Korean financial groups seek opportunity, growth in Indonesia

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Korean financial groups seek opportunity, growth in Indonesia

Published: 27 May. 2023, 19:22

The Flag of Indonesia in the World Map [SHUTTERSTOCK]

Financial companies are expanding their footprints in the Indonesian market, citing the country's large population and a low penetration rate for financial services.

KB Financial Group offers five services in Indonesia - banking, brokerage, insurance, cards and capital - while Shinhan Financial Group has four, including banking, brokerage and cards. Hana and Woori financial groups run banks and card companies in the country.

These companies started entering the market as early as the 1990s and are expanding through takeovers of local firms. They note the country's rapid economic growth.

People from Shinhan Sekuritas Indonesia, the Indonesia Stock Exchange and construction material manufacturer Multi Makmur Lemindo (PIPA) attend the stock listing ceremony of PIPA in April. [SHINHAN SECURITIES]

Potential growth and opportunities

"Indonesia's finance is not yet advanced compared to its growth potential," said Park Sung-soo, a public relations manager at Hana Financial Group. "The bank account penetration rate isn't yet high, so we're trying to grow in the market through localization."

Indonesia is the fourth most populous country in the world, with more than 282 million people. It has abundant gold, nickel and copper deposits and achieved 5.31 percent growth in 2022.

The ratio of adults with an account at a financial institution in Indonesia was 51 percent in 2021, up from 20 percent a decade earlier, according to Statista.

Brokerage is also an area of opportunity.

"Indonesia's GDP is around 80 percent of that of Korea's, but the total market cap of the listed stocks stands at $634 billion, which is only 30 percent of Korea's stock market," said a spokesperson for PT Mirae Asset Sekuritas, an Indonesian subsidiary of Mirae Asset Securities.

"There are 4.6 million stock investors, which is less than 2 percent of the total population. So it is a very attractive market with strong growth potential."

PT Mirae Asset Sekuritas had the top market share for stock brokerages in Indonesia for three consecutive years from 2020, with 8.15 percent market share last year.

Compared to other Southeast Asian countries, Indonesia's embrace of financial services is relatively fast.

"Vietnam is a one-party Communist state, so the speed of the country opening up is relatively slower than in Indonesia," said a source from a financial industry who spoke on the condition of anonymity.

Financial companies are rolling out localized strategies.

Hana's PT Bank KEB Hana Indonesia is focused on digital banking. It started LINE Bank with Naver in June 2021, offering deposits and loans. The number of users reached 510,000 last year.

Shinhan Securities is focused on investment banking instead of retail brokerage.

"The Indonesian capital market is growing rapidly along with its industrial development and diverse demand for financing, just like Korea in its 90s," said Lee Yong-hoon, president director at PT Shinhan Sekuritas Indonesia. He added foreign direct investment is growing in the country in a number of areas, including electric vehicles.

Mirae Asset Securities is attracting customers by hosting trading competitions. An investor who achieved the highest profit for a month was awarded around 16 million won ($12,300) in 2020. Daily transaction volumes jumped 80 percent during the competition.

Financial Supervisory Service Gov. Lee Bok-hyun, right receives a gift from Mahendra Siregar, head of Otoritas Jasa Keuangan (OJK), Indonesia's financial regulator, in Jakarta, on May 12 after signing an MOU agreeing to work together. [YONHAP]

Challenges to be overcome

The financial companies face a number of hurdles, including limited understanding of finance.

"The social awareness and management of a personal credit is low, so delinquency and default rates are high," said a source from the banking industry. "So financial soundness is the key for banks operating in Indonesia."

The non-performing loan ratio in the country was 2.6 percent in February, according to the New York-based CEIC Data, compared to 0.3 percent in Korea in December.

Regulatory hurdles can hinder smooth operation.

Local regulations limit the number of seconded employees allowed to work at the subsidiaries, a move designed to encourage local recruitment. Currently, only three to four employees from the home office are allowed to work in Indonesia.

"The restriction forces us to hire more local workers, but the cultural difference makes it very difficult to manage them," another source from the bank industry said, noting their pursuit of work-life balance.

Annual inspections by regulators for at least three months also slows down bank operations, as it reduces head count during the period.

Net profit at Woori Bank's Indonesian corporation inched up 2.7 percent in the first quarter compared to the same period a year earlier to 19 billion won. Hana Bank's Indonesian subsidiary reported a 11.5 billion won net profit, up 51 percent, during that period.

Shinhan Bank's Indonesian subsidiary reported 1.5 billion won net loss. For KB, losses at its Indonesian subsidiary were 33.6 billion won in the first quarter.

For the stock market, "the level of liquidity is still very low, and regulatory uncertainties remain," said the spokesperson for PT Mirae Asset Sekuritas Indonesia.

Korean financial authorities are enthusiastically helping the companies overcome challenges in the overseas market by reinforcing ties.

Financial Supervisory Service (FSS) Gov. Lee Bok-hyun visited Southeast Asia early May to attend an investor relations event. The goal was to promote Korea's financial market and attract global investors.

Lee visited Indonesia, Singapore and Thailand during his trip, during which he met chiefs of financial authorities, including Chairman Mahendra Siregar of the Indonesia Financial Services Authority.

Investor relations are normally handled by the FSS senior deputy governor. But the FSS governor is getting involved.

Financial Services Commission (FSC) Vice Chairman Kim So-young visited Kyrgyzstan mid-May to attend the opening ceremony for BNK Capital's local subsidiary.

"The FSC plans to continuously engage with financial sectors and actively seek ways to more effectively support domestic financial companies to expand their businesses overseas," the FSC said in a statement following Kim's trip.

"Financial companies are branching out overseas because the growth engine, which is related to a country's economic growth, has slowed in Korea," said Lee Jeong-hwan, an associate professor at the College of Economics and Finance at Hanyang University.

"Southeast Asian countries are good targets because the competition isn't yet fierce as global financial companies aren't yet enthusiastically entering the markets."

BY JIN MIN-JI [jin.minji@joongang.co.kr]