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NEWS UPDATES Asean Affairs        4  June 2011

Indonesian banks need to step it up

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The nation's commercial banks need to improve their services and boost capital if they want to play a bigger role in the region, Bank Indonesia deputy governor Muliaman Hadad said.

"They need more capital. Without that, it will be difficult. [Lenders's] business expansion is determined by the power of capital," Muliaman said at Investor Magazine's awards ceremony this week.

Indonesian banks are likely among the most profitable in Southeast Asia, Muliaman said, but they lag behind regional rivals in terms of size and the services they offer. State-owned Bank Mandiri, the nation's biggest lender by assets, came in ninth in Investor Magazine's list of Southeast Asia's top 10 lenders last year.

However, Mandiri - whose total assets were Rp 449.8 trillion (US$52.6 billion) last year - came in well behind Thailand's second-largest bank, Krung Thai Bank, which had $61.57 billion in assets. Singapore's DBS Group was the regional leader with $230 billion in assets. Mandiri was the only Indonesian entry on a list dominated by lenders from Singapore, Malaysia and Thailand.

Muliaman said customers now demand better technology that allows them to take greater control of their money without banking's old restrictions.

"In the next five to 10 years, banks' business will be determined by how we can understand the behavior of our consumers and how technology and information can help strengthen banks' business," he said.

He also said lender must offer Internet services that allow customers to bank anywhere at any time.

Fauzi Ichsan, an economist at Standard Chartered Bank, said Indonesian banks may play a big role in the region even if they only focus on the domestic market as it remains underleveraged.

"Look at China. The world's biggest banks are there and their lending to GDP ratio is around 120 percent. Indonesia's ratio, on the other hand, is only 29 percent," Fauzi said.

He also said Indonesia banks should improve themselves to compete with foreign lenders.

"Apart from the capital and services that need to improve, Indonesian banks need international-level bankers if they want to expand to other countries," he said. "It's more urgent for foreign banks to expand in Indonesia than our banks to expand there."

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