Institutional Repository | Satya Wacana Christian University: Pengembangan Bank Lokal dengan Merger dalam Rangka Pemberdayaan Ekonomi Rakyat
Executive Summary
LKM (the Indonesian acronym of Micro Finance Institution) plays a very
important role in giving contribution to economic development in advanced as well as developing countries. In the 1990s, LKM undoubtedly
assumed a more prominent role in giving contribution to economic development, particularly in the attempt to alleviate poverty.
Finance institutions in Indonesia were put to a severe test during the
period of monetary economic crisis in 1997/1998. Dozens of general
banks had to be closed down by Bank Indonesia because of bankruptcy and could no longer be saved. The general bank bankruptcy
led to the bankruptcy of several bank customers, particularly medium and large business enterprises, which in turn made other banks
also become less healthy. Bank Mandiri is a form of solution resulting from the merger of four unhealthy government banks, namely
Bank Dagang Negara, Bank Exim, Bank Bumi Daya, and Bapindo.
Conversely, in 1997, BPR (banks apecializing in the provision of credit
for people) began to flourish, because the target customers were the
micro, small, and medium business sectors that were not much affected by the economic crisis.
Learning from the experience of micro finance institutions that proved
to have endured during the economic crisis, a lot of general banks
eventually joined in working the small and medium business sector
by forming a micro service unit. As a result, competition in the micro finance market became tighter. Particularly, a number of BPR
BKK (Regency Credit Providing Body) local enterprises failed in the
competition and became unhealthy. Those BPR BKK local enterprises
were generally faced with internal problems, such as weak human
resources, inadequate capital, inefficiency, and ineffective control. It
was for this reason that shareholders became motivatived to merge
BPRs and BKKs in Central Java, starting with BPR BKK local enterprises in Semarang regency. Merger of BPR BKK local enterprises
was a historical event for micro finance industry in Central Java, because the BPR BKK local enterprises comprised 350 BPRs (not including 160 BKKs) out of a total of around 600 BPRs in Central Java.
Out of 9 BPR BKK local enterprises scattered within Semarang regency territory, one BPR was unhealthy, four healthy enough, and
201
Pengembangan Bank Lokal dengan Merger
four healthy. Based on preliminary estimate, unhealthy BPR BKK
local enterprises could be saved after merging and prevented from
bankruptcy that might eventually lead to liquidation.
BPR BKK local enterprise of Ungaran as a micro finance institution,
local government-owned corporation belonging to the government
of Central Java province and Semarang regency with its role as a local
bank bears the mission of capital and funding intermediacy in the
micro, small and medium business sectors. To gain excellent competitive ability, it had to be brave in consolidating funds and distributing credit to people together with general banks and other BPRs.
To be able to compete, BPRs and BKKs first had to be large, healthy
and strong. To realize this, merger provided an immediate solution.
The merger of BPR BKK Ungaran was expected to result in consolidated efforts between BPR BKK branches to extend their operations
and strengthen bank funding structure. The flow of fund from banks
to the community was one of the means to activate the economy and
community empowerment. The BPR BKK merging process involved
institutional dynamics, service dynamics, employees' psychological
burden and competition between shareholders in turning in their
capital.
This reality of merger is worth examining. Despite the large number
of researches already conducted on this subject, this merger of BPR
BKK local enterprises was a unique case, because it was a rare occasion as far as large-scale merger of finance institutions was concerned.
For this reason, the research problems were formulated as follows:
(1) What motivations did BPR BKK Ungaran stakeholders have and
what role did they play in doing the merger?, (2) How was the merger
dynamics of BPRs and BKKs as local banks striving to become healthy
banks and play a role in the community economic empowerment
scheme?, (3) How was the form and role of trust relations as financial
and non-financial support of BPR BKK's performance?
The merger of BPR BKK local enterprises was of horizontal nature
employed as an external development strategy. Merger was not a
waste of resources, but conversely, it was meant to improve the efficiency of resources (Jensen, 1984). Various economic and non-economic motivations underlying merger have been revealed in researches on different companies. Consolidation was one of the popu-
202
| Executive Summary
lar motives for merger (Moin: 2003, Weston and Mitchel et all: 2004).
Consolidation could be translated into more real motives (Mahmud
Z: 2009), among others to increase profit, economic scale, and to extend market segments.
BPR merger had to be implemented based on the Official Decision of
BI Board of Directors no 32/51/Kep/Dir 14 May 1999 on merger, consolidation, and acquisition. BPRs were not obliged to observe sound
competition laws, as there was no need for concern about the possibility of monopoly being created because the micro finance market
was highly competitive, and even giant general banks could be included in this segment.
The present study was designed to analyse the motivations underlying merger, increase in significance of the stakeholders' role during
and after the merging process in activating the economy and community empowerment. The study also included analysis of the form
and role of trust relations that could support BPR's performance financially as well as non-financially.
