Banking: Indonesia in the sweet spot

Indonesia is one of the world’s brighter prospects right now: growth, demographics, infrastructure momentum, inflation under control, more equity raised in the first quarter in Jakarta than New York. Banks are positioning to benefit – while keeping an eye on next year’s elections.

Euromoney is in Eastern Kalimantan, Indonesia, inland from the port of Balikpapan. Here, at a clearing they’re calling Ground Zero – they might need to work on that branding – we are looking at the place from which a new capital city will spring.

It doesn’t look much now: there is a little makeshift pavilion filled with canvases showing what a grand future parliament will look like, and explaining how sewage treatment and highways will appear, while some steps lead down to a bold white sign saying TITIK NOL NUSANTARA (Ground Zero of Nusantara, the name of the new capital, though it is more widely referred to now by the shorthand IKN).

There is the beep of reversing trucks, graders clearing and flattening land among the jungle and palms, a few local tourists with sun umbrellas for the intense heat and humidity.

Today, it seems obtusely remote, after a two-hour journey along a bouncy and winding road that is single-lane for much of its length, caught behind sluggish Pertamina tankers struggling with the high gradients, among corrugated metal rooves and open-fronted stores full of bananas, timber and rice.

But from the air as you fly in to oil-rich Balikpapan, you can see a grander and faster highway being carved into the jungle. Accommodation blocks are going up.

All new capitals start like this, from Canberra to Brasilia; this one might follow the path of Malaysia’s Putrajaya, which seemed a white elephant for many years before bursting into bustling life, or Myanmar’s Naypyidaw, which is plain weird. But the point is, it is happening. It is being built. And in this, there is an unfamiliar lesson for those who have heard people talk for 30 years about Indonesia’s potential for infrastructure, always in a distant future tense.

The demonstration effect

A day later and Euromoney is shuttling between meetings on the Jakarta MRT, which could be Singapore, both for its efficiency and its opulent set of Covid-era rules. This is another piece of infrastructure people talked about from the previous century before its first north-south line opened in 2019; a second, east-west, will open next year.

There is a potent demonstration effect in this rail line, all the more welcome to those who have spent weeks of their lives stuck in traffic jams on Jalan Jenderal Sudirman. The message it gives is: ‘We have delivered. We said we’d do it and here’s the evidence’. It is an extremely important message to convey as Indonesian president Joko Widodo, known to all as Jokowi, approaches the mandatory end of his time in power when he hits 10 years next year, requiring new elections and a new leader.

Jokowi’s popularity stands in the high 70s in percentage terms, unheard of (in reliable surveys anyway) for someone so long in power, and infrastructure has a lot to do with it. So, too, does his success in broadening Indonesia’s commodity story from being an exporter of things it digs out of the ground to a downstream processor of those things, particularly nickel.

Indonesian Presidential Inauguration 2019
President Joko Widodo is approaching the end of his time in power next year. Though everyone expects the elections in 2024 to go peacefully, the uncertainty is leading to caution among investors and issuers. Photo: Getty

“The total toll roads before Jokowi came to power were around 780 kilometres across Indonesia,” says Sandri Supardi, managing director and head of Indonesia IBCM at Credit Suisse. “Right now, it’s close to 3,000km. That shows the massive progress on infrastructure, which in turn boosts economic production and efficiency, and translates into GDP expansion.”

That is not the only economic indicator it improves. Since the second quarter of 2020, Indonesia has recorded eight consecutive quarters of trade surplus rather than the perennial trade deficit that existed prior to 2020.

“Jokowi’s infrastructure push and the government policy to force all mining players to go downstream allowed Indonesia to enjoy massive GDP expansion in the midst of the pandemic era,” Supardi says.

Downstream and smelting operations from nickel commodities have allowed Indonesian nickel players “to create more than 10 times value for the country compared to when they just exported the raw ore abroad.”

That is good news for financial services too.

Meliza Musa Rusli, president director of PermataBank, says: “Given where we are today and the aspiration of our government to open up more on the downstream industry, it will be a good boost not only to the banking sector but to the economy.”

