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Small banks’ shares surge on consolidation, digital bank boost
Several small banks have made it to the top gainers list on the local bourse lately.
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ublicly listed small banks’ share prices have been surging in recent weeks, a trend that analysts say is likely to continue over the year, as big companies eye stakes in such lenders to meet regulatory and market demands.
Lenders Bank Jago (ARTO), Bank Harda Internasional (BBHI) and Bank Neo Commerce (BBYB) are among the many “mini banks” that have been among the bourse’s top 10 gainers since the start of the year following news of their respective acquisitions. Such banks have core capitals below Rp 5 trillion (US$350.87 million).
Praus Capital research head Alfred Nainggolan said the price surge was a result of the Financial Services Authority’s (OJK) push for banking industry consolidation, the pandemic-induced acceleration of bank digitalization and the small banks’ low valuations.
“The trend is likely to continue,” he told The Jakarta Post in a phone interview on Tuesday.
OJK regulation No.12/2020 requires all banks in Indonesia to have at least Rp 2 trillion in capital by Dec. 31 and at least Rp 3 trillion by the end of 2022 to improve capital availability in the industry.
“This means that banks with capitals lower than Rp 3 trillion will seek to meet the regulatory requirement. When the owners of [small banks] cannot do this themselves, they are forced to consolidate, find new investors, thus creating an option for a merger or acquisition,” added Alfred.
Read also: Gojek acquires Rp 2.25t in Bank Jago shares as part of ‘long-term investment plan’
The rally was led by Bank Jago – formerly Bank Artos Indonesia – whose share price began rising in December 2020 when tech unicorn GoJek acquired 22 percent of the lender, even though the bank booked a net loss as of the first half of that year. Jago’s shares had risen 162 percent year-to-date (ytd) as of Thursday.
Bank Harda’s shares followed suit in February when the lender received shareholder approval to transfer a 73.71 percent ownership to PT Mega Corpora, a financial services firm owned by Chairul Tanjung. The lender’s shares have risen 509 percent ytd.
But not all publicly listed small banks that have seen a surge in their share prices have plans for a merger, acquisition or conversion into a digital bank, such as lenders Bank Victoria International (BVIC), Bank Ganesha (BGTG) and Bank Artha Graha Internasional (INPC).
The Indonesia Stock Exchange (IDX) suspended the trading of seven small banks’ shares on Thursday morning citing a significant price hike even though most of the banks did not have known acquisition or merger plans. The IDX wrote in a statement that investors were urged to “always pay attention to companies’ information disclosures.”
Read also: Gojek, Tokopedia secure funds, vote of confidence from big firms
Frederik Rasali, the vice president of Artha Sekuritas Indonesia, said the surge in the shares of small banks without such plans was a result of investor speculation.
“Maybe those banks do not have a plan at the moment, but with the trend currently taking place, investors are not wrong to speculate there may be investors coming in to form a new digital bank,” Frederik told the Post via text message on Wednesday.
“So for small banks without a plan for acquisition by big investors wanting to establish a digital bank, it could just be temporary.”
The pandemic has also pushed companies to acquire smaller banks to form specialized digital banks as large-scale social restrictions (PSBBs) – now rebranded public activity restrictions (PPKM) – boosted demand for digital financial services.
Of all digital service consumers last year, around 37 percent were new, according to the “e-Conomy SEA 2020” report by Google, Temasek and Bain & Company. Most of them planned to stick with their new behavior after the pandemic.
A case in point, publicly listed Bank Yudha Bhakti (BBYB) recently transformed into a digital bank called Bank Neo Commerce. The transformation took place after technology company PT Akulaku Silvrr Indonesia acquired nearly a quarter of the bank’s shares.
Read also: Bank Artos denies Gojek partnership rumors as shares surge
Meanwhile, publicly listed Bank Central Asia (BCA), trading under the ticker BBCA, acquired private lender Bank Royal Indonesia to establish Bank Digital BCA. BCA, the largest private lender in the country, is planning to launch the digital bank before mid-year.
Bhima Yudhistira, an economist at the Institute for Development of Economics and Finance (Indef), said that start-ups wanted to acquire small banks to diversify revenue streams and to complete their digital payment ecosystems.
“They also see that the margin for a financing or banking business in Indonesia is very lucrative,” Bhima told the Post on Feb. 18. “The digital financial sector also outperforms e-commerce and online transportation in terms of profitability as it does not require the burning of cash.”
The OJK is also planning to issue by the middle of this year a regulation on digital banks, according to OJK executive director of research and banking regulation Anung Herlianto in a statement on Feb. 18.
He said the regulation would require newly established digital banks to have at least Rp 10 trillion in capital. The regulation also requires conventional banks converting into digital banks to have at least Rp 3 trillion in capital unless they are part of a banking group, in which case the minimum is Rp 1 trillion.
He noted that Singapore-based unicorn SEA Group, through its e-commerce subsidiary Shopee, recently acquired private lender Bank Kesejahteraan Ekonomi (BKE) to convert it to a digital bank.
