector peers – Bank Rakyat Indonesia and Bank Mandiri – it maintains a lower cost of funds. At the end of 2016, this stood at 1.99% compared with 3.15% for Mandiri and 3.46% for Rakyat.

BCA’s lending policy also means it has been able to keep NPLs under control during a four-year uptick and counting. Officials say the bank avoids the commodities sector, which is also only just coming out of a prolonged downturn.

Consequently at the end of 2016, BCA’s NPL ratio stood at 1.27% compared with 2.23% for Rakyat and 4.07% for Mandiri, according to S&P Global Market Intelligence data.

BCA’s status as the largest private sector bank gives it an undoubted advantage over state-sector peers because it is under less political pressure to cut lending rates or increase deposit rates.

As a result, it has the highest return on assets of any bank in the Asean region.  At the end of 2016, this stood at 3.27%. The bank’s net interest margin has also been on an appreciating trend and closed the financial year at 6.64%.

That may yet come under pressure if the central bank raises interest rates later this year to keep pace with rising US rates and to make sure the latter does not weaken the rupiah, although analysts believe BCA can partly neutralise that threat by deploying excess liquidity into higher yielding assets.

BCA’s strong metrics mean it has long traded at a premium to the rest of the Indonesian banking sector and this remains the case. At the beginning of June, its shares traded at around 3.3 times price-to-forward book compared with 2.2 times for Rakyat and 1.4 times for Mandiri. Officials also emphasise the bank’s continued focus on consumer finance where it has a leading market share in non-subsidized mortgages, car finance and credits, plus digitisation in a country still wedded to cash.

Best Investment Bank, Best ECM House, Best Broker: Mandiri Sekuritas

Mandiri’s strong platform across equity and debt gives it a very strong hold over the award for Best Domestic Investment Bank. This year its nearest overall rival was Danareksa, which was the only other domestic securities house to appear in Dealogic’s top-10 rankings for both equity and debt capital markets.

But it was not really a close second given Mandiri’s undisputed seat at the very top of the ECM league tables. Danareksa ranked fourth behind Bahana in third spot and Credit Suisse in second.

Dealogic apportioned it $540 million of league table credit for nine deals over the awards period.

It retains its crown against a backdrop of limited equity issuance. For the past year, the whole of corporate Indonesia has been focused on the government’s tax amnesty scheme, which formally closed at the end of March. Domestic bankers say a lot of fundraising activity was put on hold and is only now being revisited.

In the interim period, the Jakarta Composite Index has shot up and Indonesian equities are now trading just shy of one standard deviation above their five-year averages, providing a strong backdrop for those deals that were executed.  Mandiri Sekuritas was a bookrunner on the market’s top four offerings by transaction size.

The country’s largest (and the Asean region’s second-largest) deal overall was for XL Axiata. Last May, the mobile telecom operator raised $511 million from a rights offering, which priced at an 8.2% discount to its theoretical ex-rights price – relatively tight by local standards.

The market’s second-largest deal was for investment company Wijaya Karya, which raised $450 million from a follow-on offering last November. Third largest was for Waskita Beton. The concrete manufacturer’s $395 million IPO last September also ranked as 2016’s largest flotation.

The fourth-largest deal of the year also represented the country’s largest ever treasury share placement. This $250 million-equivalent transaction was co-led with Credit Suisse.

According to Dealogic data, overall Mandiri had a 19.6% market share for equity offerings including both foreign and domestic banks.

It was also able to improve its profitability in 2016, with net earnings tripling year-on-year to Rp170 billion ($12.8 million). Assets over the same period jumped to Rp2.2 trillion from Rp1.7 trillion.

Over the course of 2016, the securities house completed 12 equity offerings, 38 bond deals, and 47 advisory projects, although it is still a long way behind the international banks on the M&A side.

Dealogic data shows it was also active in the loans market, with $853.91 million of league table credit for seven deals.  This puts it second domestically behind Bank Negara Indonesia on $1.414 billion.

In terms of its brokerage operations, Mandiri ranked second among domestic players behind Bank Central Asia (BCA). However, the 2016 figures are distorted by the government’s tax amnesty.

That forced a number of local groups to disclose their holdings in the country’s largest private sector bank. The subsequent share crosses across the Jakarta Stock Exchange substantially bumped up BCA’s broking volumes according to non-competing local observers.

Mandiri reported broking volumes of Rp134.4 trillion for the entire year, up 15.8% from 2015’s Rp116 trillion figure. Mandiri’s new account openings outpaced the rest of the industry, rising by 20.4% in 2016 to 59,000 with the help of the referrals programme it runs with Bank Mandiri, to which 300 banks were signed up compared with 255 in 2015.

