Indonesia signals relaxation of banking and M&A rules

Indonesia signals relaxation of banking and M&A rules

Indonesia has proposed measures to enable foreign investment in its banking sector, as well as making it easier for Indonesian banks to merge.

The planned changes, first reported by Bloomberg, signal a relaxation of the country's banking rules as part of a wider big to encouage inward investment into Jakarta's financial services industry.

In particular, the changes relate to the so-called single presence policy, which is expected to be revised by the end of the year. The single presence rule, in effect since 2006, was intended to encourage consolidation among the 2,000 Indonesian banks.

However the regulation proved unpopular with some foreign investors seeking to expand their operations in Indonesia. A more recent reform forced financial institutions to have minimum holdings of 40% in banks.

Heru Kristiyana, commissioner for banking supervision at the Financial Services Authority (OKJ) told Bloomberg: "The single presence policy will be flexible so that there's consolidation and our banks become more efficient. Foreign banks are still interested in coming to Indonesia because the net interest margin is still high at around 5%."

Indonesia is home to more than 260m people, and is the world's most populous Muslim country. Indonesia has 115 conventional and Shari'ah banks and 1,800 smaller lenders across the country. The Jakarta Stock Exchange Finance Index is up 12% on last year, and the central government will be keen to sustain in the burgeoning sector.

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Christopher Copper-Ind

Christopher Copper-Ind is editor-in-chief of International Investment. Before this, he was editorial director of The Business Year, from 2014 to 2017.