Bank mergers<\/p>\n
In normal economic conditions there are four goals if a
\ncompany or bank decides to merge with other companies or banks.
\nFirst, to make the total assets bigger so as to enable them to
\ncompete with the established institution peers. Second, to
\nincrease their performance which will create a sound company or
\nbank. Third, to expand their market share. And fourth, to
\ndiversify their market.<\/p>\n
Taking into consideration that in the last 15 months Indonesia
\nhas experienced monetary and economic turmoil, the foregoing four
\ngoals cannot be considered valid anymore. The merger of national
\nbanks will only create banks with relatively small total assets,
\nespecially if we compare them with banks elsewhere in ASEAN. The
\nsecond goal may be achieved though, but only temporarily. The
\nmerged banks which in the beginning will free from nonperforming
\nloans (NPL), will fall ill by the end of 1999, as long as
\nIndonesia is not free from the monetary and economic crisis as
\nwell as corruption, collusion and nepotism.<\/p>\n
Neither will the third goal be achieved due to the extent of
\nthe NPL. The market share of the merged banks, that should have
\nbeen sizable, will only fall to the pre-merger status quo level.
\nAs to the fourth goal, the addition of the market segments will
\nstill rely on each bank that merged. Consequently, if the merger
\nis forced the outcome will be far from optimum and will only cut
\nthe number of existing banks.<\/p>\n
In the past six months the Indonesian banking industry has
\nsuffered from severe bleeding. The bleeding in this context is
\nthe negative spread resulting from the high cost of money (plus
\nor minus 35 percent) compared to the interest (plus or minus 20
\npercent).<\/p>\n
If we see from the asset side, the income from interest has
\ndeclined sharply as debtors in the real sector have generated
\nonly very small profits to pay the interest combined with the
\ndecrease of their purchasing power.<\/p>\n
As for the liabilities side, banks should honor their
\nobligations to depositors to pay interest of 65 percent annually
\n(for one month deposits).<\/p>\n
It can be concluded that mergers will be beneficial if the
\nnational economic conditions show signs of recovery. Therefore,
\nthe first priority should be given to the effort to bring down
\nthe deposit interest rate to a more reasonable level (20 percent
\nto 24 percent per annum), strengthening the rupiah to Rp 7,500 to
\nRp 8,000 against the U.S. dollar and minimizing corruption,
\ncollusion and nepotism.<\/p>\n
In these conditions the banking industry will be able to
\nregain its positive spread and the real sector will also be able
\nto generate sufficient profit which in turn will enable them to
\npay interest as they can produce goods at a reasonable price and
\nthe purchasing power of the people will gradually grow.<\/p>\n
Based on a temporary prediction, it is expected that this
\ncondition will be reached within the second half of 2000, i.e.
\nthe stability of the politics will be back on track after the
\nnewly elected president is legalized by the People's Consultative
\nAssembly and the new cabinet installed in early 2000.<\/p>\n
SETYOBUDI TARIADI<\/p>\n
Jakarta<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/bank-mergers-1447899208", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }