Bank Indonesia to Increase Regulation Through Multiple Licenses
In an effort to guide banks and implement a set of standardized policies, Bank Indonesia plans to require banks to obtain multiple licenses for individual activities.
Under the new plan, licenses will be issued based on the “capital condition” of banks, and only those institutions with hearty capital reserves will be eligible for the multiple licenses — it’s a move that represents increased regulation for Indonesia’s banking sector, which is in part an effort to conform to international banking practices.
Muliaman Darmansyah Hadad, the deputy BI governor, said that the implementation of the multiple licenses would require banks to prove their capacity and capabilities to conduct their duties.
“The amount of capital will also be a reference for Bank Indonesia to apply the multiple licenses for banks,” Muliaman said. “Capital provides the capacity to absorb. It is like a car’s shock-absorber it becomes the buffer for shocks in the finance industry,”
The BI deputy governor stressed that the central bank will try to ensure that the new ruling does not overlap with others, or cause confusion in its implementation.
As an example, Bank Indonesian can decide whether the capital capacity of a bank is enough to expand to Eastern Indonesia. If the capital is adequate, the bank would then be allowed to open branches in several areas, Muliama added.
Muliaman said that the multiple licenses and multiple policies is in contradiction the single license format which has been in place thus far. At present, Indonesian banks which already have a permit have a fair amount of flexibility outside of centralized banking laws.
“But if we enter Malaysia and Singapore, the conditions are not like that. I am not saying that multiple licenses are better — rather, I am looking at our needs and the timing. We have to have ample discretion, and we are already confident with our good banking performance,” Muliaman said.
Darmin said that Indonesia was the only country in Asean to adopt the single license, which causes difficulties for national banks when they operate abroad, as they are required to have multiple license.