Jakarta, CNBC Indonesia – The international rating agency, S&P Global Ratings projects a potential merger of state-owned sharia banking subsidiaries PT Bank Rakyat Indonesia (Persero) Tbk (BBRI), PT Bank Mandiri (Persero) Tbk (BMRI), and PT Bank Negara Indonesia (Persero) Tbk (BBNI) ) will increase Islamic financing in Indonesia.
The three state-owned banks signed a conditional merger agreement to merge PT Bank Syariah Mandiri (BSM) and PT Bank BNI Syariah (BNIS) to merge into PT Bank BRISyariah (BRIS) Tbk, which has an open status on the Indonesia Stock Exchange.
BRIS will be the receiving entity or survivor entity and the merger must obtain approval from the Financial Services Authority (OJK).
Although the details of the merger are still in the formulation stage, S&P estimates that Bank Mandiri may have a larger stake in the merged entity, considering that BSM will contribute more than 50% of the assets of the merged entity.
“Therefore we hope that this merger will have a positive impact on Mandiri’s business profile. The effects on the other two banks will be broadly neutral given the relatively small contribution of Islamic assets and their smaller ownership in the merged entities,” wrote the S&P research, quoted by CNBC Indonesia, Friday. (16/10/2020).
A rating agency that is also a child this company from McGraw-Hill In view, the entities that will be combined will become the seventh largest lending bank in Indonesia with assets on a rupiah basis of Rp 215 trillion or the equivalent of US $ 14.5 billion.
These total assets represent a 2.5% share of the domestic banking market.
“Merged banks will benefit from economies of scale and a better ability to raise funds at competitive prices,” wrote S&P.
As of July 31, 2020, S&P noted, Islamic banks and business units (UUS) held a relatively small 6% market share of the assets of the Indonesian banking sector, although the growth of Islamic banks was faster than conventional banks.
The announcement of the merger of the three state-owned sharia banks is also in line with the Indonesian government’s plan to promote sharia-based financing by creating strong Islamic banks.
The merged bank will control about half of the assets of the Islamic banking sector.
As of 30 June 2020, BSM is the largest provider of sharia financing with assets of Rp 114 trillion, contributing around 8% of Mandiri’s consolidated assets.
BNIS and BRIS have an asset base of around IDR 50 trillion each, contributing around 6% and 4% of their parent bank’s consolidated assets, respectively.
“The potential merger will strengthen Mandiri’s dominant market position and help diversify its revenue profile and customer base,” wrote S&P.
The merged entities can take advantage of the broad reach of all three banks and will be in a good position to grow given Indonesia’s large Muslim population.
Related income and cost synergies can increase profitability in the medium term. The success of the merger will depend on the smooth integration of systems and processes.
“Our ratings on the three state-owned banks are unaffected at this point in time,” wrote the New York-based agency.
“We continue to believe that they have a strong market position supported by significant domestic market share, established franchising and healthy profitability. We will continue to monitor the potential impact of the proposed merger on the credit profiles of the rated banks due to details. further announced. This report does not constitute a rating act, “wrote S&P.
Previously, the Head of the BUMN Sharia Bank Merger Project Management Officer (PMO), Hery Gunardi said a number of plans would be carried out a bank resulting from the merger of three state-owned Islamic banks.
Some plans that will be carried out after the merger are focused on business wholesale banking (corporate banking) in Islamic finance which is considered to be still quite slow growing in state-owned Islamic banks.
Hery, who is also Deputy President Director of PT Bank Bank Mandiri Tbk (BMRI), said that this merger is estimated to reach Rp. 390 trillion in the company’s assets in 2025, then the target of financing can reach Rp. 272 trillion, and funding of around Rp. 335 trillion.
As for the position in June 2020, the asset value of the three banks was recorded at IDR 214.6 trillion with an equity value of IDR 20.4 trillion.
Until the end of the year, it is estimated that there will be an increase in assets up to Rp. 220 trillion-Rp. 250 trillion with a profit for the year of Rp. 2.2 trillion.
Hery also explained that with this merger, the bank could enter 10 banks based on market capitalization.
“If the legal merger is completed, Q1 2021 has assets of Rp. 220-225 trillion, of course it will occupy number 7-8 of the top 10 banks in Indonesia, so it will be good and big,” he explained.