New Indonesian banking law implemented by 2014

Limits foreign ownership in banks to only 51%.

Indonesian legislators are already drafting the law that is expected to include a maximum 51% limit on the amount a foreign investor can own of a local bank.

The draft law needs to be approved by parliament and by the president. It will replace the law enacted after the 1998 Asian financial crisis when many banks collapsed and that allowed foreign investors to own up to 99% in an Indonesian bank.

“It will definitely come out next year,” said Muliaman Hadad, head of the Financial Services Authority, which will become the financial sector regulator starting January 2014. It takes over this function from Bank Indonesia, the central bank.

“We are working on the proposed law but we have not decided on the percentage yet,” he said

BI rules were introduced after last year’s DBS Bank’s US$7.2 billion bid for PT Bank Danamon Indonesia. If DBS is allowed to buy the entire bank, it would mark the biggest bank merger in Southeast Asia.