A new era for Indonesian banking
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A new era for Indonesian banking

Indonesia's banking sector is currently in a state of flux. Deregulated in 1988, it expanded beyond expectation, but is now set to consolidate. Tighter regulation, tough economic measures, bad loans and lower bank lending are forcing private banks, in particular, to be more entrepreneurial. By James Sinclair.

When depositors started to form queues at branches of Indonesia's fourth largest bank late last year, the banking community knew that a crisis was at hand. For weeks, rumours circulated in the media about the state of the Lippo group, a large financial services and property conglomerate. It was not the only group to have come under pressure.

Owned by the ethnic Chinese Riady family and headed by star Indonesian banker Mochtar Riady, the group has a high profile in Asia. In Jakarta its activities in banking, insurance and the capital markets are professionally run and well-marketed. The Hong Kong branch of the group is also active in China.

The cause of the trouble, rumour had it, was the group's massive expansion into property. Two giant satellite towns outside Jakarta which Lippo group had invested in, featuring condominium apartments, hotels, hospitals, shopping mega-malls and industrial estates, were reportedly running into trouble as property prices fell and sales slowed in a glutted market.

Fears grew that the problems could spill over into Bank Lippo, widely regarded as well capitalized and professionally managed. The Riady family strongly denied that the group had any insurmountable problems, and staunchly defended the bank.

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