INDONESIA'S NON INDONESIA'S NON-BANK FINANCE BANK

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  • INDONESIAS NONINDONESIAS NON--BANK FINANCE INSTITUTIONSBANK FINANCE INSTITUTIONS

    ERIC SUGANDIECONOMIST

    GLOBAL RESEARCH

    AUGUST 2011

    BANK FINANCE INSTITUTIONSBANK FINANCE INSTITUTIONS

  • KEY DRIVERS OF GROWTHKEY DRIVERS OF GROWTHKEY DRIVERS OF GROWTHKEY DRIVERS OF GROWTH

  • 1. DEMOGRAPHIC FACTORS: POPULATION REDISTRIBUTION AND ACCELERATION IN URBANIZATION

    0

    50

    100

    150

    200

    250

    300

    350

    1971 1980 1990 1995 2000 2010 2015F 2020F 2025F

    Java Sumatra

    Sulawesi Kalimantan

    Bali, NTB, NTT Papua & the Moluccas

    Population growth by island (million)Population concentration will gradually move away from Java

    3Major heading

    1. DEMOGRAPHIC FACTORS: POPULATION REDISTRIBUTION AND ACCELERATION IN URBANIZATION

    Sources: Central Agency of Statistics, Standard Chartered Research

    0

    10

    20

    30

    40

    50

    60

    70

    80

    90

    2000 2005 2010 2015F 2020F 2025F

    Java Kalimantan

    Bali, NTB, and NTT Sumatra

    Sulawesi Papua and the Moluccas

    Average rate of urbanisation by island (%) Urbanisation rate will also improve

  • 1. DEMOGRAPHIC FACTORS: GRADUALLY AGEING SOCIETY

    Sources: Central Agency of Statistics,

    Female Male

    15% 10% 5% 0% 5% 10% 15%

    0 - 45 - 9

    10 - 1415 - 1920 - 2425 - 2930 - 3435 - 3940 - 4445 - 4950 - 5455 - 5960 - 6465 - 6970 - 74

    75+

    Female Male

    10% 5% 0% 5% 10%

    0 - 45 - 9

    10 - 1415 - 1920 - 2425 - 2930 - 3435 - 3940 - 4445 - 4950 - 5455 - 5960 - 6465 - 6970 - 74

    75+

    Indonesias population pyramid 2000:Population under 24 years old was dominant

    Indonesias population pyramid 2015:The middle-aged segment will expand

    4Major heading

    1. DEMOGRAPHIC FACTORS: GRADUALLY AGEING SOCIETY

    Central Agency of Statistics, Standard Chartered Research, UNPF

    Female Male

    15% 10% 5% 0% 5% 10% 15%

    0 - 45 - 9

    10 - 1415 - 1920 - 2425 - 2930 - 3435 - 3940 - 4445 - 4950 - 5455 - 5960 - 6465 - 6970 - 74

    75+

    Female Male

    10% 5% 0% 5% 10%

    0 - 45 - 9

    10 - 1415 - 1920 - 2425 - 2930 - 3435 - 3940 - 4445 - 4950 - 5455 - 5960 - 6465 - 6970 - 74

    75+

    Indonesias population pyramid 2010:Now, a bigger early-working-age population

    Indonesias population pyramid 2025:As society ages, the size of the late-working-age population will increase

  • 2. ECONOMIC FACTORS: IMPROVEMENT IN INCOME AND THE RISE OF THE MIDDLE CLASS

    0

    2,000

    4,000

    6,000

    8,000

    10,000

    12,000

    14,000

    16,000

    18,000

    2000 2005 2010 2015F 2020F 2025F

    Nominal GDP per capitaExpected to grow almost exponentially

    5Major heading

    2. ECONOMIC FACTORS: IMPROVEMENT IN INCOME AND THE RISE OF THE MIDDLE CLASS

    Sources: World Bank, Standard Chartered Research

    Middle-low

    Middle-middleMiddle-high

    0

    20

    40

    60

    80

    100

    120

    140

    160

    180

    200

    2003 2005 2010 2015F 2020F 2025F

    Size of the middle classThe share of middle-middle and middle-high categories will continue increasing

  • 3. DEVELOPMENT OF ISLAMIC FINANCIAL MARKET

    Islamic financial market

    Outstanding global sukuk (USD bn)

    Islamic banking

    Number of Islamic banks

    Total assets of sharia banks and sharia units of non-sharia(USD bn)

    Sharia life insurance or family takaful

    Number of insurance companies

    Total assets (USD bn)

    Sharia general insurance and reinsurance

    Number of companies

    Total assets (USD bn)

    * including

    Comparison between Indonesias and Malaysias Islamic financial market

    Sources: Bapepam LK, Bank Indonesia, Malaysia Islamic Financial Centre, Bank Negara Malaysia, Standard Chartered Research

    6Major heading

    3. DEVELOPMENT OF ISLAMIC FINANCIAL MARKET

    Indonesia Malaysia

    7.0 96.0

    11 17

    banks 10.8 87.4

    21 8

    0.4 3.4

    25 13*

    0.1 0.6

    * including takaful companies, retakaful companies and international takaful operators

    Comparison between Indonesias and Malaysias Islamic financial market

    LK, Bank Indonesia, Malaysia Islamic Financial Centre, Bank Negara Malaysia, Standard Chartered Research

  • 3. DEVELOPMENT OF ISLAMIC FINANCIAL MARKET: INSURANCE

    Amount of assets (IDR trn)

    All sharia insurance business

    Life insurance

    General insurance & reinsurance

    % of assets to insurance industrys assets

    All sharia-based insurance

    Life insurance

    General insurance & reinsurance

    Amount of investment (IDR trn)

