BI TO CHANGE CAPACITY AND ATTITUDE OF BANKS

The national banking industry was now in the effort to implement Bank Indonesia’s policy on shares ownership of banks. As known, regulations on ownerships structure of banks was linked with the rules on multi-licence. This was related to banks’ activities based on their capabilities. The objective was that BI wished to change capacity, habit and attitude of banks.

The regulation was applied on conventional banks and syari’ah banks, domestic or foreign. Broadly speaking, financial institutions could own maximum shares of 40 percent, legal institutions maximum 30 percent, and personal or families maximum 20 percent.

Somehow it was still permissible for banks to own 40% shares of other banks provided they met some requirements and had BI’s approval. The pre-conditions were bank must be in a healthy condition, had gone public, agreed to buy promissory notes which was equity, had the commitment to develop prioritized sectors of Indonesia’s economy, and had the commitment to own bank in a certain period of time as stipulated by the supervisory authorities.

By approving banks to buy promissory notes of equity, in the event that something happened bank did not have to use public’s money. In other words banks would be able to help themselves. So banks could own shares of other banks up to 99 percent, one of the pre requirements was that banks must prepare some fund for buying bonds from investment bank as reserve capital.

Government’s Regulations of 1999 stipulated that investors that investors could buy bank shares in Indonesia up to 99%. There were three categories of banks being exempted from this regulation, they were: Regional Development Banks, (BPD) and Government owned banks. However, as mentioned by Irwan, BI kept encouraging BPD to increase core capital.

In reality, bank would be appraised of  their health and were given time to improve in up to 3 times 6 months or up to December 31, 2013. Bank must get good rating, i.e. 1 or 2 for risk profile, management, capitalizing and profitability. In thee event that by 31 December 2013 bank’s rating was still 3,4, or even 5, bank must dive state their shares. Previous owner must comply to maximum deadline of shares ownership.

In the event that investors owned shares of some banks, BI allowed the investor to set up a holding company encompassing the existing banks. This holding company was given incentive to merger. In case of dive station a period of 5 years was given to comply to the rules. The objective was to stimulate banks to be efficient, healthy and strong.

During post-release of BI’s regulation on bank ownership in June 2012 last, predictably many foreign or local investors would apply for permit to acquire local banks. Investors, foreign or local, were willing to comply with the rules, i.e. to command over maximum 40% of shares; meaning investors would not mind even if they did not possess majority of shares.

Foreign investors seemed more dominant than local investors. Investor’s appetite to acquire local banks were high because the Indonesian banking sector was highly reputable in maintaining company’s stability from the tremors of global crisis. for example as per July 2012 or reaching Rp 2.487 trillion while Third Party Fund (DPK) rose by 20% to become Rp 2.961 trillion.

This increase Margin (NIM) which stimulated investors’ appetite. By July, NIM was posted at 5.41 percent. A word was out that out that many local banks were in a queue to be acquired. Indonesia’s banking sector was still highly potential for growth in the future; the prospect of banking business in Indonesia was still appetizing.

On notable thing was when BI planned to make it mandatory for foreign banks in Indonesia to be based on local law (company) monetary authorities of a neighboring country moved faster to outrace Indonesia before Indonesia even realized the concept. Last June, the Monetary Authority of Singapore (MAS) announced some changes in the Qualifying Full Bank (QFB) to deepen business root in Singapore and the same time strengthen financial stability in that country.

Singapore was asking important and firm rooted QBF in the domestic market to establish a legal body for retail operations in Singapore; the objective of the Regulation was to determine which bank needed to do this MAS considered some factors such as QBF market share in domestic deposits. The Monetary authorities in Singapore would consult with QBF about the criteria for banks which had to rest on a legal institution.

To banks which belonged to this category, MAS would give away 25 extra business locations 10 of which were branch offices. This condition was only applicable to banks of countries having Free Trade relationship with Singapore. With this additional QBF would have a total of 50 offices?

Whether or not QBF would enter depended on many factors for example having majority of representative directors in Singapore. Singapore was the main market of that group of banks, contributing profit and assets to the group of banks. The bank had headquarters in Singapore as main business line and decision maker.

QBF had privileges greater than that of other banks. Among them the number of offices that could be opened more than other foreign banks. The number of QBF increased from four banks in 1999 to six banks in 2001 and eight this year 2012. Eight QBF in Singapore, i.e. Australia and New Zealand Banking Group Limited, BNP Paribas, Singapore Citibank Limited, Hong Kong and Shanghai Banking Corporation Limited, ICICI Bank Limited, Malayan Banking Berhad, Standard Chartered Bank and State Bank of India.

