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Banking & Finance

Company in focus: E-commerce lures Salim Group back to banking after two decades

Indonesia's biggest conglomerate has grand plans for a small local bank

Salim Group, led by Anthoni Salim, has been beefing up its e-commerce operations. (Photo by Wataru Suzuki)

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," the chief executive of Salim Group said on the sidelines of his annual press conference on June 2. When asked how much money the group will invest in digital payments, he replied: "A lot. Trillions [of rupiah]."

Through various affiliates, 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 as it marks the group's first foray into banking since leaving the industry in the wake of the 1997-98 Asian financial crisis.

Banking was once a pillar of the sprawling Salim 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 banker Mochtar Riady, founder of the Lippo Group, BCA grew rapidly under Suharto's deregulation policies and eventually 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, which led to 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.

Sudono Salim was the most prominent ethnic Chinese tycoon seen as profiting from Suharto's links, and an angry mob burned his family's home. Salim Group lost many assets, including the jewel in its crown, Bank Central Asia. It was left with food company Indofood, around which it rebuilt its business.

APP OPPORTUNITY In the years that followed, the group avoided the banking business, even as it got back on its feet and expanded into the Philippines. But the recent smartphone boom has created a new wave of demand for digital financial services, including electronic payments. Anthoni Salim decided to return -- quietly -- to banking.

At the press conference on June 2, he refrained from directly commenting on the Bank Ina deal. Indeed, no official announcement of the acquisition has yet been made.

The purchase price may seem like a drop in the ocean for Salim. While complex ownership structures make it difficult to pin down the exact size of the group, its key companies in the food, retail and automotive sectors in Indonesia and in telecommunications and infrastructure in the Philippines generate more than $20 billion in combined annual revenue. The purchase price of the Bank Ina stake is estimated at just 570 billion rupiah ($42.8 million). With only $175 million in assets, Bank Ina is the third-smallest publicly traded bank in Indonesia, according to data company QUICK-FactSet.

Despite the hush-hush nature of the deal, the group is determined to operate its own bank. The idea is to have the bank 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 developed in secret. Edy Kuntardjo, Bank Ina's president director, said it plans to roll out services such as electronic money in 2018, once it receives regulatory approval.

Analysts see the move as indicative of Anthoni Salim's desire to control all aspects of the digital economy, from the production of goods to payment and delivery. His obsession with end-to-end business models 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. Philippine telecom company PLDT, in which Hong Kong-based First Pacific owns a 25.6% 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 that it "makes sense for us to refocus on banking because the transactions carried out by the banks are becoming quite big."

DIFFERENT SITUATION Another BCA-style success, however, is anything but guaranteed. BCA pioneered commercial banking 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 a bank account.

Salim's advantage lies in its scale and the wide range of its businesses. In the second half of 2017, it plans to begin internal trials of new services. This will involve various 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 trial, Salim employees will open a bank account at Bank Ina and pay for goods at Indomaret using Liquid's fingerprint recognition devices 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."

Anthoni Salim also said on June 2 that the group is partnering with various third parties. For example, Bank Mandiri, the country's largest state-owned lender, now issues a card that can be used to pay for purchases at Indomaret.

THE GREAT RETURN Salim's interest in Bank Ina is in line with a broader trend that has seen Indonesia's biggest groups moving back into the banking sector now that they have recovered 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.

Sinar Mas 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 his group a "moving picture" -- a business collective that adapts to changes in consumer habits. Industry observers will be watching closely to see whether Salim Group can keep up with the digital economy as it evolves at a blistering speed.

Erwida Maulia and Jun Suzuki in Jakarta contributed to this report.

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