Executives of local and foreign-owned banks have expressed their contradictory stances on an idea to restrict foreign ownership in Indonesian banks as well as the operation of foreign banks as stated in a new draft of the banking bill. They expressed their opinions during a hearing with House of Representatives’ Commission XI on Thursday discussing whether such restrictions should be stated in the new draft, which will replace the old one. The old banking bill, which was proposed in 2013 under the House’s initiative, was supposed to replace the existing banking law that has been dubbed too liberal.
Indonesian Bankers Association (IBI) chairman Zulkifli Zaini said the idea of restricting foreign ownership and foreign banks’ operation should be maintained in the new draft, and that the presence of foreign banks in Indonesia should be based on reciprocal agreements with related countries. “We [local banks] have always been facing restrictions when expanding our networks internationally, but Indonesia is very open toward foreign banks and ownership. So, why aren’t we treated the same way?” Zulkifli said to reporters after the hearing. Zulkifli, who is a former president director of state-owned Bank Mandiri, said a more restrictive banking law on foreign banks and foreign ownership in local banks would create a fair treatment for Indonesia. Unlike in Indonesia, where the banking industry is among the most liberal in emerging countries, many countries, including those in Southeast Asia, such as Malaysia and Singapore, still restrict the operation of Indonesian banks. The group proposed the bill to impose a foreign ownership cap of up to 40 percent for foreign individuals or institutions. Currently, Indonesia allows up to 99 percent foreign ownership in its banks. “We also suggest that operating permits for foreign banks be separated into multiple licenses, which will be divided into basic, intermediate and full categories based on their equities, financial health and capabilities as well as reciprocity,” Zulkifli said.
On the other hand, International Banks Association of Indonesia (Perbina) — previously Foreign Banks Association of Indonesia (FBAI) — suggested that the plan to cap foreign ownership in local banks should be reconsidered as the country still needed strong foreign financing to support its development and economic growth. The association, comprised of 24 foreign branch offices (KCBA) and joint-venture banks, stated in its proposals that Indonesian banks would need roughly US$203 billion in additional capital in the next 10 years to support the country’s development. “Should the role of foreign capital be limited through an ownership cap, Indonesia will face difficulties in achieving its targets, while also prompting negative responses from foreign investors and rating agencies,” siad Haryanto Budiman, a Perbina member and senior country officer for the Indonesian branch of JP Morgan Chase Bank. House Commission XI, which oversees finance and banking, previously promised that the new draft of the banking bill would continue to protect the local banking sector from foreign banks despite changes in a number of articles in the bill. (Grace D. Amianti)
