BII purchase is shortcut for Mandiri to lead retail market<\/p>\n
By: Berni K. Moestafa<\/p>\n
JAKARTA (JP): Bank Mandiri, the country's largest bank, is set
\nto shortcut its way into leading the retail market with the
\nacquisition of PT Bank Internasional Indonesia (BII), despite
\ncritics claiming the move as untimely.<\/p>\n
Bank Mandiri chief financial officer K. Keat Lee said he hoped
\nthe acquisition would accelerate Bank Mandiri's efforts to
\nstrengthen its base in the retail market.<\/p>\n
\"We find it (BII) to be a natural fit,\" he told The Jakarta
\nPost in an interview on Friday.<\/p>\n
Bank Mandiri, whose corporate banking accounts for some 82
\npercent of its credit portfolio, recently unveiled plans to
\nacquire the largely retail-oriented BII.<\/p>\n
Under the plan, BII will become a subsidiary of Bank Mandiri.<\/p>\n
Lee said the acquisition would allow Bank Mandiri to instantly
\ngrab a chunk of the retail market, faster than would be possible
\nthrough organic growth.<\/p>\n
He said BII owned the second largest credit card base after
\nCitibank with a 12 percent market share, as against Bank
\nMandiri's 2 percent.<\/p>\n
Other consumer products, where Bank Mandiri has no foothold,
\nare debit cards, Internet banking and phone banking, he said.<\/p>\n
\"We are trying to extract the synergy (from BII),\" Lee
\nexplained.<\/p>\n
For example, he said, Bank Mandiri could replicate BII's
\nInternet system in develping its own.<\/p>\n
He added that Bank Mandiri could also create synergy through
\nthe combination of the two banks' back office systems.<\/p>\n
Analysts, however, have questioned the timing of the
\nacquisition, reasoning it would burden Bank Mandiri, which had
\njust recently consolidated its operations.<\/p>\n
Bank Mandiri was founded through the 1999 merger of state Bank
\nExim, Bank Bumi Daya, Bapindo and Bank Dagang Negara.<\/p>\n
What followed was a long and tedious task of consolidating the
\nfour banks' operations.<\/p>\n
Upon the completion last March, Bank Mandiri's branches shrank
\nto 546 from 740, its staff to 18,000 from 26,000.<\/p>\n
The result is the country's largest bank worth Rp 260 trillion
\n(about US$23.3 billion) in assets, dwarfing previous giants like
\nBank Negara Indonesia (BNI) and Bank Central Asia (BCA).<\/p>\n
Lee said following the acquisition of BII, Bank Mandiri's
\nassets would grow further to about Rp 304 trillion.<\/p>\n
The acquisition and its preparations also come at a time when
\nBank Mandiri plans to float its shares in the Jakarta Stock
\nExchange and in the New York Stock Exchange sometime this year.<\/p>\n
Bank Mandiri had said earlier that it expected to finalize the
\nacquisition by September at the latest.<\/p>\n
Lee refused to go into details over Bank Mandiri's listing
\nplans, as stock market regulations called for a silence period.<\/p>\n
The privatization of Bank Mandiri is part of the government's
\nagreement with the International Monetary Fund (IMF).<\/p>\n
Lee rejected the notion that the acquisition was untimely.<\/p>\n
According to him, when the government offered Bank Mandiri to
\nacquire BII, it was an opportunity hard to resist.<\/p>\n
Although Bank Mandiri was confident of the benefits from the
\nacquisition, Lee said the bank had yet to figure out BII's place
\nunder Bank Mandiri's grand strategy.<\/p>\n
\"We aim to make Bank Mandiri a universal bank, strong in the
\nretail and corporate sector,\" he explained.<\/p>\n
He said Bank Mandiri's strategy was to balance its lending at
\n50 percent for the retail and corporate sector.<\/p>\n
Adding BII into the picture, Lee said Bank Mandiri would
\nnonetheless develop its own retail market share.<\/p>\n
The names, BII and Bank Mandiri, will coexist in the retail
\nmarket, he explained.<\/p>\n
Consequently, Bank Mandiri and BII will be competing for the
\nsame consumers, but Lee added the market was more than big enough
\nfor the two of them.<\/p>\n
\"I wouldn't say it's a head-to-head competition, we'll be
\nfacing other banks as well,\" he said.<\/p>\n
He said the need to stabilize BII's operation and to \"calm
\nthings down\" had been the main reason of first making BII a
\nsubsidiary of Bank Mandiri.<\/p>\n
Unconfirmed reports cited that BII had suffered a severe rush
\nfollowing news that it would be merged into Bank Mandiri.<\/p>\n
Lee did not rule out the possibility of a full merger later
\non.<\/p>\n
The government had initially considered to merge BII into Bank
\nMandiri.<\/p>\n
BII's merger or acquisition is seen as the best option to
\navoid its liquidation, due to the bank's mounting nonperforming
\nloans (NPLs).<\/p>\n
BII is a unit of the heavily indebted Sinar Mas Group. More
\nthan half of the bank's loans, or some $1.2 billion, has been
\nchanneled to Sinar Mas.<\/p>\n
The government fears that if Sinar Mas defaulted on its debt
\npayments, it could trigger a rush on the bank, which the
\ngovernment must cover under its blanket guarantee scheme.<\/p>\n
BII's NPLs are almost certain to become unmanageable this
\nyear, after Sinar Mas' Singapore-based Asia Pulp and Paper (APP)
\nannounced a debt standstill in March.<\/p>\n
Of the group's total debt to BII, $1 billion belonged to APP.<\/p>\n
Lee said that BII would transfer all of Sinar Mas' loans to
\nthe government prior to the acquisition by Bank Mandiri.<\/p>\n
To this end, BII is undergoing a due diligence, which Lee
\nexpects to be finalized within two months.<\/p>\n
According to Lee, Bank Mandiri's capital adequacy ratio (CAR)
\nmay drop to about 25 percent from 32 percent after acquiring BII.<\/p>",
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