JAKARTA -- Indonesia's largest conglomerate, Salim Group, has acquired a majority stake in a local bank, marking its first return to the banking business since the 1998 Asian financial crisis.
Through various affiliated entities, the group bought at least 51% of Bank Ina Perdana by subscribing to new shares issued by the Indonesia-listed lender. The acquisition value is estimated at 570 billion rupiah ($42 million). The bank has 22 branches in Java and had 2.3 trillion rupiah in assets as of December 2016.
Salim took over Bank Central Asia in the 1970s and developed it into the country's largest private lender on the back of deregulation policies under then-President Suharto, who had close ties with group founder Sudono Salim. But after the bank's ownership was transferred to the government in the wake of the Asian financial crisis, the group focused on rebuilding its other operations, mainly through its core food company, Indofood Sukses Makmur. It has interests in the retail, automotive, telecommunications, infrastructure and other sectors across Indonesia and the Philippines.
In recent years, the smartphone boom has created a new wave of demand for financial services such as electronic payments and peer-to-peer lending. Salim decided that operating its own bank and building a financial backbone would be crucial for running an end-to-end digital business, which it has been developing since 2013.
"It makes sense for us to refocus on banking because the transactions carried out by the banks are becoming quite big," said a Salim executive.
The conglomerate may have targeted a smaller player because it wanted to venture into digital banking without spending a fortune. Developing digital services at large banks entails the risk of having reduce the number of employees and branches, according to a person familiar with Salim's strategy. The group remains one of the biggest customers of Bank Central Asia, currently owned by another local conglomerate. Anthoni Salim, the group's CEO, owns a small stake in Bank Central Asia but is not involved in its management.
Salim will begin testing new services internally for its 500,000 employees during the second half of 2017. The trial will involve Bank Ina and various Salim Group companies, including Indomaret, a convenience store chain with 14,000 outlets nationwide. The trial will use fingerprint-recognition technology being developed by a joint venture between Salim and Tokyo-based startup Liquid. In one test case, Salim employees will open a bank account at Bank Ina and pay for goods at Indomaret using a fingerprint reader linked to their accounts.
The group is also eyeing peer-to-peer money transfers and loans using Indomaret stores as a bank branch. Edy Kuntardjo, Bank Ina's president, said the bank expects to roll out some of these services in 2018, subject to regulatory approval. Bank Ina is currently revamping its core banking system with the aim of improving processing transactions carried out at Indomaret stores.
Salim's return to banking follows a broader trend in which Indonesia's biggest groups are moving back into the sector after recovering from the financial crisis.
Lippo Group, which has focused on property and retailing since losing its flagship Lippo Bank in the financial crisis, acquired Bank Nationalnobu, a small local player, in 2010. "We must have inward creative disruption so that we can be transformed into a new area of growth, which is the digital economy," James Riady, Lippo's CEO, told the Nikkei Asian Review in November.
Sinarmas Group, a paper and palm oil conglomerate, acquired a local bank in 2005 and has since renamed it Bank Sinarmas. The bank will reportedly funnel the bulk of its capital spending this year toward developing digital services.
Industry observers will be watching closely to see how traditional family-owned businesses work with local and foreign startups, which have established a lead in emerging financial technology. Lippo is an investor in Grab, a Singapore-based ride-hailing app, and the two companies are co-developing an e-payment service.
Erwida Maulia and Jun Suzuki in Jakarta contributed to this report.