By Muhamad Al Azhari
As a foreign lender, the bank has helped its Indonesian clients to access international markets and led several landmark transactions in equity and debt markets. Deutsche Bank led Indonesia’s first euro bond in 2014 and first United States Securities and Exchange Commission-registered bond in 2017.
It is also a frequent corporate debt arranger, with one of its achievements being to have helped arrange Indonesia’s first ever corporate green bond and first ever Komodo bond.
Corporate green bonds are bonds with proceeds dedicated to funding environmentally friendly projects, while Komodo bonds are rupiah-denominated bonds sold on global markets. Komodo refers to the species of giant lizard native to parts of eastern Indonesia.
GlobeAsia had a chance to speak with Werner Steinmueller, Deutsche Bank’s chief executives for Asia Pacific, while on a visit to Jakarta on Aug. 22. Also present during the interview at Deutsche Bank’s offices in Jakarta was Siantoro Goeyardi, the bank’s chief country officer for Indonesia.
Steinmueller, who has also served on the management board of Deutsche Bank AG since 2016, addressed various topics, including the bank’s worldwide restructuring. He shared his views on global economic conditions and prospects for the Indonesian economy.
As one of the most influential figures at Deutsche Bank, Steinmueller has held various senior positions at the institution. This includes head of global transaction banking from 2004 to 2016, when he was responsible for leading Deutsche Bank’s global efforts in trade finance, cash management, institutional cash and securities services. In this role, he had additional responsibilities for the commercial banking business in Germany.
The following is an excerpt from the interview:
Can you explain Deutsche Bank’s worldwide restructuring?
Deutsche Bank decided and announced on July 7 to refocus its business. To refocus the business means that we want to increase our share of stable businesses: corporate banking, private banking and asset management. We also intend to remain active in investment banking, with our fixed income, mergers and acquisitions, debt capital markets and focused equity capital markets businesses.
Under this review, Deutsche Bank decided to exit our equity business worldwide. Equity business means equities sales and trading business, not equity capital markets. The reason for exiting this business was that we have not met our targeted returns on profitability. Low-return assets or assets that no longer fit into the new strategy were moved into a so-called capital release unit.
Global news outlets mentioned Deutsche Bank’s 18,000 job cuts, how this will be done?
We are executing a new global transformation. We have decided to exit the equities sales and trading business, which unfortunately means some job cuts in this area. The 18,000 is the global number of job reductions over the next three years across all our business divisions. This number includes, for example, reductions in our private bank in Germany.
How do you see the global economy now and how does this impact Deutsche Bank’s business?
I see a certain slowdown. The reasons include the trade war between China and the United States. But let’s also keep in mind, we had many years of global growth of between 3 percent and 4 percent, which is a long time. I see a certain correction, but the global fundamentals are still very strong.
How will this affect Deutsche Bank’s business in the future?
As we are in the corporate banking and capital markets business, we must differentiate ourselves to be able to compete. Investment banking partly benefits from more volatility because of higher trading activity. At the moment, it is even positive because investors are repositioning trading positions. In terms of interest rate movement, you an increase in the US dollar and a likely decrease in rates. In Asia Pacific, we also see growth slowing a bit. Still, Asia is the fastest growing region and driving the world economy. It is also interesting to see Asean, including Indonesia, somewhat benefiting from the trade war because of the relationship with the US. We see these impacts varying country by country, region by region, I don’t see the major recession that many people have been talking about, but I see it more as a correction. What does it mean for us? With volatility, our investment bank can make more revenue and on the corporate banking side, I see an increase in margins on the lending side, because other banks in general are being more selective. So this is a positive signal when it comes to letters of credit, or foreign exchange volumes. Of course, a slowdown has an impact, but it is really marginal. It is compensated by positives, like higher margins, and higher activities in investment banking and foreign exchange.
Deutsche Bank has posted the worst quarterly loss in four years in Q2, what is your projection for the entire 2019?
