T

he Financial Services Authority (OJK) plans to ease restrictions imposed on foreign investors entering the country'€™s banking industry if they wish to venture into sharia banking, the agency'€™s senior official has said.

OJK commissioner for banking supervision Nelson Tampubolon said in Jakarta on Thursday the agency was preparing several measures in its attempt to boost the penetration of sharia banks in the country'€™s banking system.

The measures would include the removal of a requirement that obliges a foreign investor to take over at least two lenders, he said.

In order to support the consolidation of Indonesia'€™s crowded banking industry, the OJK has encouraged foreign banks to take over small and medium-sized banks, albeit with strict requirements. For example, a foreign investor must take over two banks at once, so that they can be merged into a bigger bank.

'€œBut if they want to convert existing commercial lenders into sharia ones, they can do so by purchasing one bank only. It seems that many are interested in this offer,'€ he said.

Among those interested are Malaysian, Middle Eastern and Papua New Guinean investors. However, Nelson said the OJK would prioritize countries with which the regulator had already signed a memorandum of understanding on financial supervision.

Malaysia is not exempt from the waiver, even though the OJK has previously claimed that the penetration of Malaysia-based banks in Indonesia'€™s banking industry is already quite high. '€œTheir penetration accounts for around 7 percent already, but the door is still open for them to enter the sharia segment. We'€™re fine with that,'€ Nelson said.

Malaysia'€™s Affin Bank Berhad is among the foreign investors that have already revealed an interest in entering Indonesia'€™s sharia banking industry.

The bank had planned to acquire small lender Bank Ina Perdana and convert it into a sharia lender, but it scrapped the plan amid talk of a foreign-ownership cap back in 2012, when banking supervision was part of Bank Indonesia'€™s (BI) responsibilities.

At present, Indonesia boasts 118 commercial banks, the highest number in Southeast Asia. On the other hand, there are only 12 stand-alone sharia lenders and 10 sharia units within several commercial banks.

In terms of assets, the sharia banks only controlled Rp 269.47 trillion (US$20.2 billion), equal to 4.6 percent of the assets in the commercial banking industry in April, according to latest banking statistics.

As many as 10 lenders currently have a core capital below Rp 2 trillion each and the remaining two lenders have a core capital of between Rp 2 trillion and Rp 5 trillion each.

However, one condition remains for any investor, according to Nelson. '€œThe investors must be committed to injecting funds into the acquired banks to boost their capital to at least Rp 5 trillion. They will then have sufficient capital to expand their business and drive sharia penetration to over 5 percent,'€ he said.

Meanwhile, Achmad K. Permana, the secretary-general of the Indonesian Sharia Banks Association (Asbisindo), said that it welcomed the OJK'€™s initiative.

He said that several potential foreign investors had consulted the association regarding business prospects and that many of them hailed from the Asian region.

'€œFor foreigners, Indonesia still offers lucrative business prospects. We have the highest Muslim population, but low banking penetration. There are many things to be developed here,'€ he said.

However, Permana insisted that other changes were still needed to improve sharia banking, which he said was still '€œin its infancy'€.

'€œLower taxes for sharia products and the obligation to keep haj funds in sharia banks could assist us in nursing the business,'€ Permana said.