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The Jakarta Post
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House proposes new limits to foreign bank ownership

  • The Jakarta Post

Jakarta | Thu, February 7 2013 | 09:19 am

Taking another shot to prevent the dominance of overseas-based lenders, some members of the House of Representatives have called for a further limitation of foreign ownership of the country’s banks.

Lawmakers from Commission XI overseeing finance and banking said they plan to revise a clause in the banking law that allows foreign investors to own up to 99 percent of the shares in Indonesian banks.

“In our discussion, there have been suggestions to limit the ownership to around 40 to 49 percent. Some [lawmakers] have also proposed extreme suggestions to limit the ownership to 25 percent,” Commission XI deputy chairman Harry Azhar Azis said in Jakarta on Wednesday.

The new clause on the ownership limit might also prohibit a bank from being controlled by two affiliated investors, he added.

“Let’s say that the ownership cap is set at 25 percent. Then if there is already a foreign investor holding 25 percent of the shares in a bank, then the investor’s affiliations — family, members of the conglomerates or any companies that are related to the previous investor — will be barred from owning the remaining shares,” Harry explained.

Lawmakers are currently formulating a new banking law to replace the 1998 Banking Law, which was introduced when many Indonesian banks faced insolvency because of the 1997-1998 financial crisis.

At that time, lawmakers approved the law that included many clauses many consider too liberal — such as allowing foreign investors to control up to a 99 percent stakes in a bank — to attract new investors to shore up the country’s ailing banking sector.

The situation now and then was different and, therefore, the old banking law should have some “adjustments”, said Commission XI chairman Emir Moeis.

“With our situation already becoming strong and stable, now we can see that indeed our banking sector is way too liberal,” he explained.

Nevertheless, Emir promised that the House would be careful in revising such regulations, pledging not to impose drastic changes that could pose as a deterrent for foreign investors.

“We cannot just open our doors wide open [to foreign investors] when we are desperate for money, and just kick them out after we are already financially strong.”

The new banking bill was specifically developed to target the operations of foreign banks, analysts have said. Among the salient articles in the draft is a clause requiring all foreign banks operating under branch status to become legal entities (PTs). Another clause limits investors from acting as a controlling shareholder in one bank only.

Analysts said that Indonesia might need to protect its banking industry, but warned that a abruptly closing its banking system may taint the country’s image on the international stage.

The allowance for foreigners to own 99 percent stakes in a bank was “equivalent to a free system” and it meant that “no other banking industry in the world is as open as Indonesia”, said Wee Siang Ng, a senior analyst with the financial institution group at Moody’s Investors Service.

However, he argued that the presence of foreign banks could prompt banking consolidation in a country where 120 banks currently operate — a figure that many consider as too high, as it prompts inefficiency and makes banking supervision difficult.(sat)

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