Ten Billion Dollar Club

Seven companies listed on Indonesia Stock Exchange (IDX) currently have market capitalization over US$10 billion.

They are Astra International (US$19 billion), Telkom Indonesia (US$18.3 billion), Bank Central Asia (US$15.5 billion), Bank Mandiri (US$12.25 billion), Perusahaan Gas Negara (US$11.34 billion), Bank Rakyat Indonesia (US$11.16 billion), and Unilever Indonesia (US$10.4 billion).

Combined, these Seven Giants have market capitalization of US$97.95 billion.

Looks like the 10 Billion Dollar Club will not get new member soon. Why? Because, the eight largest company, United Tractors, only has market cap of US$6.9 billion. Unless this company will grow at least another 45% this year.

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BCA Finance launches Rp500Bn bonds

PT BCA Finance kicks off the offering of Rp500 billion bonds with five maturities (15-48 months). The proceeds will be used for working capital.

BCA Finance also offers sub-ordinated bonds of Rp100 billion. The company had total asset of Rp1.82 trillion as of Sept 30, 2009. The financing company reported net profit of Rp264 billion in nine months of 2009 on sales revenue of Rp573.9 billion. The company's net profit grew substantially from Rp50 billion in 2004 to Rp192 billion in 2008.

BCA Finance is controlled by Bank Central Asia with 99.58% ownership. The company involves in motorcycle and cars financing.

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Mandiri takes No.2 spot

State-bank Mandiri is the largest bank in terms of assets (Rp366.5 trillion as of Sept 2009), but the bank is only second behind Bank Central Asia (BCA) in terms of market capitalization (or value, if you like). Still, Mandiri's stock price outperformed Bank Rakyat Indonesia (BRI) to take the number two spot from BRI.

According to Yosefardi.com, Mandiri has market capitalization of Rp97.4 trillion as of December 30, 2009, higher than BRI (Rp93.4 trillion), but still far behind BCA (Rp119.6 trillion). But in terms of market value per asset, BRI is better than Mandiri, because BRI's asset was only Rp275.99 trillion as of Sept 2009.

Mandiri's stock price surged 132% this year, while BRI increased 67%. BRI reported net profit of Rp5.3 trillion in Jan-Sep 2009, while Mandiri booked Rp4.62 trillion profit in the same period.

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BCA profit surged 36% to US$330 million, people?

Bank Central Asia (BBCA) reported net profit of Rp3.3 trillion or about US$330 million in the first half 2009, surged 36% from the same period last year. What crisis?

Indonesia's major banks keep telling "good news" to their "shareholders", but probably not for the depositors and debtors. 

BCA said its strong first half results were driven by increases in net interest income and fee-based income, and by a tax rate of 23% in the first half 2009 compared to 30% in the first half 2008. 

The bank received a benefit of a 5% reduction of income tax rate following the implementation of Government Regulation No. 81/2007 for qualified listed companies so that BCA's full year 2008 income tax rate was adjusted to 25%. How generous the government is.

Indonesians are also generous to BCA. Third party funds grew by 15.2% to Rp219.4 trillion at the end of June 2009, where total deposits increased 13.7%. Outstanding loans? Well, it increased 12.3% only to Rp107.3 trillion.

They got people's money for 2%, and then loaned them to people at above 14%. Such a huge spread is considered "inefficient" for the economy, but generous for the shareholders. That's why BCA, like BRI, booked over Rp19 trillion net profit in the 2004-2009 period only. Where in the world you can get that?

BCA is controlled by Budi Hartono family (Djarum Group). Market capitalization? US$9 billion. Unbelievable! Djarum and Farallon acquired 51% shares of BCA for few hundred million USD, and in seven years, they got US$4.5 billion plus dividends. Probably the dividends only had repaid the capital investment to acquire the bank.

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BCA drops 6.5%

Stock price of Bank Central Asia (BCA) lost ground this morning with 6.54% drop on news about placement of shares by Farallon.

BCA was heavily traded with over 20 million shares exchanged hands in the first hour of trading. BCA has left its bottom at Rp2025 in October 2008 to reach Rp3500 in January 5th, 2009. But then the stock retreated to as low as Rp2300 in early March before regained grounds an touched new high at Rp3975 two weeks ago. Since then, BCA keeps falling to reach Rp3575 this morning.

BCA is one of the most profitable banks with combined net profit of Rp18.1 trillion or around US$1.8 billion in the last four years (2005-2008).

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Djarum controls 92,18% Farindo Investment

Farallon Capital and Alaerka Investment (controlled by Djarum Group) changed ownership structure at Farindo Investment (Mauritius) Ltd which controls 51.18% PT Bank Central Asia (BCA) Tbk, an official at Bank Indonesia said today.

