Mergers requires tax incentives, says bank association chairman

Novia D.Rulistia ,  The Jakarta Post ,  Jakarta   |  Wed, 02/27/2008 12:08 PM  |  Business

Bank Indonesia, the country's central bank, needs the support of the government if its efforts to consolidate the banking sector are going to succeed, a grouping of national banks says.

Chairman of the Indonesian Banks Association (Perbanas), Sigit Pramono, said Tuesday the central bank should cooperate with the tax office, for example, to promote tax incentives for merger and acquisition activities to smoothen the consolidation program.

The tax office is under the Finance Ministry.

In an attempt to consolidate the banking sector, which currently has more than 100 banks, the central bank has introduced a slew of regulations promoting mergers and acquisitions.

The regulations range from increasing the banks' minimum capital requirements to the introduction of the so-called single presence policy, which basically bans an investor from owning a majority stake in more than one bank.

However, while the deadline for the single presence policy has been set at 2010, the progress thus far has been slow, with many attributing it to the absence of incentives for banks to merge.

"It shows there's no shared understanding yet between the government and Bank Indonesia on banking consolidation," Sigit said.

In addition, he said, there should be a pioneer in merging large banks so the policy could be applied easier on a wider scale.

"It's the government that owns most banks here, followed by foreign investors and the private sector. If there's no pioneer, it will be difficult to encourage mergers."

Sigit's remarks came days after Temasek Holdings, the Singaporean government's investment arm that indirectly owns a majority stake in Bank Internasional Indonesia (BII) and Bank Danamon, said it would sell its stake in BII rather than merge the two banks in response to the policy.

BII is the country's sixth largest lender, while Danamon is the fifth.

Khazanah Berhard, the Malaysia-based investment firm that controls a majority stake in Bank Niaga and Lippo Bank, has said it is still weighing whether to merge the banks or sell its stake in one of the two.

Both Niaga and Lippo are among the country's ten largest banks.

The government, which owns several banks, is yet to decide how to respond to the policy.

The government is currently the controlling shareholder in Bank Mandiri, Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia (BRI).

Bank Indonesia's director of research and regulations, Halim Alamsyah, said that while the progress has been slow, the central bank was upbeat the policy would eventually prevail.

He said Bank Indonesia and the government had been in talks to improve coordination, and had discussed possible tax incentives for mergers.

According to Halim, the tax office is now formulating an incentive scheme to be announced soon.

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