Interviewed By Foo Boon Ping
Abdy D. Salimin, chief information officer and director of technology and operations, PermataBank, highlighted the opportunities in digital transformation, the challenges of being a BUKU IV bank, and the role of digital banking during the COVID-19 pandemic. He also discussed the bank’s profitability and how banks become frontliners that showed leadership resiliency.
Abdy Salimin joined PermataBank at the end of 2016 to drive the bank's product innovation efforts and has led a slew of transformation initiatives, including the launch of its digital branch, to reposition it as a leading digital player in the industry. In 2020, he was recognised as the most influential CIO by the iCIO community in Indonesia.
The bank’s digital banking serves today serves all segments of customers and leverages latest technologies including blockchain to create a competitor edge. The increasing demand for digital products and services has boosted the growth in transactions and revenues. Transaction volume increased by more than 200% year-on-year (YoY) to 937 million in the first half (H1) of 2021, driven mainly by the growth in all digital channels that increased by 351% YoY to 766 million.
The bank saw its net income increased by 74% YoY to $44.8 million in H1 2021, while total assets rose by 34.8% YoY to $14.9 billion. It also strengthened its capital and risk management, capital adequacy ratio stands at a remarkable 35.4% and common equity tier 1 at 26.9%.
“We implement capital resiliency. We will continue to preserve our capital position by growing prudently, practising solid risk management and corporate governance,” Salimin said.
PermataBank was reclassified as a BUKU (Bank Umum Kegiatan Usaha—Commercial Bank Based on Business Activities) IV bank by the Financial Services Authority (OJK) on 20 January 2021. It is one of the top 10 banking institutions in Indonesia with a core capital of more than $2.1 billion. PermataBank has 304 branch offices and has served nearly four million customers in 62 cities.
In 2004, Standard Chartered Bank (StanChart) and PT Astra International acquired a controlling interest in PermataBank. In May 2020, Bangkok Bank became the controlling shareholder after taking over 89.12% of PermataBank’s shares from the total number of StanChart’s and Astra’s issued and paid-up shares.
Salimin previously served as the head of global technology at StanChart, where he worked for 15 years. He rolled out an enterprise mobility platform for frontline, Retail Workbench, in Hong Kong, Singapore, Malaysia, Indonesia, India, Bangladesh, Pakistan, the UAE, Kenya, and Nigeria. He also worked at Citi for 11 years and held several positions in Singapore and Indonesia, including vice president mortgage product manager, from 2000 to 2001.
The following key points were discussed:
The following is the edited transcript of the interview:
Foo Boon Ping (FBP): What is the one key opportunity and challenge that your bank faces in this age of digital innovation and disruption?
Abdy Salimin (AS): The banking of the future is already here and is looking tremendously different from just a couple of years ago driven by some progressive changes in technology and customer behaviour. Truly, the future of banking is digital. The pandemic has altered our lives from how we shop, how we learn, how we work, to even how we bank and created significant changes in customer behaviour. The pandemic has radically reshaped our social and economic landscape, accelerated demands of digital experiences, amplified the need for easy access to banking products and services.
Face tougher competition after BUKU IV status
AS: Additional challenges as a BUKU IV universal bank, we are no longer competing just against peer banks but also with many financially rock-solid fintechs and dozens of neobanks backed by large digital/e-commerce platforms that have deep pockets and owned massive active customer base.
Here in PermataBank we see these as opportunities. Demands for digital banking products and services have accelerated growth in our digital transaction volume and revenue, which we have never seen before. More than 95% of our transactions are now processed straight through. During H1 2021, our total transaction volume increased by more than 200% YoY to 937 million. The increase mainly comes from significant growth in all digital channels, which increased by 351% YoY to 766 million. A total of 7.6 million new accounts and loans were booked during the fiscal year 2020, of which 85% was from application programming interface (API) partnerships and mobile banking, as customers continue to shift from branch banking towards digital.
Volume increases demonstrating our strong build and effective third-party partnership with top fintechs, large platforms and major ecosystem players in the digital economy. This is a new growth area with new revenue streams, which required a complete change in management mindset, change in business model from traditional branch network, relationship manager, direct sales-driven to new API and banking-as-a-service models. We started this journey just before the pandemic and we are seeing early successes. We will continue to invest in digital technologies that improve customer experience, build scale, deliver business growth, and increase productivity and efficiency.
