Jakarta. The State-Owned Enterprises Ministry seeks to merge three Islamic banks under the state-controlled lenders to establish a new $14.5 billion entity that will spearhead the government effort to promote Islamic financing. 

State-Owned Enterprises Minister Erick Thohir said on Tuesday that the ministry had signed a conditional merger agreement to join the publicly listed Bank BRISyariah, a subsidiary of Indonesia largest lender by asset Bank Rakyat Indonesia, with its peers Bank Syariah Mandiri, the unit of Bank Mandiri, and Bank BNI Syariah, a subsidiary of Bank Negara Indonesia. 

"As a country with the largest Muslim population in the world, Indonesia should have a strong Islamic bank," Erick said. 

"Indonesia must be able to become the center of the world's sharia economy and finance,"  he said. 

Islamic finance differs from conventional banking regarding how they share risk with their customers. While conventional banks charge interest on loans, Islamic lenders use various profit- or burden-sharing schemes to bear the lending risk together with their customers.

"The system of justice and transparency has made Islamic banks survive in the midst of the Covid-19 pandemic crisis, and have even made a positive performance," Erick said.

Wimboh Santoso, the chairman of the Financial Services Authority (OJK), said earlier that Islamic banking in Indonesia had been growing steadily in the past decade. However, no Islamic bank had a large enough scale to compete with conventional banks, he said.

Bank Muamalat, Indonesia's first Islamic lender, booked an asset of Rp 48.7 trillion ($3.3 billion) at the end of the second quarter this year, down from Rp 50.6 trillion a year earlier, according to the lender's financial report. That was not enough to put Muamalat among the top 10 largest banks in the country.

Islamic lenders only account for 3.8 percent of the country's Rp 9,079 trillion total banking assets at the end of July, the latest data from the Financial Services Authority (OJK) showed. There were only 14 Islamic lenders with 3,880 branch offices across Indonesia, compared to 110 commercial banks with their 30,893 offices.

On the other hand, Bank BRISyariah, Bank Bank Syariah Mandiri, and Bank BNI Syariah had a combined Rp 215 trillion assets at the end of June, according to the Jakarta Globe calculation based on the lenders' latest financial report showed.

That would enough to put the surviving entity after the merger to become the country's seventh-largest lender, just ahead of Bank Pan Indonesia, which reported Rp 211 trillion assets at the end of June. 

"With the joining of these lenders into the bank, one family, God willing, Indonesia will have the largest Islamic bank," Erick.

Separately, Bank BRISyariah said it would become the surviving entity after the merger. 

"Based on the Conditional Merger Agreement, [BRISyariah] will become the surviving entity while BNI Syariah and [Bank Syariah Mandiri] will become the shareholders in the surviving entity," the lender said in a statement on Tuesday. 

BRISyariah jumped 25 percent in the first trading session at the Indonesia Stock Exchange on Tuesday to trade at Rp 1,125 per share or 2.1 times its book value.