Limit bank ownership by foreigners: Golkar

JAKARTA (JP): The ruling Golkar faction in the House of Representatives voiced concern on Tuesday over the government's plan to scrap foreign ownership restrictions covering the country's commercial banks.

"Foreign investors can buy shares of (local) commercial banks either through direct investment or through the stock market, but their ownership should be limited," said Golkar spokesman Oke F. Supit at a plenary session to hear House members' response on the government's bill on the revision of the banking law.

The bill will amend several clauses in the 1992 Banking Law, which, among others, relate to the foreign ownership limit and banking secrecy.

Under the existing clause, foreign ownership of local banks is capped at 49 percent.

Minister of Finance Bambang Subianto said last month that the elimination of the foreign ownership limit was needed to lure foreign investors into the country's ailing banking sector.

The Golkar faction, which used to support almost all government proposals submitted to the House for approval, said the country's whole financial sector could end up under foreign control if the ownership of commercial banks was not limited.

The Moslem-based United Development faction also said the scrapping of the foreign ownership limit would lead to foreign domination of the country's banking sector.

"Can the government ensure that a foreign-controlled banking industry can be utilized as an instrument to fully help in the development of the national economy?" asked the faction's spokesman, Mukrom As'ad, adding that the banking sector was vital to determining the fate of the economy.

He pointed out that a special credit program for small businesses may have to stop under a foreign-dominated banking industry.

"Our efforts to eradicate poverty and to lessen the wide income disparity will fail," he said. "What were the concerns when the limit was imposed. Are such concerns no longer reasonable so that we can open our doors widely to foreigners," Mukrom asked.

Bambang on Tuesday declined to comment on the reservations made by the legislators.

"I will have to study them first," he told reporters.

The government last month embarked on a major bank restructuring program, including suspending three banks, and taking over the shareholding of four banks, including two of the country's largest private banks.

The seven banks have received massive Bank Indonesia liquidity support equivalent to more than 500 percent of their capital, and have allegedly been accused of breaching the legal lending limit by channeling between 70 percent and 100 percent of their money to affiliated parties. It is thought this money was placed in their nonperforming loans (NPLs) category given the dire state of the economy.

Bambang said that the government's priorities were to quickly recover BI's liquidity support and bring down the intra-group lending level to below 20 percent.

He said Monday that the level of NPLs was estimated to reach 50 percent of the more than Rp 600 trillion (US$55 billion) in outstanding credit. This is equivalent to more than 40 percent of gross domestic product.

He told a delegation of Japanese businessmen that foreign investors were welcome to buy into domestic banks and their nonperforming assets due to the huge amount of cash needed to recapitalize the banking sector.

An audit of the country's banks is expected to be completed in October. More banks may have to be closed down if they don't have enough resources to meet the minimum capital adequacy ratio of 4 percent by the end of this year. (rei)