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."

What?

Go to Temasekholdings.com.sg 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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