Esther Samboh, Jakarta – Bank Indonesia's move to limit bank ownership is not likely deter foreign investors, although the move will expose it to lobbying and political pressure to grant exemptions, analysts say.
The central bank announced on Wednesday a 40 percent ownership limit in local banks, but sound banks are allowed to have ownership more than the maximum level if they meet requirements set out by the central bank.
"BI's discretion to make exceptions to the rule is the most important part of the regulation, as it gives BI flexibility and thus exposes BI to a lot of lobbying to ensure a bank is deemed to have a good corporate governance," Standard Chartered Bank Indonesia senior economist Fauzi Ichsan said in Jakarta Thursday.
"When the idea of ownership caps was first introduced, it was foreign investors who were concerned. Now that the BI decree has been released, the big local conglomerates are likely to worry more if their banks are considered to have poor governance," Fauzi added.
According to the new regulation, existing banks with a health and good corporate governance level below 2, as defined by BI, will also be required to divest their stakes and comply with the regulation starting 2014.
BI officials declined to disclose which banks received low health and good corporate governance ratings, giving no clues as to which banks would likely be affected by the regulation.
The nation's top 10 banks, which account for 63 percent of the assets in the banking system, are predominantly owned by highly-rated state or foreign institutions, and have reasonable financial profiles and a corporate governance framework in place, Fitch Ratings said in a statement released on Thursday.
"The risk of failing to maintain BI's criteria may be more pronounced for small to medium-sized banks facing undue business pressure. This is notably because of a concentrated shareholding structure, especially for family-owned firms, which has been cited as one factor behind bank failures in Indonesia in the past," Fitch added.
The regulations was issued to promote good corporate governance to avoid a repeat of the 1997 financial crisis, which was attributed in part to undue influence from controlling owners.
The rules are also aimed at reducing the regulatory burden and consolidating the 120 commercial banks that comprise the nation's banking sector ahead of the ASEAN economic integration in 2015.
"Certainly after the new rules, foreign investor access to bank ownership in Indonesia is no longer as unfettered as before. But as long as Bank Indonesia enforces the regulations in a sensible way, things will be okay," Ambreesh Srivastava, Fitch's senior director, said.
Southeast Asia's largest lender, the DBS Holdings Group, will be the first to come up against the new regulation, as it aims to takeover Indonesia's sixth largest lender, PT Bank Danamon (BDMN), in a US$7.2 billion transaction.
On paper, DBS was fully qualified to acquire control of Danamon, judging from the parameters outlined in the new rules, Srivastava said.
"But I think there will be some political factors and a quid-pro-quo in the behind-the scene negotiations between Bank Indonesia and DBS." (vin)