In a world of inflation, high rates and the spectre of recession, Indonesia is buzzing. Jakarta is as vibrant as any city in Asia. GDP growth is strong; most projections are around 5% for 2023, while inflation is falling (Bank Mandiri projects a drop from 5.5% in 2022 to 3.6% this year).

The currency has been appreciating against the dollar, not depreciating as it always used to in times of global volatility. Rates have risen, but not as sharply as those of the US Federal Reserve. The benchmark rate is at 5.75% and stable; that is inside 100 basis points of the US 5% rate.

“Prior to 2020, the spread has always been at least 500 basis points,” Supardi says. “We’ve never touched this level before.”

The demographic picture is exceptional: 145 million of the 275 million national population are Gen Zs and Millennials. As in India, the domestic demand story – with consumption accounting for 53% of total GDP – is powerful and resilient to external shocks.

Profit drivers

Local banks are enjoying the ride. Last year, the total profit of Indonesia’s state-owned enterprises jumped 143% year on year, to Rp303.7 trillion (about $20 billion), and the banks within that group – which include Mandiri, Bank Rakyat Indonesia and BNI – led the rise as they made more on their loan portfolios.

In February, BRI reported a 67% climb in net profit for 2022, to Rp51.4 trillion. Mandiri reported 12.36% year-on-year loan growth in the first quarter; BCA’s loan book grew 11.7% through 2022 amid a 29.6% climb in profits to Rp40.7 trillion.

Fifty one percent of Indonesia’s population is unbanked. With only 16.3% household debt-to-GDP ratio, Indonesia’s banking population is underpenetrated

Darmawan Junaidi, Bank Mandiri
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Nomura is one of many houses to be overweight major Indonesian banks, nothing that the big four under its coverage – BCA, BRI, BNI and Mandiri – reported combined net profit of Rp44.8 trillion for the first quarter, up 31% year on year.

“Key profit growth drivers included loan growth, some loan repricing… as well as the overall improvement in asset qualities, thereby leading to lower credit costs,” says Nomura analyst Tushar Mohata in a May 2 note.

“These major banks continued to gain transactional franchises, leading to a higher average CASA ratio [the ratio of deposits in current and saving accounts to total deposits] of 72.2%.”

That is up 140bp year on year.

Mandiri chief executive Darmawan Junaidi points to the national strategic projects – the new capital, commodity downstreaming, digitalization and the green economy – as areas where he thinks his bank will benefit. He says Mandiri has already disbursed around Rp31.7 trillion in downstreaming projects and Rp5 trillion in its renewable energy portfolio.

“This number will go up as more projects are being initiated,” he says.

What is more, Junaidi says that Indonesia’s demographic story is not just about the age numbers.

“Fifty one percent of Indonesia’s population is unbanked,” he says. “With only 16.3% household debt-to-GDP ratio, Indonesia’s banking population is underpenetrated.

“Indonesia’s economic growth will spread out across many segments such as corporate, small and medium-sized enterprises, micro and consumer,” Junaidi adds. “To capture the opportunity in every segment, I am bringing Mandiri’s focus back to its core competence and DNA, which is an all-rounder ecosystem bank.”

Relationships with big corporates provides access to their captive value chain ecosystems, he says.

“With this advantage, we are mining our ecosystem to grow our retail segments such as SME, micro, payroll loan and consumer segments.”

Others are adopting similar strategies. There is money to be made right across Indonesian banking.

The rates challenge

While Indonesia is clearly a brighter economic story than most in the world, it didn’t get away unscathed from global inflation and rising rates.

“The high inflation rate is quite challenging for banking, that’s for sure,” says Meliza. “It’s especially challenging for our clients. But we are quite confident that this is going to be the highest rate for the year.”

Inflation went down in April, unusual for a month containing the Eid al-Fitr (Idul Fitri in Indonesia) celebration that marks the end of Ramadan fasting.

“The rupiah has been appreciating, a little bit too fast, but I think it’s in the right zone,” says Meliza. “The stable interest rate will give a much better position for banking.”

She also notes that many banks allocate portfolio to Indonesian government bonds, so the rising yield has pressured non-fee income.

“Hopefully now with a lowering yield for the overall bond market, it will have to have a positive impact on performance.”

