latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/three-way-islamic-bank-merger-set-to-create-indonesia-s-7th-largest-lender-60952010 content esgSubNav
Log in to other products

 /


Looking for more?

Contact Us
In This List

Three-way Islamic bank merger set to create Indonesia's 7th largest lender

Blog

Banking Essentials Newsletter - April Edition

Blog

Tracking Credit Risk of a Major U.S. Retailer

Blog

Banking Essentials Newsletter: March Edition - Part 2

Blog

A Bank Takes Its Project Finance Assessments to a New Level


Three-way Islamic bank merger set to create Indonesia's 7th largest lender

Indonesia's plan to merge the Islamic banking units of three state-owned banks is set to create the seventh-largest bank with 214.746 trillion rupiah ($14.64 billion) in total assets and more than 137 trillion rupiah in total net loans as of June 30, according to data compiled by S&P Global Market Intelligence.

The three-way merger, announced Oct. 13, involves a combination of PT Bank Rakyat Indonesia (Persero) Tbk's PT Bank BRIsyariah Tbk, PT Bank Mandiri (Persero) Tbk's PT Bank Syariah Mandiri and PT Bank Negara Indonesia (Persero) Tbk's PT Bank BNI Syariah, with listed Bank BRIsyariah becoming the surviving entity following the merger. Subject to regulatory approvals, the deal is expected to close by February 2021.

SNL Image

SNL Image

Owing to the size of its unit, Bank Mandiri will become the largest shareholder in the merged entity with a 51.2% stake, while Bank Negara Indonesia and Bank Rakyat will hold 25% and 17.4% stakes, respectively. The merged entity will operate more than 1,100 branches across Indonesia, according to Market Intelligence data.

If the merger goes through, the combined entity is likely to replace PT Bank Pan Indonesia Tbk as the seventh-largest bank in Indonesia by assets. Bank Pan Indonesia held 211.289 trillion rupiah ($14.40 billion) in total assets as of June 30, according to Market Intelligence data. Saudi Arab's Al Rajhi Banking & Investment Corp., Dubai Islamic Bank (PJSC) and Malaysia's Maybank Islamic Bhd., with assets of $114.72 billion, $81.48 billion and $57.95 billion respectively, are among the largest Islamic banks in the world.

The proposed merger comes at a time when demand for Shariah-compliant banking is rising, especially among the middle class in Indonesia. The southeast Asian nation, despite being home to the largest Muslim population in the world, has been trailing behind its neighbor Malaysia in Shariah-compliant capital markets. The size of Indonesia's Islamic banking business is much smaller than in the oil-rich Persian Gulf region, though rapid economic growth in recent years and government policies may help narrow the gap.

Still, Laurensius Teiseran, analyst at PT CGS-CIMB Sekuritas, said he doesn't expect the merger to trigger more similar deals in Indonesia's fragmented banking sector.

"The merger is mainly [State Owned Enterprises] level — the aim of this merger from the perspective of the government as the shareholder is to achieve cost efficiency and remove unnecessary competition among the three state-owned Islamic banks," Teiseran said. "[Indonesia's] SOE minister had stated that there is no need of three separate state-owned Syariah banks."

The plan to create a major Islamic bank in Indonesia has been in the works since at least 2015. Analysts recently told Market Intelligence that the proposed merger will create scale and avoid duplication of branch networks and may give a fillip to Shariah-compliant finance in Indonesia. The plan is also in line with regulators' efforts to cut the number of banks in the country.

"The government and the financial services authority in the past few years have always encouraged banks to merge in order to reduce number of banks in Indonesia," Harry Su, head of equity capital markets at Samuel Sekuritas Indonesia, said. Since these three banks are all state-owned enterprises, it is easier for the government to push them to merge, he added.

In an Oct. 19 note, Moody's said the merger is credit positive for Islamic banking as the enlarged entity will help raise awareness of Islamic banking, spur further demand for Shariah-compliant products and services and entice banking talents who have avoided working for smaller banks on pay and career concerns.

SNL Image

As of Nov. 2, US$1 was equivalent to 14,673 Indonesian rupiah.