Central bank renews calls for domestic banks to merge
The Jakarta Post, Jakarta
Bank Indonesia Governor Burhanuddin Abdullah renewed calls for local banks to merge in a bid to create a stronger and healthier banking industry.
"A merger is a way of strengthening and consolidating the national banking structure. We therefore urge national banks to do that," Burhanuddin said on the sidelines of a seminar on Thursday.
The seminar was promoting the central bank's recently launched program, the Indonesian Banking Architecture (API), which contains a set of measures to gradually consolidate the banking sector.
The program was the latest measure introduced by the central bank to help improve the financial health of local banks, many still suffering from the devastating impact of the late 1990s financial crisis.
Under API, in the next seven years, banks will have to boost their minimum capital requirement from the current Rp 10 billion (about US$1.2 million) to Rp 100 billion. The central bank wants to see two or three local banks become an international operation able to compete in the region.
As many banks operating in the country still face problems in bolstering their capital to the desired level, API encourages banks to merge.
At present, there are 138 banks operating in the country, of which 55 have capital below the new requirement.
However, in order to ensure the best results from the merger, Burhanuddin added, banks would need to improve their financial condition first before rushing to merge with others.
As the past crisis clearly exposed the vulnerability of the banking system to external shocks, mergers -- along with other measures -- could be the answer to minimize the negative impact of any future crises.
Also, a resilient banking system should form a key element in promoting economic growth and supporting stability in the financial system.
Krisna Wijaya, a director of Bank Rakyat Indonesia (BRI) who was also present at the seminar, while acknowledging the positive impact of mergers on the banking system, said bankers needed incentives to push them to merge.