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Asia-PacificNovember 1 2012

Asean over 20 years: Indonesia's triumph over adversity

Indonesia's banks suffered heavy setbacks during the 1998 Asian financial crisis, but in the 20 years since, the country's recovery has seen its banking sector outperform the rest of the Association of South-east Asian Nations region.
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Asean over 20 years: Indonesia's triumph over adversity

Indonesia’s recent growth story has been one of Asia's quiet giant coming to the fore, but looking at the country over a longer period – 20 years – it becomes apparent that its tale is one of triumph over adversity.

With a population of approximately 240 million, Indonesia's domestic consumption provides one of the few bright spots in Asia, at a time when many markets are being negatively impacted by the eurozone crisis and the economic slowdown in China. But the strength of Indonesia’s economy now stands in stark contrast to its health during the worst of the Asian financial crisis in 1998, when its banks' disastrous performance was off the scale.

As can be seen from the charts, the performance of Indonesia's banks was quite literally off the scale during the Asian financial crisis: the real figures could not be included in the graphs as they were so extreme that they could not easily fit on the page.

The figures for these charts were taken from The Banker Database, by aggregating the data from banks in each of the countries in the Association of South-east Asian Nations (Asean) regional grouping, which comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. Data from a total of 78 banks was used, with figures up to the end of 2011.

Undulating fortunes

As the Asean region prepares for economic integration ahead of the 2015 deadline, it is clear that the region’s banks have gone from strength to strength, especially considering their performance just 14 years ago. The 1998 Asian financial crisis is still a reference point for senior bankers in the region, who cite the harsh lessons that they learnt then as helpful aids to coping with the current global financial crisis. 

In 1998, Thailand was at the epicentre of the Asian financial crisis, following the collapse of its currency in 1997; however, it was Indonesia’s banks that suffered the most out of the Asean banks during that period. In terms of return on assets (ROA), Indonesian banks were wiped out, recording an ROA of -48.33% in 1998 and -10.25% in 1999. Fast-forward to the end of 2011, and Indonesia has not only bounced back but is now performing stronger than its neighbours.

The charts showing return on capital (ROC) show a similar trend. Thailand was affected badly by the crisis, its ROC hit -68.98% in 1998 and decreased even further in 1999 to -91.05%. But this was mild compared to Indonesia's decline, which saw its ROC drop to -6559.84% in 1998. This figure recovered in 1999, but still stood at a catastrophic -185.98%.

By the end of 2011, Thailand's ROC had recovered to 21.38% but this was still below the 22.15% ROC that the country recorded 20 years earlier in 1991. The strongest recovery was in Indonesia, the country that had seen its performance decline most drastically during the crisis. In 2009, Indonesia’s banks recorded ROC of 24.16% and in 2010 the figure increased to 33.20%. ROC declined slightly in 2011 to 32.97%, but this was still considerably higher than it had been in 1991, when Indonesia's ROC stood at 21.01%.

Inevitable slow down

In terms of the Asean region average, ROC has improved slightly compared with 20 years ago. In 2011, the region’s average ROC was 21.84% compared to 19.14% in 1991.

In terms of pre-tax profits, again, it was Indonesia that suffered the greatest drop at the peak of the Asian financial crisis. In 2011, Indonesia's average pre-tax profits had recovered, however, it was not the highest ranked country by this indicator. Malaysia's banks recorded the highest pre-tax profits, followed by Indonesia, Singapore and Thailand.

With emerging economies in Asean it is perhaps to be expected that the interest margins will gradually decrease as the market becomes more developed and competitive. When the figures for net interest income to gross total loans are taken for the region's key countries, most follow the pattern of having a decreasing ratio. One notable exception to this, however, is Vietnam, which has shown an increase between 2010 and 2011. 

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