Reuters: Regulatory News: UPDATE 2-Indonesia sets guidelines for stakes in banks

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UPDATE 2-Indonesia sets guidelines for stakes in banks Jul 18th 2012, 14:16 Wed Jul 18, 2012 10:16am EDT * Cbank caps bank ownership at 40 pct * Healthy listed banks can get approval for higher stakes * Existing owners need to meet tests or sell down stake JAKARTA, July 18 (Reuters) - Indonesia's central bank will set ownership limits in local banks at a maximum 40 percent, but will allow exemptions that leave open the door for DBS Group's 's $7.2 billion bid for Bank Danamon. The long-awaited regulation released on Wednesday said Bank Indonesia will approve higher levels of ownership if they are listed banks with strong financial health, including tier 1 capital above 6 percent. "The ability to approve higher thresholds looks like it may have the DBS merger in mind," said Joel Hogarth, a partner at O'Melveny and Myers law firm in Jakarta. DBS, Southeast Asia's largest lender, still has to pass Bank Indonesia's "fit and proper" test, said a source with direct knowledge of the deal, which would be the biggest ever takeover of an Indonesian firm and Asia's fourth-biggest banking deal. The central bank rule is aimed at ensuring the financial health of majority owners in local banks in the G20 economy, after a slew of bankruptcies in the 1998 financial crisis. Since then Indonesian banks have generally become relatively well capitalised with the sector a magnet for foreign investment, leading some analysts to speculate the central bank's plans were instead targeted at limiting foreign ownership. Eight of Indonesia's top 11 banks by market value are either controlled by foreign banks, business families, private equity firms or wealth funds in one of the region's most open banking sectors. Foreign entities are currently allowed to hold up to 99 percent of local banks. Under the new rule, existing majority owners failing to meet Bank Indonesia's top standards for financial health will have to reduce their stakes to comply with the limit by January 2019. The central bank, the country's banking regulator, said financial instititions can hold up to 40 percent of local banks, while non-financial institutions can hold up to 30 percent and individuals only 20 percent. The limits do not apply to state owned banks such as top lender Bank Mandiri. "Banks can own more than 40 percent shares in (local) banks' capital as long as they obtain approval from Bank Indonesia," the central bank said in the regulation, adding such owners will still need to have 20 percent listed after five years. CLEARER WATER Bank Danamon's CEO Henry Ho said the rules were now more transparent for DBS, though would not say if they improved the chances of a deal happening. "To go on with the deal, we are still evaluating the impact (of the rule)... It is certainly clearer," Ho told Reuters. DBS was not immediately available for comment. DBS will study the new rules and then move quickly to fulfill the BI process, said the source, who declined to be identified because they were not authorised to speak to media. Danamon's stock, which closed trading before the announcement, has climbed in the past two months on hopes the deal would still go ahead. DBS plans to buy the 67.4 percent stake in Danamon held by Singapore state investor Temasek Holdings and offered a 52 percent premium to minority shareholders when it announced the bid in early April.. The bid soon ran into trouble as some local bankers and politicians said they would oppose it, while Bank Indonesia said it would first finalise the new bank ownership rule, one of a series of policymaker moves in 2012 worrying foreign investors. "It seems they have kept the door open by not differentiating between foreign and local owners," said a banking analyst, who declined to be identified. Link this Share this Digg this Email Reprints

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