In the perspective of economic development or community empowerment, BPR BKK local enterprises as local banks played an important role. The relations between BPR and its customers could be
illustrated in the concept of trust relationship (Putman, 1993), which
became important, because local bank-customer relations were not
only of business but also of familial nature. Long-term relationship
between banks and customers could create positive values on both
parties, because such a relationship through repeated loans or longterm savings could reduce transactional costs (Sunarto, H: 2007).
Analysis of BPR BKK's level of health by means of CAMEL approach
would complement the present study, because CAMEL could be used
to measure the shareholders' role in turning in their capital and also
to analyse asset quality. The new management duly formed could be
used as materials for management analysis, while the profit gained
could be used as materials for bank ROA and ROE analysis. Bank
liquidity analysis was based on the liquid funds available to pay out
withdrawal of funds already received from the community and funds
that were distributed to the community. The criteria of bank health
measurement determined by Bank Indonesia consisted of five components, namely capital adequacy, asset quality, management, earn-
203
Pengembangan Bank Lokal dengan Merger
ing ability, sufficient liquidity, and sensitivity to market risk could be
added to the list.
To find out the impact of merger, financial data analysis was conducted based on time chronology and comparison. Chronological
financial data was compared between three years before and four years
after the merger took place. In the comparative analysis, the data
during the four-year period after the merger was compared to find
out similarities and/or differences between BPRs and BKKs of
Semarang regency and those of Central Java province.
Based on the formulation of the three research problems and the research objectives, after conducting theoretical study, field study, and
analysis, the writer drew the following conclusions:
Stakeholders' Motivation and Role
Stakeholders' motivation and role in the merger of BPRs and BKKs
from the whole Semarang regency into Ungaran BPR and BKK local
enterprise were as follows:
The merging of BPR and BKK local enterprises in general and Ungaran
BPR and BKK local enterprise in particular, were motivated by the
need to save BPR and BKK local enterprises as a whole and particularly unsound BPR and BKK local enterprises. The unfavourable condition was caused by the low quality of human resources, inadequate
capital, inefficiency, and ineffective control. Merger was a means to
improve the condition of the banks and maintain their sustainability.
This was evident from the fact that after the merger, BPR and BKK
local enterprises depicted improved performance from various dimensions: business volume, capital adequacy, management and human
resources quality, and service extension. Generally speaking, the
merging of BPR and BKK local enterprises has created consolidation
through overhead cost reduction (less supervisory or management
personnel) by creating values for the stakeholders' interest.
All stakeholders played important roles according to their respective
capacities. Starting from shareholders, Bank Indonesia, Board of Directors, and Supervisory Board that were getting more effective, employees, and customers, and improvements were even noted in good
banking governance practices, particularly in the mechanism of the
general meeting of shareholders that was getting more professional.
204
| Executive Summary
Merger involved several unavoidable processes that could not be detached from the dynamics in operation.
Prior to the merging process, in the constitution of BPR and BKKs
from the whole Semarang regency, institutional dynamics had occurred, starting from a credit providing body pilot project called BKK
becoming BUMD (Local Government Owned Enterprise) BKK, and
in 1992 became BUMD BPR BKK.
The process of BPRs and BKKs from the whole Semarang regency
merging into BPR BKK Ungaran went through several phases and
dynamics, starting from merger initiative, continued with socialization of the plan for merger, conducting cooperative study to banks
set up through merger, announcement of merger, making the merger
design, submission of related documents to get approval from Central
Bank of Indonesia, realization of merger, making changes in the bank
statute, appointment of new management team, making a new work
plan, balance consolidation, and capital conversion. In the merging
process, the shareholders also agreed to maintain the status of BPR
and BKK Ungaran, the product of merger, as a local enterprise corporation as stipulated in Local Regulations no. 11/2008 with its head
office situated in the local regency/municipality.
In the merging process, there was a common agreement among all
BPR BKK Ungaran shareholders as expressed in the general meeting
to provide additional capital for banks whose capital was less than
8%, arrange the status of employees, and settle their rights and obligations.
Dynamics of Merger Process
BPR BKK merger process took a long time. The merging of 9 BPR
BKK local enterprises from the whole Semarang regency, where 8
BPR BKK local enterprises combined into BPR BKK Local Enterprise
Ungaran Branch went through several phases and dynamics. Starting with preparation for merger, agreement reached by all BPR BKK
Ungaran shareholders in the general meeting to provide additional
capital for banks whose capital was still below 8%, arrange the status
of employees, and settle their rights and obligations. The next phase
was socialization of the plan for merger, making a comparative study
to banks set up through merger, announcement of merger, making
205
Pengembangan Bank Lokal dengan Merger
the merger design, submission of related documents to get approval
from Central Bank of Indonesia, realization of merger, making changes
in the bank statute, appointment of a new management team, making a new work plan, balance consolidation, capital conversion, and
in the merging process, the shareholders agreed to maintain the status of BPR BKK Ungaran, the product of merger, as a local enterprise
corporation as stipulated in Local Regulations no. 11/2008 with its
head office situated in the local regency/municipality.
