Maybank, CIMB in big fight in Indonesia

THE stage is set and the fight begins at two levels for CIMB group and Malayan Banking Bhd (Maybank) to slug it out in Indonesia – between themselves as the two largest Malaysian banking groups – and among the formidable banking giants in Indonesia.

Between the two, it looks like CIMB has a seven-year headstart, having bought Bank Niaga at a time when many were afraid to touch Indonesian assets and at a much cheaper price of 1.5 times book value compared with Maybank’s acquisition of Bank Internasional Indonesia (BII) at 4.6 times.

While Maybank was busy settling external and internal issues related to the Indonesian government’s regulations and huge impairment charges at BII, CIMB was building its fort in Indonesia by merging Bank Niaga with Bank Lippo. That brings CIMB Niaga’s branch network in Indonesia to 654 which definitely overshadows BII’s 250 at the moment.

On an individual bank level, CIMB Niaga, the fifth largest bank in terms of asset size, and BII, which is eighth largest, will have to contend with the other banking giants in Indonesia.

CIMB’s overseas (mostly from Indonesia) pre-tax profit contribution at 22% is, of course, a source of excitement within the group. It is something that Maybank, which is already very successful in its core commercial banking operations, is eyeing with “green eyes.’’

For the second quarter ended June 30, the enlarged CIMB Niaga’s pre-tax contribution surged 82.8% to RM371mil from RM203mil. When it comes to business and competition, those that respond to new challenges can emerge winners and those that appear to be the current winners can suddenly find themselves out of the race, if they are not vigilant.

For many back home, it will be a keenly watched competition between the two Malaysian banking groups in Indonesia especially now that Maybank has made known its decision to take a one-time hit of RM1.7bil in impairment and higher loan loss provisions at BII.

With a new team in place, BII appears resolute and confident that it can make some money at the operating level by year-end although it will take three to five years to be earnings accretive.

The anticipation (and pressure) is very obvious among Maybank executives when they speak of BII. “Our first priority was to address the motorcycle financing problems,’’ said Maybank president and CEO Datuk Seri Abdul Wahid at last week’s results briefing. “That has turned around with good operating numbers. We will proceed to improve consumer, small and medium-scale enterprises and corporate banking at BII.’’

The initial expectations of BII are not high but as the momentum builds up, Maybank hopes to at least obtain a return on investment that is equivalent to the cost of debt (taken to fund the acquisition) at about 6%, which comes up to about RM474mil.
The competition between CIMB and Maybank in Indonesia will become more intense should Maybank double its number of branches at BII, by which time, CIMB would have done something else to fortify its position.

At the moment, CIMB seems pretty confident that it has the scale; something that is required in the Indonesian banking sector, while their strategists would probably be trying to figure how fast Maybank would take to carry out its BII expansion.

CIMB chief financial officer Kenny Kim recently told StarBiz that CIMB Niaga was dominant in the capital market franchise, with Niaga’s strength in retail and corporate banking and Lippo’s leadership in transactional banking. Overall, the message is to build leadership in key market segments.

All said, one should not forget that Maybank has other substantial foreign operations such as in Singapore while CIMB is about to implement a transformation programme for its Thai business.

By Yap Leng Kuen

● Senior business editor Yap Leng Kuen’s view is that reach through a strong branch presence is important but equally vital are internal strategies to extract value. Many would be watching if BII can deliver its numbers and show that it is able to earn more from a smaller physical branch network than CIMB Niaga.