THE IMPLICATIONS OF FOREIGN OWNERSHIP IN NATIONAL BANKS

The polemics of foreign ownership in national banks rolled on. Recently Bank Indonesia issued a regulation on maximum limit of shares in banks. Investors of financial institutions were allowed to own shares in banks up the maximum of 40%. Investors of non-financial institutions may own 30% of shares. Individual institutions were allowed to own only 20% of shares.

It seemed that the restriction on shares ownership was not going to face any objections since the same policy had been applied in other countries and all was running well. Apparently before setting up limitations, BI had learned from other countries for reference.

Unfortunately there were some misperceptions of BI’s new policy. They perceived that the new regulation was some kind of restriction of share ownership by foreign investors. Not a wrong perception but not absolutely true, why? What was demanded by Bank Indonesia was restriction of shares ownership by domestic as well as foreign investors. So the rule applied not only on foreign investors but also domestic investors alike.

Admittedly there were two sides of a coin in foreign ownership of shares in banks. On the one side foreign ownership promised its benefits of capital and technology needed for jacking up growth of the banking sector, but on the other hand it might pose as danger to a nation’s economy in adverse times like crisis.

A document released by Fitch Ratings recently (1/6) disclosed plan of DBS Group Singapore who intended to acquire Bank Danamon of Indonesia and BI’s plan to restrict single majority share in banks to a maximum of only 40% against the previous 99%.

According to Fitch, fresh capital from sterling banks was needed to support Indonesia’s economic growth. The challenge for BI was how to control risk management of the financial system in such a way to be able to draw fresh capital while making sure that accumulation of risk did not affect stability of the financial system as a whole.

It was mentioned that the magnetic force of Indonesia’s economic growth had drawn big foreign investors including those of the banks sector. However, to learn a lesson from the case of the banking sector in Europe, foreign owner ship might serve as “double eged blade” that might injure the financial system. In Europe, a well balanced structure of ownership between foreign and local ownership contained a high degree of sensitiveness for the central bank.

In East Europe, the Central Bank from Western Europe had procured significant capital by throwing out fund in large amount before crisis came. But as crisis stormed in, the foreign banks put brakes on their funding so local banks were forced to restrict credit which had its negative impact on local growth.

About sovereign debt (debt in foreign currency) bank owners helped minimize obligations of potential contingency on the banking system and increased sophistication through product, system and process of management risk.

The Regulator, in this case the Central Bank, was expected to have the capability to manage linkages between the international financing system and local system beyond the rules of ownership restriction.

With reference to Fitch Ratings report, in fact ownership of bank shares was no serious problem provided that foreign investors had their high commitment that foreign investors had their high commitment to the banks. It must be understood that banking business was the kind of business where strong capital was prerequisite so capitalizing became a pressing necessity. Within this context, capacity of candidate investors was the key factor to future power of banks.

Without underestimating shares ownership by local investors, it was reasonable to conclude that shares ownership by foreign investors lead the way to possible strategic alliance between local banks and foreign banks. It would also make transfer of know how in banking management possible.

Foreign investors having shares in local banks could also facilitate access to overseas candidate customers through networking of banking correspondence.

Through sophisticated electronic connectivity, the principle of branchless banking could be implemented and connections with overseas or domestic customers could be well maintained based on one bank service.

Furthermore the efficient connectivity would enable business synergy among domestic and overseas customers as well as to support international trade financing. Transfer of money within the context of payment transactions between two parties could be exercised through connectivity between local banks and overseas banks.

From the above picture, the point to make was: there should be no allergic attitude to foreign ownership in national banks. Unconditional rejection to foreign ownership might injure the principle of openness adopted by Indonesia over a long period of time.

Based on the sprit of equity and the reciprocal principle, Indonesian banks had the opportunity to own shares in overseas banks through mechanism of the local capital market. So it was not necessary to put the case of foreign ownership in contradictory position since it was completely senseless.

Certainly the Central Bank knew exactly how to properly manage a healthy and sterling bank in order to be an effective intermediary body for the acceleration of national economic growth with all the positive impacts. Perhaps there was more advantage than disadvantage in the share owned by foreign banks as long as the Central Bank could safeguard national banks with rules that protect national interest.   

