Media tycoon Dahlan Iskan, during his time as state-owned enterprises minister, said that the executives of four state-owned banks did not seem happy with the government'€™s plan to merge their banks as part of efforts to strengthen competitiveness ahead of ASEAN Economic Community (AEC).

'€œNone of them want to lose their job as CEO,'€ Dahlan told a televised economic talk show in early 2014.

Dahlan expressed one of the many concerns that have arisen ahead of the integration of Indonesia into AEC. Local players seem unwilling to beef up their competitiveness.

Just few a days before the implementation of AEC, Indonesia could only merge the automatic teller machines (ATMs) and networks of the four big banks, instead of merging them into one big bank with deep pockets and assets.

The Association of Southeast Asian Nations (ASEAN) is scheduled to launch the AEC open market on Dec. 31, creating a single market and production base that will allow for the free flow of goods, services, investment, labor and capital across the region.

However, the Asian Development Bank (ADB) in its latest report stated that AEC would miss the deadline, especially for financial services. Indonesian banks will likely have to wait a little longer before tapping the opportunities that AEC promises.

'€œThe main constraint is the historical sentiment and ego [of bankers]. The government, as the owner [of the banks], has been too lenient. They probably don'€™t know where they will direct the banks. There is no clear road map that is consistent with the AEC timetable,'€ Lana Soelistianingsih, a senior economist from University of Indonesia, told thejakartapost.com on Tuesday.

Alongside Lana, executive director of the Institute for Development of Economics and Finance (INDEF) Enny Sri Hartati said the government'€™s failure to consolidate the four big state-owned banks would erase the chance of Indonesia having a bank listed with ASEAN'€™s seven-big banks.

Currently, four state-owned banks, namely Bank BRI, Bank Mandiri, Bank BNI and Bank BTN are operating discretely. Each of them has little money and they are less likely to benefit from AEC in the near term.

'€œIf the merger of the four banks took place, then there would be only one CEO needed. There must be a sacrifice, otherwise our country will only become a market for them,'€ Enny asserted, adding that there were about 170 million Indonesians who had yet to open a bank account.

Budi Frendsidy, a lecturer at University of Indonesia, offered a different solution. He suggested merging the state-owned banks Bank Mandiri and BNI to focus on corporate banking and merging Bank BRI and BTN to focus on microfinance.

Another option would be to order them to acquire smaller banks to enlarge their assets. '€œSo, there are two constraints in a merger process. First, the ego of bankers and second, the core business,'€ Budi said.

Blessing or curse?

Indonesia played a significant role in the formation of AEC, prior to the signing of the Kuala Lumpur Declaration on Nov. 22 with the leaders of Malaysia, Singapore, the Philippines, Myanmar, Cambodia, Vietnam, Laos, Brunei Darussalam and Timor Leste.

Indonesia is confident that it can compete with the nine countries of Southeast Asia, which together represent a US$2.5 trillion economy. However, there has been no deep study or evaluation process regarding the ability of Indonesian industries to effectively compete in the common market.

'€œIn the context of the financial industry, if foreign banks come in and disburse loans to illiterate Indonesians and small and medium-sized enterprises in unexplored regions, then it is a blessing. But if they only take up our money, it will be a curse,'€ Enny warned.

Financial integration, she further said, was more complex than trade integration and required more time for preparation. Liberalizing access to financial services is not as simple as reducing tariff rates on particular trade goods.

According to Lana, the ASEAN region is a highly attractive prospect as it is home to over 600 million people who are severely '€œunder-banked'€ and who have rapidly growing incomes.

However, in Indonesia, banks are concentrated in Java and in certain big cities.

'€œIn this regard, ASEAN banks could actually work in the unoccupied areas of Indonesia where bureaucracy is not an issue,'€ she said.

For instance, Lana added, Philippine-owned banks could grab markets in North Sulawesi or North Maluku. From a financial inclusion perspective, she said that banking penetration into unexplored markets could be positive.

'€œIf local banks attract citizens targeted for financial inclusion and at the same time ASEAN banks have the capacity to fulfill the target, then public welfare will be improved. It does not really matter which parties are doing it,'€ she said.

Lana agreed with the ADB report that AEC will miss the deadline.

First, Indonesian banks lack adequate assets compared with the big ASEAN banks such as May Bank and DBS Bank. Second, the merger and acquisition of state-owned banks is not very large. Third, policies to enlarge the assets of banks, especially for the four big state-owned banks, are not supported by a clear roadmap. (ags)(+)

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