Indonesia’s Bank Central Asia Eyes Bank Royal

BCA Offically Buys Bank Royal Shares for US$71.42 Million
Board Directors of PT Bank Central Asia Tbk - Photo by the Bank.

JAKARTA (TheInsiderStories) – After preparing for almost three years, PT Bank Central Asia Tbk (IDX: BBCA) will soon completed the acquisition a small lender PT Bank Royal Indonesia. This year, one of the largest bank eyes two banks to be acquired.

Bank Royal has established since 1965 in Bandung, West Java. Currently, the lender has equity Rp 100 billion (US$7.14 million) with total assets Rp904.44 billion and loans Rp544.53 million.

Deputy Commissioner of Banking Supervisory for Financial Service Authority (FSA) Slamet Edy Purnomo confirmed Bank Royal would be taken over by BBCA. While, the bank’ president director Jahja Setiaatmadja denied to comment but he confirmed the bank to be acquired is not a public listed bank.

“We are currently undergoing a due diligence process. Unlike foreign banks, they are very passionate, so any price is taken. But, we have to be really careful, because we already have customers and branches,” he said.

Chief executive of banking supervisory at FSA Heru Kristiyana added, the agency encouraged banks to consolidate cause the number of banks at present is too much around 115 banks, with 82 with status as BOOK I and BOOK II.

In the midst of the rapid development of the banking industry as it is today, ranging from interest rate competition and digitalization, these small banks must survive. If they cannot survive, according to Heru, they must immediately find a way out by increasing capital or finding partners.

Meanwhile, the Association of State Banks thought the FSA regulation of number 39/POJK.03/ 2017 concerning Sole Proprietorship in Indonesian Banking (Single Presence Policy), hindered the process of downsizing the bank’ number. So far, each bank could only become a controlling shareholder of one bank.

Ownership of two banks could be done if one of them is a mixed bank or with sharia principles. If a majority stake holder of a bank wants to take over another bank, it has to choose one of the options which are merger, parent formation in banking, or holding function.

“The issue is, there are many banks must be merged, the SPP rules that required merging of banks, hinders the pace of domestic bank consolidation,” chairman of the association Kartika Wirjoatmodjo said.

He urged, the FSA needs to review single presence policy (SPP) so it does not necessarily merge to meet the requirements. It also can motivate banks with sufficient scale of business to acquire others so as to accelerate the decline in the number of banks in Indonesia. Wirjoatmodjo thought if the policy is revising, it could help the ideal number of 50 to 70 banks in Indonesia.

“In order to reach the ideal number of banks, regulators need to encourage consolidation. Therefore, I welcome the plan of the Financial Service Authority to review the rules regarding single presence policy (SPP),” said the CEO of PT Bank Mandiri Tbk (IDX: BMRI).

Furthermore, he noted the downsizing number of the banks needed to be encouraged in order to increase the competitiveness of domestic banks. The number of banks that are too many with the majority from the middle to lower scale makes the competition unbalanced, said the chairman.

Among other things, it can be seen from the struggle for uneven liquidity between small and large bank groups. Wirjoatmodjo revealed, the banks supported the FSa’ consolidation program. Bank Mandiri it self, he said, is seeking a medium scale bank to support state-owned lender’ business. The investment to realize this plan is around Rp30 trillion (US$2.14 billion).

“We are looking mainly for strong ones in small medium enterprise, because we are more into corporations and state-owned enterprises,” said the CEO.

US$1: Rp14,000

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