Indonesian banks seen as less attractive due to shareholding restrictions

Updated: Tuesday March 18, 2014 MYT 6:59:17 AM

Indonesian banks seen as less attractive due to shareholding restrictions


PETALING JAYA: Banks in Indonesia are becoming less attractive to Malaysian financial institutions because of ownership restrictions.

RAM Ratings co-head of financial institution ratings, Wong Yin Ching, said while Indonesia was still an attractive proposition, prospective suitors were more cautious, given the 40% cap on single ownership of domestic banks there.

“This will be punitive on capital, as banks are required to deduct non-consolidated entities from common equity Tier-1 capital under Basel III. Other countries that Malaysian banks are interested to expand to include the Philippines, Cambodia, Vietnam and Thailand,” she added.

On the whole, she said Malaysian banks’ appetite for regional expansion, whether through mergers and acquisitions or organic growth, remained hearty as they pursued income diversity.

Wong was speaking to StarBiz in conjunction with the release of the rating agency’sBanking Bulletin 2014. The bulletin is an annual publication on RAM’s view of the banking sector.

Loan expansion, on the other hand, was projected to moderate to 8%-9% this year compared with 11% last year, she said. Retail loan growth, particularly residential mortgages, is envisaged to ease amid weaker consumer sentiment on the heels of further subsidy rationalisation and Bank Negara’s macro-prudential measures.

However, she said this would be partly offset by business loan growth, underscored by a rebound in exports and the rollout of various Government pump-priming projects.

On concerns over the elevated level of household debt, Sophia Lee, the rating agency’s other co-head of financial institution ratings, said she did not see this as a systemic threat to the financial system, given the country’s still-low unemployment rate and banks’ sound lending practices.

The segment the rating agency was keeping a closer watch on was the lower-income group, as they had less financial flexibility, she said.

Lee said Malaysia’s household debt came up to 86% of gross domestic product as at end-December 2013, and this was likely to stay elevated for some time.

A key underlying factor is the demand for housing and vehicles by the large pool of young working urbanites and the relatively matured domestic banking industry, she noted.

The Malaysian banking system was still flushed with liquidity, said Wong, adding that bank capitalisation was sound.

“Last year also saw the debut of Basel III Tier-2 capital securities with non-viability clauses. These capital securities have been well received, reflecting continued investor confidence in the banking system,’’ she noted.

Although there is a slight increment in absolute gross impaired loans (GILs) due to some lumpy corporate defaults in 2013 from the steel industry, Lee does not expect the banking system’s GIL ratio to exceed 2.1% this year – a level which is still considered healthy. This ratio currently stands at a historical low of 1.8%.

Wong said RAM Ratings was reiterating its “stable” outlook on the Malaysian banking sector for this year.

“We expect Malaysian banks to maintain their healthy credit profiles despite the expectation of domestic headwinds, primarily a result of heightened inflationary pressures,” she said.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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