Issue of Three Foreign Banks Repatriating Profits Draws Scrutiny, Here Are the Facts

The issue of three foreign banks allegedly repatriating profits since 2024 has become a topic of discussion on social media. The narrative suggests this practice is detrimental to Indonesia. However, the remittance of profits by foreign banks to their headquarters is a common practice in the investment world, provided it is carried out in accordance with applicable regulations. The three banks under scrutiny are Citibank, HSBC, and Standard Chartered. All three are foreign banks operating in Indonesia through branch offices, meaning that profits earned after fulfilling tax obligations, capital requirements, and regulatory provisions can, in principle, be sent to their head offices or shareholders in their home countries. Nonetheless, the amount of profit repatriated has attracted public attention because it is seen as indicating an outflow of earnings from Indonesia. On the other hand, regulators continue to supervise banking operations to ensure compliance with the provisions of the Financial Services Authority (OJK) and Bank Indonesia, including matters related to capital adequacy and financial system stability. From an economic perspective, profit repatriation is an inseparable part of Foreign Direct Investment (FDI). In the FDI theory developed by John Dunning through the Eclectic Paradigm (OLI Theory), foreign investors place capital in a country with the aim of making a profit. As a consequence, investors have the right to take those profits home after fulfilling all legal obligations in the host country. Therefore, profit repatriation is neither an illegal practice nor a new phenomenon occurring only since 2024. Almost all multinational companies in various countries carry out similar mechanisms, including Indonesian companies that have investments abroad. However, from a development economics perspective, the measure is not simply the amount of profit leaving the country, but whether the benefits of the investment received by Indonesia are greater than the profits taken home by the investor. Economist Joseph Stiglitz explains that foreign investment provides benefits if it can create jobs, increase productivity, expand access to financing, pay taxes, and encourage the transfer of technology and skills. Conversely, if the profits repatriated are far greater than the added value generated for the domestic economy, the benefits of the investment can be questioned. Therefore, the government’s challenge is not to prohibit profit remittance, but to ensure that foreign investment generates greater value added for the national economy. Thus, the narrative that three foreign banks are ‘pulling profits abroad’ does have a factual basis. However, concluding that this practice automatically harms Indonesia or is a new phenomenon since 2024 is not entirely accurate. Profit repatriation is a common practice in the global investment system, while its benefits or drawbacks depend heavily on how much the investment contributes to economic growth, job absorption, tax revenue, and the strengthening of the national financial sector.