Asia-Based Regional Banks’ Growing Footprint in Indonesia

With the recent sale of PT Bank Commonwealth Indonesia (PTBC) to PT Bank OCBC NISP Tbk (OCBC Indonesia, a subsidiary of OCBC Ltd Singapore), Commonwealth Bank of Australia (CBA) has become the second Australian bank after Westpac Bank to exit Indonesia.

Coincidentally, U.S.-based Citigroup Inc. has completed the sale of its Indonesian consumer banking business to PT UOB Indonesia Tbk, a subsidiary of UOB Singapore. With sluggish post-pandemic recovery, stiffer competition from local and regional banks, and increased global uncertainty, Australian and U.S. banks are struggling to profitably grow their Asian businesses and are shifting their focus to more profitable core businesses closer to home.

As these banks retreat from Asia, regional and local Asian banks are steadily growing their regional footprint, including in Indonesia.

The growing presence of Asia’s regional banks in Indonesia has raised competitive pressure, forcing local banks to innovate, expand, and improve services as well as maintain stronger financials.

The PTBC sale was priced at AUD 220 million (US$142 million) and the whole transaction is expected to be completed by late next year. The sale represents a price significantly lower than its book value or the valuation of existing banks. This is due to the bank’s shrinking assets and rising losses. As of 30 September 2023, PTBC’s total assets were at 16.6 trillion rupiah, down from 18.4 trillion rupiah a year ago. For the first nine months of 2023, PTBC recorded a loss of Rp415.8 billion.

Still, OCBC Indonesia is acquiring a relatively clean bank with problem loan levels (non-performing loans) manageable at 1.95 per cent of total loans, which is below the industry average. With loans at just 76.1 per cent of total deposits, the bank remains sufficiently liquid. PTBC’s market focus, which is Indonesia’s consumer and SME market, is similar to OCBC Indonesia’s.

Another interesting feature of PTBC is its sizeable foreign exchange business from Australian tourists visiting Bali and remittances to Indonesian students studying in Australia. It will be interesting to see how OCBC Indonesia will try to keep and grow this Australia-related business.

This sale has limited impact on Indonesia’s banking industry given PTBC’s relatively small size but it reflects the steadily growing footprint of Asia’s regional banks. OCBC Indonesia was not the only suitor: other interested banks include Cathay Bank (Taiwan) and more recently, Japan’s JTrust and Malaysia’s CIMB.

The regional banks’ acquisitions of Indonesian banks have altered the line up of Indonesia’s top ten banks (Table 1):

Table 1. Top Ten Indonesian Banks by Total Assets (as of 30 September 2023)

Rank	Bank	Majority Shareholder	Total Assets (in Rp trillion)
1	PT Bank Rakyat Indonesia Tbk	State-owned	1,852
2	PT Bank Mandiri Tbk	State-owned	1,560
3	PT Bank Central Asia Tbk	Djarum group	1,381
4	PT Bank Negara Indonesia Tbk	State-owned	972
5	PT Bank Tabungan Negara (BTN) Tbk	State-owned	402
6	PT Bank CIMB Niaga Tbk	CIMB (Malaysia)	329
7	PT Bank Permata Tbk	Bangkok Bank (Thailand)	252
8	PT Bank OCBC NISP Indonesia Tbk	OCBC (Singapore)	247
9	PT Bank Panin Tbk	Gunawan family	211
10	PT Bank Danamon Indonesia Tbk	MUFG (Japan)	208

The top four are locally owned and together control 49.8 per cent of total banking assets. They are the market price leaders. The remaining six consist of one state-owned mortgage bank (BTN), one locally-owned private bank (Panin Bank) and four subsidiaries of various Asia-based banks: Malaysia’s CIMB, Thailand’s Bangkok Bank, Singapore’s OCBC, and Japan’s MUFG.

Before the Asian financial crisis of 1997-98, all of Indonesia’s top ten banks were either state-owned or local privately owned banks. It was soon after the crisis that regional banks and investors started to acquire Indonesia’s local private banks. The first wave involved the purchase of recapitalised banks taken over by the Indonesia Bank Restructuring Agency (IBRA or its Bahasa Indonesia acronym, BPPN). Buyers included CIMB which bought Bank Niaga (this later merged with Lippo Bank to become PT CIMB Niaga Tbk). Temasek, Singapore’s sovereign fund, bought two banks, PT Bank Danamon Indonesia Tbk and PT Bank International Indonesia Tbk (BII), formerly owned by the Sinar Mas group.

The second wave of bank acquisitions did not involve IBRA as it was dissolved in 2004 when Indonesia’s economy stabilised. From Singapore, OCBC Bank and UOB acquired controlling interests in Bank NISP and Bank Buana, respectively. (These were renamed PT Bank OCBC NISP Tbk and PT UOB Indonesia.) From Japan, SMBC bought PT Bank BTPN Tbk, MUFG purchased PT Bank Danamon Indonesia Tbk, and Jtrust Bank bought Bank Mutiara. From South Korea, Woori Bank bought Bank Saudara and Kookmin Bank bought PT Bukopin Tbk. The last foreign acquisition was Bangkok Bank’s purchase of PT Bank Permata Tbk from Standard Chartered Bank and Astra International.

In March 2008, the Indonesian monetary authorities limited each buyer to just one bank – Temasek thus sold BII to Malaysia’s Maybank (renamed PT Bank Maybank Indonesia Tbk). Other banks bought from IBRA were PT Bank Permata Tbk by UK-based Standard Chartered Bank and local automotive group PT Astra Internasional Tbk, and Indonesia’s largest private bank, PT Bank Central Asia Tbk, by U.S.-based fund Farallon Capital, which sold it to the Djarum group.

Of the top ten largest banks in Indonesia today, only two are local privately owned banks, BCA and Panin. Foreign interest in Indonesian banks continues, with recent reports indicating that Japan’s MUFG and SMBC are competing for the potential acquisition of PT Panin Bank Tbk.  

The growing presence of Asia’s regional banks in Indonesia has raised competitive pressure, forcing local banks to innovate, expand, and improve services as well as maintain stronger financials. Tighter regulatory oversight has strengthened banking industry capital levels. Overall, this development has helped the government’s objective of banking sector consolidation but it has still some way to go.

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