[Kabar-indonesia] BI moves to push bank mergers, acquisitions

[JoyoNews at aol.com]

The Jakarta Post
Friday, October 6, 2006

BI moves to push mergers, acquisitions among banks 

Urip Hudiono, The Jakarta Post, Jakarta

The central bank will provide incentives -- including lenient funding 
requirements and possible tax breaks -- for banks willing to undergo mergers and 
acquisitions, as long as they comply with a limitation against investors 
controlling more than one bank.

The policies, to encourage the consolidation of Indonesia's banking sector by 
2010, were part of a package of 14 regulations for the banking industry that 
Bank Indonesia (BI) issued Thursday. 

BI Governor Burhanuddin Abdullah said the new regulation package that 
prohibits investors from owning several banks would not be applied to branches of 
foreign lenders, or to joint-venture banks. 

"Such banks are covered in our view by existing international principles," he 
said, referring to a related World Trade Organization agreement that 
Indonesia has ratified. 

The policy -- dubbed the "single presence policy" -- also does not apply to 
investors having a majority stake at two banks if one is conventional and the 
other sharia-based. 

BI Senior Deputy Governor Miranda S. Goeltom explained that state-owned banks 
will not be exempted from the policy, although the central bank will be open 
to providing compliance relaxation. 

Major lenders the government currently controls include Bank Mandiri, the 
country's largest lender by assets, Bank Negara Indonesia (BNI), the second 
largest, Bank Rakyat Indonesia (BRI), the fourth largest, and Bank Tabungan Negara 
(BTN). 

The policy may also affect foreign investors, such as the Singaporean 
government's Temasek holding company and Malaysia's Khazanah -- both of which 
currently have controlling stakes in several local private banks. 

Besides mergers and acquisitions, other ways to comply with the policy 
include setting up a holding company or selling a majority stake to other parties. 

BI has required all banks to submit their compliance action plans by 2010. 
The policy is part of efforts to streamline the number of banks from 130 at 
present to between 70 and 80 stronger banks, according to BI's Indonesian Banking 
Architecture (API) plan. 

Burhanuddin said BI has also established a regulation providing incentives 
for banks willing to comply with the policy, particularly through mergers and 
acquisitions. 

Among the incentives are temporary leniency in fulfilling the minimum reserve 
requirement and legal lending limit (LLL), both of which may be affected 
during the consolidation period. The banks will also get easier procedures for 
expanding their businesses later. 

BI at present requires banks to set aside between 5 and 13 percent of their 
assets according to their loan-to-deposit ratios as their minimum reserve 
requirement. On LLL, the new policy permits state banks to provide up to 30 percent 
of capital, from 10 percent. 

"We have also been talking with the government about providing tax breaks for 
consolidating banks," Burhanuddin said. "We expect the government to announce 
such an incentive shortly." 

Other regulations in the new policy package include four regulations on rural 
credit banks (BPR), five on sharia-based lenders, and another on improving 
governance in banks. 

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Joyo Indonesia News Service
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