OJK WANTS SMALL FOREIGN-OWNED BANKS TO UPGRADE CLASS
Posted on September 02, 2015 on 10:26:31 WIB
The Financial Services Authority (OJK) will require the foreign owners of small locally incorporated lenders to improve their grades by injecting additional capital or face possible business restrictions.
OJK chairman Muliaman D. Hadad said that the financial regulator would summon the banks in question and their owners in the near future.
"I want these foreign-owned local banks to contribute more to the economy and the banking industry. One way I expect them to do that is by increasing capacity through capital injection, so that they can cover more business activities," he said recently.
According to Muliaman, the lenders to be summoned will be those currently in the BUKU I and BUKU II categories, two of four groupings that divide lenders according to their core capital. BUKU I is the lowest category and lists banks with core capital below Rp 1 trillion (US$73.88 million), followed by BUKU II with core capital between Rp 1 trillion and Rp 5 trillion. BUKU III category includes banks with core capital between Rp 5 trillion and Rp 30 trillion and BUKU IV — the highest — catalogs banks whose core capital exceeds Rp 30 trillion.
Each category determines the activities that the banks can engage in. The higher the category, the wider the business scope. Of the 52 banks in the BUKU I category and 45 banks in the BUKU II category, dozens are majority-owned or controlled by foreign shareholders, including Bank Woori Saudara, Bank Andara, Bank of India Indonesia, Bank SBI Indonesia, Bank KEB Hana, Bank Nusantara Parahyangan and Bank Rabobank International Indonesia.
Their current status allows them to perform only basic activities such as collecting third-party funds, distributing loans and selling treasury notes, while other operations require approval from the OJK or Bank Indonesia (BI).
"These small banks must rise grades and enter the BUKU III or BUKU IV league within a period of three to four years. They must also shift business to facilitate trade finance and investment from the current focus on the consumer and micro segments," Muliaman said.
Higher capacity, he added, would enable the banks to attract foreign funds into the country. Failure to comply with the capital injection requirement, Muliaman said, would entail certain consequences.
"They can do whatever it takes to improve the bank's status, including merging with other lenders," he said.
When contacted, Bank of India Indonesia operational and compliance director Ferry Koswara said that it was waiting for the OJK's approval to become a BUKU II lender.
"We recently received close to Rp 500 billion of additional funds from our parent company and if all goes well, our core capital will reach around Rp 1.1 trillion," he said during a telephone interview on Monday.
Bank of India Indonesia is 76 percent owned by Bank of India, a lender run by the Indian state.
With the fresh funds, Bank of India Indonesia aims to expand into trade finance and issuance of letters of credit.
Meanwhile, Bank Andara technology and operations director Irianto Kusumadjaja said that it would take several years for the lender to gradually increase its capital and enter a higher category. Andara is jointly owned by sevMercy Corps from the US, Stamford-based Developing World Markets, the International Finance Corporation (IFC), the Netherlands' Stichting Hivos-Triodos Fund and Germany's KfW.
"We are slated to obtain around Rp 100 billion in additional capital, but that won't be until early 2016. By then, our capital will have risen to almost Rp 300 billion, but we will still be listed as a BUKU I bank," Irianto said.