A bank formed out of the furnace of the Asian financial crisis by wedging four insolvent banks together knows all about resilience and transformation. For Bank Mandiri’s chief executive, Kartika Wirjoatmodjo, known locally as Pak Tiko, one priority of recent years has been taking risk out of the books.
Kartika Wirjoatmodjo, Bank Mandiri
“One thing we learned in several cycles after 1998 and 2008 is about portfolio strategy,” he says.
“There have been times like 2010 to 2013 when we were growing at 20% to 25% with a return on equity of 21% or 22%, but we were focusing so much on business development, we were somewhat forgetting portfolio strategy and didn’t realize we were entering new segments that we had never experienced before,” such as small and medium-sized enterprises.
Tiko was brought into Mandiri to refocus it: to slow things down a touch with a more careful portfolio selection process with lower risk appetite.
“We implemented that in 2016, and since then growth has been much lower – 11% to 14% in line with a slowing market – but we have focused on making sure it is stable.”
In fact Mandiri’s profit growth was 21.2% last year, but for Tiko the more important numbers are around the declines in non-performing loans: first 3.8%, then 2.2% and most recently 1.7%.
“The difference between the Indonesian market and other markets is that in Indonesia you have many small segments that have big margins but high risk. The market is far from stabilizing.
“If I want to grow my motorcycle book at 40%, I can do it,” he says. But whether or not that would be the right thing to do is a different question.
This is not to say he doesn’t want to grow. Mandiri is building a digital platform in mobile banking, which is helping to create a strong current and savings account (CASA) base, he says.
“And then in the next two to three years, the game is the consumer financing part,” he says. “In terms of household debt, consumer financing is still very low, compared even to Malaysia and Thailand. The challenge is to build a strong credit risk model that is able to find good customers.”
He expects annual credit growth of 11% to 15% over the next three to five years, and, if the CASA ratio remains strong, a net interest margin above 5.5%, so “the engine for expanding earnings is still big.”