We are now the leader in digital banking with comprehensive offerings that serve all segments – retail, sharia, small and medium-sized enterprise (SME), commercial and wholesale. Our digital capabilities are best in-class including Permata API, mobile banking super app PermataMobile X, online banking PermataNet, online banking for businesses Permata-e-Business, Permata Digital Value Chain, Digital Trade Finance (with blockchain technology), artificial intelligence voice recognition call centre, digital model branches, cardless cash withdrawal at more than 20,000 locations nationwide, quick response (QR) pay and QR merchant acquiring.
FBP: What are your views of digital transformation driving organisational and operational resilience during COVID-19? How has COVID-19 catalysed opportunities for digital transformation and how has it impacted your institution?
Fast-tracked digitisation, data security and automation
AS: COVID-19 is pushing banks over the technology edge and transforming our business at a pace never seen before. In just a few months, the crisis has brought about years of change in the way companies in all sectors do their business.
The pandemic has radically changed our priorities, business model, the way we work, and ultimately how we serve our customers. No one has ever prepared and ready for this, but to survive, sustain and grow, we realised we have to adapt to changes immediately and effectively. During this challenging time, we continue to digitise our channels, increase spending on data security, automate middle and back office operations, which enabled us to work from home (WFH) (more than 70%), facilitated remote collaboration, built distributed operations (in more than 50 cities) for risk-diversification, supported an increase in customer demands for online purchases and services, and run 24-hour banking services in all digital channels.
COVID-19 has accelerated our digital investments in many areas and increased customer digital adoption faster than we thought possible before the crisis. We now have digital platforms that offered our customers’ ability to do all their banking activities online in real time without ever visiting our branches. These include know your customer (KYC) process, open account, get loans, credit cards and mortgages, conduct investment-risk assessment, buy/sell mutual funds and bonds, buy bancassurance, make transfer, bill payment and top-up, send greetings with digital money, transact with virtual debit and credit cards, pay with QR, download banking statements, view transaction history (up to 36 months), view transactional advises, make service requests (such as block card, change address, mobile, change/reset password, fee waiver, etc), manage trade finance activities (using blockchain technology) and many more.
Given the stable number of headcounts and physical branches, these increases have brought significant improvement in productivity, efficiency and cost-to-income ratio.
FBP: With so much uncertainty in 2021, how will your bank remain resilient? How do you plan to support your customers, employees, and the community to be resilient?
AS: Unlike the banking-system-triggered recession in 2008 to 2010, the current recession is plunged by the pandemic, governmental and societal responses to it, which ultimately affect the demand and supply. This crisis affected banks differently. This time, banks have important roles to play in getting the economy back on track through loan restructuring of businesses that have suffered. Effectiveness of bank-supported recovery depends largely on the bank’s operational resilience, capital, effectiveness of vaccinations and mitigating interventions.
At PermataBank, our core imperatives include looking after our staff. The key measures were conducting regular testing, contact tracing, operate a 24-hour command centre for speedy situational response, run a 24-hour call centre to service/assist affected staff and family, provide medical assistance, apply preventive-oriented policies, focus on workplace hygiene, offer alternative ways of working, and continue proactive communication.
We provide 24-hour digital banking services to all customers via mobile banking, online banking, API banking, ATM and call centre services. Also, continue operating branch banking services where regulations allowed.
We help the financially impacted customers by providing loan restructuring (tenure modification, extension, lower pricing, etc). We see banking as a long-term business where we continue to maintain and build relationship with customers in times like this.
We grow prudently and profitably. The impact of the pandemic on the economic recovery continues to be a significant challenge for the banking industry. Despite this, our total assets grew 34.8% YoY in H1 2021 to IDR 212.9 trillion ($14.9 billion), operating income went up 19% YoY, net income rose 74% YoY to IDR 639 billion ($44.8 million).
We manage bad loans. The bank adopted conservative and aggressive approach in identifying loans at risk at earliest stage, restructuring them were allowed, and make provisions when necessary. Our non-performing loan coverage ratio as of H1 2021 is 218%, which significantly improved from 112% in the same period last year, in line with our prudential principle in risk management.
We implement capital resiliency. We now have the strongest capital adequacy ratio (35.4%) and common equity tier 1 (26.9%) in the industry. We will continue to preserve our capital position by growing prudently, practicing solid risk management and corporate governance.
We’re keeping the lights on through increased investment spending that enhances resiliency in all critical infrastructure including customer-facing channels, data and integration services, and core banking. We continue with distributed operations that deliver sustainability and high-availability services. We have also increased spending on data security.
FBP: In the span of a year, the competitive landscape in banking has changed. Several of the confident challengers have struggled or been acquired. What insights into resilience for banks and banking can we gain from this?
