'Small banks need to merge with big banks for survival'

'Small banks need to merge with big banks for survival'

JAKARTA (JP): Merging with larger banks will enable the
country's small banks to face the fierce competition that may
arise as a result of last week's World Trade Organization's
financial pact.

The president of Bank Nusa International, Bangun S.
Kusmulyono, said here yesterday that small banks, which at
present tend to suffer liquidity problems even at the hands of
their domestic partners, could be edged out in the era of
globalization if they do not merge with larger local banks.

"Mergers could be the best solution to the expected
competition," he stated following the signing of Bank Nusa's
credit facility of US$18 million from a syndication of foreign
banks.

The syndicated loan will mature in two years. It was arranged
by American Express Bank Ltd. and supported by other five
international financial institutions, the Asahi Bank Ltd. of
Japan, Wespact Banking Corp. of Australia and New Zealand Banking
Group (ANZ Bank), the Asian Banking Corp. and Hanil Leasing &
Finance of South Korea.

The interest rate on the credit facility is set at a premium
of 1.25 percentage points above the Singapore Inter-Bank Offered
Rate (SIBOR).

Speaking about the possible impact of the liberalization in
financial services, Bangun said that Indonesian banks should not
only improve their professional skills but also their capital
adequacy to become players on the global market.

The WTO, without the participation of the United States,
reached an initial agreement last week to gradually liberalize
financial services in the world.

Help

Executives from other local banks share the same perception of
the weaknesses in the country's banking industry. Most of them
also see the need for the government's help in preparing them to
enter the globalized market by giving them special privileges in
the country's fast-growing financial services industry.

A. Wiranata of the state-owned Bank Negara Indonesia said that
financing services for large telecommunications and power
projects in the country are often given to foreign banks, leaving
local bankers on the sidelines.

Like Bangun, Wiranata also believes in the need to carry out
massive mergers in the country's banking industry to deal with
their weaknesses both in technology and capital.

The government recently abolished the income tax obligation on
the transfer of assets related to the merger of banks in order to
encourage banks to unite with each other. Only a few banks,
however, have benefited from the facility

With respect to the loan signed yesterday, Bangun said that
Bank Nusa asked Amex Bank to arrange a credit facility of $15
million.

The loan was heavily oversubscribed with commitments reaching
$20.75 million, or over 38 percent above the initial target, he
said, adding that Bank Nusa, the banking arm of the Bakrie Group,
took up only $18 million of the total offer. (hen)