"Under the new structure, Alaerka controls 92.18% shares in Farindo while Farallon the remaining 7.82%," the officer said.
Initially, Alaerka only owned 9.36% while Farallon at 90.64%. According to BCA's financial report in September, Farallon Capital, Robert Budi Hartono & Michael Bambang Hartono are the ultimate shareholders of Farindo Investment. With the transfer, Alaerka now has indirect ownership of around 46% at BCA which as market capitalization of USD6.8 billion.
Jahja Setiaatmadja, CFO at BCA admitted the change. "Yes, the management received the letter from our shareholders about the change and we had reported it to Central Bank and Bapepam," Jahja said when I contacted for confirmation.
Both my source at Central Bank and Jahja don't know the value of the transaction. "It's beyond our authority. It's a matter between shareholders. But one thing for sure, there will be no management or governance change at BCA," Jahja said.
"The transaction is not on BCA shares. Farindo would still controls 51.18% shares in BCA. That's why they have no obligation to disclose the transaction," an officer at Bapepam argued.
According to the latest report of BCA registered shareholders to JSX on January 5, 2007, as of December 31, 2006, foreign entities control 93% shares. BCA share price closed at Rp5,000 on Monday trading.

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Antam refinancing

BCA & Bank Mandiri provide USD121 million to refinance PT Aneka Tambang (Antam) Tbk's bond issued in 2003. Antam issued USD200 million bond in 2003 to finance its FeNi III project. The new facility bears interest of SIBOR+1.5% (6.9%) with maturity in five years. BCA provides USD71 million and Mandiri at USD50 million.

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Indonesia in 2007

12 months ago I chaired a seminar discussing economic outlook for 2006 with several respected talking heads. The conclusion was Indonesia would grow faster in third quarter 2006 as the full impact of fuel price hike in October 2005 faded out after six months or so. Unfortunately, as shown by Central Burea of Statistic (BPS), the economic growth in Q3 has been the weakest at 5.5% only.

Part of the problems is low absorption of 2006 state budget in which spending for capital and goods for in Jan-Oct well below 50%.
The Central Bank's interest rate actually matched the prediction in Q3, but that's not the case with lending rates which remains too high to boost the economy. NPL, especially in state-owned banks, is high still.
Stock market is bullish though, and increasingly attractive for debt issuance. Foreign direct investment has been insignificant. Infrastructure projects are in slow-motion. Manufacturing industry's competitiveness dropped significantly. But export grew impressively? Well, thanks to huge increase in commodity price. Domestic consumption slowed down. Automotive is the worst.
Last week, I attended the same seminar discussing outlook for 2007. The speakers, Miranda Gultom (Deputy Governor of Central Bank), Sri Mulyani Indrawati (Minister of Finance, represented by economist Chatib Basri who is currently special staff for Mulyani), Mari Elka Pangestu (minister of trade affairs). The conclusion, Indonesia in 2007 would be better off. That simple? What kind of Indonesia we have next year?
Political & Security: Stable! (Important political event will be Jakarta gubernatorial election)
Fiscal Sustainability: Cautiously optimistic! (take into account the shortage in tax collection in 2006, slow progress of privatization of SOEs through stock market, slow absorption of budget)
Monetary: Stable! (Low inflation, Central Bank's target for key inflation is 7%). Central Bank's focus will be encouraging banks to improve the intermediation role. But how?
FDI: Remains low! Some wait the deliberation of Investment Law (in the discussion with parliament). Government promised to pass the law before the end of 2006. The new law is expected to give more protections to foreign direct investment and create level playing field for domestic and foreign investment which are currently regulated with different laws.
Energy: Volatile! (in supply & price)
Job market: Slow growth!
Consumer spending: Rebound, slow growth! (the planned increase in civil servants salary, minimum wage hike. Car market is expected to grow from 310,000 unit to 370,000 unit next year, still far below 2005 level at 520,000 unit. Motorycle sales dropped 18% this year and would grow 10% next year, but still below 2005 level. But consumption would still the country's strength supported by what economist Chatib Basri called Indonesia's hidden economy.)
Banking: More consolidation (merger/acquisition), lower NPL, lower interest rates, higher lending! In 2006, despite lower interest rate, lending has been hampered with low absorption. BCA, for example, signed Rp10 trillion new loans in 2006 but only Rp4 trillion that had been absorbed in 10 months (till October). Only plantations and mining performed well.
Property market: Oversupply, falling price! (Property market dropped 10%-20% in 2006 due to lower purchasing power & high lending rates. Lower lending rates could improve the market, but oversupply lingers)
Manufacturing: Stagnant! No significant investment! Main driver would be expansion projects of existing investors.
Infrastructure: Remains slow! Land acquisition & financing issues are still major problems.

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The Richest Indonesians & The Ironies

What a coincidence! Out there, Dow Jones quoted Forbes Asia's rich list, naming Sukanto Tanoto (owner of Raja Garuda Mas/RGM) as its Indonesia richest. At home, newspapers quoted SOE Minister Sugiharto pledge his support for state bank PT Bank Mandiri Tbk to take legal action toward recalcitrant debtors. Mandiri had named RGM as one of the debtors with no good faith.

