This was a year to reward a bank proving itself in desperate circumstances. At the time of writing, Indonesia is suffering its worst Covid outbreak of the pandemic to date; more than twice as many people died there in the two weeks to August 11 as in any other country. While many western nations have begun to talk about Covid in the past tense, in emerging markets from Asia to Latin America it is very much in the present and the future.
In several of these blighted countries, we have seen a strong bank get stronger, proving its resilience, getting ahead in digital and putting further daylight between itself and domestic peers.
Shortlisted
- HDFC Bank
- BBVA
Perhaps the most potent example of this worldwide is Bank Central Asia, by some distance the best-run bank in Indonesia under the longstanding stewardship of president director Jahja Setiaatmadja.
In extremely difficult circumstances the bank grew assets by 17%, deposits by 19% and current account savings accounts (CASA) by 21% in 2020. Transaction banking – the BCA mainstay – grew 34.8% year on year with 11.6 billion transactions, while mobile transactions rose 62% year on year during our review period to the end of March 2021.
It’s really only when you look at the peer group that you understand the competitive edge. BCA did see a modest drop in net profit in 2020 after considering provisions, down 1.4% to Rp27.1 trillion ($1.89 billion), but that’s in a year when BRI dropped 70%, BNI 79% and Mandiri 38%. BRI and Mandiri, both fine institutions, recorded far lower total profits on far bigger asset bases.
Besides, BCA’s drop didn’t last. Even allowing for provisions, net profit for the first half of 2021 was up 18.1% year on year.
There are two ways you can look at this: through the numbers and through the culture.
Adapting
The numbers reveal a lot. The first half of 2021 showed a 12.1% year-on-year drop in operating expenses – including an 18% drop in manpower costs – at the same time as a 2.4% increase in operating income, with fees and commissions (a harder part of banking to achieve than net interest income) up 7.5%.
This tells you about a well-run business that has adapted to tough times by reducing costs in what was already a streamlined operation, while finding successful ways to make money in difficult circumstances.
Further illustrations of this skill come in a 16.6% return on equity (ROE) – which is on an upward trajectory despite everything happening around it – and a 25.3% capital adequacy ratio. For comparison, at the end of 2020 Mandiri’s ROE was 9.4%, BRI’s 11.1% and BNI’s just 2.9%. Gross non-performing loans (NPLs) were just 2.4% as of June 30, 2021, having shifted only 0.3 percentage points through a dismal year, and NPL coverage stands at a more than healthy 230.6%. Both of these figures easily lead the local industry.
For years now, it has been famed for its conservatism: it knows what it is good at, it never ventures overseas and it turns down plenty of business
The other side of the coin is the bank’s culture. For years now, it has been famed – and adored by investors – for its conservatism: it knows what it is good at, it never ventures overseas and it turns down plenty of business. Well before anybody had ever heard of Covid, it had strong financial buffers in place and had worked long and hard on two things that paid off dramatically: the most refined risk management methodology in the business and a comprehensive digital platform.
Both these things were vital when the pandemic hit. This was a message consistent across Asia and the world: those with a strong digital offering were able to ramp it up forcefully and those without struggled to catch up. In BCA’s case, the number of customers using the digital platform grew 46% and daily transactions grew 98%. That in turn fed CASA growth: “Which gives us the luxury to cherry-pick high quality loans, a saving grace during uneasy times,” the bank says.
These were not new ideas that suddenly came along with the pandemic. But they were accelerated by circumstances. Average digital transaction volume per day has grown 150% in three years and application programming interface transaction volume is up 3.5 times in two years. The average of online accounts opened per day climbed 193% in a year.
Diversity
On the risk side, the loan portfolio is notable for its diversity and strength. There is no dominant sector in the loan book and within it exposures are strikingly low because of credit selection. Take mining: it’s only 0.4% of the BCA book, compared with 2.3% for the industry; and whereas the banking sector’s NPLs on mining exposures stands at 7.7%, at BCA it is 1%.
The crisis has certainly hit BCA: it booked Rp97.5 trillion of credit restructuring, or 16.9% of total loans, last year, 87.9% of it linked to the pandemic. But these are extensions and deferrals in the main and there are already signs that borrowers are coming good again and that very little of this exposure will be written off.
All of this then pays off in other ways. BCA has had the lowest cost of funds in the industry for years and the differentiation became starker still through the pandemic. And in areas like transaction banking there was a flight to quality, when institutional customers doubled down with names they knew they could trust still to be standing at the end of the pandemic.
Setiaatmadja marked 10 years at BCA’s helm this year. It has been 10 years of prudence and focus. This is the right year to recognize it in Euromoney’s global awards.