These challenges certainly haven’t impacted the health of the Indonesian banking system, where capital adequacy ratios are high, average non-performing loans are below 3% system-wide and loan-to-deposit ratios have so much headroom.

Fitch, writing in March, said that the operating environment for Indonesian banks should “be stable in the near future on resilient, albeit moderating, GDP growth in 2023 and 2024”, supporting loan demand and asset quality, which should “remain stable given relatively healthy corporate and household balance sheets and further recovery in sectors hardest-hit by the pandemic, such as hospitality and MSME.”

Most big Indonesian banks are still at least partly state-owned, which doesn’t hurt; Fitch expects government support for them were they to need it.

Economically, Indonesia used to be a Java story, even a Jakarta story. But we started our story in the mud of Kalimantan for a reason: that is changing.

The downstream nickel story is principally one of the eastern island of Sulawesi. Sumatra is an economic engine in a way it never was before.

“Today, the GDP contribution is still coming mainly from Java island,” says Meliza. “But in the next five to 10 years it will come from outside Java.”

As that happens, it becomes self-fulfilling: underdeveloped Sulawesi is seeing growth in restaurants, hospitality and real estate because of downstream nickel.

“With the support of downstream, it will create a multiplier effect to – we don’t even call them second-tier cities, but fourth- or fifth-tier cities in the eastern side of Indonesia,” says Meliza. “This is where we are expecting the growth in future.”

The attractions

Indonesia’s appeal has not been lost on other banks in the region, who have steadily cemented themselves in the country through acquisition.

Malaysia’s CIMB owns Niaga, and has done so since 2002. Danamon was acquired by a Temasek-led group in 2003, and almost went to DBS before regulatory hurdles scuppered the deal; it was bought by Japan’s MUFG in stages concluding in 2019. Bank Internasional Indonesia now operates under another Malaysian owner as PT Bank Maybank Indonesia. And most recently, Thailand’s Bangkok Bank bought PermataBank, previously owned by Astra and Standard Chartered, in 2020.

Each acquiror was attracted by Indonesia’s growth and demographics – particularly appealing to a Japanese buyer whose market offers neither. And, done well, those acquirors bring benefits to the banks they acquire.

There are so many projects here in nickel downstream, aluminium, bauxite, which will need support from lenders who understand how to be part of project financing

Meliza Musa Rusli, PermataBank
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Meliza says this has been the case for PermataBank since Bangkok Bank took over. The Thai entity actually has a longer history in Indonesia than PermataBank does, 50 years compared to 20.

“They knew not just about the culture of Indonesian customers, but insights into which areas of corporate banking and SME we should progress,” she says.

In particular, they brought with them skill sets in transaction banking, trade finance and project finance.

Those are useful skills to have right now.

“It’s aligned with the progress of Indonesia,” Meliza says.

Indonesia’s downstream industrialization in nickel and other areas has required Indonesian banks to step up and offer financing. Bangkok Bank had expertise to offer here, having aligned itself to the boom in the petrochemical industry in Thailand as a project financier.

“Starting last year,” Meliza says, “there are so many projects here in nickel downstream, aluminium, bauxite, which will need support from lenders who understand how to be part of project financing. For a commercial bank like PermataBank, it’s not our bread and butter.”

But with Bangkok Bank’s guidance, Permata is now involved in several projects in Indonesia.

The takeover also brings up cross-border possibilities in transaction finance and trade, for exporters and conglomerates. Banking the conglomerates is another key strategic direction for PermataBank, along with digital and wealth. Previously, one of its main shareholders was the Astra conglomerate, so much of its mission was to support Astra Group.

“During that time, we learned how to serve the conglomerate ecosystem from end to end: not just corporate lending but providing financing, funding the SME value chain of the group, as well as their employees and their families,” Meliza says.

Now, Bangkok Bank brings key relationships with other key groups in the region, many of which have operations in Indonesia, while the group can also serve Indonesia conglomerates going overseas.

Meliza ran digital for Astra and is impressed by the digital opportunity in Indonesia. Last year, PermataBank renovated 19 branches which, she says, “look like digital stores.”

At PermataBank, 60% of employees are millennials.

“We are learning from our own employees how to serve their generation,” Meliza says.

The bank has adopted a motto which translates as ‘everything is possible’, for the whole gamut from corporate to SME, wealth and consumer, across all generations.

