Indonesian Bank`s Service Improves Despite Profit Decline
May 08 2006
Apr 2006 InfoBankNews.com, Banks performance in 2005
was weaker compared to previous year due to the rising of
non-performing loans (NPL). Despite national banks’
profitability declined due to unfavorable macro economic condition,
there is no sign banks scaled down their efforts to spoil their
customers. Survey conducted by Marketing Research Indonesia (MRI) shows
that the level of first tier banks’ service quality is better
compared to previous survey, conducted two years ago. A State-Owned
Bank made a surprise by managing to secure a position in the top 10
Banks with Excellent Service.
BANKS do realize that
service is the most effective tool to win the competition battle in the
banking industry. Service becomes even more important as Deposit
Insurance Company (LPS) will only guarantee deposits of up to a maximum
of Rp100 million. As a result, competition to win third party funds
will continue to intensify. Depositors are likely to avoid banks that
show poor reputation and service. Is banking industry’s move
to improve service quality related with the plan to establish a bank
mediation agency? Is there any new trend in the way banks serve their
customers? The 2005 calendar was a cloudy year for banking
industry. Although bankers’ hardworking managed to boost loan
growth by 22.6%, banks’ profit, however, declined. The profit
fall was the first time since national banking industry recovered from
crisis in 2000. Based on Bank Indonesia report, banking
industry’s profit last year reduced by 15.5% to Rp24.89
trillion from Rp29.46 trillion in 2004. Banks’ performance
last year was also harmed by the increase of non-performing loans
(NPL), which reached 7.56%.
industry’s weaker performance was not without reason. The
drastic increase of inflation rate last year has caused interest rate
to go up. In addition, the sharp rise of fuel price (BBM) has damaged
Indonesia’s macro economic condition, which ultimately caused
difficulties for banking industry to operate. Besides having to
shoulder high operational cost, banks must also pay higher cost for
funds. Borrowers capability to repay their debts was also
affected due to loan rate increase. As a result, banks NPL increased.
The banking authority’s regulation to treat the quality of
productive assets equal also contributed to the increase of NPL, in
particularly for large-sized banks.
The trend of the
rising of banks bad loans must be watched out. Banking
industry’s level of NPL in 2005 has passed Bank
Indonesia’s maximum limit of 5%. The NPL level also affects
banks’ performance, at the time the banking industry is
challenged by regulator to consolidate. At the same time, banking
industry in Indonesia is entering a new phase that requires banks to
rely on their own capability following the establishment of Deposit
Insurance Company (LPS), which began operating on 22 September 2005.
the implementation of LPS, banks must be able to gain trust from their
customers. One factor, usually considered by depositors before putting
their money in a bank, is financial performance of the bank. The
implementation of LPS will enter second stage from March to September
2005, where maximum deposit that will be guaranteed is up to Rp5
billion. However, six month later, the amount of deposits that will be
guaranteed is reduced to Rp1 billion. Starting from April 2007, banks
will face new challenge, as LPS will only guarantee bank deposits of a
maximum of Rp100 million. Banks must guarantee all remaining depositors
funds placed in the banks by themselves. This mean, credibility of a
bank will determine public’s trust on the bank.
new rule will result in stiffer competition. Banking industry will
transform into a hot battlefield for all banking industry players. The
systemic effect in the form of migration of funds may happen. Banks
therefore must be prepared for such situation. Banks that have poor
reputation, and worsened by their poor financial performance, must take
anticipatory measures to ensure their customers are not leaving their
banks. Under this stiffer competition era, it is the customers who hold
the key. Customers are free to choose banks they trust.
the real battlefield is actually in the minds of customers. Banks must
be able to create good impression of their banks in the minds of
customers. Good reputation, which supported by superior service, will
become the most effective tool to win depositors’ funds.
