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Indonesia: still searching for economic, political and social stability |
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Best bank:
Bank Central Asia
Best equity house:
Bahana Securities
Best debt:
Danareksa Securities
Best M&A house:
CSFB
Indonesia’s banking sector is the slowest in the region to recover from the Asian crisis of 1998. The government has apparently wrapped up its recapitalization of the banks and is now attempting to get them back up on their feet. But there are fears that President Abdurahman Wahid’s administration may have to provide a second wave of recapitalization on top of the $60 billion it handed out first time around.
If the banking sector is ever going to improve it will have to move away from the present model of merely holding government paper and deposits that are guaranteed by a weary administration. Banks will have to become active suppliers of credit to the economy. But the shadow of non-performing loans increasing again looms over the sector. The currency is in free fall. Over the past year there was a 5% increase in the loan sector but 30% to 40% of the loans were in dollars. This can only mean further trouble. Those corporates that didn’t have a problem at Rs7,000 to the dollar will start to struggle when the rate sinks to Rs11,000. And despite the Indonesian Bank Restructuring Agency having taken over many of the bad loans, nobody wants to buy these from IBRA.
As a clearer of payments the system works fairly well. And, perhaps surprisingly, banking deposits are strong, amounting to around $70 billion. It’s a system flush with liquidity, but questions have to be asked as to where it all goes.
The best bank is Bank Central Asia. Most analysts agree that, among the struggling Indonesian banks, it is the best run and most important. In May 2000 it was partly privatized, with the government selling off a 22% share. Foreign investors were noticeable by their absence and when, on May 31, the shares hit the Jakarta Stock Exchange there was little excitement.
On the bright side BCA’s NPLs are, at 4.2%, extremely low for Indonesia. But it is important to realize that before its IPO, 95% of the loans were taken off the balance sheet. But BCA’s financial strength is growing and it has a powerful franchise. With 795 branches and nearly 2,000 ATMs scattered across the country, its distribution and deposit-taking ability is strong. It took a 13% market share in deposits, which amounts to around 8 million deposit accounts. That figure would be higher but, unlike some of its competitors, it doesn’t have the advantage of Indonesia’s civil servants being pushed to bank with it. It does offer e-banking, but take-up has been a little slow.
Rumours of a merger with Universal Bank were denied in May this year, but such rumours suggest that BCA may be on the look-out for further opportunities to strengthen its position in the shaky banking environment.
The equity and debt markets were moribund in the past year. With the rupiah depreciating, and interest rates rising, the best bet for investors was to buy government paper.
There were a few bond issues in Indonesian rupiah from the telecoms sector and these went to Danareksa Securities. Any government business will pass through a domestic house and, because of its strong government connections, Danareksa is well positioned to take advantage.
The equity market was in no better shape. The past year was all doom and gloom. Until some semblance of stability is reached – economic, political or social – there is going to be little improvement. That said, Bahana Securities, owned by Bank Indonesia and the finance ministry, is in the strongest position. Because of its cosy governmental relationships it is in position to pick up prime mandates from corporates when their nerve returns and they enter the market. On the secondary trading side it holds a dominant position. Despite there being little business Bahana boasts the number one position in underwriting local equity issues.
There have been some winners in M&A. CSFB hit a purple patch and was highly successful in winning mandates.
As is typical of CSFB’s M&A advisory work it landed deals in a diverse range of sectors. These include cement, consumer products, energy utilities and telecoms. The transactions were both domestic and cross-border. In October 2000 it successfully advised Bimantra Citra Tbk in the sale of its 15.5% share in Nestlé Indonesia to Nestlé SA.
One of CSFB’s most important deals is the largest M&A transaction of 2001 out of Indonesia. It set Indonesia’s telecommunications industry on the path to liberalization. CSFB acted as an adviser to Indosat as it unwound its $1.5 billion crossholding in Telekomunikasi Selular and Satelit Palapa Indonesia.
