Esther Samboh, Jakarta – Bank Indonesia (BI) will issue a regulation limiting ownership in local banks next month before proceeding with a formal review of planned acquisitions of Indonesian lenders, including the high-profile US$7.2 billion DBS Holdings Group's takeover of the nation's sixth largest lender Bank Danamon.
The rule will still allow financial institutions, which are considered highly regulated, to own majority stakes in domestic banks. But for unsupervised investors outside of the financial sector, an ownership cap would be imposed, BI Governor Darmin Nasution said on Friday without disclosing details.
It would also include a set of requirements to run a bank here, including requiring multiple licenses for different banking services, Darmin added.
Indonesian banks have been facing difficulties operating overseas, while foreign investors are allowed to own up to a 99 percent stake in local banks – a regulation made in the aftermath of 1997/1998 crisis to spur growth in the financial sector.
"I have talked with the Monetary Authority of Singapore [MAS] in Washington. I have said that we will process the Danamon-DBS [deal] after finishing the regulation on the ownership cap. That also applies to other investors," Darmin told reporters. "We also talked about reciprocity issues."
"The regulation is for prudential purposes, without any intention to limit foreign investors. The regulation also applies to both domestic and foreign banks."
DBS spokeswoman Karen Ngui declined to comment on Darmin's statements when contacted by The Jakarta Post.
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's and RHB Capital's plans for Bank Ina Perdana and Bank Mestika Dharma, respectively, as well as China Construction Bank's plan for Bank Maspion.
Banks in Indonesia have seen increased interest from local and foreign investors as they continue to show resilience and have become among the most profitable banks in Southeast Asia with capital strength well above international requirements.
That has encouraged BI to ensure good governance in the banking sector by having as many shareholders as possible, after seeing local banks turning into the subjects of fraud with high-profile embezzlement scandals at Citibank and Bank Mega, as well as the alleged massive fraud carried out by the owners of Bank Century.
"Risks could be diversified with many shareholders," banking expert Paul Sutaryono told the Post.
The momentum is right for BI to enforce the new rules, as well as to call for reciprocal treatment from banking regulators overseas to ease local banks' expansion outside the country, because with the promising prospects of Indonesia's banking sector, the rules have been too relaxed here, some observers have said.
"The DBS acquisition of Danamon is good momentum to be used for BI's bargaining position relative Singapore's central bank," Paul said.
Danamon shares tumbled 6.35 percent, the most in six months, to Rp 5,900 apiece on Friday's close as investors feared that the takeover would be terminated, cancelling previous expectations of benefiting from the DBS offer to buy stakes at Rp 7,000 a share.
DBS announced a plan earlier this month to acquire a 67.37 percent stake in Danamon and purchase the remaining stock in cash to own 99 percent of Danamon.