25 Jul 2013

Bank Indonesia (“BI”) on 26 December 2013 issued Regulation No. 14/24/PBI/2012 regarding Single Ownership in Indonesian Banks (the “Regulation”).

The Regulation was issued as an effort of BI to improve the competitiveness of Indonesia’s banking industry in light of the economic development in regional and global levels, by reducing the number of Indonesian banks via consolidation. This policy is commonly known as the “single presence policy” or the “SPP”, and was first introduced by BI in 2006.

Under the updated SPP, basically a party may only become a controlling shareholder in one bank. However, a party may become a controlling shareholder in two banks if (i) the two banks operate under different business principles (such as the conventional principle and the sharia principle); or (ii) one of the banks is a joint venture bank, namely a bank established jointly by a foreign and a local shareholder. “Controlling party” is defined as a party which controls 25% or more shares in the bank or, if it holds less than that percentage threshold it has direct or indirect control over the bank.

Article 3 of the Regulation stipulates that controlling shareholders of more than one bank are obliged to restructure their ownership by conducting a merger or consolidation, establishing a holding company, or establishing a holding function. For the first two restructuring options, i.e. merger and establishment of a holding company, the act must be implemented within one year after the Regulation enters into force. For the establishment of a holding function, the act must be carried out within six months after the Regulation enters into force.

The restructuring option in the form of merger and consolidation comes with the following incentives: (i) time extension for compliance with the compulsory minimum reserves (Giro Wajib Minimum); (ii) time extension for the settlement of the legal lending limit; (iii) facilitation for the opening of the branch offices, and/or (iv) temporary facilitation for the implementation of the Good Corporate Governance.
Controlling shareholders that opt for the transfer all of their shares into a bank holding company should note that the Regulation requires that the holding company must be formed as an Indonesian limited liability company that is established in accordance with the Indonesian law. The holding company is a separate company which does not carry out the banking activities – it merely controls the activities of the financial institutions under it.

The Regulation repeals and replaces BI Regulation No. 8/16/PBI/2006 regarding Single Ownership of Indonesian Banks and its implementing regulation as well as certain articles in BI Regulation No. 8/17/PBI/2006 regarding Incentives in Banking Consolidations (as amended).

The Regulation has been in force since the day of its issue of 26 December 2012. (by: Hamud M. Balfas).