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WHOLESALE BANKING | Cesar Tordesillas, Indonesia
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Foreign investors eye Indonesia’s banks

Indonesia’s banks are attracting foreign firms for its booming growth and an untapped market of tens of millions.

 

But they must be willing to accept an uncertain investment environment in return.

“Indonesian banks are attractive because they are growing much faster than foreign banks,” said Harry Su, head of research at Jakarta-based brokerage Bahana securities.

A report by PricewaterhouseCoopers expects a wideing growth gap between Indonesia’s banking sector and Western institutions struggling to emerge from the downturn and debt crisis. It described Indoensia's growth rate as phenomenal. 

Indonesia’s domestic banking assets are tipped to grow to $5.1 trillion by 2050 from $187 billion in 2009, a 27-fold increase, while US assets are expected to expand just three-fold to $46.5 trillion over the same period.

“Indonesia’s banking sector is currently the best performer in Southeast Asia, especially in profitability,” said Iwan Wisaksana, an analyst at Fitch Ratings Indonesia.

Furthermore, only around half of Indonesians aged over 15 have bank accounts.

This means an untapped market of around 60 million including many now joining the middle class and requiring financial services.

International interest has been spurred by a number of factors including the lenient foreign ownership laws that were introduced to boost investment after the 1997--98 Asian financial crisis.

Investor confidence has also been boosted in recent months since ratings agencies Moody’s and Fitch bumped Indonesia to investment grade after long years of junk status.

But suggestions that the ownership cap could also be tightened for banks have fueled uncertainty over the sector’s regulatory environment.

A PwC survey of 100 executive bankers in Indonesia released last month showed that the regulatory environment was the top obstacle to growth in the banking sector.

“The opportunities here are fantastic, but that comes with a cost,” said PwC Indonesia’s technical adviser for banking Ashley Wood.

Major players are watching with interest the outcome of DBS Group of Singapore’s trail-blazing $7.3 billion deal struck on April 2 to acquire Bank Danamon Indonesia, the nation’s fifth-largest bank.

But Indonesia's central bank declined to approve the deal until it establishes new rules on foreign ownership, which currently allow local and foreign investors to own up to 99 percent of Indonesian banks. Bank Indonesia also said investors would require separate licenses for different services, such as taking deposits, setting up ATMs and opening branches.

DBS’s bid for Danamon is in line with plans by Southeast Asia’s biggest bank to tap into emerging Asia, as it can no longer grow organically in

Singapore where market penetration is already high, Su said.

Other foreign investors have also been making forays.

Commonwealth Bank Australia announced last year it would almost double the number of branches in Indonesia from around 80 to 150 over the next few years.

London-based HSBC, which began banking in Indonesia in the late 19th century, acquired an 89 percent stake in local Bank Ekonomi Raharja in 2009, making it then the third-biggest foreign bank by assets in Indonesia.

Smaller institutions like Bank Ina Perdana, Bank Mestika Dharma and Bank Maspion are all reportedly being eyed by investors who are awaiting a resolution on the ownership regulations.

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