Bankers question feasibility of BI's swift consolidation
The Jakarta Post, Jakarta
Some bankers questioned on Wednesday whether Bank Indonesia's plan to push for swift consolidation of the country's banking sector, by encouraging more mergers in the near future, was applicable.
Bank Mandiri director for corporate secretary Nimrod Sitorus, whose bank is the largest lender by assets, said there were several obstacles preventing the consolidation of banks.
First, there was no urgency for most banks to merge with or acquire another banks, because at present the banking industry was still profitable.
Banks here also have little experience in carrying out voluntary mergers as most, if not all, mergers in the country were classified as forced mergers.
"Mergers in the past happened because of the regulator's demand," he said, adding that mergers required a costly and complex process, such as restructuring assets, reorganizing the company and unifying the information and technology applied by the resulting bank.
"In the case of Bank Mandiri, we spent a lot of time, among other things, to lay off more than 10,000 employees and to integrate the information and technology systems," he said.
Mandiri is a merger of four state banks -- Bank Exim, Bank Bumi Daya, Bapindo and Bank Dagang Nasional.
Mergers and acquisitions are encouraged by the central bank in its Indonesian Banking Architecture (API), introduced last year, aiming mostly to reduce the number of banks here, from the current 132 banks to 35 to 58 by 2010, with capital ranging from Rp 100 billion (about US$10,200) to Rp 50 trillion.
Echoing Nimrod was Pardy Kendy, Bank Buana president director, who said that while agreeing that the API would eventually produce a sound banking industry, he doubted whether voluntary mergers would be attractive to small- and medium-sized banks.
"Many small- and medium-scale banks here are owned by a family or an individual, who would be reluctant to sell their banks because they perform well," he said, pointing to the fact that such banks had outperformed the bigger banks in the past five years.
"Medium banks, such as Bank Buana, have performed well, with profitability supported by their efficiency rather than their market share," he said.
"The only way for us is to expand our business and become big- scale banks. But the problem is, not so many investors are interested in medium-scale banks," said Pardi.
Institute for the Development of Economics and Finance (Indef) economist Iman Sugema added that voluntary mergers were unlikely to happen because the gap in assets value between big-scale banks and medium banks were too wide.
"Even among the top 20 banks, the gap is too wide. Bank Mandiri, the number one on the list, has assets 20 times more than those of BPD Jabar, which is 20th on the list," he said.
"How could you expect voluntary mergers to happen? Unless it is among banks of the same size," he said. (006)