Bank Indonesia Regulation No. 14/8/PBI/2012 on Share Ownership in Banks (“Regulation”) has been issued to tighten the bank ownership rules. The aim of the Regulation is to encourage consolidation so as to strengthen Indonesia’s banking industry, reduce the dominance of single shareholders, and make Indonesian banks more competitive in anticipation of the 2020 ASEAN financial sector integration. In relation to consolidation, Darmin Nasution, the Governor of Bank Indonesia, stated that the “single presence” policy, under which shareholders can only be a controlling shareholder in one bank will be relaxed in the near future.
Article 2 (2 and 3) sets out the shareholder limits as follows:
- Above 40% of a bank’s shares for bank financial institutions that receives approval from Bank Indonesia based on a number of financial health and corporate governance criteria (Article 6)
- 40% of a bank’s shares for financial institutions (bank and non-bank);
- 30% of a bank’s shares for other legal entities
- 25% of a Sharia bank’s shares for individuals
- 20% of a non-Sharia bank’s shares for individuals
- Further, temporary, exemptions may be granted by Bank Indonesia (Article 22)
The above limits apply to groups of shareholders acting in concert, related through ownership, or having family ties to the second degree (Article 4)
The Regulation does not differentiate between ownership by foreign and domestic shareholders, although foreign controlling shareholders have the added requirement that they be rated one notch above investment grade for bank financial institutions, two notches above investment grade for non-bank financial institutions, and three notches above investment grade for other legal entities (Article 5). The ownership limits do not apply to state-owned banks (Article 3).
Shareholders with ownership above 40%, who are granted permission in accordance with Article 6, will have to take the bank public and achieve 20% public ownership within 5 years (Article 7).
Existing ownership is regulated under Articles 10 through 13, whereby owners who fail to meet the financial health and corporate governance requirements before 2014 (or fail to meet the requirements on 3 subsequent occasions) will have to obtain approval of their plan to comply (Article 19) and then sell shares in order to comply with the above-described limits within 5 years. After the issuance of the Regulation, Darmin Nasution, the Governor of Bank Indonesia, announced that 10, unnamed but likely smaller, banks do not meet the financial health and corporate governance requirements.
Alternative, extended, compliance time limits are set out for banks under special supervision (Article 14), mergers/consolidations (Article 15), and spinoffs of Sharia banks (Article 16).
Source: Bank Indonesia Regulation No. 14/8/PBI/2012 on Share Ownership in Banks
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