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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

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