Khazanah Nasional Berhad's decision to pursue the option to merge Bank Niaga and Bank Lippo was welcomed by economists who said the move could spark further banking sector mergers.
The Malaysia-based Khazanah last week said it had opted for the merger to comply with the central bank's "single presence policy", which requires investors owning a controlling stake in more than one bank to divest, merge or otherwise restructure by 2010.
Khazanah has an indirect equity interest of some 93 percent in Lippo, through Santubong Investments BV and Greatville Pte Ltd; it also holds 64 percent of Niaga through Bumiputra-Commerce Holdings Berhad.
Lawmaker-turned-economist Dradjad Wibowo and banking analyst Ryan Kiryanto welcomed Khazanah's decision as a step toward improving the banking sector.
Dradjad said the two banks represented complementary market segments which could be profitably merged. Restructuring these banks as assets of the same holding company -- an alternative to merger under the single presence policy -- wouldn't be as good because it would create additional bureaucracy, he said.
He also said he thought it likely that the government would show support for the merger decision -- and hence encourage other banks to follow suit -- by cutting capital gains and asset-shifting taxes that would otherwise be a significant post-merger burden.
"The tax is so big that, if it is not reduced, I am afraid it might discourage others from going with the merger option."
Ryan echoed Dradjad saying that, if the merger materialized, the new entity would be stronger in terms of assets and ability to shoulder risk.
"The merger between Lippo and Niaga will result in a big bank, perhaps one of the five biggest banks in Indonesia," he said.
At present, both Niaga and Lippo are among the country's top-ten banks.
The `single presence policy' is part of a central bank policy package whose aim is to encourage consolidation among the 130 banks in the banking sector.
Another economist, Ichsanuddin Noorsy, on the other hand, said he would probably recommend restructuring both banks under a holding company instead of merger.
Establishing a holding company may cost more but it would be simpler, he said.
"Merging two companies is more complicated and more time consuming. The firms have to adjust many aspects including employee management, information and technology, brand name, and most importantly, corporate culture."
But Ryan said Lippo and Niaga wouldn't have much trouble with company culture.
He said the two banks should instead focus on explaining the merger to customers. (ind)
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