Three state-owned lenders PT Bank Negara Indonesia (BNI), PT Bank Rakyat Indonesia (BRI), and PT Bank Mandiri together with their sharia subsidiaries, signed a conditional agreement that will merge the subsidiaries to create the largest Islamic bank in Indonesia, on Wednesday 21 October 2020.
The proposed merger is expected to complete by February 2021. Following the merger, the new entity is estimated to have its total assets reach Rp 240 trillion, and core capital Rp 20.4 trillion. This means that it will be the country’s seventh-or eighth-largest bank by asset value, and among the top 10 largest banks globally in terms of market capitalization.
BRI Syariah will be the surviving entity as its publicly listed status will simplify the merger. The company's stocks are traded on the Indonesia Stock Exchange (IDX) under the code BRIS.
“This is the first milestone and marks the beginning of merger process preparations of the three state-owned Shariah banks. The aim of this merger is so that Indonesia, being the world’s most predominantly Muslim population country, would have a large and globally competitive Shariah bank,” said Hery Gunardi, vice president of Bank Mandiri.
This move will provide credit positive for Islamic banking in the country because it will create an Islamic entity with a significantly enlarged franchise driving overall efficiency and competitiveness of the sector, according to Moody’s.
The proposed merger came at a time when demand for Shariah-compliant banking was rising in Indonesia, especially among the middle class. The merger would also work to solve staffing challenges in the Islamic banking space.