Lending potential leads to bank takeovers

Lending potential leads to bank takeovers

Dadan Wijaksana, The Jakarta Post, Jakarta

The recent purchase of stakes in a number of medium-sized
banks by foreign investors may indicate the huge potential the
country's banking sector has in terms of lending growth, analysts
say.

Banking analysts Aviliani and Ryan Kiryanto said on Sunday
that, as bank lending -- especially to the corporate sector --
was still moving at a snail's pace, its growth potential was
therefore huge, providing the impetus for the takeovers.

"The current state of the banking sector leaves plenty of room
for improvement in future lending activities as currently there
are various economic sectors still untapped," Aviliani of the
Institute for the Development of Economics and Finance (Indef)
told The Jakarta Post.

Ryan added the move would also result in improvement in the
way banking operations are run here, as investors would not
merely offer financial backup, but technical assistance as well,
thereby improving the banks' credit risk assessment skills.

The two were responding to reports from Dow Jones, which said
that there had been an increasing number of takeovers in the
nation's medium-sized banks by foreign banks.

Singapore-based Overseas-Chinese Banking Corp. (OCBC) recently
acquired a 22.5 percent stake in Bank NISP, while a controlling
stake in Bank Bumiputra is set to be sold to Zurich-based ICB
Financial Group.

These followed the purchase of small stakes in NISP and Bank
Buana by the World Bank's private investment arm -- the
International Financial Corp. (IFC).

Another medium lender, Panin Bank has also completed moves
allowing its foreign partner Australia and New Zealand Banking
Group Ltd. (ANZ) to raise ownership from 11 percent to 29
percent.

Rosniati Salihin, Panin deputy president, told the Post the
move was actually initiated three years ago, but was only
completed recently.

Panin, NISP and Buana are among several banks that managed to
survive the 1997-1998 crisis without the government's bail-out
package under the recapitalization program.

Contrary to the rapid growth in consumer lending, Indonesia's
banking sector remains reluctant to extend loans to the private
sector, as corporate restructuring remains slow and thus
increasing the risk of default.

Once the restructuring pace picks up, supported by an improved
investment and business climate -- which the government is
striving to provide -- a massive expansion in bank lending would
resume, and that's the potential that foreign investors would
find hard to resist, Aviliani and Ryan said.

However, the trend also poses concerns.

"The buyout of a minority stake in a bank is often conducted
for speculative purposes. They may anticipate that their actions
are followed by others. And they can sell their stake back with
hefty gains once the price of their stake has increased," she
said.

She added that she hoped that this was not the case for those
banks that have been performing well, even outclassing the
performance of larger banks.

"Those medium-sized banks have actually been performing well,
as they are usually conservative in their lending policy."