A number of dynamics that occurred in the merger process included,
among others, reluctance to do merger in the form of rejection of
merger, postponement of merger, psychological impact on
unaccomodated officials, dismissal of employees who committed financial deviations, improved performance, and bank development.
A special dynamics that normally did not apply to other corporations
was related to share percentage distribution already arranged in local
regulations, so that the government of Central Java province as majority shareholders always attempted to meet the portion assigned to
them, i.e. 51% and regency government 49%. In the general meeting
of shareholders, Central Java province government became the key
decision maker on placement of management team members and other
policies, because based on governmental hierarchy, provincial
government's position was higher than regency/municipal government, while from shareholding position, provincial government held
the majority of shares. Another important event was Bank Jateng
share divestment.
In the process of BPR BKK from the whole regency into BPR BKK
Ungaran, several phenomena were noted, such as the impact of merger
and institutional dynamics, administrative and licensing dynamics,
employee affair dynamics, psychological impact on unaccomodated
officials, period of turmoil and employee dismissal, competition in
depositing capital between provincial and regency/municipal government on the one land and BPR BKK Ungaran on the other.
Based on the above findings, it could be concluded that the BPR BKK
Ungaran merging process has brought positive impact that was evident in improved performance, increased trust on the part of the community because new management was available, and bank management transparency became more distinct so that the bank became
206
| Executive Summary
better and healthier.
Impact of BPR BPKK Ungaran Merger
Post merger bank development was evident in improved performance
based on such indicators as bank assets, the amount of credit given,
third party's funds and profit. In other words, after the merger, the
bank was making more progress. All bank CAMEL elements were
improving, which depicted healthier development. Or it could be
concluded that the combine of 9 BPR BKK local enterprises in
Semarang regency which were not healthy enough before the merger
became healthy after the merger was realized. The results of comparison between the health level of all CAMEL elements depicted
higher values, which meant healthier bank condition. This also applied to the combine of those from the whole Central Java province.
It could be concluded, therefore, that the merger of healthy BPRs
with those that were healthy enough, and even less healthy or unhealthy produced a healthy bank. This indicated that there were
consolidated operations and harmony between branches, so that
merger created positive values that could benefit not only the shareholders but also all stakeholders.
From non-financial point of view, merger created new trust relations
on the part of the community to enhance the bank development.
From financial point of view, the bank would be making progress,
because the new trust relations would increase the amount of funds
received from the community, which would automatically increase
the amount of credit distributed to the community to enhance investment and community economic empowerment. Credit reserve
growth after merger proved to be higher compared with that before
merger, or in other words, merger could promote the credit services
rendered to the community. Making larger profit, the bank became
more efficient and productive. Through merger, the increasing profit
brought positive impact on the deposit of genuine local income.
Merger of BPR BKK Ungaran could promote trust relations with stakeholders and motivate the community to take part in the attempt to
promote the bank condition, so that it could become better and
healthier.
Based on the above findings, it could be concluded that local bank
merger could promote bank development and condition, the quality
207
Pengembangan Bank Lokal dengan Merger
of human resources, efficiency, effectiveness of control and also enhance the people's economic empowerment, because the bank could
become healthier and strategic. In addition, local bank merger enhanced the role of stakeholders and increased the community's trust.
Apart from the positive aspects of BPR BKK bank merger, several
negative aspects or weaknesses were worth noting, namely (1) the
lengthy process of decision making on capital deposit. As a local enterprise, the decision on capital deposit had to await approval from
DPRD (Local Legislative Assembly) Level 1 as well as Level 2, (2) the
possibility of the Board of Directors' policy being dominant involving personal interest, which would influence decision making, (3)
the health level of the bank was measured based on consolidated data,
so that good branches could be affected by poor branches, (4) accumulation of outstanding loans, since the combination of credit in arrears increased non-performing loans, (5) corporate tax obligation that
would be higher when progressive tariff was applied, (6) the old image already attached to the institutions being merged could not be
instantly removed. The old impression of being manned by weak
human resources still remained with the new institution.
Less satisfactory services, unstrategic location of the office, and uncomfortable office atmosphere were still attached to the new bank.
In consideration of the negative aspects above, it could be concluded
that the merging of BPR BKK local enterprises, BPR BKK Ungaran in
particular, did not instantly bring improvements to all aspects and
remove the former inherent weaknesses. It took time for the new
management to do reorganization and take concrete steps to resolve
the problems. A number of merger-related weaknesses according to
Mahmud Z included, among others, with the organization becoming
larger, managerial decision making took longer time, and the communication channel became longer.
