Is Indonesia's bloated bank network prime for foreign takeover?

Mergers would be welcome in light of weakening rupiah.

Bloomberg reports that Indonesia’s bloated bank network composed of 1,800 rural lenders and 115 conventional and Shariah banks may be the key takeover target for foreign acquirers in light of a currency that has plunged 11% since January. 

“Consolidation will be good and with a weakening rupiah, it would be cheaper for global investors to buy our banks,” Fauzi Ichsan, CEO of the Indonesia Deposit Insurance Corp. told Bloomberg.

Also read: How are Indonesian banks faring after the bad loan surge of 2016?

The government has earlier warmed up to the idea of foreign takeovers, prompting Japanese mega-banks like Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. to announce plans to gain control of their local counterparts.

However, process on bank mergers has been moving at a snail’s pace as only a handful of banks have consolidated and around 90 rural lenders have shut down or winding down since the central bank rolled out a consolidation programme in 2005.

Indonesian banks have stood firm against the weakening rupiah as their low dollar balance sheets cushions them from the blow. The forex loan compositions of Indonesia’s Big 4 banks all stand at below 15%.

“The low amount of foreign currency assets and liabilities (<3%) leads to a lower probability of bank failure in the event of a severe rupiah depreciation,” said UOB analyst Alexander Margaronis.

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