Bank Muamalat Needs US$315 Million Capital Injection

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(Photo: Bank Muamalat)

JAKARTA (TheInsiderStories) – Islamic lender PT Bank Muamalat Indonesia Tbk needs Rp 4.5 trillion ($315 million) worth of capital injection to improve its credit quality, the lender’s chief said on Wednesday (11/04).

The lender is currently struggling to find new investors as existing shareholders, which are foreign investors, are running out of options to bulk up the lender’s capital as they are constrained by the country’s single presence policy for foreign holding in a commercial lender.

Achmad K. Permana, Bank Muamalat’s President Director said, as quoted by Kompas that the lender hopes Indonesian authorities can offer solution to the trouble the bank is facing. Amid high non-performing financing, Indonesia’s first Islamic lender desperately needs fresh funds to sustain its operational.

Previously, a local stock broker Minna Padi Investama Sekuritas, expressed interest in acquiring at least 51 per cent in the Jakarta-listed Islamic lender. However, Minna Padi failed to meet the financial sector authority’s request to fully disclose the ultimate investors behind the share buy out. The banking sector regulator, the Financial Service Authority, did not give its approval over the planned acquisition and this jeopardized Minna Padi to wrap up the transaction.

Minna Padi missed the deadline (on Dec. 31) to comply with terms and conditions in the Conditional Share Subscription Agreement (CSSA) agreed with existing investors, thus the deal was forefeit.

Minna Padi was supposedly become the standby buyer for Bank Muamalat’s planned rights issue.The lender previously planned to issue 80 billion new shares to investors in a bid to pave the way for Minna to control 51 per cent holding in the first Indonesia’s Islamic lender.

Currently, the Islamic Development Bank owns a 33 per cent holding in Bank Muamalat, Kuwait’s Boubyan Bank KSCP and National Bank of Kuwait SAKP hold 22 per cent and 8.45 per cent respectively. The remaining shares of Bank Muamalat is held by the public.

Muamalat is in desperate need for new capital injection from new investors as it is struggling with bad financing and tight competitions that erodes its capital.

Existing foreign investors cannot inject adequate level of capital into the sharia lender due to the maximum 40 per cent foreign ownership regulation in the Indonesian banking sector.

The Insider Stories heard rumors that the FSA knew Minna Padi’s planned acquisition was financially backed by Bank Muamalat’s internal management to serve as a gimmick to lure other investors.

Bank Muamalat is in a bad shape for its financial condition. As of September 2017, the bank’s capital adequacy ratio (CAR) stood at 11.58 percent. Although the figure is still above the central bank’s requirement, it is still below the global, voluntary regulatory framework ‘Basel III’ to absorb potential systemic risk in the industry.

Meanwhile, the bank’s gross Non Performing Finance (NPF) stood at 4.43 per cent, increasing 2016’s 3.83 per cent.

Indonesia’s Islamic banking industry has seen stronger pressures in its non-performing loans, just like its peers in conventional banking industry, after 2015 when the commodity boom was over. Many bank corporate bank debtors, especially those who are in commodity-related industry, saw their profitability falling on lower prices.

Indonesia’s Islamic lenders are alao struggling to grow its business due to lack of competitiveness and public awareness of their products despite tgey operate in the world’s largest Muslim majority nation. Bank Muamalat is not spared from this tough competitive environment.

The banking regulator in Indonesia has issued a number of incentives since 2015 to boost the Islamic finance industry including through easing some regulations regarding loan-to-value (LTV) ratio, risk-weighted assets (RWA), Non-performing finance restructuring, and capital participation.

Written by Elisa Valenta, email : elisa.valenta@theinsiderstories.com

 

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