Indonesia’s big four banks are minting it but need to watch their backs

Are Indonesia’s banks too profitable?

Earlier this month, President Joko Widodo raised concerns over the high net interest margins (NIMs) of the country’s lenders, which he said were “probably the highest in the world.”

In 2021, Indonesia’s ​​Financial Services Authority (OJK) enacted new regulations regarding the grouping of commercial banks.

Previously, commercial banks were classified according to business groups – a system known as BUKU. But under the new rules, banks are now grouped by core capital (KBMI). Both BUKU and KBMI actually use core capital as the determining factor, but they apply different amounts.

This regulatory change has shifted the landscape of the top traditional banks in Indonesia. Now, only four have core capital of over 70 trillion rupiah (US$4.6 billion) and fall under the KBMI IV category: Bank Rakyat Indonesia (BRI), Bank Mandiri, Bank Central Asia (BCA), and Bank Negara Indonesia (BNI). All of them, except BCA, are state-owned.

NIMs high, but falling

It’s true that these banks have produced substantial NIMs. Their average NIM for 2022 was 5%, compared to the 2% average of the three biggest banks in Singapore – DBS, OCBC, and UOB.

However, the NIMs of the four biggest Indonesian banks have come down over the years although they rose in the most recent one.

Further, they face competition from a slew of new digital banks and fintech players, as well as from each other.

Competition among these top banks has been reflected through their digital ventures, from virtual credit cards to the establishment of online banking platforms, and partnerships with fintech startups for lending services.

Bank Mandiri, for example, has a mobile banking channel called Livin’ by Mandiri, where 13 million users transact digitally. It also has over 200 smart branches, or offices that are integrated with its digital platform and equipped with self-service machines. Meanwhile, BCA has teamed up with peer-to-peer lender Komunal last year to provide credit to MSMEs.

As these banks keep expanding their digital offerings, some have downsized their physical presence, shrinking the number of branch offices and ATMs.

See also: Grab’s digibank will finally enter Indonesia. Can it catch up?

Digital transactions on the up

Fewer branches and ATMs