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)