Bank Indonesia is currently in the middle of a consolidation drive to turn the country's crowded banking sector into an efficient industry.
The drive will result in fewer banks, but those which remain will have stronger capitalizations. This includes a requirement to increase minimum capitalization to Rp 80 billion by the end of this year and to Rp 100 billion at the end of 2010, through either capital injections or mergers.
BI director for banking research and regulation, Halim Alamsyah, said earlier this month that five or six banks would likely be unable to meet the year-end deadline.
Those banks that fail to meet the minimum capital requirement of Rp 80 billion by the end of the year will be forced to merge with other banks.
According to the central bank's most recent regulation on the topic, banks that fail to achieve a minimum capitalization of Rp 100 billion by the end of 2010 will be allowed to only operate as secondary or rural banks.
Another consolidation policy in the works this year is the "single presence policy", which forbids the same shareholder from owning majority stakes in more than one bank.
None of the players concerned have submitted their plans as yet to BI, although Malaysian state holding company Khazanah, which owns Bank Niaga and LippoBank, and Singapore's Temasek, which controls Bank International Indonesia (BII) and Bank Danamon, have both stated that they will submit their plans by this year-end's deadline.
The State Ministry of State Enterprises has also notified the central bank that it will likely require an extension to the 2010 final deadline as regards the government's ownership in existing state lenders.
The two policies may affect the industry's future performance as bank executives may tend to focus more on dealing with the consolidation efforts than expanding lending.
The consolidation process itself may be costly and affect the bottom line of the relevant banks.
However, over the year BI provided several incentives to encourage bank mergers and acquisitions, which should help the banks to weather the effects. These incentives include looser terms regarding lending limits and the time to resolve any lending-limit violations as a result of the consolidation process.
BI Deputy Governor Muliaman D. Hadad also said that under the central bank's latest policy, an acquiring shareholder would have to retain its ownership in a bank for at least five years.
This is expected to ensure that the industry's consolidation process does not get taken advantage of by speculative buying and selling of banks.
-- Urip Hudiono