 Business News - July 13, 2012

FINANCIAL INCLUSION AND READINESS TO FACE AEC 2015

The national banking sector must be prepared for the ASEAN Economic Community (AEC) 2015. Indonesia’s market which was geographically expansive with highest number of population must be a target of expansion for foreign banks.

For that matter before MEA 2015 was applied, regulations for the banking sector must be tightened to allow national banks to grow and prepare themselves. The measure would be Bank Indonesia must tighten regulations for foreign banks.

Public support came by the hordes for BI’s plan to restrict shares ownership in all banks in Indonesia. Supposedly BI controlled the ownership structure of shares of banks in Indonesia particularly foreign ownership. The prevailing foreign ownership in national banks was clear indication that the banking sector in Indonesia was highly prospective.

As told, BI was now preparing a regulation to restrict ownership in national banks. As planned, the new regulation which was to be released by end of July would restrict ownership percentage to maximum 40% for financial institutions of the banking sector, 30% or non-bank institutions and 20% by personal ownership and families.

If the new regulation were actually released, the public was hoping that the rules was nit only applicable the retro-active way. If BI rules were retro active it would be most heartening and be widely acclaimed by the public because it was being awaited for.

In addition to the above, the public also expected application of the multiple license principle on foreign banks. The way it was happening today the single license principle was applied which made it easy for foreign banks and joint-venture banks to expand business in Indonesia. In the neighboring countries, the system being applied was multiple license.

Many circles encouraged BI to apply multiple license as implementation of the reciprocal principle. BI was urged to make a sound regulation on expansion of foreign banks and joint venture banks. Fox example if they planned to open a branch in the region, they should first consider the impact on People’s Credit Bank (BPR) which operated there.

It should never happen that the presence of foreign banks or joint venture banks stopped BPR efforts which served the interest of email business and macro business. Protection through policies would safeguard national interest which must not be scarified even in the name of globalization or liberalization.

In line with the effort to restrict ownership of shares by foreign or joint venture banks and confine their operation zones, the Government was also expected to pay more attention to medium, small and micro business (UMKM) who were the backbone of national economy and whose number came to tens of millions. It was about time that UMKM got special attention from national banks.

Therefore skim credit for UMKM group must be procured considering various factors about which they often complained. Easy access to credit within the context of financial inclusion must be facilitated because the potential of national UMKM was tremendous.

The role of UMKM was not just as economy bumper in time of crisis but also as shockbreaker during overheating of the economic machine. The economy machine would cool down if the role of big scale business were lessened and the small business which by far outnumbered big business be constantly enhanced.

If the banking sector adopted such policy, the concept of financial inclusion which was today being clamored would be more successful. The business sector as business incubator would give its sound support. For that matter, the banking sector as regulator could maintain collaboration with banking associations and business associations in promoting UMKM accessibility to banks.

It was about time that the Tabunganku (my savings account) product as incentive for the lower segment people be jacked up higher to drum up more saving accounts which means that more and more people could benefit from banking services. The more banks being active in releasing the Tabunganku product, the sooner the application of financial inclusion (program) nationwide.

The faster the process was exercised, the better because by the time MEA 2015 was applied the UMKM circles in Indonesia would be ready to welcome it. One thing to be cautious about was the heavy inflow of products from ASEAN 5 countries (which included Indonesia) i.e. Singapore, Thailand, Malaysia and the Philippine. These four nations included in ASEAN-5 were by far more ready to face the MEA 2015 compared the next ASEAN-5 states like Vietnam, Laos, Myanmar, Cambodia and Brunei Darussalam.

The five last mentioned states were relatively left behind compared to the first mentioned ASEAN 5 who were the pioneers of ASEAN establishment. Within the context of MEA 2015 the traffic of people, goods and capital would be more free to move in and out of ASEAN 10. Unless Indonesian businesspeople prepare themselves, it was feared that their products would lose competition with that of other ASEAN states.

