Strong Capital Needed to Survive Banking Conglomeration and Competition

 
Robert Sidauruk, Fathan Qorib
 
Preparation of Indonesia’s banking sector is once again at the forefront of preparations for welcoming the ASEAN Economic Community (AEC). It has been widely argued that to survive regional competition, national banks must have solid financials and capital support, especially for subsidiary banks under the shadow of a financial conglomerate holdings.
 
This view was delivered by Gatot M. Suwondo, Chief Director of Bank Negara Indonesia, during a seminar titled “Opportunities and Challenges for the Banking and Finance Industry in 2015”, in Jakarta on Tuesday.
 
Mr. Suwondo argues that in anticipation of global competition, there must be a synergy between subsidiary banks and their holding companies to strengthening access to capital and grow simultaneously. To achieve this, Mr Suwondo suggests four primary strategies that can be adopted by subsidiary banks to increase their capital base.
 
First, banks must ensure that prospective investors share the same vision as the investment target banks and holding companies. Second, banks must ensure that any strategic partnership to inject new capital into banks is accompanied by a transfer of knowledge and experience.
 
This leads to the next strategy, which is ensuring that prospective investors possess experience as regional or global players in the banking industry. Finally, prospective investor must be able to provide fresh capital.
 
“The investors must have financial stock”, emphasized Mr. Suwondo.
 
Mr. Suwondo also took note of the Big Four of the Indonesian banking sector that are classified as BUKU IV banks with core capital of more than IDR 30 trillion. Without mentioning the names of the banks, he believes that these four banks and their subsidiaries look promising in being able to compete at the ASEAN level.
 
“It is now an issue of the willingness of the banks,” said Mr. Suwondo.
 
Similarly, Eko Budiwiyono, Vice Chairman of the Indonesian Banks Association (PERBANAS) believes that a strong capital base is the key to establishing a solid banking industry. Moreover, Mr. Budwiyono contends that Indonesia remain one of the most attractive markets for investment in the financial sector.
 
“To survive global competition, national banks must have strong capital, robust implementation of good corporate governance, and an integrated and solid risk management plan,” suggested Mr. Budiwiyono.
 
Mr. Budiwiyono also emphasized the importance of the new administration’s commitment to strengthening the financial sector. He further adds that during the election campaign, the President called for improving the productivity of human resources and competitiveness in international markets, as well as an independent financial sector.
 
“Several issues can be tackled by having financial sovereignty,” concluded Mr. Budiyono.
 
(hot/kc)