Indonesian banks may attract more foreign investment as capital nears maturity


Indonesian lenders are expected to attract more foreign investment as they prepare for tougher capital requirements by the end of 2022 and the country’s economic growth prospects improve.

Nearly half of the 83 Indonesian banks covered by S&P Global Market Intelligence will need to raise new capital from investors to meet more stringent capital requirements, based on their Tier 1 capital levels as of September 30, 2021. All lenders must have at least $3 trillion. rupees of Tier 1 capital by December 31, as part of the Financial Services Authority’s efforts to strengthen the country’s banking system. At least 32 banks had capital below Rs 2 trillion as of September 30, 2021.

More business activity is likely among smaller, less capitalized lenders in 2022, analysts said. These banks could turn to foreign investors who have long been attracted to Indonesia’s banking system for its above-average spreads and loan growth, said Yulinda Hartanto, analyst at CGS-CIMB Sekuritas Indonesia.

This year “will be the last year for banks to meet the requirement and some banks have not reached this level of capital; thus, this will continue into 2022,” Hartanto said.

Indonesian banking and payments companies offer exciting growth prospects for foreign investors looking to tap into the domestic market population of over 270 million. The overall return on average equity of Indonesian banks was 7.37%, 12.31% and 12.93%, respectively, over the past three years. Banks aggregate the net interest margin was 4.96% in 2020, well above most other jurisdictions in the Asia-Pacific region, according to data from Market Intelligence. Economic growth prospects are brightening for the country amid the ongoing recovery from a pandemic-induced slowdown, with the Asian Development Bank predicting GDP growth of 4.8% in 2022.

Since 2017, the Southeast Asian country has recorded 35 banking M&A deals and 9 deals in the payments industry, according to data compiled by Market Intelligence. Deal activity cooled after a busy 2019 when more than a dozen deals were announced, including Bangkok Bank PCL’s acquisition of PT Bank Permata Tbk for $2.40 billion.

Technology change

Indonesian banks and payment companies could also see investment from tech companies as more such players turn to financial services. Ride-sharing service provider Grab Holdings Ltd. recently teams up with Singtel to buy a combined 32.52% stake in PT Bank Fama International. The acquisition follows foreign investments in mobile wallet PT Visionet Internasional and payment infrastructures iKaaz Software Pte. ltd. and KuDo Technology Indonesia LLC.

“[Indonesia] would be central to all tech companies entering the financial sector, especially the lending segment,” Hartanto said.

SNL picture

Investors from Japan, South Korea, Thailand and other Asian markets remained active in the Indonesian banking sectors over the past few years as they seek to scale up and earn higher returns outside of their home markets. Between 2014 and 2019, Japanese financial institutions paid or pledged at least US$9 billion for stakes in several Indonesian lenders. These investments included Mitsubishi UFJ Financial Group Inc.the acquisition of several billion dollars by PT Bank Danamon Indonesia Tbk in 2017.

SNL picture

As of February 15, US$1 was equivalent to 14,263 Indonesian rupiahs.


About Author

Comments are closed.