Local banks asked to unite on foreign competition

Local banks asked to unite on foreign competition

JAKARTA (JP): Minister of Finance Mar'ie Muhammad called on
local banks yesterday to join forces in facing the growing
competition from foreign financial institutions.

"If it is necessary, it would be a good step for banks to
merge with each other to strengthen their capital structures and
professional skills," he said in his written address at the
opening of a three-day financial workshop of the Association of
Indonesian Journalists.

In his speech, read by Director General of Financial
Institutions Bambang Subianto, the minister said that Indonesia
has to gradually liberalize its banking industry to comply with
the globalization trend in the banking sector.

"It means that Indonesian banks should prepare appropriate
steps to anticipate the expected fiercer competition both
domestically and globally," he said.

The World Trade Organization, without support from the United
States, signed last week an initial agreement on the
liberalization of the world's financial services.

The pact, also supported by Indonesia, will guarantee foreign
banks wider access to emerging markets, which mostly still impose
restrictions to protect their local financial institutions.

Local bank analysts and executives said that merging with
larger banks will be the best solution for small commercial banks
in entering the era of free competition in the banking industry
in the coming years.

However, they said that taking such a measure will not only
take time but could also be counter-productive, given the poor
conditions of the country's small banks.

"If an unhealthy bank is merged with a solvent bank, its
disease could make its partner sick," Bank Nusa's president,
Bangun S. Kusmulyono, said about the possible negative effect of
merging.

Minister Mar'ie acknowledged that it is, indeed, not easy for
banks to merge because such a deal will involve not only the
transfer of assets and management but also the fate of the
employees.

The number of commercial banks grew to around 240 last year
from only 112 in 1987, following the introduction of a banking
reform in 1989.

The reform has allowed the opening of new banks with a capital
requirement of only Rp 10 billion for a non-foreign exchange bank
and Rp 15 billion for a foreign exchange bank. The measure also
allowed foreign banks to operate in the country in partnership
with local banks. (hen)