Experts Think Silicon Valley Bank Collapse Won't Affect Indonesian Startups Directly

Silicon Valley Bank (SVB) is a major lender for global startups. It operates and specializes in providing financing to tech and life science startups.

The bank recently collapsed due to the Federal Reserve’s aggressive interest rate hikes. The collapse occurred just 48 hours after SVB planned to raise $2.25 billion to increase its capital on March 8, 2023.

Why and How Could It Happen?

After the Federal Reserve hiked the interest rate, SVB found itself short on capital. It happened as fledgling clients withdrew deposits to keep their company afloat in tough situations. On March 8, 2023, the bank then announced a loss of $1.8 billion and its plan to sell all the bonds available for sale.

Unfortunately, this decision led to investors and depositors sending warnings to each other of SVB’s “dire” financial situation. With anxiety and suspicion level going through the roof, they pulled out their deposits (a total of $42 billion), leaving SVB, basically, in the dust (or, a negative cash balance of $958 million).

Why Experts Believe It Won’t Affect Indonesia

It won’t be a lie to say that this incident won’t affect Indonesia at all. However, experts ensure that everything is calm and stable in Indonesia’s banking situation.

Here are the reasons why:

1. No Direct Relationship with Silicon Valley Bank

Nilzon Capital’s principal advisor, Frizon Akbar Putra, believes that most local startups use Indonesian or Singaporean banking services, and therefore, won’t be impacted by the fall of SVB. For example, Traveloka–an online travel platform–established a partnership with BRI (Bank Rakyat Indonesia) last year in April.

Chief Executive of the Banking Supervision of the Financial Services Authority (OJK) Dian Ediana Rae also emphasized that “Indonesian banks don’t have a business relationship, facility line, or investment in SVB securitization products.”

Moreover, Indonesian banking assets are maintained at a proportional composition with increasing third-party funds (DPK). Therefore, unlike SVB, they are not sensitive to movement in interest rates.

2. The Effect Will Be More Psychological

Research & Consulting Manager of PT Infovesta Utama, Nicodimus Kristiantoro, also believes that if there is an effect, it tends to be more psychological. Due to the increased risk on the global stock market, domestic stock investors can start panic selling.

However, he is under the opinion that things will be back to normal soon.

3. Local Market Have Predicted the Incident

Furthermore, PT. Edvisor Profina Visindo CEO Praska Putrantyo is convinced that the market itself has anticipated SVB's collapse. 

This opinion is seconded by Segara Research Institute Executive Director, Piter Abdullah. He highlighted how local startups had already taken consolidation steps after losing their global investment around 2021-2022.

The Future of Indonesian Startups

In conclusion, Indonesian startups might have to find their funds somewhere else–though this is old news. Fortunately, aside from that, nothing is changing. In fact, according to Indonesia's Statistical Agency (BPS), after the economic activity drop in 2020, the country's economic growth is now improving.

At 5.2%, economic activity is still below expectations. However, it is believed to rise as we're inching closer to the Ramadan month in late March 2023, especially for the F&B and clothing industry. 

Economist at the Center of Reform on Economics (CORE) Indonesia, Yusuf Rendy Manilet, estimated that this year's Ramadan and Eid will bring Indonesia's economy in the range of 5% to 5.5% YoY.

Additionally, based on the Bank Mandiri economist Faisal Rachman's calculations, the impact of Ramadan and Eid 2023 will drive Indonesian  economic growth of 0.14% to 0.25 point percentage (ppt) during the period.

Needless to say, as long as their leaders manage their funds and use the occasion well, local startups still have much potential to grow.

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