Park Han-na, Seoul – Korean commercial banks are under pressure from Indonesian financial authorities to establish local holding companies, adding to the regulatory challenges that have hampered their efforts to expand in the market.
According to industry sources on Tuesday, Otoritas Jasa Keuangan, Indonesia's independent financial regulatory agency, mandates that companies with either two or more financial affiliates in the country and total assets exceeding 100 trillion Indonesian Rupiah ($5.95 billion), or three or more affiliates with assets over 20 trillion Rupiah, must set up a holding company or designate one affiliate as such.
To date, six Korean lenders – including KB Kookmin Bank, Shinhan Bank, KEB Hana Bank, Woori Bank and OK Savings Bank – have entered the Indonesian market through acquisitions of local financial firms. Among them, KB Kookmin Bank and Shinhan Bank meet the new regulatory thresholds and are subject to the requirement.
"In Indonesia, this regulation was announced at the end of December last year. It applies to all financial institutions operating in the country, and among Korean firms, Shinhan and KB fall under its scope," a Shinhan Bank official said.
He added that the Indonesian authorities notified the bank of the new rule in December, and the bank is currently reviewing financial, accounting and tax implications with the goal of submitting a compliance plan by the June deadline set by the Indonesian government.
Shinhan entered the market in 2017 by setting up PT Bank Shinhan Indonesia. It operates two more affiliates now – PT Shinhan Indo Finance and PT Shinhan Asset Management Indonesia.
KB Kookmin Bank also confirmed ongoing discussions with Indonesian regulators regarding the incorporation of a holding company. "We are in the early stages of talks, and the details are still being developed," a bank official said.
Its holding firm KB Financial Group currently operates seven affiliates in Indonesia, including PT KB Bank Indonesia Tbk, PT KB Valbury Sekuritas, PT KB Insurance Indonesia, PT KB Valbury Asset Management, PT Sunindo Kookmin Best Finance and PT KB Data System Indonesia.
This latest regulatory development further pressures KB Kookmin Bank, which has struggled to turn around its Indonesian subsidiary after acquiring the troubled Bank Bukopin in 2018. It posted a net loss of 240 billion won last year amid mounting regulatory scrutiny
"It's a harsh regulatory environment for KB. To establish a holding company, a bank needs to be profitable enough to support it, but that's not the case for KB," an official from a financial firm, who wished to remain anonymous, said.
Indonesian authorities issued 18 sanctions against PT KB Bank Indonesia Tbk last year, a sharp increase from the one or two annually seen since the 2018 acquisition.
As Indonesia's financial market remains limited in both size and accessibility, regulatory hurdles continue to grow. "It's becoming clear that foreign financial capital is not being welcomed, and the risk of indirect sanctions is increasing, deterring Korean financial institutions," the official added.
Source: https://asianews.network/indonesia-tightens-rules-on-foreign-banks-targeting-korean-financial-firms