BI limits ownership in banks

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(Kontan/Fransiskus Simbolon)

Bank Indonesia (BI) set an ownership cap of 40 percent in local banks on Wednesday but made exemptions for certain, sound banks to own more than a maximum limit.

Although most banks and non-bank financial institutions’ stakes in local banks will be capped at 40 percent, exemptions will be applied for those which are sound, have strong capital, are publicly listed and hold recommendations from their supervisory authorities, according to a new central bank regulation.

The new ownership-limit regulation will permit Singapore-based DBS Group’s US$7.2 billion acquisition of Bank Danamon (BDMN), Indonesia’s sixth largest commercial bank.

Meanwhile, the share-ownership limit for non-financial institutions is set at 30 percent, while individual investors can only hold 20 percent stakes in Indonesian banks.

“There needs to be a policy that organizes bank-ownership structures to increase banks’ strength — this is achieved by increasing the financial soundness and quality of corporate governance — and to consolidate the banking industry,” the central bank said in a statement.

“What has been announced is no surprise given what has previously been announced. It’s good that the central bank has issued the regulation so that everybody can now move forward,” said Henry Ho, president director of Bank Danamon.

The rule, which was previously feared might cap all shareholders and thereby evince negative investor sentiment in Southeast Asia’s rapidly growing economy, gives the go-ahead for Southeast Asia’s largest lender DBS Holdings Group’s biggest ever deal in Indonesia.

DBS plans to buy the 67.4 percent stake in Danamon held by Singapore state investor Temasek Holdings and offered a 52 percent premium to minority shareholders when it announced the bid in early April. The acquisition plan, however, was met with strong opposition from politicians and local banks.

“The implications are obvious for DBS to take a look at, and to comply with the new regulation in order to move the transaction forward,” Ho told reporters.

DBS spokeswoman Karen Ngui told The Jakarta Post that the lender was still studying the newly issued regulation carefully. “DBS will continue to work closely with the regulators and be guided by them in all we do.”

Existing majority owners that do not pass BI’s financial tests at the highest two levels will need to reduce their stakes by 2019, according to the central bank’s new rule.

“The regulation is not as scary as initial expectations. The rules give incentives for healthy banks, while unhealthy banks are given disincentives by being forced to divest their stake holdings,” said Sigit Pramono, chairman of the country’s National Banks Association (Perbanas).

“The policy will promote bank health but it does not address foreign dominance. We have to change government regulations if we are concerned about foreign ownership,” Sigit added, referring to a government policy allowing foreign investors to own up to 99 percent stakes in Indonesian banks.

Eight of Indonesia’s top 11 banks by market value are either controlled by foreign banks, business families, private equity firms or wealth funds, according to Reuters.

New bank ownership rule

• Banks, non-bank financial institutions can own up to a 40 percent stake of a local bank, while non-financial institutions can own up to 30 percent

• An individual can own up to 20 percent of a commercial bank and 25 percent of a sharia bank

• Banks can own more than a 40 percent stake in an Indonesian bank if they also:

• Have a minimum health level of 2 or equivalent and a minimum of 6 percent Tier 1 capital

• Have a recommendation from the bank’s supervisory authority

• Are publicly listed

• Will support the nation’s economy and buy the debt paper issued by the bank to be owned

• Will commit to owning the bank for a certain period of time to be fixed by Bank Indonesia

• Banks must do the following before floating a 40 percent stake:

• Be publicly listed for five years upon acquisition, with a minimum 20 percent stake previously floated

• Be approved to issue debt papers

• Existing banks with a Health and Good Corporate Governance Level of 3 or lower must divest their stake according to the new regulation, with a transition period until 2019.

• Sanctions for non-compliance include written warnings, restrictions on opening new offices, freezing certain business activities and “fit-and-proper” tests for the banks’ boards of directors and commissioners.

Source: Bank Indonesia