In this case to facilitate access to financial institutions especially would be the key factor, not just to realize the financial inclusion program but also to help national business people to face MEA 2015.  

Business News - July 13, 2012     

APPLICATION OF SNI ON INDUSTRIAL PRODUCTS REACHES 568 HS CODE NUMBERS

Plan of the government, in this case the Industry Ministry and the Trade Ministry, to apply some Indonesian National Standards (SNI) this year, is not regarding the number of SNI which reaches 1,000, but there are some commodities, namely textiles & products therefore (TPT), children’s toys, and telecommunications equipment (especially cell phone and Personal Digital Assistant/PDA) that have many HS (Harmonized System) code numbers. As stated by Head of Industrial Policy, Climate and Quality Assessment Agency (BP-IKMI) of the Industry Ministry, Aryanto Sagala, that TPT is estimated to have around three SNI.

For children’s toys, there are 8 or 14 SNI to be applied, and for telecommunications equipment, there will be no SNI applied but only registration in the form of registration number and the requirement to use Indonesian-language manual. Therefore, total HS code numbers reaches 568 numbers. According to Arryanto, in the application of the mandatory requirement, the Industry Ministry will coordinate with the Trade Ministry.

“Currently, there are some SNI which are in process of notification to the World Trade Organization (WTO). Some time ago, we have sent a document to be ratified by WTO to the National Standardization Agency (BSN). BSN will send the document to WTO. After the notification process is complete and there are no parties who have an objection, a regulation in the form of Regulation of Industry Minister will be signed.

Normally, during the notification process, the minister concerned can sign the regulation. Indonesia can act a little bit “naughty” like what has been done by other countries. Indonesia should not continually become a “good boy”. But, due to Indonesia’s position which is currently highlighted by other countries as a result of delay in the implementation of Regulation of Trade Minister No. 30/M-DAG/PER/5/2012 from June 15, 2012 to September 28, 2012, the signing process of the regulation is adjusted. The notification process is a factor that causes delay in the issuance of Regulation of Trade Minister on SNI on Children’s Toys.

While, for cell phone and PDA products, the Industry Ministry is waiting for regulation or document submitted by the Ministry of Communications and Information. As it is related to technical matters on telecommunications equipment, the Industry Ministry is waiting for preparation for the application of mandatory registration and requirement to have an Indonesian-language manual.

Industry Depth

In respond to the need for industry to fill vacancy in some sectors, in relation to industry deepening, whether from the upstream, intermediate, and downstream sectors, Arryanto responded that the vacancy only occurs in some industry sectors, especially petrochemical and metal industries. TPT and ceramic industry sectors have had a complete chain from the upstream to the downstream sector.

In petrochemical industry sector, its upstream and intermediate sectors are not available in Indonesia. If there is any, its volume is insufficient to meet demand of its downstream sector. Therefore, Indonesia is still building its steel industry using scraps as iron sand is not available. Therefore, we are developing metal smelter. If not, the quality of Indonesia’s steel will finally affect the automotive industry so that there are some kinds of steel that must be imported, especially for making machine block.

Therefore, machine block producers are unwilling to apply SNI because almost all of the products good quality and flexible steel. In this case, SNI application is necessary so that the products are in accordance with the required specifications”, Arryanto said.

 Business News - July 11, 2012

20 MILLION POOR PEOPLE TO BE DEPRIVED OF HEALTH INSURANCE

Problems in data updating for members of People’s Health Insurance seemed to repeat year after year. The Government was asked to keep watch on around 20 million poor who could not get medical service since they were deprived of their right to health insurance because they were unregistered. The membership scope for Jamkesmas Health Insurance was set at 76.4 million people. Yet based on PPLS 2011 data released by TNP2K and the Central Board of Statistics, the number of poor people who deserved to get Jamkesmas health insurance services was posted at 96.7 million people. This was disclosed by Herkini Amran, number of Panja Jamkesmas on Commission IX of House at the House of Representatives.

According to Amran, quota for Jamkesmas members for 2013 would be increased to 86.4 million people. In the next two years, i.e. 2012 to 2013 there would be around 20 million people whose health insurance tend to be ignored by the state. The question was, who would bear their health expenses when they were sick while Jamkesmas insurance did not cover them yet Jamkesmas continued to rise year after year?

