Indonesia to merge lenders for global top 10 ranking

Combining Bank BRI Syariah, Bank Syariah Mandiri and Bank BNI Syariah would create a financial entity worth billions of dollars, ranking among the world’s biggest Shariah-compliant lenders. (Shutterstock)
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Updated 13 October 2020

Indonesia to merge lenders for global top 10 ranking

  • Formal process scheduled to begin in February next year to combine three Islamic banks into one

JAKARTA: Three of Indonesia’s state-owned Islamic banks began a merger process on Tuesday to become an entity with over 200 trillion rupiahs ($13.5 billion) in assets and the potential to be among the world’s top 10 Shariah-compliant financial institutions.

“This is the first milestone and marks the beginning of merger process preparations of the three state-owned Shariah banks. The aim of this merger is so that Indonesia, being the world’s most predominantly Muslim population country, would have a large and globally competitive Shariah bank,” said Hery Gunardi, vice president of Bank Mandiri.

The three banks are Bank BRI Syariah, Bank Syariah Mandiri, and Bank BNI Syariah and each of them is a subsidiary of their respective conventional banking companies, namely Bank BRI, Bank Mandiri, and Bank BNI.

Gunardi said that the conditional merger agreement (CMA) for the three lenders was signed on Monday evening.

It was submitted to the Indonesian Stock Exchange and the Financial Services Authorities on Tuesday morning as part of their public information disclosure obligation as publicly listed companies at the bourse.

“The merger will enable the bank to have the capacity to generate more businesses, to be part of the global sukuk, and has the potential to be among the top global 10 Shariah banks based on market capitalization,” he said.

An announcement for a formal merger plan is expected to take place in late October with the actual process slated to begin in February next year.

By that time, it is estimated that the newly formed Shariah bank will have a total asset value of 220-225 trillion rupiahs from the three banks, which was 214.6 trillion rupiahs as of June.

The total merged assets will place the bank at the seventh or eighth rank of Indonesia’s biggest banks. “It will have about 1,200 branches across Indonesia and with a conservative growth assumption, we projected the bank could grow to have 390 trillion rupiahs in the total asset by 2025,” Gunardi said.

He added that no employees of the three banks would be laid off as a result of the merger, amid concerns of a mass layoff in the wake of  an economic fallout triggered by the coronavirus disease pandemic.

The new Shariah bank will have a more robust engine for growth and wider market reach to optimize the potential of Indonesia’s Shariah economy potential as it will offer a various Shariah financial services solution under one roof, according to Catur Budi Harto, Vice President of Bank BRI, who was also speaking at the press conference.

“From a market penetration point of view, Shariah banks still have tremendous room for growth, with about 230 million Muslim population,” Sis Apik Wijayanto, Bank BNI’s director for institutional relations, said.

There are about 91.3 million unbanked Indonesians out of its 267 million population and 62.9 million unbanked small, medium enterprises, according to the central bank, Bank Indonesia.

The figure ranks Indonesia as the country with for the fourth-largest unbanked population in the world.

In an interview with Arab News earlier this year, Vice President Ma’ruf Amin said that the market share of Islamic finance in Indonesia still stands at about 8 perent.

Financial authorities have set a target to boost the Islamic finance market share to at least 15 percent by 2023.

Amin is tasked by President Joko Widodo to chair the National Committee for Shariah Economy and Finance and execute the government’s five-year road map to develop Indonesia’s Shariah economy.

“We aim to develop Indonesia’s halal industry to be the biggest in the world. We are yet to become producers, but we remain the consumer of halal goods. We also want to develop the Shariah financial industry, non-bank financial institutions, stock exchange, and Sukuk bonds,” Amin said.


Oman’s bond market return a key test for reform path

Updated 21 October 2020

Oman’s bond market return a key test for reform path

  • After becoming ruler in January, Sultan Haitham made shaking up and modernising state finances a top priority

DUBAI: Oman’s return to the international bond market this week will be a test of its ability to convince investors that long-awaited fiscal reforms have started to put it on a sustainable financial footing.

Oman, rated below investment grade by all the major credit agencies, announced on Monday plans to issue bonds with maturities of three, seven and 12 years, in what would be its first global debt sale this year.

Sultan Haitham, who became Oman’s ruler in January, has made shaking up state finances one of his priorities.

But investors would like to see more concrete steps being taken and, after a further sovereign downgrade last week, may require the new bonds to offer a significant premium over the country’s existing debt.

“The new sultan has done some good things — rationalizing the number of ministries, the implementation of VAT, plans to generate additional tax revenues, and they still have sovereign assets,” said Raza Agha, head of emerging markets credit strategy at Legal & General Investment Management.

“There is positive momentum but it will take time for that credibility to build.”

According to a bond prospectus, Oman has begun talks with some Gulf countries for financial support.

“I don’t think this will actually be taken into consideration by investors unless there is a tangible announcement from Gulf countries with a tangible support package,” said Zeina Rizk, executive fixed income director at Arqaam Capital.

Oman will likely price the new three-year bonds in the high 4 percent area, the seven-year tranche in the high 6 percent and the 12-year in the mid-to-high 7 percent area, implying a premium of at least 50 basis points (bps) over its existing curve, she said.

Two other investors, who did not wish to be named, said the paper could carry a 25 bps premium over existing secondary trading levels.

Sources have previously told Reuters Oman would target over $3 billion with the new deal.

“If they take $3 to 3.5 billion, you will have a market indigestion for Oman, and I’m sure people will ask to be compensated for this risk,” Rizk said.