BII and BDNI pioneer private banking reform

BII and BDNI pioneer private banking reform

JAKARTA (JP): Two of Indonesia's largest private banks have
initiated a much-awaited bank reform with the biggest-ever merger
in the private sector, creating a bank with Rp 50 trillion
(US$5.55 billion) in assets.

The merged entity will be Indonesia's largest private sector
bank and will comprise Bank Internasional Indonesia (BII), Bank
Dagang Nasional Indonesia (BDNI), Bank Tiara Asia and unlisted
Bank Sahid Gajah Perkasa and Bank Dewa Rutji.

"With this merger, we will have better synergy, operate more
efficiently, cut costs and increase profits," BII president Indra
Widjaja said yesterday at a media conference at Sahid Jaya Hotel,
hosted by Sukamdani Sahid Gitosardjono.

"After the merger is finalized, we will invite large
international banks to join us as partners," Indra said. He said
the merger was expected to be finalized this year.

Indra said Sunday that BII and BDNI signed a memorandum of
understanding Saturday to merge their operations into one entity,
which was later joined by Bank Tiara, Bank Sahid and Bank Dewa
Rutji.

The merged bank will carry BII's name and hold some Rp 50
trillion in assets and Rp 5 trillion in equity.

BDNI president Sjamsul Nursalim said BII would retain the name
because it held the largest amount of assets.

"We have to surrender things like names for our best
interests... we have to look at long-term perspectives. Banks
have to be strong and efficient," Sjamsul said.

However, he said every detail concerning the merger would be
subject to the approval of minority shareholders and the monetary
authority.

BII is the banking arm of the Sinar Mas conglomerate, the
country's second largest business group after the Salim Group.
BII booked total assets of Rp 19.73 trillion at the end of June
1997.

BDNI is a holding company for most businesses under the Gajah
Tunggal Group. BNDI also holds a 40 percent stake in Bank Dewa
Rutji. It recorded total assets of 20.32 trillion at the end of
June 1997 -- higher than BII's.

Sukamdani, head of Bank Sahid Gajah Perkasa, said his bank
joined the merger because the government wanted small banks to
merge with other banks.

Banking sources said the government was expected to announce
new equity requirements by the end of the month that would force
more bank mergers.

They said the government was expected to raise the paid up
capital requirement to Rp 2 trillion from the current Rp 150
billion, and then raise it again to Rp 5 trillion in three years
time.

"Rather than being forced by the government to merge later, we
prefer to join the current merger. We hope our step can be used
as a model in future mergers of banks," Sukamdani said.

Bank Sahid is the banking branch of the Sahid Group, which
owns hotels under the Sahid name.

Bank Tiara is the financial arm of the Ometraco Group, whose
holding company is listed under Ometraco Corp.

Hendrick Kolonas, chairman of Bank Tiara, said the merger
would be carried out through share swaps but did not give further
details.

Sukamdani said no layoffs were planned. BII employs about
7,000 people, BDNI has a similar number, while Bank Tiara, Bank
Sahid and Bank Dewa Rutji employ about 1,000 people each.

While the merger was being processed, he said, all five banks
would operate as usual.

He said the merger process, in which Goldman Sachs had been
appointed the financial advisor, would take about two to three
months time.

Bank Indonesia Governor J. Soedradjad Djiwandono hailed the
planned merger yesterday and said he would recommend it to the
minister of finance for approval.

"We have long advocated mergers between banks to strengthen
their position as intermediary institutions, and now they
recognize the importance of strengthening themselves and
improving their management. That's good," he said.

He said his office had received many more proposals of bank
mergers.

Legislator Thomas Suyatno said the planned merger between the
five private banks was only the first such move in the sector and
more mergers and consolidations were expected in the future.

Thomas, also head of the advisory board of the Federation of
Private Domestic Banks, said at least 50 more banks would have to
merge into about 12 institutions by June.

The government announced earlier that it would merge four
state banks into a single entity by July.

Early this month, another Indonesian conglomerate, the Bakrie
Group, said it would merge five of its banks into one institution
to boost competitiveness.

Last year, Indonesia liquidated 16 banks in the first
tentative attempt in its reform package, arranged by the
International Monetary Fund. (rid)