INDONESIAN WEALTH MANAGEMENT INDUSTRY 2013

Indonesia stands out as being the most confident and ambitious market in Asia.

Indonesia has been enjoying an unprecedented economic boom not seen since its independence in 1945, the new wealth creation has spread from Jakarta to many other provinces covering the whole archipelago.

The global private banking industry was estimated to have AuM of just over US$16.5 trillion in 2011. The Indonesian wealth management sector accounts for approximately US$16.6 billion of this, which equates to 0.1% of the global total.

There are 626 UHNWIs in Indonesia. Jakarta is home to the largest portion of them (55% or 345 of UHNWIs). There are also sizable Indonesian UHNWI populations in Bali (35 UHNWIs), Surabaya (23 UHNWIs), Bandung (20 UHNWIs) and Medan (18 UHNWIs).

Indonesia Wealth Management market has been increasing by leaps and bounds. According to a recent report published on Asia’s wealth market, Indonesia will experience the fastest HNWI (high net worth individuals) growth rate among Asian countries of 25 per cent between 2010 and 2015.

The report, co-published by Swiss private banking group, Julius Baer and CLSA, states that by 2015, the number of HNWIs in Indonesia will increase to 99,000, with a stock wealth of $487bn. The report estimates that HNWI wealth will grow at approximately 21 per cent without currency gains or around 30 per cent per annum, taking into account rupiah appreciation.

Earlier, the wealth management market was dominated by foreign banks. But as the market developed, local banks started taking the lead. Right now, foreign banks’ advantage is being rapidly eroded. Local banks have stepped up their game and with their vast distribution network, are in a position to capture the market.

Now, Local and foreign banks are equally positioned. Local banks have indeed positioned themselves very strongly and created a very viable wealth management proposition.

Since in an effort to protect the banking sector and their customers from external maladies in light of the recent financial crisis, the regulator no longer allows banks to provide offshore solutions. Banks cannot offer offshore mutual funds to the customers.

Banks also cannot structure products linked to equities, only currency.

The enhanced regulatory oversight by the central bank (Bank Indonesia) has had a positive impact. Since the enhancements were introduced in 2011 (SE BI No. 13/29/DPNP Dated 9 December 2011), the regulatory environment for the wealth management market in Indonesia is now more robust when it comes to the management of clients’ investments and their risk profiles.

This has raised the bar for the wealth management industry to further lift service standards, improve risk management and put clients’ interests first.

Therefore, to succeed in this important client segment, local banks need to focus more on their service and quality of their advisory processes, rather on the products they sell.

  

The Parts for Success