Indonesia's Mandiri eyes Singapore's private banking business

Indonesia's largest lender Bank Mandiri wants a piece of the lucrative private banking business in Singapore, particularly the accounts of wealthy Indonesian clients.

Recent reforms in Indonesia, including a successful tax amnesty, have made ultra-rich citizens less averse to banking with state-owned institutions, said Mandiri chief executive Kartika Wirjoatmodjo.

"In the past, they were worried that their undeclared wealth will be reported," he told The Straits Times recently.

"After the tax amnesty, everything is transparent so Indonesians who put money in Singapore are no longer worried about having us, a state-owned bank, as their banker."

Many wealthy Indonesians are believed to bank much of their fortune abroad and the local tax authorities believe some do so to avoid scrutiny and paying taxes.

Finance Minister Sri Mulyani Indrawati said Indonesians have stashed about US$250 billion (S$346.5 billion) worth of assets overseas, of which a whopping 80 per cent is kept in Singapore.

The tax amnesty, started in July last year, was introduced to encourage these rich citizens to come clean with the taxman on their assets at home and abroad by offering tax rates as low as 2 per cent.

More than 4,000 trillion rupiah (S$417 billion) - about a third of Indonesia's gross domestic product - of newly declared assets were recorded at the end of the scheme in March, with a small portion of the wealth repatriated from overseas.

Mandiri, which operates in Singapore under an offshore bank licence granted by the Monetary Authority of Singapore (MAS), plans to apply for another licence to run private banking operations. This follows the opening of its securities subsidiary Mandiri Securities Singapore last October.

Mr Kartika said Mandiri's move into Singapore's private banking sector will require a "limited retail banking licence" so that it can serve high-net-worth Indonesians there. "So we don't want to deploy 200 ATMs in Singapore, perhaps just a couple of branches would do."

Mandiri also wants to make Singapore a hub for its corporate clients, most of whom have offshore financing, either bilateral bank loans or fund raising via capital markets, to access global investors.

"Many investors operate their Asian accounts from Singapore, so by giving them access to the Singapore market, we automatically have global exposure," said Mr Kartika.

Besides growth in Singapore, the bank has been expanding its retail banking business in Malaysia and the Philippines.

After long negotiations, Mandiri is set to get a full retail banking licence in Malaysia within the next two months which would allow it to open retail branches across the country, said Mr Kartika.

In the Philippines, where the banking industry is less mature and saturated compared with Indonesia, Mandiri is betting on the country's strong economic growth and is in talks with local banks for possible acquisitions of minority stakes.

Analysts said Mandiri's "Singapore strategy" will pave the way for it to become a regional player, just like DBS Bank or Malaysia's CIMB.

"It is a positive move if Bank Mandiri starts investing more in its international business," said Mr Harry Su, head of strategy and research at stockbroker Bahana Sekuritas.

But Mr Su added that while this is a part of the bank's strategy to be a bigger player in South-east Asia, it is still early days as "contribution from such efforts will remain minimal to their overall earnings performance in the next three to five years".

Another analyst, who declined to be named because he is from a competing bank in Jakarta, said the top four banks control the majority of Indonesia's total banking assets so the room for others is restricted.

"This would make Malaysia, Singapore and the Philippines more competitive markets for Mandiri," he said.

"But it also means returns or profit margins from doing business there would be less, but as the biggest bank in Indonesia, Mandiri has to expand there."


Nick Kalikajaros 2017