Indonesia' Deposit Insurance Corporation (DIC) cut its the guarantee interest rate by 25 bps - Photo: Special

JAKARTA (TheInsiderStories) – Indonesia’ Financial Services Authority (FSA) aimed to relax single presence policy (SPP) to accelerate the bank consolidation, said the official on Thursday (08/01). The revision its expecting release in this year and will make no distinction between foreign and local lenders.

Heru Kristiyana, commissioner for banking supervision at the agency said, the revision rule could facilitate foreign banks invest in a local entity, as it tries to strengthen the sector against growing competition from financial technology firms.

He continued, with the new policy investor have a chance to own a controlling stake in a smaller lender that has less than Rp5 trillion (US$354.4 million) paid-up capital, adding there would be equal treatment for foreign and local banks.

“Foreign banks are still interested in coming to Indonesia because the net interest margin is still high at around 5 percent,” he told media.

The single presence policy was introduced in 2006 as a way to push consolidation among the 2,000 or so local banks. However, it proved unpopular with some of the foreign lenders seeking to expand their operations in Indonesia.

A bigger deterrent came in 2012 when regulators restricted foreign holdings in local lenders to 40 percent, prompting DBS Group Holdings Ltd. to abandon an attempt to take over publicly listed PT Bank Danamon Indonesia Tbk (IDX: BDMN) the following year.

Since then, Indonesia has relaxed the 40 percent rule, clearing the way for Japan’ Mitsubishi UFJ Financial Group Inc. to take control of Danamon earlier this year and for Sumitomo Mitsui Financial Group Inc. to buy PT Bank Tabungan Pensiunan Nasional Tbk (IDX: BTPN).

Kristiyana explained that the entry of technology firms into the financial industry requires a more nimble banking sector in Indonesia. He stated, “With the development of FinTech and banking digitalization, banks are required to be efficient so they can compete. You must consolidate if you can’t compete.”

Removing the single presence rule could make it easier for Standard Chartered Plc., to hang on to its 45 percent stake in PT Bank Permata Tbk (IDX: BNLI), according to Suria Dharma, an analyst at Samuel Sekuritas. The London-based bank said in 2016 it was considering merging its local branch network with Permata in order to move to a single presence, before indicating earlier this year it may sell out of Permata.

Indonesian lender PT Bank Mandiri Tbk (IDX: BMRI) has been in discussions to purchase the Permata stake, and has hired Morgan Stanley to advise on the potential deal, people familiar with the matter said earlier this year.

Kristiyana said the single presence rule may still apply if a large bank seeks to take a stake in another size-able lender. A large bank acquiring a smaller rival would be allowed to retain it as a separate entity, he added, without specifying the threshold for a merger requirement.

Indonesia has 115 conventional and Shariah banks and almost 1,800 rural lenders, catering to the archipelago’s more than 260 million people, data from the regulator showed.

Even as the single presence policy is relaxed, foreign banks looking to acquire Indonesian lenders should still demonstrate a commitment to lending to infrastructure and small and medium-sized enterprises, and appoint Indonesian residents as president director and president commissioner, the two most senior corporate roles, Kristiyana said.

US$1=Rp14.000

Written by Lexy Nantu, Email: lexy@theinsiderstories.com