It emphasizes simplicity in its mobile banking app – ‘my grandma can use it, my daughter can use it’ – but as Indonesia’s mass-affluent wealth dynamics have gained momentum, these days more and more people are using it for foreign exchange, fixed income investment and mutual funds.

On a more ambitious canvas, PermataBank has joined Bangkok Bank in attempting to roll out its blockchain-based trade-finance capability. In May, the two announced a partnership with Indonesia’s Lautan Luas and Thaliand’s Thai Polyethylene Company and Siam Cement Group to introduce blockchain-based letter-of-credit transactions.

All of Indonesia’s banks have launched digital initiatives in order to try to capture this opportunity. Mandiri launched its Livin retail app, and its Kopra super platform, in October 2021.

Retail rocket

Indonesia’s securities houses operate in an absurdly competitive environment: there are 95 of them, of whom it is widely thought only the top 30 or so make a viable living, even in a time of considerable activity.

These are, though, good times for them. The pandemic brought an influx of retail interest in investment. Iman Rachman, president director of IDX, the Indonesia Stock Exchange, says that since 2021 they have been seeing annual increases of 2.5 million retail investors a year.

During the pandemic, the composition of our investors, 80% were below 40 years old, and 60% below 30. The increase was in the youngest people

Iman Rachman, IDX
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There are more than 10 million now, and he expects the figure to hit 13 million by the end of 2023. Anchored on this activity, daily trading volumes soared, hitting about $1 billion a day by December 2022, though they have faded since.

“I was in investment banking before IDX,” Rachman says. “Going back five years, the composition of trading was the foreigners were 70% and the domestic investors 30%. Now it is the other way around.”

Much of that difference is down to retail. To provide services to this emerging client base, IDX launched structured warrants late last year, with single stock futures expected later in 2023.

“Wealth has increased, but also the awareness,” he says. “During the pandemic, the composition of our investors, 80% were below 40 years old, and 60% below 30. The increase was in the youngest people.”

Banks are positioning for retail. BRI and Danareksa merged in 2019, bringing together one of the largest mainstream banks in the country with a securities house whose reputation was chiefly institutional; Laksono Widodo, chief executive of BRI Danareksa, says one of the priorities since the merger has been to build out a retail securities business to match.

“Given BRI is the largest retail investor in Indonesia, with 70 million account holders, they want us to have a significant presence in the retail market,” he says.

Building that is not easy: it requires a lot of IT expertise and a large number of people. But the market is irresistible.

“The momentum has some been somewhat reduced this year but it was gathering real force during the pandemic when nobody was doing anything except staying at home, trying to find ways to get better yields on their money by investing in the stock exchange.”

“It was a surprise to us,” says Widodo, who was at IDX at the time. “We thought it was a doomsday scenario, that nobody would trade. But what happened was the opposite.”

Seeing this potent demand, issuers have rushed to the market. Last year brought a record 59 IPOs. At the time of our interview in early May, the figure for 2023 was already 34, with many more coming. More money was raised in Jakarta in the first quarter than in New York.

The pipeline

Not all of these are big, but enough are to make life interesting for international banks. The tech heavyweights, Bukalapak and GoTo, have soured with dismal aftermarket performance as they have for tech companies worldwide, but there have been others too: Mitratel in telecommunications last year, and this year big deals have followed in multiple sectors.

They include the nickel producer Trimegah Bangun Persada, better known as Harita Nickel, which raised $673 million equivalent in April; Pertamina Geothermal Energy in February and Merdeka Battery Materials, which launched in April.

Rachman says the pipeline includes consumer, energy, transportation and logistics and healthcare.

This broadening of sectors is welcome.

“Traditionally, ECM [equity capital markets] activity in Indonesia has been focused on consumer and telco stories,” says Vijay Vaidyanathan, co-head of southeast Asia investment banking at Morgan Stanley. “That narrative has changed more recently as resources deals have come back, and there have also been a number of tech related issuances.”

We are one of the few markets in the world still able to do relatively sizable IPOs, but as global investing demand is not as good as before, we do find it challenging in terms of gathering demand

Laksono Widodo, BRI Danareksa

There are equity private placements in unlisted companies too.

