Indonesia to hinder future foreign takeovers of local banks

Indonesian lawmakers resort to using legislative powers as they realize that blocking deals proves futile.

This comes in the wake of Singapore’s DBS Bank’s bid to take control of PT Bank Danamon, one of Indonesia’s leading banks.

While acknowledging that blocking this deal could prove futile, lawmakers from two of Indonesia's most powerful political parties are pushing for more regulation of the local banking industry to discourage similar takeovers in the future.

“We will regulate banks in a reciprocal manner, with a limitation on foreign ownership,” said Harry Azhar Azis of the Golkar party.

He noted that the DBS deal could not be immediately blocked.

A member of the main opposition PDI-P party said he would work to limit foreign ownership in banking in the new banking law.

Some Indonesian bankers are also complaining that Indonesian banks do not play on a level playing field abroad whereas foreign banks are taking advantage lack of Indonesia’s lack of a banking law to make deep inroads into the country’s banking system.

“We can't do much as long as the banking law is not completed and enacted,” Azis said.

Pahala Mansury, CFO of Bank Mandiri, Indonesia's largest bank, noted that Indonesian banks still need to see equal treatment in other countries.

“Frankly, we are still facing obstacles to develop in Singapore now,” Mansury said.

Eight of Indonesia's top 11 banks by market value are now either controlled by foreign banks, business families, private equity firms or wealth funds.

Indonesia allows foreign entities to hold up to 99% of local banks compared to 30% in Malaysia and Vietnam.

DBS proposes to issue shares to buy Singapore state investor Temasek Holdings' 67% stake in Bank Danamon and to pay cash to buy out minority investors in Bank Danamon.