Indonesia should strictly limit foreign ownership in its banks

The limit should be 49% and not 99% as proposed.

Ryan Kiryanto, Head Economist at the state-owned Bank Negara Indonesia, said that foreign ownership in the banking sector should be limited to a 49% share at maximum, with shares being acquired in stages.

He said that foreign investors “. . . should be able to acquire 49% shares during the next five years, for example, and this regulation should not be retroactive once it takes effect.” The proposed 49% limit on foreign ownership in the banking sector is still far higher compared to other countries, such as Malaysia, said Kiryanto.

Should the government agree to revise the current regulation on foreign ownership in the banking sector, it must introduce the revised regulation to all related stakeholders so that the markets would not respond negatively. “The shares of ownership in a corporation should be evenly distributed to prevent it from being dominated.

With more effective monitoring, the management of the bank can be more professional,” said Kiryanto. A clause in Indonesia’s banking law allows foreign investors to own up to 99% of the shares in Indonesian banks.

The commission in Indonesia’s House of Representatives overseeing finance and banking has yet to make a decision on the maximum limit of foreign ownership in the country’s banking sector.