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anking consolidation has been put on the agenda of president-elect Joko '€œJokowi'€ Widodo'€™s five-year term that begins this October '€” a policy that is expected to boost the competitiveness of domestic banks, especially in the regional market.

Arif Budimanta, a member of the Jokowi-Jusuf Kalla economic team, said the new administration had put banking consolidation on its agenda and was looking to establish two lenders that will focus on aquaculture and development during its first year.

Indonesia currently boasts the largest number of banks in Southeast Asia. That has resulted in the most fragmented banking industry in the region, with the average assets of local banks being extremely small compared to that of their foreign neighbors '€” making it difficult for banks even as big as Bank Mandiri to expand overseas.

Meanwhile, foreign banks have a firm foothold in the Indonesian banking industry as most of the nation'€™s top 10 lenders, which are not state-owned, are owned by foreign investors or financial institutions.

Fauzi Ichsan, who heads Jokowi'€™s banking and finance advisory team, said the ideal number of banks should be 80, versus the 119 that currently exist. However, he said he feared talks on banking reciprocity and foreign ownership caps would hamper consolidation instead of further it.

'€œBy capping foreign ownership in banks at 40 percent, foreign strategic investors will be deterred because they will not have controlling stakes, when they are actually the ones with the large funds that can assist the realization of consolidation,'€ he said.

Financial regulators have been aware of the need to consolidate the nation'€™s banking industry, but the implementation of it has been slow, with an average of only one to two mergers or acquisitions taking place per year during the past 10 years.

'€œWe hope to see mergers and acquisitions take place among [the 119 commercial banks operating in the country], supported by the new administration,'€ Financial Services Authority (OJK) chairman Muliaman D. Hadad said on Tuesday.

The financial superbody '€” which monitors banking, non-banking and capital market sectors '€” also expects consolidation to occur among lenders that are currently owned by the same shareholders, including shareholders that are foreign entities.

According to Muliaman, the OJK also hoped the new administration would push consolidation among state-owned banks: Bank Mandiri, Bank Rakyat Indonesia (BRI), Bank Negara Indonesia (BNI) and Bank Tabungan Negara (BTN).

Mandiri'€™s plan to acquire BTN that was unveiled earlier this year has been put on hold following widespread protests from BTN'€™s labor union and several house developers that said the acquisition would endanger BTN'€™s role as one of the country'€™s major mortgage providers.

However, the acquisition has been considered to be part of the government'€™s '€œconsolidation blueprint'€ that will leave Mandiri and BRI as the state'€™s two sole surviving banks.

According to Muliaman, the OJK will possibly ask the state lenders to strategically consolidate while waiting for the blueprint to be realized. '€œLenders with similar businesses can jointly develop their products and human resources and thus avoid overlaps,'€ he said.

Mandiri'€™s president director Budi Gunadi Sadikin said he counted on the next regime to help realize the consolidation, especially after learning that Malaysia'€™s CIMB Group was planning to take over fellow lenders RHB Capital and the Malaysia Building Society in its effort to become Malaysia'€™s largest bank.

'€œMalaysia has taken a better decision than Indonesia has,'€ he told reporters, citing the neighboring country'€™s preparedness to anticipate the upcoming regional banking integration in 2020.

BNI president director Gatot M. Suwondo also acknowledged that the current number of banks was too large compared to other countries and that it should be '€œscaled down'€.

The latest consolidation took place earlier this year when private lenders Bank Hana and Korea Exchange Bank (KEB) '€” both part of South Korea'€™s Hana Financial Group '€” merged and formed Bank KEB Hana.

Another consolidation in the pipeline would be between Bank Tabungan Pensiunan Nasional (BTPN) and Bank Sumitomo Mitsui Indonesia. Japan'€™s Sumitomo Mitsui Banking Corporation (SMBC) is currently the controlling shareholder of both lenders.