The aim is to encourage consolidation in the banking sector. Last week, the government gave provisional approval for the consolidation of four banks owned by conglomerate Bakrie Group into a single institution. But problems are hounding other deals. The merger of Bank Lippo, Bank Danamon and five other banks has been canceled reportedly because Lippo balked at a proposal for the new bank to use the Danamon name. Even if Indonesia ends up with 10 to 20 banks as Suharto wants, some analysts doubt whether the industry would emerge in better shape.
Eventual consolidation is important.
Regulators are not equipped to supervise all of them. Six or eight banks would be more than enough for competition and choice. With bad assets off their books, banks will have better chances of recapitalizing by using operating profits. That is the tack Japan, South Korea and Thailand are taking. Bangkok and Seoul also hope to persuade foreign investors to help.