Chance to win customers funds will be greater if banks’
financial performance is in good shape. Public will feel more
comfortable in placing their money in such banks.
such changing banking business environment, banks have no choice but
must provide excellent service to their customers. Although efforts to
increase profit seems to be more difficult, while on the other hand
banks’ NPL are rising, banks are still striving to provide
excellent service to their customers. This is important, as a
bank’s good image will stay in the heart and minds of
customers if they satisfied with a bank’s service.
service to customers is in line with efforts to protect the interest of
customers as stipulated under the Bank Indonesia Regulation (PBI) No
8/5/PBI/2006 on Banking Mediation. The plan to establish a banking
mediation agency has forced banks to prepare and care enough to respond
to complaints aired by customers. Therefore, it is essential
for banks to maintain and improve their service quality to prevent
complaining from customers. If banks declined to respond to any
customers’ complaints, or ignore any complaints aired by
customers, banks are facing the risk of ruining their banks’
reputation. With the implementation of LPS, banks are required to stand
on their own feet. Banks must realize that it is difficult for them to
survive if their reputation is poor.
conducted by Marketing Research Indonesia (MRI), held from November 1,
2005 until January 30, 2006, measuring the service quality of 20 banks,
generally show improvement. The survey was carried out by using mystery
shopping method. Based on survey, 10 banks were voted by customers to
have the best services with their own uniqueness. Although the 10 banks
show improvement in service quality, their position however changed
from previous’ survey. Some banks moved up the ladder, while
others moved downward as their position is taken over by other banks.
Danamon, which was voted as the most excellent service bank two years
in the row, now must be satisfied to stay in the second position.
PermataBank under the current survey secures the top position in term
of service, rising from second position in previous survey amid
continuous improvement of service. PermataBank’s score rose
to 89.13, higher than Bank Danamon’s score of 87.17 points.
new management of PermataBank seems to inherit with good service from
the previous management headed by Agus D.W. Martowardojo, who was
appointed to take the top position at Bank Mandiri. Since becoming CEO
of PermataBank, a result of merger of five banks (Bank Bali, Bank
Universal, Bank Artha Media, Bank Prima Express, and Bank Patriot) in
2003, Agus and his management team worked very hard to adopt good
values and corporate culture in the bank. As a result, the PermataBank
service in the eyes of customers has consistently improving every year.
It is not surprising if PermataBank is voted by customers to have the
most excellent service for this year, as shown by the MRI survey.
theories say that leadership plays a pivotal role in motivating members
of an organization. The presence of Agus Martowardojo in Bank Mandiri
has brought fresh and new spirit in the area of providing good service
to the bank’s costumers. The giant bank, according to the
result of the service excellence survey, was not in the Top 10 in term
of service in previous’ MRI survey. Now the bank secures the
third position in term of service quality provided to its customers.
is interesting to note that such achievement was accomplished at the
time the bank is facing with rising non-performing loans left behind by
the previous management, headed by E.C. W. Neloe. “We thank
God, that achievement in service area has become a consolation for us,
and should encourage us to do things even better,” said Agus
during a meeting with Infobank in mid March.
Mandiri’s achievement to secure the third position for the
quality of service provided to customers is a surprising development.
Since the service excellence survey conducted by MRI in 2001 and
published by InfoBank Magazine, this is the first time a State-Owned
Bank that secured such prestigious position. Previously, private and
foreign banks secured all the Top 10 Banks with Excellent Service. It
is a fact, however, that out of 20 banks surveyed by MRI in Jakarta and
Semarang, private banks still dominate the list of 10 banks with
excellent service. The 10 banks are, (1) PermataBank, (2) Bank Danamon,
(3) Bank Mandiri, (4) Bank Niaga, (5) Bank NISP, (6) Citibank, (7) Bank
Bukopin, (8) Bank Mega, (9) Hongkong and Shanghai Banking Corporation
(HSBC), and (10) Bank Central Asia.
Mandiri’s success to be among the Top 10 Banks with Service
Excellence, is considered as a momentum for the bank to eliminate
perception that State-Owned Banks are not good enough in providing
service to their customers. Such momentum should stimulate other
State-Owned Banks, such as Bank Negara Indonesia (BNI), Bank Rakyat
Indonesia (BRI), and Bank Tabungan Negara (BTN) to be on the same level
playing field with private and foreign banks in term of service quality.
is clear that private banks must continue their passionate in providing
the best service to their customers. Otherwise, be ready to be
overtaken by other players as other players are striving to improve
their service quality. Just look at the experience of Bank Niaga, which
won the top service excellence in the 2001 and 2002 survey. Its
position declined to second position, then third and this year the bank
moved down the ladder to fourth position. The position decline,
however, does not mean that Bank Niaga’s service was not
improving. Bank Niaga’s score in this year’s survey
reaches 85.91 points, higher when the bank secured the top position,
with score of 85.36 points in 2001 survey.
survey’s winners lost out their position as their competitors
have made significant improvement in service area. Under the current
tight competition, all banks are always trying to keep a close eye on
other banks and striving to provide the best service to their
customers. The first-tier banks usually have a special division to
monitor service provided to customers. Bank Bukopin, which maintains
its seventh position with previous’ survey, for instance, has
a special division which oversees customer service, which supervised
directly by a Director.