While it's difficult to verify the exact figures, Sukanto's wealth according to Forbes reached US$2.8 billion, well above Putera Sampoerna (2.1), Eka Tjipta Widjaja (2), Rahman Halim (1.8) or R. Budi Hartono (1.4) and Aburizal Bakrie (1.2). In the previous list, Forbes named Halim as Indonesia's wealthiest while Sukanto was not even in the top five list. Wondering how the Forbes list has changed so significantly in the last few months.
Detik.com reported Sukanto is still in the police's fugitive list. But I'm not sure whether he is listed there still.
It's true that Sukanto once named a fugitive. His name also linked closely with Unibank which was closed down in 2001 but none held responsible for third party liabilities in the bank. The case isn't closed yet.
Sukanto's wealth mainly derived from palm oil business. He has pulp & paper empire, and recently oil and gas as well.
Surprisingly, no Sjamsul Nursalim in the top 10 list. Riady family, Tommy Winata, and Mum'in Ali Gunawan are out of top 10 as well. Riady family is partnering with Forbes for Indonesian edition, scheduled early next year.
Like it or not, agree or disagree, Forbes list could help Indonesia's tax officers chasing their tax payments or Bank Mandiri's bargaining position on bad loans. The list also useful for politicians, regent, governor candidates, or hopeful president candidates.
If you follow years of Forbes’ rich list, there is no significant change on the names of Indonesian richest. The difference is only on the amount of wealth & the rankings. The wealthy Indonesians could be categorized in several groups based on how they got their fortunes.
First, cigarette groups. We have Sampoerna family (even though they sold out the cigarette business to Phillip Morris), Wonowijoyo (Gudang Garam), Hartono (Djarum), and Peter Sondakh (Bentoel).
Second, forestry & plantation groups. We have Eka Tjipta Wijaya family (Sinar Mas Group), Sukanto Tanoto (Raja Garuda Mas), & Prajogo Pangestu (Barito).
Third, consumer goods. We have Salim and Wings Group.
Fourth, energy & engineering groups. We have Bakrie family, Panigoro (Medco), Kris Wiluan (Citra).
Fifth, property group. In this group we have Tan Kian (Dua Mutiara), Haliman Trihatma (Podomoro), Tommy Winata-Sugianto Kusuma (Artha Graha), Riady Family (Lippo).
Sixth, manufacturing. In this group we have Nursalim (Gajah Tunggal) for example.
So, mainly they got the fortunes from Indonesia’s rich & cheap resources (natural & human).
While most of these groups have expanded overseas (mainly China, India, or Brazil), Indonesian operations are still their main source of wealth. Most of these conglomerates were hurt by financial crisis, with the exception of cigarette groups.
But they have recovered in the last few years, thanks to the generosity of Indonesian people, the taxpayers. The state bailed out their bad debts. Some surrendered assets, but others managed to escape the financial responsibility easily.
Salim Group, for example, surrendered assets in 107 companies to pay around Rp56 trillion (US$6 billion) debt following the turmoil at Bank Central Asia (BCA). Government sold almost all the pledged assets with recovery rate of around 35%. Nursalim also did the same to pay his Rp28 trillion (US$3 billion) debt, with lower recovery rate.
Government also spent almost US$2 billion to bail out Bank International Indonesia (previously owned by Eka Tjipta’s Sinar Mas, currently controlled by Temasek).
That’s why there is almost no significant change in names listed in Forbes, the latest edition and in 1990s. The fact that Sukanto & Eka Tjipta are listed as number one and third in the ranking sparked criticism about how they created the wealth.
Both Sukanto & Eka Tjipta have strong pulp/paper & plantation (mainly crude palm oil) businesses through APRIL (RGM) Holdings & Asia Pulp & Paper (APP) respectively. Both groups have been the subject of continues allegation of environmental groups over massive deforestation in Sumatra Island.
WWF report few months ago said that APRIL and Asia Pulp & Paper (APP), the Indonesian paper producers, are accelerating the deforestation of Sumatra's jungles in spite of a bid to portray themselves as green.
According to the report, APP has been responsible for about 80,000 hectares of natural forest loss every year, equivalent to roughly one-half of the Indonesia province of Riau's annual forest loss since 2002. As of 2005, the company controlled nearly one-fifth, or 520,000 hectares, of the natural forests left on Riau's mainland. All these forests are under threat, as are any additional forests that APP acquires in its quest to fill its wood supply gap and expand pulp production.
WWF didn't publish the same press release on APRIL. But WWF Monitoring Brief June 2006 elaborated the organization's analysis on APRIL's activities.
Jikalahari (Riau NGO alliance) investigators have found evidence that APRIL's mills accepted wood from legally questionable third party source as late as May 2006. WWF admitted in the report that it calls APRIL to stop sourcing timber from this area until completion of the government legal verification process.
One NGO leader wrote cynically in Indonesian media recently that if you want to be rich, do the forestry business in Indonesia like Sukanto & Eka Tjipta. Other names listed in the Forbes report also have been regularly accused of various illegal practices such as fraud on reforestation funds or involvement in drugs & narcotics trading, gambling operation, or fishy deals with government and the military. But none of them convicted or worse various interest groups make huge chunk of money from the allegations on these richest men.

