Indonesia Might Cut State Ownership Of Major Banks - Report

Tom Burroughes

13 August 2014

Indonesia may reduce public stakes in banks and seek to channel more credit to industry, as proposals are considered for the incoming president Joko Widodo, whose party recently won power in national elections, Bloomberg reported.

Financial regulators and economic officials from the current administration will meet next week to set out plans to deal with high domestic borrowing costs and inadequate lending to manufacturers, the news service quoted Edi Prio Pambudi, an assistant deputy minister at the Coordinating Ministry for Economic Affairs, as saying. Ideas include quotas and privatising state-owned banks.

“Banking in Indonesia is still dominated by public banking not private banking,” Pambudi was quoted as saying in an interview. “The cost of financing is very expensive” and the country needs to reallocate the investment focus from primary commodities into manufacturing, he said.

The new government will want to boost gross domestic product growth to 7 per cent, a rate not seen in Southeast Asia’s biggest economy since the 1997-98 financial crisis, the report said.

Pambudi did not state how state-owned banks will be privatised if such an idea is embraced, the report said. The country’s largest lender, PT Bank Mandiri, is 60 per cent-owned by the government. Others that are state-owned include PT Bank Rakyat Indonesi, PT Bank Negara Indonesia and PT Bank Tabungan Negara.

Policy on banking and ownership in Indonesia appears to be torn between such ideas of privatisation on one hand, and restrictions on overseas ownership, on the other. In July, it was reported that Indonesian lawmakers were considering a measure to force foreign banks to reduce majority stakes in local lenders, a move that could hit much-needed overseas investment. The move would, if it comes to pass, happen a year after Singapore-listed DBS, one of the largest Asian banks in the region, failed to win regulatory clearance to acquire Bank Danamon.

Such proposed foreign ownership curbs will make Indonesian banks less desirable targets for foreign suitors; other Asian nations are, by contrast, loosening controls, such as the Philippines.