According to Tri Joko
Prihanto, Director for Operation of Bank Bukopin, the task of service
division in the bank includes developing service standard in all of
Bukopin’s branches. “The division conducts internal
survey whether the current service is up to the standard or not. The
division may also conduct a survey on service quality provided by other
banks,” he told InfoBank at his office in mid March.
that can be learned here is that banks must continuously improve their
service, including banks that have been voted to pose the most
excellent service by customers. PermataBank as the champion for service
excellent in the current survey can be an example for other banks.
Although the result of Trisakti Institute of Service Management Studies
(ISMS) last year recorded that PermataBank customers feel most
satisfied with the bank’s service compared to customers in
other banks, PermataBank has never stopped its efforts to improve its
service. This has paid off, the bank not only wins the service
excellence survey, but the score recorded by the bank is higher than
the score of the winner of the MRI’s previous service
All aspects of banks’
service provided to costumers continued to be improved, such as the
teller unit, customer service, security officers, call center, physical
condition of the branch office, electronic delivery-channel, etc.
“What is important is continuous improvement,” said
Mahdi Syahbuddin, Managing Director PermataBank to Enny Ratnawati from
InfoBank in mid March.
According to Mahdi, the
improvement carried out by the bank is focused more on human resource
aspect, in particularly the front office staffs who hold important role
in providing service to customers. “What we do, first is
training. Second, coaching. Thus, what is important is how branch
office head undertakes coaching to his or her subordinates,”
Many banks decide to make their
front-liners as ‘shining’ as possible to maintain
their customers trust. Indeed, it is the front-liners that become the
gateway for banks to touch the minds and hearts of their customers.
However, the main challenge ahead is not merely a friendly smile of a
teller officer, customer service or security officer, or a cozy and
comfortable office building, but also the capability of electronic
channel (e-channel). E-channel, which functions as distribution channel
supported by advance information technology (IT), complements the
traditional channel such as branch office.
personal touch of front-liners office staff and physical aspect such as
comfortable office, e-banking service has also spoilt customers, who
always expect helpful service from banks. Furthermore, the advancement
of IT application should reduce customers’ complaints.
besides measuring the ATM performance, the MRI survey also measures the
new e-banking service, which covers phone banking, internet banking and
SMS banking. This is because e-banking is getting more important in the
eyes of customers, in particularly for certain segment of customers
such as young professionals, who have felt comfortable in using
e-banking to make transactions. This trend is supported by the
declining of concern over security when carrying out transaction
through e-banking. The security of electronic transaction today is more
secure than before.
The advancement of IT in a bank
has become a parameter for the maturity of a bank. Banks that dominate
the market at the moment are competing to improve their IT
infrastructure. Last year, total IT spending of banking industry
reached US$1 billion. Jos Luhukay, President Director of LippoBank said
IT investment in the future is predicted to reach approximately 40% of
banks capital expenditure. Large size banks like Bank Mandiri,
allocates IT spending of US$30 million plus Rp40 billion in 2006.
While, Bank Permata’s IT investment this year is estimated to
reach US$5 million and Bank Niaga expects to spend Rp150 billion to
upgrade its IT infrastructure.
The IT need is
becoming more and more important partly due to implementation of
Indonesian Bank Architecture (API) and Basel Accord II. Not only that,
by having advanced IT system, banks will be able to maintain and keep
growing under the globalization era. The establishment of a strong IT
infrastructure will also support electronic delivery channel, the
impact of which not only strengthens banks’ service quality
but also improves their customer base.
strong and loyal customer base, banks will be stronger although banks
have to fight in the deadly competition battlefield. When the interest
rate level rises, banks do not need to engage in interest rate war so
that they do not need to shoulder expensive cost of fund. They realize
that loyal customers would not be easily seduced by higher interest
rate of deposits and gifts.
Banks, which ignore
service and only attract customers with high deposit rate to win
depositors’ money, must shoulder expensive cost of funds. In
order to reap profitability, loan rate that is offered by banks become
less competitive and increase banks’ risks. When the
macroeconomic climate is cloudy and uncertainty prevails in real
sector, banks could encounter with rising NPL level.