/Named a Suspect/
Apart of environmental concerns, the Forbes report has also been responded by Indonesia’s largest lender (by asset), Bank Mandiri, which happens to be the largest lender to Sukanto’s RGM. The bank has, several times, classified RGM as the debtor without good faith in settlement of almost US$500 million debts. Mandiri demands an increase in debt installment following the huge jump in pulp prices worldwide.
The day Forbes announced the rich-list, Indonesian minister for state-owned enterprises (Mandiri’s shareholder) pledged his support for Mandiri’s plan to take legal action against recalcitrant debtors, especially RGM. RGM denied all the charges arguing it follows the debt restructuring agreed upon few years ago.
A director at Mandiri was quoted by Indonesian newspapers saying, “You may rich, but pay your debts,” responding the list.
But it’s the police who surprised many when it announced the plan to reopen the investigation on Sukanto, not for the alleged environmental crime or his debts at Mandiri, but on a suspected banking crime that almost untouched in five years.
Just days after Forbes published the list, Indonesian police announced that it has resumed the investigation on Sukanto, named a suspect in a banking crime few years ago. Police declared that the case, involving Unibank---a bank initially owned/controlled by Sukanto and his wife Tinah Bingei, has been reopened after five years of almost no significant progress in investigation despite the fact that Sukanto had been named a suspect.
Unibank was closed down in 2001 leaving the state paying all third party liabilities (Rp3.9 trillion, almost US$400 million) with no shareholders held responsible. Sukanto was named a suspect on irregularities of export L/C worth US$230 million.
"Based on a meeting between Police Chief and Attorney General in August 2006, Sukanto's case has to be reopened and his status is still as suspect. The case is being handled by police team for corruption crime (Tipikor)," Paulus Purwoko, chief of public relations division at National Police Headquarter as reported by Indonesian media.
The sudden announcement failed to surprise the media at the time of eroding trust on the country’s campaign to fight corruption. Many raised the question, would the police be serious this time? Why the police reopen the case after so long? Could this be just part of ‘political’ game?
"Whatever the results might be, the reopening of the case has made Sukanto, well-known for his generosity overseas, shivering," a journalist from respected magazine commented the move. So far, police has not confirmed yet on when they would summon Sukanto for investigation.
The fellow journalist mentioned about Singapore-INSEAD's Tanoto Library or Carnegie Mellon's Tanoto Professorship. The owner of Raja Garuda Mas (RGM) also established Tanoto Foundation, which provide scholarships.
It’s not about his donations that make people doubt the investigation, but mainly the power politics in the country’s corrupt-legal system. Police might finalize the investigation, but state prosecutors may drop the case like what’s happened with the recent corruption allegation on Eddie Widiono (state-owned electricity company PLN).
Other intriguing issue is the unavailability of legal cooperation between Indonesia and Singapore. While Sukanto normally come to Indonesia, he stays in Singapore. “The problem, we have no bilateral agreement on this,” sighed the deputy attorney general Basrief Arief, who is also the Chief of Corruptors Hunting Team.
Besides, the five-year time lag since the Unibank’s closure in October 2001 is critical especially when it comes to witnesses. That’s why Attorney General’s Office said they would start the investigation all over again. This is clearly a big test for the country’s tattered image on corruption eradication campaign. Without serious efforts to end bad governance in Indonesian business, we can’t expect a cleaner sheet in the future rich lists.

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BCA profit at US$224 million, US$2.3 billion cash

PT Bank Central Asia (BCA) Tbk reported net profit of US$224 million in the first half 2006, grew 16.35% from the same period last year.

According to its audited financial report to JSX today, BCA recorded total asset of Rp157.63 trillion (US$17.3 billion) as of June 30, 2006, reflecting a 6% growth from June 2005.
BCA booked net interest margin of Rp4.67 trillion or a strong 27.9% growth from first half 2005. BCA's net operating income grew by 20.1% in the period, mainly due to significant increase of almost 20% in human resources cost.
BCA sits on huge cash & near cash of Rp21.3 trillion (US$2.3 billion), increased 60.6% from June 2005.
Farindo Investment, a JV between Farallon & Djarum Group, is the controlling shareholder at BCA with 51% shares.

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Indonesia banking consolidation

A decade ago, Indonesia had 240 banks. Financial crisis in 1998 had cut significantly the number to 131 banks at the moment. It was the crisis that forced the consolidation in the country’s banking industry. But with per capita income of below US$1,500, the number is way too big and it cost the country a huge inefficiency of banking operations.

Under Indonesia Banking Architecture (API) launched in 2004, entry to the market has been tightened with minimum capital of Rp3 trillion (US$335 million) to open a new bank. Besides, banks, including the banks established by regional administrations, should have minimum capital of Rp100 billion by 2010.

In June 2005, Bank Indonesia (the central bank) launched the banking consolidation policy to anticipate the implementation of Basel II Accord by 2008. Under the policy, banks should have minimum core capital of Rp100 billion (US$11 million) as of 2010 and a minimum of Rp80 billion by the end of 2007. Those who failed to meet the requirement will be punished with limited operation such as maximum amount of third party funds at 10 times of core capital and maximum loans of Rp500 million (US$550,000).

The central bank actually hoped for voluntary mergers before 2007. But there are only few voluntary mergers and acquisitions so far. Some small-medium banks have tried to raise capital through stock market, but the progress has been slow. The latest major merger was back in December 2004 when three banks (CIC, Danpac & Pikko) merged. Last year, two banks (Arta Graha & Inter Pacfic) merged and Sinar Mas reentered the banking business with the acquisition of small bank PT Bank Shinta. But overall, the consolidation has been too slow.

Currently total capital of 131 banks is Rp120.8 trillion or average of Rp916 billion. It seems bigger than the requirement of Rp100 billion. But the Top 20 banks contributed to most of the capital and leave others with big question mark. There are way too many banks that serve one or two customers only, sometimes related to the owners or related parties/families with core capital less than US$10 million.

According to financial report as of June 2006, the Top 20 banks has combined capital of Rp114 trillion which leaves another 111 banks with combined capital of only Rp6 trillion or average of Rp54 billion. Most foreign-owned banks in the country have core capital above Rp100 billion with Bank of America as the only exception, raising the question of its future in Indonesia.

