Jakarta. The government has asked the House of Representatives to ratify an agreement made by the Association of Southeast Asian Nations, or Asean, into law that would allow national banks to expand to neighboring countries like Malaysia and Singapore.
Indonesia is currently the only country among nine other member states that has not yet ratified the sixth Asean Framework Agreement on Services (AFAS) protocol into law.
Finance Minister Sri Mulyani Indrawati said on Tuesday (06/02) that ratification of the agreement would further the development of the financial services industry, including an easier expansion into other Asean countries.
"This in particular will open opportunities for Indonesian banks to operate in Asean countries," Sri Mulyani said in a hearing between the government and the House of Representatives’s Commission XI, which oversees the finance sector and banks.
Domestic banks have found it difficult to operate in Asean countries, such as Malaysia and Singapore, though many foreign lenders control several local banks.
"We are working step by step to create an even level playing field, so banks have the same access in Asean, especially in Malaysia and Singapore," Sri Mulyani said.
According to Bank Indonesia Governor Agus Martowardojo, the two countries own shares in Indonesia’s national banks due to the economic crisis in 1997-1998, which forced Indonesia to offer shares in local banks to foreign investors.
"Neighboring countries have entered Indonesia through hundreds of branches … Thus, we want to encourage Indonesian banks to expand," Agus said.
However, the commission has not agreed with the government’s draft due to fears of widening expansion by foreign banks in Indonesia and domestic banks’ inability to compete with them.
"We have decided to continue in a working committee for an in-depth discussion," the commission’s chairman Melchias Markus Mekeng said.
AFAS will complement the Asean Banking Integration Framework (ABIF), which seeks to provide market access and operational flexibilities for Asean banks that have met the requirements agreed by member states. These banks are called Qualified Asean Banks (QAB).
ABIF provides a guideline for Asean member countries to support the Asean Economic Community (AEC), which aims to liberalize the banking market by 2020.