Put IPOs on hold, BI tells sharia banks
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The plans of two of Indonesia’s largest Islamic-based banks, Bank Syariah Mandiri (BSM) and Bank Muamalat, to hold an initial public offerings (IPO) have been dampened by Bank Indonesia (BI), the country’s banking regulator, which has suggested that the banks bide time before floating their shares on the bourse.
BI director for sharia banking, Edy Setiadi, says that there are still problems plaguing Islamic-based banks’ operations in Indonesia, such as their huge reliance on haj funds managed by the Religious Affairs Ministry, which is the reason the country’s sharia banking has seen lower-than-expected growth in recent months.
“They should proceed when they have a firm foothold in the banking industry, and their brand name is recognized among the public,” he told reporters at BI headquarters in Jakarta recently.
Both Bank Muamalat, the country’s oldest Islamic-based bank, and BSM, the sharia unit of Indonesian lending giant Bank Mandiri, have announced their plan to hold IPOs as early as next year to boost their capital for expansion, as well as to comply with the new banking ownership rule.
Under the new banking regulation, banks that are owned by other banks are obliged to float at least 20 percent of their shares on the Indonesia Stock Exchange (IDX) within five years, starting in 2014.
Analysts say that Islamic-based banks in Indonesia still had ample room to expand their business, considering the country’s massive Muslim population, as well as the rapid growth of the country’s sharia banking. The assets of Islamic-based banks have increased on average 49 percent every year, far outperforming commercial banks whose assets grew only 11.7 percent annually, according to a data from the Indonesian Sharia Banks Association (Asbisindo).
The robust growth and large potential of Islamic banking in Indonesia, which has the highest Muslim population in the world, have turned the heads of foreign investors, with at least three companies originating from the Mideast expressing interest in investing in Indonesia, a top official at the central bank says.
The robust growth of Indonesia’s sharia banking, however, faced a speed bump recently after the Religious Affairs Ministry withdrew around Rp 7 trillion (US$731.5 million) of haj funds from the vaults of Indonesian sharia banks to invest it in state Islamic bonds, called the Indonesian Haj Funds Sukuk (SDHI).
The withdrawal dried up Indonesian sharia banks’ third-party funds (DPK), which increased only 3 percent in the first half of this year, compared to 51 percent a year earlier, according to BI data. The sharia banks’ assets growth also decreased to 7 percent from last year’s figure of 48 percent.
Responding to BI’s suggestion, Bank Muamalat president director Arviyan Arifin said that proceeding with the IPO would be beneficial as it would encourage a higher degree of transparency and internal management. He also dismissed concerns over the slowing growth of sharia banking in Indonesia. “The potential for growth in sharia banking in Indonesia is still high, we still have ample room to expand,” Arviyan told The Jakarta Post over the weekend. (sat)