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Mandiri and the necessity of reinvention

It is easy to forget just how drastic the Asian financial crisis was in Indonesia. History has it that the crisis started in Thailand, which is true, but Indonesia took the hardest hit, the sharpest devaluation. In mid 1997, a dollar bought 2,600 rupiah; there were days in the subsequent months that the rate hit 14,000. By May 2008 there were riots in the streets of Jakarta. Suharto, the ultimate strongman, fell after 31 years as president.

It was in the midst of this carnage that the newly minted Indonesian Bank Restructuring Agency, IBRA, hit upon the idea of wedging four troubled state-owned banks together to create a new one. It was the most miserable genesis of a bank imaginable. All four were in trouble for one reason or another; they had little obvious synergy in combination; and the new bank was launched into the teeth of a gale, with corporate balance sheets wrecked, the economy in pieces, exchange rates pinballing around from one day to the next and the whole country undergoing the greatest political change in its history.

It didn’t work straight away, and mis-steps as well as successes have followed, but last month Mandiri announced a 21% increase in its 2018 net profit to Rp25 trillion ($1.78 billion), at the same time that NPLs dropped to 2.75% from 3.46%: the holy grail of growth and improving asset quality at the same time.

What’s really striking in speaking to the executives, though, is the way that the crisis forced innovation upon the bank. Nobody had ever really attempted anything as preposterous as the formation of a bank in such circumstances, so from the outset they had to try new things, and that continues today, with launches into new niches, digital innovations, and now the prospect of taking on retail competitors in Vietnam and the Philippines.

We can learn something from this. The industry faces exacting challenges from the macro to the micro level, from an unpredictable US president to the minutiae of regulation. But the best ideas are squeezed out of difficult circumstances when there’s just no alternative to ripping the whole thing up and starting again.

Our interviews with Agus Martowardojo and Kartika Wirjoatmodjo, including their recollections of crisis and their thoughts on the future of their industry, will appear in our Asia-focused May edition.

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