Asean Bank Pact Moves Closer

Jakarta Globe, ID/Grace Dwitiya Amianti on 6:49 pm April 27, 2013.

Indonesian banks, many of which are eager to expand abroad, lag their
 Southeast Asian peers with regard to the size of their assets. (Bloomberg
Photo/Dimas Ardian)

Central banks in Southeast Asia inched closer to agreeing on rules allowing commercial banks to expand within the region in a deal that may pave the way for Indonesian lenders such as Bank Mandiri and Bank Negara Indonesia to broaden their horizons.

Officials from central banks at the 10 countries in the Association of Southeast Asian Nations on Friday came closer to agreeing on requirements for Southeast Asian banks to do business in other nations in the region. To qualify for the improved market access, banks must reach the status of Qualified Asean Banks.

Requirements to be a QAB will include having headquarters in Asean and meeting certain thresholds on capital adequacy and consolidation, restrictions on large exposures, accounting and transparency.

Mulya Siregar, executive director of banking research and regulation at Bank Indonesia, said the region’s central bankers agreed that a preliminary document about the agreement principles was being finalized.

“This will be complete by the end of this year,” Mulya said, adding that the final decision would rest with Asean leaders. The Asean leaders are scheduled to meet at a summit in October in Brunei.

Mulya said that even though the general requirements for QAB had been laid out, the final decision of a bank expanding  to other country had to be reached by mutual agreement between the bank’s home country and its host country.

A home country’s QAB can enter a host country within the Asean region only if the host country has its own QAB that wishes to enter the former.

“This has to be done simultaneously to ensure a reciprocal treatment,” Mulya said.

Sigit Pramono, chairman of the Indonesia Banking Association (Perbanas), welcomed the advance in reciprocal talks.

Sigit said he was confident that Indonesia banks could meet the requirements to be QABs. But he warned that the country’s bank still lacked the human resources to compete abroad.

“We understand the local market very well, but we still lack, for example, English proficiency,” Sigit said.

State-owned banks Bank Mandiri, Bank Rakyat Indonesia and Bank Negara Indonesia are currently applying to open full branches in Singapore.

Meanwhile, Bank Mandiri is also holding back from opening a full branch in Malaysia due to capital requirement and ATM permits that it deems too restrictive.

Bank Mandiri applied to the Monetary Authority of Singapore in 2009. Discussion with the MAS is progressing as part of Bank Indonesia’s push for reciprocity.

The Indonesian central bank is assessing a $6.8 billion bid by Singapore’s DBS Group Holdings to buy control of Bank Danamon Indonesia from Singapore sovereign wealth fund Temasek Holdings. Bank Indonesia Governor Darmin Nasution, whose term ends in May, hinted two weeks ago that DBS is likely to learn the outcome of its bid early next month. He said a decision by the authorities in Singapore on whether to allow greater market access from Indonesian banks is a key factor.

Despite having strong lending growth and high margins, Indonesian banks are behind regional peers in terms of assets.

State lender Bank Mandiri ($66 billion), Bank Rakyat Indonesia ($57 billion) and Bank Negara Indonesia ($35 billion) are at 11th, 13th and 19th place respectively in Southeast Asia, with private lender Bank Central Asia ($46 billion) holding 16th place.