Citibank Indonesia reaps high profit growth in Q3
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The Indonesian branch of US-based Citibank saw its net profits rise in the third quarter of this year despite the ongoing global economic downturn and sluggish domestic demand.
The bank’s net profits surged by 64 percent year-on-year (yoy) to Rp 1.9 trillion (US$142.32 million) during the January-to-September period, according to a statement issued on Sunday.
The profit growth was mainly driven by a 15.5 percent yoy increase in net interest income to Rp 3.05 trillion, along with a 2.79 percent yoy hike to Rp 1.51 trillion in its fee based income.
“These results reflect the strong momentum of our business, both in institutional banking and consumer banking,” said Citibank Indonesia CEO Batara Sianturi in the statement.
The bank introduced some initiatives for its institutional and consumer banking businesses in the third quarter, namely Citi Virtual Card Accounts (VCA) for treasury and trade solutions, Citi Priority for wealth management as well as Citi Indonesia Facebook to support the digitization of its cards and retail banking.
However, it saw its loans decrease by 7.3 percent annually to Rp 39.07 trillion in the first nine months from Rp 42.1 trillion in the same period last year.
The deceleration in loans was in line with data from the Financial Services Authority (OJK) that show that overall lending in the Indonesian branches of foreign banks dropped by 6.61 percent yoy to Rp 253.1 trillion as of August.
Bank Indonesia (BI) deputy governor Erwin Rijanto attributed the situation to falling foreign-denominated, or forex, loans, which only grew by 2 percent yoy as of July.
“This is closely related to global economic conditions. We see that a lot of companies with high exposure to forex loans have temporarily reduced their credit demand. Some of them even decided on early termination of their loans,” he said recently.
“These results reflect the strong momentum of our business, both in institutional banking and consumer banking,”
The drop in global commodity and oil prices as well as weak trade are among the factors impacting the banking industry, particularly on forex loans, which are mostly utilized to support the financing of exports and imports.
This portion of forex lending is also particularly big in Indonesian branches of foreign banks as they are supported by their overseas headquarters.
Meanwhile, Citibank Indonesia’s report also show that its third-party funds declined by 6.6 percent yoy to Rp 5.25 trillion from January to September.
Despite the decline in the third-party funds, Batara said the bank managed to grow the portion of current accounts and savings accounts (CASA) — consisting of low-cost funds — to 73.9 percent of its total third-party funds.
The increase in CASA helped jack up its net interest margin (NIM) to 6.1 percent from 5.3 percent in September last year.
With an increase in revenue, the bank managed to improve its cost-to-income (BOPO) ratio—which measures efficiency—to almost 80 percent in the third quarter of this year from 91.2 percent a year ago.
The latest performance was translated into an increase in return on assets (ROA) to 4.4 percent from 2.7 percent in the same period last year, while its return on equity (ROE) rose to 16.5 percent from 10.6 percent.
The bank’s capital adequacy ratio (CAR) also increased to 29 percent in the third quarter of 2016, from 25.3 percent in the same period last year.
“As we enter the final quarter of 2016, we believe that the progress we have made in the past three quarters will enable Citibank Indonesia to accelerate its growth imperative and commitment to its stakeholders,” Batara said.
Questions & Answers
Q.What were the main reasons for Citibank Indonesia's profit growth this quarter?
What were the main reasons for Citibank Indonesia's profit growth this quarter?
Profit growth was mainly driven by a 15.5 percent year-on-year increase in net interest income, alongside a 2.79 percent hike in fee-based income. The bank's CEO attributed this to strong momentum in both institutional and consumer banking.
Q.Why did Citibank Indonesia's loans decrease despite overall profit growth?
Why did Citibank Indonesia's loans decrease despite overall profit growth?
Loans decreased by 7.3 percent annually, in line with a broader drop in foreign bank lending in Indonesia. This situation is linked to falling foreign-denominated loans due to global economic conditions and reduced credit demand from companies.
Q.How did the bank manage to improve its net interest margin with declining third-party funds?
How did the bank manage to improve its net interest margin with declining third-party funds?
Despite a 6.6 percent decline in third-party funds, the bank increased its low-cost current accounts and savings accounts (CASA) to 73.9 percent of total funds. This increase in CASA helped raise the net interest margin to 6.1 percent.
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