Citibank is already based on local law while Standard Chartered Bank February 2012 announced they would soon set up a local legal body for retail operations. Now there were 112 commercial banks only 6. Furthermore of 112 commercial banks only 27 banks were licensed for retail operations. The Government of Singapore wished at least to command over half of people’s fixed deposits.

Most probably Singapore’s policy was an act to copy Indonesia who planned to oblige representatives of foreign banks to be in the form of company (PT). Rumors had it that a number of foreign banks operating in Indonesia were ready to adapt them selves to the new condition.

Banking circles in Indonesia rated that MAS seemed to respond to the BI regulations on Bank ownership so MAS wasa making it more difficult and protect retail bank business in Singapore. The application of Singapore’s new policy was rated as a barrier that makes it difficult for national banks to expand to Singapore.

In that case it was advisable that the principle of reciprocal be immediately implemented by BI to that equal treatment be felt by foreign banks who were freely operating in Indonesia. Or else, soon or late, national banks would be dominated by foreign banks. What is BI waiting for?.

Business News - October 12, 2012

PREMIER DELIVERY OF 38 THOUSAND TONS OF COAL

Medco energy had succeeded in making premier delivery of 38,000 tons of coal from the mining zone of Nunukan in the Province of East Kalimantan. The shipment of coal was made from the harbor Sebakis and sent to the of Nunukan to China Coal Solution Pte Ltd as buyer in China.

Medco who holder of Mining Operation Permit (IUP) in Nunukan produced coal with the following specification : calorie content 6,500 kcal/kg [air dried basis]. Dust content was only half while water content was low. Today the Company produced 25,000 tons of coal per month. In the future the company planned to multiply the amount as soon as long term contract was signed with buyers. Total production output in 2012 was estimated at 150,000 tons but was targeted to reach full capacity in January 2013.

The second delivery of cargo was scheduled for October. The company was expecting to get buyers of greater volumes of coal and sign long term contract “We are proceeding discussions with candidate buyers for future contracts. This first shipment is our business achievement” Lukman Mahfuds, President Director & Corporate CEO told Business News (4/10).

Production target was estimated to reach 50.000 tons of coal in the next few months. Business advancement was well underway, while maximizing the existing asset and resources.

Meanwhile of PT PLN Haleyora Power, subsidiary company of PT PLN (Persero) had signed agreement with Indonesia Port Corporation (PT Pelabuhan Indonesia II) to set up a joint venture company in electricity energy procurement in harbor zones and other areas in Indonesia. The signing of agreement was follow up of joint agreement between PLN and Pelindo II which was previously already exercised early September 2012 last.

“Signing of the Memorandum of Understanding to form a joint venture company for the procurement of electricity, particularly in the harbor area under PT Pelindo II, would hopefully be realized soonest” President Director of PT Pelindo II (Persero) R.J. Lino told Business News (4/10).

The administrative procedures and operational were being prepared for the formation of the company so the company would be expected to be in operation to enter second and third phase next year.

PT Pelindo II was ready to synergize in forming this joint subsidiary company which would render electricity supply for the harbor area and other area in Indonesia. The information of this joint enter price would maximize operations in the harbor area because of constant and assured electricity supply.

To establish this joint venture company, a basic capital of Rp600 billion was needed. The paid up capital in the company came to RP150 billion or 25 percent of principal capital. PLN held 45 percent of capital while Pelindo II held 55 percent. To manage this joint Venture company, a Board of Director would be appointed consisting of President Director, Director of Finance, Director of Human Resources, Director of Operations and Director of Business & trading.

Business News - October 10, 2012

OUTSOURCING SYSTEM SHOULD BE IMPROVED

Mass worker demonstration on Wednesday (10/3/2012) leaves controversy. Workers’ demand for removal of outsourcing system has stimulated a lengthy debate. Outsourcing system van cause suffering to workers, yet it can become a support to the company. The business community considers that workers have had a misinterpretation of the outsourcing system. Outsourcing is a subcontracting system where the company assigns work to another company.

General Chairman of Indonesian Entrepreneurs Association (Apindo), Sofjan Wanandi, in Jakarta on Friday (10/5/2012), explained that the government needs not review the outsourcing system, especially regulation on companies that provide outsourced workers. Every time there is worker demonstration or strike, the company is always the one to be fact, companies treat outsourced workers and their permanent equally, in terms of regional minimum wage (UMR) payment and workers’ welfare.

