Indonesia tells small "selfish" banks not to refuse mergers

Bank Indonesia Governor Darmin Nasution asked banks with weak capital to open their doors to mergers and acquisitions.

Many of the small banks that Nasution was addressing are reluctant to take merger and acquisition measures on fears that such consolidation would affect the ownership of their founders.

“The small banks are often selfish. They are not willing to perform mergers,” said Darmin said. “If small banks are facing difficulties with their capital, then they should merge with other banks.”

There are currently 120 commercial banks operating in Indonesia, which analysts find as too high and makes banking supervision in the country difficult. t 

“Truthfully speaking, our banking industry is too diversified, a problem that was solved by our neighboring countries in the 1998-1999 by building banking consolidation,” explains Darmin, adding that too much diversification in the banking industry made some of BI’s regulations difficult to implement or ineffective.

Consolidation among banks with limited capital will also improve Indonesian banks’ preparedness to absorb financial shocks as well as make BI’s monetary tools more effective, according to CIMB Niaga economist Wisnu Wardana.

“Having too many banks leads to a shortage of liquidity in small banks. These small banks have difficulties competing with big banks to absorb liquidity in the Indonesian market,” said Wisnu.

At present, Indonesia’s 10 largest banks, including Bank Central Asia, Bank Mandiri, Bank Rakyat Indonesia, Bank Negara Indonesia, CIMB Niaga and Bank Danamon, control about 60 percent of the banking industry’s total assets, which reached Rp 3,652 trillion or US$380.7 billion as of January, this year.

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