Like many of its competitors UOB Indonesia has faced a difficult 12-month period, but the Singapore-based bank has worked hard to minimize disruption to its business from Covid-19 while ensuring its customers stay on top of volatile market conditions. Marlet. As the crisis unfolded, UOB Indonesia continued to develop its product lines and enter new areas, which received positive feedback from customers and resulted in a 25% growth in transaction volume.
Following the market’s woes, liquidity management quickly became the top priority for banks and businesses.
“Liquidity is of the utmost importance in uncertain times like today,” said Sonny Samuel, head of global markets for Indonesia at the bank. “Uncertainty has pushed steady demand for cash management products even higher, especially those that can also help manage currency risk.”
Amid uncertain liquidity prospects, UOB facilitated a simple secured loan facility for local businesses and institutional clients. The Secure Finance Product, which is a single contract solution for repo and bond swaps, helps protect investors from fluctuations in exchange rates and fluctuations in market value.
Instead of tying two separate repo and bond swap contracts between the bank and investors, the product is designed to be an improvement on vanilla products: a one-stop secured lending instrument. Under this installation, UOB Indonesia pledges securities denominated in rupees and provides we financing in dollars to the client. This contrasts with many other vehicles currently on the market, which are based on swaps between the rupee and the we dollar or, even less ideally, using the going exchange rate to buy bonds.
âWith exchange rates being so volatile, any small movement of currency or any delay in execution can result in a big impact on a client’s business, which could seriously affect the bottom line of any business,â says Samuel.
With this integrated product, customers can enjoy seamless access to another currency in a risk-free environment
Samuel son, UOB Indonesia
By doing everything within the bank, rather than having separate swap contracts, UOB Indonesia says it has helped customers eliminate much of the FX exposure to the risks they faced as a result of the pandemic.
âWith this integrated product, customers can enjoy seamless access to another currency in a risk-free environment,â says Samuel. âPlus, document processing time is faster thanks to an established approval process. This meets the needs of clients who are looking for a financing instrument to meet their immediate business needs.
In addition to minimizing the FX fluctuations, transactions are carried out while maintaining a regular coupon income from the bonds until maturity.
While the product has proven particularly popular with corporate clients, its versatility has also brought it to the attention of financial institutions, who wish to manage their Indonesian rupiah bond portfolios while maintaining a line of we funding in dollars.
Earlier this year, the Indonesian branch of a large Chinese customer came UOB for urgent funding to support its pipeline of foreign currency loans. As this was not expected, the client was unable to take the normal route of seeking funding from the parent company, due to the regulatory limits already in place.
Due to the urgency, Samuel’s team quickly identified that they could take advantage of the huge portfolio of bonds held by the client and provide we financing in dollars without redeeming long-term bond investments.
Moving on to products, Samuel talks about how the team is preparing for future challenges and opportunities.
Like some neighboring markets, the derivatives community in Indonesia faces the same challenges due to the transition away from Libor. UOB has set up an internal task force to prepare these changes in standards and support its customers in the transition.
In terms of future opportunities, UOB Indonesia also has an exciting plan to tap the growth potential of Indonesia’s largest trading partner, China, by venturing into direct access to the onshore renminbi and local currency settlement.
In October 2020, Indonesia and China joined together to promote a direct settlement framework between the rupee and the yuan.
âWe are very proud that UOB Indonesia is the first Singapore-based bank to hold foreign exchange brokerage status for the Chinese yuan and the Indonesian rupiah in both markets, âsaid Samuel.
The launch of such transactions will help Indonesia to diversify away from we dollar transactions, he adds.
It will also open up new avenues of growth for UOB Indonesia as a direct settlement gateway between the two flourishing and populous countries, adds Samuel.