Indonesian banks unprepared to compete with Asean neighbors

It appears they're not yet ready.

Indonesian banks could not, at the moment, compete head-to-head with their counterparts in Southeast Asia because of the lack of capital and inefficiency in their operations.

This was revealed by Halim Alamsyah, deputy governor of Bank Indonesia.

He attributed this to the fact that Indonesian banks still had high cost-to-income ratios, which stood at 74.26 percent as of September, according to BI data.

For comparison, the average cost-to-income of banks in other Southeast Asian nations ranged from 40-60 percent, meaning banks in neighbouring countries were more efficient in their operating practices and could generate higher incomes with lower costs.

"Very few of our banks have a [ratio] below 70 per cent, meaning they are not competitive," Alamsyah said.

BI introduced on November 23 a package of new banking regulations that many said reflected its commitment to strengthening the Indonesian banking system in preparation for Asean's banking integration.

"Having sufficient capital is imperative for our banks to remain competitive," said Ryan Kiryanto, chief economist at state-run Bank Negara Indonesia. "I predict that Indonesia will see a great wave of banking consolidation as [Asean's banking integration] in 2020 draws closer.

"We can do it. There are still eight years left for us to prepare."

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