Govt to allow foreign control of local banks<\/p>\n
JAKARTA (JP): The government plans to allow foreign investors
\nto hold controlling ownership of Indonesian banks either through
\ndirect placement or the capital market, a senior official has
\nsaid.<\/p>\n
Minister of Finance Bambang Subianto submitted proposed
\namendments to the 1992 Banking Act to a plenary session of the
\nHouse of Representatives yesterday, saying the new rules were
\npart of a concerted effort to attract foreign investors to prop
\nup the ailing banking industry.<\/p>\n
Current law caps foreign ownership in Indonesian banks at 49
\npercent.<\/p>\n
\"Hopefully, the entry of foreign investors into the banking
\nindustry would become a catalyst to a new wave of capital inflow
\nto other sectors of our battered economy,\" Bambang said in a
\nstatement explaining the main points of the proposed amendments.<\/p>\n
The bill includes the easing of banking secrecy provisions to
\nforce banks to disclose more of their credits and other aspects
\nof their operations.<\/p>\n
\"The banking secrecy stipulations will cover only bank
\nliabilities such as deposits. But bank assets, such as credits
\nand their recipients, will be fully transparent to the public,\"
\nBambang said.<\/p>\n
Under the 1992 Banking Act, banks are allowed to keep all
\ninformation relating to their loans secret.<\/p>\n
The bill also stipulates a legal basis for the existence of
\nthe Indonesian Bank Restructuring Agency (IBRA), which was set up
\nin late January, and sets new limits for loans to affiliates and
\nthe amount of shares owned by individuals in a bank.<\/p>\n
It also includes a legal framework for a deposit insurance
\nscheme by requiring all commercial banks to insure deposits in
\norder to protect the interests of depositors.<\/p>\n
The insurance is currently fully provided by the central bank
\nunder a special ruling effective for two years from last
\nFebruary.<\/p>\n
Bambang said the authority to license new banks and to close
\ndown banks would be transferred to Bank Indonesia, the central
\nbank, from the finance ministry. The central bank would then
\nserve as both the supervisory and regulatory body for the banking
\nindustry.<\/p>\n
The new banking legislation is part of the government's
\noverall bank restructuring program, a key component of the IMF-
\nsponsored reform package designed to lead the country out of its
\nworst economic crisis in three decades.<\/p>\n
The draft legislation has come on the heels of a new package
\nof bank restructuring measures initiated last week. The measures
\nnationalized Bank Central Asia (BCA), the country's largest
\nprivate bank, Bank Danamon, Bank Tiara Asia and Bank PDFCI and
\nsuspended Bank BDNI, Bank Umum Nasional (BUN) and Modern Bank.<\/p>\n
The seven banks had received Bank Indonesia liquidity support
\nequivalent to more than 500 percent of their capital and had
\nviolated the legal lending limits.<\/p>\n
The central bank has never disclosed the amount of liquidity
\nsupport provided to the seven banks but official sources said
\nBCA, Danamon and BDNI were cumulatively obliged to repay the
\ngovernment US$7 billion from the bailout.<\/p>\n
IBRA announced in June that Bank Tiara had received Rp 2.44
\ntrillion ($203.3 million, converted at Rp 12,000 per dollar) in
\nBI liquidity support, while PDFCI had taken Rp 2.5 trillion and
\nBUN had received Rp 6.6 trillion.<\/p>\n
Foreign appetite<\/p>\n
Allan I. Mendelowitz, executive vice president of U.S. Exim
\nBank, commented here yesterday that the quickest way to resolve
\nthe country's banking system problem was to woo foreign investors
\ninto the sector.<\/p>\n
\"Foreign world class players will not only bring money but
\nalso management and (sound) credit policy,\" he told reporters
\nyesterday at a luncheon gathering organized by the U.S.
\nInformation Service (USIS).<\/p>\n
He explained that the banking crisis was caused by unsound
\nlending practices based on political or family connections.<\/p>\n
\"In order to resume economic growth, there has to be a
\ntransformation of the financial sector. When this is done, I
\nthink the prospect for miraculous growth is unlimited,\" he said.<\/p>\n
He admitted that foreign appetite to purchase domestic banks
\nmay be low at the moment due to the economic crisis, but if the
\ngovernment could deliver a credible reform program, foreign
\ninvestor confidence would soon return.<\/p>\n
\"The sooner the reform program is implemented and the more
\ncredible it is, the faster confidence will return.\" (rei)<\/p>",
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