8NOVEMBER 2024Due diligence is a mandatory pain, yet a fruitful one. Due diligence, in short, DD, is a comprehensive process of collecting and assessing the prospective target for mergers or acquisitions, which includes all aspects of the targeted company, from finance, business prospects, and operations to legal. The meticulous nature of DD leads to the need to appoint third parties, in this case, professional counsels with capital market licenses, who then will submit a DD report for the investor. Overall, DD usually takes a minimum of three months and could extend to six or twelve months, depending on the depth of the analysis. Investors would consider DD report in its decision-making, whether to pursue investment with the targeted company or back out before losing more money. In Indonesia, banks are a highly regulated industry and heavy in capital burden. The implementation of Basel III for banks to maintain minimum core capital has been carried out since 2016. The increase in the quantity of the banks' capital was achieved through the establishment of obligation additional capital as a buffer in the form of capital conservation buffer, counter-cyclical buffers, and additional capital in the form of capital surcharge for banks that are considered to have systemic potentials. These layered capital buffers urge commercial banks to consolidate if they cannot fulfill the minimum core capital of IDR 3 trillion (equivalent to USD 200 million) by the end of 2022. Currently, all commercial banks have already complied with the rule, and eyes now move on to the municipal banks (BPD), which need to comply with the minimum core capital by the end of 2024. In contrast to commercial banks, which are privately owned and have many options for increasing capital, BPD shareholders are local governments, so a policy approach is needed to increase capital. Private commercial banks, among others, can increase capital by injecting additional capital, issuing additional capital with preemptive rights (PMHTED), or rights issues, as well as merging two banks or mergers. For BPD, this means the local government need to inject capital, and in most cases is not easy to get the approval from the Regional House of Representatives (DPRD). The financial services authority in Indonesia, OJK, encourages consolidation for banks to ensure stronger capital and more efficient banks in the future. Currently, there are 106 commercial banks in Indonesia, shrunk by 8 percent compared to 2018 with 115 banks. With these numbers, banks are highly competitive in increasing their customer base among the 278 million population, while half of it is still unbanked. Competition for customers' funds pushes the bank's cost of funds to remain high, which leads to a wide profit margin. According to Deposit Insurance Agency's (LPS) data, Indonesian banks have the second highest interest margin among ASEAN countries, with average NIM of around 4.68 percent in December 2022, compared to the Philippines' 3.56 percent, Vietnam's 3.35 percent, Thailand's 2.48 percent, Malaysia 1.96 percent, and Singapore 1.21 percent. This leads to Indonesia as the more attractive market for overseas investors who seek larger interest margins. Other than the State-Owned By Meliawati Mail, Head of Investor Relations, PT Bank Muamalat Indonesia TbkOPINIONIN MYDUE DILIGENCE, A MANDATORY PAIN FOR A BETTER FUTURE
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