Jahja Setiaatmadja, President Director, BCA: Interview

Interview: Jahja Setiaatmadja

How can infrastructure development reduce the country’s reliance on commodities?

JAHJA SETIAATMADJA: The economy has improved since the economic slowdown in 2014 and 2015, which was largely due to the decrease in commodity prices. If one looks at the past, Indonesia experienced a golden era between 2008 and 2013, but it really started to slowdown in 2015 and in 2016. However, if one looks at the end of 2016 and up until the present day, it is still recovering, especially with regard to commodity prices like coal and crude palm oil. This is very important for Indonesia. Under President Joko Widodo’s administration, the government has been very bullish and effective in boosting infrastructure development in the country. Although the implementation of these projects took some time to start, Indonesia is starting to see the results of this ambitious plan, and more and more projects will start to be accelerated as a result.

There are two main points of infrastructure development that are extremely positive for the country’s economy. The first, and more immediate, is when contractors hire more workers, which creates an increase in income and purchasing power. Second, and in the longer term of five to 10 years, will be the multiplier effect that occurs when these projects are finalised.

This is one of the reasons why Standard & Poor’s upgraded Indonesia’s rating to investment grade, following Fitch and Moody’s. All these agencies are looking at the long term, not the short term. Banks have a strong role to play in infrastructure development in Indonesia; as for foreign investors, it is quite risky to give 20-year loans in foreign exchange.

How do you assess liquidity levels regarding infrastructure projects in Indonesia?

SETIAATMADJA: We have to think about the impact of infrastructure and the normal growth of credit. If the growth from working capital and investment is not very big but there is still a large push for infrastructure, it will move the demand on the liquidity. However, at this point we need to be careful with any increase in interest rates, because this can squeeze liquidity.

Nonetheless, Indonesia has to continue increasing the interest rate or there could be pressure on our exchange rate, which would have an impact on inflation as most raw materials are imported. The banking sector follows economic trends: when the economy is doing better, the performance of the banks should also improve. In 2016 the profitability of most banks dropped, but 2017 and 2018 should be better in terms of banking performance, with a slight increase in credit growth. Indonesia has bright prospects, even though in the short and medium term it has to be careful when looking at the macroeconomic level and the impact of external factors.

What kind of synergies can banks and financial technology (fintech) companies find?

SETIAATMADJA: Fintech businesses need critical mass because they operate via small transactions. They also need trust; you have to build customers’ trust in the service, reliability and brand. In contrast, banks need to develop new and smarter products. Banks already have the critical mass and trust, but the one feature they lack is creativity within their product range. The weak point of fintech firms is that they are very creative but they do not think like banks. This is why we need fintech to become a supportive function of the banks. We will not compete against the existing fintech companies that are already in place, but we can work hand-in-hand.

In addition, we need agents and sub-agents. On the data side, it is difficult to take advantage of the data mining potential. The strong point of fintech is in acquiring data, but as banks our activity on this subject is limited by regulations. We would need to talk about data confidentiality in this regard, and there are many things that should be taken into consideration.