Indonesia urged to cut bank network to 70 lenders

The bank association believes that this is the ideal number to foster competition.

Indonesia should only have a maximum of 70 banks to be able to strike a healthy competition in the domestic market, the Indonesian Banks Association (Perbanas) was quoted in The Jakarta Post.

As of November 2018, there are 115 conventional and Shariah banks in the country whilst the rural bank network is made up of 1,800 lenders.

Also read: Can Indonesian banks survive the severe local currency depreciation?

The competition of interest rates demonstrates the increasingly tough environment for banks trying to obtain third-party funds, said Perbanas chairman Kartika Wirjoatmodjo. “The competition for third-party funds is not in balance among the banks; the ideal number of banks is only 50 to 70,” he said.

“Large-scale banks need to carry out acquisitions and mergers. We see that as a positive move. It could be an incentive for large banks to acquire other banks to cut the number of banks in Indonesia,” he added. 

Experts have called for consolidation in Indonesia’s banking sector especially against the tumbling rupiah. After the government warmed up to the idea of foreign takeovers, Japanese megabank like Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. have announced plans to gain control of their local counterparts in Indonesia.

However, consolidation has been moving at a snail’s pace as only a handful of banks have consolidated and around 90 rural lenders have shut down or winding down since the central bank rolled out a consolidation programme in 2005, Bloomberg data show.

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