Tougher licenses for Indonesian banks

Rules designed to protect the financial system from future shock.

Beginning January 2013, Bank Indonesia (the central bank) will require banks to obtain one of four licenses that will determine the operations they are allowed to perform. Existing regulations don’t tie a bank’s services to its capital level.

Banks holding less than 1 trillion rupiah (US$104 million) in capital won’t be allowed electronic banking or foreign-exchange transactions. BI may grant approval to such banks in some cases.

Those with 1 trillion to less than 5 trillion rupiah can have electronic banking and currency services. Such banks may also hold stakes in other financial institutions, as high as 15% of their capital.

The third category will be for banks with 5 trillion to less than 30 trillion rupiah in capital, allowing them to provide full banking services including dealing with sophisticated structured and offshore products.
These banks will be expected to be competitive at the regional level.

The fourth license, for banks with capital of at least 30 trillion rupiah, will be similar to the third, though these banks will be expected to be competitive at the regional and international level.

Effective immediately, Indonesian banks with capital of at least 5 trillion rupiah will be allowed to provide trustee services to manage revenue from exports in the domestic market. The central bank has asked companies to place export revenue and foreign-loan proceeds in domestic banks.

Analysts believe the new rules are good for consolidation since Indonesia has 120 commercial banks. They say BI wants to consolidate in a neutral way by looking at the risk of each bank.