After heated debate among regulators and politicians on what was seen as unhealthy concentrated ownership of banks by groups of companies – particularly foreign groups of companies – Bank Indonesia, the country's central bank and industry regulator, issued the Regulation on Ownership of Shares in Commercial Banks (14/8/PBI/2012).

The regulation establishes rules that restrict ownership of banks by individual shareholders, on either an individual or joint basis.

Before the regulation was issued, Bank Indonesia launched the Indonesian Banking Architecture, intended as the blueprint for the Indonesian banking system. Under this blueprint, the system's objectives are to:

  • create robust domestic banking structures;
  • implement effective banking regulations and supervisory systems;
  • create a strong and highly competitive banking industry;
  • build good corporate governance;
  • provide efficient banking infrastructures; and
  • promote consumer empowerment and protection.

The regulation includes the following provisions:

  • Maximum levels of ownership in a bank are established according to the following categories of shareholder:
    • 40% of a bank's capital for bank and non-bank financial institutions;
    • 30% of a bank's capital for non-financial legal entities;
    • 20% of a bank's capital for individual shareholders in conventional commercial banks; and
    • 25% of a bank's capital for individual shareholders in Sharia commercial banks.
  • Shareholders with up to a second-tier familial relationship or acting-in-concert relationship are considered one party.
  • Candidate-controlling shareholders of foreign citizenship or legal entities domiciled overseas are obliged to obtain the recommendation of the respective authorities in their country of origin and must fulfil the ranking requirement stipulated in this regulation. In addition, they must state their commitment to support the development of the Indonesian economy.
  • Bank financial institutions may own more than 40% of a bank's capital with the prior approval of Bank Indonesia upon the fulfilment of all relevant requirements.
  • To qualify as a non-bank financial institution, institutions must:
    • have a charter of incorporation that allows them to invest in long-term instruments; and
    • be supervised and regulated by the Financial Services Authority. Non-bank financial institutions that do not meet these criteria will be treated as non-financial institution legal entities and may therefore own only up to 30% of a bank's capital.

In spite of the above 40% bank ownership limit, Articles 6 to 10 of the regulation stipulate specific criteria for exceptions to this rule.

Contrary to the expectations of many during the discussions on bank ownership a few years ago, the regulation continues to give local and foreign investors equal treatment and does not impose bank ownership restrictions on foreign investors. Rather, the requirements for bank ownership that are tied to good governance, financial soundness and adequate capital issues put foreign investors at an advantage, as they are generally better equipped with these. The additional requirements for foreign shareholders are merely that they:

  • have the required investment grade that shows their financial capability;
  • show commitment in assisting in the development of the Indonesian economy; and
  • have a letter of recommendation from their home country's financial regulator.

Despite the ownership limitation rules, ownership of the shares of a bank beyond the limit is permitted, provided that the target bank remains healthy and well managed. If the target bank falls below the required good corporate governance (GCG) and health ratings stipulated by the regulation, the shareholders with shares beyond their respective limits must divest.

The required investment grades are as follows:

  • one notch above the lowest investment grade for banks;
  • two notches above the lowest investment grade for non-bank financial institutions; and
  • three notches above the lowest investment grade for non-financial institutions.

Upon receiving Bank Indonesia's approval, a candidate local or foreign investor bank may take up more than 40% ownership of an Indonesian bank, provided that, among other things, it:

  • has a Level 1 or 2 financial health rating from Bank Indonesia(1) or an equivalent rating from a foreign bank;
  • has adequate minimum capital comparable to its risk profile;
  • maintains a 6% tier-one capital;
  • has the recommendation of the bank regulator in its home country (if the bank is a foreign bank);
  • is a publicly owned bank; and
  • is committed to owning the Indonesian bank for a certain period of time.

Following its acquisition of the bank, the investor bank is obliged to float 20% of its shares to the public within five years of the acquisition, while the acquired bank must have Bank Indonesia's approval to issue loans that are convertible to equities.

The equal treatment of foreign and local investors in the banking industry is also seen in other provisions of the regulation. Foreign investors can now take up ownership in regional development banks – until the regulation was issued, such ownership had been practically prohibited. The regulation allows foreign investors to own shares in a regional bank with financial health and GCG grades of 3, 4 and 5, which requires capital injection.(2)

The regulation became effective on July 13 2012, the day of its issue.

For further information on this topic please contact Hamud Balfas at Ali Budiardjo, Nugroho, Reksodiputro by telephone (+62 21 250 5125), fax (+62 21 250 5121) or email (

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.


(1) Assessment of the level of the financial health (ie, solvency) of a bank is regulated under the Bank Indonesia Regulation on Assessment of Commercial Banks' Solvency (13/1 /PBI/2011). Article 9 of the regulation defines Level 1 as indicative that the bank concerned is generally very solvent, thus enabling it to weather very significant negative effects of changes in the business condition and other external factors. It defines Level 2 as indicative that the condition of the bank is generally solvent, thereby allowing it to weather negative effects caused by business condition changes and other external factors.

(2) Articles 17 and 18 of the regulation.