Monday, November 13, 2006

Holding vs merger of state-owned banks

Responding the Central Bank's Single Presence Policy (SPP), government has launched an initiative to establish a holding company for state-owned banks (Mandiri, BNI, BRI, BTN & BEI). But some prefer merger of these banks. Which one is better?

Legislator Drajad Wibowo (former commisssioner at BNI) told Koran Tempo today that merger would be better to create a stronger bank. His view is completely different with his stance few months ago when he agreed on a BNI-BTN merger plan but rejected a Mandiri-BNI merger arguing the latter would create an overlap functions.
State-owned enterprises minister Sugiharto said earlier that government is reviewing the plan to respond Central Bank's policy. Establish a holding bank, either vertical or horizontal structure, is among the options available besides the merger. Kompas quoted Sugiharto last week saying out of so many options available, the holding company is the option left for further review. The review would be to decide whether to pick one bank as the operating holding or establish a new non-operating holding.
So far, there is no clear guideline from government about its policies on state-owned banks. VP Jusuf Kalla prefers a merger of Mandiri-BNI because of their similar functions, but keep BRI and BTN as independent banks with speficic tasks (BRI for SMEs, and BTN for housing). Guess why?
Previously some politicians argued against the merger saying that would be politically too sensitive. But Drajad told Tempo that a merger would be more sensible politically. Drajad's colleague, Dr Aviliani, who is also member of board of commissioners at BRI, prefers holding than merger. I'm not sure whether her view represents the BRI board or not. Drajad & Aviliani were economists at INDEF (think tank).
After the fuss over SBY's newly established team, it's interesting to watch the competition between the two camps (SBY & JK) over the holding vs merger issue.
Early this year, government scrapped a BNI-BTN merger plan on strong opposition from legislators and the management/workers of BTN. So, I just can't imagine the scale of political opposition on the merger of 5 state-owned banks.
Merger is also considered a violation of Govt Regulation No. 28/1999 about the merger, consolidation, and acquisition of banks which stated the bank emerged of the merger should not have assets more than 20% of the total national bank assets. The merger of 5 state banks would create a bank with 38% of national bank assets, Kompas reported.

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