BCA, Danamon may merge

BCA, Danamon may merge

Bloomberg, Jakarta

PT Bank Central Asia and PT Bank Danamon, two of Indonesia's top
five banks, said they may merge as the central bank pushes the
nation's 133 lenders to combine into fewer, larger institutions.

Bank Central Asia Chief Financial Officer Jahja Setiaatmadja
and his opposite number at Danamon, Vera Eve Lim, said in
separate interviews in Jakarta that the two banks would
complement each other.

They said no merger talks have started.

"Bank Danamon, which is strong on the asset side, given its
loan-to-deposit ratio of 70 percent, is well positioned to merge
with other banks that are strong in liabilities, such as Bank
Central Asia," Setiaatmadja said.

Danamon is seeking a partner with enough deposits for it to
expand lending, according to Lim.

Indonesia's central bank has recommended banks seek mergers to
boost capital and assets after the Asian financial crisis of 1997
triggered a wave of defaults.

A merger between the two would create a lender with assets of
Rp 208 trillion ($21.7 billion) at the end of 2004, second only
to the 248 trillion rupiah at market leader PT Bank Mandiri.

"There are too many banks," said Bruno Vanier, a fund manager
at Edmond De Rothschild Asset Management, who manages 600 million
euros ($736.8 million) in Asian stocks including shares of PT
Bank Rakyat Indonesia, the country's fourth-largest lender.
"Indonesia needs three to four major banks and 10 smaller banks."

The merged entity would have Rp 171.9 trillion of deposits,
compared with Rp 175.8 trillion of deposits at Mandiri.

Danamon, majority controlled by Deutsche Bank AG and
Singapore's state-owned investment company Temasek Holdings Pte,
had Rp 58.8 trillion of assets and Rp 40.3 trillion of deposits
at the end of 2004. That compares with Rp 149 trillion of assets
and Rp 131.62 trillion of deposits at Bank Central Asia.

Danamon has a better ability to "price risk compared with
other banks," said Ross Teverson, who owns shares in Danamon and
Bank Central Asia among the $3 billion of Asian assets he helps
manage for Standard Life Investments in Hong Kong. "Bank Central
Asia has a strong franchise, and there is potential for it to
strengthen its franchise."

Bank Central Asia, 51.2 percent owned by San Francisco-based
hedge fund Farallon Capital Management LLC, and Danamon aren't
ruling out other potential alliances.

"Since we are strong in the asset side, we are targeting banks
that are strong in the liabilities side," Danamon's Lim said. PT
Bank Lippo and PT Bank Buana, the nation's ninth- and 15th-
largest lenders, qualify besides Bank Central Asia, she said. Eva
Ho, spokeswoman at Temasek, declined to comment.

Bank Indonesia, the central bank, said last year it wants five
banks with as much as Rp 50 trillion and as many as 50 banks with
as much as Rp 10 trillion of capital in a nation that's
considered overbanked.

Bank Central Asia may consider a partnership with banks that
have wealth management units such as PT Bank Permata and PT Bank
Niaga, Indonesia's seventh- and eighth-largest lenders,
Setiaatmadja said.

Other Indonesian lenders are also seeking mergers. Bank
Mandiri and PT Bank Negara Indonesia, Indonesia's No. 3 lender,
have said they are seeking to acquire rivals.