|Freddy Karyadi||Oene Marseille|
- the provisions in the 2006 Regulation; and
- the provisions in Article 2 paragraph 2a and e, Article 3, and Article 7 of BI Regulation number 8/17/PBI 2006 regarding incentives for the purposes of banking consolidation as amended by BI Regulation number 9/12/PBI/2007.
The regulation aims to improve the competitiveness of the Indonesian banking system both on regional and global levels of economic development, by reducing the number of Indonesian banks via consolidation. This policy is also commonly known as the single presence policy, which is applicable to the banks' controlling shareholders that either hold at least 25% shares and have voting rights or have a direct or indirect control of the bank even with less than 25% of the shares.
Based on this regulation, a party may only become a controlling shareholder in one bank with an exclusion for: (i) a controlling shareholder in two banks that operate under different business principles (conventional and sharia); and (ii) a controlling shareholder in two banks, if one of the banks is a joint venture bank.
The controlling shareholder who (i) has become a controlling shareholder in more than one bank; or (ii) buys shares in another bank which makes him the controlling shareholder in more than one bank; is obliged to (a) conduct a corporate action (merger or consolidation) in the bank which they controlled; (b) establish a bank holding company; or (c) establish a holding function.
For the action to be taken by the controlling shareholder in point (a) and (b) above, such action shall be conducted within one year at the latest, from the date of effectiveness of the Regulation (for the controlling shareholder who has become controlling shareholder in more than one bank) or as of the purchase of shares in another bank (for the controlling shareholder who buys shares in another bank which makes it becoming the controlling shareholder in more than one bank). On the other hand, for the action to be taken by the controlling shareholder in point (c) above, such action shall be conducted within six months at the latest from the date of effectiveness of the Regulation (for the controlling shareholder who has become controlling shareholder in more than one bank) or as of the purchase of shares in another bank (for the controlling shareholder who buys shares in another bank which makes it becoming the controlling shareholder in more than one bank). This time limit may be extended if the problem of the controlling shareholder or the bank which is controlled by them is complex.
Furthermore, as for the controlling shareholder who chooses to implement corporate action, there will be several incentives given to the merged or consolidated banks such as:
- a temporary loosening on the compliance of statutory reserve requirement (giro wajib minimum);
- a time extension on the completion of the maximum credit ceiling (batas maksimum pemberian kredit);
- a facility on the opening of branch; and/or
- a temporary loosening on the application of good corporate governance.
As stated above, the controlling shareholder may also establish a bank holding company and transfer all of their shares to it. The regulation states that the holding company must be formed as a limited liability company which is established in Indonesia, and it is only allowed to participate in providing certain services such as management services to increase the effectiveness of consolidation, business strategies, and financial optimisation for its subsidiaries. The bank holding company may be established as a sole legal entity or as a financial holding company which consolidates the financial institution owned by the controlling shareholder.
On the other hand, for the holding function, it can only be conducted by a controlling shareholder which is an Indonesian bank or a government institution of the Republic of Indonesia. The holding function shall be led by:
- a member of the board of directors in the bank which becomes controlling shareholder;
- an official appointed by senior management of a government institution of the Republic of Indonesia.
Furthermore, banks that are subject to the Regulation must submit a report within three months after the Regulation comes into force, with the addition of quarterly implementation reports. Meanwhile, banks acquired by the controlling shareholder in another bank must file a compliance report to the BI with the acquisition permit application.
A controlling shareholder who fails to comply with the single presence policy is prohibited from executing controlling functions and from acquiring more than 10% with valid voting rights from the bank's total shares. Such a bank should (i) register the ownership of shares and the voting right of the controlling shareholder in the annual general meeting of shareholders for a maximum of 10% of the total shares of the bank; and (ii) provide that the excess shares of above 10% to be a non-voting right until the transfer of such shares to another party. The excess shall be transferred within one year as of the expiry of compliance as stipulated in the Regulation. Failing to do so will mean administrative sanctions for the bank to the amount of Rp500,000,000 ($52,000), and penalties in the good corporate governance aspect in the evaluation of the bank's health. On the other hand, with regards to the controlling shareholder who fails to transfer the excess shares, it will be prohibited from becoming a controlling shareholder in Indonesian banks for the period of 20 years.
Oene Marseille and Freddy Karyadi