Investors can hold majority stake in banks: BI

JAKARTA. Investors will still be allowed to own more than 50 percent of a local bank after the issuance of a new ownership regulation next month, a senior official says.

Bank Indonesia deputy governor Muliaman Hadad said in Jakarta on Wednesday that investors would be allowed to own more than a 50 percent of a bank if they fulfilled specific requirements defined by the central bank.

“The approval will be very selective and will apply to very special cases,” Muliaman said.

The House of Representatives (DPR) recently named Muliaman as the chairman of the new Financial Services Authority (OJK), which will oversee banking, non-bank financial institutions and the capital markets.

Under the regulation Bank Indonesia has been drafting, financial institutions would still be allowed to own majority stakes in domestic banks while an ownership cap for investors outside of the financial sector would be imposed.

However, BI has proposed that the investment-limit rule cover only banks that the central bank deems have substandard financial performance. Bank Indonesia has announced plans to conduct three audits of local banks within an 18-month period to assess their performance.

Banks not making the cut will be obliged to seek capital funding from new investors. Individual investors will be allowed to hold a maximum 20 percent stake, non-financial institutions will be allowed 30 percent stakes and financial institutions, 40 percent stakes.

Indonesia currently allows foreign investors to own up to 99 percent of a local bank.

Muliaman said that the central bank might issue the regulation in July.

Bank Indonesia’s plan to limit local bank ownership has created confusion within the industry. BI previously said that it planned to limit majority ownerships of national banks.

The plan was unveiled just after the DBS Group of Singapore announced its Rp 66 trillion (US$7 billion) bid for Danamon Bank, Indonesia’s sixth-largest bank in term of assets.

The central bank later said that the new regulation would apply to unhealthy banks that needed to find strategic investors to improve their financial condition.

Standard Chartered economist Fauzi Ichsan has said that the regulation could potentially trigger confusion in the market and drive instability because it might overlap with the Indonesian Banking Architecture (API).

Fauzi said that the regulation might also hinder investors from investing further in the banking industry because it could create perceptions that there had been a grand design to limit ownership.

At least three foreign banks halted their plans to acquire local banks last year while awaiting the upcoming ownership rules, including Malaysia’s Bank Affin, which was interested in Bank Ina Perdana; Malaysia’s RHB Capital, which was interested in Bank Mestika Dharma; and the China Construction Bank, which was interested in Bank Maspion.

The regulation will complement a multiple license rule that is also being formulated by Bank Indonesia.

Under the multiple-license regulation, Bank Indonesia will consider bank capitalization when issuing licenses. (Hans David Tampubolon, The Jakarta Post)