Indonesia caps foreign ownership of local banks at 40%

The current permitted level of foreign ownership - 99% - was introduced after the Asian financial crisis in 1998, but has become a political hot potato, given that the thresholds in neighboring countries are much lower. Eight of Indonesia's top 11 banks by market value are either controlled by foreign banks, families, private equity firms or sovereign wealth funds.

Under the new rules, financial institutions can hold up to 40% of local banks, while the caps for non-financial institutions and individuals are 30% and 20%, respectively. In cases where Bank of Indonesia deems the criteria for exemption are not met, investors will have to reduce their stakes by January 2019.

Apart from the Temasek stake in Bank Danamon that DBS wants to acquire, TPG Capital has a 59.7% interest in BTPN while Khazanah Nasional indirectly holds 93% of Lippo Bank. Of the foreign bank investors, CIMB owns nearly 97% of Bank CIMB Niaga, while Maybank controls 95% of Bank International Indonesia.

Indonesia's financial services industry has become a popular target for private equity investors who see it as a proxy for strong consumer growth in the country.

However, valuations remain a concern. David East, a transactions and restructuring partner with KPMG in Jakarta, told AVCJ earlier this year that deals are already breaking down due to differences over price. He cited HSBC's purchase of a controlling stake in Bank Ekonomi Raharja for $607 million in 2008, which priced the lender at 4.1x book value.

DBS - which is majority-owned by Temasek - has offered to pay IDR7,000 in cash for all outstanding shares, a 52% premium to Bank Danamon's March 30 closing price. This values the lender at 2.62x book value.

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• Topics
• Southeast Asia
• Financials
• Regulation
• Financial Services
• Indonesia
• Temasek Holdings
• TPG Capital
• Khazanah Nasional
• regulation