In May, FinanceAsia named the winners of its annual Country Awards for Achievement. In June, we'll present the awards at our annual awards dinner in Hong Kong.
Today, we continue with the winners from India.
BEST BANK: BCA
BCA remains in a league of its own for this award as its stock market premium to peers attests.
Indonesia’s largest private sector bank not only stacks up well against domestic peers, but regional ones as well. For as financial analysts point out, over the past decade BCA has generated one of Asia’s highest return on equity and earnings per share compound annual growth rates (18% ROE and 27% EPS).
As FinanceAsia has highlighted in previous awards, one of the main reasons for this success is BCA's high quality deposit franchise, which it built out ahead of its peers. BCA’s high CASA (ratio of deposits in current and savings accounts) enables it to keep its cost of funding down and generate higher returns.
The bank says CASA remains the main contributor on the funding side, accounting for 76.3% of total third party funds at the end of 2017. CASA grew 8.7% to Rp443.7 trillion ($31.75 billion) over the course of the calendar year, while time deposits grew by 12.7% to Rp137.4 trillion.
BCA is the dominant player in the national payment settlements system with an almost one-third market share. It works hard to maintain its lead by continuously building capacity in transaction banking.
As a result, the number of transactions it processed per day increased from 12 million in 2016 to 14 million in 2017.
Bank officials also note digital transactions continued to gain ground on those handled by bank branches. In 2017, the bank reached an important milestone when Internet banking exceeded ATM transactions for the first time.
BCA’s high CASA ratio also positions the bank in the face of a rising yield environment. BCA is the least sensitive to rising rates at a time when the Indonesian central bank has begun raising them to try and prevent a haemorrhaging of outflows and additional pressure on the rupiah.
BCA officials highlight mortgage lending as a prime example of how the bank’s low cost of funding benefits different parts of the business.
For example, in 2017 the bank decided to celebrate its 60th anniversary by launching a competitive five-year fix and cap mortgage product. This offered a 6% fix for two years and then a 6.88% cap for the following three years.
Officials say that while other banks can also offer very competitive up-front rates, they cannot sustain them for the same length of time because their cost of funding is higher.
And the strategy appears to have worked. The bank’s mortgage loan book grew 11% between March 2017 and March 2018.
But no bank can rest on its laurels particularly in an environment with fintech disrupters on multiple fronts. BCA is adopting the same policy as many global peers and in 2017 it established subsidiary PT Central Capital Venture to invest in and collaborate with the best in class.
BEST INVESTMENT BANK, BEST ECM HOUSE, BEST DCM HOUSE, BEST BROKER: MANDIRI SEKURITAS
There is a new player in town, or perhaps that should read there’s a new one in the neighbouring town. For the most distinguishing feature of Mandiri’s activities during FinanceAsia’s review period was the spreading of its wings outside of Indonesia and into neighbouring Singapore.
Indonesia’s largest state-owned bank has ambitions to become a regional player and the first step has been the establishment of a subsidiary, Mandiri Securities Singapore.
This has given the bank a platform to move into G3 currencies and it quickly took advantage of its new status by gaining a first lead management role on the Republic of Indonesia’s $3 billion five- and 10-year sukuk bond in March 2017.
This deal fell just outside of FinanceAsia’s awards period. But Mandiri has since had a pole position across the sovereign’s international bond deals, showing what a formidable competitor it will be when it comes to winning future mandates from the government and state-owned entities.
In total, Mandiri’s securities arm was a lead manager on nine global bond deals, which raised $1.6 billion during 2017. This included deals for: PT Saka Energi ($625 million seven-year deal in April 2017), PT Chandra Asri ($300 million seven- non-call four-year deal in October 2017) and PT Jasa Marga ($300 million three-year deal in November 2017).
And it also did not take Mandiri Sekuritas very long to make sure it got full fees either. Its work for PT Medco Energi is a good example of this process in action.
For example, when the energy group raised $300 million from a five- non-call three-year deal in August 2017, Mandiri Sekuritas received credit for $15 million of the total according to S&P Capital IQ data.
The main fees were awarded to Credit Suisse and JP Morgan among a five-strong lead management group.
But that had all changed by the time Medco returned with a $500 million seven-year non-call four deal in January this year. This time round, there were six banks in the syndicate group including Mandiri and they got equal credit of $83.33 million each.
Mandiri also had a lead management role on a further three international bond deals during the first quarter.
