Indonesia is holding a great potential for banking investments. The Qatari financial industry is aware of that as some deals have been signed in the past, for example by QNB, which bought a stake of Indonesia's Bank Kesawan two years ago. The Qatari lender was also bidding for Rabobank earlier in 2013.

There are quite a few banks, actually over 200, in Indonesia. One of the reasons is that the entry investment to open a bank is quite low, the lowest in Southeast Asia. On the other hand, Indonesian banks are currently the most profitable in the world's 20 biggest economies, Bloomberg data shows. Banks with a market value of at least $5bn boast an average net interest margin of 6.6%, while, for example, Singapore bank margins are below 2%.

So it does make sense for the Qatari banking sector to look for further opportunities in Indonesia. One could be the highly profitable Danamon Bank, which just recently shook off a takeover attempt by Singapore's largest lender DBS on grounds of new acquisition regulations in Indonesia. The banking regulator ruled that foreign lenders can only acquire a 40% stake in an Indonesian bank, but DBS wanted much more.

Thus, the stake of Danamon is back on the market, and Japanese banks have reportedly expressed fresh interest in the highly profitable, sixth largest bank by assets in Indonesia that operates the second largest branch network with over 2,900 branches and points of sales.

In addition to its conventional banking services for businesses and individuals, Danamon provides Islamic banking services.

Islamic banking in Indonesia is a particularly fast-growing sector.

While before 2008, Islamic banking was a small niche in the world's most populous Muslim country, all changed when in the same year the government issued the Shariah Banking Law which led to a period of strong growth for the industry. According to data from Bank Indonesia, between 2008 and 2012, Islamic bank assets tripled, increasing by an average of 31.5% annually. But there is still a lot of room. Currently, just 11 Islamic banks are operating as independent business entities in Indonesia, and another 24 Shariah business units operate as Islamic banking divisions of existing commercial banks. By March 2013, the combined assets of Shariah banks still accounted for just 4.6% of the total banking assets in Indonesia.

Malaysian Islamic banks have great interest in venturing further into Indonesia, but Qatar banks with their in-depth experience in Islamic finance could get a profitable slice of the pie easily. And when the single Asean market is formally established, probably from 2016 onwards, banks within the region will be able operate across the Asean region without any major entry barriers.

Indonesia with its 240mn population has a small, but rapidly rising Islamic banking sector.

By Dr Arno Maierbrugger

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