Profitability is also a big issue in Indonesian banking industry. As of May 2006, total assets in Indonesian banking system is Rp1514 trillion (around US$165 billion) while total profit is Rp15 trillion, reflecting a return on asset (ROA) of 1%. But why these banks don’t want to merge?

Central Bank and bankers argues that banking consolidation needs tax incentives, the authority of government. But no such incentives provided.

Desperate on the bank’s owners to merge voluntarily and the slow progress in banking consolidation through capital requirement, Bank Indonesia then launch the single presence policy, which practically forbid a company or someone owns more than a bank. But the policy most likely would only consolidate big banks, not the small banks. For example, Temasek-related banks (Danamon, BII & DBS Indonesia), Khazanah (Bank Niaga & LippoBank), Panin Group (Panin & Victoria), Standard Chartered (Standard Chartered Indonesia & Bank Permata), or Rabobank (Rabobank Indonesia and two banks it acquired recently—Bank Haga and Hagakita, from Djarum Group which controls Bank Central Asia/BCA) and ANZ-ANZ Panin.

If the central bank fair enough to implement the policy, state-owned banks should be merged or consolidated as well. But in normal situation, it’s difficult to merge state-owned banks. Efforts to merge PT Bank Negara Indonesia (BNI) Tbk and PT Bank Tabungan Negara (BTN) collapsed last year on political maneuvers from the proponents and opponents.

Vice President Jusuf Kalla indirectly opposed the idea to merge state-owned banks arguing they have different functions in the economy. Strong resistance has always been at the state-owned banks themselves, especially workers and the management, something the government can’t just neglect.

This is great dilemma and political test for Indonesian government as neglecting the consolidation based on single presence policy would be discriminative and against the fair competition law.

Confronting such dilemma, Central Bank has softened its stance on single presence policy. Instead of forcing the owners to divest or merge the banks, they’re given option to establish a holding company to manage the banks.

Some banks have responded the move in different ways. Djarum Group, who owns the largest private bank PT Bank Central Asia (BCA) Tbk with Farallon Capital, for example, decided to sell two other banks (Haga & Hagakita) to Rabobank last month. But this had leave Rabobank with further question, whether it will merge its subsidiary with the two banks. Singapore’s OCBC has decided to merge OCBC with NISP.

Singapore’s Temasek is yet to decide the future of its banking ownership in Indonesia (Danamon, BII & DBS Indonesia). Malaysia’s Khazanah has repeatedly denies speculation about merger of its Indonesian banks (Niaga & Lippo). While market has speculated the possible offloading of Niaga and keeping LippoBank, Khazanah has option to merge Niaga & Lippo or establish a new holding. The same would apply to Stanchart or Rabobank.

How about the small local banks?

Some small-medium banks have entered the stock market to raise capital. There are some, which plans to float their shares in the coming months. But most of them are being the targets of acquisition by bigger groups. There are around 20 banks in this category. And we will see more mergers and acquisitions to come.

Further consolidation is subject to Central Bank’s firm decision to implement the architecture it drafted. Under the architecture, there will be three categories of banks operating in Indonesia. First is international bank, those with capital above Rp50 trillion (US$5.6 billion); second, national bank (capital from Rp10 trillion to Rp50 trillion); and focus bank (Rp100 billion to Rp10 trillion). None of the banks operated in Indonesia falls into the first category. A merger of state-owned banks could create one. And only three existing banks are eligible to get the national bank status with nation-wide operation.

Such categorization would consolidate further the banking industry and streamlining the operation of many banks which then boost average assets per customer in most banks and reduce significantly the banking operational costs. We will see more the merger of small-to-medium size banks to get the status as national banks.

Those who will be affected by single policy

Group Indonesian Banks

OCBC OCBC Indonesia
Bank NISP
UOB UOB Indonesia
Bank Buana
Khazanah Niaga
Lippo
Temasek Danamon
BII
DBS
Stanchart Stanchart Indonesia
Permata
Rabobank Rabobank Indonesia
Haga
Hagakita
Panin Panin Bank
ANZ Panin
State-owned banks Mandiri
BRI
BNI
BTN
BEI

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Mandiri is under pressure still

Reading Bank Mandiri's financial statement published this morning, some might say the largest bank have cruised the difficult times and may expect higher net profit this year. The bank recorded net profit of Rp510 billion in the first quarter 2006. That's the reason. For the whole financial year 2005, the state-owned bank booked net profit of Rp660 billion, dropped 85% from 2004. But that's just too early. Why?


In fact, Mandiri's Q1 2006 is worse than Q1 2005 in terms of net profit (Rp519 billion). And if we take a look at the bank's core operation, the net interest margin at Rp2.06 trillion is actually lower than Q1 2005 at Rp2.21 trillion. The bank managed to boost other operations income, but failed to reduce operation costs.
The bank's employment expenses is already the highest among Indonesian banks with average cost of Rp150 million per employee, 50% higher than Bank Central Asia (BCA), the most profitable bank, at Rp102 million per employee.
The gross non-performing loan ratio is obviously higher in Q1 2006 at 27.66% against 18.88%, while net NPL ratio increased from 10.9% to 15.84%. It means, a significant progress in trimming NPL is paramount.
What's happened in the last few months? No progress made after the failure deal with Sampoerna Family to settle Kiani Kertas's US$200 million bad debts. The negotiation to improve loan arrangement with Raja Garuda Mas is not started yet. No immediate solution on Great River International. Suba Indah is also in trouble. Argo Pantes have just survived the bankruptcy lawsuit, but long way to go on Mandiri's loans. The question is whether the management of Mandiri has been tough enough to deal with big guys like Kiani, Raja Garuda, Great River and Argo Pantes?

