Salim returns to banking to gain control of Indonesia's digital economy
The country's largest group believes the future lies in e-commerce
WATARU SUZUKI, Nikkei staff writer
JAKARTA -- Anthoni Salim, the billionaire tycoon at the helm of Indonesia's largest conglomerate, playfully dodged journalists' questions about the group's return to the banking industry after nearly two decades. Still, he did not play down his purpose: to establish a foothold in the country's rapidly growing digital economy.
"What is important is how to enter digitalization," said the chief executive of Salim Group at the sidelines of his annual press conference on Friday. When asked how much money the group will invest in digital payments, he replied, "A lot. Trillions [of rupiah]."
Through various affiliated entities, the group recently bought at least a 51% stake in Bank Ina Perdana, a small local bank, by subscribing to new shares issued by the locally listed lender.
The acquisition is significant because it marks the group's first return to the banking business since the 1997-98 Asian financial crisis.
Banking was once a pillar of Salim's sprawling empire which, at its peak, was estimated to encompass some 600 companies. It began developing Bank Central Asia, initially a textile company, after former President Suharto, who had close ties with group founder and Anthoni's father Sudono Salim, came to power in 1967. With the help of a banker named Mochtar Riady, founder of the Lippo Group, BCA grew rapidly under Suharto's deregulation policies and became the country's largest private lender. By 1996, the bank accounted for nearly a tenth of Indonesia's banking assets.
The tide turned in 1998 when the Asian financial crisis struck Indonesia, triggering a plunge in the value of the rupiah as well as violent street protests and ultimately the collapse of the Suharto regime. The long lines of people waiting to withdraw money at BCA's branches became a symbol of the chaos and the bank was eventually bailed out by the government.
As Sudono Salim was considered the leading ethnic Chinese tycoon who profited from Suharto's links, angry mobs took to the streets and burned the family's home. The Salim group lost many assets including Bank Central Asia, its flagship asset before the crisis. It was left with the Indofood and the group rebuilt its business around the food company.
Salim has since stayed out of banking, even as it recovered and expanded its business to the Philippines. But in recent years, the smartphone boom has created a new wave of demand for digital financial services such as electronic payments. Anthoni Salim decided to quietly return to the banking business.
At the press conference held on Friday, Anthoni Salim refrained from directly commenting on the acquisition of Bank Ina. No official announcement of the bank acquisition has been made so far.
The purchase price may seem like a drop in the ocean for Salim. While the exact size of the group is difficult to pin down due to complex ownership structures, its key companies in the food, retail and automotive sectors in Indonesia and telecommunications and infrastructure in the Philippines, generate combined annual revenue in excess of $20 billion. Meanwhile, Bank Ina's acquisition value is estimated at a mere 570 billion rupiah ($42 million). With only $175 million in assets, Bank Ina is the third-smallest publicly traded bank in Indonesia, according to QUICK-FactSet, a data company.
Despite the obscurity surrounding the deal, the group is committed to operate its own bank. It wants the bank to serve as a vehicle for electronic payments and money transfers, which in turn will lure customers and bolster its lending business.
The group aims to expand the bank's IT infrastructure and turn it into the financial backbone for the group's digital business, much of which is being secretly developed. Edy Kuntardjo, Bank Ina's president, said it plans to roll out services such as electronic money in 2018, once it receives regulatory approval.
Analysts see the move as proof of Salim's ambitions to control all aspects of the digital economy from the production of goods to deliveries and payments. Anthoni Salim's obsession with an end-to-end business model is reflected in Indofood Sukses Makmur, one of the world's largest instant noodle makers, which handles everything from flour milling to distribution.
But the focus on digital services comes as new technologies have already begun disrupting the group's traditional businesses. PLDT, the Philippine telecommunications company in which First Pacific owns a major stake, has been hit by weakening revenues from legacy voice and messaging services amid the rising popularity of free alternatives such as WhatsApp.
"The message is clear," said one group executive. "Salim needs to be part of the digital economy in Indonesia." Another executive said, "it makes sense for us to refocus on banking because the transactions carried out by the banks are becoming quite big."
A success similar to BCA is anything but guaranteed. BCA pioneered the commercial banking industry in Indonesia by creating an efficient network of branches and ATMs across the country. Bank Ina, on the other hand, is late in the digital banking game. Banks owned by the government, foreign banks and rival local conglomerates are competing aggressively for digital-savvy consumers, while local startups like Go-Jek have rolled out electronic payment services that can be used without owning a bank account.
Salim's advantage lies in its scale and wide range of businesses. In the second half of 2017, the group will begin running internal trials of new services. They will involve various Salim Group companies including Bank Ina, Indomaret, a convenience store chain with 14,000 outlets nationwide, and a biometric recognition joint venture with Tokyo-based startup Liquid. In one test case, Salim employees will open a bank account at Bank Ina and pay for goods at Indomaret using Liquid's fingerprint recognition devices that are linked to their accounts.
The trials will involve Salim's 500,000 employees, which are "very diverse in terms of jobs, lifestyle, spending patterns," said Budhi Wibawa, chief operating officer of Salim's joint venture with Liquid. "We are hoping that with this diverse society, [Salim] represents the Indonesia's society and community as a whole, and the type of market we are targeting."
On Friday, Anthoni Salim said the group is also partnering with third parties. For example, Bank Mandiri, the country's largest state-owned lender, issues a card that can be used to pay for purchases at Indomaret.
Salim's interest in Bank Ina follows a broader trend in which Indonesia's biggest groups are moving back into the banking sector after recovering from the Asian financial crisis.
Lippo Group, which focused on property and retailing after losing its flagship Lippo Bank during the crisis, acquired Bank Nationalnobu, a small local bank, in 2010. "We must have inward creative disruption so that we can be transformed into a new area of growth, which is the digital economy," James Riady, Lippo's chief executive, told the Nikkei Asian Review in November. Lippo is an investor in Grab, a Singapore-based ride-hailing app, and the two companies are co-developing an e-payment service.
Sinarmas Group, a paper and palm oil conglomerate, acquired a local bank in 2005 and has since renamed it Bank Sinarmas. The bank will reportedly funnel most of its capital spending this year toward developing digital services.
Anthoni Salim likes to call Salim Group a "moving picture" - a collective of businesses that adapt to changes in consumer habits. Industry observers will be watching closely to see whether he can keep up with the digital economy, which is evolving at a blistering speed.
Erwida Maulia and Jun Suzuki in Jakarta contributed to this report