RESTRICTION IN SHARES OWNERSHIP

             The polemics on shares ownership of local banks by foreign banks continued to roll on. Only trouble was that the issue of polemics was not on maximum limit of ownership but on who should possess the shares.

            In the end what was breezed out was dichotomy between foreign and local, yet the essential mater of ownership restriction was the maximum portion of shares possessed, not who should own the shares.

            To trace the matter way back, in fact it was the Government Regulation No. 29 year 1999 on purchase of general bank shares which caused possession by foreign investors, individual or institutional of national banks to increase. Therefore it was about time that the regulation be revised, because it was no longer suitable the national need for now and the future.

            The revision should be aimed at restricting foreign ownership to maximum of 49% and implemented gradually within the period of five years and not back dated since date of issuance of law.

            The point was that the Government must review the regulation which was allegedly the cause of foreign banks and investors dominating over local banks up to 99% ownership.

            Article 4 of the Regulation stated “total possession of shares by foreigner-owned banks of foreign institutions possessed through direct purchase or through the Security Exchange was at the maximum of 99% of total shares of the bank”.

            In view of Indonesia’s achievement economy and banking which was getting healthier and more stable lately, it seemed right if the PP Regulation was revised because it was no longer relevant to the present condition. The PP was needed when Indonesia was in need of foreign capital to restore the economy which was devastated by the monetary crises of 1997.

            But as soon as Indonesia’s economy and banking turned healthy and more stable, supposedly the PP regulation was re evaluated in terms of effectiveness because it no longer represent national interest. In the post crisis era in year 2000 that was the time when local banks were bought by foreign investors.

            As an industry, the Indonesian banking sector was strong, so the PP regulation was no longer worthwhile. Unless instantly reviewed, the Government could be rated as not supportive to spirit of national banking which had the ambition to grow and be independent.

            It must be borne on mind that the Regulation was made under the condition at that time (in 1997). Now that the condition had changed, there was nothing wrong about making adjustments. However foreign capital was still needed in Indonesia at reasonable portion, which would enable local players to grow.

            Indisputably foreign ownership in the banking sector in Indonesia must be watched out, because of their increasing number. Compared to other countries, the regulations for foreign ownership in Indonesia was rated as the most liberal. Those were the underlying reason for restricting portion of ownership through the new policy as implemented in the revision of law PP No. 29/1999 above.

            Obviously foreign domination was a disadvantage to Indonesia. In a condition of crisis, Indonesia’s banking sector would be highly dependent on foreign banks; even Indonesia’s economic faith would be determined by the headquarters of overseas banks.

            In a condition of crisis, policy of foreign banks would be determined by masterplan of the respective headquarters abroad, so in a condition of crisis it was not impossible for foreign banks to stop their credit. If the country of origin of foreign banks were crisis torn for example the USA, Europe, Singapore and Malaysia, credit for Indonesia would be reduced by the headquarters because the foreign banks must prioritize on mending the balance of account in their respective countries. Under such circumstances it was the Indonesian consumers who would be disadvantaged.

            However in a normal condition, the Indonesian banking sector would be advantaged; the reason was that the banking products offered to customers would be widely varied.

            Undeniably foreign domination over national banking market was at alarming point. This was evident from the asset of third party fund (DPK) which rose significantly. Today foreign banks numbered 0 units, joint venture banks 14 units and national private companies acquired by foreign banks 19 units.

            Now foreign ownership in Indonesia’s banking sector was once again under question when there was acquisition plan by DBS Bank Singapore over Bank Danamon in Indonesia which could not be realized yet because Bank Indonesia was not willing to approve until the new regulation of foreign ownership was released and put in effect.

            There were at least two strategic issue set forth by local bankers. i.e. foreign ownership in national banks and the principles of local treatment (reciprocal). Those were the underlying consideration for urging the Central Bank to regulate foreign ownership.

