Only foreign banks doing retail banking will convert to PTs

New banking bill could also exempt foreign banks involved in wholesale business from this.

Indonesia’s House of Representatives could alter a clause in the Banking Bill requiring all foreign banks operating as branches to convert into legal business entities or PTs.

Sources said the amendment will treat foreign banks differently. Foreign banks focusing on wholesale banking (corporate loans and infrastructure financing) will be exempted while foreign banks engaged in retail banking (consumer loans) will have to convert into PTs.

By transforming into a PT, a foreign bank will operate as an independent company, meaning its parent company offshore will be unable to withdraw money from Indonesia if there is a liquidity shortage in the bank’s overseas headquarters.

Government sources said this suggestion was not yet final and there is a good chance the government’s might push ahead with its initial plan of requiring all foreign banks, without exception, to become PTs.

Advocates said that obliging all foreign banks to become PTs was necessary to ring fence Indonesia’s banking industry from the contagious impact of the financial crises overseas.

Foreign banks focusing on wholesale loans could be exempt since they channel credit to corporate and infrastructure projects. As branches, these units have access to cheaper funds from their overseas headquarters. If they become PTs, their funding costs will rise.