A new draft of the banking bill has revealed
that lawmakers will proceed with a plan to restrict the operation of foreign
banks, setting a deadline for them to become legal entities in the form of
Perseroan Terbatas (PT) and capping the level of foreign ownership.
According
to the newest version of the banking bill, a copy of which was recently
obtained by The Jakarta Post, all foreign banks operating in Indonesia must
become PT.
While
the clause would translate into better protection for the banking sector
against banking crises overseas, it would affect the operations of many foreign
banks here, some of which are still operating under branch status (KCBA), such
as Citibank, Deutsche Bank, HSBC, JPMorgan Chase and Standard Chartered.
“By the
time this law comes into effect, foreign banks operating under branch status
must adjust with this law within five years of this bill being passed into
law,” the bill stated.
By
transforming into a PT, a foreign bank would operate as an independent company,
meaning that its parent company offshore could not just withdraw money from
Indonesia should there be liquidity issues in the bank’s overseas headquarters.
Meanwhile,
the bill also stated that maximum foreign ownership in banks would be capped at
40 percent, which would effectively prevent foreigners from being controlling
shareholders.
This
could discourage new foreign investment in the banking sector, as the global
Basel III banking regulation stipulates that any investor performing banking
acquisition without acting as controlling shareholder would have to deposit a
significant amount to safeguard against banking management risks.
In
August of last year, Southeast Asia’s largest bank, DBS Group Holdings Ltd.,
backed off from acquiring privately owned Bank Danamon in a 66.4 trillion
rupiah deal (at that time equivalent to US$6.8 billion), as the Singapore-based
investor was only allowed to own 40 per cent, falling short of its initial 99
per cent demand.
The
case drew attention as many local banks, such as Bank Mandiri, Bank Rakyat
Indonesia and Bank Negara Indonesia, called for the banking regulator to apply
reciprocal treatment for DBS, as state-run banks frequently faced difficulties
when expanding operations in Singapore.
Apparently
driven by these claims, lawmakers moved to highlight the issue specifically.
“The
Financial Services Authority and/or Bank Indonesia must consider the principle
of reciprocity in their approach to international banking negotiations,” the
bill said.
Deputy
chairman of House of Representatives’ Commission XI on finance and banking
Harry Azhar Azis, said that the bill’s ownership limit would not apply
retroactively, thus, would not affect existing investors.
The
banking bill could be passed into law by Sept 30 at the earliest, according to
Harry.
New
foreign investment in the banking sector may well be deterred by the bill,
which would be ill-timed as Indonesia is trying to enlarge the size of its
banking industry to support its fast-growing economy, according to Joseph
Abraham, the chairman of the Foreign Banks Association of Indonesia.
“The
key issue here is 40 per cent stake; it’s uneconomic from a Basel III
perspective,” said Abraham, who is also the president director of PT Bank ANZ
Indonesia. “Indonesia must make itself attractive. If you put rules like this,
it creates uncertainty — we need an environment where there is certainty.”
Abraham
explained that, for some foreign banks, transforming into PT might “not be a
preference”, as such a regulation would make it more difficult for their
headquarters to transfer funds in Indonesia, hampering inter-office lending.
Nevertheless,
by forcing foreign banks to become PT, the local banking industry could be
better protected from the contagious effect of overseas financial crisis, said
Sigit Pramono, the chairman of the National Banks Association.
“By
becoming PT, our foreign banks would become more accessible to the Financial
Services Authority, therefore, making it easier for the authority to perform
its banking supervisory role,” he added.
Satria
Sambijantoro
Business & Investment Opportunities
Saigon Business Corporation Pte Ltd (SBC) is incorporated
in Singapore since 1994.
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