Indonesia Links Ownership of Banks to More Access Elsewhere

JAKARTA, Indonesia â€" Indonesia will insist on greater access to the financial systems of Singapore and other countries as a condition for approving the purchase of local banks by foreign financial institutions, a central bank spokesman said on Wednesday.

The spokesman's comments came a day after the central bank's governor rejected a bid by the DBS Group of Singapore to take majority control of Bank Danamon. He did, however, approve the sale of a minority stake.

DBS, the largest bank in Southeast Asia, announced a plan in April 2012 to buy shares from Temasek, the Singapore state investment company, which owns a 67 percent stake in Danamon. Temasek also owns a 29 percent stake in DBS. DBS had then planned to acquire an additional 32 percent of Danamon shares through a general offering, which would have brought its total to 99 percent, a company official said.

In July, however, Bank Indonesia, the Indonesian central bank, lowered its limit on individual share ownership in publicly traded banks to 40 percent from 99 percent, though it did give its board of governors discretion to approve higher limits if certain regulatory conditions were met. DBS resubmitted its purchase request to Bank Indonesia in November, and officials spent more than five months reviewing it but gave little indication of their intentions.

On Tuesday, the departing central bank governor, Darmin Nasution, told a legislative hearing that Bank Indonesia would approve only a 40 percent stake in Danamon for DBS. He said any further increase should be allowed only if the Monetary Authority of Singapore, the city-state's central bank, reciprocated by allowing Indonesia's three largest state-owned banks to expand in Singapore.

Difi A. Johansyah, a spokesman for Bank Indonesia, said it would be “unfair” if Indonesian state-owned banks like Bank Mandiri, Bank Negara Indonesia and Bank Rakyat Indonesia could not expand in neighboring Singapore while DBS could expand in Indonesia because of the country's more open ownership regulations.

“We will still open the door if they want to increase the stake up to 67 percent, but it's conditional on whether M.A.S. grants access to our national banks to enter Singapore, which is still under negotiation,” he said in an interview.

Mr. Johansyah also said Bank Indonesia's cap on foreign ownership of Indonesian banks would apply to any country with entry barriers against Indonesian lenders.

“There is still an open door for more than 40 percent, but it is subject to our discretion,” he said. “This is the same as with banks from other countries as well, not just Singapore.”

Fitch Ratings said on Wednesday that Bank Indonesia's decision could weigh on interest from other overseas banks in the country's financial sector in the near term.

“If there is a limited chance of ultimately gaining majority control, this may deter some long-term investors from looking to establish and build a local franchise,” Fitch said in a statement. “Other investors may be less strategic and looking only for capital gains, so the ownership limitation may be less of a concern.”

DBS declined to comment on Mr. Nasution's announcement, saying in a statement that it had not received official notification from Bank Indonesia about the decision. DBS “hopes the application will be approved as originally submitted and will continue to be closely guided by Bank Indonesia,'' the statement said.

Alfred Chan, director of financial institutions at Fitch Ratings in Singapore, said that while it was speculative to consider what DBS might do next, the bank was “quite adamant about what they want.”

“From DBS's point of view, it clearly wants to have an investment that it can control,” Mr. Chan said. “Whether it can have 40 percent now and 60 percent down the road, we don't have the details.”

Danamon officials declined to comment on Wednesday, saying in a statement they were also waiting for official notification from Bank Indonesia. Danamon, which was established in 1956, is Indonesia's sixth-largest bank by assets, with $15.6 billion as of March, according to the company.