Indonesia’s foreign bank spending spree

Big-name foreign bank CEO’s can be forgiven for thinking Indonesian lenders are the best things since sliced bread. Maybank and HSBC in the space of a month, have both made big plays for Indonesian banks, PT Bank Internasional Indonesia and PT Bank Ekonomi Raharja. Just in September, Maybank shelled out over USD one billion for a 55 percent stake in Internasional. And in October HSBC purchased an 88.9 per cent stake in Ekonomi for USD 608 million.

But in a climate where retail and institutional investors alike are avoiding emerging markets like the plague, why is HSBC snooping around Indonesia? Despite the fact that the bank has so far had USD 27 millon in writedowns this year, HSBC according to Bloomberg still looks to be in a better position than both Merrill Lynch and Citigroup which recorded bigger markdowns during 2008. So perhaps one could be so brave to say that it’s as good a time as any for HSBC to cut into Indonesia’s emerging market. But how will the Ekonomi deal benefit HSBC? The takeover of Ekonomi according to Bloomberg will boost the bank’s branch network to over 190 outlets in as many as 24 cities in Indonesia, which no doubt will subsequently improve its Indonesian commercial banking business. HSBC Asia-Pacific boss, Sandy Flockhart believes that the deal will “increase our presence in Indonesia, putting us in the top three foreign banks in the country.”

And HSBC should reap the rewards of Ekonomi’s 86 strong branch network which is valued at USD 1.8 billion. So why has HSBC taken so long to get in on the action in South-East Asia’s biggest economy? BNP Paribas analyst Tjandra Lienandjaja said that this is not the first time the lender has put up its banner in Indonesia. “HSBC has been trying to buy a bank in Indonesia but there are not that many left, so I think they are looking at the long-term prospects of Indonesia.” But the deal could be harder than it looks with HSBC being forced under Indonesian law to make an offer for the bank’s remaining shares, which includes buying a 39 percent stake from PT Lumbung Artakencana, 38 percent from PT Alas Pusaka and 11 percent from Ekonomi private investors.