Indonesia's BCA plans wealth management expansion
Bank Central Asia (BCA), Indonesia’s largest non-state lender, is pursuing growth in its wealth management business with an upcoming expansion.
The bank intends to develop a digital fund distribution platform, offer at least one more fund to customers and open a scheme to allow for automatic mutual fund investment.
The bank’s wealth management business currently represents just 2% of its total third-party assets of Rp432 trillion ($34 billion).
Tahir Safudin, head of wealth management at BCA, said the planned initiatives would be launched starting from this year.
BCA has 140,000 priority banking customers who have access to internet banking. The bank aims to convert them to mutual fund investors once the digital platform is up and running next year. The platform will allow fund subscription, switching and redemption.
The expansion of mutual funds will start this year with a plan to offer a protected fund investing in domestic bonds that aims to give an 8.5% annual return at the end of a three-year maturity period. Safudin said the bank was in the process of selecting fund managers.
Indonesia restricts offshore investments to 15% of total assets, which is why BCA’s 21 mutual funds on its open architecture platform mainly invest in domestic equities and fixed income. Its external managers are Schroders, BNP Paribas Investment Partners, First State Investments, Nikko Asset Management and local houses Danareksa Investment Management and Panin Asset Management.
Safudin said the bank planned to introduce a scheme to allow customers to top up their mutual funds every month. The automatic monthly investment amount will be decided by customers, but they should benefit using so-called dollar cost averaging.
This involves the purchase of a fixed investment on a regular schedule regardless of the share price, whereby the cost per share over time eventually averages out. The technique minimises downside risk caused by volatility in the market, by spreading out investments over time.
BCA’s core business is transaction banking and the provision of corporate and personal loans, but Safudin said the bank would not be neglecting its wealth management arm given the competition and the growth of its potential customers.
The number of Priority banking customers with investable assets of $40,000 and above has been growing 5-10% annually, Safudin said.
“The reason we are offering a wealth management service is because customers do need this kind of service,” he said. “If we don’t provide it, they will go to foreign names for such service.”
International banks such as Citi, HSBC and Standard Chartered are the dominant players in Indonesia’s wealth management industry. The wealthier Indonesians bank with these foreign players because it gives them the opportunity to use their offshore private banking arms.
Because the Indonesian government restricts offshore investments, domestic banks tend to offer domestic funds. However, there are growing calls for the cap to be raised, as reported.
Mutual fund penetration in Indonesia is low, with just $20 billion in assets compared with $300 billion in deposits, so the growth potential is high.
Last year BCA’s third-party assets amounted to Rp432 trillion, a year-on-year increase of 7.9%. Transaction account balances (comprising current and savings accounts) represent the majority of BCA’s third-party funds, accounting for 76% of total funds.
As of September 30 last year, BCA had 13 million customer accounts, 1,074 branches and 15,254 ATMs.