Theoretical Implications
In brief, after the merger, BPR BKK Ungaran local enterprise became
more able to create values not only from economic viewpoint in the
form of larger profits due to the consolidation of 9 BPR BKK local
enterprises joined together, healthier bank condition, and larger bank
assets, but also enhance the competitive ability that could speed up
208
| Executive Summary
the growth of BPR BKK Ungaran local enterprise. This was in line
with Healy (1992), who in his research found out that banks with
larger assets depicted a significant increase in the profits gained. The
outcome of Sarwono's research (2007) on Bank Mandiri merger also
revealed that merger proved to have increased profits and taxes obtained from the bank. A compilation of research by Weston, Mitchell
et al (2004) indicated the impact of merger of the first category related to the increased values of the merging business companies.
Merger was an investment decision having long-term impact that
served as development strategy. This was in line with Mahmud Z
(2010), who found out that long-term objectives were attained by
means of transforming banking enterprise limits.
Hence this research affirmed the theory that consolidation created
values in inter local bank merger. Increased values were observable
in several performance indicators, such as the bank becoming healthier
and more transparent. The bank established through merger that
became healthier with stakeholders' support, particularly evident in
improved community-bank trust relationship, could eventually served
to prove that BPR BKK local enterprise as a local bank was becoming
more competitive.
Policy Implications
The lengthy merger process duly completed, the attempt was worth
the while. BPR BKK local enterprise depicted better performance.
Regency and provincial government as shareholders became more
rational and would be interested in BPR BKK local enterprises with
better prospects. It was just natural if shareholders would be more
encouraged to increase their capital deposit in the hope to get dividends and larger amount of taxes. Moreover, they could be proud of
their BPR BKK local enterprise, as it was able to empower the community. In other words, the local government as shareholders would
be reluctant to increase their capital if the enterprise belonging to
them did not perform well. The best policy, therefore, was to improve the BPR BKK local enterprise by encouraging the management
team (board of directors) to work more elegantly based on a better
incentive system.
BPR BKK local enterprise as a merger product proved to have been
able to increase their absolute capital, because of the accumulation of
209
Pengembangan Bank Lokal dengan Merger
profits retained and more extensive services to reach the customer.
The community, therefore, did not have to go far to find a larger
bank, as in the vicinity, a quite large bank established through merger
(BPR BKK local enterprise) was already available. A local bank growing larger indicated the greater trust the community had in the bank
concerned. Hence, the policy implication was to strengthen the strategy of local bank growth as an attempt to empower the people's community as envisaged in the original ideal of BPR BKK establishment
in 1970.
The merging of BPR BKK local enterprises, particularly that of
Ungaran, though bringing about improvement in several aspects, could
not instantly remove the previous negative aspects still attached to
the post merger BPR BKK local enterprises. It took time on the part
of the management team to straighten out the organization and take
concrete steps to resolve the problems leading to more professional
BPR BKK local enterprises with competitive ability at the regional
level.
Further Research
In the process of BPR BKK local enterprise development through various kinds of turmoil and economic, social as well as political dynamics for more than 30 years since its establishment in the 1970s as an
ordinary finance constitution with no corporate body in the form of
BKK, BPR BKK local enterprises have now managed to prove their
identity, committed to serve the lower layer of the community as
well as the micro, small and medium business enterprises, and able to
compete with other micro finance institutions as well as general banks
that thronged to get entrance to the micro finance market segment.
The formulation of a corporate body and merging of local banking
enterprises suggested that BPR BKK local enterprises have adjusted
themselves to the existing regulations. Hence, regency and provincial government as shareholders could now have a better look at BPR
BKK local enterprises as finance institutions growing in maturity and
able to practice good corporate (banking) governance.
This study has enriched and given contribution to the institutional
development scheme, particularly improvement of the role of micro
finance institutions through merger for the economic empowerment
of the lower layer of the community and micro, small and medium
210
| Executive Summary
business enterprises. The researcher, who is also a BPR BKK local
enterprise executive, has in depth knowledge of BPR BKK local enterprises and the community being served, but there is still room for
further research, among others: (1) the element of community - BPR
BKK local enterprise trust relations. The problem that ran be investigated further is whether BPR BKK local enterprises after getting larger
in terms of capital strength and assets through merger are able to
maintain their customers so that they will not turn to another finance institution. (2) It has been proven that after merging, BPR BKK
local enterprises are in possession of high quality human resources
resulting in better performance. However, in the course of their development, they still have to face a lot of challenges in rendering
services to the community as an intermediacy institution due to
changes in the surrounding environment pertaining to shareholders'
demand, legislative-executive political relations, and tighter competition. For this reason, a research problem that can be dealt with in
further research is related to the development of competitive ability
on the part of BPR BKK local enterprises in the micro finance segment. (3) Competition among shareholders in depositing their capital
deserves further investigation to find out whether or not shareholders are being disinterested in the decision making process and interfere in the bank management. (4) Conflict of interest between civil
servants and supervisors as shareholders is also worth examining.
Supervisors as owners as well as employees will give different responses and exercise different means of control, so that hypothetically will also create different organizational performance. This domain has not been much worked on in the local banking sector.
