Banking Regulator to Release Regulation on Definition of Foreign Banks


FEBRUARY 16, 2015

Jakarta. Banking regulator and supervisor the Financial Services Authority, or OJK, plans to release a regulation that defines foreign banks in Indonesia, in another attempt to push for reciprocity against counterparts overseas.

“Right now the OJK is redefining the terms of foreign banks. Until now, we used to define foreign banks as [only] branches of foreign banks,” OJK deputy commissioner for banking supervision Mulya Siregar said in his keynote speech in a seminar in Jakarta on Monday.

Indonesia liberalized its banking sector in the wake of the 1998 Asian financial crisis, inviting foreigners to rescue ailing banks after massive deposit withdrawals drained liquidity from the nation’s banking system.

However, as the economy recovered and the banking system got back into shape, Indonesian lenders started pushing the central bank to become tougher on foreign lenders after the local lenders’ expansion overseas, especially in Southeast Asian countries including Singapore and Malaysia, were blocked by tough regulations, such as high capital requirements and different treatment compared to local lenders.

Mulya said Indonesia does not currently define foreign banks. The OJK recognizes locally incorporated lenders, or foreign banks’ branch offices only.

The regulator classifies banks part-owned or controlled by foreign investors such as CIMB Niaga, Bank Danamon, Bank Internasional Indonesia and OCBC NISP, as “locally incorporated” lenders.

Meanwhile, the local branches of foreign banks such as Standard Chartered and Citibank have the privilege of offering full services, including deposit-taking.

The OJK, according to Mulya, will now define foreign banks under three categories: banks that are 50 percent controlled by foreign investors; banks that have less than 50 percent foreign ownership but which still have a “controlling” shareholder; and branch offices of foreign banks, which means they operate as banks, but without establishing locally incorporated companies. This practice, Mulya said, is common in countries such as Singapore and Malaysia.

“Actually, not only in Asean [Association of Southeast Asian Nations] countries. It’s used in most parts of the world,” he said.

However, Mulya declined to comment on whether the OJK would cut the existing full-service privileges enjoyed by foreign lenders operating in Indonesia.