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Ada Pertanyaan? Hubungi Kami Marcell Sihombing, Fitri N. Heriani
The Business Competition Supervisory Commission (KPPU). Photo by: SGP
The Business Competition Supervisory Commission (KPPU) and the Australia Indonesia Partnership for Economic Governance (AIPEG) recently collaborated on research into Indonesia’s banking industry. According to Syarkawi Rauf, the Head of the KPPU, the research was founded upon the belief that the country’s banking industry appears to be in a somewhat unhealthy condition.
Mr. Rauf further pointed to the recent release of the results of this research, which reveal an oligopolistic market structure which is believed to be the root cause of inefficiencies within the country’s banking sector. These inefficiencies encompass, among other elements, extremely high operational expenses due to geographical conditions and the concentration of savings accounts within the country’s four major banks (BRI, BNI, Bank Mandiri and BCA).
“Thus, the savings of major fund-owners circle only around these four banks. Likewise, only such major fund-owners may access loans from these four banks. This practice has caused pricing and price determination to become expensive,” Mr. Rauf asserted to hukumonline.
Moreover, this oligopolistic market structure is also believed to be contributing to Indonesia’s high interest rates, which are in fact the highest of all ASEAN member countries. Suspecting there to be unhealthy business competition within the country’s banking sector, the KPPU has decided to carry out more in-depth research which is focusing on banking behavior. Based on the preliminary findings of this research, it seems likely that the KPPU will investigate the country’s banking industry. This case mirrors that of European banking, where six major banks were recently revealed to be engaging in cartel practice.
“Structurally speaking, we [the KPPU and the AIPEG] have already uncovered the existence of concentrated oligopolistic market practices. We just need to figure out exactly what kind of behavior is involved here. Indeed, there may well be some sort of anti-competitive practices or similar behavior that has resulted in the country having an extremely high interest rate,” Mr. Rauf claimed.
Kahlil Rowter, an AIPEG consultant, also ventured an opinion on this matter, claiming that Indonesia’s financial sector needs reviewing, as it seems to be suffering from high loan interest rates, a wide loan margin, and also a high level of profitability. Mr. Rowter asserts that this might be caused by a low level of competition, applicable government policies, geographical conditions, as well as a lack of legal certainty. Mr. Rowter further explained that, historically speaking, any increase in competition eventually lowers loan margins and loan interest rates, whereas low levels of competition tend to increase loan margins and loan interest rates.
“Indonesia’s banking subsector operates under a form of monopolistic competition, which relies solely on the ability of each business to determine lower prices when compared to banks from other countries across the region,” asserted Mr. Rowter.
Offering further insight, Mr. Rauf also claimed that in response to any possible unhealthy business practices within Indonesia’s banking industry, the Financial Services Authority (OJK) must consistently seek to build a better and healthier banking framework through consolidation, mergers and acquisitions. The aim is to reduce the current 119 banks operating in Indonesia to just 60 banks, in the belief that this will greatly improve business competition between banks.
“This is why the research also recommends a joint discussion being initiated between the OJK and Bank Indonesia (BI) in order to formulate a future banking roadmap and its consolidation,” Mr. Rauf stated.
Meanwhile, the OJK has already admitted that it does not prohibit banks from merging with each other. On the contrary, the OJK encourages mergers, as shown in its support for the plan to merge a number of state-owned sharia banks.
(hs/sp)
Marcell Sihombing, Fitri N. Heriani
The Business Competition Supervisory Commission (KPPU). Photo by: SGP
The Business Competition Supervisory Commission (KPPU) and the Australia Indonesia Partnership for Economic Governance (AIPEG) recently collaborated on research into Indonesia’s banking industry. According to Syarkawi Rauf, the Head of the KPPU, the research was founded upon the belief that the country’s banking industry appears to be in a somewhat unhealthy condition.
Mr. Rauf further pointed to the recent release of the results of this research, which reveal an oligopolistic market structure which is believed to be the root cause of inefficiencies within the country’s banking sector. These inefficiencies encompass, among other elements, extremely high operational expenses due to geographical conditions and the concentration of savings accounts within the country’s four major banks (BRI, BNI, Bank Mandiri and BCA).
“Thus, the savings of major fund-owners circle only around these four banks. Likewise, only such major fund-owners may access loans from these four banks. This practice has caused pricing and price determination to become expensive,” Mr. Rauf asserted to hukumonline.
Moreover, this oligopolistic market structure is also believed to be contributing to Indonesia’s high interest rates, which are in fact the highest of all ASEAN member countries. Suspecting there to be unhealthy business competition within the country’s banking sector, the KPPU has decided to carry out more in-depth research which is focusing on banking behavior. Based on the preliminary findings of this research, it seems likely that the KPPU will investigate the country’s banking industry. This case mirrors that of European banking, where six major banks were recently revealed to be engaging in cartel practice.
“Structurally speaking, we [the KPPU and the AIPEG] have already uncovered the existence of concentrated oligopolistic market practices. We just need to figure out exactly what kind of behavior is involved here. Indeed, there may well be some sort of anti-competitive practices or similar behavior that has resulted in the country having an extremely high interest rate,” Mr. Rauf claimed.
Kahlil Rowter, an AIPEG consultant, also ventured an opinion on this matter, claiming that Indonesia’s financial sector needs reviewing, as it seems to be suffering from high loan interest rates, a wide loan margin, and also a high level of profitability. Mr. Rowter asserts that this might be caused by a low level of competition, applicable government policies, geographical conditions, as well as a lack of legal certainty. Mr. Rowter further explained that, historically speaking, any increase in competition eventually lowers loan margins and loan interest rates, whereas low levels of competition tend to increase loan margins and loan interest rates.
“Indonesia’s banking subsector operates under a form of monopolistic competition, which relies solely on the ability of each business to determine lower prices when compared to banks from other countries across the region,” asserted Mr. Rowter.
Offering further insight, Mr. Rauf also claimed that in response to any possible unhealthy business practices within Indonesia’s banking industry, the Financial Services Authority (OJK) must consistently seek to build a better and healthier banking framework through consolidation, mergers and acquisitions. The aim is to reduce the current 119 banks operating in Indonesia to just 60 banks, in the belief that this will greatly improve business competition between banks.
“This is why the research also recommends a joint discussion being initiated between the OJK and Bank Indonesia (BI) in order to formulate a future banking roadmap and its consolidation,” Mr. Rauf stated.
Meanwhile, the OJK has already admitted that it does not prohibit banks from merging with each other. On the contrary, the OJK encourages mergers, as shown in its support for the plan to merge a number of state-owned sharia banks.
(hs/sp)