Indonesia Bank Ownership Plans Seen Hitting DBS Buy
Janeman Latul and Neil Chatterjee
Indonesia’s central bank on Thursday proposed capping single ownership in the country’s banks at 40 percent for new investment, a rule that would scupper a $7.3 billion bid by Singapore’s DBS Group Holdings for Bank Danamon.
Halim Alamsyah, the central bank deputy governor responsible for banking supervision, told analysts on a conference call that its proposal is for individuals or families to only own up to 30 percent of local lenders, while financial institutions would be able to own up to a maximum of 40 percent.
It was the first time the central bank, Bank Indonesia, has officially announced details of a proposed cap on bank ownership, after the idea was raised last year. Currently, investors can own up to 99 percent of local banks in Southeast Asia’s top economy.
“This new regulation will only hold for new initiatives, new investment … there will not be a retroactive regulation,” Alamsyah said. DBS’s acquisition plans were thrown into limbo late last month when the central bank said it would not approve the deal until it had published a set of rules on bank ownership.
DBS on Thursday declined to comment until it heard from Bank Indonesia. Singapore state investor Temasek, the majority owner of Danamon, also declined to comment.
Off the hook
Not applying the rule retroactively would appear to save some existing large shareholders in Indonesian banks from having to sell down their stakes. CIMB Niaga is controlled by Malaysia’s CIMB Group and Bank Internasional Indonesia is controlled by Malayan Banking Berhad (Maybank). Singapore banks United Overseas Bank and Oversea-Chinese Banking also own lenders in Indonesia.
“If not applied retroactively, CIMB and Maybank (as well as OCBC and UOB) are off the hook. Ditto for the Hartono family and Bank Central Asia,” said Anand Pathmakanthan, an analyst at Nomura in Singapore. The wealthy Hartono family holds a 47.6 percent stake in Bank Central Asia.
“Without retroactive application, the new regulations appear very obviously aimed at scuppering the DBS-Danamon deal. Hence, the chances of DBS walking away is now significantly above 50 percent — Singapore Inc. would be better off maintaining the status quo with Temasek holding on to its 67 percent stake,” Pathmakanthan said.
The new rules are expected to apply to domestic and foreign investors, although government-owned banks such as Bank Mandiri are unlikely to be affected.
That has fueled concerns Indonesia is becoming increasingly hostile to foreign investment, given recent proposals limiting foreign ownership in mining companies to 49 percent. Bank Indonesia has said that banning majority shareholders will prevent a controlling owner from abusing a bank’s operations for their own financial gain.
Restrictions on bank ownership exist in other Southeast Asian nations. Malaysia caps foreign ownership of local banks at 30 percent. And in Singapore no single investor can own an interest of 5 percent or more of the voting shares of a domestic bank without the approval of the finance minister.