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NEWS UPDATES Asean Affairs        27  May 2011

Indonesia eyes new rules for overseas banks

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Bank Indonesia is considering introducing measures that will require all overseas banks operating in the country to establish a limited liability company incorporated in Indonesia.

"The reciprocal principle will be implemented. One of the moves is that we will direct foreign bank branches to establish limited liability companies here," Muliaman Hadad, a deputy governor at the central bank, said late on Wednesday.

Indonesian bankers such as Sigit Pramono, the chairman of the Indonesia Banking Association (Perbanas), and Bank Mandiri president director Zulkifli Zaini, have complained that they cannot open branches overseas due to regulatory barriers established by foreign central banks.

Foreign banks that operate in Indonesia as a unit of their overseas holding company can operate without significant restrictions, but Indonesian commercial banks such as Bank Mandiri and Bank Negara Indonesia cannot do the same overseas.

Bank Mandiri's plan to open a full-fledged branch in Malaysia has been postponed for years because the Malaysian central bank, Bank Negara Malaysia, requires it to pay a certain amount of capital before it can operate as a commercial bank there.

Muliaman said Bank Indonesia was assessing similar measures and expected to complete its study in one or two months.

Foreign banks in Indonesia did not appear worried by the central bank's plan.

"We have been here for 127 years, and we plan to stay," HSBC spokeswoman Devi Kusumaningtyas said on Thursday. "I cannot tell you how this would impact our operation here because we haven't been informed about the details of the plan."

While its management office is in Hong Kong, HSBC has 43 branches in six cities in Indonesia. It also owns a majority stake in local bank Bank Ekonomi.

Ditta Amahorseya, a spokeswoman for Citibank Indonesia, said: " Citi Indonesia is an important franchise for Citi, and over our long history in the market we have established strong local relationships. We want to continue to make a positive contribution to Indonesia through our support of local corporate, small- and medium-sized enterprises and individual customers."

Bank Indonesia limits the cities in which foreign banks can open branches. Under laws passed in 1988, foreign banks can open branches in Jakarta, Surabaya, Semarang, Bandung, Denpasar, Ujung Pandang, Medan and Batam. Central bank regulations state a lender must inject paid-up capital of Rp 3 trillion (US$351 million) before establishing a bank in Indonesia.

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