Reason behind BCA’s hesitance in cross-border expansion

BBCA - PT. Bank Central Asia Tbk

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JAKARTA - PT Bank Central Asia Tbk (BBCA) is known for being hesitant to expand to ASEAN countries although recording market capitalisation of IDR 1.10 quadrillion. This bank, despite scoring the highest market cap, focuses in domestic operation as its operational costs are more efficient than cross-border operation.

Jahja Setiaadmadja, President Director of BBCA, said that opening branch offices abroad must consider the strategic location, so that the offices are accessible and recognisable by potential users. “For a newcomer, we have not been popular amongst people in destination countries save for certain investors. What is in it for BCA to expand abroad, as the costs are higher; and so are the interest costs and operational costs,” he said during an interview with IDNFinancials in Jakarta yesterday (9/11).

Furthermore, bank offices must employ local workers with minimum wage according to the local standard, which raises the operational costs even further. These operational costs will, in turn, drive high interest rate. “What, then? If we wish to grant loan, the interest must be raised, because how could we make profit, then?” Setiaadmadja said.

According to Setiaadmadja, if there is US-based infamous bank established in Indonesia, said bank is not necessarily acknowledged by local people. Similar thing will happen if BCA opened up a branch office in Kuala Lumpur, Malaysia, or Singapore. BCA may not appeal to local communities. Potential users may only look for recognizable local bank.

Foreign banks that operate in Jakarta, Indonesia, have indeed reduced in number. “Prior to 1998, these foreign banks reign over Jakarta. Now they are slowly gone, one by one. They can’t even go regional, let alone us, abroad,” added Setiaadmadja.

Therefore, BCA decides to focus in Indonesia whilst absorbing local employees, compared to expanding cross-country, but is faced with loss. BCA’s experience in 2008 and 2009, he said, posed loss despite operating 6 remittance centres in Kuala Lumpur. “I called for the team; we calculate it together. To reach break-even point, we must establish 16 outlets. I need to establish another 10 outlets, and with those, the break-even point will be reached after 6 years. We cut the loss, changed up the business model. We work together with money changers of local banks. In several money changers, we inserted our systems, and instantly went for profit sharing. Within nine months, I turned it to profit,” he added.

With said experience, he said, if BCA opened up a branch office abroad, they may need six years to gauge the result. Additionally, his company also avoids competitions of Indonesian banks that have previously opened up branches in other countries. “In my opinion, it is not feasible. So, I choose to stay focus in Indonesia, and never had I thought about going regional,” added Setiaadmadja.

As of the third quarter of 2023, BCA scored net profit of IDR 36.44 trillion, shifting from IDR 28.96 trillion seen in the same period last year. The interest and sharia income reportedly arrived at IDR 55.71 trillion, growing from IDR 45.95 trillion. (LK/ZH)