But, Sofjan admitted that he did not know if, in practice, the outsourcing system is implemented in violation with the law. Violation occurs when salary is ability of allowance, unavailability of workers insurance, and non-fulfillment of basic right such as social security. Yet, however, he did not blame anyone for this, and he suggested that there should be a tripartite meeting between government, entrepreneur, and workers in finding a solution to workers’ demand which frequently ends in demonstration and mass strike.

As a result of frequent worker demonstration, foreign companies are unwilling to invest in Indonesia, or they might leave this country. And, companies will choose to use machines rather than humans, which will cause un employment. “If this condition is left like this, losses will be experienced by all parties involved” he said

On the other hand, it is impossible for the government to remove the outsourcing system as this system is legal and is allowed by the law. Yet, the government will not tolerate outsourcing companies who make workers to suffer more and become poorer. Spokesperson of the Ministry of Labor and Transmigration, Dita Indah Sari, explained that outsourcing is a recruitment system which is allowed by Law No. 13/2003 on Manpower. “It is impossible for us to remove something which are in violation with the law”, Dita said.

She explained that her party has asked regional heads to discipline outsourcing system for core job types or which are not in accordance with Manpower Law. According to her, removal of outsourcing system for core jobs shall be done gradually until finally outsourcing system will only be allowed for additional jobs. She added that outsourcing shall only be allowed for five types of jobs, among other things, security officers, mining workers, cleaning service of officers, catering and transportation service officers. For these types of jobs, direct work relationship between employer and worker shall be applied.

Dita considers that regulation improvement becomes a crucial matter because the government is in line with workers. The government never tolerates outsourcing implementation which causes suffering to workers. The government never tolerates outsourcing implementation which makes workers to become poorer and to suffer more. Such an outsourcing company is not allowed to operate. According to her, it should be done by tightening of the institutional aspect and administration of operational license of the outsourcing company concerned, and types of jobs allowed to be outsourced, “So far, one of the sources of problem is whether the job types are supportive or unsupportive”. She said

Business News - October 10, 2012

MINING COMPANIES OBLIGED TO RESTORE DAMAGED LAND

The Minister of Forestry Zulkifli Hasan stated that nearly all mineral resources in Indonesia were located in forest areas. For that matter he planned to take stringent action on mining companies refused to make land reclamations. “Companies who fail to rehabilitate their ex-mining zones would sanctioned” the Minister warned.

Survey made in Banka Belitung islands concluded that the Government’s losses in restoring the e mining zones being neglected by the operators was estimated to cost 100 times the income from mining itself. The ex-mining areas in Babel was damaged because the exploited areas left by mining permit holders (IUP) were vast and were irresponsibly left just like that, leaving wide, horrible holes and ponds behind.

Zulkifli further remarked that restoration of the environment would also benefit the local communities. An example was land rehabilitated by PT Bukit Asam where Eucalyptus trees were being planted and growers, in company-aided groups could produce Eucalyptus oil.

Zulkifli also proposed that the restored land be used for planting trees for logging like in People’s Plantation Forest (HTR) Sengon. Jabon and Jati Teakwood. Rehabilitated land could also be used for mix-planting of horticulture plants or for cattle breeding.

In that same opportunity President Director of PT Bukit Asam (PT BA) Tbk Milawarma explained that he was committed to continue increasing budget for rehabilitation in line with increased production output made possible by the Rp230 billion budget being prepared today. “As a mining company particularly BUMN Company PT BA was most serious in safeguarding forest conservation. We are determined to become pioneer in land restoration, to be exemplary to other mining companies” he said.

Beside fulfilling the obligation to reclaim riverbank areas, PT BA also undertaken rehabilitation projects exclusive of the basic assignments by restoring 3,660 hectares of riverbank areas in South Sumatra.

The riverbank restoration plan was based on the Decree of the Minister of Forestry. Among the reasons was because PT BA was a company holding utility rental for the 3.456 ha in Muara Enim and Lahat; the Program was run in 2013 – 2022.

The restored zone was part of upstream Musi River divided in 3 regencies, i.e. Muara Enim 2,770 ha, Lahat 59 ha and Musi Manyuasin 300 ha.

For rehabilitation they grow plants of economic value and suitable for the local ecosystem, such as among others: Merbau, Mahony, Trembesi, Meranti, Sengon, Durian, Cempedak, Mangoes and Rambutan. “For swamp areas, suitable plants would be planted such as big and small mangroves” Milawarma was quoted as saying.

 
Business News - October 10, 2012