DBS-Danamon deal hinges on Singapore's invite to Indonesian banks

Wed May 22, 2013 5:29am EDT
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By Saeed Azhar and Janeman Latul

SINGAPORE/JAKARTA (Reuters) - Southeast Asia's largest bank merger now depends largely on cooperation between Singaporean authorities and Indonesian politicians.

Indonesia's central bank gave Singapore's DBS Group Holdings Ltd (DBSM.SI: Quote) its long-awaited approval on Tuesday to buy a 40 percent, or $2.7 billion, stake in PT Bank Danamon Indonesia Tbk (BDMN.JK: Quote), a year after DBS proposed a majority takeover.

Bank Indonesia, as part of its approval, said for DBS to purchase more of Danamon, Singapore would have to allow Indonesia's banks greater access to its $33 billion financial services industry.

Singapore replied that it was looking into ways to provide such access.

Whether that statement was a sign of genuine progress is not certain, analysts say. In the meantime, DBS's attempt at a full, $7.2 billion takeover of Danamon remains in limbo.

"The key issue will be whether MAS follows up on it quickly with action," said Jake Robson, a partner at Norton Rose, referring to Singapore's central bank. "And, if so, whether Bank Indonesia then shows some form of leniency to DBS in allowing it to go beyond 40 percent."

For Indonesia, the quid pro quo involves at least three Indonesian banks: PT Bank Mandiri Tbk (BMRI.JK: Quote), PT Bank Negara Indonesia Tbk (BNII.JK: Quote) and PT Bank Rakyat Indonesia Tbk (BBRI.JK: Quote). BNI and Mandiri currently have a small banking presence in Singapore.

The suggested reciprocity is seen by analysts and bankers as implying full banking licenses in Singapore, or Qualifying Bank Licenses (QFBs) which allow foreign banks to open several branches in the city-state and accept retail deposits.   Continued...

A man smokes a cigarette near a Danamon Bank ATM in Jakarta May 22, 2013. REUTERS/Beawiharta