IT looks like it may take a while longer for Indonesia’s largest banking group, PT Bank Mandiri (Persero) Tbk, to realise its plan of attaining full banking rights in Malaysia — something it has been pursuing since 2010.

Having missed its target of becoming a full banking player in the country by end-2016, Bank Mandiri is now aiming for it to happen by end-2017, it tells The Edge.

“Currently, Bank Mandiri is waiting for OJK’s (Otoritas Jasa Keuangan) approval to be appointed a Qualified Asean Bank (QAB) from Indonesia to expand in Malaysia, before sending a formal application to Bank Negara Malaysia,” Ferry M Robbani, its group head of international banking and financial institutions, says in an email when asked for an update on its plans here.

“We expect to be a full banking player in Malaysia before the end of this year. However, our plan will depend on the approval from both OJK and Bank Negara,” he adds. OJK is Indonesia’s financial services authority.

On Aug 1 last year, Bank Negara and OJK inked a bilateral agreement to provide greater access to qualified lenders from both countries to fully operate in the respective jurisdictions. The yet-to-be-identified qualified lenders are referred to as QABs.

Following the agreement, Bank Negara said it looked forward to the establishment of Indonesian QABs in Malaysia.

Indonesian lenders — Bank Mandiri, in particular — were excited about the bilateral agreement, having long complained that they do not get the same kind of banking access in Malaysia as Malaysian banks get in Indonesia.

Malaysia’s top two banks, Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd, ventured into Indonesia years ago through mergers and acquisitions and, through their subsidiaries, have hundreds of branches in the republic.

In comparison, Bank Mandiri, which is 60% owned by the Indonesian government, is the only Indonesian bank in Malaysia. It operates a remittance business here through five offices, servicing the large number of foreign workers from its home country, but does not yet have a branch.

As such, it was no surprise that shortly after the bilateral agreement last August, Bank Mandiri said it would apply for a full banking licence in Malaysia. “We will act fast to grab this opportunity,” its corporate secretary Rohan Hafas told reporters at the time. He said the lender expected to meet Bank Negara’s capital requirement of RM300 million by end-2016, RM100 million of which would be deposited “as soon as possible”.

Foreign banks in Malaysia are required by the central bank to have a minimum capital, unimpaired by losses, of RM300 million — something that Bank Mandiri has taken issue with in the past.

On whether it already meets the RM300 million capital requirement, Ferry says, “Bank Mandiri will expand in Malaysia as a QAB and will inject the capital requirement as per OJK’s and Bank Negara’s agreement. Once [it receives] the banking licence from Bank Negara and is ready to operate in Malaysia, we will inject the capital into our Malaysia presence.”

He states that Bank Mandiri’s plan is to focus on facilitating the trade and capital needs of Indonesia-related companies that expand in Malaysia, and that of Malaysian companies looking to expand in Indonesia.

Apart from the wholesale sector, the lender sees Indonesian migrant workers as its main target customers in the retail sector, says Ferry. “We expect to have a branch in Kuala Lumpur and see opportunities to grow our business in other regions later on.”

According to the Malaysian government, there were 835,965 documented foreign workers from Indonesia in the country in 2015. They comprised the bulk, or 39.2%, of the total foreign workers here.

When asked about Bank Mandiri’s key challenges in Malaysia, Ferry says, “In terms of the macro-economy, our key concern is the devaluation of the ringgit and lower growth in deposits and loans, which is reaching a 2½-year low.

“Other challenges for us include stiff competition in Malaysia’s banking industry, especially between local banks, so we need to prepare and bring our competitive advantage with a robust business model in order to compete and grow our business.”

In 2010, Bank Negara had issued a commercial banking licence to Bank Mandiri and four other foreign banks — Sumitomo Mitsui Banking Corp, National Bank of Abu Dhabi, BNP Paribas SA and Mizuho Corporate Bank — in line with the liberalisation of the country’s financial services sector.

However, in Indonesian media reports from as far back as 2013, Bank Mandiri said its expansion into the Malaysian market had met with little success because the requirements of the full banking status set by Bank Negara were “too restrictive”. For instance, it had wanted some leeway on the RM300 million capital requirement, proposing that the sum be lowered to RM100 million during the initial stage and then increased gradually as the business grew.

But nothing came out of the proposal or its request for greater branch access, which led to the bank complaining about the lack of reciprocity between the two countries.

Another Indonesian bank that was reported to be keen to enter the Malaysian market is Bank Rakyat Indonesia.

Bank Mandiri, which derives the bulk of its earnings from its home market, has been looking to increase its presence in Asean as part of its corporate strategy. It currently has five overseas branches but only one of them is in the region, namely in Singapore. This branch operates under an offshore banking licence granted by the city state’s central bank in July 1999.

For the nine months of FY2016, Bank Mandiri made a net profit of IDR12.01 trillion, down 17.6% from the previous corresponding period due to higher provisions for bad loans. Its gross non-performing loan ratio worsened to 3.81% compared with 2.81% before, but analysts say they expect the NPL situation to improve in FY2017.

The Malaysia-Indonesia bilateral agreement last year came about as a result of the Asean Banking Integration Framework, first endorsed in December 2014 and programmed to be in place by 2020. It seeks to allow QABs to operate “freely” across member countries.

Under the framework, the so-called Asean 5 — Malaysia, Indonesia, Singapore, Thailand and the Philippines — should have at least one bilateral agreement signed by 2018, before full integration two years later.

Malaysia is seen by some as a leader in taking up this initiative, having already inked bilateral agreements with Indonesia, Thailand and the Philippines.

In a report on Jan 24, Fitch Ratings comments that Asean member countries have made “slow and uneven” progress towards regional banking sector integration. “Further moves are likely to remain gradual and full regional financial integration looks like a very distant goal,” the credit rating agency says.

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