Bankers say the business segment has become the main revenue engine for the entire group.
And it wants to make Singapore a true corporate finance hub encompassing syndicated lending as well as capital markets transactions. It makes great sense given how many Indonesian corporates and individuals park their cash there.
But Mandiri does not want to just stop there. It also has plans to expand into Malaysia and the Philippines.
Back home, Mandiri remains active in domestic bonds, but it does not represent a big focus given how competitive the market is and how little it generates in fees.
However, the group did manage to enjoy the best of both worlds when it was a lead manager on the country’s first two komodo bonds (offshore rupiah) for PT Jasa Marga in December and then PT Wijaya Karya in January. The two London-listed deals were both landmarks for Indonesia.
On the equity capital markets side, issuance was relatively subdued during 2017, but Mandiri reports a 15.2% market share, leading 11 issues worth $3.2 billion. Chief among these was the largest deal of the year, the $405 million re-IPO of tower company, Protelindo.
And then there is broking, traditionally the main driver of Mandiri’s profits. The country’s broking industry is notoriously fragmented, but Mandiri holds onto the number one spot with a market share of 4.8%.
In 2017, it brokered transaction volumes of Rp173.1 trillion, with noticeably clear water to its next domestic competitor. Foreign firms hold all the remaining slots in the top five rankings, namely Morgan Stanley, CIMB, Daewoo and CLSA (by volume order).
BEST PRIVATE BANK: PT BANK MANDIRI
One of the biggest trends in Asian private banking concerns the partnerships, being formed between Asia’s incumbent domestic players and some of Europe’s oldest and most experienced firms.
In Indonesia this has manifested itself as a strategic partnership between PT Bank Mandiri’s wealth management arm and Switzerland’s Lombard Odier.
The agreement was formally announced in April and is likely to transform Mandiri’s investment management capabilities. It also forms a part of the bank’s wider push to make itself more of a regional player, particularly in Singapore where bank officials have previously estimated there is about $50 billion of Indonesian cash is sitting offshore bank accounts.
The Indonesian government’s tax amnesty in 2016 was a watershed moment for the Singaporean and Indonesian banking industry and Mandiri continues to take advantage of the business accruing from the increased transparency the amnesty promoted. Indeed, one of the first fruits of its partnership with Lombard Odier is thought to be a repatriation product to help clients return money to Indonesia.
At a press conference to announce the partnership, Mandiri said it hoped it would help boost fee-based income up to Rp450 billion this year compared to Rp320 billion in 2017.
Like every other private bank in Asia, Mandiri is also aiming for a 50:50 split in its funds under management between third-party funds and assets under management.
In 2017, funds under management rose to Rp192 trillion compared to Rp180 trillion the year before. At the end of the financially year was a 67:33 split in favour of third-party funds, but the bank hopes the latter ratio will rise to 35% during 2018.
Like its competitors it is increasingly chasing higher fee-paying, wealthier clients after doubling its minimum threshold from Rp500 million to Rp1 billion five year ago. And client numbers continue to expand, rising from 48,000 in 2016 to a reported 51,400 in 2017.
BEST INTERNATIONAL BANK: CITI
What better way to celebrate a 50th anniversary in a country than to make more money there than ever before. For that is what Citi will be hoping for in 2018 after a barnstorming 2017 when it notched up record profits in rupiah terms: Rp2.51 trillion, up 10% year-on-year.
This positive performance enabled the bank to rebuild its ROA and ROE ratios to the levels it used to report at the turn of the decade. The former rose to 4.34% and the latter to 15.51% during 2017 compared to 4.14% and 14.88% respectively the year before.
Citi officials say this success is testament to the bank’s balanced business mix, with institutional banking accounting for 54% of net interest income and consumer banking the remaining 46%.
While other foreign banks diminish their retail banking focus, it is becoming more important than ever to Citi thanks to the massed ranks of Indonesia’s growing middle class.
At branch level, this is manifesting itself with more digitisation. The bank says 50% of its 10 branches will adopt ‘Smart-Banking’ in 2018, the rest in 2019.
During 2017, Citi also relaunched its Citigold wealth management platform and despite increasing the threshold from Rp500 million to Rp1 billion, it managed to record a 20% increase in clients to 10,000.
The bank now has $2.8 billion assets under management (AUM) making it a top-five player overall, with a 12% market share. However, unlike some domestic competitors, it has a stronger focus on the upper end of the market given its average revenue per customer is $2,300 compared to $800 for domestic banks.
