Indonesia is reportedly planning to ease-up on regulations that make it hard for foreign banks to invest in some of the country's local lending institutions. The goal is to improve the lending sector's competitive edge against other booming segments.
According to Bloomberg, the Financial Services Authority (OJK) is expecting to make amendments to Indonesia's single presence policy. If the revisions are rolled out successfully later this year, domestic and foreign lenders will have the same status.
If the policy is revamped to allow for no distinctions on local and foreign lenders, banks will no longer be forced to merge all domestic operations into a single entity. This policy has kept some foreign institutions to invest in Indonesian lending firms.
"The single presence policy will be flexible so that there's consolidation and our banks become more efficient," commissioner for banking supervision at OJK, Heru Kristiyana, said of the potential amendments.
Indonesia's single presence policy is very popular among domestic financial institutions. However, some foreign investors noted that they are not willing to merge operations even if they are interested in Indonesia's growing lending segment.
This is not the first time Indonesia ease up on some aspects of its financial sector. Foreign holdings in local lending firms were restricted to 40 percent in 2012, prompting more non-Indonesian investors to shun the country's financial opportunities.
However, the Indonesian government decided to ease up on the holdings policy and resulted in some notable acquisitions. Bank Tabungan Pensiunan Nasional was obtained by Sumitomo Mitsui Financial Group Inc. under the changes.
The idea of consolidating for the purpose of improving competition came after the government acknowledged the disruption fintech (financial technology) has brought to the Indonesian financial market.
With the upcoming removal of the single presence policy rule, industry experts are looking at more foreign investments coming in. It is further expected that more banks will keep up with the competition brought about by fintech innovations.
Indonesia is not the first Asian country to announce opening-up measures. In mid-July, Beijing announced plans for China to lift some restrictions on financial investments from foreign firms and entities.
Shareholding limits will be removed on foreign ownership securities in 2020, the Financial Stability and Development Committee of China said in a statement. The same changes will apply to fund management companies and insurance firms.
It remains to be seen if other Asian countries will follow suit now that Indonesia has joined China in easing up on foreign investments. China, more specifically, acknowledged the potential economic drive that foreign investments will haul into the economy.
