by Karnoto Mohamad
MINISTER of Labor Ida Fauziyah, who has just newly appointed by President Joko Widodo (Jokowi), should be worried. There is a big task of overcoming the problem of unemployment that have to be carried out by the National Awakening Party (PKB) politician. The job is not easy. What is happening right now is the tidal wave of termination of employment (layoffs) in various sectors such as manufacturing and trade. The weakening of the export market, the disruption of technology, and peoples purchasing power issues are some of the causes. Besides, the agricultural sector continues to decline. If the three sectors that absorb 67% of workers experience a slowdown, efforts to reduce unemployment will be difficult.
The sad truth is that the banking sector is also experiencing pressure so that most of banks have already terminated their employees. According to Infobank Research Bureau, the banking industry has terminated 38831 employees from 2014 to 2018 and the number can exceed 40000 by the end of 2019. It is because the number of commercial banks offices keeps decreasing from 32739 units in 2014 to 31618 units in 2018; to 31411 units in August 2019.
In the last five years, the average growth of banking loans was not as big as the previous growth, reaching 21% per year. Since 2014, banking loans have only grown an average of 10% per year with asset quality which tends to decline. Many banks are busy taming non-performing loans (NPLs) which are above 5%. The slow expansion of credit causes interest income which contributes around 73% to total banking income to affect the financial performance of banks.
In term of cost, the increase of low quality loans requires banks to increase the cost reserves of non-performing loans. Meanwhile, operational costs continue to increase without being offset by the ability of the branch offices to produce revenue. The bankers have to rack their brains to withstand the pressures of performance. Most banks reduce the number of offices followed by labor cuts. It is because the income is not in line with rising costs. The number of banking offices decreased by 1328 units and 48 banks have been recorded to have reduced the number of employees over the past four years. Reducing the number of employees is the most practical way to make efficiency when other options to do efficiency are not working.
Moreover, some bankers who were appointed to be chief executive officers (CEO) in the period 2013 to 2017 were assigned to restructure and make a turn-around in their banks that were on a downward curve. For example, in 2015, Sng Seow Wah, who was appointed to replace Henry Ho as CEO of Bank Danamon whose performance was down by 35% the previous year; efficiency measures are taken quickly, such as closing the micro banking network and cutting thousands of employees.
Data from Infobank Research Bureau shows that from 2014 to 2018, Bank Danamon had reduced 28319 employees. Bank Danamon, which is aggressively cutting its employees, has successfully recorded a decrease in labor costs from Rp 3.56 trillion in 2014 to Rp 3.03 trillion in 2017. In 2018, it increased again to Rp 3.05 trillion in 2018. From 2016 to 2018, Bank Danamon had also succeeded in making profit growth.
Other banks that have reduced the number of employees massively are Bank Syariah Mandiri (BSM) of 8182 employees, BTPN of 6712 employees, and Bank Mega Syariah of 2622 employees. Besides, there are also Bank CIMB Niaga that has cut 2542 employees and Bank Muamalat that has reduced 2488 workers. The step is generally carried out by banks that were initially aggressively working on the micro banking market and very tight competition plus the inclusion of peoples business credit (KUR), which has low interest rates because it is subsidized by the Governmentthe condition has made players in the commercial micro market cancel their attempts to expand.
The trend of layoffs does not only happen in Indonesia banks. According to a survey from McKinsey & Co, more than half of the worlds banks are too weak to survive in economic conditions that tend to slow down. Meanwhile, the increase in costs cannot be held back when the increase in income gets slowed down. Banks must also take fast steps in adopting technology because the retail business segment has been eroded by the growth of financial technology (fintech). The German bank, Deutsche Bank, is said to have fired 18000 employees and the biggest bank in Europe, HSBC, has cut 10000 employees.
The bankers in the world, including in Indonesia, are indeed going through the exam period for the past five years. At the same time, there are two challenges. One, the weak economy that affects the quality of assets and banking revenues. Banking income is constrained by credit expansion which is restrained by rising credit risk and limited liquidity. This challenge must be faced with restructuring measures to improve the quality of the declining productive assets including cutting costs to improve efficiency, so that profits can return or continue to grow positively.
Two, the presence of disruption technology that is carried out by technology companies. They offer savings-loans services and payments which are quickly and flexible thanks to their free credit card processing. This challenge must be faced with transformation steps to create sustainability and digital innovation to adapt to changing competition and market needs. Capital expenditure of banks are also directed to technology infrastructure to support automation.
According to a survey conducted by Willis Tower Watson in 2019 of more than 1000 companies (49 of them are in Indonesia), as many as 90% of companies say that they want automation to complete work within the next three years. Meanwhile, those who are trying to do automation are 75% and those who have automation capabilities are 30%. Globally, the average percentage of work carried out automatically increases from 8% three years ago to 17% today and to 30% in the next three years. The percentage of organizations that have some work carried out by automation has increased from 51% three years ago to 81% today and to 92% three years to come.
