Dai-Ichi Kangyo Bank mulls bid on Daiwa unit

Dai-Ichi Kangyo Bank mulls bid on Daiwa unit

TOKYO (Bloomberg): Dai-Ichi Kangyo Bank Ltd., Japan's third- largest lender, is in talks to buy a majority stake in the Indonesian banking unit of Daiwa Bank Ltd., a Daiwa spokesman said on Wednesday.

Daiwa Bank, the smallest of Japan's nine nationwide commercial lenders, is tackling chronic bad loans and debilitating write- offs by cutting costs, staff and all operations abroad.

Indonesia accounts for a large chunk of the bank's international business, comprising almost 30 percent of the bank's lending to Asia, said Kenji Kaneko, a bank spokesman.

And while Daiwa must find a buyer for its overseas units, a piece of an Indonesian bank might be an attractive acquisition if it were cheap enough, said Walter Altherr, an analyst at Jardine Fleming Securities (Asia) Ltd.

"Buying into Indonesia now at the right price could actually be rewarding over the long term," said Altherr. "The economy has hopefully bottomed, and the country could be laying a foundation for a revival in the post-Soeharto era."

Daiwa Bank approached Dai-Ichi Kangyo Bank with the idea of doing business together in Indonesia, although no details have been set yet, Dai-Ichi Kangyo said in a release.

Daiwa's Kaneko denied a Nihon Keizai newspaper report that the bank was close to handing all its international operations over to Dai-Ichi Kangyo.

Daiwa Bank now holds 84.9 percent of P.T. Daiwa Perdania Bank and plans to reduce that to less than 50 percent, Kaneko said.

Most Japanese lenders have been put their Asian business on ice for the past year, after a plunge in currencies throughout the region rattled economies and made it impossible for many companies to pay back debt.

During the six months to June 30, Japanese bank lending to Asia fell 25 percent to US$186.7 billion. Loans to Indonesia totaled $19 billion, down 13.6 percent.

Daiwa Bank had 84.2 billion yen in loans to Indonesia at the end of September, down 12.4 percent from the end of March.

Dai-Ichi Kangyo Bank, was the only one of Japan's six big lenders whose Asian lending went up during the first half of this business year.

The bank did not disclose figures for lending to individual countries in Asia at the end of September. At the end of March, it had 1.6 trillion yen in loans to countries in the region, 12 percent of which was to Indonesia.

Dai-Ichi Kangyo's own researchers, however, are still gloomy about the prospects of recovery in Asia, and Indonesia in particular.

"We expect economic conditions to continue to deteriorate," wrote Wong Keng Siong, an economist at the bank's research arm in Singapore, in a report.

"In fact, the breakdown of law and order has degenerated into a vicious cycle of unrest disrupting economic activity, hurting investment sentiment, hence leading to more economic hardship and civil unrest."

Dai-Ichi Kangyo Bank fell 7 yen, or 1 percent, to 602, amid a 0.6 percent drop in bank shares overall. Daiwa Bank fell 4 yen, or 2.26 percent, to 173.

Japan's stock markets were open for a half day as the country shuts for the New Year's holidays.