Citi’s bread and butter business is its work with multinationals and in 2017, this business segment posted double-digit asset growth year-on-year. Bankers attribute this to a combination of rising commodity prices and the government’s ambitious infrastructure programme, which began to gain more traction in 2017.
New business wins from this client segment included a trade finance and cash management mandate from Coca-Cola Amatil.
On the corporate and investment banking side, Citi has a different model to most of its competitors, making apple-to-apple comparisons difficult. One of its greatest strengths is the integrated solution it can provide across all of a corporates needs from cash solutions, trade finance, ECA backed financing, FX/derivatives, bonds, equities and so on.
And there is no doubt if FinanceAsia split its investment banking award into sub categories, Citi would easily take home best debt house. It had an exceptionally strong year even by its own standards in 2017.
The tail end of the bull market and Standard & Poor’s upgrade of Indonesia’s sovereign rating to investment grade status generated an issuance bonanza. Citi was on more than 20 deals from the sovereign through to the lowest-rated high yield debut issuer.
Key highlights include the world’s first green dollar-denominated sukuk by a sovereign issuer and Indonesia’s first US style bridge-to-high yield transaction for PT Indika Energy, a $575 million seven-year deal.
And even as bond markets came under pressure in spring 2018, Citi was still able to get clients through by advising them to adopt a more investor-friendly approach. As a result, Bumi Serpong Damai still raised $250 million in difficult markets by shortening the tenor to a three- non-call two-year deal and giving investors a reasonable new issue premium. This pricing strategy gave the deal positive secondary market momentum and enabled the group to return only a few weeks later with a $50 million tap to complete its fundraising needs.
BEST FOREIGN INVESTMENT BANK: CREDIT SUISSE
This is the fourth year in a row Credit Suisse has triumphed and of all the Asian Country Awards it wins, this one is almost certainly dearest to its heart.
The bank has had an incredibly strong platform in Indonesia for over two decades, providing a springboard for its former country head to become CEO for the whole Asia Pacific region in 2015.
Credit Suisse officials say Indonesia is part of the bank’s very DNA, stating how it is the “most committed and most active” of all foreign banks present in the country.
It is certainly a country where it makes full use of its balance sheet to fund Indonesia’s entrepreneurial class, its main target market. This is one of the reasons Credit Suisse has a very good track record financing companies all the way up the value chain and securing repeat business from them.
One good example is PT Medco Energi, which came to the dollar-denominated bond markets twice during FinanceAsia’s review period. Credit Suisse led the energy group’s $400 million five-year deal in August 2017 and then its $500 million seven- non-call four-year deal in January 2018.
Another is PT Gajah Tunggal. Credit Suisse has led every bond deal since 2005, which is probably just as well since tire producer’s CCC rating requires skilful execution capabilities.
Another example of the bank’s thriving G3 bond franchise is the work it did for energy group, PT ABM Investama. Credit Suisse handled the ratings advisory work, then executed its inaugural $300 million five- non-call three-year bond deal in July 2017 and a $50 million tap in November.
This is an example of how it has extended its franchise. So too is the $150 milion inaugural bond deal it did for coal producer Golden Energy Resources, part of the Sinar Mas group.
Yet, the main reason Credit Suisse has now won this award for four years in a row is because it is strong across equity, debt and M&A in a way no other foreign bank is.
Where ECM is concerned, Credit Suisse was on both major equity deals in a year of relatively slim pickings size wise. These were respectively: a $405 million secondary share placement for PT Sarana Menara Nusantara and a $378million right issue for PT Chandra Asri Petrochemical.
It was also the placement agent for Go-Jek’s Series E $1.5 billion fundraising round led by Tencent in 2017, a rare mega deal in the equities space.
There were also a number of outsized M&A deals during the period, including the largest in Indonesian history. The $5.9 billion sale of PT Bank Danamon Indonesia to Bank of Tokyo-Mitsubishi UFJ — Southeast’s Asia largest ever banking transaction.
The first $1.3 billion tranche has closed, with Credit Suisse acting as the exclusive financial advisor to Temasek-owned Fullerton Financial Holdings.
Its other large deal was the $2.25 billion sale of Rio Tinto’s 80% interest in Kestrel coking coal mine to PT Adaro Energy together with EMR Capital. Again it was sell-side advisor.
