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SBC Indonesia, part of London-based HSBC Group, plans to strengthen its grip on retail banking and trade finance following its anticipated merger with local lender Bank Ekonomi Raharja next year.

HSBC Indonesia is in the process of integrating its business with the smaller Indonesian bank, which will result in the foreign bank branch becoming a locally incorporated firm.

As part of the plan, HSBC Indonesia’s parent company in the UK is investing at least US$200 million in the merger process, which includes the establishment of a local data center in Jakarta.

HSBC Indonesia country manager and CEO Sumit Dutta said the group had also arranged a capital injection of at least $1 billion to support its long-term plans once the merger process concludes in April next year.

“The $200 million are a kind of the total cost for the integration, and we’re getting $1 billion of capital. It’s a bit of commitment, but we’re investing for the long-term future,” he told The Jakarta Post in an interview on Monday.

Part of the investment consists of “system onshoring”, which includes building a local data center that was previously located in Hong Kong in accordance with a guideline issued by the Communications and Information Ministry, while also bringing some of the group’s global IT systems to Indonesia, he said.

HSBC group chief operating officer Andy Maguire said the “system onshoring” process was expected to provide world-class technology to customers in the future unified bank.

“Subsequent to that, we’ve got a lot of plans for some very new and exciting digital initiatives and build capabilities for our customers here in the second half next year,” Maguire said.

With an enhanced IT system, Maguire said HSBC Indonesia would try to compete with other banks in the country by penetrating the market segment of tech-savvy young people who already had knowledge of digital and mobile innovations.

HSBC Group took over Bank Ekonomi in 2009 and currently holds a 98.9 percent share of the Indonesian bank.

The merger program is to comply with a single presence policy that was issued by Bank Indonesia (BI) in late 2012. The policy requires a controlling shareholder in more than one bank to consolidate its ownerships by either merging the banks, forming a parent company or establishing a holding firm.

As a foreign bank, HSBC Indonesia has certain limitations on its expansion. Through a merger with Bank Ekonomi, HSBC Indonesia will be able to expand its operations and offer services in 31 cities, from the current six, under Bank Ekonomi branches.

Armed with digital propositions, the bank also sees a big opportunity to expand its retail banking products and services to the employees of its corporate and commercial clients.

Facing a tight competition in the digital banking world, Dutta said HSBC Indonesia would thrive with its strengths in having interconnectivity with its global network, pointing out the fact that the group remains to be the world’s biggest trade finance player.

Aside of benefiting HSBC Indonesia’s customer base, he said such strengths would also help Bank Ekonomi’s customers, who were mostly small and medium entrepreneurs, to get access to the global market more efficiently compared the services given by local lenders.

Dutta said the Financial Services Authority (OJK), along with other regulators and President Joko “Jokowi” Widodo, “fully supported” the integration as it would be the first ever instance of a foreign bank branch merging with a local PT.

“Our group CEO Stuart Gulliver met with President Jokowi two months ago in London. He explained to the president that we’re going ahead with the integration as we believe in this country and we want to continue to invest,” he said.