Talks on Foreign Ownership in Banking Draft Bill Remain Tough

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  • Otoritas Jasa Keuangan. TEMPO/Tony Hartawan

    Otoritas Jasa Keuangan. TEMPO/Tony Hartawan

    TEMPO.CO, Jakarta - The deputy director of the Financial Services Authority's (OJK) Department of Research and Banking Regulation, Edy Setijawan, said that one of the hurdles that had yet to be overcome in the discussion on the Banking Draft Bill (RUU) was foreign stakes in local financial institutions.

    "Foreign stakes need to be closely monitored in order to ensure the stability of Indonesia's banking sector," said Setijawan during a public discussion on the plans to revise the Banking Law on Wednesday.

    According to Setijawan, current circumstances do not allow for Indonesian financial institutions to drive the growth of Indonesia's financial sector on its own. As such, the OJK is pushing for regional banks and international stakeholders to assist more in the development of Indonesia's sectors that need a bit of assistance to develop. "This is similar to the approach adopted by the Philippines," he said.

    Previously in August 2014, the House of Representative's (DPR) Commission overseeing finance and banking affairs claimed to have completed at least around 95 percent of the planned amendments to the Banking Law, wherein they claimed to have agreed to limit foreign ownership in local banks to a maximum ceiling of 40 percent, and that foreign banks wishing to operate in Indonesia was mandated to open a legal entity based in Indonesian jurisdiction.

    Setijawan said that the main guiding principle in the amendment, which was slated to replace Law No. 10 of 1998 on Banking should be crafted to ensure the sustainability of Indonesia's banking sector, something that needs to be reflected by both OJK's rules as well as bank Indonesia's decrees.

    Other issues that need to be focused on, according to Setijawan, include the manner of reporting financial performance of Indonesia's banking institutions, the transparency of a financial institution in terms of its ownership and stakeholders, as well as the corporate social responsibility side of things—including environmental sustainability.

    For example, OJK hopes that the financial services sector could increase its contribution in assisting the government to fund Indonesia's "green" industries in the next 10 years. "We hope that in the upcoming years, these institutions could begin to shift their focus away from simply making profits, but also towards environmental sustainability," said Setijawan, who wishes that financial institutions would make an annual sustainability report.

    "There needs to be awareness on the issue—any institutions found guilty of funding or engaging in environmentally-unsound practices need to be penalized," said Setijawan.

    Economist Yanuar Rizky, meanwhile, said there were several conflicts of interests in the discussion of the Law. However, stakeholders need to be able to overcome these issues in order to ensure that Indonesia's banking sector remains accountable and transparent.

    "Obviously not all needs could be facilitated, but what's more important is that the public needs to be able to know how our banking sector is being monitored," said Rizky, adding that the current public access to accountability reports remains highly limited.

    The head of Indonesia's Consumer Protection Agency (YLKI), Sudaryatmo, also voiced the same concern. According to him, the majority of complaints in 2014 from consumers are related to the problems in Indonesia's banking sector—as such, he hopes that the amendments could address the issue specifically relating to foreign ownership in local financial institutions, the state's role in controlling Indonesia's financial services sector, as well as the protection of a customer's confidential information.

    Furthermore, the executive director of Perkumpulan Prakarsa, Setyo Budiantoro, hopes that the government can push for greater financial inclusion in the proposed amendments in order to boost the growth of Indonesia's small-and-medium enterprises (SMEs)—many of which have limited to no access to financial services. "Financial elitism is still very apparent in Indonesia's banking sector," he said.