M

embers of the House of Representatives have promised local banks that a new draft of the banking bill will continue to protect the local banking sector from foreign banks despite changes in a number of articles in the bill.

Fadel Muhammad, chairman of Commission XI overseeing the banking industry, said the newly appointed lawmakers would begin formulating a new draft of the bill very soon. Fadel acknowledged that a number of articles in the old draft may be changed during deliberations but promised that those which call for the protection of local banks would be maintained.

He said imposing operation limits and an ownership cap on foreign banks was still relevant although some countries had agreed to adopt a reciprocal principle in the operation of Indonesian banks in their country.

'€œWe will use the old draft as the basis of the formulation, but will revise some of the content,'€ he said on Tuesday.

Fadel said the focus of the bill would remain increasing reciprocity between Indonesia and its peers, and putting a limit on the country'€™s banking system, which he deemed too liberal.

Lack of reciprocity has long been considered one of the aspects hampering the expansion of Indonesian banks overseas as lenders claim they have been stripped of privileges their foreign counterparts enjoy in the country.

Although Indonesia'€™s banking market is among the most liberal in emerging countries, many countries, including in Southeast Asia, such as Malaysia and Singapore, still restrict the operation of Indonesian banks.

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.

Malaysia, however, still imposes a restriction on Indonesian banks. For example, Bank Mandiri, the only Indonesian bank operating in Malaysia, is still unable to operate as a full branch due to large capital requirements imposed by the Malaysian central bank.

Malaysia agreed early this month 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.

'€œHowever, even though such an agreement has been signed, we will still pursue the reciprocity issue through the bill,'€ Fadel, a Golkar Party politican, said.

He also insisted that a government-to-government approach was necessary to solve the reciprocity issue.

In terms of limitations, the lawmakers are looking to implement foreign ownership capping similar to what was stipulated in the previous draft, according to Fadel.

The old banking bill, which was proposed in 2013 under the House'€™s initiative, will replace the existing banking law that has been dubbed too liberal.

In the previous bill, lawmakers sought to turn foreign banks into legal entities (PT) and limit foreign ownership to a maximum of 40 percent, which would thereby jeopardize existing foreign shares for a number of Indonesian lenders.

For example, large banks in the top 10 list, such as CIMB Niaga, Bank Internasional Indonesia (BII), Bank Danamon, are currently controlled by foreign firms that hold majority stake.

Meanwhile, as reported previously, lawmakers of the 2009-2014 term decided at the last minute to drop discussion on the House-sponsored bill due to time constraints.

At the time, Arif Budimanta, then member of Commission XI, said that it would be up to the new administration to pursue the matter.

Joseph Abraham, chairman of the Foreign Banks Association of Indonesia (FBAI), previously said that an ownership cap of 40 percent would be severely detrimental to the investment of foreign banks.

'€œ['€¦] it would be disadvantageous from a Basel 3 perspective as such equity would be a deduction from Tier 1 capital, making such investments uneconomic. Also, all international banks need to have control of their international subsidiaries and in most countries, this is permitted,'€ Abraham, who is also Bank ANZ Indonesia president director, said in an email.

The only restrictions, according to Abraham, tend to be on large national banks and not on all foreign banks.