Jakarta, 14 August 2023 - The digital revolution has not only changed human behavior patterns but also fundamentally transformed business practices in the present era, including in the banking sector. The emergence of technology-based banks in the last decade reflects the adaptation and transformation of banking services following the online lifestyle trend.
One of the pioneers of tech-based banks in Indonesia is PT Bank Jago Tbk (ARTO), which aspires to enhance the growth of millions through life-focused digital financial solutions.
Amidst the rapid competition among digital banks and global uncertainties, Bank Jago chooses to focus on maintaining a healthy balance sheet and strong financial fundamentals rather than forcing high growth through extreme measures such as "burning money."
This topic came up when President Director of Bank Jago, Arief Harris Tandjung, received a visit from several media editors at Bank Jago's Head Office on Friday (11/08/2023). He shared his views and ideas, from addressing the dynamics of global economics and geopolitics to his strategy of promoting Bank Jago's growth in a quality and sustainable manner.
To delve deeper into Arief Harris Tandjung's ideas and hopes, let's look at the following excerpt of the conversation:
How do you view the current global and domestic economic conditions?
Generally, there is still uncertainty, especially when we look at the global economic and geopolitical conditions. Like the Russia-Ukraine war, although Russia's attacks on Ukraine are not as intense as what we have seen in the past 12 months.
The relationship between China and the United States is also still very tense. However, steps have been taken to ease the tension. I think the US-China relationship cannot improve immediately, but both countries seem to realize that they cannot continue to feud like this indefinitely.
Indonesia's economic condition should be fine. In fact, I think Indonesia is one of the stars, considering its economic growth in the past two years after the Covid-19 pandemic. GDP grew by 5.17 percent in the second quarter of 2023, up from 5.04 percent in the first quarter of 2023. Indonesia's economic growth is higher than many countries and regions, such as Singapore, Vietnam, the United States, and Europe.
Indonesia's economy so far is still driven by strong consumption. This indicates a fairly good level of economic resilience. Indonesia is also fortunate as exports continue to grow, recording trade surpluses for three consecutive months. This is a good momentum. Considering the global macroeconomic pressures, I think Indonesia's position is quite good.
Do the dynamics of macroeconomics and politics affect the performance of the national banking sector?
Inflation is at a low level. That's why I see Bank Indonesia is quite confident in setting the benchmark interest rate (BI repo rate). The BI rate is currently at 5.75 percent, while the Fed rate is 5.5 percent. The difference is only 0.25 percent, and it seems that The Fed may still raise interest rates. I think Bank Indonesia has done a very good job, especially in maintaining liquidity in the market and ensuring the health of the national banking sector.
Bank loan growth is quite good, growing 7.7% as of June 2023. Although last year it could be above 10 percent, there is still the second half of 2023. So I see that the condition of the banking sector is quite good. However, we still need to remain cautious as geopolitical factors could impact bank performance. In this regard, Bank Jago will remain cautious in growing its business, both in terms of lending and funding. However, overall, I am optimistic when looking at Indonesia's economic conditions.
Politically, things should also be fine if we look at the track record of previous elections. Indonesia is currently highly respected. Because in times of uncertainty like this, Indonesia's condition is quite stable both economically and politically. Now the global public is looking to Asia, and Indonesia is one of its stars.
In general, I am optimistic despite various challenges. Indonesia is more mature now, and I see that our nation has higher confidence. With a very young population, we will enjoy the demographic bonus in 7-8 years from now. It's also a possibility that if we use it well, Indonesia can definitely move up to become an upper-middle-income country.
How about Bank Jago's performance?
Bank Jago's performance and growth are very encouraging and heartening. As of June 2023, while the banking industry grew by an average of 7.7%, Jago grew by 54%with loans reaching IDR 11.2 trillion. Funding grew even better, by 65%, with total third-party funds of IDR 10.1 trillion. What's even better is that funding is dominated by CASA, reaching 71%.
Until now, we have served 8.3 million customers, including 6.7 million funding customers using the Jago App. Compared to the first half of last year, Jago's customer growth has more than doubled because back then, funding customers were only around 3 million.
Of course, this cannot be separated from partnership with ecosystem partners, such as GoTo, which has made a significant contribution to customer growth, and of course, hopefully, future business growth.
