Top ten domestic banks
       Ranked by assets as of end-2007—Rp trn
       BankAssetsMarket share (%)
       Bank Mandiri(a)303.416.0
       Bank Central Asia218.611.5
       Bank Rakyat Indonesia(a)204.010.8
       Bank Negara Indonesia(a)184.59.7
       Bank Pan Indonesia (Panin)51.42.7
       Bank Tabungan Negara(a)36.61.9
       Bank Mega34.91.8
       Bank Bukopin34.41.8
       Bank NISP28.91.5
       Bank Jabar(b)23.11.2
       Total market1,896.6100.0
       (a) State-owned but publicly traded. (b) State-owned regional bank of West Java/Bantam.
       Source: Bank Indonesia and UBS.The four state banks are Bank Mandiri, Bank Negara Indonesia, Bank Rakyat Indonesia, and Bank Tabungan Negara. The largest private domestic banks include Bank Central Asia (BCA), Bank Pan Indonesia (Panin) and Bank Mega. Credit grew by 26.5%, to Rp1,002trn by end-2007, from Rp792.3trn at end-2006, exceeding the government’s 20% target for credit creation. Bank Indonesia reports that lending by all commercial banks expanded in 2007 as follows: working-capital credit by 28.6%, to Rp533.2trn; consumer credit by 24.6%, to Rp282.5trn; and investment credit by 23.1%, to Rp186.2trn. Credit growth is expected to slow down in the second half of 2008, with consumer loans and lending to small and medium-sized enterprises (SMEs) the most affected, while lending to the resource sector should remain strong.In September 2006 state banks were given the same flexibility as private banks in resolving non-performing loans (NPLs). The revisions allow state banks various debt-restructuring options without having first to seek approval from the minister of finance. According to the latest available information from BI, by January 2008 total NPLs in the banking sector stood at Rp57.7trn, equal to 5.6% of total disbursed loans. Recent improvements in NPLs have been made possible by better bank management and loan restructuring, especially in the largest bank, Bank Mandiri. With global commodity prices, inflation, and higher interest rates, a slight uptick in NPLs is expected in 2008, especially on loans to SMEs.Local banks have been investing aggressively in information-technology (IT) infrastructure to catch up with regional and international standards. Although conventional banking transactions still outnumber electronic transactions, online banking services (especially through BCA) are proliferating rapidly for businesses in the SME sector; both Bank Mandiri and BCA continue to offer consumers banking services via mobile phones.BI rules allow domestic banks to engage in factoring and pension services, but not directly in insurance. Nevertheless, banks have earned insurance commissions by forming strategic partnerships with insurance companies that allow insurers to use banks’ branch networks.Bank Mandiri is Indonesia’s largest bank, with Rp303.4trn in assets at end-2007. It was created from the remains of four failed state banks: Bank Dagang Negara, Bank Bumi Daya, Bank Ekspor Impor Indonesia and Bank Pembangunan Indonesia. Bank Mandiri made an initial public offering (IPO)—the country’s largest since 1996—on July 1st 2003. Mandiri had a particularly tumultuous year in 2005: in May the government used the results of a State Audit Agency report, which estimated bad loans at around Rp12trn, to replace top management. The bank’s president director, E.C. Neloe, received a ten-year jail sentence from the Supreme Court, which also convicted two other Mandiri directors.However, Mandiri’s new president director, Agus Martowardojo, proceeded to aggressively pursue bad debtors and restructure NPLs, which dropped from 15% of total lending in March 2006 to 5.9% at end-2006, and to 1.3% by December 2007. Mr Martowardojo also focused on diversifying Mandiri's income streams and improving managerial controls. In 2007 Bank Mandiri expanded lending by 16%, to Rp126.9trn, and profits increased to Rp6.1trn, up from Rp603bn in 2005. In March 2008, President Yudhoyono nominated Mr Martowardojo for the post of central bank governor, but parliament rejected the nomination.Bank Central Asia (BCA) is the second-largest bank by assets. Having formerly belonged to the Salim Group and Soeharto family members, BCA fell under the control of the Indonesian Bank Restructuring Agency (IBRA; now defunct) during the 1997–98 financial crisis. In 2002 IBRA sold 51% of the bank the Farindo Consortium, a Mauritius-incorporated entity consisting of a US investment group, Farallon, and the Indonesian cigarette conglomerate Djarum. In late 2006 Djarum expanded its shareholding in Farindo to 92%, with Farallon holding the remaining 8%. BCA reported assets of Rp218.6trn at end-2007. BCA is the market leader for many consumer products, including Internet banking (to the SME sector), ATM services (using its own proprietary network), and debit-card transactions.Bank Rakyat Indonesia, which is state owned, is Indonesia’s principal savings bank, with Rp204trn in assets at end-2007. NPLs accounted for 3.4% of Bank Rakyat’s Rp113trn in total lending at end-2007, down from 4.8% at end-2006. The bank’s IPO took place in November 2003; the government sold a 40.5% stake for Rp4.18trn. It has been successful at profitably serving rural enterprises and is viewed as one of the most successful SME lenders in the world through its highly profitable Unit Desa System.Bank Negara Indonesia (BNI) is Indonesia’s fourth-ranking bank, with assets of Rp184.5trn at end-2007. BNI conducted an IPO in 2003 and in October 2007 the government sold down its shareholding to 73.3%, raising US$880m through a public offering of 3.95m shares. This was the largest equity deal in Indonesia in 12 years and the first sale of shares in a state-owned company since 2004. BNI reduced NPLs from 10.5% of loans at end-2006 to 8.2% of loans at end-2007. BNI focuses mainly on personal savings products, loans to the corporate and retail sectors, and international banking services.Foreign and joint-venture companies do not usually draw on domestic commercial banks as a source of funds for major capital investment; they prefer to raise funds offshore, where the cost is lower. They have in the past, however, drawn on domestic banks for short-term funds to meet cashflow needs.Islamic (sharia) banking continues to expand in Indonesia. Although sharia banks offer the same services as other banks—savings, time deposits, leasing and trade financing—the services are based on a profit-sharing scheme rather than the charging and payment of interest, which Islamic law forbids. BI reports that there were 31 sharia banks and 117 rural sharia banks providing services as of March 2008, with total assets increasing by 22.6% from Rp29.2trn in January 2007 to Rp35.8trn by January 2008. BI aims to increase the market share of sharia banks to 5% by 2010, up from 1.9% in February 2008.In June 2005 the central bank set the minimum-capital requirement for sharia banks at Rp1trn (BI Regulation 7/13/PBI/2005). All clearing regulations for regular banks apply to Islamic banks. A law regulating sharia banking ownership was passed in June 2008, stipulating that if a sharia unit of a bank reaches 50% of the bank’s total assets, the two must be legally separated. The law also allows foreigners to establish sharia banks in partnership with a local individual or entity. Finally, the law calls for the creation of a Sharia Supervisory Board (Dewan Pengawas Syariah—DPS) with an advisory role for the Indonesian Ulemas Council (Majelis Ulama Indonesia—MUI), a religious leadership council established during the Soeharto era.Only one foreign bank, HSBC, has an Islamic-banking licence. Its sharia unit, HSBC Amanah Sharia, in late May 2007 arranged a US$50m international sharia-financing syndication for state-owned Krakatau Steel, the country’s biggest steel producer. This followed earlier successes in helping Pertamina, the state-owned oil-and-gas company, to tap into global Islamic finance with Islamic international syndicated loans.SOURCE: Country Finance

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