Indonesia is planning further steps to make it easier for foreign banks to invest in local lenders as well as encourage domestic mergers, as it tries to strengthen the sector against growing competition from financial technology firms, reported Bloomberg.
Heru Kristiyana, the Commissioner for Banking Supervision at the Financial Services Authority, said that Otoritas Jasa Keuangan expects to amend the so-called single presence policy later this year.
“The single presence policy will be flexible so that there is 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 five per cent,” Kristiyana said.
The single presence rule was introduced in 2006 to push consolidation among the 2,000 or so local banks, however it proved unpopular with some of the foreign lenders seeking to expand their operations in Indonesia.
A bigger deterrent came in 2012 when regulators set conditions for financial institutions to raise holdings in banks above 40 per cent, prompting DBS Group Holdings to abandon an attempt to take over Bank Danamon Indonesia the following year.
Since then, Indonesia has relaxed the 40 per cent rule, clearing the way for Japan’s Mitsubishi UFJ Financial Group to take control of Danamon earlier this year and for Sumitomo Mitsui Financial Group to buy Bank Tabungan Pensiunan Nasional.
Kristiyana said that the entry of technology firms into the financial industry requires a nimbler banking sector in Indonesia, with the development of fintech and banking digitalisation, banks are required to be efficient so they can compete.
Indonesia has 115 conventional and Shari’ah banks and almost 1,800 rural lenders, catering to the archipelago’s more than 260 million people.
Additionally, banks are among the best performers in Indonesia this year with the Jakarta Stock Exchange Finance Index surging 12 per cent, outperforming the three per cent gain for the broader benchmark index.