Indonesia plans to relax bank merger rule in efficiency push


(MENAFN- Gulf Times) Indonesia is planning further steps to make it easier for foreign bank
s to invest in local lenders as well as encourage domestic mergers, as it tries to strengthen the sector against growing competition from financial
technology
firms.
The Financial Services Authority, known as OJK, expects to amend the so-called single presence policy later this year, according to Heru Kristiyana, commissioner for bank
ing supervision at the regulator.
The revised rule, which will make no distinction between foreign and local lenders, would relax the longstanding requirement that the acquiring bank
s have to merge all their local operations into one entity.
'The single presence policy will be flexible so that there's consolidation and our bank
s become more efficient, Kristiyana said in a recent interview in his Jakarta office. 'Foreign bank
s are still interested in coming to Indonesia because the net interest margin is still high at around 5%.
The single presence rule was introduced in 2006 as a way to push consolidation among the 2,000 or so local bank
s.
However it proved unpopular with some of the foreign lenders seeking to expand their operations in Indonesia.
A bigger deterrent came in 2012 when regulators set conditions for financial
institutions to raise holdings in bank
s above 40%, prompting DBS Group Holdings Ltd to abandon an attempt to take over Bank Danamon Indonesia the following year.
Since then, Indonesia has relaxed the 40% rule, clearing the way for Japan's Mitsubishi UFJ Financial Group Inc to take control of Danamon earlier this year, and for Sumitomo Mitsui Financial Group Inc to buy Bank Tabungan Pensiunan Nasional.
Kristiyana said the entry of technology
firms into the financial
industry
requires a more nimble bank
ing sector in Indonesia. 'With the development of fintech and bank
ing digitalisation, bank
s are required to be efficient so they can compete, he said. 'You must consolidate if you can't compete.
Removing the single presence rule could make it easier for StandardChartered
Plc to hang on to its 45% stake in PT Bank Permata Tbk, according to Suria Dharma, an analyst at Samuel Sekuritas.
The London-based bank
said in 2016 it was considering merging its local branch network with Permata in order to move to a single presence, before indicating earlier this year it may sell out of Permata. PT Bank Mandiri has been in discussions to purchase the Permata stake, and has hired MorganStanley
to advise on the potential deal, people familiar with the matter said earlier this year.
Kristiyana said the single presence rule may still apply if a large bank
seeks to take a stake in another sizeable lender.
A large bank
acquiring a smaller rival would be allowed to retain it as a separate entity, he added, without specifying the threshold for a merger requirement.
Indonesia has 115 conventional and Shariah bank
s and almost 1,800 rural lenders, catering to the archipelago's more than 260mn people, data from the Financial Services Authority show.
Banks are among the best performers in Indonesia this year with the Jakarta Stock Exchange Finance Index surging 12%, outperforming the 3% gain for the broader benchmark index
.
Even as the single presence rule is relaxed, foreign bank
s looking to acquire Indonesian lenders should still demonstrate a commitment to lending to infrastructure and small and medium-sized enterprises, and appoint Indonesian residents as president director and president commissioner, the two most senior corporate roles, Kristiyana said.

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