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Indonesia eyes foreign firms for more mergers

JAKARTA: Indonesia has almost 2,000 banks and a currency that has plunged 11% since January, a combination overburdened regulators hope will prove irresistible to foreign acquirers.

The country’s lenders are in much better shape than during the Asian financial crisis of 1997-98, and have stood up well to the weakening of the rupiah this year, said Fauzi Ichsan, chief executive officer of the Indonesia Deposit Insurance Corp, known as LPS.

“Consolidation will be good and with a weakening rupiah, it would be cheaper for global investors to buy our banks,” Ichsan said in an interview.

Even after a few recent mergers, Indonesia still has 115 conventional and syariah banks and almost 1,800 rural lenders, catering to the archipelago’s more than 260 million people, data from the Financial Services Authority show.

Meanwhile, Australia & New Zealand Banking Group Ltd has rekindled a long-running effort to sell its stake in family-controlled lender PT Bank Pan Indonesia, people with knowledge of the matter said last week.

The South-East Asian nation didn’t have a sufficient number of experienced finance staff to sustain so many institutions, said Ichsan. “As a regulator we don’t have enough bank supervisors and the industry doesn’t have enough qualified bankers.”

Indonesian regulations make it difficult – though not impossible – for foreign banks to invest more than 40% in local lenders. Singapore’s DBS Group Holdings Ltd scrapped a bid to buy PT Bank Danamon Indonesia in 2013 after the ownership rule was introduced.

Other deals have since been approved because they either involved buying two lenders and merging them, or purchasing distressed assets.

The rupiah has tumbled almost 11% since the emerging market selloff began in late January, prompting the central bank to raise interest rates four times and intensify market intervention by draining foreign reserves.

But unlike the situation during the Asian crisis – when the rupiah endured a steeper collapse – Indonesia’s banks have so far been relatively unscathed, Ichsan said.

“The key indicators for banks are far better now,” Ichsan said, recalling the hysteria that swept through the markets during the Asian crisis, when he was a bonds trader at Citigroup Inc in Singapore. Indonesia closed 16 lenders as the industry-wide capital adequacy ratio sank to a negative 15.7%, and non-performing loans soared to almost 50%.

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