Foreign Banks are Optimistic about Gaining Profits in Indonesia This Year

KONTAN.CO.ID - JAKARTA. JAKARTA. Some foreign banks with branches in Indonesia have released their financial reports, showcasing impressive performance as they closed the fiscal year of 2023.

On the other hand, as they look forward to the fiscal year of 2024, several foreign banks also anticipate that the performance of the banking business, particularly the credit segment, will begin to accelerate in the second semester of 2024, in line with the projected decrease in the Federal Reserve's benchmark interest rate.

Looking at the profit performance of foreign banks, Taiwan's PT Bank CTBC Indonesia grew the highest, soaring up to 306.9% YoY to IDR 169.3 billion in 2023. Next, Mitsubishi UFJ Financial Group, Inc. or MUFG Bank Jakarta Branch (MUFG) recorded a remarkable performance closing the fiscal year of 2023, with a net profit of IDR 5.9 trillion, an increase of 186% compared to 2022.

PT Bank DBS Indonesia also managed to record an impressive performance throughout 2023. The bank's profit surged 87.83% annually (YoY) to IDR 1.69 trillion.

Meanwhile, Citibank, N.A., Indonesia (Citi Indonesia) was one of the foreign banks with a relatively high-profit growth among others, where Citi's net profit performance grew by 82% annually (YoY) to IDR 2.5 trillion in 2023.

From the intermediation side, Citi Indonesia's consumer business migration to UOB Indonesia caused a decrease in total credit from IDR 39.19 trillion in 2022 to IDR 35.39 trillion in 2023.

However, the Institutional Banking business segment recorded a credit growth of 15%, mainly contributed by the growth of the financial intermediary sector.

Citi Indonesia's CEO Batara Sianturi said this year they will start a new chapter in their business by focusing solely on institutional banking. Batara also mentioned in the wholesale banking line, that they will focus on Corporate Banking, Commercial Banking, Markets, Treasury and Trade Solutions, and Securities Services.

"Indonesia remains an important market for Citi, and in the future, we will continue to leverage the global network we have. This year we target credit growth and DPK to grow high single digit," he told Kontan in Jakarta, on Tuesday (2/4).

This year, Citi Indonesia sees several challenges in running its business, especially in the corporate credit distribution segment.

"The challenge is still there to wait and see related to the Presidential Election, but this is the election is over, hoping that credit and investment will start to increase in the next second semester," said Batara.

The sectors that continue to grow and support the growth of the Indonesian economy this year include the manufacturing and processing sector, addition and excavation, to property. Similarly, Batara mentioned Citi Indonesia will look at opportunities in these potential sectors.

In agreement, PT Bank HSBC Indonesia also sees similar challenges related to the foreign bank business this year. Managing Director and Head of Wholesale Banking HSBC Indonesia Riko Tasmaya said the Presidential Election which previously became a factor in slowing down banking credit this year will soon be over.

Understandably, the certainty of political policy is one of the considerations for the entry of foreign investor funds into Indonesia, but with the Presidential Election that will be over, business will also start to accelerate.

"Indeed, in the first quarter of 2024 corporate credit slowed down a bit. The factors are global uncertainty and also the Presidential Election. But, we have started to settle down, considering the Presidential Election is over, so the economy can run again," he said

Furthermore, Riko mentioned that HSBC Indonesia targets credit growth in the range of 8% to 9% this year.

HSBC Indonesia's strategy to boost credit growth this year is by targeting potential sectors such as the electric vehicle battery ecosystem, health, and digital economy to ESG.

Last year, HSBC Indonesia recorded a net profit performance growth of 28.27% YoY to IDR 2.45 trillion in 2023. In line with that, credit growth decreased by 3.37% to IDR 54.46 trillion. DPK also decreased by 4.29% to IDR 86.32 trillion in 2023.

On the other hand, Citi Indonesia's Chief Economist Helmi Arman said, The Fed is expected to lower its benchmark interest rate in June 2024.

In addition, Helmi currently mentions that import commodity prices are also relatively controlled, so Indonesian inflation will move down below the 3% level.

"Regarding Indonesia's balance of payments, it is still likely to be negatively affected by the tight interest rate differential, this encourages corporations that have funding in dollars to refinance in rupiah, and this affects supply demand in the domestic foreign exchange market," he said.

Even so, Helmi projects that the room for interest rate reduction will only decrease if The Fed opens the opportunity to lower its benchmark interest rate, challenges even though the decrease in US inflation moves slowly.