From 2008 to 2010 consecutively the Government had spent fund of Rp 4.6 trillion in 2008. Rp 4.6 trillion in 2009, Rp 6.1 trillion in 2009, Rp 5.1 trillion in 2010 and Rp 6,3 trillion in 2011. Meanwhile in 2012 there was additional fund for Jamkesmas in 2012 there was additional fund for Jamkesmas Plus Maternity insurance until the total value reached Rp 7,4 trillion.

Cases of Jamkesmas being rejected by hospitals kept happening and the blame was put on Parliament. How many more house members must advocate poor people who were suffering in plan because they were deprived of their right by the Government.

The Government was reminded to prepare reserve Jamkesmas fund to anticipate cases of rejection of poor patients in hospitals because their health insurance was not in the database. It became imperative that Government made overall evaluation advanced state was quality of health if its people. Hopefully the condition of Poor People Forbidden to be Sick would never happen in Indonesia. For that matter it was necessary for the Government to make comprehensive data compiling toward implementation of the BPJS Health without willing problems.

There were still problems of inaccurate Jamkesmas patient data of the years before. This was because data of Jamkesmas patient still referred to survey result of 2005 and 2008.

Besides, the Central Government only stipulated the quota, while it was the regional Government who designated the people based on the criteria of the respective regions. This accounted for inaccuracy of target or targets which were no longer accurate such as insurance holders had died, new people born, change of social status etc.      

 Business News - July 11, 2012

RUPIAH STANDS A CHANCE TO REBOUND AS IHSG RELY ON IPO

The Moneymarket

Chances for Rupiah value to strengthen or at least to remain stable this week was good thanks to data of America’s economic recovery and Indonesia’s well maintained economy. As known, Rupiah exchange rate value against USD last Thursday (5/7) was closed to weaken by 25 points (0.26%) to the position of Rp 9,387/Rp 9,379 per USD.

However Rupiah exchange rate value against USD last week (6/7) was predicted to strengthen at limited level. The potential of Rupiah strengthening was limited due to the possible profit taking on USD, as the Europe Central Bank ECB failed to give additional surprise to the market.

The effect of ECB bank interest slashing by 35 basic points to 0.75% was only momentary so pressures on Rupiah and USD tend to stabilize unless ECB slashed interest above the expected 0.25%. Therefore Rupiah movement last weekend would also be limited with tendency to strengthen. Rupiah tends be limited with tendency to strengthen. Rupiah tends to strengthen at limited level of Rp 9,325 – Rp 9,375 per USD.

Thereafter the market’s focus of attention would be on labor market in the USA last weekend. i.e. non payroll and unemployment level. Nonfarm payroll for June 2012 was predicted to be still negative. i.e. up to become 92% compared to the previous 69 thousand. This figure was way below normal average before crisis. i.e. 200 thousand. The condition had the potential to weaken USD. Meanwhile unemployment level in the USA was predicted to settle at 8.2% which was considerably high.

Meanwhile Euro weakened against USD and Yen in line with downturn of service sector in Germany in June this increased the speculation that ECB Europe Central Bank would slash benchmark rate which turned out to be true. Euro weakened by 0.5% to the level of 100.07 yen. This Europe’s common currency of 17 European states slumped by 0.6% to the level of USD 1.2527 while yen weakened by 0.1% to become USD 79.86.

A report showed that production of the manufacturing and services sector dropped for the fifth month last June. In Germany, index of the mining sector was only 49.9 last June. Yet the index was originally predicted to reach 50,3. Index of the services and manufacturing sector in June was 46.4.

This week Rupiah was projected to continue strengthening in the range of Rp 9,300 – Rp 9,340 per USD in line with the improved economy of Greece and Spain. Hence negative rumors about Rupiah amidst uncertainty of world’s economy would be eliminated and market confidence would be regained.

Moreover last week Governor of Bank Indonesia Darmin Nasution stated that Rupiah value would strengthen in Quarter II 2012 thanks to sentiments from bettered Europe. BI predicted that pressures on Rupiah would tend to ease in second half of 2012.

