Thursday, December 08, 2005

Single Presence Policy

As I mentioned in the previous article, Indonesia has too many banks and desperately needs a consolidation through merger and acquisitions. But I am afraid the Central Bank's plan to enforce a single presence ownership policy wouldn't do any help to force the consolidation and then improve local banks.
Today, newspapers quoted Bank Indonesia deputy governor Siti C. Fadjrijah saying the single presence policy is actually intended to be implemented on private banks, which are considered to be too numerous.
I've done extensive research on banks ownership in the country. I found that only two privately-owned local banks (Haga and Hagakita) have the same shareholders. Most of these medium to low size banks owned by hundreds of different shareholders. A single presence wouldn't work in that sense.
Government of Indonesia owns controlling shares in five banks (Mandiri, BNI, BRI, BTN, and BEI). I doubt the central bank could enforce single presence policy on these banks. Look at how difficult to merge even two state-owned banks BNI and BTN only to get the president's decision to drop the plan.
Fadjrijah seems to confirm that by saying state-owned banks may be exempted from the single presence policy. "For the state-owned banks, from what I know, there is a plan to release all (the government's ownership) in them, apart from several banks. So the government will in the end own two or three banks," she said.
Again, I am afraid this not the case for the government. Minister of State-Owned Enterprises Sugiharto once supported the BNI-BTN merger plan, but president SBY decided to stop it. Sugiharto also rejects any plan to divest more government shares in several banks.
Foreign banks and investors ultimately would be the prime target of this single presence policy. Standard Chartered, for example, might have to merge with Bank Permata (31% shares) even though it is not easy, as Astra International also owns 31% shares of Permata.
Singapore-based United Overseas Bank (UOB) might also have to merge its Indonesian wholly owned subsidiary (UOB Indonesia) with the recently acquired Bank Buana (53%) or OCBC Indonesia should merge with Bank NISP (70,66%). UOB and OCBC are Singapore-based banks.
Temasek Holdings, Singapore government's investment company, owns shares in three banks, directly or indirectly. (Remember that Central Bank Rule No.5/25/2003 stated the bank's ultimate shareholders/beneficiary owners are those who control directly more than 25% shares or in combination with others).
The Temasek-linked banks are DBS Indonesia, Danamon (through Asia Financial Holdings), and BII (through Sorak Financial, a joint venture with South Korean Kookmin Bank).
Malaysia's Khazanah Berhad also owns directly 52,05% of Bank Lippo through Santubong Investment and indirectly control Bank Niaga (through Commerce Asset Berhad in which Khazanah owns 25%).
In reality, I should say, it is not easy and potentially face legal battles. Today central bank officers admitted the single presence policy was still in its early stages of discussion and need a lot of reviews. But Central Bank believe the policy would help minimize the potential for fraudulent banking practices. There were many cases in the past where those owning more than one bank used these banks to shift funds around for the purpose of covering up irregularities in their bookkeeping, the Central Bank argued.
Well, it was particularly true to state-owned banks. Look at the amount of recapitalization bonds issued to bailout the state-owned banks in 1998-1999. So, I don't understand why state-owned banks should be exempted if the reasoning behind the single presence policy is too minimize fraudulent banking practices.
OK. Let say that Bank Indonesia will go ahead with the plan. Most likely the single presence policy would only consolidate the foreign-owned banks. They will be bigger and stronger. Imagine a merger of Danamon, BII, and DBS or Standard Chartered-Permata, UOB-Buana, OCBC-NISP, and Lippo-Niaga. They would pose a bigger threat to state-owned banks and make life even more miserable for local-owned medium or smaller banks.
An analyst, meanwhile, told me other possibility that stand-alone banks like BCA and the state banks might get better opportunity to takeover the remaining local banks. But I am afraid the chance is slim for this to happen.
I prefer an acceleration of minimum capital requirement as arranged in Indonesian Banking Architecture (API). The timing is just perfect when banks are struggling to deal with high inflation and narrow interest margin. It would be difficult for these banks to grow the capital from accumulated profits. The room for sub-debt issuance to raise capital adequacy ratio (CAR) is also limited.

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2 Comments:

Anonymous Mahler said...

Haga and Hagakita not only banks with same ultimate shareholder. You sould have look at Panin Bank and Bank Victoria connection.

December 16, 2005 11:03 AM  
Blogger elina kartini said...

saya setuju. merger 2 bank besar malah akan mengakibatkan praktek monopoli dan persaingan usaha tidak sehat. apakah setelah danamon dan BII merger, KPPU akan "memecah"nya lagi dengan alasan bertentangan dengan UU Praktek Monopoli?

elina kartini

December 04, 2007 1:29 PM  

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