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Asean pathfinder

Felicia Tan
Felicia Tan • 11 min read
Asean pathfinder
UOB Indonesia's president director Hendra Gunawan. Photo: UOB
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How banking group UOB is generating new business opportunities by helping clients break into new markets in the region like Indonesia which is morphing into an economic powerhouse.

United Overseas Bank’s (UOB) Gateway to Asean Conference 2023, held in Jakarta, Indonesia, last October, was titled “Forging Ahead”. Asean is increasingly seen as China’s strategic partner. This was underscored in the opening address by Wee Ee Cheong, group CEO and deputy chairman of UOB.

“We have a proven track record in helping companies enter new markets. In Indonesia, we have supported about 100 companies expanding into the country in the past two years. These companies have pledged to invest $12 billion in the country and they plan to create 15,000 jobs here,” he adds.

Companies now view Indonesia in a manner similar to how they viewed China over 20 years ago: As a resource-rich production hub and a nation with infrastructure demands and a sprawling consumer market.

UOB Indonesia’s economic and market research team says the country has several upsides, including a more stable Indonesian rupiah (IDR), the increasing size of its economy and a dynamic population with young adults aged 35 and below making up over half (or 52.2%) of its total population in 2030.

Wee cited the example of a client headquartered in Hong Kong, with manufacturing plants in China and Mexico and a significant customer base in the US, looking to relocate. He says: “We helped them relocate their production plant to Indonesia to mitigate the effect of ongoing trade tensions. We provided market entry advisory and connected its management with government agencies, professional firms, industrial parks and construction management firms to build their plant. The client has since purchased the land and aims to start exporting from Indonesia in 2024.”

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The One Bank approach

Wee also provided another example that illustrated the essence of the “One Bank” approach: “In another case, we supported the cross-border capital flows for the Indonesian branch of a German global process instrumentation and automation supplier. Through our regional footprint, the client could seamlessly access and deploy capital around their regional offices in Singapore, Thailand and Vietnam that are already banking with us.”

UOB established its UOB Foreign Direct Investment (FDI) Advisory centres across the region as early as 2011, anticipating the challenges of cross-border flows, regulatory complexities and the need to attract inbound FDIs. Even before the “China Plus One” concept gained popularity, group CEO Wee described these FDI Advisory centres as UOB’s secret weapon.

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Hendra Gunawan, president director of UOB Indonesia, says: “We like to believe that Asean is in a sweet spot today. We’d like to be the first point of contact for any investor in Asean. We can pinpoint them to all the opportunities in Asean. That is our key differentiator from other regional and global banks.”

“Compared to regional and global banks, I think we are the only bank that has the depth and breadth in key Asean markets,” adds Gunawan, referring to the group’s numerous branches in its major cities in the region.

“We always talk about connectivity and connectivity into Asean. We’d like to be One Bank for Asean. What does it mean? Going back to this conference, Gateway to Asean, we say to all potential investors who want to come into Asean that we are in a very advantageous position.”

This also positions the bank well to serve local customers who aspire to become more mobile within the Asean region. “If they want to travel across Asean, we can facilitate them. If they aspire to become wealthier, we can help them through our wealth management business,” he says.

Similarly, UOB’s FinLab, an innovation accelerator that supports businesses with their digitalisation journeys, and the bank’s wide customer base place the group in a unique spot to help link its clients to the wider Asean circle.

For instance, small- and medium-sized enterprises (SME), which want to be a part of the global supply chain, can look to UOB’s FinLab. “It’s still part of connectivity, we want to make them connected to our regional network or our global network,” says Gunawan.

“We touch on all segments, from the largest MNCs to SMEs. Of course, we don’t go into venture capital or microfinance because that is not our expertise. Other banks [like Bank Rakyat Indonesia or BRI and BNM] probably can do that,” he adds.

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Shifting focus from wholesale banking

UOB acquired Bank Buana in 2005 and renamed it UOB Indonesia in 2011. Presently, UOB Indonesia operates 131 branches nationwide.

This comprises 42 branch offices and 89 sub-branch offices. The primary geographical focus lies within the Greater Jakarta region, encompassing the capital city and parts of West Java and Banten provinces.

Of the 131 branches, 68 branches, representing slightly over 50% of UOB Indonesia’s total, are in this area. Greater Jakarta is a hub for the headquarters of many Indonesian companies. Gunawan further notes that foreign investors entering Indonesia choose this region as their entry point.

It is not surprising that approximately 68% of UOB Indonesia’s income and operating profit stem from wholesale banking, according to its FY2023 ended December 2023 financial statement. Moreover, the majority of earnings in Indonesia come from net interest income. However, with the recent Citi acquisition and the introduction of UOB TMRW, UOB’s digital bank, UOB Indonesia is now broadening its revenue streams.

UOB’s FY2023 results disclosed that TMRW boasts over eight million users, with nearly one million new-to-bank users acquired in 2023, marking a 14% y-o-y increase. Among these, 53% were acquired digitally. Given Indonesia’s vast archipelago, UOB can effectively leverage UOB TMRW to acquire and cater to retail customers.

“With the Indonesian government trying to diversify beyond Jakarta especially later on with our new capital Nusantara, you will see people broadening beyond Jakarta but for now, Jakarta is where a lot of economic activities are at … A lot of banks also have quite a focus in the Greater Jakarta area,” says Gunawan.

