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Indonesia to see more mergers, acquisitions of banks this year
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The Financial Services Authority (OJK) has been pushing banks in Indonesia to consolidate in order to strengthen the national banking system. (Shutterstock/Anton Violin)
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ergers and acquisitions in Indonesia’s banking industry are projected to flourish this year as foreign investors, mainly from Japan and South Korea, have begun to acquire local banks, while big state-owned and private lenders have also shown interest in acquiring the smaller ones.
There are 115 commercial banks currently operating in Indonesia, slightly down from 118 in 2015. Despite the decline in number, regulators have said the number was still “too many” as the country still had the most banks in the ASEAN region.
The high number of banks poses a difficulty in supervision for regulators, particularly the Financial Services Authority (OJK), which has been pushing lenders to consolidate in order to strengthen the national banking system.
Aside from making it difficult for supervision, a high number of banks exposes the whole industry to external risks when global financial markets become more unpredictable, according to the financial regulator.
In order to speed up banking consolidation, the OJK has allowed foreign investors to have more than a 40 percent share in local banks, as long as the deal involves buying two lenders and merging them.
Japanese financial services giant Mitsubishi UFJ Financial Group, Inc. has tapped into this opportunity through its subsidiary MUFG (previously called The Bank of Tokyo-Mitsubishi UFJ, Ltd.). It aims to increase its share in Indonesian private lender Bank Danamon to more than 73.8 percent, to build a strong foothold in Indonesia.
Yasushi Itagaki, Bank Danamon director of global alliance strategy, said the reason for MUFG’s aggressiveness in acquiring local banks was that Indonesia was an attractive country to invest in as the country had a fast-growing middle class and low banking penetration.
MUFG also has shares in small-sized lender Bank Nusantara Parahyangan (BNP), which will be merged with Bank Danamon. BNP initially started as a local bank based in Bandung, the capital city of West Java, and has been expanding nationwide since then.
“MUFG's approach in Indonesia is very long term. That’s why MUFG decided to invest in these two banks [Bank Danamon and BNP]. After the merger, we will have a better platform to serve our customers,” he told The Jakarta Post in Jakarta recently.
The merger between Bank Danamon and BNP is still pending approval from the OJK and the shareholders of both banks. “We will hold a shareholders meeting on March 26 related to the merger plan,” said Rita Mirasari, Bank Danamon corporate secretary.
Another Japanese investor, Sumitomo Mitsui Financial Group Inc., has stepped up its game by acquiring shares in Bank Tabungan Pensiunan Negara (BTPN) on Feb. 1. Its other local subsidiary, Bank Sumitomo Mitsui Indonesia (SMBCI), will be merged with BTPN.
Investors from South Korea have also shown interest in investing in Indonesian banks. One example is the acquisition of a 77 percent share in small-sized lender Bank Dinar by South Korea’s financial services firm Apro Financial last year. Apro Financial also owns a 99 percent share in another small lender Bank Oke Indonesia. The two local subsidiaries of Apro Financial will be merged as well, effective as of May 2.
Recently, the Industrial Bank of Korea (IBK) acquired a 71.68 percent share in Bank Mitraniaga. IBK has also become the controlling shareholder of Bank Agris. The South Korean bank will merge two publicly listed local lenders, namely Bank Mitraniaga and Bank Agris. After the merger, the combined bank will have a core capital of between Rp 1 trillion (US$70.8 million) and Rp 5 trillion.
Big local banks are also joining the game. Jahja Setiaatmadja, president director of Bank Central Asia (BCA), said recently that the country’s biggest private lender would acquire a private bank in the BUKU I category soon. Banks categorized under the BUKU 1 category are those with core capital of less than Rp 1 trillion.
“We haven’t publicized the bank’s name yet because we are still negotiating the price. It is still in the due diligence process,” he said.
OJK executive head of banking supervision Heru Kristiyana recently hinted that BCA would acquire small-sized lender Bank Royal Indonesia in the near future.
State-owned lender Bank Tabungan Negara (BTN), which largely focuses on mortgage lending, has earmarked Rp 1 trillion in its budget for inorganic growth, including an acquisition plan.
“We plan to acquire a life insurance company, a venture capital firm and an asset management company this year,” he told the Post.
Banking expert Paul Sutaryono said mergers between small banks would enable them to survive. By staying small, he said, they would not be able to penetrate the market due to limited capital.
He added that the entrance of foreign investors into Indonesian banks would make the competition between local banks more intense, which meant that they would strive to set better strategies in order to offer the best services to customers.
