Mon, 07 Mar 2005

BI mulls over formation of cooperative bank

Leony Aurora, The Jakarta Post, Jakarta

As the country's numerous bank managers debate mergers and acquisitions, the central bank is mulling over another alternative -- the development of cooperative banks.

Bank Indonesia's (BI) deputy governor Maman Sumantri was quoted by Antara news agency over the weekend saying the central bank was weighing up the advantages of the new option to speed up the sector's consolidation.

A cooperative bank would work as a holding company for member banks, which were free to conduct their own operations, he said.

The capital of a cooperative bank would be sound while the stumbling blocks of mergers, such as the difficulty of merging the working cultures of different banks, could be avoided.

"Cooperative banks have been established in several European countries, such as Rabobank in the Netherlands and another bank in Finland," Maman said.

BI has recently softened its policy on banks' legal lending limits (LLL) to boost consolidation in the banking sector. The new policy stipulates that money injected from one bank to another will not be calculated in its LLL, as long as the financial reports of the corresponding banks were consolidated.

Previously, the LLL was set at 20 percent of the acquiring bank's capital.

Since then, the media has been buzzing with news of possible mergers and acquisitions from the larger banks as well as small ones. No official corporate actions, however, have come out of it.

Separately, Lippo Bank president Joseph Luhukay said cooperative banks might be a good alternative for the banking sector, considering the number of banks operating across the archipelago.

There are over 130 regular banks and more than 2,000 credit institutions serving some 220 million people living in Indonesia. BI at present is also considering which banks it anoints as anchor banks to acquire smaller banks.

"Acquisitions will need a huge amount of funds, and we (the banking sector) don't have that," he said recently.

Such cooperative bank would save funds, as banks operate separately and would not need to have their systems made compatible with one another, for example.

The establishment of a cooperative bank will face longer bureaucracy as there will be more institutions involved, namely the central bank, the Ministry of Finance, the Capital Market Supervisory Agency -- particularly if publicly listed banks are involved -- and the Office of the State Minister of Cooperatives and Small and Medium Enterprises.

The central bank, under the Indonesian Banking Landscape launched last year, is aiming to have the banks operating in the country divided into four groups based on its assets in 2010.

The first and second larger groups comprise of two to three international banks with capital of at least Rp 50 trillion (US$5.39 billion) each and three to five national ones with a capital of between Rp 10 trillion and Rp 50 trillion, respectively.

Between 30 and 50 banks with a capital of Rp 100 billion to Rp 10 trillion will be in the third group. The last group with a capital of below Rp 100 billion will be categorized as community banks or rural banks.