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Foreign banks unhappy over Indonesian banking law changes

Foreign banks unhappy over Indonesian banking law changes

(29 January 2013 – Indonesia) The Indonesian House of Representatives has completed a draft of a new banking bill that will compel the branches of foreign banks to convert into legal entities, that is, become separate companies. The Bill also limits investors to a controlling share in only one bank.

This means that the 10 existing foreign banks operating in Indonesia will have to convert their branches into separate business units if they want to continue operating in Indonesia, said Harry Aziz, deputy chairman of House Commission XI on Finance and Banking.

Among these foreign with branches are HSBC, Citibank, Standard Chartered, Bank of America, Deutsche Bank, Bank of Tokyo Mitsubishi and Bank of China Ltd.

These banks have been quick to criticise the bill, which they claim will spawn inefficiency.

As branches, banks can borrow dollars from their headquarters without being charged risk premiums. If the bank becomes a legal entity, it will be charged a risk premium according to the risk status of Indonesia.

The new bill stipulates that no investor can take a controlling share in more than one bank, contradicting the single presence policy unveiled by the central bank in November.

This policy allows investors to hold 25 percent of shares in two or more banks as long as they form a holding company to oversee the operations.
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