Can Indonesian banks be 'sufficiently enticed' to set up base in Malaysia?

It might be a long shot given the disparity in equity returns.

According to Maybank Kim Eng, Bank Negara's (BNM) bilateral agreement with Otoritas Jasa Keuangan (OJK) paves the way for greater financial integration within ASEAN but it remains to be seen if Indonesian banks can be sufficiently enticed to set up base in Malaysia, given the disparity in equity returns.

With two Malaysian banking groups in Indonesia already, this agreement could perhaps benefit the likes of RHB that had tried to establish a foothold in Indonesia before. 

Here's more from Maybank Kim Eng:

Bank Negara recently signed a Bilateral Agreement with Otoritas Jasa Keuangan (OJK) under the ASEAN Banking Integration Framework (ABIF), to allow the incorporation of 3 banking groups in each country, which would include banking groups that are already in operation (i.e. Maybank Indonesia and CIMB Niaga).

There are currently no Indonesian banks that are locally incorporated in Malaysia. Back in Dec 2012, BNM had granted a full banking license to Bank Mandiri, but as we understand, the capital injection was a major consideration for the bank to not exercise its option, especially with caps on branch and ATM network expansion.

Capital aside, the other consideration for Indonesian banks would be the disparity in equity returns for both countries whereby ROEs currently average about 9-11% for Malaysian banks versus 15-20% for Indonesian banks.

Moreover, there is still much scope for credit growth in Indonesia relative to Malaysia, to which capital could be better deployed. MKE Indonesia’s banking analyst forecasts 11-12% industry loan growth in Indonesia this year versus our +6.0% growth for Malaysia.