Indonesia’s financial services watchdog has granted approval for MUFG’s core commercial banking subsidiary MUFG Bank to raise its investment in Bank Danamon Indonesia to 40% from 19.99%, another step towards solid respectability for the Indonesian consumer lender.
MUFG will acquire an additional 20.1% from Singaporean sovereign wealth fund Temasek. This is the second step in MUFG’s bid for control of Danamon, according to the plan it outlined on December 26.
MUFG hopes to keep raising its holding to over 73.8% of the Indonesian lender if The Financial Services Authority of Indonesia (OJK) continues to look favourably on the takeover.
MUFG Bank said in a statement on Tuesday that it plans to complete its acquisition of the additional 20.1% shareholding interests as soon as practicable.
Danamon has suffered from a lack of deposits in current and saving accounts and relies heavily on high-cost market funding. The Indonesian bank’s loan-to-deposit ratio is also higher than its peer group.
“The bank's risk appetite is greater than higher-rated peers, which contributes to its moderate asset quality,” credit rating agency Fitch said.
Danamon has gradually been shifting away from mass-market loans; the bank's microlending business decreased by 40% over the 12 months ended March 31. However, its credit costs are still higher than those of its peers. Danamon’s non-performing loan ratio of 2.7% at end-2017 was slightly higher than the 2.6% industry average.
Danamon plans to plug into MUFG’s Japanese client base in Indonesia and offer them consumer banking products.
“Our strengths lie in financial supply chain, SME, consumer, whether it's payrolls, whether it's offering distribution, whether it's offering mortgages," said Bank Danamon chief financial officer Satinder Pal Singh Ahluwalia in a call to discuss the lender’s half-year financial results. “MUFG Indonesia does not offer that. They don't have that capability.”
MUFG has about 1,000-plus large Japanese and large Indonesian corporates as their customers. “The opportunity is immense,” said Satinder.
There are about 1,600 big Japanese companies in Indonesia, including those where the Japanese have minority stakes, according to Danamon, which plans to offer them products such as payroll.
Danamon’s auto finance unit Adira Finance “will benefit hugely from MUFG” relationships with Japanese carmakers such as Honda and Toyota, Satinder added.