211
Pengembangan Bank Lokal dengan Merger
212
LKM (the Indonesian acronym of Micro Finance Institution) plays a very
important role in giving contribution to economic development in advanced as well as developing countries. In the 1990s, LKM undoubtedly
assumed a more prominent role in giving contribution to economic development, particularly in the attempt to alleviate poverty.
Finance institutions in Indonesia were put to a severe test during the
period of monetary economic crisis in 1997/1998. Dozens of general
banks had to be closed down by Bank Indonesia because of bankruptcy and could no longer be saved. The general bank bankruptcy
led to the bankruptcy of several bank customers, particularly medium and large business enterprises, which in turn made other banks
also become less healthy. Bank Mandiri is a form of solution resulting from the merger of four unhealthy government banks, namely
Bank Dagang Negara, Bank Exim, Bank Bumi Daya, and Bapindo.
Conversely, in 1997, BPR (banks apecializing in the provision of credit
for people) began to flourish, because the target customers were the
micro, small, and medium business sectors that were not much affected by the economic crisis.
Learning from the experience of micro finance institutions that proved
to have endured during the economic crisis, a lot of general banks
eventually joined in working the small and medium business sector
by forming a micro service unit. As a result, competition in the micro finance market became tighter. Particularly, a number of BPR
BKK (Regency Credit Providing Body) local enterprises failed in the
competition and became unhealthy. Those BPR BKK local enterprises
were generally faced with internal problems, such as weak human
resources, inadequate capital, inefficiency, and ineffective control. It
was for this reason that shareholders became motivatived to merge
BPRs and BKKs in Central Java, starting with BPR BKK local enterprises in Semarang regency. Merger of BPR BKK local enterprises
was a historical event for micro finance industry in Central Java, because the BPR BKK local enterprises comprised 350 BPRs (not including 160 BKKs) out of a total of around 600 BPRs in Central Java.
Out of 9 BPR BKK local enterprises scattered within Semarang regency territory, one BPR was unhealthy, four healthy enough, and
201
Pengembangan Bank Lokal dengan Merger
four healthy. Based on preliminary estimate, unhealthy BPR BKK
local enterprises could be saved after merging and prevented from
bankruptcy that might eventually lead to liquidation.
BPR BKK local enterprise of Ungaran as a micro finance institution,
local government-owned corporation belonging to the government
of Central Java province and Semarang regency with its role as a local
bank bears the mission of capital and funding intermediacy in the
micro, small and medium business sectors. To gain excellent competitive ability, it had to be brave in consolidating funds and distributing credit to people together with general banks and other BPRs.
To be able to compete, BPRs and BKKs first had to be large, healthy
and strong. To realize this, merger provided an immediate solution.
The merger of BPR BKK Ungaran was expected to result in consolidated efforts between BPR BKK branches to extend their operations
and strengthen bank funding structure. The flow of fund from banks
to the community was one of the means to activate the economy and
community empowerment. The BPR BKK merging process involved
institutional dynamics, service dynamics, employees' psychological
burden and competition between shareholders in turning in their
capital.
This reality of merger is worth examining. Despite the large number
of researches already conducted on this subject, this merger of BPR
BKK local enterprises was a unique case, because it was a rare occasion as far as large-scale merger of finance institutions was concerned.
For this reason, the research problems were formulated as follows:
(1) What motivations did BPR BKK Ungaran stakeholders have and
what role did they play in doing the merger?, (2) How was the merger
dynamics of BPRs and BKKs as local banks striving to become healthy
banks and play a role in the community economic empowerment
scheme?, (3) How was the form and role of trust relations as financial
and non-financial support of BPR BKK's performance?
The merger of BPR BKK local enterprises was of horizontal nature
employed as an external development strategy. Merger was not a
waste of resources, but conversely, it was meant to improve the efficiency of resources (Jensen, 1984). Various economic and non-economic motivations underlying merger have been revealed in researches on different companies. Consolidation was one of the popu-
202
| Executive Summary
lar motives for merger (Moin: 2003, Weston and Mitchel et all: 2004).
Consolidation could be translated into more real motives (Mahmud
Z: 2009), among others to increase profit, economic scale, and to extend market segments.
BPR merger had to be implemented based on the Official Decision of
BI Board of Directors no 32/51/Kep/Dir 14 May 1999 on merger, consolidation, and acquisition. BPRs were not obliged to observe sound
competition laws, as there was no need for concern about the possibility of monopoly being created because the micro finance market
was highly competitive, and even giant general banks could be included in this segment.
The present study was designed to analyse the motivations underlying merger, increase in significance of the stakeholders' role during
and after the merging process in activating the economy and community empowerment. The study also included analysis of the form
and role of trust relations that could support BPR's performance financially as well as non-financially.