AS: We enhanceour product and service offering. Digital banks are ‘imperfect’ because of their totally virtual services. They do not offer all the services of a traditional bank and are still unable to measure up, not only because of service delivery or regulatory problems, but also for their limited capital.
We have improved our capability for risk diversification. Digital banks’ ability to manage risks on revenue and profitability-mix are largely limited because of its inherent model with limited product offerings.
Digital banking goes beyond just having beautiful user interface and user experience (UI/UX) on mobile banking apps. It comprises end-to-end digitisation of entire banking processes (KYC, onboarding, account opening, loans processing, underwriting, valuation, credit check, disbursement, payments, transfers, trade finance, remittance, finance, legal and compliance, accounting, reconciliation, risk management, collection, service request, complaints, etc) in order to deliver great customer experience. This is not an easy task.
We maintain our profitability and sustainability. Many neobanks are competing on price, focusing on building scale by burning cash to acquire customers fast. Valuation is no longer profitability-based but on non-traditional metrics such as number of downloads, active-user base, transaction volume, spending, etc, which also implied that business sustainability is not guaranteed and there are limited examples of profitable neobanks.
Due to the nature of its tech-heavy offerings, they are prone to successful cybersecurity breaches. These present additional risks and significant potential disruption that may lead to reputational risks and erode customers’ trust, which is an important factor in banking.
FBP:What does resilience mean to you personally? How does one become resilient?
AS: Life is full of struggles and series of failures. Oftentimes you may find yourself in a position where everything is going against you. Only if you had been richer, more resources, more connected, or stronger, then things could have been easier. Unfortunately, life does not work like that. You got to work with the limited resources you have and there is no use in agonising about it. There are many things that you can do to change and produce a better outcome.
If you look at some of the most successful leaders and companies, most of them had to struggle and work hard to get to where they are. They took what they had and multiplied it a thousand times. Struggle and pain produce a champion.
There is always something to be learned in any failures and they are just temporary setbacks. Failures won’t kill you but fear of failure may keep you from success. A resilient leader learns from mistakes, get over them and recover fast. A leader maintains a positive attitude and a strong sense of opportunity during periods of uncertainty. When faced with ambiguity, a resilient leader finds ways to move forward and avoids getting stuck. In some cases, you may turn setbacks into golden opportunities.
As a leader, you must learn to keep everything in perspective and bounce back from setbacks.
Know your strengths and utilise them to overcome your setbacks. You need energy to be resilient and so find a way to delegate so that you will have time to reflect, reassess and revitalise.
Talk to your mentor or someone whom you can trust, for different perspective and feedback.
Choose habits that keep you physically and mentally healthy to ensure that setbacks do not impede you from moving forward.
Count your blessings. Be grateful and thank people around you who supported you. This I learnt can reduce stress and build long-term resiliency. Look for learning opportunities in your failures. Learn from mistakes, reassess, revitalise and move forward with a new sense of refined direction.
FBP: COVID-19 is a crucible within which resilient leadership has been refined. What do you think is at the heart of resilient leadership?
Maintain financial stability amid challenges from pandemic
AS: As essential service providers, banks are at the frontline of fighting the pandemic. Our primary role is to help maintain financial stability, respond to financial difficulty, and continue to provide services to our customers and society in this difficult time.
To do that effectively, we had to set our priorities very clearly from the outset. We look after our staff well, help customers who are financially burdened, keep the lights on providing 24-hour banking services, build strong liquidity and capital positions and identify opportunities to grow profitably.
Communication is a big part of our strategy. We share current state of affairs (number of infected cases, recoveries, deaths, vaccinations, etc), reminders, priorities and planned actions with staff, shareholders, the board of commissioners, customers, regulators and other stakeholders. We do it continuously, transparently, genuinely, sincerely and compassionately.
In many instances, we also had to make difficult decisions in particular when infections were on the rise – WFH versus work from office for cases where WFH is not possible, branch opening versus closure, additional staff allowances, postponement of certain key events, as well as additional health coverage for all affected staff and families.
Situation changes fast and dynamically during uncertain times. Unexpected things happened and we had to deal with them immediately, sometimes with limited resources. As such, there are many times we had to re-prioritise and stay focus on things that are more urgent.
Look out for opportunities during challenging times. We believe that when there is a problem, there are opportunities. The pandemic is changing every aspect of our lifestyle enormously – the way we work, learn, shop, seek advise, and the way we consume banking products and services. Here we have been able to capture opportunities by building digital products and services in a big way to meet customers’ demands for digital experience. We also remodelled certain parts of our business and put in place strategies, adapting fast with the changing dynamic.
As a result, we are starting to see early successes in our investments