Foreign flows have fluctuated over the difficult last few years – there were outflows in the first months of the year as China returned to the investment world, though this has reversed more recently – but this matters less than it used to.

“In the past in a sell-off, if the foreigners hit the exit door, it put pressure on the rupiah, added to our current account deficit situation,” says Silva Halim, managing director at Mandiri Sekuritas.

Now, there is a trade surplus, and foreign investors only account for 15% of the Indonesian bond market when once the figure was around 40%.

“Because the percentage of foreign investors in rupiah bonds is already low, we haven’t seen a major sell-off to put pressure on bonds,” Halim adds.

And they’re not really leaving anyway.

“Indonesia is still benefitting from foreign flows,” says Vineet Mishra, head of investment banking for southeast Asia at JPMorgan. “The China reopening hasn’t dampened the appeal for Indonesia because it is a fundamentally attractive investment opportunity.”

Both Indonesia and Asean have benefited from liquidity being diverted away from China, he says. “You will notice this time there is not much pressure on the currency. That gives you a sense that outflows are not heavy.”

Domestic investors

Alongside retail, the domestic institutional investor industry is gathering scale and sophistication, though bankers tend to say they would like it to do more: many pension funds are ultimately state-owned, are somewhat restricted in their investments, and tend to opt for safety, including government debt, rather than supporting corporate debt.

“For many domestic funds, probably half of their assets under management are in government bonds,” says Halim.

Widodo says: “We are one of the few markets in the world still able to do relatively sizable IPOs, but as global investing demand is not as good as before, we do find it challenging in terms of gathering demand. A stronger domestic institutional investor segment would help with that.”

Nevertheless, Rachman says the size of the corporate bond market has increased, and that last year there was Rp120 trillion of issuance.

“Domestic bonds will increase significantly because corporates will need financing,” he says. “Banks need to increase their capital as well.”

Can Indonesian corporates issue? Probably the answer is yes. But will they pay 9% to 11% on dollars, plus withholding tax? They can get cheaper funding here

Rizal Gozali, Credit Suisse

Widodo says: “During the crisis everyone was trying to slow down their expansion. Now there’s more clarity about how the economy is growing, we have seen on the domestic debt side a major increase in the amount of issuance.”

But it is limited, he says. “Mostly it’s still plain vanilla.”

Getting the rates market to take off, he says, would require a change to local taxation rules; asset-backed deals do get done, but sparingly.

Oki Ramadhana, president director at Mandiri Sekuritas, says sophistication has grown in domestic debt, “but not at the scale that we want. If you are a private company wanting to raise bonds, you probably cannot go two trillion [rupiah] in one go.”

Firms get around it by conducting something like a shelf registration, raising the Rp2 trillion in stages over the course of a year or two. But it would be easier if it was possible to do it in a single hit.

State-owned enterprises are an exception, he says. “They can raise Rp4 trillion to Rp5 trillion.”

Halim, his colleague, would like to see the development of lower-rated issuance in domestic bonds.

“For the higher rated issuers, investment grade or slightly below, the market is definitely there,” she says. “But when it comes to lower ratings, we need to develop that market more to educate investors, as they tend to be conservative and stick with safer names.”

Double digits

One area that has never reached its potential is Indonesian international high yield issuance, and is probably now less likely to than ever.

There was a theory, when Chinese real-estate issuers ran into trouble, that their relative absence from the markets would lead to the money going elsewhere: that sector is at times two thirds of the entire Asian market. India and Indonesia were expected to step up with issuance. That happened to an extent in India, but not Indonesia.

Bluntly, it is too expensive. No Indonesian corporate issuer feels like stumping up double digits for a dollar bond – and that is what some would be looking at – when they can tap bank liquidity that remains plentiful in Indonesia.

“Can they issue? Probably the answer is yes,” says Rizal Gozali at Credit Suisse. “But will they pay 9% to 11% on dollars, plus withholding tax? They can get cheaper funding here.”

Advisory is active. Partly this is in classic acquisitions, but also restructurings, both from positive and negative positions. Garuda is an example of a big restructuring.

“Garuda was a very complex and challenging transaction,” says Halim. “It involved so many different stakeholders: the government, local state banks, foreign banks, lessors and bond investors.”

