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Jakarta Post

State sharia banks merger possibility in spotlight

  • Tassia Sipahutar

    The Jakarta Post

Jakarta   /   Tue, January 6, 2015   /  08:12 am

A plan to merge state-owned sharia banks into one large lender is among the Financial Services Authority'€™s (OJK) main projects this year, as part of a broader commitment to consolidate the nation'€™s overall banking industry.

OJK chairman Muliaman Hadad said he had held talks with the State-Owned Enterprises (SOE) Ministry regarding the consolidation and that they were currently developing a '€œmechanism'€ to integrate the three lenders and one business unit.

There are currently three state-run sharia banks '€” namely Bank Mandiri'€™s Syariah Mandiri (BSM), Bank Rakyat Indonesia'€™s (BRI) BRISyariah and Bank Negara Indonesia'€™s (BNI) BNI Syariah'€”and a sharia business unit under Bank Tabungan Negara (BTN).

'€œWe will examine the kinds of options available. If a physical consolidation is feasible in the near future, then why not?'€ Muliaman told The Jakarta Post in a recent interview. Possible plans for the merger have emerged over the years but none have ever come to fruition.

The three banks'€™ September financial reports showed that BSM remained the largest lender by assets at Rp 65.37 trillion (US$5.24 billion), followed by BRISyariah at Rp 18.55 trillion and BNI Syariah at Rp 18.48 trillion. BTN'€™s sharia business unit had total assets of Rp 10.53 trillion by the end of September.

Indonesia'€™s banking industry is the most fragmented in the region, with more than 100 banks, while most neighboring countries host fewer than 50 banks. Fewer than 10 retail banks operate in Malaysia.

The fragmented domestic banking system means Indonesian banks are less competitive because assets are spread and not concentrated. Some of the nation'€™s banks have had trouble expanding overseas due to their relatively small size in comparison to banks in Singapore, Malaysia and Thailand.

In recognition of these issues the OJK and Bank Indonesia have pushed for banking consolidation but have yet to draft a concrete policy.

Apart from supporting banking consolidation, the OJK will also ask banks to reduce their dividend payouts this year so that they can retain their earnings to boost their capital.

'€œThe more earnings retained by a bank, the more it will be able to beef up its capital to support business expansion,'€ he told the Post.

The SOE Ministry is also looking to slash the dividend payout ratio imposed on the four state-run banks for their operations in 2015.

Executives at the banks have previously stated that reduced payouts '€”down from 30 percent '€” will enable them to better channel loans and that capital injection could be postponed for several years.

Muliaman acknowledged that at present, Indonesian banks already held sufficient capital as required, shown by the latest banking statistics published by the OJK.

By October, the commercial banks'€™ capital, which is represented by the capital adequacy ratio (CAR) measurement, stood at 19.6 percent, higher than the required 8 percent. Foreign-owned and non-foreign exchange commercial lenders have even higher CARs.

Muliaman said such high capital reserves would help lenders manage shocks that might arise both domestically and from overseas.

'€œWe hope all bank owners, either in state or private banks, will take this chance to boost organic capacity in terms of capital,'€ he said.

The OJK is expected to convey its intentions regarding the banking industry during a meeting scheduled to take place on Jan. 16.

Another project of great importance for the OJK this year is the introduction of a new licensing procedure between the first and second quarter of 2015, according to Muliaman.

'€œAt the moment, banks that want to market a bancassurance product are required to apply for two licenses, from the banking supervisor and the insurance supervisor. We want such applications to be managed by one division only,'€ he said.

The new model, which will integrate all licensing procedures under one roof, is expected to improve efficiency between regulators and the industries they supervise.

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