IE Essay to answer Question H. What do you believe are the greatest challenges facing the sector or industry you would like to specialize in at IE? What role do you hope to be able to play in this sector or industry in the medium term?

1. Greatest Challenges Facing Banking Industry
and How I can Contribute to Solve Them
Presentation to Answer IE MBA Topic Question H
Jakarta, March 2017
By Ardyan H. Gumanti

2. After years of turmoil, global banking has settled into a new trends, characterized by stable
returns and strong profits, but slow growth especially by US & Developed Countries’ Banks.
Asia-Pacific became one of the largest sources
of global banking profits and will likely continue to
deliver the bulk of industry expansion in coming
years. From the graph, It is seen that the share
of global after-tax profits in banking generated
by Asia Pacific increased significantly from
28% to 46% in 10 years.
14.00%
16.80%
7.30%
3.90%
9.30%
4.30%
Average ROE Revenue Growth
Pre Crisis (2002-2007) Crisis (2008-2011) New Reality (2012-2014)
Even though profit continues to increase, average
ROE is stagnating and revenue grows slowly. It
can be seen that from 2011 to 2015, the average
ROE and revenue growth only grow 27% and 10%
consecutively.
Sources : Mckinsey & Co.

3. However, the growth unfortunately will not be continuous since Asian banks that became the
source of growth for the past 5 years are beginning to slow down
Revenue growth are predicted to decline since the margins that are derived from the transaction are
falling. With margins falling, Asia-Pacific is beginning to resemble the rest of the global industry. After
rapid expansion and adversity following the 2008 economic crisis, the global sector appears to be
settling into a new reality characterized by modest growth and steady ROE.
Sources : Mckinsey & Co.

4. The falling margin are caused by 4 main challenges; slowing economies, new attacker,
weakening balance sheets, and new regulations.
The economic slowdown
rolling across the world
especially in Asia will affect
banks and their customer. It
is also expected that
banking profit growth to slow
from 10% p.a between
2011 and 2014 to 3% p.a
between 2016 and 2021.
FinTechs—start-up tech
companies offer financial
products such as
payment and lending
platforms as well as
established companies
from other industries i.e.
online marketplace are
invading banking
business
An increasing volume of
non-performing loans is
putting stress on banks
as interest-coverage ratios
are declining at large
companies throughout the
world thus making banks
has to raise more capital
to maintain CAR
Implementation of Basel III
will has a huge impact on
banking since its implemen
tation is expected to
decrease banks’ ROE by
13-14 percentage points
Economic
Slowdown
New
Attackers
Weakening
Balance Sheets
New
Regulations
Margin

5. Slowing economics especially from China has sent shockwave throughout banking industry.
2008
Global
Economic
Crisis
2008 - 2015
• The slowdown
has been led by
China, which hit
inflection point in
2015, when
foreign exchange
reserves fell 13
percent
• Economic growth
had already slow
ed a few years
earlier, but hit a
25-year low of
6.9 percent in
2015. The macro
economic brake
was followed by
weakening
Investment and
exports, while
employment and
wage growth
rates also
dropped
Economic Growth
6.9%
44.8%
3.8 to 3.3 Trillion USD
Investment
FX Reserve
For China,
2015 was an
inflection point
toward a different
phase of economic
growth
Forward
Looking
2016 - 2021
At the same time, net
interest margin is expected
to drop a further 4 percent
annually between 2016 and
2021 after falling by 6 %
a year from 2011 to 2016.
The 2008 global
economic crisis
sent shockwaves
throughout many
industries and had
a particularly
profound impact
on banking. The
eight years since
have been
characterized by
slower revenue
growth

6. Competition between banks as well as Financial Technology (FinTech) firms has made banks
lower their margin
The rise of FinTechs has pressured banking profit pools
and taken away customers. Retail services are a
particular target,
FinTechs and established technology companies alike
are benefitting from financial customers that are
becoming more comfortable banking through digital
channels.
Overall, the impact on banks in the world could be
massive. Even Accenture predict that 44% of banks will
be affected by Fintech.
Fintech Financing Activities
This is due to the fact there are a lot of banks that have
not prepare for upcoming digital innovations
Banking Future
How equipped banks to face innovations?
Fintech Development in Asia

7. Bank balance sheets are coming under increasing stress as a result of weakening loan
portfolios
9
8 8
9.4 9.6
10
7.5
5.7
4.5 4.4
5.1
4.6
8.3
6.7
5.9
6.2
6.8
6.5
3
4
5
6
7
8
9
10
11
2009.5 2011.5 2013.5
Developed Asia Pacific
Emerging Asia Pacific
Asia Pasific (combined)
Increasing in Stressed Assets
(USD Bio)
Decreasing in Top 250 Companies’
Interest Coverage Ratio (%)
USD 600 Bn
Additional Capital
Needed
Due to economic slowdown, a lot of companies
especially from emerging country have seen their
interest coverage decreased. Even though the
Coverage Ratio from developed country’s
companies is increasing, it can not offset the
decrease of performance from emerging
countries’ companies
The worse performance of the companies
made the facilities given by banks to those
companies categorized as Stressed Assets.
The increasing stressed assets made the
banks has to increase their capital as
reserve for stressed assets
However, with bank’s
recent weakness, banks
are much less attractive
for investors. since, they
did not reward investors
very well compare to
other sectors

