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BI to keep fighting for reciprocity after DBS deal collapse
Bank Indonesia (BI) has said it will keep assisting banks to expand in to Singapore, despite the fact that its bargaining position may be weaker following a canceled acquisition plan
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B
ank Indonesia (BI) has said it will keep assisting banks to expand in to Singapore, despite the fact that its bargaining position may be weaker following a canceled acquisition plan.
BI Governor Agus Martowardojo says that he will maintain good relations with the Monetary Authority of Singapore (MAS) ' the city-state's central bank ' although DBS Group Holdings Ltd. has decided to not extend its Rp 66.4 trillion (US$6.8 billion) acquisition agreement with Bank Danamon.
'In relation to Indonesian banks expanding their business to Singapore, we have to keep assisting them; we will still be fighting for the reciprocity principle,' Agus said in Jakarta on Thursday evening.
'We will remain in discussions with the MAS on how Indonesian banks can grow in Singapore, and how Singaporean banks can grow in Indonesia,' he added.
Singapore's DBS Group, the largest bank in Southeast Asia, stated earlier this week that it had dropped the plan to acquire a 99 percent stake in Bank Danamon due to the prolonged uncertainty.
BI only approved a 40 percent stake acquisition in the deal as per a BI regulation issued in December last year.
As a consequence, the DBS Group would be left with minority shareholders only and would not be able to have full control of Bank Danamon.
BI stated that if the DBS Group wanted to acquire more than 40 percent or act as a controlling shareholder, the Singaporean central bank must apply the reciprocity principle to Indonesian lenders, providing greater access for Bank Mandiri, Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia, all of which frequently face difficulties when trying to expand their business in the city-state.
Under the newly-formulated Basel III banking standards that apply in general to the world banking industry, a bank that performs an acquisition without acting as a controlling shareholder would have to deposit additional funds equivalent to its Tier-1 capital in its headquarters.
The funds could be retrieved only if the acquired bank met financial difficulties.
DBS Bank is 'very reluctant' to act as a minority shareholder in Danamon, with the Basel III rules making such a deal 'punitive', CEO Piyush Gupta said as quoted by Bloomberg.
'It makes its capital inefficient and expensive. Any bank making an acquisition will have to keep this fact in mind when considering acquisitions,' Joseph Abraham, chairman of the Foreign Banks' Association of Indonesia, said in an email statement on Thursday.
Agus said BI 'understands' the DBS Group's decision to walk away from the acquisition deal. 'All corporate actions here must comply with Bank Indonesia's latest rules,' he said, expressing his hope that the DBS Group's local unit operating here, PT Bank DBS Indonesia, could grow healthily.
Danamon president director Henry Ho said the deal's collapse would have no impact on his bank's financial performance, saying that he was optimistic about the bank's growth prospects in the years ahead.
Danamon's shares (BDMN) on Thursday nose dived by 14 percent to touch Rp 4,450, its steepest drop in four years.
The lapse of the agreement for the DBS Group to buy a majority stake in Danamon 'highlights challenges in the regulatory environment, which may deter foreign interest in Indonesian banks,' said international ratings agency Fitch Ratings.
