Indonesia looks to foreign acquirers for consolidation in crowded banking industry
Indonesia has almost 2,000 banks and a currency thatâs plunged 11 percent since January, a combination overburdened regulators hope will prove irresistible to foreign acquirers.
The countryâs lenders are in much better shape than during the Asian financial crisis of 1997-98, and have stood up well to the weakening of the rupiah this year, said Fauzi Ichsan, chief executive officer of the Indonesia Deposit Insurance Corp., known as LPS. âConsolidation will be good and with a weakening rupiah, it would be cheaper for global investors to buy our banks,â Ichsan said in an interview last week.
Even after a few recent mergers, Indonesia still has 115 conventional and Shariah banks and almost 1,800 rural lenders, catering to the archipelagoâs more than 260 million people, data from the Financial Services Authority show. As the government has warmed to the i dea of foreign takeovers, Japanese banks, in particular, have stepped up, with Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. announcing plans to gain control of local counterparts.
Meanwhile, Australia & New Zealand Banking Group Ltd. has rekindled a long-running effort to sell its stake in family-controlled lender PT Bank Pan Indonesia, people with knowledge of the matter said last week.
The Southeast Asian nation doesnât have a sufficient number of experienced finance staff to sustain so many institutions, said Ichsan. âAs a regulator we donât have enough bank supervisors and the industry doesnât have enough qualified bankers.â
Indonesian regulations make it difficult â" though not impossible â" for foreign banks to invest more than 40 percent in local lenders. Singaporeâs DBS Group Holdings Ltd. scrapped a bid to buy PT Bank Danamon Indonesia in 2013 after the ownership rule was intr oduced. Other deals have since been approved because they either involved buying two lenders and merging them, or purchasing distressed assets.
The rupiah has tumbled almost 11 percent since the emerging market selloff began in late January, prompting the central bank to raise interest rates four times and intensify market intervention by draining foreign reserves. But unlike the situation during the Asian crisis â" when the rupiah endured a steeper collapse â" Indonesiaâs banks have so far been relatively unscathed, Ichsan said.
âThe key indicators for banks are far better now,â Ichsan said, recalling the hysteria that swept through the markets during the Asian crisis, when he was a bonds trader at Citigroup Inc. in Singapore. Indonesia closed 16 lenders as the industry-wide capital adequacy ratio sank to a negative 15.7 percent, and nonperforming loans soared to almost 50 percent.
Now, the capital adequacy ratio for Indonesian banks stands at about 22 percent, among the highest in the region, while the gross nonperforming loan ratio has fallen to 2.7 percent, according to data from LPS, whose chairman is a member of the countryâs Financial System Stability Committee. The agency has a record 101.3 trillion rupiah ($6.8 billion) available in the event it is called on to pay back savers should a bank fail, Ichsan said. That figure may reach 120 trillion rupiah by the end of next year, he added.
However, recent progress on bank mergers has been slow. Since Bank Indonesia laid out a consolidation program in 2005, only a handful have been merged while 90 rural lenders have either been shut down or are in the process of winding down.
Still, the LPS has enough money to cover a run on deposits at seven lenders, including a so-called systemically important bank, Ichsan said. LPS covers savings up to 2 billion rupiah per customer and the total a mount of guaranteed deposits was 2,411 trillion rupiah as of July, LPS data show.
âThe size of our fund is sufficient to instill confidence in the the public not to rush to a bank to withdraw money even if the bank isnât too healthy,â Ichsan said.
BloombergSource: Google News Indonesia | Netizen 24 Indonesia