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Banks' foreign ownership regulations too liberal: Economist
The Indonesian government has been too liberal in its foreign ownership cap on local banks and this poses risks to the countryâs economy, said a researcher at the Institute for Development of Economics and Finance (INDEF)
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he Indonesian government has been too liberal in its foreign ownership cap on local banks and this poses risks to the country's economy, said a researcher at the Institute for Development of Economics and Finance (INDEF).
"By allowing up to 99 percent foreign ownership in banks, we are being too liberal, [it's] far higher compared to other ASEAN countries. It's too risky," INDEF researcher Didin S. Damanhuri told journalists on Wednesday.
With such high levels of foreign ownership allowed, the banks have enough power to mobilize their funds, he said.
The last version of the banking bill after its most recent revision set a 40 percent cap on foreign ownership in banks. Once the law takes effects, foreign investors who now control local banks are required to divest their majority shares within 10 years.
Currently, foreign investors can own up to 99 percent of the shares in Indonesian banks, following the 1998 financial crisis, which forced the country to open up its banking sector to attract foreign investment.
Didin said foreign ownership in Indonesian banks should still be allowed, but there should be limits imposed.
"With the cap, there will be a healthier growth of Indonesian banks. It will boost banking liquidity," he said.
The chairman of the Federation of Private Domestic Banks (Perbanas) Sigit Pramono earlier warned about impacts that might result from the imposition of foreign ownership caps and divestment in the banking industry, including billions of dollars Indonesia had to spend to take over foreign shares in the local banks. (fsu/ebf)(+++)