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The trials we missed, The winners takes all

It's just inches away for former president Soeharto to be a free man. The cabinet has prepared the presidential decree for a full rehabilitation for him and the first president Soekarno as the sweetener. In fact, as reported by Tempointeraktif.com, Attorney General's Office had lifted the overseas travel ban on Soeharto. So, he could get first-class medical treatment overseas very soon. I do agree with Koran Tempo's editorial today that insists a trial for Soeharto and after that the president may issue an abolition or amnesty.
But I do realize that's a daylight dreaming especially with the current political structure, a result of Soeharto's clever moves. Most people still in the believe that Soeharto always pretend to be a sick person whenever prosecutors try to have him stands trial. But even if he's mentally healthy, as I believe that's the case, the power structure has been weak enough to make it happen. And this also applies to those banking criminals. Why?
Soeharto's aides were so clever to endorse the political liberalization aftermath the boss downfall. The reformists blindly campaigned for a full liberalization without ever calculating the impacts on their movements, especially on Soeharto and his cronies. Without limitation on number of political parties entitled to contest the 1999 election, the nation was stunned with almost 45 political parties registered to contest.
The New Order regime smartly invested in establishing political parties, not to resume the power, but mainly to prevent one single party win the election with clear majority votes. The strategy worked pretty well. PDI-P came out as the winner but only with 33% seats in the parliament. Golkar was the second with 20%-something, while others well below 20%. That was the first victory for Soeharto followed by the second when Megawati lost the presidential election to Abdurrahman Wahid. Golkar clearly was behind Wahid's win. Wahid appointed Marzuki Darusman, a Golkar executive, as the Attorney General. The then Golkar chairman Akbar Tanjung won the election of the House Speaker.
On the surface, the new administration led by Wahid and Megawati was seen as a strong coalition of nationalists. Wahid did start the prosecution on Soeharto and named him a suspect with corruption charges. Soeharto didn't show up in the first hearing in August 3, 2000 and missed two consecutive hearings in August 31 and September 14, 2000. Two weeks later, judges rejected the trial and released Soeharto from city arrest status.
Wahid once sent Susilo Bambang Yudhoyono (that time as mining and energy minister) to negotiate the return of Soeharto family's wealth (Time magazine once reported the amount) to the state. Soeharto's oldest daughter Siti Hardijanti Rukmana (Mbak Tutut) admitted the meeting with Yudhoyono that time.
But then the coalition broke up with shameful impeachment of Wahid supported immensely by Golkar, PPP, other parties, and most importantly the silent support from Indonesian military.
Megawati replaced Wahid and Hamzah Haz (former minister under BJ Habibie administration, then chairman of PPP) was the elected VP. We had new coalition of PDI-P, Golkar and PPP; plus the military. In such a coalition, Megawati administration was hopeless when it comes to Soeharto's trial. Megawati found a new friend, Akbar Tanjung and his Golkar Party without which she wouldn't survive till the 2004 election. Her administration revived the investigation in June 2002, but Soeharto's medical team managed to stop the trial when they announced Soeharto's permanent brain disorder.
In the 2004 election runoff, politicians 'managed' to impose stricter requirements for political parties which entitled to contest. Megawati lost the election despite formal support from Golkar which came out as the winner of legislative election. Military, despite its out-of-politic claim, was in fact behind Megawati's main contender, Susilo Bambang Yudhoyono, a retired army general. Megawati tried to boost her popularity with a promise to bring Soeharto to court, but people just didn't buy. Critics on Yudhoyono's partner, Jusuf Kalla (key Golkar figure and businessman), were also ignored. SBY-JK won anonimously the election. Few months in office, Yudhoyono explicitly told public that he would prefer to forget the past and move on with the new chapter. And last year he paid a visit to Soeharto when the former boss was rushed to a hospital. VP Jusuf Kalla and other political figures did the same. They echoed the call to put an end to Soeharto's trial. This week, almost all of the national leaderships join the chorus and this time Soeharto would likely score the biggest victory. Freedom! Rehabilitation! Abolition! Whatever.
Soeharto's crony capitalists have scored their own victories at the time of reform euphoria in the 1998-1999 period. This is the period when Soeharto's loving 'pupil' BJ Habibie lead the transition administration. Habibie's administration signed the famous Master of Settlement and Acquisition Agreement (MSAA) with bank owners who committed banking crimes i.e. the violation of legal lending limit (LLL).
Under the MSAA, Habibie's administration agreed not to bring the bankers to court for their respective crimes as long as they payback the amount of bailout loans. These bankers agreed with condition that they don't have to pay in cash. Government said OK, cash and nearcash or other assets that could be sold.
Salim, the owner of Bank Central Asia (BCA), then paid few trillions of rupiah in cash and shares in 107 companies to pay around 60 trillion debts. Sjamsul Nursalim (Gajah Tunggal) agreed to pay one trillion rupiah in cash and Rp27 trillion in assets. Soeharto's golf buddy Mohammad 'Bob' Hasan and Soeharto's cousin Sudwikatmono also signed the similar MSAAs. Government have sold out almost all of these pledged assets at heavy discounts, some bought by the debtors themselves through special purpose vehicle companies established overseas.
Other bank owners signed different forms of MSAA such as MRNIA or APU, which were basically the same i.e. exchange the freedom with payments of debts. Some says these crony capitalists invested a lot in some political parties to get these agreements, something extremely difficult to proof. And these agreements were the saviour for the banking criminals, bullets proof!
These are the trials that we missed so much. And these supposedly crime suspects are the winners that takes all, including our dream for justice. The least Yudhoyono could do, may be, is telling public his negotiations with Soeharto family during Wahid's administration to return the wealths to the state.
PS: A banker from Switzerland sent greetings to Soeharto. He asked me whether it's true that Soeharto is free to go overseas. Unfortunately he didn't tell me why he raised that particular issue!

