Delay in controversial Indonesian bill spells relief for M’sian banks

PETALING JAYA: Malaysian banks operating in Indonesia can for now heave a sigh of relief following news that the Indonesian Parliament failed to initiate discussions on a controversial banking bill to cap foreign ownership of local lenders.

According to a recent foreign news report, the house of representatives failed to initiate formal discussions on a proposed bill to cap foreign ownership in Indonesian banks to 40% from up to 99% currently and possibly delay the bill for a couple of years.

Analysts contacted by Star-Biz said the new government led by president-elect Joko Widodo, who will take office this month, might ease banking rules or according to some, omit the 40% cap similar to the recent omission of the 30% foreign ownership limit from the plantation bill.

This will be a relief to Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd, analysts concur pending further information on the matter.

Some industry observers said the delay of the bill, would provide Maybank and CIMB more leeway and time to negotiate with the Indonesian authorities as well as to strategise their operations in that country.

Maybank has about 80% interest in PT Bank Internasional Indonesia Tbk (BII) while the CIMB Group owns a 97.9% stake in PT Bank CIMB Niaga Tbk.

According to analysts’ estimates, BII’s contribution to Maybank’s earnings now stands at 7%, while CIMB Niaga’s contribution to CIMB Group is currently about 30%.

Maybank and CIMB are awaiting more clarity on the matter.

State-owned banks and large domestic banks currently command 55% of the Indonesian banking system assets compared with 17% by small and regional development banks.

Foreign banking groups, on the other hand, control about 28% of the banking system assets in Indonesia.

A vital component of the bill that has become a thorn in the flesh for many foreign banks, including Maybank and CIMB, is Article 116 where there is an implied retrospective requirement to adjust to the 40% foreign ownership limit over a period of five to 10 years.

The Widodo-led government is trying to spur foreign investments and the inflow of foreign funds into South-East Asia’s biggest economy, an analyst said, adding that the government was wary that the cap on foreign ownership could put a strain on the country’s economy which is now reeling under a trade deficit.

Indonesia’s trade deficit stood at US$318 mil in August and if the deficit prolonged, it could impact the rupiah, a fund manager pointed out.

Jakarta Globe had reported on Wednesday that the failure meant that the bill could be delayed by two or three years as the House needed to re-initiate the bill from scratch.

The newspaper added this could provide more time for the industry to lobby the house for what it would consider more reasonable rules.

The report quoted Nelson Tampubolon, chief executive for banking supervision at the Financial Services Authority, as saying that the ownership cap should be determined by monetary authorities instead of it being set by state law to allow some flexibility during a time of crisis, as in the financial crisis of 1998.