I am not allowed to make any forecasts. What I can tell you, is when you do major restructuring, it is costly. In the second quarter, we booked provisions for the investment bank upfront. We want to be much more cost efficient, so we had to make changes, including letting some people go. Without these restructuring provisions, our results would have been positive. The underlying business is profitable.
How do you see competitions with other global banks? How is Deutsche Bank positioning itself against international banks? What is your bank’s strength?
First, we have a very strong corporate banking business globally. We are in 60 countries. We have very sophisticated solutions in cash management, trade finance, correspondent banking and have leading market positions globally. We are an ideal partner for multinational clients or companies in Asean, or Indonesia, who want to go more international. This is supported by our investment bank servicing both institutional and corporate clients, with very strong fixed income, mergers and acquisitions, and debt capital market offerings.
Over the past 50 years in Indonesia, Deutsche Bank has played an active role in the economic and financial liberalization. Our investment bank helped the Republic of Indonesia establish the local currency bond market in 2002 where today, we are one of the top primary dealers for government bonds. We are a lead arranger in debt capital markets for Indonesian institutions and corporates. We arranged the sovereign Republic of Indonesia’s first euro-denominated bond in 2014 and first US SEC-registered bond in 2017, and led Indonesia’s first ever corporate green bond and first ever Komodo bond. We are also very strong in lending [term lending, structured transactions, in dollars and euros]. This is what we can offer on a global basis, in addition to managing interest rates, foreign exchange and hedging. This is where Deutsche Bank is very strong globally. We are one of the top three fixed income houses in Asia Pacific.
McKinsey says Indonesia’s fast-growing economy could become the world’s seventh largest by 2030; how does Deutsche Bank view the country’s prospects?
One thing is clear, Indonesia in the last decade has done a tremendous job in maintaining growth momentum. Increasing investment in infrastructure and becoming more international is part of this, as well as investing in human capital, universities, and education. We also see positive steps to invest in digitalization. This is also in line with the government’s policy and important for Indonesia and the rest of the world, including the G-20. Indonesia, this year, is a partner in Germany’s Hanover Fair, which is a major German industrial goods exhibition. This shows you that Indonesia is much more on the global radar. Recent improvements in the legal system for example, make business investment much more attractive in this market of 250 million citizens. It is after all one of the largest markets in the world.
We did not do well in the World Bank’s Ease of Doing Business report last year, having fallen by one position. As a banker, what is your advice to the country?
First, you can’t constantly grow at the same rate. Sometimes there are setbacks. Now that the election is done, the country has a clear strategy going forward. Globally, we shouldn’t forget that it is one of the countries with the highest growth rates, which is positive. In Europe, we have about 1 percent, but here, it is about 5 percent. This is far above the global growth rate and it is already a sizeable economy. What does Indonesia need to do? Invest in infrastructure and education. These are key elements to being successful and this is recognized by the government.
How do you see Indonesia’s political stability?
President Widodo’s re-election is a very good signal for the markets. From the outside, there appears to be a new generation of leaders coming through, not necessarily at ministerial level, but at the level below. They are extremely well educated, very smart people, and this is the new national standard. Indonesia has created a leadership team, which is now really capable to help the country compete internationally.
This year, Deutsche Bank is celebrating 50 years of service in Indonesia. How do you view the next 50 years?
Indonesia is very important for our growth, because we have a stable corporate business, plus the investment bank locally. The investment bank is really focused on fixed income, including risk mitigation tools, such as hedging solutions, foreign exchange, derivatives. Indonesia is certainly one of the key countries in Asia Pacific with great future growth potential.
Can Indonesia leverage its demographic bonus until 2030?