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Govt to offload Permata and BII shares

PT Perusahaan Pengelola Aset, a state-owned company established to manage the assets previously controlled by Indonesia Bank Restructuring Agency (IBRA), would offload the remaining shares in two listed banks, Permata and Bank Internasional Indonesia (BII), Tempointeraktif.com reported yesterday.

Raden Pardede, PPA vice president director, said the company had secured government approval early this month. Govt through PPA holds 26.16% shares in Bank Permata and 5.52% shares in BII. PPA is about to appoint financial advisor for the divestments scheduled in second semester.
PPA also has shares in six other banks, 5.04% of Bank Central Asia (BCA), 10.5% of Danamon, 5.25% of Niaga, 2.64% of Lippo Bank, 28% of BTPN, and 6% at May Bank. PPA plans to divest these shares until 2008.
Government controlled majority shares of these banks through a massive recapitalization program that cost tax payers Rp660 trillion (US$70 billion) during 1998-2001 period. Government started the divestment with BCA to Farallon & Djarum in 2001, followed by Niaga to Commerce Berhad (Malaysia), Danamon and BII to Temasek Holdings (Singapore), Permata to Standard Chartered (UK) and Lippo to Khazanah (Malaysia).

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BCA booked US$400 million profit in 2005

PT Bank Central Asia Tbk, the largest private-owned bank in Indonesia, booked net profit of around US$400 million last year, increased 12% from the year before thanks to the higher fee-based income of 21%.

Jahja Setiaatmadja, finance director of BCA said, the significant increase in lending activities (increased by 34%) also contributed to the higher revenue. But BCA's loan to deposit ratio at 41.8% (increased from 30.6%) is still below the national average. That has invites criticism over the bank which survived the financial crisis with massive injection of government's recapitalization bonds (around US$6 billion).

Farindo Investment, a joint venture between Farallon Capital and Djarum Group, controls 51% shares in BCA. Farindo acquired government's shares in 2001.

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Single presence to be implemented Q3

Central Bank governor Burhanuddin Abdullah confirmed the implementation of single presence policy in Indonesia to be started in third quarter this year in a bid to consolidate the banking sector, Investor Daily reported today.

Under the new policy, an individual or enterprise is not allowed to be the controlling shareholder or beneficiary owner in two or more banks. With that, some banks should merge if the controlling shareholders decides to maintain ownership or should sell the stakes to other parties.

For example, R. Budi Hartono (owner of Djarum Group, ranked second behind PT Gudang Garam Tbk owner Rahman Halim in Forbes rich list) is listed as controlling shareholder at PT Bank Central Asia (BCA) Tbk, PT Bank Haga, and PT Bank Hagakita. BCA is the largest listed private-owned bank in Indonesia where Farindo (a joint venture between Farallon Capital and Djarum Group) controls 51% shares. It's not clear which option Budi Hartono would take.

Bisnis Indonesia reported that some bank owners have responded the plan with merger plans. "There are some who plan to merge their banks," said Rusli Simanjuntak, director at Bank Indonesia. He didn't disclose the names though.

Some bank owners have previously pledged their support and plan to merge under the single presence policy. Panin Group, for example, is ready to merge PT Pan Indonesia Bank Tbk with PT ANZ Panin Bank. Singapore-based OCBC is also considering the merger of its last year acquired PT Bank NISP Tbk with Bank OCBC Indonesia. Another Singapore-based bank UOB would also merge PT Bank Buana Tbk with PT Bank UOB Indonesia.

Meanwhile Temasek Holdings, the beneficiary owner of three banks in Idonesia---PT Bank Danamon Tbk, PT Bank International Indonesia, and PT Bank DBS Indonesia---is yet to respond the possible merger.

Standard Chartered Bank, the owner of wholly owned subsidiary PT Standard Chartered Bank and 31.55% shares in PT Bank Permata, is similar to Temasek. No respond. Malaysia's Khazanah National Berhad, beneficiary owner of Bank Lippo and Bank Niaga, is also tight-lipped on the issue.

