Wednesday, December 07, 2005

Banks forced to merge

For a country with per capita income of US$1,000 something, Indonesia ultimately has too many banks. We have 131 banks with total asset of US$130 billion. On average, it looks good with US$1 billion assets per bank. With total equity of US$10 billion, average equity is less than US$80 million.
But almost half of Indonesian bank assets are in terms of government bonds issued to recapitalize the almost-bankrupt-banks during 1998-1999 financial crisis. We, the taxpayers, support these banks. Without our tax, these banks would have collapsed. So, if you happen to be a banker or owner of these banks, better say thanks to the generous Indonesian people.
They sacrificed with higher fuel price (as government scrap the subsidy), but the state keep subsidize these banks through interest payment of government bonds. And Indonesian people (taxpayers) never default on their payments through State Budget.
But I don't want to write about that, this time. We're discussing the recent statement by Siti Ch Fadjrijah, deputy governor of Bank Indonesia (central bank). The lady said banks would be forced to merge through a new policy called single presence. The new rule will be implemented sometimes mid-2006.
What is single presence?
Well, if you are the owner (ultimate owner) of two or more banks in Indonesia, you should merge them. Such policy, the bank central argues, had been implemented in Thailand, Malaysia, and India.
Bisnis Indonesia put some banks with same owner like Bank Haga & Hagakita, Bank Danamon & Bank International Indonesia (BII), Bank Niaga & Lippo. Singapore's Temasek Holdings owned Danamon and BII, while Khazanah owned Niaga & Lippo.
Indonesian government owned all the state banks like Bank Mandiri, BNI, BRI, BTN, and BEI. I am not sure if central bank could force government to merge all these banks. Remember the cracks in cabinet recently on the proposed BNI-BTN merger?
Surprisingly, when journalists asked Fajdrijah about Danamon & BII, she said, "correct me if I'm wrong, both banks owned by two different companies. We have to look at that first."
Go to and we will find Temasek owns 56% shares of Danamon and 35% of BII. On top of that Temasek owns 28% shares of DBS with operation in Indonesia as well.
How about Malaysia's Khazanah Nasional Berhad? Khazanah has 100% Santubong Investments BV which acquired controlling shares of Bank Lippo. The Malaysian government investment arm also has 25.95% shares of Commerce Asset which control Bank Niaga.
The problem with Bank Indonesia's plan is definition on who should be considered ultimate owner of the banks. As for us, the taxpayers, the least Bank Indonesia can do is to make these banks more efficient and prevent lousy investors to control the bank like in the past.

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Anonymous Anonymous said...

The Government of Indonesia holds the majority ownership of a number of banks such as Mandiri, BRI, BTN, BNI, and numerous regional banks. Will "single presence" mean that all these banks must merge?
Or will the GOI be exempted from this BI ruling?

December 07, 2005 10:13 PM  
Blogger yosef ardi said...

That's my question too. As I put it in the article, I am not sure, central bank could enforce the rule to state-owned banks. But if that would be the case, it's totally unfair policy that might invite lawsuit against central bank to international arbitrary.

December 08, 2005 1:14 AM  
Anonymous Wonglondo said...

I think that you're wrong and the minister is right about Bank Danamon and BII. I didn't do any research (sorry for that), but if it is like you say, that Temasik holds 35 % of BII, it would mean they don't "own" that bank, but merely have a (minority) stake in it. Only having a stake cannot be a reason to merge banks, since many banks (if not all) have stakes in other banks...
Sorry for this one-issue comment (little time), I really appreciate your Blog.. Keep up the good work!

December 08, 2005 1:02 PM  
Blogger yosef ardi said...

Central Bank rule (I forgot the exact date and number of the decree) said controlling owner of bank is the beneficial owner who owns at least 25% shares.
I will update the article with in-dept research

December 08, 2005 1:08 PM  

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