Four foreign banks eye local lenders

Urip Hudiono, The Jakarta Post, Jakarta

The central bank's efforts to shape up Indonesia's banking sector seem to be bearing fruit, with the announcement of the industry's latest series of merger and acquisition plans.

Four foreign banks have expressed an interest in acquiring small-sized lenders here, Bank Indonesia Deputy Governor Siti C. Fadjrijah told reporters Monday, while five local banks may be on the cusp of merging.

"The foreign lenders that have approached us consist of two from India, one from China and another one from the Middle East," she said on the sidelines of a rural credit workshop.

"There are also three to five banks that will merge ...," she further said, adding that all of the banks were small-sized private banks. "However, they have still to officially submit their plans to BI."

Siti declined to elaborate further on the merger and acquisition plans, which come after the recent acquisition of local lenders Bank Haga and Bank Hagakita by the Netherlands-based Rabobank, and Bank IndoMonex by the State Bank of India.

The central bank wants to reduce the number of Indonesian banks from the some 130 currently in existence to between 70 and 80 financially stronger banks by 2010 in line with its "Indonesian Banking Architecture" (API) blueprint for the consolidation of the industry.

Consequently, BI is requiring all Indonesian lenders to have a minimum capital of Rp 80 billion by 2007, and Rp 100 billion by 2010. This is expected to encourage small banks to either increase their capital, merge with other small lenders or allow themselves to be acquired by larger banks.

BI recently issued a package of incentives for banks planning to undergo mergers and acquisitions, including temporary more lenient funding requirements and possible tax breaks to be worked out with the government.

The central bank also introduced its "single presence policy", barring investors from taking a controlling stake in more than one bank, although this policy has since been put on hold due to its impact on state-owned banks.

BI has also established criteria for "high performing banks", that will be converted into "anchor banks", and be given priority in fronting up mergers and acquisitions.

BI expects Indonesia's banking sector to end up with only up to three international-class banks with over Rp 50 trillion in capital eacg, five national banks, and 50 focused banks with up to Rp 10 trillion in capital each.

BI Governor Burhanuddin Abdullah said the central bank would revise its criteria for high performing banks so as to focus more on their lending capabilities and track records.

"Among the criteria we will review is the bank's level of intermediation in providing loans as this is really important. We will review this criterion for all state-owned, private and foreign banks," he said.

The previous criteria for anchor banks included a maximum net non-performing-loan (NPL) level of 5 percent, a minimum capital adequacy ratio (CAR) of at least 12 percent and a loan-to-deposit ratio (LDR) of 50 percent.

Indonesia's banking sector has been in the doldrums this year, with lending growth expected to reach only between 11 and 13 percent, and between 15 and 18 percent in 2007, from the usual 18 to 20 percent growth.

Accordingly, BI is setting up a program to encourage lending -- particularly to Indonesia's small and medium enterprises. This will also involve increasing the number of credit consultants working in the banking sector, Siti said. (06)
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