BoI’s plans will hurt CIMB, Maybank

Analyst says Indonesia’s moves to impose new shareholding caps will have negative impact

PETALING JAYA: All eyes are now on Malaysia's two biggest banks, CIMB Group Bhd and Malayan Banking Bhd (Maybank), as speculation that Bank of Indonesia (BoI) plans to impose new caps on single-shareholder stakes in the country's commercial banks as early as this month has resurfaced.

The news that BoI was seeking to limit single-shareholder stakes for commercial banks was first reported in July last year.

Alliance Research analyst Cheah King Yoong viewed such a development to be potentially negative for CIMB and Maybank, given their majority stakes in their respective Indonesian banks.

At present, CIMB owns 96.9% of CIMB Niaga, while Maybank owns 97.5% of Bank Internasional Indonesia.

“Therefore, the implementation of this regulation could force these banks to pare down their stakes in the respective Indonesian subsidiaries and dampen their earnings prospects,” Cheah said in a recent report.

He also recalled that when the news of BoI potentially imposing a foreign shareholding cap on Indonesian banks first came out last year, CIMB and Maybank's share prices experienced a period of weaknesses.

“CIMB, in particular, suffered from a heavy selldown in view of the significant earnings contributions from CIMB Niaga.

“We believe that the share prices of these two banks will react in a similar manner this time round,” he said.

The report quoted BoI governor Darmin Nasution as saying BoI might issue a regulation in May that would limit the stake that a single shareholder could hold in the country's commercial banks.

Nasution also highlighted that the regulation would apply to all, and there would a transitional period. Under the present regulatory framework, an investor, including a foreign party, can own up to 99% of an Indonesian commercial bank.

It was previously reported that the central bank could limit single-party ownership in commercial banks to not more than 50%.

The imposition of a foreign ownership cap could press some foreign investors in the banking sector to sell down their respective stakes and could delay the acquisition of PT Bank Danamon by DBS Group Holdings Ltd.

Nasution said BoI would start processing the proposed acquisition by DBS only when the rule on bank ownership was decided.

Nonetheless, Nasution added that BoI might allow financial institutions to hold majority stakes in Indonesian banks.

“We believe that the most ideal outcome for CIMB and Maybank would be BoI imposing the ownership cap on banks, with exemption allowing financial institutions to hold majority stakes in Indonesian banks,” said Cheah.

“This should address the uncertainties surrounding the issue permanently, rather than BoI leaving the issue hanging in the air by suspending its decision indefinitely, in our opinion.”