Japan’s Tokyo-Mitsubishi UFJ Bank has agreed to acquire a majority stake in Bank Danamon, for $6.2 billion USD (700 billion JYN). Bank Danamon was established in 1956 and is Indonesia’s firth largest bank in terms of market capitalization. It has strength in auto and business loans and a network of retail bank locations across Indonesia.
Tokyo-Mitsubishi UFJ has signed an agreement on the deal with Temasek Holdings Pte. Ltd. the Singapore government’s investment fund, which is Danamon’s largest shareholder. The acquisition will be completed in stages, per Indonesian government regulations. Tokyo-Mitsubishi UFJ plans to initially acquire about 20% of Danamon by the end of the 2017 and raise its ownership to 40% by September 2018 and eventually to 73.8%.
The acquisition is part of the Japanese bank’s effort to strengthen its foreign business in response to a slump in domestic operations. Tokyo-Mitsubishi UFJ’s earnings from overseas operations were 40% in fiscal 2016 and the acquisition of Danamon will help to lift the proportion of overseas operations to 50%.
The Mitsubishi UFJ Financial Group has a strategic goal to expand its operations in Southeast Asia in response to the expansion of Japanese business operations in the region and also opportunities in the banking sector.
The bank has developed a network across Asia and Oceania that includes operations in Australia, Bangladesh, Cambodia, China, Hong Kong, India, Indonesia, Korea, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. The group has also invested in the Philippines Security Bank Corp., Thailand’s Bank of Ayudhya and Vietnam’s Vientinbank,
Indonesia is the largest country in Southeast Asia and has a population of over 260 million. The country’s economy has been expanding at an annual rate of some 5% in recent years. Indonesia is fast moving to a digital economy and there are many growth opportunities in the financial services sector.
Asian banks as well as Japanese banks are increasingly targeting a presence in Indonesia in hopes of tapping Indonesia’s emerging middle class. South Korean Shinhan Bank acquired a majority stake in Bank Metro Ekspress in 2015, while China Construction Bank entered the Indonesian market by acquiring Bank Windu in 2016.
Japan’s No. 2 bank, Sumitomo Mitsui Financial Group, Japan’s number two bank is has also sought the approval of the Indonesian government to raise its stake to a majority in Indonesian lender BTPN.