Bank Consolidations for the Win in the AEC

ANT, Andin Aditya Rahman
 
As a part of preparations for the implementation of the ASEAN Economic Community (AEC) in late 2015, banking industry stakeholders are encouraging the consolidation of Indonesian banks.
 
This encouragement is not only coming from Agus Martowardojo, Governor of Bank Indonesia, who has said that bank consolidation is important for the domestic banking sector, but also from government officials, banking experts, and business players alike. All are of the view that consolidation of the Indonesian banking sector is essential to strengthen the national banking industry.
 
While bank consolidation is seen as applicable to all commercial banks in Indonesia, Sigit Pramono, Chairman of the Indonesian Banks Association, said that the government must first initiate consolidation of state-owned banks. According to him, this is easier compared to consolidation of privately-owned banks with multiple shareholders.
 
“The government must commence consolidations starting with state-owned banks. If that [state-owned bank consolidation] is not successful, how can one expect privately owned banks with multiple shareholders to do it?” mused Mr. Pramono.
 
Mr. Pramono was referring to the unsuccessful attempt by Bank Mandiri to acquise Bank Tabungan Negara (BTN)—both are state-owned commercial banks with the government as their majority shareholder. The acquisition plan was rejected by one of the ministers in the current cabinet which sparked further debate on the issue, and ultimately led to the plan being abandoned.
 
According to Mr. Pramono, the currently disjointed condition of the Indonesian banking sector is caused by the now defunct Indonesian Banking Architecture (Arsitektur Perbankan Indonesia – API), which was intended as a blueprint for banking development in Indonesia, as it fails to bind all necessary stakeholders.
 
New Blueprint
Considering that the API failed to provide Indonesia’s banking sector with an ideal business climate, Perbanas is currently drafting a new blueprint. Mr. Pramono expressed his hopes that all related stakeholders will take part in the discussions of this new blueprint, so that all stakeholders will be bound by its terms.
 
This new blueprint, continued Mr. Pramono, will contain a roadmap for the banking sector for the next 5 to 10 years, and a solid basis for future bank consolidations. This is expected to neutralize any justifications for challenging the acquisition or merger of banks.
 
Failing Miserably
Banking expert Paul Sutaryono further elaborated that consolidation in the banking sector is failing miserably as the API merely acts as a guideline for policies. Further, it does not contain mandatory rules for the technical operations of domestic banks.
 
“It must be recognized that bank consolidation is truly needed. But it cannot be implemented. One of the causes is that the API stops at the policy phase, and does not extend to the operational provisions stage,” expounded Paul.
 
This core weakness of the API, continued Mr. Sutaryono, is causing disagreements between government institutions in attempts to consolidate state-owned banks.
 
“Thus when Mandiri Bank wanted to acquire BTN, a variety of disagreements were raised by numerous parties,” he explained.
 
Falling Behind
Hendri Saparini, Managing Director at the Advisory Group on Economic Industry and Trade (Econit), applauded Perbanas’ initiative to draft a blueprint for the banking sector. Ms. Saparini, however, asserted that this new blueprint must be clear on the direction of bank consolidations.
 
“Is it going to be in the form of a bank holding [company]?” pondered Hendri.
 
Ms. Saparini believes that bank consolidations should be quite straightforward if the API is implemented appropriately and optimally.
 
“The government should encourage this further. Cooperation between the government and the parliament should be firm as every decision must be approved by the House of Representatives,” Ms. Saparini explained.
 
While the banking sector is busy meddling with formalities, the recent merger of the three banking giants in Malaysia, namely CIMB, RHB Capital, and Malaysia Building Society, is posing a serious threat to Indonesia. According to Ms. Saparini, this is a warning to expedite measures to strengthen the national banking industry, and consolidation of state-owned banks should be initiated as soon as possible.
 
This view was affirmed by Pahala N. Mansury, Bank Mandiri’s Executive Director, who asserted that bank consolidation is a means to improve the capabilities and increase the capital of Indonesian banks to prepare for the AEC, which schedules the integration of ASEAN banks in 2020.
 
“Competition at the ASEAN level in 2020 will be completely open,” said Mr. Mansury.
 
Possible Mergers
In addition to bank consolidations, Harry Azhar Azis, Vice Chairman of Commission XI at the House of Representatives, also suggested the merger of state-owned banks to prepare Indonesia for the implementation of the AEC late next year.


“Banks with a universal character should be merged. The merger that is most probable is between Bank BNI and Bank Mandiri,” stated Mr. Azis.
 
Under a single unit, according to Mr. Azis, they will have a larger pool of assets and capital, which are critical foundations to compete with other ASEAN banks. Furthermore, considering that it has been agreed that each ASEAN country will only submit 2 of their banks to operate in other ASEAN nations, it is becoming increasingly important for the government to prepare 2 of its state-owned banks to be called upon to fulfill this role.
 
(hot/kc)