Indonesia to raise banks' core capital requirement

JAKARTA (Reuters) - Indonesia’s financial services authority (OJK) plans to gradually increase core capital requirement for banks to 3 trillion rupiah ($220 million) from this year to improve competitiveness, a senior official said on Thursday.

The requirement would be part of the authority’s wider plan to streamline Indonesia’s 112 commercial lenders via capital injection, merger, or acquisition.

Banks’ current lowest core capital category is up to 1 trillion rupiah in a scale going to at least 30 trillion. But new banks are already required by law to have at least 3 trillion rupiah.

Heru Kristiyana, a commissioner at OJK overseeing banks, told a news conference existing banks would have to comply with that minimum. “OJK wants for our lenders to follow suit, to have 3 trillion rupiah core capital gradually,” he said.

Banks that fail to comply may be demoted to “rural bank” status with fewer services to offer, Kristiyana added.

OJK is finalizing the regulation in discussion with the banking industry. Around half of Indonesia’s banks are under the limit and would be affected.

“The regulation will expedite the process to strengthen banks’ capital so that our banks can have competitiveness and better contribution (to the economy),” Kristiyana said.

Irfanto Oeij, president director of small-sized Bank Mayora, welcomed the requirement but was anxious about the time scale. “Banks are only given time until 2022 to increase core capital to 3 trillion rupiah, I think the time is too short,” he told Reuters by text.

Reporting by Tabita Diela; Additional reporting by Maikel Jefriando; Editing by Andrew Cawthorne