Headquarter of Industrial Bank of Korea - Photo y the Company

JAKARTA (TheInsiderStories) – The realization merger between two banks belonging to the Industrial Bank of Korea (IBK) will will happen in the next few days. The bank will merge PT Bank Agris Tbk (IDX: AGRS) and PT Bank Mitra Niaga Tbk (IDX: NAGA).

Based on the disclosure information released on Thursday (08/15), it said every one NAGA share will be converted to 1,137 AGRS shares on August 22. After getting approval from the Ministry of Law and Human Rights, which is scheduled to be accepted on August 22, Bank Mitra Niaga will delisting from the bourse on August 23.

On February, 2018, IBK obtained 4.59 million shares or 87.34 per cent of Bank Agris fully paid capital from the seller PT Dian Intan Perkasa (owned 82.59 percent shares), Benjamin Jiavaranon has 0.28 per cent, and public 17.13 percent.

The bank, which is majority owned by the South Korean Government, has also acquired 71.68 percent of Bank Mitraniaga’ shares of 1.15 billion shares by Willy Yonathan and 10 million shares of Yeo Harry Yonantha. After the acquisition transaction, the composition of Bank Mitraniaga’s shareholders will change.

IBK will control Bank Mitraniaga with a share ownership of 71.68 percent, PT Sarana Steel remains 9.89 percent and Kamtono Kosasih remains 5.105 percent, Yonathan is only 1 percent and public shareholding is 12.32 percent.

This merger is a consolidation effort that is being pushed by the agency cause, currently the banking industry competition has expanded, to the financial technology industry. The existence of increasingly fierce competition will endanger small banks in business groups Book 1 and 2.

The Industrial Bank of Korea’ business plan in Indonesia is the financing of micro, small and medium enterprises. As of July 2019, IBK hold 95.79 percent of Bank Agris shares and owned 71.68 percent of NAGA shares.

Recently, Indonesia’ Financial Services Authority (FSA) aimed to relax single presence policy (SPP) to accelerate the bank consolidation, said the official on Thursday (08/01). The revision its expecting release in this year and will make no distinction between foreign and local lenders.

Heru Kristiyana, commissioner for banking supervision at the agency said, the revision rule could facilitate foreign banks invest in a local entity, as it tries to strengthen the sector against growing competition from financial technology firms.

He continued, with the new policy investor have a chance to own a controlling stake in a smaller lender that has less than Rp5 trillion (US$354.4 million) paid-up capital, adding there would be equal treatment for foreign and local banks.

“Foreign banks are still interested in coming to Indonesia because the net interest margin is still high at around 5 percent,” he told media.

The single presence policy was introduced in 2006 as a way to push consolidation among the 2,000 or so local banks. However, it proved unpopular with some of the foreign lenders seeking to expand their operations in Indonesia.

A bigger deterrent came in 2012 when regulators restricted foreign holdings in local lenders to 40 percent, prompting DBS Group Holdings Ltd. to abandon an attempt to take over publicly listed PT Bank Danamon Indonesia Tbk (IDX: BDMN) the following year.

Since then, Indonesia has relaxed the 40 percent rule, clearing the way for Japan’ Mitsubishi UFJ Financial Group Inc. to take control of Danamon earlier this year and for Sumitomo Mitsui Financial Group Inc. to buy PT Bank Tabungan Pensiunan Nasional Tbk (IDX: BTPN).

Kristiyana explained that the entry of technology firms into the financial industry requires a more nimble banking sector in Indonesia. He stated, “With the development of FinTech and banking digitalization, banks are required to be efficient so they can compete. You must consolidate if you can’t compete.”

Removing the single presence rule could make it easier for Standard Chartered Plc., to hang on to its 45 percent stake in PT Bank Permata Tbk (IDX: BNLI), according to Suria Dharma, an analyst at Samuel Sekuritas. The London-based bank said in 2016 it was considering merging its local branch network with Permata in order to move to a single presence, before indicating earlier this year it may sell out of Permata.

Indonesian lender PT Bank Mandiri Tbk (IDX: BMRI) has been in discussions to purchase the Permata stake, and has hired Morgan Stanley to advise on the potential deal, people familiar with the matter said earlier this year.

Kristiyana said the single presence rule may still apply if a large bank seeks to take a stake in another size-able lender. A large bank acquiring a smaller rival would be allowed to retain it as a separate entity, he added, without specifying the threshold for a merger requirement.

Indonesia has 115 conventional and Shariah banks and almost 1,800 rural lenders, catering to the archipelago’s more than 260 million people, data from the regulator showed.

Even as the single presence policy is relaxed, foreign banks looking to acquire Indonesian lenders should still demonstrate a commitment to lending to infrastructure and small and medium-sized enterprises, and appoint Indonesian residents as president director and president commissioner, the two most senior corporate roles, Kristiyana said.

Written by Staff Editor, Email: theinsiderstories@gmail.com