But Ramadhana says its completion has been important.

“That was the biggest restructuring in Indonesia,” he says. “Now we are talking with other SOEs about restructuring their businesses.”

At the other extreme, the ministry of state-owned enterprises has been encouraging firms under its supervision to merge for scale. For example, Pertamedika IHC – the IHC stands for Indonesia Healthcare Corporation – gathered 35 hospitals linked to SOEs in 2020 and brought them into a single holding company. Initially this was to help tackle Covid-19, but since the pandemic has eased, the group has expanded to cover 73 hospitals bringing together a national health ecosystem.

“Now it’s a scalable business, ready to grow,” says Ramadhana. “The two ministers are acting like portfolio managers, very hands-on in the growth and operations of the SOEs under their supervision.”

He’s referring to Erick Thohir, the minister for state-owned enterprises, founder of the Mahaka conglomerate, and his deputy, Kartika ‘Tiko’ Wirjoatmodjo, whom regular readers will recall for his leadership of Mandiri Bank.

One of those hospitals was from Pertamina, which itself is a great example of the work being done to revamp SOEs. Its geothermal arm was spun off in an IPO, it is considering a strategic plan for its general insurance company, and it brought in Japan’s NYK as an investor into its shipping subsidiary.

“That’s how it [the ministry] unlocks and creates value,” says Gozali; Credit Suisse has been involved in many of these deals and considers SOE restructuring a priority area of business.

So do local houses.

“There’s a lot of things that have happened with SOEs in the last few years, especially under the leadership of the two ministers,” says Ramadhana. “They are creating a much bigger pool of scalable SOE businesses, and better managed. It’s a good thing.”

Advisory has become a key business for foreign banks in the country, who have been able to find roles in big deals. JPMorgan, for example, is on the $6 billion merger of Indosat and Ooredoo, the $1.2 billion sale of STP to Protelindo, the sale of Indosat towers to Edge Point and Telkomsel towers to Mitratel.

“The opportunity for international investment banks is across both capital markets and advisory,” adds Vaidyanathan at Morgan Stanley. “Indonesia continues to be a very active market across both areas.”

His Morgan Stanley southeast Asia co-head Gregory Thiery points to “significant interest from private equity firms, sovereign wealth funds and strategic investors: there is money to put to work in Indonesia.”

He highlights healthcare, infrastructure (including digital) and consumer as active sectors, and notes the rise in importance of private capital.

“A lot of infrastructure investments in Indonesia will need to be funded by private investors,” he says. “That’s something we’re seeing in the Philippines as well.”

Then there is the sovereign wealth fund, INA, which has a catalytic role to seed investments in Indonesian sectors in the hope of attracting international funding to join it.

Electoral pressures

But the great unknown here is how the election will affect investor sentiment. Indonesia has a triple election coming in February 2024: presidential, legislative and local.

In the past, foreign investors in particular have been extremely risk-averse around Indonesian elections: these have, at times, involved civil unrest. But there is a growing sense that there is no realistic risk of that this time.

Ramadhana says he was recently in discussion with investors.

“None of the foreign investors were asking about the election,” he says. “None. The topic wasn’t raised at all.”

Nevertheless, issuers are unlikely to take the risk, and the result may be a bonanza of activity that peters out around the third quarter.

“Any issuer in the market plans around it,” says Mishra at JPMorgan. “They don’t want to have their deals clash with elections. So you might see many deals completed by Q3 this year.”

Locals are watching closely.

“We do need a catalyst for our market, and I think the challenge for that is that we are going to enter the political year,” says Widodo. “The general consensus is that the election is going to be peaceful, but people want to see more clarity about who is going to take over.”

Widodo thinks the IPO market will be quiet from June to next February as a consequence.

Jokowi can’t enter this election: he’s had his two terms, to considerable positive result. If the momentum on infrastructure and industry can be maintained by his successor, there is reason to be bullish on Indonesia.

The question of Credit Suisse

One topic of enduring fascination in Jakarta right now is what happens after Credit Suisse’s merger with UBS.

Of all Asia-Pacific markets, Indonesia is probably the one most closely associated with Credit Suisse. The bank has relationships here going back 30 years or more, often with some of the most powerful – and occasionally colourful – family dynasties in the country.

