Bank Central Asia: Changing strategy to maintain market leadership

Bank Central Asia (BCA) had maintained a simple and consistent strategy over the last fifteen years, consisting of two parts. First, it had invested in maintaining its position as Indonesia’s leading transaction bank, with a sizeable network of branches, automated teller machines (ATMs) and good electronic banking channels. This had raised its attractiveness to retail and business customers, allowing it to maintain its ratio of low-cost current and savings accounts (CASA) at 75.1%. This in turn allowed it to make loans to corporate and commercial customers at competitive rates (allowing it to focus on the most credit-worthy customers) while maintaining a high net interest margin of 6.53% in December 2014. The net result of this was that BCA had performed very well. Its return on equity (ROE) in 2014 was 25.5% and the ratio of non-performing loans (NPL) to total loans stood at 0.6%. However, it was not clear that this strategy would continue to be successful in the future. Growth in CASA funds had been only 4.2% in 2014, forcing the bank to rely more on time deposits and raise time deposit interest rates. Its loan portfolio had grown by only 11% in 2014 (down from 22% in 2013) and analysts thought future growth would continue to be in this range. The bank had entered a number of new, consumer-focused businesses (including insurance, wealth management, Islamic banking and motorcycle financing), but it was not clear yet whether these would be significant businesses that would strengthen BCA’s franchise or just a distraction.