T

he government is confident that the sharia units of state-owned banks will play a key role in boosting the market share of the struggling Islamic banking industry after a major overhaul.

Islamic banks’ market share in Indonesia, the world’s largest Muslim-majority country, has remained below 5 percent for the last several, despite having existed since the 1990s.

In an effort to stimulate the growth of nationwide sharia bank assets, the State-Owned Enterprises Ministry is mulling a proposal to allow Islamic lender subsidiaries owned by the four state-run banks — Bank Mandiri, Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI) and Bank Tabungan Negara (BTN) — to be merged into two new entities. Previously, the ministry floated the idea of merging all four sharia lenders — Bank Syariah Mandiri (BSM), BNI Syariah, BRI Syariah and BTN Syariah — into one.

“The ideal plan is to merge two sharia subsidiaries and the other two too. We can assess which match which,” the ministry’s assistant for business services, Gatot Trihargo, said recently.

According to Gatot, Minister Rini Soemarno expects the ministry and the four state-run banks and their subsidiaries to finish assessing the overhaul this year.

Concurrently, he said, the ministry has asked state-run banks’ managements to seek potential investors to join sharia lender subsidiaries, including contributing to building two future sharia banks, rather than just investing money. The state, he added, would still control the two new sharia lenders as majority shareholders.

“If we want to boost their equities to between Rp 5 trillion [US$381.3 million] and Rp 10 trillion, at least two of the four sharia banks should be merged in order to become a BUKU III lender,” he said.

BUKU III lenders are those that have core capital between Rp 5 trillion and Rp 30 trillion.

Gatot was convinced that the idea could boost the sharia banking market to 15 percent by 2019 as targeted by the government.

Separately, Financial Services Authority (OJK) sharia banking head Ahmad Buchori said that the merger would have a greater impact if immediately followed by other supporting measures.

“It will be significant if the plan is coupled with the conversion of several conventional banks into sharia ones, as with the plan currently set by Bank Aceh, which has Rp 22 trillion in assets,” Buchori said.

Bank Aceh, a regional development bank owned by the Aceh administration, is currently in the process of being converted into an Islamic lender; Aceh enforces sharia law, the only province to do so.

Mandiri president director Kartika “Tiko” Wirjoatmodjo said recently that the bank was looking for a strategic partner from abroad to develop BSM, as it would not be able to provide support every year indefinitely.

“We are in the process of seeking investors from the Middle East, because they have knowledge in sharia. Mandiri will remain a majority shareholder,” Tiko said.

BSM finance and strategy director Agus Handaya confirmed that the bank was seeking strategic investors that could provide capital and expertise.