It has been among the foreign leaders in the country for many years, but with a model that looks very different to all of its peers. And that is why the merger is interesting.

Many of the bank’s leading lights in Asia over the years have been Indonesian. Chief among them is Helman Sitohang, an Indonesian national who was Asia-Pacific chief before handing in his notice about a year ago; Euromoney understands he has now left completely.

Sitohang, in particular, is associated with family relationships including the somewhat notorious Bakrie family.

Others who have come and gone include Robby Winarta, who ran Indonesia investment banking before moving to Carlyle Group in 2018 and then founding his own shop, Adivira Capital; Robby’s brother Eric, who joined as his brother left and spent two years before joining Djarum, a state-owned entity; Harry Zen, who went on to become CFO at Telkom, and then finance director of Pertamina Hulu Energy; Ray Gunara, who became chief executive of Harum Energy; and Mirza Adityaswara, the former head of research who went on to become a senior deputy governor of the central bank, Bank Indonesia, and then deputy chairman of the OJK Board of Commissioners (OJK is the financial services authority in Indonesia).

Others have gone to Deutsche Bank. Bharat Rao, who worked at CS from 2012 to 2016 when the office had no fewer than three managing directors, became managing partner of private equity firm Capital Square Partners and is global chief executive of NYSE-listed Startek.

The one who stayed the course is Rizal Gozali, who still helms Credit Suisse’s distinctive operation from an office in Jakarta’s grand and vaulted Sampoerna Strategic Square. Gozali has been at Credit Suisse for about 25 years.

Market leader

Even if we keep the lens only on public deals, Credit Suisse does very well here. According to data compiled for Euromoney by Dealogic, in the year to May 9, Credit Suisse leads the market for investment banking revenue – ahead of locals like Mandiri Sekuritas, ahead of regionals like CIMB, ahead of heavyweight foreigners like HSBC and Citi, and most certainly ahead of UBS, which ranks 10th.

The odd thing about CS is that it has often been considered the most powerful foreign house here without the same suite of licences that JPMorgan and Deutsche have, for example. So it is purely a securities house, yet in addition to its work on public debt and equity and M&A advisory, it is most active behind the scenes, on private deals, structured financings and with often creative use of its own balance sheet.

The big question everyone is asking is how much of this business UBS is going to be willing to take across, on two separate points of order: one, whether Credit Suisse’s current client list – some of whom likely wouldn’t pass Credit Suisse’s own due diligence tests if they arrived at the bank today, never mind UBS’s – will pass muster at the bigger bank’s compliance and legal teams. And two, whether the distinctive structure and risk appetites Credit Suisse deals have in Indonesia are something UBS wants to take on.

There is another angle to look at this from, too: it is not guaranteed that all the clients who have been with Credit Suisse all this time will want to go to UBS, nor that there will still be many Credit Suisse staff around after the merger.

Both domestic and foreign bankers have their doubts about how the merger will work out in Indonesia. Credit Suisse itself won’t comment and neither will UBS.

There is plenty of sniping about the Credit Suisse approach in Indonesia. “Here’s the risk appetite spectrum of most banks,” says one foreign banker, placing his hands about 50cm apart. “And there’s Credit Suisse,” he says, pointing to a distant wall.

Another adds: “Credit Suisse had a somewhat unique strategy in Indonesia, which revolved around the ability to provide balance-sheet support and structured credit. Most of us would not get comfortable with that business, and I would be pretty sure that includes UBS. They will have zero appetite to take on a lot of the transactions or exposures that CS was doing in Indonesia.”

But some context is important here. Nothing big has ever blown up for Credit Suisse in Indonesia – or not that we know of. Plenty has had to be restructured from time to time, but in the background is the fact that very often Indonesian clients’ family money is held by Credit Suisse through its private wealth operations, which gives a form of collateral. None of Credit Suisse’s problems were born in Asia.

And it continues to get on big and important deals in Indonesia.

In the intensely crowded field of Indonesian brokerage, opinions are mixed. “You would think we would be pleased: one less broker to worry about,” says one. “But it also means one less funnel for foreign money to come into Indonesia.”