Danamon Chief Reflects On Sector’s ‘Dramatic’ Evolution

Jakarta Globe, Janeman Latul, January 31, 2010

Bank Danamon’s Sebastian Paredes will step down in April.

Days after announcing that he would step down in April, Sebastian Paredes, president director of PT Bank Danamon, the fifth-largest commercial bank in Indonesia, talked to the Jakarta Globe about the state of the bank, the sector and the domestic economy after the global financial crisis.

Was 2009 not a good year for Bank Danamon?

You have to remember that we faced the most severe global financial crisis since the Great Depression in the 1930s. The important thing is what the bank has done to help its underlying development. It is not only about the profitability of one year versus the previous year because we faced incredible challenges. You need to focus on the past five years to see what the bank has accomplished. And that’s why I focused more on the value of the franchise.

How do you measure that value?

We have doubled the value of our disbursed loans. In terms of employees, we have gone from 26,000 to 41,000. We are now the second-largest employer in the financial sector in Indonesia. We have raised our customer base from 2 million to 5.2 million. In terms of branches, we had 900 five years ago and now we have nearly 2,000. In terms of revenue, we have increased it by 2.5 times since 2005. This year will be an extraordinary year for Bank Danamon because the crisis is over but the core franchise has continued to grow. This year we are targeting 20 percent loan growth.

Why are you resigning now?

Some people say you should leave when things are going well and not when things are bad. In the past two years we were able to navigate tremendous challenges. Now that the crisis is over, I will leave the franchise in a very good position. Our capital ratio is one of the highest in the country, while our liquidity is very robust. Brand awareness has increased. I’m very confident about Danamon’s future. The board understands that this is a personal decision. They understand the reason I want to move on.

What are you going to do next?

For me, it’s time to try new challenges. I have grown to love this country. I have been a very lucky person. I have met so many nice people. I think Indonesia is a country with many opportunities and my preference is to stay here. I’m evaluating some options but haven’t decided yet.

What do you think about the upgrading of Indonesia’s sovereign debt?

We are now a notch below investment grade and this is very good news for Indonesia. It shows that the macroeconomic stability and the macroeconomic plan that the country has had for several years are beginning to pay off. It’s a recognition of the way the economy has been managed over the past year. This is very important as it relates to the allocation of investment around the world. The minute the country reaches investment grade then the allocation for investment here will increase.

When do you think Indonesia could reach investment grade?

It’s difficult to say when because it depends on many factors. Different rating agencies also have many factors to calculate. But I think we are moving in the right direction and hopefully Indonesia will reach investment grade in the next five years.

Do you see political factors, such as the Bank Century bailout saga, hurting economic stability?

In emerging markets, when we talk about economic stability we talk about political, economic and social stability. It’s important for economic stability to rest on political stability. Any events that derail that are not positive. So we can only hope that all the events are addressed accordingly and maturely.

Let’s discuss the Indonesian banking sector over the past five years?

There has been a dramatic evolution of the banking sector in Indonesia in the past five years. I say it was dramatic because when you look at how many banks have been acquired or merged and the amount of investment, as well as the enhancement of strategy, the transformation was incredible. You have seen players shifting strategy, you have seen very important investment from foreign players, you have seen state banks growing very rapidly and competing fairly with the private sector, which is very refreshing.

What should the government do to encourage credit expansion?

I think a lot has to with stability and economic growth. Stability in the sense that if you have low interest rates for a longer period of time, you will see people becoming comfortable with borrowing and lending and therefore would see a much faster acceleration of credit expansion. Also, when you have the economic growth and you have income per capita growth, you see the middle class developing and benefiting the economy.