INDONESIA - REGULATIONS - BI Introduces New License Scheme to Keep Banks Healthy

www.thejakartaglobe.com - Banks in Indonesia will need to gain new licenses as they seek to expand their operations as part of a central bank move to ensure the nation’s financial players remain healthy and well-capitalized.

The multiple-license system will replace the existing practice of banks requiring just a single license, after which they have widespread freedom in conducting their business, constrained only by the nation’s banking law.

It is intended to better protect banks and consumers, as well as better prepare local lenders for expansion overseas.  (source)


“[Only] those banks with a large amount of capital and healthy prospects will be allowed to engage in various businesses,” Bank Indonesia governor Darmin Nasution said of the new rules on Wednesday.

Darmin denied that only foreign banks had the large quantity of capital necessary. He said nationwide banks in Indonesia had large amount of capital.

Muliaman Darmansyah Hadad, the Bank Indonesia deputy governor for banking regulation, said the multiple licenses would require the banks to have adequate capabilities to conduct their duties.

“The amount of capital will also be a reference for Bank Indonesia in assessing applications for multiple licenses. Capital provides the capacity to absorb; it is like a car’s shock breaker — it becomes the buffer for shocks in the finance industry,” Muliaman said.

He added that the central bank would seek to ensure that the new ruling did not overlap with others or cause confusion. Assessing applications for multiple licenses give the central bank more power to guide banks.

For example, Bank Indonesia can decide whether the capital of a bank is enough for it to expand to a new part of the country. If the capital is adequate, the bank will be allowed to open branches in the expansion territory, he added.

“If you want to open a branch in Jakarta, the capital needed may not be too much because on islands where there is a market, it is much easier to open up a branch. This is the approach taken by the industry,” he said.

Darmin said that Indonesia was the only country in Southeast Asia to rely on single licenses. Therefore, many national banks end up facing difficulties when they want to operate abroad and need to grapple with multiple licenses.

“I am not saying that multiple licenses are much better, but I am rather looking at our needs and the timing,” he said. “We have to have ample discretion and we are now already confident with our good banking performance.”

Meanwhile, Muliaman said Bank Indonesia had not decided its position on DBS Group Holdings’ plan to take control of Bank Danamon Indonesia.

“The proposed plan to acquire Bank Danamon was postponed. We will announce the decision later, after the new ruling is in place,” he said.

DBS Group agreed to buy control of Bank Danamon for $7.2 billion, in a deal that would be the biggest takeover by a Southeast Asian lender.

Analysts in Jakarta said that an acquisition would reduce the number of Indonesian commercial banks operating in Indonesia.

There are now 120 commercial banks operating in the country.

Many industry players have argued in favor of consolidation of the sector, to make it easier for banks to gain the capital they need to meet local and global rules.

Source:  http://www.thejakartaglobe.com/business/bi-introduces-new-license-scheme-to-keep-banks-healthy/519945  - May 26, 2012