In July 2012 Bank Indonesia published a new regulation, Regulation No. 14/8/PBI/2012, limiting the ownership by a single shareholder or corporate group (whether domestic or foreign) of Indonesian banks (the New Bank Ownership Rules).
The New Bank Ownership Rules apply to both foreign and domestic shareholders and, subject to certain exemptions, limit the ownership of an Indonesian bank as follows:
- a single bank or non-bank financial institution can hold up to 40 per cent of the issued share capital of an Indonesian bank;
- a single non-financial institution can hold up to 30 per cent of the issued share capital of an Indonesian bank; and
- individuals can hold up to 20 per cent of the issued share capital of an Indonesian bank. The limit is 25 per cent of the issued share capital for individual shareholders if the Indonesian bank is an Islamic bank.
The New Bank Ownership Rules do not cap foreign ownership of Indonesian banks (although these rules do have a disproportionate impact on foreign shareholders compared to domestic shareholders) and therefore currently a foreigner can still own up to 99% of the issued share capital of an Indonesian bank. However, the Banking Bill takes the New Bank Ownership Rules further and propose to cap foreign ownership of an Indonesian bank at 40 per cent of the total issued share capital of that bank.
The House of Representatives have made public statements that the Banking Bill will not apply retrospectively and that therefore it will not affect existing foreign shareholdings in Indonesian banks that are greater than 40 per cent. However, if the Banking Bill is passed into law in its current form then shareholders who today hold more than 40 per cent of an Indonesian bank would be required to divest their shareholding down to 40 per cent within a defined grace period (which in the current draft of the Banking Bill is stated to be somewhere between 5 and 10 years).
Regardless as to whether the Banking Bill is intended to apply retrospectively or not, it does provide the Indonesian Financial Services Authority (the OJK) with the power to amend, on a case by case basis, the 40 per cent cap but subject to:
- the relevant Indonesian bank/foreign shareholder having (amongst other criteria) a good track record of compliance, corporate governance and capital adequacy; and
- the OJK obtaining the prior approval from the House of Representatives – how this will work in practice is unclear. However, the Banking Bill does introduce into law the concept of reciprocity (which was first proposed by the OJK/Bank Indonesia during the DBS/Bank Danamon saga). In this regard, the decision of the OJK and the House of Representatives to increase the foreign ownership cap above 40 per cent would appear to depend on how Indonesian banks would be treated if they were to try and invest in a bank in the ‘home jurisdiction’ of the relevant foreign shareholder.