BI to have final say on banking expansion

JAKARTA. Bank Indonesia (BI) will soon be able to forbid a bank’s expansion plan without having to give specific reasons, a move seen as reciprocal toward foreign banks whose countries of origin have prevented Indonesian banks from expanding into their territory.

BI Governor Darmin Nasution revealed the plan during a meeting on Monday with House of Representatives’ Commission XI overseeing finance, during which he faced pressure from lawmakers complaining about various regulatory barriers encountered by Indonesian banks wanting to expand overseas.

“At the moment, we are finalizing a multiple license rule, which will include a clause saying that Bank Indonesia has the authority to reject an opening of a new bank branch for ‘national interest’ reasons,” he told lawmakers, adding that the rule would take effect upon both national and foreign banks operating in Indonesia.

Responding to journalists’ questions after the meeting, Darmin did not define what he meant by so-called “national interests”. However, he assured that the central bank would maintain its accountability and transparency in conducting such processes.

“We will introduce a specific procedure to avoid abuses [in the decision-making process]. There will be clear guidelines on whether decisions will be made at the directorship level, or by the board of governors,” the central bank governor said.

Darmin’s statement is perceived as being BI’s strategy to reinforce its negotiating power with other central banks in the region, which are deemed as having hampered business expansion by Indonesian banks in their respective countries. Among the “protective” central banks mentioned by lawmakers in the meeting were those in China, Malaysia, Singapore and the United States.

BI’s discretionary authority to limit bank expansions is seen by many as targeting foreign banks wanting to expand here, and consequently acting as a bargaining chip for BI to negotiate greater access for Indonesian banks wanting to expand in countries that have adopted a protectionist stance in their banking sectors, politicians say.

“This is a good policy to protect our domestic banking industry so that we are no longer considered liberal. Other countries frequently protect [their banking industries], so why can’t we do the same thing?” House Commission XI lawmaker Maruarar Sirait told The Jakarta Post on Monday.

He added that the commission fully supported the policy as it was in line with the House’s mission to give Indonesian banks greater access overseas.

Darmin, for instance, confirmed that BI remained in communication with the Singaporean central bank regarding the US$7.2 billion acquisition plan by the Singapore-based DBS Group for Bank Danamon, Indonesia’s sixth-largest lender by assets.

BI is reportedly utilizing the bank takeover as a bargaining chip to assist Indonesian banks that want to expand in Singapore, a country known to have one of the most protectionist banking systems in Asia.

Darmin said that BI had been working to give Indonesian banks greater access to expand in the region, but asked politicians and local bankers to be patient as the negotiating process “could not be solved in only one or two years.

“We have fought for this idea of reciprocity at the ASEAN level, and there was no rejection [among other central bankers in the region]. But this will take time,” he told lawmakers.

Indonesia, despite its vast banking potential, is perceived to have one of the region’s most open banking systems, especially when compared to neighbors Singapore or Malaysia.

In its efforts to strengthen the nation’s banking sector, BI unveiled a package of new banking regulations on Nov. 23, including the much-anticipated multiple license, which limits banking operations based on a bank’s core capital and is slated to come into force in January next year.

Currently, Indonesia only has a single license that allows banks to offer a full range of services and open as many branches as they wish, whereas in other countries in the region, including Singapore and Malaysia, multiple licenses are required to implement such programs. (The Jakarta Post)