BI, Bapepam prepare merger ruling

JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono said yesterday that the central bank and the Capital Market Supervisory Agency (Bapepam) are preparing a regulation to facilitate mergers between publicly-listed banks.

"The regulation is necessary to prevent listed banks from being controlled by irresponsible people," he said after a central bank hearing with House Commission VII.

Soedradjad said that individuals or institutions could easily control the ownership of a bank by taking over the majority of a bank's shares through the stock exchange.

He said that takeover moves are common in the capital market.

"But for banks, such a deal should be carefully watched because it could lead to the entry of blacklisted people into the management or ownership of a bank," he said.

The central bank issued a ruling last year prohibiting persons with criminal records or those with "negative backgrounds" from becoming bank shareholders or executives.

Jopie Wijaya, an executive with the publicly-listed Steady Safe public transportation company, recently made a surprise move to acquire a 20 percent stake in publicly-listed Bank Papan Sejahtera. Jopie, who became the bank's majority shareholder after the takeover, sold his stake in the bank less than two months after he concluded the deal.

Sources said that the central bank's planned regulation would help prevent bank shares from becoming the target of speculation.

Publicly listed Bank Mashill, according to the sources, also has plans to merge with Bank Tiara, which is listed on the Jakarta Stock Exchange. Execution of the plan must now wait until the regulation is issued.

Soedradjad said that the current regulation only covers the merging of unlisted banks and is designed to encourage small banks to merge among themselves or with larger banks.

Small banks, however, reportedly have had difficulties in negotiating mergers despite incentives offered by the government.

Riyanto Sastroatmodjo, a former senior official at Bank Indonesia, said that both healthy banks and ones with unsound performances have had similar difficulties.

He said that healthy banks are generally reluctant to accept merger offers from unsound banks for fear of hurting their image and performance.

"The sound banks also face a dilemma because shareholders do not want to lose control of their operations," he told a seminar on mergers and acquisitions in the banking industry last week.

The government has issued a number of incentives to encourage mergers in the country's overcrowded banking industry. They include tax facilities related to the transfer of a bank's assets in a merger deal and an automatic promotion in status to that of foreign exchange bank. A bank that acquires the assets of a merged partner, for example, is exempted from paying income tax on the transfer of assets in the deal.

At least 10 banks have unveiled plans to merge with other banks but have had difficulties carrying out the mergers due to a lack of incentives in having to deal with non-performing loans. (hen)