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Bankers back reciprocity in new bill
Banking representatives have welcomed the House of Representativesâ move to restrict the operations of foreign banks here as âreciprocalâ
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anking representatives have welcomed the House of Representatives' move to restrict the operations of foreign banks here as 'reciprocal'.
They warn, however, that being overly nationalistic could deter much-needed foreign capital investment in the banking sector.
They say it is timely for Indonesia to protect its banking sector, which is known for its robust lending growth and high profitability, ahead of the implementation of the ASEAN Economic Community (AEC) in banking services in 2020.
'The definition of reciprocity not only comprises giving equal treatment in issuing permits [for new banking operations], but also having fair-footing requirements and conditions,' said Budi Gunadi Sadikin, president director of Bank Mandiri, the country's largest bank by assets.
'Frequently, banking permits are issued but with very different conditions and pricing, which is akin to the imposition of trade barriers,' he said in an email interview.
The House's Commission XI overseeing finance and banking is drafting a new banking bill in which lawmakers plan to limit the operations of foreign banks here as part of reciprocity treatment to boost the bargaining power of Indonesian banks when expanding overseas.
Budi, who has frequently complained to the media about the barriers that Bank Mandiri has to face when attempting to expand its business overseas, suggested that lawmakers include a clearer definition of foreign and local banks in the new bill.
'In almost all countries, such a definition is included in their law as the legal basis for differences in regulations,' he said.
'In Malaysia and Singapore, the law is used by regulators to justify the differential treatment between their banks and ours.'
Indonesia's latest draft of the banking bill includes several clauses aimed at restricting the operations of foreign banks, including one that requires foreign banks to become legal entities (PTs), and another about a cap on foreign ownership of 40 percent.
The obligation to become a PT would ensure that a foreign banks' parent company could not simply pull their funds out from Indonesia at a moment's notice.
Meanwhile, the cap on foreign ownership would prevent foreign investors becoming controlling shareholders in banks operating in Indonesia.
While lawmakers have publicly stated that the regulations will not apply retroactively, the banking bill in fact stipulates that all foreign banks, including existing ones, will be given between five and 10 years to comply with the new rules.
A number of bankers have expressed anxiety over the possibility that the new banking bill might dissuade foreign investors from putting more money into Indonesia's capital-hungry banking sector.
Bank Danamon president director Henry Ho said he acknowledged the need for Indonesia to protect its banking sector. He, however, also questioned 'whether now is the right time to impose' a 40 percent ownership rule.
He described it as 'extremely onerous' for foreign investors and warned that the rule might decelerate the pace of banking consolidation in the country.
'The local banking sector has too many small banks and needs to be consolidated, and this will require the entry of foreign capital,' said Ho.
'A lot of thought is needed here to strike a good balance between the need to attract foreign investment and participation in the banking industry, without jeopardizing or scaring them [investors] off with a 40 percent ownership cap,' he explained.
