Indonesian banks' regional expansion still 'on track'

PHOTO: Indonesian banks' regional expansion still 'on track'

INDONESIA - Indonesia's state-owned banks will continue their planned business expansion in Southeast Asia, despite a potential setback to their expansion into neighbouring Singapore in the failure of the DBS-Bank Danamon merger.

The regional expansion is part of the banks' efforts to anticipate the upcoming ASEAN Economic Community (AEC), which has set 2020 as the year of banking integration for the 10 ASEAN member countries; Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Bank Negara Indonesia (BNI) treasury and financial institutions director Adi Setianto says the future seems a bit bleak for BNI with the cancellation of the DBS-Danamon deal. "Therefore we will ask the government to step in and carry out a government-to-government approach to ensure the expansion," he said recently.

Singapore's DBS Group Holdings Ltd. - Southeast Asia's largest bank - said last week that it had dropped its plan to acquire a majority stake in local Bank Danamon following Bank Indonesia's (BI) decision to only approve a 40 per cent share acquisition.

BI had asked the Monetary Authority of Singapore (MAS) to provide greater access for state-owned BNI, Bank Mandiri and Bank Rakyat Indonesia (BRI) to expand their business in the city state, as part of a bargain to allow DBS to acquire a bigger stake.

MAS had made no decision on BI's request by the time DBS dropped the deal.

In the meantime, BNI is now looking to establish a full branch in Myanmar to support the expansion of other state-owned enterprises into that country. The bank currently shares a state-owned enterprise (SOE) representative office with oil and gas firm PT Pertamina and construction firm PT Wijaya Karya in Yangon.

"We basically follow the businesses of our clients, and as a state-owned bank, we must support the operations of SOEs," he said, adding that the bank was currently waiting for approval from Myanmar's central bank.

In Southeast Asia, BNI only has one full branch office - serving corporate and retail clients - and one limited-purpose branch office, which functions solely in remittances, both in Singapore.

Adi said that it was important for the bank to open another office in Singapore, citing the high volume of Indonesians travelling back and forth between Singapore and Indonesia for business, health and leisure purposes.

According to BNI's first-half financial report, its business in Singapore earned US$2.67 million (S$3.4 million) in net profits, or 26 per cent of the total net profits made by the bank's overseas branches. The Singapore figure was down by more than a third from the year before as BNI decided to book some transactions onshore.

Meanwhile, Bank Mandiri currently runs two branch offices in Southeast Asia; Malaysia and Singapore.

Mandiri senior vice president for financial institutions coverage and solutions Ferry M. Robbani said it was waiting for the results of further talks between BI and MAS before submitting an official letter to the Singapore authority to upgrade its status to a full-license branch.

Mandiri's operation in Singapore, which began in 1999, is limited to corporate activities, such as trade, finance and treasury.

Mandiri finance and strategy director Pahala N. Mansury said the bank would continue to pursue expansion opportunities in Singapore in spite of the DBS-Danamon deal collapse.

The bank is also seeking opportunities in both Myanmar and Vietnam.

Ferry said that as "the last frontier in Asia", Myanmar offered a lot of banking potential, while Vietnam was now home to many Indonesian companies.

BRI corporate secretary Muhamad Ali separately said it was preparing its information technology infrastructure and human resources to cope with the AEC. In January, it submitted a request to MAS to open a branch in Singapore, but had yet to receive a response.