Lippobank was born of the merger between Bank perniagaan Indonesia and Bank Umum Asia in 1989 after seizing the oppor- tunities created by the reforms. The bank, a flagship of Lippo Group, controlled two foreign-venture banks in Jakarta. The first one was with The Tokai Bank, Limited of Japan (Tokai Lippobank) and the other with Bank Nationale de Paris (Bank BNP Lippo). It was also a partner with an Indonesian Navy-linked foundation in Bank Bhumy Bahari (75 percent). The Group also had majority control of Lippo Pacific Finance and Multicor, a non-bank financial institution, as well as a wholly owned brokerage subsidiary.



The bank's strategy was geared very much to the government's philosophy of mobilizing domestic investment funds whilst absorbing the capital of the rapidly growing labor force. Internationally, Lippobank's goal was to build a strategic relationship within the international banking community to find new and innovative ways of attracting foreign investment to Indonesia. In September 1989, the bank obtained license to operate as a foreign exchange bank that enabled it to perform international banking operations including finance of inter- national trade with various services. Subsequent to this, the bank also created international banking network in Hong Kong, California, New York, and other cities in the world.



Lippobank became the first Indonesian private bank to issue a Floating Rate of certificate Deposit (FRCD) in the international marketplace. This trendsetter role continued in 1990. Lippobank became the first Indonesian private bank to issue a US $ 100 million "Note Issuance Facility" out of Singapore and a US $ 50 million "Eurocommercial Paper." Both instruments were heavily oversubscribed. The funds had been used to strengthen the bank's balance sheet at medium-term deposit base.



In an increasingly competitive consumer banking environment, effective fund mobilization was essential for Lippobank's continued growth. The bank aimed to develop its core deposit business from small depositors, whose funds were often more stable than those of large institutional investors. The bank, in December 1990, had 151 branches in Indonesia; Such a large branch network was necessary to attract smaller clients for whom branch access was essential. To finance part of its expansion of branches, the bank went public in October 1989. From this activity, the bank issued 6.8 million shares of common stock in the Jakarta Stock Exchange.



In a fast-growing economy, there were often periodic fears of inflation, when the government stepped in to cool down over- heated economic growth through money supply contraction. Anticipating periodic liquidity squeezes, Lippobank kept conservative lending services. At 70 percent, Lippobank's loan-to-deposit ratio was among the lowest in Indonesia, where the average hovers around 123 percent.



After having discussions with faculty members, Ms Marita O'Sullivan, Ms Kathleen Goodman, and Mr. Donald J. Lecraw, we decided to pursue this project.



Research location: Lippo Bank

Supervisor: Marita O. Sullivan

Accepted: December 1991.