MUFG entry plan indicates industry’s attractiveness
Japan’s Mitsubishi UFJ Financial Group (MUFG) is the latest foreign bank to make strides into Indonesia’s lucrative banking industry by planning to acquire shares in mid-sized Bank Danamon.
As reported by several foreign media outlets, MUFG is in talks to acquire a 40 percent stake, worth ¥200 billion (US$1.8 billion), in Bank Danamon. Singapore’s Temasek Holdings currently owns about 68 percent in the bank.
South Korean and Chinese financial groups have also acquired Indonesian banks.
China Construction Bank Corporation (CCB) established its local arm, CCB Indonesia, as a result of a merger between lenders Bank Windu Kentjana International and Bank Antardaerah after an acquisition by CCB in November last year.
South Korean lenders Shinhan Bank began operating in Indonesia in May last year after acquiring Bank Metro Express in November 2015. Its compatriot, financial firm Apro Financial Co. Ltd., recently acquired a 40 percent stake in private lender Bank Andara and has signed an agreement to purchase 77.38 shares in Bank Dinar.
“Our banking industry is like a pretty girl who catches men’s attention,” Financial Services Authority (OJK) commissioner for banking supervision Heru Kristiyana said on Friday. “The industry’s assets have grown by about 6 percent annually to Rp 7,150 trillion [$528.5 billion] at the moment [...] and its NIM [net interest margin] is around 5 percent.”
NIM is a measure of the difference between the interest income generated by banks and the amount of interest paid out to deposit holders.
High NIM is what lures foreign banks into the market other than the country’s vast population and low banking penetration, which leaves room for expansion. Prospective economic and loan growth are also among the reasons, according to a recent survey held by finance consulting firm PwC.
Indonesia’s NIM stands at between 2 and 8 percent compared to around 4 percent in the Philippines, between 2 and 3 percent in Malaysia and 2 percent in Singapore, according to data compiled by PwC.
As of September, bank loans grew moderately by 7.86 percent year-on-year (yoy) compared to 8.26 percent recorded earlier in the month. Third party funds rose to 11.69 percent yoy from 9.6 percent in August, OJK data showed.
Meanwhile, non-performing loans (NPL) — the ratio between bad debts and total loans — dropped slightly to 2.93 percent gross in September from 3.05 percent in August.
“These figures have lured investors,” Heru added. “Corporate actions carried out by foreign or domestic firms are common. For us, it’s about how to push them to actively contribute to our economy, such as channeling more loans to infrastructure development.”
Heru stated his office had invited Danamon’s officials to explain the acquisition plan and was told that MUFG had only expressed its wish to acquire the stakes and had yet to submit any documentation to both Temasek and the OJK.
Heru admitted that several investors had expressed interest in buying Indonesian banks, but his office could not name them as yet because no official documents had been submitted.
In its efforts to consolidate the country’s 115 banks, the OJK has prioritized market-driven principles rather than taking regulatory ones, OJK chairman Wimboh Santoso said.
“We welcome investors who want to acquire our banks. We will support the process,” he added.
Wimboh expressed optimism that the industry would grow faster next year as shown in its loan growth expectation of between 12 and 13 percent from 9 to 10 percent this year. The growth will be supported by a better macroeconomic situation and bad debt management carried out by banks.
High NIM is what lures foreign banks into the market More investors have expressed interest in buying Indonesian banks