The global financial downturn is taking its toll on the securities industry with slower transactions draining revenue, prompting calls for the industry to consolidate to prevent further losses.
The government needs to consider implementing a mechanism to reduce the number of companies overall, brokers say.
Aviyasa Dwipayana, president director of the country’s largest broker company PT Trimegah
Securities, said the market had become too crowded, with over 120 securities companies competing for business.
With daily transaction values dropping almost 75 percent since the second half of last year, this
over-saturated market has become even more problematic, he said.
“Profits for each company have become smaller and when everyone faces the same problem, it
will eventually endanger the state of the industry as a whole,” he said.
The latest data from the Indonesia Stock Exchange (IDX) shows that 108 of the 121 securities companies listed as members of the IDX saw their transactions drop, with 73 of them plunging by more than 50 percent between September 2008 and January 2009 alone.
Although total transactions for those brokers stood at Rp 145 trillion (US$12 billion) in September last year, transactions dropped to Rp 62 trillion by January this year.
Aviyasa said the drop in transaction figures, both in terms of volume and value, would hold back securities companies from embarking on expansion, as a large proportion of their fees are derived from transactions made at the stock market.
This could potentially put the stock market at stake as the industry will become less competitive.
The Jakarta stock market index has plunged by close to 30 percent since last October as panicking investors, desperate for cash, sold off their holdings amid the global liquidity crunch.
On Friday, the index closed at 1,285.48. Before the crisis began to take hold, the IDX index stood at around 1,800.
Responding to the demand from analysts and market players for a reduction in securities firms, Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) chairman Fuad Rahmany said mergers within the industry should increase to create overall resilience in the sector.
“By pooling together their capital, they will be stronger when facing the crisis,” Fuad said.
“But such a measure [a merger] could not be enforced via a mandate, but could only be enacted through a business-to-business approach,” he said.
When asked about possible incentives to encourage mergers and acquisitions, Fuad said “the move would be carried out solely for their own benefit”.
Lily Widjaya, who heads the Association of Indonesian Securities Companies (APEI), also stressed the need for consolidation.
“We are forced to keep our financial conditions in check during this hard time while at the same time try to look for merger opportunities,” Lily said.
Lily, who is also the president director of PT Merril Lynch Indonesia, said the current condition
of the stock market needed review, as for the past several years it has been quite bearish.
“When the market is bullish I think the current figures are relevant, however it’s different when the market is going in another direction entirely,” she said.
Similar calls for consolidation occurred after the country was heavily struck by the 1997-1998 financial crisis, which sent the economy tumbling.
The conditions forced regulators to consider cutting back the number of securities companies to no more than 10, as the market was too weak to handle more.
However, the calls slowly dried up in the following years as the stock market began to recover, in line with an improvement in the overall economy.
It remains to be seen whether such calls this time will ease up when the economy recovers in the future.