In Indonesia, the average percentage of work carried out automatically reached 21% three years ago. It becomes 30% today. It will increase 34% in three years. The percentage of companies in Indonesia that has some work carried out automatically reached 47% three years ago to 74% at present and to 76% over the next three years. In Indonesia, it seems that many companies have already used automation. It is because the number is dominated by figures from the financial industry. There is a slight distortion. Actually, there are still few companies using automation in Indonesia, Henry Hanafiah, Indonesias Country Leader and Talent Reward, Willis Tower Watson, told Infobank last month.
In Indonesia, the banking industry has indeed become a locomotive of digital transformation. In fact, before the emerge of fintech in 2015, banking had provided electronic-based services such as automatic teller machines (ATMs), internet banking, and mobile banking. However, the presence of technology companies that provide application-based financial services requires bankers to compensate for the agility of new competitors.
According to Yasushi Itagaki, who officially replaced Sng Seow Wah as CEO of Bank Danamon in early October, banks must have a clear digital strategy and change the way they play to face the competition that has changed. As part of MUFG, based in Japan, Bank Danamon seeks to utilize its parents access and expertise. One source that is quite strong, which can be used by Bank Danamon from MUFG is MUFGs innovation center in Silicon Valley, United States, in New York, London, Singapore and Tokyo, he told Infobank last month.
Due to banks have flocked to digital banking, banks will continue to be busy reorganizing their organizations, including making unpopular policies such as reducing staffs, and increasing human resources to have the ability to meet the needs of the digital age. Human resources (HR) in the field of digital technology are hunted by banks that compete with fintech. Moreover, companies are generally slow in anticipating and preparing people because digital economic development is faster than it is predicted.
As a result, there is a talents war or competition to recruit and retain employees who have talents and skills in the field of digital technology. Whereas employees want to cross to other companies because they want to get attractive compensation. There have been some banks employees that move to fintech because of attractive compensations. If a bank employee is moved to another bank, he/she usually gets an additional 30% of his/her previous salary; but when he/she moves to fintech, he/she he can get double from his/her previous salary.
According to Mercer survey, there are five considerations for an employee in choosing a company. The first is compensation. The second is career development, including training and certification. The third is good financial condition and supportive emotional and psychological environment. The fourth is financial security. The fifth is flexible work. So number one is compensation. Compensation is still the king. No matter what the generation is, money is still the most important, said Isdar Andre Marwan, the Career Service Director of Mercer Indonesia to Ari Astriawan from Infobank last month.
Because of the scarcity and the high prices of skillful bankers, the costs spent by banks for their employees also increasedespite the reduction of employees. According to Infobank Research Bureau, the number of employees had decreased by 8% in the period 2014 to 2018, but at the same time, the costs spent by banks for employees have increased by 50.29%. In 2009 to 2015, the average increase in the costs at commercial banks reached 14.39% per year. After that time, it was slowed to 8.55% in 2016, 7.58% in 2017, 5.26% in 2018, and 5.49% in 2019.
Banks in general try to keep the price of their talents from exceeding the market. This was acknowledged by Agus Dwi Handaya, the Director of Compliance and Human Resource at Bank Mandiri. In areas where the talent war is firmer, the price is automatically affected. Yet, Bank Mandiri always refers to the market. We provide remuneration, thats between 75% to 85% of market percentages. We protect it. Although there are 60% below the market, for example 60%, and some above the market, for example, up to 120%, that is very rare, even, it is extra ordinary, he told Infobank last month.
According to Willis Tower Watson, the salary increase of employees in banks is still inferior compared to the one in fintech companies. In 2019, banks employees salaries increase by 7.3% while fintechs employees salaries reach 12.40%. In 2020, the salaries of banks employees will rise 8.3%, and it will be 12% in fintech. Although, the salary increase of banks employees is lower than fintech, it is still higher than the average increase in salaries of all industries, amounted to 6.80% in 2019 and 7.30% in 2020.
In 2020, the bankers examination period will not be over. In addition to the threat of crisis due to the unfinished trade war between US and Chinesethat will affect banks financial performance, banks must continue the digital transformation. The success of it is influenced by leadership and the existence of banks best talents. It is obvious that banks have to continue doing automation. It will continue both in the banking sector and others. As a result of automation, some jobs will be extinct, such as tellers and customer service. They will be replaced by machines. New jobs may emerge, such as application developers or data scientists. However, the number of people needed there will be smaller than the number of jobs that have been lost. Therefore, the need for employees will shrink. The euphoria of Jokowis new cabinet that will provide more jobs can be hindered by a wave of layoffs that threaten banking industry and other sectors of trade and processing. (*)
