Issue of Three Foreign Banks Repatriating Profits Draws Scrutiny, Here Are the Facts
The issue regarding three foreign banks allegedly withdrawing profits abroad since 2024 has become a topic of discussion on social media. The narrative describes this practice as 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 conducted 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; therefore, profits earned after fulfilling tax, capital, and regulatory obligations can, in principle, be sent to their headquarters or shareholders in their home countries.
Nevertheless, the amount of repatriated profit has drawn public attention as it is perceived to indicate an outflow of earnings from Indonesia. On the other hand, regulators continue to supervise banking operations to ensure they comply with the regulations of the Financial Services Authority (OJK) and Bank Indonesia, including matters related to capital adequacy and financial system stability.
Economically, profit repatriation is an inseparable part of Foreign Direct Investment (FDI). According to the FDI theory developed by John Dunning through the Eclectic Paradigm (OLI Theory), foreign investors commit capital to a country with the aim of generating profit. Consequently, investors have the right to bring those profits home after fulfilling all legal obligations in the country where they invest.
Therefore, profit repatriation is neither an illegal practice nor something that has only begun occurring in 2024. Almost all multinational corporations in various countries employ similar mechanisms, including Indonesian companies that have investments abroad.
However, from a development economics perspective, the metric is not merely the volume of outgoing profit, but whether the benefits of the investment received by Indonesia outweigh the profits taken home by investors. Economist Joseph Stiglitz explains that foreign investment provides benefits if it is capable of creating jobs, increasing productivity, expanding access to finance, paying taxes, and encouraging the transfer of technology and expertise.
Conversely, if the repatriated profits are significantly larger than the value added generated for the domestic economy, the benefits of the investment may be questionable. Therefore, the government’s challenge is not to prohibit the remittance of profits, but to ensure that foreign investment generates greater value added for the national economy.
Thus, the narrative that three foreign banks are “withdrawing profits abroad” does indeed have a factual basis. However, concluding that this practice is automatically detrimental to Indonesia or is a new phenomenon since 2024 is not entirely accurate. Profit repatriation is a standard practice in the global investment system, while its benefits or losses depend heavily on the extent of the investment’s contribution to economic growth, job creation, tax revenue, and the strengthening of the national financial sector.