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[K-Financiers] IBK to expand loans for SMEs in Indonesia

Korean lender bets big on burgeoning manufacturing sector in Southeast Asia’s largest economy

By Song Seung-hyun

Published : March 20, 2023 - 16:07

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This is the third installment of a series of interviews on chiefs who run overseas units of Korean asset management, banking and securities companies, examining their key strategies for global expansion. -- Ed.

President Director of IBK Bank Indonesia Cha Jae-young (Industrial Bank of Korea) President Director of IBK Bank Indonesia Cha Jae-young (Industrial Bank of Korea)

IBK Bank Indonesia, buoyed by upbeat sales in recent years, is now ready to focus on a burgeoning niche in the largest economy in Southeast Asia -- loans for small- and medium-sized enterprises.

“We aim to innovate the corporate finance market in Indonesia by using Korea’s advanced support systems for SMEs,” Cha Jae-young, head of IBK Bank Indonesia, said in an email interview with The Korea Herald.

Cha took the helm of the Indonesian unit of the state-run Industrial Bank of Korea in January 2021, the same year when the local unit turned black two years after its entry into the market by acquiring two local banks.

Last year, the Korean lender posted 104 billion rupiahs ($6.75 million) in net profit, a sevenfold growth from a year before.

In a market crowded with more than 100 commercial banks, IBK Bank Indonesia is especially pinning high hopes on loans for SMEs, which remains a niche even among larger rivals there.

“Even though some local banks offer loans to SMEs, more than 50 percent of the lending is centered on small store owners and they are required to pledge collateral,” Cha said.

“But we are eager to offer collateral-free loans to SMEs with high potential based on Korea’s excellent credit review systems specifically designed for supporting SMEs.”

Cha pinpointed the manufacturing sector as one of the promising areas for the bank’s loan program, citing the Indonesian government’s vision to become a manufacturing powerhouse that could replace China and Vietnam in the future.

“IBK has already accumulated know-how in supporting competitive manufacturing firms in Korea,” Cha stressed.

Along with loans for SMEs, he also shared the bank’s interest in joining financing projects for Indonesia’s planned relocation of its capital to East Kalimantan on the island of Borneo.

“The city will need to carry out diverse infrastructure projects and nurture key industries there. IBK hopes to participate in related financing projects, including government-backed lending,” he said.

Currently, about 60 percent of loans are offered to Indonesian companies, and the bank aims to increase that to 70 percent in the long term.

“Indonesia is a large country with the world's fourth-largest population of 270 million people, abundant resources, and annual economic growth of over 5 percent. Success in this Indonesian market can only be achieved by growing with local companies through localization,” Cha said.

To achieve this, the lender said it will ramp up efforts to attract local talent and compensate them with transparent, performance-based incentives. There are some 600 employees working at IBK Bank Indonesia, most of them hired locally.

“In particular, having a sales team consisting of local employees is crucial to enhancing our marketing capabilities targeting local companies,” Cha said.

He added the bank’s increased presence in the market is also expected to be helpful for many Korean firms doing business there as they benefit from their corporate loan programs as well as Korean language-based consultation services.

An Industrial Bank of Korea branch in Indonesia (Industrial Bank of Korea) An Industrial Bank of Korea branch in Indonesia (Industrial Bank of Korea)