T

he Financial Services Authority (OJK) will sign a memorandum of understanding (MoU) with the China Banking Regulatory Commission (CBRC) to accommodate the business expansion of lenders in both countries.

The signing will take place in Jakarta on June 4, during a visit by CBRC officials.

The financial regulator previously signed a letter of intent on financial services industry supervision with the CBRC in Tianjin, China, in September 2014 that paved the way for the June MoU.

OJK chairman Muliaman D. Hadad said the signing of the MoU would open up the way for domestic lenders to expand into China, as it would ensure reciprocity and equal treatment for the banks.

At the moment, state-owned Bank Mandiri is the only local lender that already operates in China with a full branch office in Shanghai. However, its operations are still limited to foreign-denominated, non-retail transactions only.

'€œWe hope the agreement with the CBRC will enable Mandiri to expand its operations to include renminbi transactions,'€ he said on Thursday, adding that it would also welcome expansion plans of other Indonesian lenders as well.

Besides facilitating Mandiri'€™s expansion, the MoU will assist China Construction Bank (CCB) to gain a foothold in Indonesia as well.

As reported previously, CCB has been seeking entry into the Indonesian market for a while.

It held purchase talks with private lender Bank Maspion in the past, but they ended in an impasse in 2011 '€”when banking supervision was still under the jurisdiction of Bank Indonesia '€” amid uncertainty regarding foreign ownership regulation.

OJK deputy commissioner for banking supervision Mulya Siregar said that it was ready to grant a controlling stake of 25 percent or more to CCB, provided the Chinese lender was fully committed to speeding up domestic banking consolidation by taking over two local banks at once and merging them.

'€œBased on the reports that we have received, CCB has agreed to acquire two small-sized banks here. It has found one suitable bank to acquire and is still on the hunt for another one,'€ he said.

CCB, according to data on its website, has RMB 17.47 trillion (US$2.82 trillion)-worth of assets and reaped RMB 67.13 billion in net profits in the first quarter of this year.

Meanwhile, Mandiri president director Budi Gunadi Sadikin has once again expressed the intention to expand the bank'€™s activities in China, which he claims will boost trading activities between Indonesia and China.

It is prepared to allocate around $16 million of additional funds for its Shanghai branch to back up the expansion.