House of the year, Indonesia: UOB Indonesia

Asia Risk Awards 2021

Like many of its competitors UOB Indonesia has faced a challenging 12 months, but the Singapore-headquartered bank has worked hard to minimise disruption to its business from Covid-19 while ensuring its clients stay on top of the volatile market conditions. As the crisis unfurled, UOB Indonesia continued to build out its product lines and push into new areas, which won positive feedback from clients and led to a 25% growth in transaction volume.

Following the market woes, liquidity management quickly became the top priority for banks and companies.

“Liquidity is of utmost importance in uncertain times like now,” says Sonny Samuel, head of global markets for Indonesia at the bank. “The uncertainty pushed the regular demand for liquidity management products even higher, especially those that can also help manage foreign exchange risk.”  

Amid the uncertain liquidity outlook, UOB facilitated a straightforward collateralised lending facility for local corporate and institutional clients. The secured funding product, which is formed by a single-contract solution for bond repo and swaps, helps shield investors from exchange rate fluctuations and mark-to-market swings.

Instead of linking two separate bond repo and swap contracts between the bank and investors, the product is designed to be an enhancement of vanilla products: a one-stop collateralised lending instrument. Under this facility, UOB Indonesia takes securities denominated in rupiah as collateral and provides US dollar funding to the client. This is in contrast to many other vehicles currently on the market, which rely on swap contracts between the rupiah and the US dollar or, even less ideally, using the prevailing exchange rate to buy bonds.

“With exchange rates being so volatile, any small movements in currency or delays in execution can translate into a material impact on a client’s business, which could seriously affect the bottom line of any firm,” says Samuel.

With this integrated product, clients are able to enjoy seamless access to another currency in a risk-free environment

Sonny Samuel, UOB Indonesia

By doing everything within the bank, rather than having separate swap contracts, UOB Indonesia says it has helped clients eliminate a lot of the FX risk exposure they have been facing in the wake of the pandemic.

“With this integrated product, clients are able to enjoy seamless access to another currency in a risk-free environment,” Samuel says. “On top of that, the time taken to process the documents is faster due to an established approval process. This meets the needs of clients who are looking for a funding instrument to fulfil their immediate business requirements.”

Other than minimising the FX fluctuations, transactions are made while maintaining regular coupon income earned from the bonds until maturity.

Although the product has proved particularly popular with corporate clients, its versatility has also brought it to the attention of financial institutions, who are keen to run their bond portfolios in Indonesia rupiah while maintaining a line to US dollar funding.

Earlier this year, the Indonesian branch of one large Chinese client came to UOB for urgent funding to support its foreign currency loan pipeline. As this was not planned for, the client was unable to go through the normal route of seeking funding from the parent company, due to regulatory limits that had already been put in place.

Due to the urgency, Samuel’s team quickly identified that they could leverage the massive bond portfolio owned by the client, and provide US dollar funding without redeeming the long-term bond investments.

Moving on from products, Samuel speaks about how the team is gearing up for future challenges and opportunities.

Like some neighbouring markets, the derivatives community in Indonesia is subject to the same challenges due to the transition away from Libor. UOB has set up an internal task force to prepare for these benchmark changes and assist its clients in the transition.

In terms of future opportunities, UOB Indonesia also has an exciting plan to tap into the growth potential of Indonesia’s largest trading partner, China, by venturing into direct access to onshore renminbi and local currency settlement.  

In October 2020, Indonesia and China joined hands to promote a framework of direct settlement between the rupiah and yuan.

“We are very proud that UOB Indonesia is the first Singapore-headquartered bank to hold the status of cross-currency dealer status for Chinese yuan and Indonesian rupiah in both markets,” says Samuel.

The launch of such transactions will help Indonesia diversify away from US dollar transactions, he adds.

It will also open up new growth avenues for UOB Indonesia as a direct settlement gateway between the two flourishing and populated countries, adds Samuel.