BII purchase is shortcut for Mandiri to lead retail market
BII purchase is shortcut for Mandiri to lead retail market
By: Berni K. Moestafa
JAKARTA (JP): Bank Mandiri, the country's largest bank, is set
to shortcut its way into leading the retail market with the
acquisition of PT Bank Internasional Indonesia (BII), despite
critics claiming the move as untimely.
Bank Mandiri chief financial officer K. Keat Lee said he hoped
the acquisition would accelerate Bank Mandiri's efforts to
strengthen its base in the retail market.
"We find it (BII) to be a natural fit," he told The Jakarta
Post in an interview on Friday.
Bank Mandiri, whose corporate banking accounts for some 82
percent of its credit portfolio, recently unveiled plans to
acquire the largely retail-oriented BII.
Under the plan, BII will become a subsidiary of Bank Mandiri.
Lee said the acquisition would allow Bank Mandiri to instantly
grab a chunk of the retail market, faster than would be possible
through organic growth.
He said BII owned the second largest credit card base after
Citibank with a 12 percent market share, as against Bank
Mandiri's 2 percent.
Other consumer products, where Bank Mandiri has no foothold,
are debit cards, Internet banking and phone banking, he said.
"We are trying to extract the synergy (from BII)," Lee
explained.
For example, he said, Bank Mandiri could replicate BII's
Internet system in develping its own.
He added that Bank Mandiri could also create synergy through
the combination of the two banks' back office systems.
Analysts, however, have questioned the timing of the
acquisition, reasoning it would burden Bank Mandiri, which had
just recently consolidated its operations.
Bank Mandiri was founded through the 1999 merger of state Bank
Exim, Bank Bumi Daya, Bapindo and Bank Dagang Negara.
What followed was a long and tedious task of consolidating the
four banks' operations.
Upon the completion last March, Bank Mandiri's branches shrank
to 546 from 740, its staff to 18,000 from 26,000.
The result is the country's largest bank worth Rp 260 trillion
(about US$23.3 billion) in assets, dwarfing previous giants like
Bank Negara Indonesia (BNI) and Bank Central Asia (BCA).
Lee said following the acquisition of BII, Bank Mandiri's
assets would grow further to about Rp 304 trillion.
The acquisition and its preparations also come at a time when
Bank Mandiri plans to float its shares in the Jakarta Stock
Exchange and in the New York Stock Exchange sometime this year.
Bank Mandiri had said earlier that it expected to finalize the
acquisition by September at the latest.
Lee refused to go into details over Bank Mandiri's listing
plans, as stock market regulations called for a silence period.
The privatization of Bank Mandiri is part of the government's
agreement with the International Monetary Fund (IMF).
Lee rejected the notion that the acquisition was untimely.
According to him, when the government offered Bank Mandiri to
acquire BII, it was an opportunity hard to resist.
Although Bank Mandiri was confident of the benefits from the
acquisition, Lee said the bank had yet to figure out BII's place
under Bank Mandiri's grand strategy.
"We aim to make Bank Mandiri a universal bank, strong in the
retail and corporate sector," he explained.
He said Bank Mandiri's strategy was to balance its lending at
50 percent for the retail and corporate sector.
Adding BII into the picture, Lee said Bank Mandiri would
nonetheless develop its own retail market share.
The names, BII and Bank Mandiri, will coexist in the retail
market, he explained.
Consequently, Bank Mandiri and BII will be competing for the
same consumers, but Lee added the market was more than big enough
for the two of them.
"I wouldn't say it's a head-to-head competition, we'll be
facing other banks as well," he said.
He said the need to stabilize BII's operation and to "calm
things down" had been the main reason of first making BII a
subsidiary of Bank Mandiri.
Unconfirmed reports cited that BII had suffered a severe rush
following news that it would be merged into Bank Mandiri.
Lee did not rule out the possibility of a full merger later
on.
The government had initially considered to merge BII into Bank
Mandiri.
BII's merger or acquisition is seen as the best option to
avoid its liquidation, due to the bank's mounting nonperforming
loans (NPLs).
BII is a unit of the heavily indebted Sinar Mas Group. More
than half of the bank's loans, or some $1.2 billion, has been
channeled to Sinar Mas.
The government fears that if Sinar Mas defaulted on its debt
payments, it could trigger a rush on the bank, which the
government must cover under its blanket guarantee scheme.
BII's NPLs are almost certain to become unmanageable this
year, after Sinar Mas' Singapore-based Asia Pulp and Paper (APP)
announced a debt standstill in March.
Of the group's total debt to BII, $1 billion belonged to APP.
Lee said that BII would transfer all of Sinar Mas' loans to
the government prior to the acquisition by Bank Mandiri.
To this end, BII is undergoing a due diligence, which Lee
expects to be finalized within two months.
According to Lee, Bank Mandiri's capital adequacy ratio (CAR)
may drop to about 25 percent from 32 percent after acquiring BII.