Global Business Guide Indonesia

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Finance | Methods of Entry into Indonesia’s Banking Sector

Purchase of shares in banking entities:

  • Foreigners can purchase up to 99% of the total shares in the bank through private placement or on the stock exchange.
  • Purchase of 25% or more requires approval from Bank Indonesia.
  • Transfer in control of the bank requires approval from Bank Indonesia.
  • Funds for purchase may not be through loans from banks in Indonesia.

Acquiring an existing bank

  • Foreigners (foreign citizens or legal entities) can own up to 99% so a local shareholder is required for the remaining 1%.
  • Takes advantage of the banks’ existing network and customer base.
  • Risk of taking on non-performing loans (NPLs) and other past liabilities.
  • In tune with the API framework to consolidate the sector and bolster capitalisation.
  • Fierce competition with investors eyeing the sector making prices high (2-3 times book value) and the need for connections on the ground to seek out opportunities.

Opening up a branch of a foreign bank

  • Can be 100% foreign owned so a local partner is not required.
  • $330 million USD paid up capital required / $330 million USD for shariah banks.
  • The bank must be found within the top global 200 banks by assets for branch establishment, or in the top 300 for representative office establishment.
  • A special operating license is required from Bank Indonesia in order to establish a foreign branch.
  • Challenges exist in establishing a local network, gaining necessary investment permits and building up the capacity of human resources.

Establishing a new bank

  • Foreigners (foreign citizens or legal entities) can own up to 99% so a local shareholder is required for the remaining 1%.
  • $330 million USD minimum paid up capital required / $110 million USD for shariah banks.
  • A special operating license is required from Bank Indonesia in order to establish a banking entity.
  • Challenges exist in establishing a local network, gaining necessary investment permits and building up the capacity of human resources.

Investing in Islamic banks

  • Funds used for purchase must have been obtained by means that meet shariah principals.
  • Shariah banks require oversight by a Shariah Supervisory Board of up to 5 people and candidates must be approved by Bank Indonesia.
  • Bank Indonesia guide on investing in Shariah banking icone pdf

Global Business Guide Indonesia - 2012

icone share

Indonesia Finance Snapshot - Banking

Contribution to GDP: 2.87% (2016)
Return on Assets: 2.30% (Q4 2015)
Number of Commercial Banks: 120; 4 State/Partially State Owned, 10 Foreign, 16 Joint Ventures, 32 Non Foreign Exchange, 35 Foreign Exchange, 26 Regional Development Banks (August 2015).
Number of Islamic Banks & Units: 13 Banks, 32 Units (2016)
Total Assets: 6,244 trillion IDR (Q3 2015)
Government Bodies: Bank Indonesia, Ministry of Finance, Financial Services Authority (OJK).
Relevant Law: Bank Indonesia Regulation No. 14/8/PBI/2012 on Share
Ownership in Commercial Banks limits ownership by a single local/foreign financial institution to 40%, by a non financial institution to 30%, and by an individual to 20%. Larger stake is possible with the approval of Bank Indonesia.