[JAKARTA] Indonesia's biggest banks, among the world's most profitable, are strong enough to face down overseas rivals without the need to merge to cope with Southeast Asia's economic integration, said the head of state lender PT Bank Negara Indonesia.
Indonesian banks can build on their geographical reach within the sprawling archipelago to retain an advantage over new entrants in Southeast Asia's largest economy, president director Gatot Suwondo said in an interview in Jakarta on Wednesday. Employees at his bank would resist any merger with PT Bank Mandiri, he said.
Indonesia has been looking at consolidating its four state- owned lenders into two, to strengthen them ahead of a free-trade economic zone that is due to start this year and will be applicable for the financial industry from 2020. Its financial regulator wants to cut the country's 119 banks by half in the next decade through mergers or capital injections.
"Top-tier banks are ready to face competition when the Asean economic community comes into effect," Mr Gatot, 58, said at his office. "The issue will be with the small banks, and there are many of them with little assets, in need of capital and that are too small to go public."
The discussion on merging state-owned financial institutions is at an early stage and mergers won't happen this year, Rini Soemarno, minister for state-owned enterprises, said in an interview on Jan 16.
The government controls BNI along with Mandiri, PT Bank Rakyat Indonesia and PT Bank Tabungan Negara.
"I've got 27,000 employees and they are intellectual people, they are not factory labourers, they will not go to the streets to protest against a merger but they can do something to make sure that it will not happen," Mr Rini said.
The financial services authority, known as the OJK, wants banks with capital below 1 trillion rupiah (S$106.4 million) to consolidate to ease its surveillance of the industry, Nelson Tampubolon, its chief executive, said in December.
The 10 member states in the Association of Southeast Asian Nations have to "substantially remove restrictions in trade in services for all remaining sectors by 2020," according to the group's website.
Indonesia's top lenders, which generate little income overseas, may pursue expansion under Asean's banking integration framework that aims to ease cross-border investments, Kristy Hung and Jonathan Tyce, analysts at Bloomberg Intelligence, wrote in a December note. PT Bank Central Asia, the biggest by market capitalization, may take the lead, having a partnership with Malaysia's Public Bank Bhd. for offshore banking and transactions, they said.
"Some think it will be a boxing ring where we will be fighting in the heavyweight class, and then are encouraging a merger among relatively smaller players, and the end result will be creating something that is still stuck in bantamweight class," said Mr Gatot, smoking a clove cigarette.
BNI has a return on equity of 20 per cent, compared with an average of 13 per cent for Singapore's three listed banks, according to data compiled by Bloomberg. Its share price has climbed more than fourfold since Suwondo took the helm seven years ago, outperforming the other state lenders, exchange data show. The stock rose 2.3 per cent in Jakarta on Thursday, versus a 0.1 per cent decline for the benchmark index.
The lender reported net income of 10.8 trillion rupiah last year, up 19 per cent from the previous year, and higher than a median estimate for 10.1 trillion rupiah in a Bloomberg survey.
Mr Gatot, whose term will end in March, aims for the bank to boost lending by as much as 16 per cent this year, while expanding savings and deposits by up to 13 per cent.
Banks are among the industries that will benefit from President Joko Widodo's effort to boost infrastructure development in the world's fourth-most populous nation, Riki Frindos, president director of Eastspring Investments Indonesia, said on Wednesday.
The delivery of infrastructure is the biggest risk for Indonesia and projects will be a story for next year rather than 2015, Suwondo said. The company will consider issuing Samurai bonds if the economy grows faster than expected, Mr Gatot said, sitting in front of a photo of him riding a Harley-Davidson.
As the owner of 4.85 million BNI shares, about the same as the holding of asset manager Manulife Financial Corp., he said he would personally profit if the government did go ahead with any merger after he steps down.
"I would vote for it if my shares are valued four times as much," he said.