Indonesia to require capital buffer in bonds for foreign banks

JAKARTA Fri Nov 23, 2012 9:12am EST

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JAKARTA Nov 23 (Reuters) - Indonesia's central bank said on Friday it will require foreign banks in Southeast Asia's largest economy to hold 8 percent of their local third party funds in bonds as a capital buffer from 2014.

Bank Indonesia will include the requirement in a regulation to be issued on January 1, aimed at improving the stability of the banking sector. The capital requirement, called CEMA, can be held by foreign banks' local offices in government bonds, central bank debt paper (SBIs) or corporate bonds.

"CEMA cannot be redeemed. Whatever happens with its main office, it has to stay here," said Governor Darmin Nasution, adding the requirement is to shield the local branch if its main office has financial problems.

The new policy will also link permits for all banks' business activities and products to their level of core capital. (Reporting by Adriana Nina Kusuma; Writing by Rieka Rahadiana; Editing by Neil Chatterjee)

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