We want to use digital methods to sell products, serve customers, and so on. With technology, we collaborate with ecosystems. But on the other hand, we must also remember that we are a bank. As a bank, we must have a healthy balance sheet and strong fundamentals.
How does Jago maintain a healthy balance sheet and strong fundamentals?
There are three things that Jago does for that. First, implementing good risk management. Not only credit risk but also related to liquidity risk, market risk, operational risk, strategic risk, legal risk, reputation risk, and so on.
Second, ensuring that the quality of Jago's asset growth is good, liquidity is maintained, and capital is sufficient to support investment and business growth. Third, as a regulated industry, we also have to pay attention to governance. This is important because it relates to regulators.
We believe that financial institutions that can balance the use of technology and service , as well as maintaining strong financial verification, can achieve higher success levels in the financial industry competition.
This is our foundation to maintain the quality of our business growth. Jago's NPL ratio is currently only 1.2% or lower than the industry average NPL of 2.2-2.3%. The CAR (capital adequacy ratio) is 75%, higher than the average CAR of the banking industry, which may be around only 18-21%.
How have strategic partners, such as GoTo, contributed to Bank Jago's performance so far?
Among the around 6.7 million Jago App users, more than 35% come from the GoTo platform. This is a good trend, and I believe the trend will continue to increase in the second semester and next year. Especially since they have launched the GoPay App, there will be even more channels for customer acquisition. Also, GoPay users will see more features that can be utilized in the future. This is beneficial for both GoPay and Jago.
Not only GoTo, other partners also contribute significantly, and this will continue to be strengthened.
Some digital banks grow faster than Jago in terms of loan distribution and customer acquisition. What’s your view on this?
Lending money is easy, but we cannot count it as revenue if the loans haven't been repaid. This is perhaps the difference from e-commerce, where they get fees immediately from sales. We could push our loan volumes, but if it ultimately leads to write-offs, managing problematic loans is more challenging than boosting loans.
If we do that, it would not only affect our finances, but regulators will also ask us to be cautious. If we are not careful, the bank's health rating could be downgraded, and the bank may not be able to grow.
Banking is not a short-term business; it's a long-term and consistent business. Bank Jago comprises bankers who are not opportunistic. If we were opportunistic, our performance might be good for 2-4 years, but then it would collapse, and would leave it to others. Our 30-year reputation as bankers is at stake.
Therefore, we still have to be cautious, while also supporting capital, funding, and other aspects. That doesn't mean we limit our actions, but we need to balance between risk management and business growth. Jago is a bank. We must consider financial fundamentals, risk management, and so on.
What about the transaction trend of Jago App users?
Given the high transactions of Jago App users, the average balance of Bank Jago customers has been growing steadily for the past two years. I was also surprised to find that the majority of Jago customers are quite active in conducting financial transactions.
It turns out that QRIS has driven payment transactions, shifting from previously cash to cashless. This is a good trend, especially for banks like Jago that have digital technology in the form of an application.
This means that indirectly, increasing non-cash transactions will drive more money into the banking system. I see this trend in Jago. The higher the transactions, the higher the average balance.
Other digital banks have quite high margins, and some acquire customers quite aggressively. It seems that Bank Jago is not as aggressive as them. Is Bank Jago intentionally slowing down?
We see there are startups or fintech companies that are “burning money,” spending money to buy customers. They boost customer acquisition, increase consumer bases and transactions, but end up losing money.
Such methods may be feasible when capital costs are low. For example, when in 2021, The Fed lowered interest rates close to zero percent. Instead of keeping money in the bank, investors thought it was better to invest in startups and fintech. They kept injecting capital to maintain their ownership. That's why at that time, almost all startup assets skyrocketed.
When The Fed started raising interest rates, investors began to think, 'this can't go on forever'. After 3-4 years of losses, and still losing money. They could no longer easily ask for capital from investors. Now they are forced by investors who have invested hundreds of millions of dollars to BEP and make a profit. So they have to change their business approach by not burning money anymore.
Jago is unique and has a different business model. Jago chooses balanced growth.
Even though it's a technology-based bank or digital bank, Jago's DNA is bankers combined with digital technology experts, who were taught not to incur losses.
So our focus is on maintaining quality growth. Our portfolio may not grow aggressively, but our NPL is low. Credit costs are not too high; we can't afford to lose money because we have to profit.
So, in essence, our philosophy differs as a technology-based bank. Because we believe that banking is not for the short term but for the long term.
