One of Asia’s biggest proposed banking takeovers was cast into doubt on Thursday when the Indonesian central bank unveiled plans to cap individual investors’ ownership of banks at 40 per cent.
The restriction could prevent Singapore’s DBS from completing a potentially transformative $7bn takeover of Bank Danamon, an Indonesian bank that is 67 per cent-owned by Temasek, the Singapore state investor that controls DBS.
Halim Alamsyah, a deputy governor of Bank Indonesia, told analysts on Thursday that the bank ownership cap, which he first proposed last year, would be set at 40 per cent for financial institutions and 30 per cent for other investors.
But he said the regulation would apply only to new investments and would not be retroactive, providing relief to foreign banks such as HSBC and Standard Chartered, which had feared they would be forced to sell down their respective stakes in local lenders Bank Ekonomi and Bank Permata to the new threshold.
He also told analysts on a call that the rules might allow banks that had better than “average” corporate governance to hold more than 50 per cent.
Indonesia has one of the most liberal bank ownership regimes in Asia, with foreign investors allowed to own up to 99 per cent of local banks. Foreign lenders such as DBS are keen to gain access to Indonesia’s fast-growing banking sector. The central bank said it wanted to restrict ownership by individual investors to improve governance.
Foreign investors fear the regulation is part of a trend towards economic nationalism in the run-up to the presidential election in 2014.
DBS announced in early April that it was planning to buy the 67 per cent stake in Bank Danamon that is held by Temasek. Analysts said that if DBS was unable to obtain majority control, it would probably walk away from the deal.
“Without the path to ownership, my guess would be that it will be difficult for DBS to continue with this deal,” said Kevin Kwek, an analyst at Sanford Bernstein in Singapore.
The final regulation would need approval by the central bank’s board of governors. Mr Kwek warned that Bank Indonesia had a history of shifting course on regulatory issues.
Danamon shares fell 2.75 per cent on Thursday to Rp5,300 and are down 17 per cent since the proposed deal was unveiled in early April. DBS shares closed down 0.3 per cent at S$13.22.
Temasek declined to comment. DBS was not immediately available to comment.