The discourse of restriction of bank’s ownership by foreign investors had started to roll. The discourse developed into a polemic as Parliament used their initiative right to revise the Banking Law which was rated as no longer relevant with the latest situation in Indonesia.
The only thing was that 40% ownership of bank by foreigners was rated as danger to national economy because it would mean negative signal to foreign investors, causing 60% of fund already invested in Indonesia be pulled out. It would also rock the capital market because global investors international bank as custody.
The discourse to restrict bank ownership in Indonesia to 40% was written in the draft for revision of Banking Bill which was being dissected at House. And yet foreign banks had been playing their roles in national economy. The foreign banks were able to bring cheap fund from their respective countries to be pipelined as productive investment credit or working capital needed by industries in Indonesia.
The foreign banks were also helping Indonesian trade finance companies to operate internationally, and link Indonesian company to global enterprises who offered low prices. The foreign banks had the capacity to assist Indonesian companies to obtain financing from abroad for financing huge projects.
An example was when a foreign bank helped PT Pelindo II release global bond worth around USD 1.6 billion or equal to Rp.21.3 trillion. The amount of fund received by this harbor builder company even exceeded initial target of USD 1 billion.
The view to refuse restriction of bank ownership by foreign investors was also voiced by the Association of Indonesian International Banks (Perbina). They claimed that contribution of foreign banks to Indonesia’s economy was great. If there was any regulation that restricted foreign ownership to 40% it might cause Rupiah and local stockmarket to rock because if foreign babjers had to sell their shares in Indonesia it would be hard to find potential buyers.
So far foreign investors were also playing their roles in investing their capital at the Indonesia Security Exchange (BEI). BEI data had it that per July 2, 2015, there were 14 bank emitents with foreign ownership above 40% commanding market capitalization of around Rp.150,16 trillion.
The market capitalization was down by 10.37% from April 7 last when IHSG reached highest level while market capitalization of total 41 bank emitents was down from Rp.1,179.62 trillion to Rp.1,000.40 trillion. The biggest market capitalization was by BCA which was categorized s national bank amounting to Rp.331,96 trillion.
In the banking industry of the world, only Saudi Arabia restricted foreign ownership of banks entering the country. In some countries like Vietnam and Australia, foreign ownership over local banks were restricted but welcomed foreign banks who brought capital in.
In southeast Asia, the Philippines permitted 100% ownership of banks by foreign investors. If Indonesia who was in need of vast amount of foreign capital restricted foreign ownership to 40%, foreign banks would enter the Philippines.
Foreign investor argued that if ownership was only 40%, they could not command over the management of bank. By the time the Asean Economic Community was in effect on January 2016 next, the Philippines would be enjoying the benefits instead of Indonesia.
So the Parliament, the Indonesian Government and the Financial Service Authority must think of other options of the proposal to restrict ownership was responded negatively by marketplayers, which would bring negative effect on national economy and financial system.
To fortify national interest, some possible preconditions that could be applied to foreign investors without restricting their ownership percentage were as follows:
Firstly, foreign banks or banks partly owned by foreign investors must obey the rules and regulations effective in Indonesia.
Secondly OJK made it mandatory for foreign banks to pipeline credit to small-and-medium business (UKM) at least 18% of their outstanding credit as per 2018.
Thirdly to persuade foreign banks to support Government’s Infra Structure Development Programs through credit pipelining.
Fourthly to manage employment of foreign expatriates in foreign banks only for positions at managerial level like (Commissioners, Directors) while for the medium echelon positions should be given only to local employees.
Employment of foreign expatriates for the certain positions was still permitted if the bank concerned had no access to internal human resources. An example was the position of Chief IT but even such was restricted for a certain period of time only, like 5 years and transfer of technology to the successor would be mandatory.
The above options were quite reasonable and should be accepted by all circles amidst a condition of global uncertainty today so the House the Government and OJK should better be more careful in scheming up a new policy so as not to generate tension considering the potential effect on Rupiah and IHSG.
To make a policy, under any circumstance, the policy should be market friendly, investor friendly, and business friendly. What the Government need today was to foreign public trust and confidence through more hospitable stance. Let it be. (SS)
Business News - July 22, 2015