BPR Consolidation : Genuine Reform or Structural Camouflage?

 By Kusnandar & Co.,  Attorneys At Law – Jakarta, Indonesia.

The decision by Otoritas Jasa Keuangan (OJK) to approve the merger of four rural banks (BPR) in West Java into PT BPR Nusamba Tanjungsari is more than a routine corporate action. It signals a clear regulatory direction: the BPR industry must shrink in number to grow in strength. Consolidation has become the chosen prescription.

In theory, the rationale is compelling. BPRs operate under significant pressure—limited capital buffers, fluctuating non-performing loans, weak competitiveness against commercial banks and fintech lenders, and the high cost of digital transformation. Economies of scale promise efficiency, stronger capital structures, and broader lending capacity. From a regulatory standpoint, fewer and larger entities are easier to supervise and potentially more resilient.

But public policy must not stop at theoretical elegance. The central question remains: does consolidation cure the illness, or merely move multiple patients into a single ward?

Merging small institutions that share similar structural weaknesses does not automatically produce a healthy institution. If the core problems lie in weak governance, inadequate internal controls, politically entangled ownership structures, or lax credit underwriting standards, then a merger simply aggregates risk rather than eliminates it. Four fragile institutions combined do not magically become one robust institution; they may simply become one larger fragile entity.

There is also the danger of creating an illusion of stability. A larger balance sheet may appear stronger. Capital figures may look more convincing. Operational structures may seem more streamlined. Yet without a fundamental shift in risk culture, transparency, and accountability, the newly consolidated entity could become more systemically sensitive at the local level. A single failure would have broader repercussions than the collapse of several smaller, isolated institutions.

This is where sharp criticism becomes necessary: consolidation risks becoming a regulatory shortcut. Instead of rigorously addressing governance deficiencies, strengthening supervisory enforcement, and forcing deep internal reform, structural simplification is presented as the primary solution. Yet the real challenges are deeply rooted—human capital quality, integrity of management, risk assessment discipline, and long-term strategic viability.

BPRs have historically derived their strength from proximity. Their intimate understanding of local communities and micro-entrepreneurs allowed them to extend credit based on contextual knowledge rather than rigid algorithms. Consolidation, however, often leads to centralized decision-making and bureaucratic standardization. Credit processes become more procedural and less relational. In attempting to professionalize, BPRs may lose the very social capital that once differentiated them from larger banks.

More concerning is the moral hazard dimension. If market participants perceive consolidation as an implicit safety mechanism—an eventual regulatory “rescue through merger”—managerial discipline may erode. Shareholders and executives could take excessive risks, assuming that structural absorption will mitigate consequences. In such an environment, market accountability weakens, and systemic fragility quietly grows.

OJK’s argument for consolidation is not without merit. Industry fragmentation complicates oversight and increases vulnerability to localized failures. However, consolidation must complement, not substitute, strict supervision. Without comprehensive asset quality reviews, transparent due diligence, and enforceable governance reform, mergers risk becoming cosmetic rearrangements rather than substantive restructuring.

The BPR industry does not merely need larger legal entities; it needs a governance revolution. Digitalization must extend beyond mobile applications into integrated risk management systems. Capital strengthening must reflect genuine loss-absorbing capacity, not symbolic compliance. Most importantly, commitment to grassroots economic empowerment must not be sacrificed on the altar of structural efficiency.

If this consolidation marks the beginning of deep institutional reform—professionalized management, uncompromising oversight, and transparent accountability—then it deserves support. But if it merely repackages structural weaknesses into a more orderly configuration, it postpones rather than resolves risk.

A bigger BPR is not necessarily a stronger BPR. Strength lies in discipline, integrity, and sustainable governance—not in size alone.

By : K&Co - February 27, 2026