            Compared to 1999 when investors were allowed to possess shares in banks up to 99%, foreign owned market share was only 11.6% consisting of foreign banks 8.6%, joint ventures and national public bank of the private sector owned by foreign banks 36.2%. In 2010 total asset owned by foreign banks rose to 46.7%.

            The composition of assets was 7.6% of foreign banks and 39.1% joint venture banks and private banks owned by overseas bank. The composition also reduced asset of state-owned (BUMN) banks from 49.5% in 1999 to become 38.1% in 2010. Meanwhile in terms of market share for the credit market, in 1999 foreigner banks 13.2% and joint venture banks and private banks 7.1%.

            In 2010 the number rose by 47.2% consisting of 6.8% foreign banks and 40.4% mixed banks and foreign owned private banks as with market share of state owned (BUMN) banks, the number dropped from 53.2% in 1999 to 37.7% in 2010.

            In terms of market share, the foreign third party fund (DKI) in 1999 controlled 11.3% of market share consisting of 9.3% foreign banks and only 2% joint venture banks and owned private banks. In 2010 shares of foreigners in public fund rose to 44.8% The figure consisted of foreign banks 5.5% and mixed banks and foreign owned private banks 39.3%. The DPK market share for BUMN in 1999 was 46.8% which dropped to 39.6% in 2010.

            Based on the above data, the Association of National Public Banks (Perbanas) welcomed decision of Bank Indonesia (BI) to release regulations on the rule of restriction of ownership of foreign banks. However, one point to be observed by BI was not just restriction of shares ownership, but foreign domination which were now mushrooming in Indonesia.

            So Bank Indonesia needed to observe grievances now growing among stakeholders, i.e. the case of domination of ownership by foreign banks not the possession of majority shares. If BI focused too much on restriction of foreign ownership, as soon as the regulation was put in effect, foreigners would dominate over Indonesian banks because they were possessor of big capital. And for sure, if this happened BI would be blamed by all stakeholders.

            For that matter, supposedly BI thoroughly considered that point before the regulation on foreign ownership was applied on the banking sector; BI should sternly evaluate the possible impact of the application of Regulation on majority ownership.

            If the revised regulation was put in effect, foreign banks sharing national banks must devastate or reduce the portion of ownership. However, experience showed that those who could afford to buy was still foreigners. So even if foreign shareholders in national banks were willing to release their possession, the potential buyer would still be foreigners, not domestic investors. In the end, foreign ownership in national banks would increase. Again, BI must be cautious about implementing the concept.

            Restriction of foreign ownership in banks was not only happening in Indonesia other countries were also tightening rules in their financial sector to protect them from foreign invasion when they realize that their domestic financial sectors were strong enough, the way it was in Malaysia, Thailand and the Philippines; hence it was about time that Indonesia to do the same thing.

            So the restriction of shares ownership was more about maximum percentage of shares that was allowed to be possessed by share holders regardless of their status of foreign or local. The underlying spirit was not anti-foreigners but restructurization of share ownership in the banking sector to ensure even distribution.

            Theoretically the more owners there were in a bank the better the condition because more banks would partake in controlling the management which meant betterment of controlling process, and eventually bank’s performance would be self augmented.

            About limitation of 43% of ownership, it would be applicable for a period of five years after PP no 19/1999 was revised, it was meant to allow sufficient time for investors already holding shares above 49% to gradually make devastation.

            On the extreme case, if there were any shareholder who held 99% of shares in a bank, they could make devastation over a period of five years until finally only 49% of ownership remained. A time frame of five years was regarded as fair and reasonable because it would not burden share holders. In line with that, this new stipulation would be applicable directly to new candidate and/or old shareholders whose percentage of ownership was below or equal to 49%.

            Meanwhile for old shareholders whose percentage of ownership was above 49%, this stipulation was obligatory with time frame of five years since the new rules was put in effect. In this case shareholders’ nationality was universal, foreign or local were treated alike, all were subject to the new regulation.

Business News - May 11, 2012