    All sharia insurance business

    Life insurance

    General insurance & reinsurance

    Gross premium of all sharia insurance(IDR trn)

    Penetration ratio (%)

    Density ratio (IDR)

    Financial indicators of the sharia

    7Major heading

    3. DEVELOPMENT OF ISLAMIC FINANCIAL MARKET: INSURANCE

    2006 2007 2008 2009 2010

    1.0 1.5 1.9 3.0 4.6

    0.6 1.0 1.2 2.1 3.3

    0.3 0.5 0.7 0.9 1.3

    1.0 1.2 1.4 1.7 2.1

    0.6 0.8 0.8 1.2 1.5

    0.3 0.4 0.5 0.5 0.6

    0.7 1.1 1.2 2.1 3.4

    0.4 0.7 0.7 1,4 2.6

    0.3 0.4 0.4 0.6 0.9

    0.5 0.8 1.7 2.4 3.2

    0.01 0.01 0.02 0.03 0.04

    1,483 2,237 3,564 7,209 13,623

    Source: Ministry of Finance

    sharia insurance business in Indonesia

  • 3. DEVELOPMENT OF ISLAMIC FINANCE: FINANCE COMPANIES

    Sharia financing assets

    Non-sharia financing assets

    0

    500

    1,000

    1,500

    2,000

    2,500

    2008 2009 2010

    Assets of Indonesias sharia-based finance companies Mostly in the form of sharia-financing receivables

    8Major heading

    3. DEVELOPMENT OF ISLAMIC FINANCE: FINANCE COMPANIES

    Murabahah

    Ijarah muntahiyyah

    bittamlik

    Wakalah bil ujrah & Ijarah

    0

    500

    1,000

    1,500

    2,000

    2,500

    2008 2009 2010

    based finance companies Receivables of Indonesias sharia-based finance companies Murabahah financing generates revenues the most

    Source: Ministry of Finance

  • 4. INFRASTRUCTURE DEVELOPMENT AND SOCIAL SECURITY NET

    INFRASTRUCTURE DEVELOPMENT

    1. Rapid infrastructure development could lead

    2. Infrastructure development will acceleratehouseholds purchasing power

    3. Transport infrastructure development enhancesmarket segments to decentralise

    SOCIAL SECURITY NET

    1. Health protection

    2. Protection against work accidents

    3. Annuity provisions

    4. Pension funds

    5. Life insurance

    9Major heading

    4. INFRASTRUCTURE DEVELOPMENT AND SOCIAL SECURITY NET

    Source: Ministry of Finance

    lead to more NBFI financing

    accelerate economic development and improve

    enhances labour mobility, thus allowing NBFI

  • NBFI BUSINESSESNBFI BUSINESSESNBFI BUSINESSESNBFI BUSINESSES

  • INSURANCEINSURANCEINSURANCEINSURANCE

  • INSURANCE

    All Life

    Asset, 2010 (IDR trn) 400 183

    CAGR, 2005-2010 (%) 23% 28%

    Investment, 2010 (IDR trn) 356 168

    CAGR, 2006-2010 (%) 25% 22%

    Govt bonds, 2009 (IDR trn) 72 26

    Premium, 2010 (IDR trn) 134 78

    CAGR, 2005-2010 (%) 22% 28%

    ROI, 2009 (%) 13% 16.4%

    Average ROI, 2005-2009 (%) 8.1% 8.9%

    Market concentration, HHI, 2010 (%) 9.6% 6.9%

    Number of companies, 2010 142 46

    Financial indicators of insurance industry in Indonesia

    12Major heading

    * 2008-09 Sources

    Social Public sector General Reinsurance

    107 61 45 3

    22% 21% 16% 17%

    104 50 35

    16% 16% 15%

    26 21 2 0.2

    5 15.4 32 3

    17% 27% 13% 16%

    10.6% 11.5% 6.9% 5.8%

    9.9%* 10%* 7.4% N/A

    91.2% 55.4% 3.2% 27.8%

    2 3 87 4

    Financial indicators of insurance industry in Indonesia

    Sources: Ministry of Finance, Standard Chartered Research

  • There are more general insurance than life insurance companies in Indonesia, but life insurance companies have the largest share of insurance industrys assets

    2005 2006 2007 2008 2009 2010

    Total 157 157 149 144 144 142

    General 97 97 94 90 89 87

    Life 51 51 46 45 46 46

    Social 2 2 2 2 2 2

    Public sector 3 3 3 3 3 3

    Reinsurance 4 4 4 4 4 4

    Size of insurance industry by number of companiesRegulatory constraints drive industry consolidation

    13Major heading

    There are more general insurance than life insurance companies in Indonesia, but life insurance companies have the largest share of insurance industrys assets

    Source: Ministry of Finance

    45.9%

    26.8%

    15.3%

    11.3% 0.8%

    Life Social Public sector General Reinsurance

    Distribution of insurance industrys assets (2010)

  • Life insurance is the main engine of growth of insurance industry in Indonesia

    20022003 2004 2005

    2006

    2007 2008

    2009

    2010

    5101520253035404550

    2,500 3,000 3,500 4,000 4,500

    Hous

    ehol

    d Ins

    uran

    ce p

    rem

    ium

    s per

    ca

    pita

    (USD

    )

    GDP per capita on a PPP basis (USD)

    100

    150

    200

    250

    300

    350

    400

    450

    2006 2007

    15%

    20%

    25%

    30%

    35%

    0

    20

    40

    60

    80

    100

    120

    140

    2006 2007 2008 2009 2010

    Life General and ReinsurancePublic sector Socialy/y premium growth (RHS)

    Insurance premiums per capita rose at a faster rate