Visions of improvement in Europe was shaping up although it still needed time to complete. It was envisaged that 2012 economic climate would be better and Rupiah value would not be this bad or slightly strengthened. BI rated that the funding scenario for banks of the Euro zone would not be good enough to stabilize world’s economy. Therefore BI estimated that the average Rupiah value through 2012 would be around Rp 9,100 to Rp 9,300 per USD.

Today Rupiah exchange rate value was lower than assumption of APBN-P 2012 which was Rp 9,000 per USD due to global condition. Up to June 2012 the average Rupiah value (not point to point) was Rp 9,171 per USD or weakening by 4.4% compared to average of 2011 which was Rp 8,768 per USD. By point to point Rupiah exchange rate value by end of 2012 was predicted to weaken by 3.45% to the level of Rp 9,333 per USD.

The way BI saw it, weakening of currency also befell on other countries in Southeast Asia. Korean Won weakened by 2.97% on the average, Thailand’s Baht weakened by 2.1% and India’s Rupee weakened by 10,64%.

The Capital Market

During transaction last Thursday (5/7) Index of IHSG was closed to weaken by 6,608 point (0.15%) to the level of 4,069.836 with lowest intraday of 4,058.894 and highest intraday 4,086.343 The same was with premium share LQ 45 which dropped by 2.27 ponts (0.40%) to the position of 697.566.

After rising for four consecutive days, suddenly index of IHSG weakened, although by candlestick index of IHSG weakened, although by candlestick IHSG was still in the green zone, because position during closing session was higher than that of the opening session. Meaning, IHSG was in positive area for five consecutive days with sizable volume of transactions.

Minor correction of IHSG indicated that the market was still doubtful. Under such circumstances the market must be in ready position because various indicators showed that the stockmarket was in a condition of overbought.

Therefore most probably last Friday (6/7) IHSG would be affected by acts of profit taking. Evidently during early session last weekend (6/7) IHSG was opened to sink into the red zone. IHSG was corrected by 0.31% to the level of 4,057.016. Index of JII dropped by 0,1%, index of ISSI inched down by 0.1%, index of LQ 45 fell by 0.2% and IDX 30 dropped by 0.3%.

Majority of the sectors sank deepest as experienced by the financial sector 0.5% followed by shares of the infra structure sector 0,4%. Index of 95 shares went down and 43 shares went up, while 76 other shares were still stationary. Eight shares were trapped in the red zone with the agricultural sector taking the lead, dropping by 0.71% followed by the trading sector which also fell by 0.44%.

As whole IHSG was predicted to remain stagnant in the range of 4,030 – 4,080 during closing session last week end (6/7). Technically IHSG was in the short run nearly overbought. Although dropping by last weekend, IHSG remained in a good trend for the medium term and long term. Energy-based shares which were correlated with world’s oil price seemed to be corrected in the short run.

Meanwhile Asian stockmarket weakened after central banks of some countries run monetary policy in accordance with market expectation. The ECB Europe Central Bank lowered interest rate as expected by the market, with interest rate close to zero percent or 0,75%.

Index of Nikkei inched down by 0.1%, index of Kospi slumped by 0.4% - somehow Asian stockmarket was on the ascending track this week. Index of ASZ strengthened by 1.6% and index of Kospi rose by 0.6%.

In other part of the world, US stockmarket during session on Thursday (5/7) weakened. Index of Dow Jones fell by 47.15 points or 0.36% to the level of 12,896.67. Index of S&P 500 dropped by 6.44 point or 0.47% to the level of 1,367.58 Index of Nasdaq inched up by 0,04 points to the level of 2,976.12.

Such was because stimulus injected by leading central banks failed to energize investors. Other sentiments which influenced Wall Street was policy of the central banks of China, Europe and England to ease monetary strategy. The impact was also that Euro weakened against USD.

