100% foreign holdings OK'd in RI banks

100% foreign holdings OK'd in RI banks

JAKARTA (JP): The House of Representatives approved a new
banking bill on Friday paving the way for foreigners to own 100
percent of domestic banks.

The new revised banking law will be effective after President
B.J. Habibie signs it, which, Bank Indonesia Governor Sjahril
Sabirin said, would be done "as soon as possible".

"There will no longer be a limitation on foreign ownership in
domestic banks," Sjahril said following the House's approval of
the bill.

He said that the decision to abolish foreign ownership
restriction was made because the country badly needed foreign
investors to help recapitalize the ailing banking sector.

Under the 1992 banking law, foreigners are limited to own a
maximum 49 percent of a national bank, and 85 percent in joint-
venture banks.

Sjahril said that the central bank would encourage foreign
investors to enter into cash-strapped existing banks rather than
establish new ones.

He added, however, that foreign investors wanting to enter the
banking sector must have a good reputation and have no banking
offense record.

He also said that under the new banking law, the authority
would no longer differentiate treatment between joint-venture and
commercial banks.

Under the new banking law, the Ministry of Finance will
transfer the authority to issue new banking licenses to Bank
Indonesia, which will also hold the responsibility of supervising
the banking sector.

The new law also redefines the banking secrecy code, which
will allow the public to access the information of a bank's
asset-side of the balance sheet, including lending to third
parties. However, the bank's liability, on the other side of the
balance sheet, remains secret to protect the interests of
depositors.

The new law also provides a special power to the Indonesian
Bank Restructuring Agency (IBRA) to take the necessary steps to
restructure the messy banking industry.

IBRA's bank-restructuring role is expected to end this year,
and it will function more as an asset-management unit which has
the responsibility of absorbing the bad assets of the banking
sector and to recover them.

The country's banking sector has been badly hit by the year-
long economic crisis, causing about half of the country's more-
than 200 commercial banks to suffer an acute lack of capital.

Sjahril said on Wednesday that most of the banks already
audited had a capital adequacy ratio (CAR) of between less-than 4
percent and minus 25 percent.

Under the government's bank-recapitalization program,
undercapitalized banks must come up with at least 20 percent of
the needed cash, while the government would provide a maximum 80
percent of the required capital by issuing bonds as equity
participation in the banks but it would have no voting rights.

All banks are required to have a minimum CAR level of 4
percent by the end of this year.

The undercapitalized banks must come up with a business plan,
including details on their recapitalization steps and efforts to
bring down their intragroup lending to the 20 percent legal limit
within one month after they are informed by the central bank
about their CAR condition.

The bank owners are expected to find new investors, including
foreigners, if they can't come up with enough capital to meet the
year-end CAR level.

The owners also have the rights to repurchase either part or
all of the government's stake in their banks at any time within
three years.

After the three-year period, the government will sell its
stake to new investors within two years.

Separately, Bank Indonesia director Soebardjo Djojosoemarto
said on Friday that the bank-recapitalization program was
designed to prepare the industry when the country starts its
economic growth again in three years.

He stressed that foreign-investor participation in the
recapitalization was essential.

"We're now in a crisis, don't think that we're healthy. If
foreign investors (ownership) are being restricted, they won't
come in," he said on worries over foreign domination in the
banking sector.

The central bank is expected to propose a new central bank law
to the House this month, which will make Bank Indonesia an
independent institution. (rei)