In the perspective of economic development or community empowerment, BPR BKK local enterprises as local banks played an important role. The relations between BPR and its customers could be
illustrated in the concept of trust relationship (Putman, 1993), which
became important, because local bank-customer relations were not
only of business but also of familial nature. Long-term relationship
between banks and customers could create positive values on both
parties, because such a relationship through repeated loans or longterm savings could reduce transactional costs (Sunarto, H: 2007).
Analysis of BPR BKK's level of health by means of CAMEL approach
would complement the present study, because CAMEL could be used
to measure the shareholders' role in turning in their capital and also
to analyse asset quality. The new management duly formed could be
used as materials for management analysis, while the profit gained
could be used as materials for bank ROA and ROE analysis. Bank
liquidity analysis was based on the liquid funds available to pay out
withdrawal of funds already received from the community and funds
that were distributed to the community. The criteria of bank health
measurement determined by Bank Indonesia consisted of five components, namely capital adequacy, asset quality, management, earn-
203
Pengembangan Bank Lokal dengan Merger
ing ability, sufficient liquidity, and sensitivity to market risk could be
added to the list.
To find out the impact of merger, financial data analysis was conducted based on time chronology and comparison. Chronological
financial data was compared between three years before and four years
after the merger took place. In the comparative analysis, the data
during the four-year period after the merger was compared to find
out similarities and/or differences between BPRs and BKKs of
Semarang regency and those of Central Java province.
Based on the formulation of the three research problems and the research objectives, after conducting theoretical study, field study, and
analysis, the writer drew the following conclusions:
Stakeholders' Motivation and Role
Stakeholders' motivation and role in the merger of BPRs and BKKs
from the whole Semarang regency into Ungaran BPR and BKK local
enterprise were as follows:
The merging of BPR and BKK local enterprises in general and Ungaran
BPR and BKK local enterprise in particular, were motivated by the
need to save BPR and BKK local enterprises as a whole and particularly unsound BPR and BKK local enterprises. The unfavourable condition was caused by the low quality of human resources, inadequate
capital, inefficiency, and ineffective control. Merger was a means to
improve the condition of the banks and maintain their sustainability.
This was evident from the fact that after the merger, BPR and BKK
local enterprises depicted improved performance from various dimensions: business volume, capital adequacy, management and human
resources quality, and service extension. Generally speaking, the
merging of BPR and BKK local enterprises has created consolidation
through overhead cost reduction (less supervisory or management
personnel) by creating values for the stakeholders' interest.
All stakeholders played important roles according to their respective
capacities. Starting from shareholders, Bank Indonesia, Board of Directors, and Supervisory Board that were getting more effective, employees, and customers, and improvements were even noted in good
banking governance practices, particularly in the mechanism of the
general meeting of shareholders that was getting more professional.
204
| Executive Summary
Merger involved several unavoidable processes that could not be detached from the dynamics in operation.
Prior to the merging process, in the constitution of BPR and BKKs
from the whole Semarang regency, institutional dynamics had occurred, starting from a credit providing body pilot project called BKK
becoming BUMD (Local Government Owned Enterprise) BKK, and
in 1992 became BUMD BPR BKK.
The process of BPRs and BKKs from the whole Semarang regency
merging into BPR BKK Ungaran went through several phases and
dynamics, starting from merger initiative, continued with socialization of the plan for merger, conducting cooperative study to banks
set up through merger, announcement of merger, making the merger
design, submission of related documents to get approval from Central
Bank of Indonesia, realization of merger, making changes in the bank
statute, appointment of new management team, making a new work
plan, balance consolidation, and capital conversion. In the merging
process, the shareholders also agreed to maintain the status of BPR
and BKK Ungaran, the product of merger, as a local enterprise corporation as stipulated in Local Regulations no. 11/2008 with its head
office situated in the local regency/municipality.
In the merging process, there was a common agreement among all
BPR BKK Ungaran shareholders as expressed in the general meeting
to provide additional capital for banks whose capital was less than
8%, arrange the status of employees, and settle their rights and obligations.
Dynamics of Merger Process
BPR BKK merger process took a long time. The merging of 9 BPR
BKK local enterprises from the whole Semarang regency, where 8
BPR BKK local enterprises combined into BPR BKK Local Enterprise
Ungaran Branch went through several phases and dynamics. Starting with preparation for merger, agreement reached by all BPR BKK
Ungaran shareholders in the general meeting to provide additional
capital for banks whose capital was still below 8%, arrange the status
of employees, and settle their rights and obligations. The next phase
was socialization of the plan for merger, making a comparative study
to banks set up through merger, announcement of merger, making
205
Pengembangan Bank Lokal dengan Merger
the merger design, submission of related documents to get approval
from Central Bank of Indonesia, realization of merger, making changes
in the bank statute, appointment of a new management team, making a new work plan, balance consolidation, capital conversion, and
in the merging process, the shareholders agreed to maintain the status of BPR BKK Ungaran, the product of merger, as a local enterprise
corporation as stipulated in Local Regulations no. 11/2008 with its
head office situated in the local regency/municipality.
