Universal in merger talks with Danamon

JAKARTA (JP): Chairman of the Indonesian Bank Restructuring Agency (IBRA) Edwin Gerungan confirmed on Monday that Bank Danamon was in talks with Bank Universal to look into a merger possibility.

But Edwin said that IBRA could not yet decide on whether to approve the merger plan until the two publicly-listed banks completed their talks.

"They are still talking... We can't decide until they complete their talks," he told reporters, following a meeting with the House of Representatives state budget committee.

Reports earlier quoted Bank Danamon's top officials as saying that the bank was close to reaching a merger deal with Bank Universal and that it was waiting for the green light from IBRA to complete the merger plan.

IBRA, a unit of the finance ministry, has majority ownership in some 11 private banks including Danamon and Universal following the government's massive bank bailout program launched in 1998 and 1999.

Bank Universal has been looking into a merger possibility with a stronger bank in a bid to be able to meet the year-end minimum of 8 percent capital adequacy ratio (CAR) requirement. Banks which could not meet the CAR requirement are threatened with closure.

Earlier this month, Universal was rumored to have merged with publicly listed Bank Central Asia (BCA), but this was denied by IBRA saying that the merger of the two banks was unviable as the agency planned to sell its majority stake in BCA in the very near future.

The merger of Bank Danamon and Bank Universal, if realized, would be the first test case for the agency's plan to restructure the country's weak banking sector in the post bank recapitalization program.

Although the government has closed nearly 70 banks since the financial economic crisis started in the middle of 1997, the current number of local banks of around 150 is still deemed too many.

IBRA has said that it planned to develop four huge "core banks" with strong capital in a bid to restructure the weak domestic banking sector.

The agency said that the core banks included two state-owned banks and two IBRA banks. IBRA did not name the candidates for the core banks, but it admitted that out of the 11 IBRA banks only two were deemed suitable to become core banks.

Many said that Bank Danamon and BCA were the most likely candidate to become core banks because of their relatively huge size and strong capital.

Under the IBRA plan, the core banks would acquire several smaller banks through a merger process.

IBRA has also said that smaller banks with strong capital would be developed into special banks focusing on particular market niches. (rei)