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Indonesia Ties Banking Licenses to Capital Levels for First Time

Indonesia’s central bank will tie the services a lender can offer to its capital level, adding to measures designed to protect the financial system from potential crises, Governor Darmin Nasution said.

Starting January 2013, Bank Indonesia will require lenders to obtain one of four licenses, which will determine the operations they will be allowed to perform, Nasution said yesterday at the annual Bankers Dinner in Jakarta. Current regulations don’t tie a lender’s services to its capital level.

The monetary authority has taken steps to guard against external shocks amid a European debt crisis and an uneven U.S. recovery, such as requiring minimum capital adequacy ratios. It has also moved to reduce the risk of a domestic property bubble and minimize credit risk by imposing measures such as minimum down payments for mortgages and auto loans.

“This rule is good for consolidation,” Wilianto Ie, Nomura Indonesia’s Jakarta-based head of equity research, said before the dinner. “Indonesia has so many banks, BI wants to consolidate in a neutral way by looking at the risk of each bank. This is not too controversial as other countries do the same thing.”

Indonesia has 120 commercial banks, according to the regulator’s website.

Under the new rules, banks holding less than 1 trillion rupiah ($104 million) in capital won’t be allowed electronic banking or foreign-exchange transactions, according to a statement distributed at a pre-dinner briefing yesterday. The central bank may grant approval to such banks in some cases, according to the statement.

Currency Services

Those with 1 trillion to less than 5 trillion rupiah can have electronic banking and currency services. Such banks may also hold stakes in other financial institutions, as high as 15 percent of their capital.

The third category will be for banks with 5 trillion to less than 30 trillion rupiah in capital, allowing them to provide full banking services including dealing with sophisticated structured and offshore products. These banks will be expected to be competitive at the regional level.

The fourth license, for banks with capital of at least 30 trillion rupiah, will be similar to the third, though these lenders will be expected to be competitive at the regional and international level.

Effective immediately, Indonesian banks with capital of at least 5 trillion rupiah will be allowed to provide trustee services to manage revenue from exports in the domestic market, according to the statement. The central bank has asked companies to place export revenue and foreign-loan proceeds in domestic banks.

Bank Indonesia expects revenue from oil and gas exports to reach $28 billion to $34 billion a year through 2016, Filianingsih Hendarta, director of financial system stability, said yesterday at the briefing.

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