Download A Proposed Limitation by Bank Indonesia on Bank

January 19, 2012
A PROPOSED LIMITATION BY BANK INDONESIA ON BANK OWNERSHIP
LOOMS ON THE HORIZON
To Our Clients and Friends:
Over the past ten years, Indonesia's commercial banking sector has been an attractive destination for
foreign investors. This has been in large part due to the Indonesian government's relaxed banking
policy, which until now has been geared towards fostering foreign investment in the industry. A
proposed amendment to the banking policy, however, may have significant consequences for current
and potential investors.
Following the 1997 Asian financial crisis, the Indonesian government enacted Government Regulation
No. 29 of 1999 regarding the Acquisition of Shares of Commercial Banks, which said that any entity
could own up to 99% of an Indonesian commercial bank's shares. Enacted to spur foreign investment
and shore up the Indonesian economy following the crisis, the policy has been effective; almost onethird of Indonesia's commercial banks are majority foreign-owned or foreign joint ventures.
Now, however, Bank Indonesia ("BI"), the central bank of Indonesia, has announced that it is
considering restricting ownership by any single entity to 50% of the shares of any Indonesian bank.
Further, it announced that this policy will be applied retroactively, which means that any single entity
that currently holds more than 50% of the shares of any bank will have to divest itself of enough shares
to bring it within the 50% limit. BI has temporarily barred mergers and acquisitions within the
industry while it considers the move.
BI officials state that the purpose of the proposed move will be to improve bank corporate governance
and strengthen controls. The perception within the industry, however, is that the proposed move will
signal a reversal of the existing policy of welcoming foreign investment and that the results will be
potentially damaging to the industry. BI had earlier stated that it expected to implement the new policy
before the end of 2011, but the end of 2011 has come and gone. Uncertainty will remain high until BI
makes clear its intentions.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have
regarding the issues discussed above. Please contact the Gibson Dunn lawyer with whom you work or
any of the following lawyers in the firm's Singapore office:
Emad Khalil (+65 6507 3682, [email protected])
Chris Graham (+65 6507 3632, [email protected])
© 2012 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes
only and are not intended as legal advice