Best DCM House: Indo Premier Sekuritas

Where DCM is concerned we assigned the award to PT Indo Premier this year, but it was a close-run thing. Indonesia’s domestic securities houses do not feature often in offshore bond markets but one exception in March was the sovereign’s $3.5 billion sukuk.

This is the first time that Indo Premier Sekuritas has won this award and it is testament to the huge strides it has made in the domestic bond market since it was set up 14 years ago.

It lacks the state-owned affiliations some of its rivals enjoy, but that independence has helped it to thrive. Foreign bankers say Indo Premier has strong execution capabilities, which set it apart.

It has also printed a lot of deals. According to the Bloomberg tables for the awards period in question, it pipped Mandiri Sekuritas in terms of volumes. Between the beginning of April 2016 and the end of March 2017, Indo Premier completed a total of 122 issues raising
Rp19.2 trillion.

One notable deal was the country’s first dual-currency subordinated debt issue. This Rp244 billion and $50 million offering for KEB Hana was executed in December with twin seven-year tranches that carried respective coupons of 9.95% and 6.05%.

Aside from its novelty value, the deal also stood out because of the complexities of execution. In particular, the leads needed to bundle documentation that was able to comply with both Indonesia’s Otoritas Jasa Keuangan (OJK) regulations and Korea’s Financial Supervisory Service ones.  The deal also successfully targeted different portions of the Indonesian investor base, with nearly all of the dollar-denominated tranche placed with asset managers and a majority of the rupiah-denominated tranche going to insurers.

Of the 122 debt issues that Indo Premier recorded over the awards period, the largest was a Rp5.2 trillion deal for Lembarga Multifinance Eksport Indonesia. Second was a Rp5 trillion issue for Sarana Multi Infrastruktur.

With Standard & Poor’s finally upgrading Indonesia to investment grade status during this year’s awards process, the country now has a full complement of investment grade ratings. Bankers expect this will drive new foreign inflows, particularly from Japan. Some of that has already come through to the domestic bond market, with net inflows of Rp5.7 trillion during the first quarter, the highest quarter since 2013, setting Indo Premier up for a strong 2017.

Foreign investors have also been attracted by the yield differential between Indonesian and US government bonds – the highest in the Asean region. Of key importance will be what happens later in the year if US interest rates start to rise again and the Bank of Indonesia follows suit to protect the rupiah.

Best Private Bank: Mandiri Wealth Management

Mandiri Wealth Management implemented a new strategy four years ago to concentrate on wealthier clients by increasing its minimum threshold from Rp500 million to Rp1 billion ($100,000).

And it appears to have worked, with the wealth management arm of Mandiri Bank recording 32.167% revenue growth in 2016 and sales shooting up to Rp3.78 trillion from Rp2.86 trillion. This also outpaced the 23.3% rise to Rp180 trillion seen in its AUM over the course of the year.

In 2013 Mandiri Prioritas, as it is known locally, shed 18,200 customers with the number dropping from 55,000 to 36,800. However, it has started taking on new clients again at the higher threshold, with client numbers climbing 11.69% in 2016 to 48,000.

And that number may yet climb again in 2017 given that Mandiri Wealth Management is reportedly applying for a private banking license in Singapore to predominantly serve the offshore Indonesian money that is parked there. These funds were largely hidden until the government’s tax amnesty last year.

The amnesty, which led to significant funds being repatriated back to Indonesia, also creates a platform for the group to grow its domestic assets too.

The group breaks its customers into two broad segments: priority banking customers ($100,000 to $2 million) and private banking customers ($2 million or above). The former group is served by more than 200 personal bankers, with an average span of client coverage ranging from 150 to 200 customers per client. It also has 62 priority outlets across the archipelago, up from five in 2002.

Since 2015, Mandiri has also built out a new segment called Mandiri Private. At the end of 2016, this division employed 12 Mandiri private banking relationship managers and covered more than 1,400 eligible customers, resulting in an average span of 120 customers per relationship manager. Management believes the private banking segment has become more reliable in accumulating funds under management – either third-party funds or investment AUM. It grew 30% from March 2016 to March 2017 and 2% during the first three months of 2017.

At the end of the first quarter, funds under management stood at Rp46.7 trillion compared with Rp35.04 trillion at the end of March 2016. 

