Jakarta, 27 February 2018 – The 2018 Indonesia Banking Survey, which has been released by PwC Indonesia, reveals that there is a cautious optimism among local bankers regarding 2018, with most bankers forecasting conditions to be the same or better than in 2017. Fewer bankers are concerned about a decrease in margins over the coming year. Concerns about credit risk are less, but it is still viewed as the top challenge to loan growth.
Technology is the recurring theme in PwC Indonesia’s 8th Banking Survey. Indonesian Banks are doing their best to keep pace with the new changes, with only 8% of respondents saying that their bank has the same strategy that it did 18 months ago. Even though the outlook for 2018 has improved over last year, technology-related risks are still among the top concerns of bankers for the industry in Indonesia.
Based on the results of this survey, technology remains the number one driver of business transformation, and the top risk to the industry. However, the increasing importance of changing customer needs is also noteworthy for 2018, which is driving banks to rethink how they do business. The customer-centric focus is also evident in the revelation that most banks are directing their tech spending to front-end web/app/e-banking systems.
From this survey, we can also note that mobile and internet have for the first time taken over the top channel spot for customer transactions, prevailing over traditional branches that were most prevalent three years ago. This migration to mobile and internet is nothing new, but the pace of change in Indonesia is particularly significant. Only three years ago, 75% of bankers estimated that more than half of their transactions were via the traditional branch – this is now down to 34%, while for digital channels it is up to 35%.
In terms of digital strategies, half of the respondents from foreign and larger SOE (State-Owned Enterprise) banks felt that their digital strategies were ‘very clear’. This compares to only 21% for all of the other respondents, indicating that there is much room for improvement across the sector.
State-owned banks are most optimistic about conditions for 2018, and this showed in their plans for expansion – 67% of state-owned banks are expanding both branches and employees, while almost none have indicated any plans for reduction. By contrast, half of respondents from foreign banks are expecting a reduction in the number of their branches, and only 12% expected the number to increase.
David Wake, Financial Services Leader, PwC Indonesia, comments:
“We noted a strong correlation between the clarity of the digital strategy and the extent to which a respondent felt that their bank was prepared for the future. Of those bankers feeling very prepared, 73% also felt their strategy was clear. Of those only somewhat prepared, only 30% had a clear strategy, showing that it is imperative that banks have clear strategies that are well understood across the organisation.”
“There are a number of reasons why banks may take different strategies in terms of growing their physical branch network: knowledge of the local market, region, or customer base; mass-market vs niche. However, there are clearly very different strategies underway: those that are pushing ahead with growth through branch expansion, and those that are seeking to use digital channels and automation to grow with a smaller physical branch footprint. Either way, almost all Indonesia banks are seeking to be sharper on cost.”
Macro-Economy risk – This risk had been the top risk since 2015, but it has fallen to a distant number 3, as many concerns about the Indonesian economy have subsided and global optimism has much improved. In the recent PwC 21st CEO Survey, it was noted that 60% of CEOs in Asia-Pac expect improving global economic growth in 2018. That compares closely to the 55% of Indonesian bankers in this survey who expected improved conditions for the sector in 2018.
Credit risk – Credit was the number 2 risk in 2017, and this year it is number 4. This reflects a more positive sentiment on NPLs (Non Performing Loan), and a better overall outlook, but bankers are still cautious about the credit risk that is inherent in the sector.
Business model risk - has risen sharply, moving up from number 11 on the list in 2017 to number 5 in 2018. Given the extent to which technology is rapidly changing the entire financial services sector, bankers are concerned about whether their current business models are appropriate.
Levels of confidence in Indonesian Banks – Foreign Banks are the most confident about their own ability to manage top risks and also have the largest gap (of 23%) between their view of the industry’s capacity to address the top risks and their own capacity to address those risks. This gap was much lower for the other bank groups, for all of which the difference was less than 5%.
Lucy Suhenda, Banking Leader, PwC Indonesia, comments:
“Generally, we see that bankers are most satisfied with their management of the risk areas that they see as lower priorities, and are less satisfied with the higher priority risk areas, such as Credit, Operational and Technology Risk. Bankers would most probably direct their attention towards the risk areas in which they are less satisfied. These areas, however, particularly Credit and Technology Risk, are also noted as top risks for the industry as a whole. The lack of satisfaction with the management of those risks should be a call to action for Indonesian banks to invest more heavily those areas.”
This report also indicated that although Technology risk is at the top of concerns, the focus on managing that risk does not seem to have the same priority level. Only 5% of respondents noted Technology as the #1 risk management focus area. The level of overall satisfaction with the management of Technology/Cyber Risk was high at 62%. However, two-thirds of respondents noted their bank does not yet have a Chief Information Security Officer.
Notes to editors:
To download a copy of the report, visit: https://www.pwc.com/id/en/publications/assets/financialservices/2018-indonesia-banking-survey.pdf
About the survey
This is the 8th PwC Indonesia Banking Survey. PwC surveyed 65 respondents from 51 different banks in Indonesia. The respondents were from upper management at the respective banks.
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