Indonesia’s ownership limit plan seen to affect Malaysian banks

An analyst said earnings contribution and the growth strategy of banks would be affected because of the proposed measure.

Malaysian banking groups with exposure to Indonesian banks will see an earnings impact and possibly need to re-think their growth strategy should the Indonesian central bank impose a retroactive ruling that requires major shareholders to reduce their stakes in that country's banks.

However, it is premature to judge the financial impact on the groups' earnings as there is still much ambiguity surrounding the proposed changes to Indonesia's banking ownership rules.

A foreign research analyst said if Malaysian banking groups were required to reduce their stakes in their Indonesian units, earnings contribution from the Indonesian market would drop in line with the paring down of stakes, and the growth strategy of the banks would be affected.

“As a function of reduced earnings, we can expect these companies to see their share price, return on equity and valuation affected,” he added.

The analyst said one of two possibilities would come from the capital gains made through the paring down of shareholding Malaysian banks would either return the gains to shareholders or re-deploy the capital for other Asean banking investments.

“The chance of the second option is higher and they will likely look at markets like Thailand,” he said.

View the full story in the Malaysian Star.