This week IHSG stood a chance to strengthen to the level of 4,075 – 4,125 if IPO plan of new emitents were exercised as per second semester, the BEI Security Exchange stated that seven companies planned to release their shares to the public through IPO in July 2012. It was predicted that total emission value of IPO of the seven companies was Rp 4.7 trillion. One of the candidate emitents was MNC Sky Vision scheduled for July 9, 2012.

The seven companies were PT Kobexindo Tractors, PT MNC Sky Vision, PT Pembangunan Daerah Jawa Timur, PT Global Teleshop, PT Toba Sejahtera, PT Asuransi Mitramaparya, and PT Gading Development.

In Semester 2 this year stockmarket were optimistic that the stockmarket industry was changing for the better in spite of negative global sentiment. Apparently the condition of stockmarket of the world, particularly Indonesia would once again stabilize.

The improved condition of Europe, according to the reliable resources would bring positive impact in corporate actions by companies such as bond offerings and IPO. The financial crisis that befell on some countries of the Euro zone needed not be a dreadful specter. It was about time that this momentum be grabbed by investors to invest in shares or bonds.

Indonesia’s stable economy, vast population and incomparable, abundant natural resources were some determinant factors of fast growing investment. The global capital market which was full of uncertainty and often made investors’ heart beat faster should be a challenging opportunity for inviting long term investments.

Naturally it was about time to rely on domestic financial resources to obtain funds for sustainable growth instead of relying of foreign loans from overseas resources which often burden state’s finance.

The debt crisis in Europe would certainly not discourage domestic insurance industry; it was not even necessary to be over anxious about the adverse economic condition in Europe since Indonesia’s economic condition was fairly good. There was no reason for investors particularly domestic investors to worry too much about global economic condition.

The investors, particularly the domestic investors deserved to have the highest appreciation, because they were willing to invest just when prices of shares dropped significantly. It was a relief to know that Indonesia’s stockmarket was still a magnetic place for foreign investors thanks to the nation’s strong fundamental economy and high performance of Indonesian emitents which were better than that of other countries.

Until last week (6/7) throughout this year the amount of foreign net buy came to Rp 2 trillion at the secondary market, hence foreign investors saw Indonesia as an attractive place to invest. Data of PT Kustodian Sentral Efek Indonesia (KSEI) per June 2012 the value of domestic ownership reached Rp 924.36 trillion while foreign ownership came to Rp 295.04.

Total ownership of shares was posted at Rp 2,216.35 trillion per June 2012; meanwhile asset recorded at C-Best (The Central Depository an Book Entry Settlement System) of the domestic sector reached Rp 1,115.68 trillion and foreign Rp 1,310.67 trillion. And Total Sub-account at C-Best reached Rp 365,602 in June 2012, up against June 2011 by 344,325 sub-account.

C-best was a system designed to replace the deposit and transaction system of security the manual way which could only be accessed by KSEI account holder. So the power of domestic capital market based on capacity of local capital should be an important part of effort to find solutions for Uni Europe crisis.

Shares of the consumer goods and property sector were rated by market players as most prospective in Semester II – 2012. Fundamental performance of emitents of the two sectors were predicted to be potentially increasing since people’s purchasing power was still relatively stable and consumption was well maintained.

Preference of most market players of shares of consumer goods indicated that market players realized there was still high risk in Semester II this made market players be moderate in choosing shares of defensive character.

In fact shares of consumer goods product still had the potential of conservative growth. In particular emitents relied more on selling price policy to make net profit because sales volume was a matured.

Meanwhile most of the shares in the property sector was still attractive. Investors could observe shares of emitents of the property sector, or industrial estates having wide areas and were continuously expanding whereby to increase income growth an net profit through Semester II.

Broadly speaking all shares recorded at BEI was relatively prospective for long term investment. For strategy of Semester II, the main risk to watch over by market players was volatility of oil price and price of global commodity which tend to increase. This was the kind of risk which would have its direct impact on shares of the mining sector and agri-business.

It showed that shares of the infra-structure sector and various industries was not preferred by market players who rated that majority shares were still rated as relatively cheaper. All in all there was notable preference for shares of the consumer goods and property sectors as there were expectations of high performance in those sectors.

Business News - July 11, 2012