Best International Bank: Citi

Citi won the award for Best Foreign Bank in Indonesia in spectacular style this year and came very close to winning Best Foreign Investment Bank as well.

In 2016, the bank recorded its most profitable year ever, with net income rising 46.2% year-on-year to Rp2.29 trillion. This was driven by a 16.1% increase in interest income to Rp4.12 trillion and helped the bank nearly double its return on assets to 4.1% from 2.8%.

The trend has continued in the first quarter of this year. Net income has risen 8.29% year-on-year to Rp686 billion and its return on assets climbed even further to 4.96%.

Local bankers are confident the momentum can continue throughout 2017 as the Indonesian economy picks up and financial markets continue to feed off S&P’s decision in May to upgrade Indonesia to investment grade status – the last of the three international rating agencies to do so.

Citi has a very low cost of funding thanks to its 68.8% CASA ratio and continues to build its business model based on the one-stop-shop approach it offers its 800 strong multinational client base and local institutional and corporate clients. The bank also estimates that about 30% of its foreign corporate clients are now Asian and see these clients as a key platform to keep on growing its business.

There has been a strong focus on cross selling and digitisation, which has enabled it to retain clients while reducing its branch footprint. The bank says 80% of retail transactions are now conducted online, boosted by the launch of Global Mobile in the third quarter of last year.

It also remains the only foreign bank in the top five for credit cards by market share. It held a 12.5% market share in terms of spend in 2016.

New initiatives for its corporate and institutional clients include MobilePASS, which means clients do not need a physical token when logging in. It has also launched Virtual Card Accounts, the first bank in Indonesia to do so. The latter is a more efficient payments process, which enables clients to offer their suppliers digital account numbers to make electronic payments.

On the investment banking side, the bank had a very strong year particularly in DCM where it executed a lot more transactions than any other bank. These transactions also span the whole gamut from sovereign through investment grade to high yield corporates.

It was instrumental in re-opening the high yield market with its offering for Lippo Karawaci in August 2016 and it showed the possibilities for issuance at the very bottom of the credit curve when it executed a deal for triple-C rated Indika Energy this March.

The bank also made its presence felt in equity markets with lead management slots on the year’s main IPOs: Prodia Widyahusada’s $115 million deal in November and Cikarang Listrindo’s $266 million deal earlier in May.

Best Investment Bank: Credit Suisse

This award has long been Credit Suisse’s to lose. The bank has had a steadfastly strong investment banking franchise in Indonesia for more than two decades, built by its current Asia Pacific CEO Helman Sitohang and before him Eric Varvel, who is now global head of asset management.

One of the bedrocks of this award remains its very strong on-the-ground investment banking presence compared with some of its rivals. This comprises three managing directors led by Rizal Gozali, co-head of South East Asia investment banking, and country head Robby Winarta, plus one director, two vice presidents and two associates.

On the research side Credit Suisse also has four analysts based in Jakarta led by Jahanzeb Naseer and on the equity sales and trading side it has a six-strong team led by Dharwin Yuwono. The latter is planning to leave for a sabbatical later this year and will be replaced by Felita Elizabeth who was hired from Deutsche Bank.  The other main reason it wins nearly every year is that it just does more deals across all three investment banking categories, although this year Citi came a close second due to its DCM prowess.

Among the biggest deals during awards period was Chevron’s $2.2 billion (estimated but not disclosed) sale of geothermal assets in Indonesia and the Philippines to the Star Energy Consortium. It represented one of the largest Indonesian M&A deals of the past decade. Credit Suisse was the buy side advisor for the competitive bidding process and the mandated lead arranger for the consortium’s financing.

According to Dealogic figures, Credit Suisse had a 45% market share for M&A deals in the country, with assigned deal volumes of $3.091 billion across five transactions during the awards period.

On the DCM side, Credit Suisse notably had sole books for a $150 million issue for Japfa Comfeed this March, a rare occurrence given the highly competitive state of the region’s international bond markets.

Where equities are concerned, there were few sizeable IPOs in Indonesia during awards period. The first $50 million-plus deal of 2016 did not come until May – a $227 million placement for Matahari Department Store, which Credit Suisse had sole books for.

The group was one of the leads on the country’s largest deal of the year – a $510 million rights offering for mobile operator, XL Axiata. It was also a lead on the country’s largest-ever Treasury share placement for Telekomunikasi and a lead on one of the year’s few sizeable IPOs in Indonesia, for clinical lab group Prodia. This $115 million offering underscored the bank’s business model based on repeat business for key clients. The founder is also one of the Credit Suisse’s private banking clients. 

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