Indonesia to relax bank merger rules to boost consolidation

Provident Capital's investments are concentrated in Indonesia. Photo of Jakarta by Vierundsieben on Unsplash

Indonesia plans to relax bank merger rules to encourage more consolidation in the sector in Southeast Asia’s biggest economy crowded with dozens of small lenders, a senior official at the Financial Services Authority (known as OJK) said on Thursday.

There are over 1,500 banks, mostly rural banks, operating across the vast archipelago and authorities have for years tried unsuccessfully to cut the number by pushing them to merge.

The regulator is drafting a new regulation for issuance later this year that will ease the so-called “single presence” policy, under which no single investor can have a controlling interest in more than one bank, said Heru Kristiyana, OJK’s chief banking supervisor.

The new rules will allow an acquiring bank to own a controlling interest in a smaller lender that has less than 5 trillion rupiah ($354.4 million) in paid up capital, he said, adding there would be equal treatment for foreign and local banks.

Under the current rules, the small bank must be merged with the acquiring bank.

“This will open opportunities for big banks and foreign banks to consolidate,” Kristiyana said by telephone.

“These smaller banks, their capital is limited and their contribution (to the economy) is not optimal,” he said.

However, for purchase of a controlling stake in a major bank by another big bank, OJK will still apply the single presence policy to force the two to merge, he said.

Kristiyana said the new rules may apply to a plan by Bank Central Asia, the country’s largest lender by market value, to buy smaller lender Bank Royal.

Reuters