Indonesia central bank mulls limiting bank ownership

The move aimed to promote good corporate governance and strengthen control of local banks.

Indonesia is looking at introducing rules that would cut the limit on ownership of local banks from 99 per cent to 50 per cent in a move that would force the likes of Temasek and some Malaysian banks to divest lucrative stakes, according to banking industry executives and investors.

Halim Alamsyah, deputy governor of Bank Indonesia, the central bank, told the Financial Times that “the plan is to put a threshold on the maximum shares of ownership for an individual or entity”.

“The objective is clear: to promote good corporate governance and strengthen control of banks,” he said.

No specific limit was disclosed but industry executives say the central bank is considering a 50 per cent ceiling on holdings. If adopted, the regulations would particularly hit foreign banks, as it would be far easier for local interests to operate through nominees, people familiar with the matter said.

Groups such as Temasek, CIMB and Malayan Banking Berhad (Maybank) would be forced to divest themselves of existing stakes that exceed the threshold.

The move by the central bank to consider the restrictions comes at a time when Indonesia is experiencing strong credit growth and the profitability of banks in the country has soared. It also comes amid a growing sense that the aftermath of the Asian financial crisis in 1998 has left too much of the country’s financial sector in the hands of foreigners.

View the full story in Financial Times.