JAKARTA Nov 23 Indonesia's central bank 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, its governor said.
Bank Indonesia will also link permits for all banks'
business activities and products to their level of core capital,
in a new regulation planned for January aimed at ensuring the
financial health of a fragmented banking sector.
Indonesia's larger banks have maintained high levels of Tier
1 capital amid double-digit loan growth and proved resilient to
global financial troubles, but there are many small rural
lenders across the archipelago and the central bank has stepped
up its efforts to regulate the sector this year.
The capital requirement for foreign banks, called CEMA, can
be held by their local offices in government bonds, central bank
debt paper (SBIs) or corporate bonds. Regulators around the
world have stepped up requirements for banks' capital buffers
since the 2008 credit crisis.
"CEMA cannot be redeemed. Whatever happens with its main
office, it has to stay here," said Governor Darmin Nasution at
an annual bankers' dinner, adding the requirement was to shield
a local branch if its main office ran into financial problems.
The requirement is unlikely to deter global banks from
expanding in Indonesia where the economy is growing over 6
percent per year and loan growth stands at over 20 percent.
Indonesia has one of the region's most open banking sectors,
though Bank Indonesia (BI), also the country's banking
regulator, announced new rules in July that cap foreign
investment in local banks.
Financial institutions will be able to hold up to 40 percent
of local banks, while non-financial institutions can hold up to
30 percent and individuals only 20 percent, down from the 99
percent ownership allowed under previous rules.
Eight of the biggest 11 Indonesian banks by market value are
controlled either by foreign banks, business families, private
equity firms or wealth funds. Southeast Asia's largest lender
DBS Group is bidding $7 billion for Bank Danamon
, but it is not clear if BI will approve the deal.
Its latest policy move will affect operations most for local
banks with capital of less than 1 trillion rupiah ($103.87
million), by stopping them from injecting capital into other
financial institutions and from providing services such as
electronic banking and foreign exchange transactions.
Banks will have more freedom depending on how much capital
they hold, with the top tier of operations reserved for banks
with over 30 trillion rupiah of capital.
BI said earlier this year that more than ten Indonesian
banks did not meet its standards on financial health and
corporate governance under the new ownership rules.
"There is a fundamental change in the nation's banking
structure. We will regulate this in the future where business
activities and branches will be closely linked to core capital,"
($1 = 9627.5 rupiah)
(Writing by Neil Chatterjee; Editing by Helen Massy-Beresford)