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."