Indonesian banks are not yet ready to compete head-to-head with their
counterparts in Southeast Asia due to the lack of capital and inefficiency in
their operations, a top official at Bank Indonesia (BI) says.
“If ASEAN banking integration
were to begin now, we would lose due to our banks’ low capital and general
operational inefficiency,” BI Deputy Governor Halim Alamsyah said on Monday at
the central bank’s headquarters in Jakarta.
He attributed this to the fact
that Indonesian banks still had high cost-to-income ratios (BOPO), a
measurement of a bank’s efficiency, 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 neighboring countries were more efficient in their
operating practices and could generate higher incomes with lower costs.
“Very few of our banks have a
BOPO of below 70 percent, meaning they are not competitive,” said Halim.
“This is a very serious situation
for us. Bank Indonesia is currently racing against time to boost capital and
improve efficiency among [Indonesian] banks. Strong capital and efficiency,
after all, are the two factors that can improve our banks’ competitiveness,” he
added.
As part of the blueprint of the
ASEAN Economic Community (AEC), central bankers in Southeast Asian countries
are currently discussing a financial integration system that aims to eliminate
banking barriers in its member countries.
The system, scheduled to take
place as early as 2020, will allow certain banks to expand into other Southeast
Asian countries with ease if they meet the requirements of the so-called
qualified ASEAN banks (QABs), a kind of single “passport” for regional
expansion.
Indonesia’s central bank
introduced on Nov. 23 a package of new banking regulations that many said
reflected its commitment to strengthening the domestic banking system in
preparation for ASEAN’s banking integration.
Among the unveiled regulations is
a multiple license policy, in which BI classifies banks into four categories
based on their core capital. BI will allow a bank to compete at the regional
level only if it stands in tier three (core capital of between Rp 5 trillion
and Rp 30 trillion), while a bank can compete at both regional and
international levels if it is in tier four (core capital of more than Rp 30
trillion).
“Having sufficient capital is
imperative for our banks to remain competitive. I predict that Indonesia will
see a great wave of banking consolidation as [ASEAN’s banking integration] in
2020 draws closer,” Ryan Kiryanto, the chief economist at state-run Bank Negara
Indonesia (BNI), said on Monday.
“We can do it. There are still
eight years left for us to prepare.”
Earlier, a number of large
Indonesian banks said they met all the requirements to compete, particularly in
Singapore, if BI managed to negotiate a less-protectionist stance from the city
state’s central bank in exchange for easing the planned takeover of Bank
Danamon by Singapore’s DBS Group Holdings. (
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