The operation of foreign banks Indonesia was again highlighted. Foreign domination in the national banking sector had awakened our spirit of nationalism. Although Indonesia’s banking sector was now by far healthier and beneficial to consumers and banks, the question of who is the ruler remained not to be ignorable.
Nearly half of the total assets of the national banking sector were dominated by foreign banks, so at a certain point of development it might pose as serious threat, as foreign bank might control national economy. Admittedly foreign domination was gradually grabbing shares of national banks; unless controlled from now on, it was only a matter of time that all national banks would be dominated by foreign banks.
Beside national banks. Local private banks and company [Persero] BUMN banks were also gradually becoming the prey of foreign banks. Therefore this momentum should motivate the government and parliament to do something about it.
To be honest we could not put the blame on the owners of those foreign banks, as the existing regulation was still permissive to foreign ownership of banks. In that case it was the regulation hat need to be revised, whereby it could be more protective to national banks.
Many circles were hoping that national banks should resist external temptations to collaborate and finally dominated by foreign banks. The government with other banking regulators must strive hard in May respects to reform the national economy which was more and more ruled by foreigners in many respects including banking.
The roles of foreign banks were needed in this country. Indonesia was not unhospitable to external collaboration. The undesirable thing was that if foreign ownership continued to expand so the intention of becoming intermediary between fund possessors and fund seekers was never fulfilled. In other words, now was the time for Indonesia to restrict majority ownership of foreign banks in local banks. Consequently the governments must make strict regulation by restricting entry of foreign banks in the national banking sector thereby it was not always imperative for local banks to strengthen their capital structure by engaging foreign banks.
The government was advised to make restriction in foreign ownership in the national banking sector. The same applied to other business lines where foreigners might enter; for example prohibition for foreign banks to serve micro business; they should rather be driven to serve big corporations and infra structure projects which were so far being less attended to.
Not less important was to accelerate amended to banking regulations. The existing regulations still permit foreign banks to dominate national banks. The Government Regulation [PP] no 29/1999 on buying shares of general banks for example, was still permissive to foreign investors to possess shares in Indonesia banks up to 99 percent. Clearly this Regulation allowed foreign banks to freely make business expansion, although BI had restricted foreign ownership to maximum 40 percent.
Why was this so? Because by hierarchy the BI regulation was weak or legally less powerful compared to PP 29 year 1999 or the Law of banking. As long as a regulation of foreign ownership was not revised, never be shocked if someday foreign ownership would be prevalent. Evidently even today there were 12 private banks in Indonesia which were dominated by foreign banks by 50 to 90 percent.
In regard to the above, supposedly the government and the parliament jointly dissect the amendment to Law on Banking. The review of the Law on Banking between the government and House must be prioritized to put brakes on expansion of foreign banks in Indonesia. Now the nation pin hope on the government and House to initiate restriction on foreign domination in national banks.
Not just in terms of ownership restriction, supposedly the government also restricted maneuverability of foreign banks in operations, such as in opening branch offices in Indonesia. If national banks were being restricted in opening branch offices or had their operations restricted abroad such as in Singapore and Malaysia, the same preconditions should be applicable to foreign banks in Indonesia. Without applying the principle of reciprocal and amendment of the law on Banking, foreign banks would claw in into national interest not just in the banking sector but also in other strategic sectors.
Apparently there was not a single country in the world which was a liberal as Indonesia in giving privileges to foreign investors to possess shares up to 99 percent. Developed countries had restricted foreign ownership up to maximum 25 percent. Some Asian countries were doing the same by restricting ownership to around 35 percent. It was most advisable and justifiable indeed to restrict foreign ownership in national banks, which had come to 99 percent.
Many discourses that surfaced could be used as reference by the government and house in determining maximum percentage of ownership by foreigners. Generally the recommended percentage was 40-49 percent. Advisably before the executive and legislative office was over by 2014 next, the big homework be accomplished so as not to burden the next administration and house.
As soon as the percentage of ownership was decided, before the new regulation was put in effect, it would be necessary to publicize the plan to illuminate the public. Naturally the percentage of ownership by foreign banks, who already had shares of high percentage be reduced of their ownership by stages. The gradual reduction was necessary to prevent tremor in the market and national banking sector including the stock market, to consider that some banks had the status of public banks.
The situation might be described as follows: it was near impossible mission for foreign investors who already commanded over 99 of shares to release their share ownership to the extend of stipulated limit. To seek for share buyers was not easy, especially in regard to price of share. This was not to mention the size of shares to be released to prospect buyers. There were still many technical considerations before foreign investors release their shares to prospect buyers.
With limited foreign ownership and control being in the hands of local banks, national interest in regard to the role and function of banks as intermediary services would be realized. Financing for the economic sector which were avoided by foreign banks or foreign majority owned banks could be maximized. Eventually economic developments could be energized resulting in all of the positive impacts. (SS)
Business News - June 07,2013