A number of dynamics that occurred in the merger process included,
among others, reluctance to do merger in the form of rejection of
merger, postponement of merger, psychological impact on
unaccomodated officials, dismissal of employees who committed financial deviations, improved performance, and bank development.
A special dynamics that normally did not apply to other corporations
was related to share percentage distribution already arranged in local
regulations, so that the government of Central Java province as majority shareholders always attempted to meet the portion assigned to
them, i.e. 51% and regency government 49%. In the general meeting
of shareholders, Central Java province government became the key
decision maker on placement of management team members and other
policies, because based on governmental hierarchy, provincial
government's position was higher than regency/municipal government, while from shareholding position, provincial government held
the majority of shares. Another important event was Bank Jateng
share divestment.
In the process of BPR BKK from the whole regency into BPR BKK
Ungaran, several phenomena were noted, such as the impact of merger
and institutional dynamics, administrative and licensing dynamics,
employee affair dynamics, psychological impact on unaccomodated
officials, period of turmoil and employee dismissal, competition in
depositing capital between provincial and regency/municipal government on the one land and BPR BKK Ungaran on the other.
Based on the above findings, it could be concluded that the BPR BKK
Ungaran merging process has brought positive impact that was evident in improved performance, increased trust on the part of the community because new management was available, and bank management transparency became more distinct so that the bank became
206
| Executive Summary
better and healthier.
Impact of BPR BPKK Ungaran Merger
Post merger bank development was evident in improved performance
based on such indicators as bank assets, the amount of credit given,
third party's funds and profit. In other words, after the merger, the
bank was making more progress. All bank CAMEL elements were
improving, which depicted healthier development. Or it could be
concluded that the combine of 9 BPR BKK local enterprises in
Semarang regency which were not healthy enough before the merger
became healthy after the merger was realized. The results of comparison between the health level of all CAMEL elements depicted
higher values, which meant healthier bank condition. This also applied to the combine of those from the whole Central Java province.
It could be concluded, therefore, that the merger of healthy BPRs
with those that were healthy enough, and even less healthy or unhealthy produced a healthy bank. This indicated that there were
consolidated operations and harmony between branches, so that
merger created positive values that could benefit not only the shareholders but also all stakeholders.
From non-financial point of view, merger created new trust relations
on the part of the community to enhance the bank development.
From financial point of view, the bank would be making progress,
because the new trust relations would increase the amount of funds
received from the community, which would automatically increase
the amount of credit distributed to the community to enhance investment and community economic empowerment. Credit reserve
growth after merger proved to be higher compared with that before
merger, or in other words, merger could promote the credit services
rendered to the community. Making larger profit, the bank became
more efficient and productive. Through merger, the increasing profit
brought positive impact on the deposit of genuine local income.
Merger of BPR BKK Ungaran could promote trust relations with stakeholders and motivate the community to take part in the attempt to
promote the bank condition, so that it could become better and
healthier.
Based on the above findings, it could be concluded that local bank
merger could promote bank development and condition, the quality
207
Pengembangan Bank Lokal dengan Merger
of human resources, efficiency, effectiveness of control and also enhance the people's economic empowerment, because the bank could
become healthier and strategic. In addition, local bank merger enhanced the role of stakeholders and increased the community's trust.
Apart from the positive aspects of BPR BKK bank merger, several
negative aspects or weaknesses were worth noting, namely (1) the
lengthy process of decision making on capital deposit. As a local enterprise, the decision on capital deposit had to await approval from
DPRD (Local Legislative Assembly) Level 1 as well as Level 2, (2) the
possibility of the Board of Directors' policy being dominant involving personal interest, which would influence decision making, (3)
the health level of the bank was measured based on consolidated data,
so that good branches could be affected by poor branches, (4) accumulation of outstanding loans, since the combination of credit in arrears increased non-performing loans, (5) corporate tax obligation that
would be higher when progressive tariff was applied, (6) the old image already attached to the institutions being merged could not be
instantly removed. The old impression of being manned by weak
human resources still remained with the new institution.
Less satisfactory services, unstrategic location of the office, and uncomfortable office atmosphere were still attached to the new bank.
In consideration of the negative aspects above, it could be concluded
that the merging of BPR BKK local enterprises, BPR BKK Ungaran in
particular, did not instantly bring improvements to all aspects and
remove the former inherent weaknesses. It took time for the new
management to do reorganization and take concrete steps to resolve
the problems. A number of merger-related weaknesses according to
Mahmud Z included, among others, with the organization becoming
larger, managerial decision making took longer time, and the communication channel became longer.
