B

ank Indonesia (BI) says it will decide on the Singapore-based DBS Group’s proposal to acquire Bank Danamon before the end of this year.

The decision might be the central bank’s last before it bestows its banking supervisory powers to the Financial Services Authority (OJK) in 2014.

Outgoing BI Governor Darmin Nasution said that the central bank was processing the paperwork submitted by the DBS Group and remained in communication with Singapore’s central bank, the Monetary Authority of Singapore (MAS), about the acquisition.

“God willing, the decision will be made by BI,” Darmin told reporters on Friday when asked on whether the decision on Southeast Asia’s largest banking turnover would be done in 2013 while BI still possessed banking supervisory
authority.

Darmin, however, declined to give his imprimatur to the deal in the short run, saying that BI still had outstanding issues with Singapore’s central bank on the acquisition. “We are still discussing certain things with the MAS, so just wait. God willing, it will be completed.”

Darmin, who is slated to be replaced by Finance Minister Agus Martowardojo when his appointment ends in May, remained tight-lipped when asked whether he would approve the deal before he left the central bank.

During “fit-and-proper” tests with lawmakers, Agus said that reciprocity was “important” in the acquisition plan, vowing to assist Indonesian banks to expand overseas if elected BI governor.

The DBS Group’s announcement in April 2012 of plans to acquire a 99 percent stake in Danamon for US$6.8 billion was greeted by concern from politicians and local bankers worried about the overwhelming dominance of foreign lenders in the local banking industry.

Some lawmakers, for example, have proposed revising provisions the nation’s banking laws allowing foreigners to own a 99 percent of stake in a bank and to introduce a 40-to-49 percent cap, which would effectively prevent the DBS acquisition.

Darmin previously said that the acquisition had turned “political”, reflecting the immense political pressure exerted on BI on the deal, although the central bank has been mandated by law as an independent institution.

Despite the political controversy, however, the DBS Group’s plan has been welcomed by analysts, who have said that it might create more competition in the local banking industry, which has been frequently criticized as an oligopoly.

If the takeover plan proceeds, it would certainly boost business in the small and medium enterprise (SME) credit segment, where Danamon has a strong footing.

The segment has been known for high lending rates and to have been long dominated by state-owned Bank Rakyat Indonesia (BRI), according to Creco Consulting banking expert Raden Pardede.

“In the short-run, Danamon might not be able to topple the dominance of BRI, which still has an unrivaled network of SMEs,” Raden said in a telephone interview  on Friday.