House of the year, Indonesia: CIMB Niaga

At the end of last year, with interest rate rises on the horizon, CIMB Niaga’s clients were becoming increasingly anxious for higher-yielding products. And the bank delivered: not only did it significantly extend the tenor of existing products on the market, but it introduced a facility for clients that allowed them to restructure and lengthen the trades they already had in place.

CIMB Niaga first launched its market-linked deposit (MLD) in 2007, which combines a bank deposit with a derivatives instrument; typically in Indonesia’s case a callable interest rate swap or a forex digital option.

But until now MLDs only had a duration of three to five years. Last November, CIMB Niaga released the first ever 10-year MLD on the market. The product had an initial step-up coupon of 4.75%, rising to 7% at the end of the period. This compares to a flat rate of 3.8% for the three-year MLD and 4.10% flat for the five-year MLD.

“Many other Indonesian banks don’t offer structured products beyond one year, so this was quite an achievement for us,” says Ferdinand Wawolumaya, head of trading and structuring at the bank. “We have strong hedging and risk management capabilities so, while some of our competitors might want to replicate this product, it is not easy for them to do so.”

Wawolumaya says he is not aware of anyone else on the market that has yet launched an MLD with such a long tenor.

CIMB Niaga says it managed the risk by doing hedging in the interbank market and to offset interest rate exposure within other structured products.

“We used the momentum on the market volatility and the higher yield curve to create a product that was attractive for our clients, taking into consideration the risk that they could accept,” says Wawolumaya.

But launching a new product that hadn’t been seen before on the Indonesian market wasn’t enough for CIMB Niaga. They went even further, and introduced a new facility that allowed clients who had already purchased shorter-tenor versions of this product to restructure their books.

“When the client has an outstanding three- or five-year structured product, and they wish to enjoy a higher coupon, we allow them to do so and benefit from the new structure that we have just launched. I think we did this quite well and it has been appreciated by clients,” says Wawolumaya.

Such a move was well-received in the market and, in January, the month when the bank began offering the restructuring scheme, CIMB Niaga sold $54.5 million of new MLD products, with the vast majority having a 10-year tenor. This compares to a total of $7.2 million worth of MLD products sold in December 2021.

By June, CIMB Niaga had sold a total of $102 million worth of 10-year MLDs, with $67.8 million coming from the restructuring programme.

CIMB Niaga has also included a liquidity management feature into the product, meaning the structure can be used as collateral for other trades, if needed.

From September 15, all of CIMB Niaga’s MLD and bond-linked investment products will be governed under the bank’s sustainability framework.

Local currency settlement

A particularly important development in Indonesia this year has been the launch of a government initiative to promote local currency settlement in cross-border trade and investment.

In February, the country’s finance minister Sri Mulyani explained that this was part of a broader initiative to reduce dependency on the US dollar.

CIMB Niaga has been there front-and-centre to help support this initiative.

“Local currency settlement is very good for Indonesia – and also for other countries in the region – because this will reduce dependency to US dollar, so if one of our clients trades with Malaysia for example, they will be able to do the transaction using Indonesian rupiah or ringgit. That will make the trade much more efficient,” says Hernaman Tandianto, head of treasury distribution and international sales.

CIMB’s international footprint means the Indonesian subsidiary has been appointed as an official cross-currency dealer.

As part of this, CIMB is actively involved in the communication and education team for the task force set up by the government to help promote the initiative. The task force consists of some ministries, a number of business associations, the country’s central bank, regulators and approved dealers.