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alaysia has finally agreed to ease restrictions imposed on Indonesian banks to operate in the neighboring country as part of its commitment to the integration of financial services in ASEAN nations.

The agreement '€” which highlights equal reciprocity and national treatment among the two countries '€” was signed by Bank Indonesia (BI) Governor Agus Martowardojo, Financial Services Authority (OJK) chairman Muliaman D. Hadad and Bank Negara Malaysia (BNM) Governor Zeti Akhtar Aziz in Jakarta.

It is part of a larger ASEAN Banking Integration Framework (ABIF) that has been set for the 10 member countries within ASEAN '€” Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

According to Agus, at the same time BI has agreed to the ABIF guidelines that will make way for the subsequent endorsement of the ASEAN Framework Agreement on Services (AFAS) by each country'€™s finance minister.

Under the ABIF guidelines, banks that have acquired the '€œQualified ASEAN Bank'€ (QAB) status will be able to carry out their operations in neighboring countries and get equal treatment as local banks.

Detailed QAB requirements will be discussed in a separate bilateral agreement between the OJK and BNM.

One thing is sure, only '€œindigenous'€ banks can acquire the status, meaning that the bank must originally be established and based in an ASEAN country and owned by ASEAN citizens. Indonesian banks looking to gain the status may apply to the OJK.

As previously reported, Indonesian banks have often complained about the restrictions imposed by the Malaysian banking authority to operate in the neighboring nation.

However, Zeti ensured that the recently signed agreement and the ensuing accord would provide easier access and operational flexibilities for Indonesian banks.

'€œIt means if there are three Malaysian banks already in Indonesia, there can be three [Indonesian] banks in Malaysia. So it takes into account existing circumstances,'€ she said.

'€œThen national treatment. If in Indonesia, Malaysian banks are accorded certain operational flexibilities, they [Indonesian banks] will also be accorded the same flexibilities in Malaysia,'€ she added.

At present, there are three Malaysian-based banks already operating in Indonesia, namely CIMB Niaga, BII Maybank and Maybank Syariah Indonesia. All three lenders are locally incorporated.

CIMB Niaga is 96.9 percent owned by CIMB Group Holdings Berhad. Meanwhile, BII Maybank and Maybank Syariah are 79 percent and 99 percent controlled by Malayan Banking Berhad, respectively.

At present, the BNM has granted limited access to Bank Mandiri, the only Indonesian bank so far to operate in Malaysia. However, Mandiri is still unable to operate as a full branch due to large capital requirements imposed by the Malaysian Central Bank. A BNM regulation sets the minimum capital funds at 300 million Malaysian ringgit (US$85.6 million) for a licensed bank, which is a locally incorporated foreign bank.

In the future, the amount of capital that must be provided may be lower than 300 million ringgit if Mandiri acquires the QAB status.

Meanwhile, Agus said that Indonesian financial authorities would pursue similar agreements with their counterparts, including in Singapore, in 2015.

Contacted separately, executives at Mandiri and Bank Rakyat Indonesia (BRI), two of Indonesia'€™s largest lenders by asset size, said that they welcomed the agreement with Malaysia.

Mandiri micro and retail director Hery Gunardi said that it would assess the upcoming QAB requirements, while BRI finance director Achmad Baiquni said that it would explore the opportunities to work in Malaysia'€™s retail banking segment.