Indonesia may allow banks to own as much as 90 percent of commercial lenders, easing concerns on ownership caps that may affect acquisitions including DBS Group Holdings Ltd.’s bid for PT Bank Danamon Indonesia.
Bank Indonesia plans to announce the ownership rule before July, Deputy Governor Muliaman Hadad, who’s in charge of banking regulations, said in Jakarta after a speech today.
The ownership stake “could be that high,” Hadad said, responding queries from reporters on whether banks could own as much as 90 percent of local lenders. “Of course this will be on a very selective basis.”
The comment comes two months after Singapore’s DBS’s 66 trillion rupiah ($7 billion) bid for Danamon, which triggered proposals from Bank Indonesia’s officials to restrict the shareholding of local lenders by other financial institutions. The possible limit led traders to bet that the deal, Southeast Asia’s largest banking takeover, may unravel.
“There has been a lot of relatively negative news flow on Indonesia’s recent regulatory changes,” said Anand Pathmakanthan, a Singapore-based analyst at Nomura Equity Research who has a “buy” rating on DBS shares. “So this could be a bit of a white flag, sort of a concession by Indonesian authorities to indicate to the market that they are open to foreign direct investments. Chances are definitely higher with this so-called concession.”
Indonesia’s parliament this week approved Hadad to head the board of a national financial regulator due to start operating in January 2013.
Danamon shares fell as much as 30 percent to 4,900 rupiah earlier this month following DBS’s 7,000 rupiah a share offer. The stock traded 0.9 percent higher at 5,800 rupiah as of 11:08 a.m. in Jakarta after rising as much as 3.5 percent. DBS climbed 0.6 percent to S$13.70, set for the highest since May 15.
The takeover of Danamon would give DBS a 3,000-branch network of 6 million customers, more than the entire population of Singapore. As Southeast Asia’s largest bank, DBS generates 81 percent of its profit from its home city and Hong Kong, where low interest rates have squeezed income from lending, according to data compiled by Bloomberg.
Indonesia’s economy grew 6.46 percent last year, its fastest rate since the Asian financial crisis began in 1997.
DBS announced on April 2 that it would acquire Danamon in two transactions, with the first involving swapping its shares for the 67 percent stake in Danamon that’s owned by Singapore’s state-backed investment company Temasek Holdings Pte, which is also its biggest investor. The Singapore bank will then pay 7,000 rupiah a share for another 32 percent, for a total value of more than $7 billion.
That would make it the largest takeover of a Southeast Asian bank, exceeding Singapore-based United Overseas Bank Ltd.’s $5.5 billion acquisition of local rival Overseas Union Bank Ltd. in 2001, according to data compiled by Bloomberg.
On April 11, Bank Indonesia, the nation’s central bank, said it had sent a letter to its counterpart in Singapore seeking equal access for Indonesian lenders looking to expand in Singapore. The central bank didn’t specify what kind of access it was asking for. The Monetary Authority of Singapore has said its dealings with other regulators are confidential.
Currently only one Indonesian lender, PT Bank Negara Indonesia, has a full bank license in Singapore that allows it to take deposits, make loans, and offer financial advisory services and insurance broking, among other businesses, data from the Monetary Authority of Singapore show.
Indonesia currently allows foreigners to own 99 percent of a bank, a legacy of the Asian financial crisis when the nation’s economy shrank 13 percent in 1998. The country was forced to accept a $43 billion International Monetary Fund bailout as its currency slumped, companies defaulted on debt and more than 80 banks failed or were nationalized or recapitalized.
Bank Indonesia said on April 27 that it wouldn’t review DBS’s bid until after it unveils new ownership rules for banks and also reaches an agreement on access to Singapore. The central bank also said May 31 it may allow banks to own more than 40 percent of local lenders provided investors meet a set of its criteria.
-- With assistance from Berni Moestafa in Jakarta. Editors: Linus Chua, James Gunsalus