Foreigners formally allowed 99 percent bank ownership

JAKARTA (JP): Bank Indonesia issued on Friday new banking rulings which include a regulation allowing a 99 percent foreign ownership in the country's banking industry.

BI director Subarjo Joyosumarto said that foreigners could either enter local banks through the stock market or through direct investment.

But he added that local investors must hold at least a 1 percent stake in the banks.

"Banks partly owned by foreign banks can put foreigners on the board of directors and board of commissioners, but at least one member of the board of directors and commissioners must be an Indonesian citizen," he said.

The new banking rulings follow legislative approval last year of the country's new banking law.

Subarjo said foreign ownership in local banks could help accelerate the recovery efforts of the country's ailing banking sector.

He added that the entry of foreign professionals into local banks would be a positive contribution in improving the efficiency of the banking industry.

Subarjo also said that foreign banks could now open branches in the country.

Foreign banks, except for those who had been here since the Dutch colonial times, were previously barred from opening branches in the country.

But Subarjo said that only the world's 200 largest banks in terms of assets with minimum credit ratings of A either from Standard & Poor's Corp. or Moody's would be allowed to open branches in Jakarta.

He added that the minimum capital for a new foreign bank was set at Rp 3 trillion (US$385 million).

He said the minimum capital requirement was the same for opening up a new local bank.

The previous minimum capital requirement was Rp 250 billion.

Subarjo said existing banks did not have to increase their minimum paid-in capital level, but they had to increase their capital adequacy ratio to a minimum 8 percent by 2001.

He said BI had also issued a separate new ruling which prohibits a bank merger resulting in a concentration of assets of more than 20 percent of total assets of all Indonesian banks.

"This is aimed at avoiding a concentration of banking business in the hands of few people," he said.

Subarjo added that BI may close down banks which threatened the country's banking system.

Separately, Bank Indonesia Governor Sjarhil Sabirin said on Friday that President B.J. Habibie would sign on Monday the country's new central bank law.

Sjahril also said he would be appointed by Habibie to head the central bank's board of governors for a four-year term.

He added that seven deputy governors would also be appointed by the President.

Sjahril was speaking to reporters after meeting with Habibie.

Under the new central bank law, which ensures the independence of Bank Indonesia, the President appoints the board of governors and its deputy governors. (rei/prb)