RHB Capital's small strategy for Indonesia
When a company has rich shareholders like the Employees Provident Fund (EPF) and Abu Dhabi Commercial Bank, investors may question why RHB Capital Bhd (1066) is buying a small bank in Indonesia.
RHB Capital is taking over PT Bank Mestika Dharma, which is based in Medan on the Indonesian island of Sumatra.
Bank Mestika will immediately double foreign earnings for RHB Capital to 8 per cent. Still, with a net profit of RM63 million last year, it's less than a tenth of the group's RM1.05 billion net profit in that year.
RHB Capital calls it a different strategy to enter what has always been known in the industry: if a bank has regional ambitions, it cannot ignore Indonesia.
But more importantly is the need to protect RHB Capital's profits. It has a plan to grow net profit to about RM1.4 billion next year and investors will not take it kindly if an expansion plan hits earnings initially.
Furthermore, its parent EPF understands well enough that its move will be keenly scrutinised, not just by stock market investors but by its contributing members as well.
Already, RHB Capital is asking the parent and other shareholders for money to help fund the purchase of Bank Mestika.
Malayan Banking Bhd's experience in Indonesia is obviously a stark reminder to Malaysian banks.
The top lender made its lowest net profit in 10 years in fiscal 2009 because it had to account for the lower value of its units in Indonesia and Pakistan.
RHB Capital appears to be buying a clean and well-managed bank. Bank Mestika has been a family-run business for the last 54 years and has kept bad loans to less than half of the industry average.
It also has a high capital position of 27.2 per cent, almost double the ratio of Malaysia's best-capitalised lender, and this indicates that management is very careful.
Still, its profits have been rather stagnant at about RM60 million to RM65 million for the last three years. The owners are aware of this.
"Now, we need a big brother, with a longer hand," said Witarsa Oemar, Bank Mestika's president commissioner.
The challenge now is for RHB Capital to turn this small bank into a big one. This is crucial because although Indonesia has 124 banks, the top 10 account for 61 per cent of total industry assets.
Bank Mestika is now the 19th biggest in terms of assets.
RHB Capital's strategy to go small to get a foothold in Indonesia may prove to be correct, but to break into the big league, it will have to think big.
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