Bank Consolidation isn?t Necessary Says Businesses

 
Fathan Qorib, Christina Desy
 
In recent times bank consolidation has been one of the central issues for the financial services industry, particularly as the Financial Services Authority (OJK) has been encouraging it as part of preparations for the upcoming ASEAN Economic Community (AEC).
 
OJK’s stance, however, has met with varied responses from the business community. One of the biggest banks in Indonesia, Bank Negara Indonesia (BNI) sees consolidation as unnecessary. This view is based on evidence as to how Indonesian banks survived through the economic crises in 1997-1998 and 2008.
 
During a seminar in Jakarta on Tuesday, Gatot M. Suwondho, President Director of BNI, asserted BNI’s position to this matter. He sees that the vast number of domestic banks, including state-owned banks, may have lower assets and capital compared to other ASEAN banks, however, their overall performance indicates that they are highly qualified to compete with foreign banks.
 
“Our ROA [return on asset] and ROE [return on equity] is way ahead of the ASEAN banks. Our NIM [net interest margin] is the largest of all,” stated Mr. Suwondho.
 
According to Mr. Suwondho, national banks are already ahead in the domestic market, and what they now need to aim for is winning business in foreign countries. To support such activities, Indonesia must be able to emphasize the application of the reciprocity principles under the AEC. By doing so, Indonesian domestic banks will have equal opportunity to make inroads into foreign markets.
 
Furthermore, Mr. Suwondho suggested legislators implement a new regulation on foreign banks opening branches in Indonesia under which permits will be given to open the foreign banks’ branches in non-metropolitan cities, such as in Flores or Papua.
 
Mr. Suwondho’s views on the opening of branches by foreign banks is shared by Irwan Lubis, OJK’s Deputy Commissioner. He sees that the challenge is to regulate a tactical and strategic legal basis to implement any limiting measures. Mr. Lubis pointed out that the fees to open a branch in areas in East Indonesia should be lower than in Java, for instance.
 
Mr. Lubis also acknowledged the success of national banks in navigating past economic difficulties. It is also generally agreed that the Indonesian banking industry is currently in good shape.
 
However, the structure of the 119 existing banks remains unbalanced. There are only 19 banks that are listed under the BUKU III and BUKU IV catergories. Those banks control almost 90% of the assets held by the banking industry, while the rest are listed under BUKU I and BUKU II which indicates smaller capital holdings.
 
“We may have adequate amounts of capital now, but we still need to be concerned about funding sources to preserve future credit growth,” said Mr. Suwondho.
 
In this regard, Indonesia needs a stronger capital base in anticipation of funding shortages for its banking industry. Based on that consideration, Mr. Lubis believes that bank consolidation is still the best option to deal with the AEC and should proceeded without delay.
 
(hot/kc)