When I look at Indonesia through a global lens, it has a sizeable economy, constant growth, and a stable government. I have been coming to Indonesia for the past 20 years, and the change I see is unbelievable. There have been major improvements, but they need to continue, especially in education, infrastructure, digitization. If the country continues in this direction, momentum will grow. The ratings upgrade was a good sign and as a result, more investors are interested in Indonesia. But importantly, growing too fast can also be dangerous, so it will be a fine balance, and a challenge the country might have to face.
Siantoro Goeyardi, Deutsche Bank’s chief country officer for Indonesia, also shared his views on the bank’s prospects in the archipelago. Deutsche Bank classifies its services into three areas: First is corporate banking, which serves multinational companies, state-owned enterprises and local corporations. Second, it offers institutional businesses, for clients like the government, global banks and investors, in capital markets and custody. Third, Deutsche Bank offers what it calls its global markets business, where it provides global clearing, forex and government bond trading.
The following is an excerpt from the interview:
How is the restructuring affecting Deutsche Bank’s business in Indonesia?
Our Indonesia business is not really impacted. With the restructuring, the bank will not do any more equity sales and trading globally, but we will do sub-custody, foreign exchanges, corporate banking, correspondent banking and trade finance in Indonesia.
Deutsche Bank’s clients in Indonesia are mainly in what sectors?
We bank various sectors, but there are certain restrictions. For example, globally we decided not to bank the coal sector or anything to do with burning coal; we don’t do it because of sustainability principles. Other than that, we are open to any sector. The type of clients we bank range from consumer goods and commerce, to transportation. We don’t just serve corporates, but also institutional clients, such as consumer finance companies.
Digitalization has become a global trend. Do you get more clients from sectors, startups, e-commerce companies in Indonesia? How are the internet of things and Industry 4.0 changing the business?
Digitalization is a big focus for us this year and next year, because we know the market potential, and money movements in Indonesia have changed. People are using e-commerce platforms more and more. We are happy to support our banking partners, or our e-commerce clients. For example, we have a very good platform for corporates for e-payment and e-processing, and we will invest more in the business. This is part of our global digitization program.
How do you describe Deutsche Bank’s contribution to the development of Indonesia’s economy and financial markets?
One of our core businesses is fixed income and debt capital markets and we will continue to support the government in tapping the capital markets globally. In fact, we have been doing that for over 10 years now. We have been a consistent partner for the government to manage its debt obligations.
How do foreign investors view securities assets from Indonesia?
Very positive, in fact. You can see the government had a ratings upgrade again this year, which shows good momentum. As soon as the country was upgraded, we tapped into the markets and the response was really positive. So investors globally are still hungry for good assets and they see Indonesia as one of the emerging market darlings, because of the stable political situation, amongst other things. The election was quite peaceful and the reality is that our government is fiscally disciplined. We are still running a fiscal deficit, but generally, we are still very disciplined and investors like that.
Can Indonesia leverage its demographic bonus until 2030?
There are studies showing that Indonesia will enjoy a demographic bonus until 2030, meaning that the population and productivity in the country would start to flatten or decline thereafter. So we basically have 10 to 15 years left. If we invest properly, we will really leverage Indonesia’s potential. Our view is that the government is doing the right thing in terms of infrastructure and foreign direct investment. It continues to open to global investors. But we can’t be complacent and just suddenly stop the progress. In addition, market entry has been made easier and simpler for global financial investors and multinational companies. Deutsche Bank is well placed to help them access this market given our long-term presence in and familiarity with Indonesia.
The key is political stability, foreign direct investment, friendliness of regulations. There is no reason Indonesia cannot get there.
Is Jokowi’s infrastructure push the right thing to do?
I can’t comment, because every government has its own policy. But if you look at it objectively, investment in the right infrastructure is always good for the economy. Whether it takes five to 10 years, it is very good for the economy. For example, the MRT here. This kind of investment makes sense.
Do you see a lot of expansion of Indonesian companies overseas?
To some degree. Only a few companies, such as Indofood, have expanded overseas so far. Most Indonesian companies still stay within the country, given its domestic potential.