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Richest Indonesians, My List

Below is my list of the richest Indonesian, based on their net worth in Indonesia and other countries:

1) Eka Tjipta Widjaya (major source of wealth: APP, Asia Food & Property, and finance)
2) Rahman Halim (Gudang Garam)
3) R. Budi Hartono (Djarum Group, properties, and 10% shares in BCA---the largest private-owned bank in Indonesia, Bank Hagakita, and Bank Haga)
4) Sukanto Tanoto (RGM International, APRIL)
5) Lim Sioe Liong (First Pacific, Indofood, Bogasari, Unggul Indah Cahaya, properties etc)
6) Sjamsul Nursalim (Gajah Tunggal tire, GT Petrochem, Singapore assets, Jakarta properties)
7) Soeharto & Family (Humpuss, Citra Group, Hanurata etc)
8) Putera Sampoerna
9) Mochtar Riyadi (Lippo properties)
10) Peter Sondakh (cash in hands, Bentoel)
11) Hashim Djoyohadikoesoemo (Khazakhstan and Azerbaijan oil and gas operations)
12) Aburizal Bakrie (Bakrie & Brothers, Bumi Resources, Energi Mega Persada, etc)
13) Paulus Tumewu (Ramayana)
14) Edwin Soeryadjaja (Adaro, MGTI, etc)
15) Sudwikatmono (Indika Group)

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Temasek exercise the merger of Indonesian banks

Temasek Holdings is reportedly exercising the merger of two of its subsidiary banks in Indonesia, the Bank International Indonesia (BII) and Bank Danamon, ahead of Central Bank's plan to implement single presence policy sometime next year. The policy would ban cross-ownerships in banks.
Investor Daily reported today that Temasek is preparing the plan to merge BII and Danamon. "Discussions are underway, but they are purely for internal purpose," said a source to the newspaper.

Temasek controls 59% of Danamon and 31% of BII. The merger of BII and Danamon would create a bank with total assets of Rp110 trillion (US$11 billion) and ranked fifth in the country behind Bank Mandiri, Bank Central Asia, Bank Negara Indonesia (BNI), and Bank Rakyat Indonesia (BRI). Temasek has another subsidiary PT Bank DBS Indonesia. A three-way merger of BII-Danamon-DBS would create a bigger bank than BRI.

Other shareholder that might be forced to merge their banks is Khazanah Nasional Berhad, Malaysia. The company has shareholdings in Bank Niaga (indirectly through Commerce Asset Berhad) and Bank Lippo (through Santubong Investment).
Standard Chartered (UK) might also have to merge its recently acquired Bank Permata with Standard Chartered Indonesia.
Djarum Group should merge BCA (Djarum is the co-owner of Farindo Investment which controls 51% shares) with two banks, Bank Haga and Hagakita, controlled by founding family of Djarum Group. Panin Group also has cross-ownership in Bank Panin and Victoria.
While it is positive to consolidate the banking industry, opposition may come from minority shareholders, especially for publicly-listed banks. Besides, there is controversy surrounding the state-owned banks. If the policy should be implemented accross-the-board, government should merge five state-owned banks (Mandiri, BNI, BRI, BTN, and BEI) with most likely huge political shakeups.

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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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Krisna Wijaya to lead bank super agency

Krisna Wijaya, a commissioner at PT Bank Rakyat Indonesia (BRI), had been appointed executive chairman of the newly established Lembaga Penjaminan Simpanan (Deposits Insurance Agency), a FDIC-like agency, replacing the old blanket guarantee scheme that cost the state of US$70 billion in banking bailout since 1997.
His long time boss at BRI, Rudjito, will also his boss at the super agency as Chairman of Commissioner Council.
The agency has started its operation last week with initial capital of Rp4 trillion (around US$400 million), amount that is just too small to cover all the third party funds in Indonesian banking system at around US$100 billion.
LPS is established according to the Law No. 24/2004 in which banks should pay deposits insurance premium of 0.2% of its third party funds every year. Krisna, in his last article, said LPS is vunerable with so limited capital in its hands.
Krisna lost the race to be deputy governor of Bank Indonesia (Central Bank) to Siti Ch Fadjriyah few months ago, but it seems he get ‘better deal’. Krisna was seen in various meeting with people close to president Susilo Bambang Yudhoyono (SBY). Some economists believe he is SBY guy.
Krisna also a productive analyst with weekly articles and comments in various newspapers and magazines, mainly on banking topic. He is the author of REFORMASI PERBANKAN NASIONAL: Catatan kolom demi kolom, a book published in 2000.
In the last few months, he actively urged government to ammend the law on investment and put the foreign-owned national banks like PT Bank Central Asia (BCA), BII, Danamon, Permata, Lippo, or Niaga into the category of foreign-owned banks that should be excluded of guarantee scheme.

He also expressed his fears that LPS would not be able to handle a significant bank collapse with only US$400 million capital. This is because of total coverage in the next six months and will only cover maximum Rp100 million (US$10,000) per depositor per bank by March 2007.

Born in 1950, Krisna graduated from Bogor Institute of Agriculture (IPB) in 1980 and got his master degree from Gajahmada University,Yogyakarta in 1990. He was appointed director of BRI in 2000 in charge of microbanking and technology.

Technology almost killed Krisna’s career. In May, Supreme Audit Agency reported to State-Owned Ministry that it found irregularities and indication of corruption at IT expenses of US$100 million at BRI. No clear follow-up of the criminal case and government even installed Krisna as commissioner at the bank and now as chief executive of a super agency for the banks. Well, this is Indonesia!

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