Indonesian banks turn to EDCs to weather crippling rate hikes

Bank Mandiri is boosting transactions through electronic data captures.

Indonesian banks are turning to non-interest revenues amidst unprofitable conditions brought about by the central bank’s decision to hike the reference rate to 5.5% in an effort to defend the declining rupiah, reports The Jakarta Post. 

Also read: Can Indonesian banks survive US tightening amidst persistent rupiah weakness?

PT Bank Mandiri is trying to boost transactions in the electronic data captures (EDC), according to senior vice president for transaction banking Thomas Wahyudi. He adds that the number of EDC transactions have surged 17.5% YoY in August whilst its value rose 12% YoY to $5.38b (RP80t) over the same period, he added.

CIMB Niaga is also aiming to grow transactions via EDC by 25% and increase its value to 35% by end-2018. “So far, we are on track in terms of transaction numbers,” said CIMB Niaga business commissioner Lani Darmawan.

Battered Indonesian banks have weathered harsher market conditions during the 2013-2015 downturn which has led to net interest margin (NIM) compression of 4.2% in Q3 2014 and a currency depreciation of 33%, observed UOB Kay Hian, giving lenders the expertise to weather through this credit crunch. 

“We view the 2013-15 period as being far more severe than the current one as the industry experienced,” said UOB analyst Alexander Margaronis. “Industry survived a worse period in 2013-15 and emerged stronger.”

The Big 4 banks are well-positioned to weather through the NIM compression than their smaller peers as they have higher CASA deposit compositions and better re-pricing asset/liability management which soften the impact of interest rate on NIMs.