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Not all foreign banks required to operate as PTs: New banking bill
The House of Representatives may alter a clause in the Banking Bill obliging all foreign banks that at present operate under branch status to convert into legal business entities (PTs)
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he House of Representatives may alter a clause in the Banking Bill obliging all foreign banks that at present operate under branch status to convert into legal business entities (PTs).
The clause is likely to apply differently for foreign banks, depending on their business focus. Different treatment will be imposed on foreign banks focusing on wholesale business (corporate loans, infrastructure financing), and for foreign banks focusing on retail business (consumer loans).
'We are currently studying the possibility that only foreign banks doing retail business will have to convert into PTs,' outgoing House member Kemal Azis Stamboel said on Wednesday in Jakarta after meeting representatives from the Foreign Banks Association of Indonesia.
Meanwhile, foreign banks whose credit mainly focused on wholesale may be exempted from the clause, said Kemal, who recently tendered his resignation from the House due to health concerns, but was involved in the past deliberations of the Banking Bill.
Nevertheless, he explained that the suggestion was not yet final and, from his discussions with fellow lawmakers, there remained a possibility that the House would go ahead with its initial plan of requiring all foreign banks, without exception, to become PTs.
'If our initial plan proceeds, then we could give a transition time of at least five years for all foreign banks to comply,' he said.
Analysts have argued that obliging all foreign banks to become PTs was necessary to ring fence Indonesia's banking industry from the contagious impact of the financial crises overseas.
By transforming from branch status 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 if there was a liquidity shortage in the bank's overseas headquarters.
However, the case for foreign banks focusing on wholesale loans was different, Kemal argued. 'They channel credit to our corporate, infrastructure projects. With their branch status, the banks have access to cheaper funds from their overseas headquarters,' he said. 'If they become PTs, their funding costs will rise.'
The deputy chairman of House Commission XI on finance, Harry Azhar Azis, confirmed the plan to revise the clause in the Banking Bill. He explained that, in the case of foreign banks focusing on retail, they should become PTs to provide legal protection for Indonesian depositors.
'It's risky for us if foreign banks focusing on retail do not become PTs,' Harry said on Wednesday. 'They collect vast amounts in deposits from our people and what we don't want is their suddenly pulling depositors' money out of Indonesia if their headquarters overseas go bust.'
There are at least 10 foreign banks operating in Indonesia at the present time, including the Bank of America, Bank of China, Bank of Tokyo-Mitsubishi UFJ, Citibank, Deutsche Bank, HSBC, JPMorgan Chase and Standard Chartered.
Almost all the aforementioned banks have a strong footing in the country's retail credit segment, with the exception of JPMorgan Chase, Deutsche Bank and the Bank of Tokyo-Mitsubishi UFJ, which focus their loans on wholesale and the corporate sector.
Representatives from Deutsche Bank and JPMorgan Chase declined to comment. 'We do not have anything to add to the discussion at this point,' James Murphy, the Hong Kong-based vice president of JPMorgan Chase's media relations, wrote in an email.
Meanwhile, Foreign Banks Association of Indonesia chairman Joseph Abraham said he welcomed the plan that perhaps only certain foreign banks would have to become PTs.
'It is something that has been applied and has worked in various countries, so it is worthy of serious consideration,' Abraham, the president director of Australia-based Bank ANZ Indonesia, said on Wednesday.
However, Standard Chartered senior economist Fauzi Ichsan said that the regulation could hurt foreign banks that focused on both corporate and retail credit segments. 'It is common knowledge that banks such as Standard Chartered, Citibank and HSBC focus on both businesses. So, how would this regulation apply to them?'
