The Financial Services Authority (FSA) revised down the national bank loans growth to only 4 percent in this year, far from the initial estimate of 11 percent compared to 2019 - Photo by TheInsiderStories

JAKARTA (TheInsiderStories) – PT Bank Danamon Indonesia Tbk (IDX:BDMN) will gain benefit when The Bank of Tokyo-Mitsubishi UFJ, Ltd (BTMU) realized its plan to acquire 40 per cent stake in Bank Danamon, according Moody’s Investors Service.

“Such a deal would be a credit positive for BDMN because it would gain a higher level of affiliate support,” Srikanth Vadlamani, Vice President – Senior Credit Officer, Financial Institutions Group, Moody’s Investors Service said

The proposed investment in Indonesia is part of a broader effort to expand overseas, which now accounts for about 40 per cent of BTMU’s loan book, as a result of Japan’s ultra-low interest rates suppressing profitability. BTMU has a 77 per cent stake in Bank of Ayudhya (Baa1 stable, ba1), a 20 per cent interest in Vietnam JSC Bank for Industry and Trade (B2 stable, b2), and a 20 per cent stake in the Philippines’ Security Bank Corporation (Baa2 stable, baa3).

Currently, Temasek Holdings (Private) Limited (Aaa stable) has a 67 per cent stake in BDMN, and BDMN’s rating incorporates affiliate support from Temasek. However, we view Temasek’s stake in the bank as more of a financial investment than a strategic one, and incorporate only a moderate level of support from Temasek in BDMN’s rating, leading to a one notch uplift to the bank’s baseline credit assessment.

Because BTMU’s investment is more strategic, it may be more willing to provide BDMN extraordinary support in case of need, which would positively affect our assessment of affiliate support for the bank.

The Mitsubishi UFJ Financial Group unit’s board decided last week to begin negotiations in earnest with Singaporean state wealth fund Temasek Holdings, as well as with local authorities. BTMU seeks to turn Bank Danamon into an equity-method affiliate as early as mid-2018, entitling it to a cut of the Indonesian lender’s earnings. The initial investment is seen at around US$1.76 billion.

Jakarta-based Bank Danamon is Indonesia’s fifth-largest bank by market capitalization and ranks eighth by total assets. Net profit grew 14 per cent to Rp2.79 trillion for the fiscal year that ended in Dec, 2016. The bank holds a solid presence in both retail and corporate banking, boasting a domestic network of more than 1,800 locations group wide.

Bank Consolidation

Executive Chairman of FSA Heru Juwanto said Indonesian banking industry is currently in consolidation phase. “If in this process, investors are entering (buying stakes), we will support as long as banks are happy,” Heru said.

He said the stakes purchase does not mean that the targeted bank is in trouble. The stakes purchase is a pure business to business talks between local and foreign banks.  He said that the entry of foreign bank is not only happening in Bank Danamon, but also in other banks. Some banks revealed their potential investors, but others have yet to inform the FSA.

Heru hinted that foreign banks are allowed to buy 40 per cent stakes in Indonesian bank and could be higher than that as long as they show their commitment to assist domestic banks. It is not clear yet, whether the Japanese bank will keep Bank Danamon as separate entity or merge with Indonesian operation unit of BTMU. (*)