Theoretical Implications
In brief, after the merger, BPR BKK Ungaran local enterprise became
more able to create values not only from economic viewpoint in the
form of larger profits due to the consolidation of 9 BPR BKK local
enterprises joined together, healthier bank condition, and larger bank
assets, but also enhance the competitive ability that could speed up
208
| Executive Summary
the growth of BPR BKK Ungaran local enterprise. This was in line
with Healy (1992), who in his research found out that banks with
larger assets depicted a significant increase in the profits gained. The
outcome of Sarwono's research (2007) on Bank Mandiri merger also
revealed that merger proved to have increased profits and taxes obtained from the bank. A compilation of research by Weston, Mitchell
et al (2004) indicated the impact of merger of the first category related to the increased values of the merging business companies.
Merger was an investment decision having long-term impact that
served as development strategy. This was in line with Mahmud Z
(2010), who found out that long-term objectives were attained by
means of transforming banking enterprise limits.
Hence this research affirmed the theory that consolidation created
values in inter local bank merger. Increased values were observable
in several performance indicators, such as the bank becoming healthier
and more transparent. The bank established through merger that
became healthier with stakeholders' support, particularly evident in
improved community-bank trust relationship, could eventually served
to prove that BPR BKK local enterprise as a local bank was becoming
more competitive.
Policy Implications
The lengthy merger process duly completed, the attempt was worth
the while. BPR BKK local enterprise depicted better performance.
Regency and provincial government as shareholders became more
rational and would be interested in BPR BKK local enterprises with
better prospects. It was just natural if shareholders would be more
encouraged to increase their capital deposit in the hope to get dividends and larger amount of taxes. Moreover, they could be proud of
their BPR BKK local enterprise, as it was able to empower the community. In other words, the local government as shareholders would
be reluctant to increase their capital if the enterprise belonging to
them did not perform well. The best policy, therefore, was to improve the BPR BKK local enterprise by encouraging the management
team (board of directors) to work more elegantly based on a better
incentive system.
BPR BKK local enterprise as a merger product proved to have been
able to increase their absolute capital, because of the accumulation of
209
Pengembangan Bank Lokal dengan Merger
profits retained and more extensive services to reach the customer.
The community, therefore, did not have to go far to find a larger
bank, as in the vicinity, a quite large bank established through merger
(BPR BKK local enterprise) was already available. A local bank growing larger indicated the greater trust the community had in the bank
concerned. Hence, the policy implication was to strengthen the strategy of local bank growth as an attempt to empower the people's community as envisaged in the original ideal of BPR BKK establishment
in 1970.
The merging of BPR BKK local enterprises, particularly that of
Ungaran, though bringing about improvement in several aspects, could
not instantly remove the previous negative aspects still attached to
the post merger BPR BKK local enterprises. It took time on the part
of the management team to straighten out the organization and take
concrete steps to resolve the problems leading to more professional
BPR BKK local enterprises with competitive ability at the regional
level.
Further Research
In the process of BPR BKK local enterprise development through various kinds of turmoil and economic, social as well as political dynamics for more than 30 years since its establishment in the 1970s as an
ordinary finance constitution with no corporate body in the form of
BKK, BPR BKK local enterprises have now managed to prove their
identity, committed to serve the lower layer of the community as
well as the micro, small and medium business enterprises, and able to
compete with other micro finance institutions as well as general banks
that thronged to get entrance to the micro finance market segment.
The formulation of a corporate body and merging of local banking
enterprises suggested that BPR BKK local enterprises have adjusted
themselves to the existing regulations. Hence, regency and provincial government as shareholders could now have a better look at BPR
BKK local enterprises as finance institutions growing in maturity and
able to practice good corporate (banking) governance.
This study has enriched and given contribution to the institutional
development scheme, particularly improvement of the role of micro
finance institutions through merger for the economic empowerment
of the lower layer of the community and micro, small and medium
210
| Executive Summary
business enterprises. The researcher, who is also a BPR BKK local
enterprise executive, has in depth knowledge of BPR BKK local enterprises and the community being served, but there is still room for
further research, among others: (1) the element of community - BPR
BKK local enterprise trust relations. The problem that ran be investigated further is whether BPR BKK local enterprises after getting larger
in terms of capital strength and assets through merger are able to
maintain their customers so that they will not turn to another finance institution. (2) It has been proven that after merging, BPR BKK
local enterprises are in possession of high quality human resources
resulting in better performance. However, in the course of their development, they still have to face a lot of challenges in rendering
services to the community as an intermediacy institution due to
changes in the surrounding environment pertaining to shareholders'
demand, legislative-executive political relations, and tighter competition. For this reason, a research problem that can be dealt with in
further research is related to the development of competitive ability
on the part of BPR BKK local enterprises in the micro finance segment. (3) Competition among shareholders in depositing their capital
deserves further investigation to find out whether or not shareholders are being disinterested in the decision making process and interfere in the bank management. (4) Conflict of interest between civil
servants and supervisors as shareholders is also worth examining.
Supervisors as owners as well as employees will give different responses and exercise different means of control, so that hypothetically will also create different organizational performance. This domain has not been much worked on in the local banking sector.
211
Pengembangan Bank Lokal dengan Merger
212