Obstacles may slow down bank merger process<\/p>\n
JAKARTA (JP): Indonesia's ambitious plan to speed up mergers
\nin its troubled banking sector may not be going as smoothly as
\nexpected, analysts say.<\/p>\n
One of the hurdles, according to an analyst, could be the
\ndifficulty of assessing the share value of each bank in the
\nshare-swap mechanism.<\/p>\n
Stakes in a new bank will be based on the share value of each
\nmerging bank.<\/p>\n
\"Each party will try to inflate the value of its shares so as
\nto have a larger holding in the new entity,\" the analyst said.<\/p>\n
Legal consultants Rudy Lontoh and OC Kaligis also said this
\ncould be a problem.<\/p>\n
Even publicly listed banks' share prices did not reflect the
\nreal value of each share, he said.<\/p>\n
\"Share prices are also often manipulated.\"<\/p>\n
The problem of making a valuation stems from big differences
\nin banks' financial positions, he said.<\/p>\n
He said this could be seen by looking at indicators like
\ncapital adequacy ratio (CAR), asset quality, legal lending limit
\nand loan to deposit ratio (LDR).<\/p>\n
Measuring a bank's asset quality and bad debt level in
\nrelation to a share appraisal could be tricky, he said.<\/p>\n
\"I cannot tell you much about the prospects because details of
\nmerger procedures are still being discussed at Bapepam,\" said a
\nbanking analyst from a joint venture securities firm, who
\ndeclined to be named, referring to the share-swap mechanism for
\nmergers of public banks.<\/p>\n
Bapepam is Indonesia's capital market watchdog.<\/p>\n
He admitted, however, that there were several constraints that
\ncould put the brakes on the pace of the merger process.<\/p>\n
The first major merger proposal in the wake of the crisis was
\nannounced early this week by publicly listed Bank International
\nIndonesia (BII), Bank Dagang Nasional Indonesia (BDNI), Bank
\nTiara Asia, and two other small banks affiliated to BDNI.<\/p>\n
Because of BII's superiority, he said, BII would probably buy
\nthe other four banks.<\/p>\n
\"The other four banks will try to place a high value in their
\nshares, while BII will try to press them,\" he said.<\/p>\n
The volatility of the rupiah against the U.S. dollar should
\npose another problem.<\/p>\n
Before the crisis, the CAR ratios of BDNI and Tiara were above
\nBank Indonesia's 9 percent minimum level, the analyst said. Once
\nthe rupiah plunged to Rp 10,000 against the dollar, their ratios
\ndropped to below 5 percent.<\/p>\n
The CAR ratios could fall because the deflating rupiah's value
\nwould force banks to use their equity to compensate the increase
\nin the value in their foreign currency borrowings.<\/p>\n
\"In addition, the Loan to Deposit Ratios of local banks are
\ngenerally more than 100 percent,\" he said, meaning the banks had
\nbeen overextending their loans, raising the possibility of more
\nbad debts arriving amid the economic crisis.<\/p>\n
Given such conditions, he said, BII would probably want about
\n70 percent of the new entity.<\/p>\n
\"With the other two non-listed banks in real messes, BII
\nshould be able to get them for free.\" The two banks are
\naffiliated to BDNI.<\/p>\n
Another analyst, from a local securities firm, said that with
\nthe high risk attached to BDNI, especially with the U.S. dollar
\ngetting mightier, BII might back off from the plan.<\/p>\n
\"BII may consider such step even though they've signed an
\nMOU.\"<\/p>\n
He said that another stumbling block on the path to fast
\nmergers might be bank owners.<\/p>\n
If they feel they won't get significant loans if they merge
\nwith other banks, this could pose a problem.<\/p>\n
\"It is no secret that many banks have violated the strict
\nlegal lending limit,\" said the local analyst.<\/p>\n
He said that if banks merged, and especially if they then
\nbecame the minority voice in the new bank, they could no longer
\nuse the public's money to finance their private businesses.<\/p>\n
Lippo Bank's denial of rumors this week that it planned to
\nmerge with Bank Danamon may be a case in point.<\/p>\n
Industry sources said Danamon's financial state had not
\nimpressed Lippo, and it wanted to keep the Lippo name in the new
\noperation.<\/p>\n
Rumors also said Lippo wanted a larger stake than the one
\nproposed by Danamon.<\/p>\n
Sofyan Wanandi, president commissioner of Bank Danahutama, was
\nquoted by the daily Merdeka as saying that there were several
\ntechnical differences between the owners of the banks, including
\nthe share valuation problem.<\/p>\n
Many bank owners say they would prefer to remain independent.
\nWibowo Ngaserin, president director of Bank Prima Express, did
\nnot believe banks should be forced to merge.<\/p>\n
\"The important thing is health, not size.\"<\/p>\n
Finding a suitable partner with a strong financial position
\nand a similar vision is difficult. admitted a Bank Bali official.<\/p>\n
The National Private Banking Federation expects about 50 banks
\nto merge into 12 new entities this year.<\/p>\n
The federation has 146 bank members with total assets of about
\nRp 300 trillion and paid-up capital of Rp 30 trillion.<\/p>\n
If the capital requirement was raised by the central bank to
\nRp 1.5 trillion (rumors said it will be Rp 2 trillion), the banks
\nwould have to merge into about 20 new operations. (08)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/obstacles-may-slow-down-bank-merger-process-1447893297",
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