Limiting foreign ownership in local banks could be detrimental to the domestic economy, sending a negative signal to present and potential investors, according to a banking association.
"[Limitation] is not a good signal for existing and future investors. There is not enough capital in the country to buy foreign investors' shares if the limitation is actually imposed," Standard Chartered CEO Tse Koon Shee said on Thursday.
Koon Shee made the statement in a discussion organized by the Foreign Banks Association of Indonesia (FBAI) held to discuss misconceptions surrounding foreign lenders in Indonesia. The discussion was attended by representatives from several foreign banks, namely ANZ Indonesia, HSBC Indonesia, Standard Chartered Bank Indonesia and Commonwealth Bank.
The association said it was crucial to ally misconceptions, with lawmakers currently discussing foreign ownership in domestic banks as part of deliberation of the banking bill, which they are looking to revise.
Part of the revision may include the setting of a cap on foreign ownership in local banks, with current talks suggesting a possible 40 percent cap.
Lawmakers are also discussing the role of foreign banks in national development, with some members suggesting that foreign lenders do not contribute significantly to the economy and that they are too focused on the consumer sector.
FBAI chairman Joseph Abraham, who is also ANZ president director, argued that the lenders in fact played an important role in the economy.
"We have over the past few years contributed billions of dollars to key areas of infrastructure and to SOEs [state-owned enterprises]. We are also the key suppliers of foreign currency loans to the country, the SOEs and the private sector," he said.
In terms of loans, he added that around US$30 billion in foreign currency loans had been granted to various sectors in Indonesia and that 90 percent of the figure was supplied by FBAI members.
Other FBAI members voiced similar opinions.
HSBC country manager and CEO Sumit Dutta said that credit card loans, a major constituent of the consumer segment, only made up a fraction of the bank's total lending portfolio, with the rest mostly directed at companies in the productive sector.
Commonwealth, meanwhile, already has a 30 percent portfolio in small and medium enterprises (SME), according to president director Antonio Da Silva Costa.
Meanwhile, the Financial Services Authority (OJK) is currently formulating its own regulation on foreign banks.
OJK deputy commissioner for banking supervision Irwan Lubis said that the regulation would contain the definition of a foreign bank and possibly its business scope.
However, the banking regulator will wait until the completion of the banking law revision to publish the regulation. "It will be in the form of a POJK [OJK regulation], whose legal status is below that of the Banking Law," Irwan said on Friday.