When it comes to expanding its business beyond Greater Jakarta, Gunawan notes that there are no specific targets but that the bank is “more than happy” to expand its branch presence. “As a business, when we expand to a new area, it has to make economic sense and it has to be relevant to that area,” he says. “Some areas are more driven by consumer banking. If there is a lot of concentration of wealth in one particular area, we will set up a wealth-focused business. But in some areas, where there are industrial estates, we will be more focused on such industries.”

Additionally, the Citi acquisition has contributed to wealth management, where UOB group’s assets under management (AUM) grew 14% y-o-y to $176 billion. Of this, 61% of AUM is from overseas customers, including Indonesian customers.

Still small

Even though UOB has facilitated the entry of 100 companies into Indonesia, the country remained one of the smallest contributors to UOB’s earnings in FY2023. Gunawan sets an ambitious goal for UOB Indonesia to account for 5% of UOB’s core operating profit, expressing his aspiration for the bank to become a more significant contributor to the group.

As at FY2023, Indonesia comes in fourth with a core operating profit of $186 million, putting it ahead of only Vietnam, which reported a core operating profit of $11 million in the same year. The country’s core operating profit fell 20% y-o-y, contributing just 2.28% towards the bank’s overall core operating profit of $8.15 billion.

In Singapore, where UOB is headquartered, core operating profit stood at $4.66 billion. Meanwhile, Malaysia and Thailand reported core operating profits of $873 million and $700 million respectively for FY2023.

However, Indonesia’s vast archipelago boasts Asean’s largest land mass and economy. It contributes to around a third of the region’s GDP. UOB Indonesia has projected the country’s GDP to grow by 5.2% in 2024.

Furthermore, Indonesia is the world’s fourth-most populous country, with a population exceeding 279 million. It follows India, China, and the US in population size. “We want to make sure our growth is sustainable and is aligned with the group’s objectives and the government’s objectives,” Gunawan says.

He stressed that UOB Indonesia measures success not solely by size but by the returns it delivers to its shareholders, who are part of the UOB group. The bank also has specific targets regarding the return on equity it aims to provide.

While size is “somewhat important”, it is not one of the bank’s key goals. “We never intended to be the biggest bank in Indonesia. You need a certain threshold to be a certain size to generate economies of scale. But it doesn’t mean that we have to be the biggest,” says Gunawan.

“Our goal is to make sure that we are relevant for our network and UOB group in terms of connectivity. We aim to ensure that we are relevant for all stakeholders: the government, our staff and our consumers. So size, by itself, never defined UOB Indonesia, and I don’t think it defines any of our subsidiaries around the region.”

He continues: “It means that our customers can be assured if they bank with us and as long as they do their business properly, we will be their partner for the long term. They can also be assured that … our parent bank in Singapore is AA-rated. Very few banks in the world are AA-rated. In Indonesia, we are AAA-rated locally so they can lean on us when there are difficult times. We will never fail them.” 

Cutting off carbon-heavy companies ‘irresponsible’

As most Asean member states commit to achieving net-zero emissions by 2050, and Indonesia aims for the same by 2060, UOB Indonesia has already developed a range of products to assist customers in transitioning away from carbon-intensive practices.

Indonesia is one of the world’s biggest emitters of greenhouse gases (GHG) with energy sector emissions totalling some 600 million tonnes of carbon dioxide in 2021, making the country the ninth-largest emitter, according to the International Energy Agency (IEA).

In 2022, the country was the sixth highest in terms of carbon dioxide emissions, emitting some 729 million metric tons, according to Statista.

UOB Indonesia hopes to change all that. One of its solutions includes financing to enable its customers to transition away from their carbon-heavy businesses.

While the bank is not taking in more customers from fossil fuel industries, it is not cutting its existing clients off completely either. Instead, it prefers to work with such companies based on certain frameworks.

“Take coal mining companies for example. We help them invest in areas where they are moving away from their core business, which is generally deemed not as green nowadays,” says Hendra Gunawan, president director of UOB Indonesia.

The bank also helps companies start developing midstream industries in processing nickel, which is one of the key materials for batteries for electric vehicles (EV).

“We also help customers install solar energy to … reduce their reliance on fossil fuels,” he adds, citing another example of how the bank is helping its customers on their path toward sustainability. Without mentioning specifics, Gunawan reveals that some of the biggest energy-related customers in Indonesia are bank clients.

Gunawan believes it is “irresponsible” to completely cut such companies off with some of the world’s key needs — electricity — still coming from fossil fuels. “If we cut them off completely today, prices will go up,” he points out. And when that happens, the least able to afford it will suffer, he adds.

“We need to maintain a certain baseline so we can stabilise the price but, at the same time, when there are expansion opportunities we need to focus our capital resources to help companies expand the non-fossil fuel aspect of their business,” he says. “This way, we increase the capacity of the greener options without cutting off what we already have.”

To achieve this, the bank must have a thorough understanding of its customers, allowing it to effectively manage credit risk, especially within the expansive market of the country. It is not enough to know their name and address, says Gunawan. “You need to know your customers’ business and know that their business is built over years, or even generations. And they will go through different economic cycles.”

“As a bank, especially a bank in Indonesia, we need to understand who our customers are, understand their business and understand the market,” he adds, noting that the last thing anyone wants is for the bank to take off when challenges arise.

“We want to assure our customers [that] UOB has been around in the region for [around] 90 years. In Indonesia, we’re relatively new. Only 12 years. But we want to assure our customers that we are here for the long term. We are not a short-term bank.”

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