Indonesia studies limits on bank ownership

JAKARTA: Indonesia’s central bank is studying limits on ownership in commercial banks, at a time when investor interest in buying stakes in local lenders has picked up given the strong industry growth in South-East Asia’s biggest economy.

Any regulation to limit foreign ownership would force Singapore state investor Temasek and private equity firm TPG Capital to cut their majority stakes in Bank Danamon and BTPN, respectively.

“We are still assessing it (ownership limits). We still need to make lots of simulations to see the impact if it’s implemented, how many banks would have to change etc,” central bank governor Darmin Nasution told reporters yesterday.

“We cannot issue a regulation that isn’t workable.”

No level of ownership or timeframe has been set, though Nasution said there was a possibility the regulation could be issued this year.

It is unclear whether state-owned banks would be exempted.

Indonesia currently allows investors, including foreigners, to hold up to 99% of local banks, an effort to spur growth following the 1997 financial crisis that caused the government to close down many domestic lenders.

But banks’ loan growth is now booming at over 20% a year, and so Indonesia is expected to see further banking consolidation as foreign buyers look to tap an emerging middle class and growing wealth. – Reuters

Any single entity trying to own 25% or more of shares already needs approval from the central bank, also the country’s banking regulator.

The central bank is also assessing bank risk controls in the wake of alleged embezzlement at Citi Indonesia and local Bank Mega.

Nasution has previously said he did not want banks to be controlled by one shareholder, during a hearing last year with the parliament that criticised the government’s bailout of Bank Century, now called Bank Mutiara, during the financial crisis.

Temasek, which has run into trouble over ownership rules in Indonesia before, owns a 67.4% stake in the nation’s sixth largest lender Bank Danamon, while TPG controls 59.7% of mid-sized lender BTPN.

It is not clear if the move could be applied retroactively.

“It is still very early stages now. It is a hugely complex move as many banks will have to sell down their stakes, find buyers, pricing etc. It’s not gonna happen in a year,” said Anand Pathmakanthan, a Singapore-based banking analyst at Nomura.

“There is a precedent that some countries don’t apply (such rules) retrospectively,” he said.

“I think the banking system had a lot of bad press recently about profits being too excessive and obviously foreigners are a big part of the banking system.” – Reuters