Indonesia seeking Middle East ’strategic partners’ for state-owned Islamic banks - official

Photo: A teller waits for a customer in a branch of Bank Syariah Mandiri in Jakarta February 17, 2010. Picture taken February 17, 2010. REUTERS/Supri

Indonesia’s government is seeking strategic partners from the Middle East for its state-owned Islamic banks to boost the country’s low level of Shariah-compliant banking assets, Gatot Trihargo, deputy for financial and business services at the ministry of state-owned enterprises told Salaam Gateway.

“There are two ways to increase Islamic banking market share that is currently only about 356.5 trillion Indonesian rupiah ($26.8 billion), or 5.13 percent, of total national banking assets: inject more capital to upgrade more Islamic banks to bank category III (minimum 5 trillion rupiah in assets), or we collaborate with strategic partners in order to get a transfer of knowledge,” said Trihargo.

According to him, collaboration with strategic partners, especially from Middle East countries, is a faster way to boost Indonesia’s Islamic banking assets.

Banks in the Middle East are considered experienced in attracting investors from that region and the Indonesian government would like to see Shariah-compliant state-owned financial institutions Bank Syariah Mandiri , BNI Syariah, BRI Syariah, and Unit Usaha Syariah BTN (UUS BTN) collaborate with them.

The total assets of the four state-owned Islamic banks reached 152.9 trillion rupiah at the end of 2016, equivalent to 42.8 percent of total Shariah-compliant banking assets in the same period.

“We are negotiating with investors from Saudi Arabia and Bahrain to invest in BNI Syariah and UUS BTN. At the end of 2016, their assets reached 38.3 trillion rupiah and 18.1 trillion rupiah, respectively. Investors can have maximum 40 percent of their assets, but in return we want a transfer of technology,” he added.

Bank Syariah Mandiri and BRI Syariah, which hold 78.8 trillion rupiah and 27.7 trillion rupiah in assets respectively, are seeking investors from Qatar and the United Arab Emirates.

According to Trihargo Dubai Islamic Bank is interested to invest in Bank Syariah Mandiri.

Dubai Islamic Bank declined to comment on the matter. The UAE’s largest Shariah-compliant bank already holds nearly 40 percent share in Panin Dubai Syariah Bank.  

“We do not want our strategic partners to be passive as we want to accelerate our Islamic banking industry. This collaboration should not be just about sharing, we need more understanding about Islamic banking and with this knowledge I am sure our Islamic banking industry will grow,” said Trihargo.

According to him, the government remains open to mergers for its state-owned Islamic banks. 

Chairman of the Financial Services Authority (OJK), Muliaman Hadad, added that apart from the merger option, the government will link more real sector industries to the Islamic finance industry.

Hadad said Islamic finance should extend its services to small- and medium-sized enterprises (SMEs) while serving big companies that require more sophisticated financing.

“The Islamic finance industry should also be able to finance government infrastructure projects like ports, highways, airports etc. Regarding this, the government is planning to establish Islamic special economic zones as gateways for investments to be channelled into Shariah-compliant business financing,” he told Salaam Gateway.

In January, the OJK announced its support for the establishment of the Jakarta International Islamic Financial Centre (JIIFC) as the country's hub for investment deals for Islamic sectors. 

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