Panin Bank is Indonesia’s eighth largest bank in terms of assets, and has been publicly traded on the Indonesian Stock Exchange since 1982. In this interview, President Director Mr Herwidayatmo praises the policies of President Jokowi’s administration and explains how the bank is dealing with non-performing loans in the face of slower business activity. He also speaks about working with Dubai Islamic Bank to extend Panin’s Islamic banking unit, Panin Syariah, which became the first full-fledged Islamic lender on the stock exchange in 2014, with an initial public offering (IPO) of shares valued at 475 billion rupiah ($39.3 million).
The current Jokowi administration is focused on economic liberalization and boosting infrastructure. How do you see the Government’s progress towards reform and liberalization?
We are very happy with the current administration. I don’t know what others are feeling, but from my point of view, the current administration, especially the President, is a very honest person. He is the kind of man that wants to work hard for his people. He never lectures people to be perceived as smart; he speaks with simple and honest language. He is very proactive with infrastructure projects, which we hoped could be done by the previous administration. It shows that now Indonesia is very different.
The President never criticizes the previous administration; he looks ahead at the challenges and finds a way to solve them. Unfortunately the world is currently facing economic crisis and instability, not only Indonesia. The tax amnesty program, although some politicians criticize it, is a breakthrough from President Jokowi. He always said that he supports this initiative and business people in the private sector could see that this is very important. There has always been a large amount of Indonesian money abroad that could actually be used to develop our nation. Of course, if people see it from the legal perspective, it is not proper, but if we see it from an economic point of view, we need reconciliation.
Do you think the finance sector is ready to receive that large capital inflow from the tax amnesty? Is Panin Bank ready?
Yes, hopefully we will be one of the banks that are appointed by the government as a gateway for the repatriation of money. Currently we are working with some companies in our group, especially the securities company and asset management company, to find out how we will approach this. We see the law of the tax amnesty in its final form as very positive; there are no restrictions other than keeping it in Indonesia for three years. This is also a good opportunity for Indonesians to be in peace with the tax authority.
2015 was a fairly good year for Panin Bank, with IDR 1.57 trillion ($120 million) profits, which were used to strengthen operations and capital. What are your priorities for 2016?
One thing you should know about Panin Bank is that although we are not the biggest bank in Indonesia, Panin Bank is one of 10 major national banks, number 8 in terms of assets, we are the only bank that has never had any help from the government. We are very proud of that, we never had a bailout and we are quite conservative and that is why we gain trust from our customers. This is why our valued customers choose Panin Bank.
In terms of challenges we are facing now, to be honest, we are currently carefully watching the NPL (non-performing loan) position, because for the first semester in 2016, we experienced growth of NPLs although it is still very low. Our NPL ratio by the end of 2015 was 2.4 percent and the regulation stipulates that the maximum should be 5 percent. We put our own threshold at a maximum of 3 percent. In the first semester of 2016, the NPLs moved up to 2.7 percent, so for us this was an indicator that we should watch very carefully. Business activity is slowing down in Indonesia and consequently we have lower demand for loans. We are still showing positive growth in assets, although not as much as before. We do hope that our performance this year will be slightly better compared to last year.
Obviously a big part of attracting customers and retaining customers is good product offerings. What impact will technology and innovation have here?
We are very proud of our banking technology. We have a strong Internet and mobile banking system we just launched. Beyond this, we have over 560 branches all over Indonesia. So, we want to optimize our presence, not only in Jakarta, but also all over Indonesia. We are preparing not only for the tax amnesty, but also working with some companies in the securities market and insurance industry to have greater collaboration.
Panin Group has an insurance company, Panin Dai-ichi Life, which is in cooperation with a Japanese company that is performing well. We will also sign an agreement with Fairfax and the official announcement for that is to be made soon. Panin is very open to working with international institutions. Hopefully this openness will mean we can give better value to the country.
In the case of Panin Syariah, what role will Islamic banking and that subsidiary play in the group moving forward?
Panin Syariah (Panin’s Islamic banking unit) is the first sharia bank in Indonesia to IPO. Further to this, we are very optimistic about our cooperation with Dubai Islamic Bank. Together we will contribute much to the growth of Islamic banking in Indonesia. There is currently a 5 percent trap for Islamic banking in Indonesia and if I may tell you honestly, there are some issues on Islamic banking in Indonesia. The regulation and the law focus more on sharia banking systems, instead of growing the business itself. The issue is how to grow the business of Islamic banking.
We are not experts in Islamic banking, which is why we need Dubai Islamic Bank to bring their expertise in Islamic banking operations and products. Although Dubai Islamic Bank only controls 40 percent of the Panin Dubai Islamic Bank, we have given them a more active role in developing the bank together with us. The Chairman of the bank is the CEO of Dubai Islamic Bank. He will bring the technical and business expertise to Indonesia and we can combine that with our local knowledge of the business environment. With this, we hope that we can show the advantages of the industry to the Indonesian people.
The World Islamic Economic Forum hosted here in Jakarta will be an exciting event for the finance sector. What do you think the WIEF brings to the industry?
Hopefully it will reflect positively on the Islamic banking community in Indonesia and change their perspective on the potential of the industry. Something needs to happen in the industry that should change and improve and I know that (Finance) Minister Bambang Brodjonegoro is open-minded on how to develop this opportunity. Indonesia has the largest Muslim population in the world, but the Islamic banking industry never really grew here significantly. I do hope this conference will change the perspective of the professionals who are working in the industry.
There is a lot of interest in investment into Indonesia. Is that something that you are looking to take advantage of in a gateway capacity?
The changes made by the government in liberalization should have been done a long time ago. The President himself wants to abolish all the regulations that block foreign investment. The current President listens to the problems of the business community and he has committed to change the regulations that give a hard time to the business community. We support this initiative and we will certainly be ready to facilitate this foreign investment into Indonesia.
During the Bambang Yudhoyono era, Indonesia was branded ‘Remarkable Indonesia’. Things have changed much since then, so if it were up to you to brand Indonesia and speak directly to investors, what would you say is Indonesia’s defining opportunity or trait?
We are the biggest country in the Asean and we have a population of 250 million. We have a demographic bonus, in which the majority of our population is still of a productive age. That is a good market opportunity for any production. We also have a lot of spots that are attractive for tourism and the country has become more open to this investment. The government is very honest; they want to listen to the business community.