BI to soon issue multiple license rule

JAKARTA. The central bank is upbeat that it will soon issue a rule on multiple banking service licenses that is aimed at primarily easing foreign expansion into the local banking industry.

Bank Indonesia (BI) Governor Darmin Nasution said that BI officials have met with banking industry stakeholders to receive their input before finalizing the regulation.

“Finalization for the regulation will be set for the end of October or early November,” Darmin said on Monday on the sidelines of the Indonesia Investment Forum.

Under the proposed regulation, banks seeking to open multiple businesses within the banking sector in Indonesia or to expand services will be required to seek approval from the central bank.

Banks will also be required to meet minimum core capital requirements. Banks that fall short of the minimum must invite other investors or merge with bigger banks to meet the requirement.

Standard Chartered economist Fauzi Ichsan said that the regulation would temporarily hinder growth.

“Expansion of the banking industry will be briefly halted. But this is good, because BI wants to ensure that banks wanting to expand have the qualifications to do so. In the long term, prudence in the country’s banking industry will be improved significantly,” Fauzi said.

Fauzi said that the central bank had to be consistent in implementing the prudence requirement as the main factor to determine whether a bank could expand after the regulation was issued.

“I hope that the multiple licensing regulation will not be used to hinder foreign banks from expanding,” Fauzi said.

The planned regulation will apply to local banks and to foreign banks operating in Indonesia.

Darmin has voiced his concern on several occasions about the aggressive expansion of foreign banks into Indonesia while local banks lacked the ability to compete with them in the long run.

The governor has urged that Singapore and Malaysia apply a reciprocal approach to Indonesian banks wanting to expand into the nations.

Singaporean and Malaysian banks operating in Indonesia currently receive treatment similar to that received by local banks. All require one license to provide banking services.

However, foreign banks currently do not require any approval from BI to expand their branches or services, while Indonesian banks operating overseas must obtain licenses from their host country’s banking regulators.

BI and analysts have said that the planned regulation would complement a previous regulation on bank ownership.

Bank Mandiri chief economist Destry Damayanti said that the combination of the ownership regulation and the planned multiple licensing regulation showed that the central bank had a strong commitment to improving prudential standards within the industry.

“The regulation aims to prepare banks to provide bigger coverage when they plan to expand,” Destry said.

Destry also said that the regulations would naturally trigger consolidation in the banking industry as they would force banks to meet certain capital requirements before expanding.

“If they can’t meet them [the requirements], then they will be forced to merge.”

There are currently around 120 banks operating in Indonesia. (Hans David Tampubolon/ The Jakarta Post)