8. The implementation of new regulation has made ROE decline in considerable percentage. This
decline is driven by new requirement to more than double Tier 1 capital in today’s capital
markets businesses.
• Existing minimum regulatory capital levels
of bank were insufficient in relation to the
exposures and losses that banks has
suffered during crisis
• Capital adequacy at Basel I & II did not
capture risk posed by bank exposures to
transaction
• Basel I & II only focused on capital with
no standard in liquidity
Background Key Elements Basel III Implementation
Capital Ratio
8%
Leverage
Ratio
30:1
33:1>13%
LCR
>30 days
Stressed
Periods
NSFR
>1 year
Stressed
Periods
Effects
Implications
Reduced industry profitability (ROE)
Banks need to raise more capital to fulfill new
common equity requirement
Greater competition/increased costs for retail
deposits
Cost of funding will likely increase for all
institutions
Stronger and
more stable
balance sheets
of banks
Reducing Banks’
earning power
during good time
Safer and better
able to survive
during hard time

9. Banks will run several initiatives to face those challenges…
Certain promising segments
remain untouched by most
Financial institutions. Tapping
Into these growth pockets – the
unbanked and underbanked –
can help banks rekindle bank
momentum.
Growth Pocket Digitalization Strengthened Non
Interest Income
Digital transformation will be
crucial for Asia-Pacific banks
to secure their profitability and
revive their growth momentum
since digital bank is cheaper
to build and operate.
Optimizing &
Efficiency
Unbanked People (%)
USD Mio
Cost of Traditional vs Digital
Due to the declining of
interest income caused by
competition and also
increasing stressed asset
due to economic slowdown,
banks need to find new
source of income through
transaction fees. Income
growth of this new source
will offset the decline of NII
and making banks’ revenue
grow further
Interest Income vs Fee
For at least the last seven
years, banks have focused
even more on their cost-to-
income ratios as they seek
a return to reliable and
sustainable profitability. In
fact, since the 2008 crisis,
it's estimated that global
banks have succeeded in
taking out billions of dollars
in costs
Bank Efficiency Ratios

10. I want to take part as a Consultant focusing on financial Institutions in Indonesia to help
Indonesian banks meet these challenges
Room to grow for Indonesian
banking since the market is
still underserved
Got the exposure of various
kind of banks and problems
faced
Working with C-level executives
will shape how I see problem as
a CEO. Those view will benefit
me to realize my LT goal to
establish P2P Lending Platform
Why

11. As a Consultant focusing of Financial Institutions in Indonesia, I want to advise banks’
management to face challenges ahead by working together to implement several initiatives
Establish efficient
business By enable
decision making
capabilities that improve
company’s effectiveness
Develop strategies so that
banks can adjust business
models, refocus long-term
strategy, assess business
portfolios, & explore new
markets and partnerships.
Help banks adapt
distribution and service
channels as well as reduce
back-office costs and
optimize service operations
through technology
Improve banking customer
strategy by redesigning
bank’s products ,increasing
sales effectiveness and
developing unparalleled
customer loyalty programs
that boosts bank’s profit.

12. With my experience as a Corporate Banker, I have already possess some qualities to become a
good consultant
Banking Knowledge Leadership Skill
Relationship Skill International Experience
My experience in both
working and leading teams
of 5 people cross functions
to achieve common goals
has enabled me to
develop my leadership skill
My experience as Relationship
Manager has trained me to meet
new people and make good
relationship with them
My experience as Banker
for 5 years has made me
have a deep understanding
about how banks work
I have an experience in working
with 2 multinational teams for
syndicated loan deals. That
experience has broaden my
network and also my view about
culture around the world
Business Knowledge
My experience as Banker
has made me able to
understand how business
work in Indonesia& SE Asia

13. IE can help me to become well rounded consultant in Financial Institutions through the
school’s breakthrough curriculum and supportive environment
Mastering
Business Fundamentals
Enhance
Soft Skills
Entrepreneurial
Mindset
Multinational
Environment
Given my engineering
background, IE focus
in teaching business
fundamentals will
benefit me
IE Professional Fitness
Program will prepare
me to face the
competitiveness of
business world
Given my LT Goal is to
establish P2P Lending
Platform, I need to
enhance my
entrepreneurial mindset
through the program
The environment will
broaden my network
and expertise that I
can leverage to reach
my future goals

14. THANK YOU
GRACIAS