The new Financial Services Authority (OJK) Regulation on the Single Presence Policy in Indonesian Banking (POJK 39/2017), which revokes Bank Indonesia Regulation 14/24/PBI/2012 (PBI 14/2012), was issued on July 12 2017 by the OJK. This was followed one week later by OJK Circular Letter 44/SEOJK.03/017, which sets out regulations for the implementation of Regulation POJK 39/2017.
The single presence policy aims to ensure that a single entity does not simultaneously hold a controlling interest in more than one bank. Regulation POJK 39/2017 provides that, in principle, a party may be the controlling shareholder of one bank only. Therefore, a controlling shareholder of more than one bank must:
- merge or consolidate its controlled banks;
- establish a bank holding company; or
- establish a holding function.
The third option above must be completed within six months of the acquisition of a controlling interest in another bank. However, the first two options must be completed within one year and are governed by the following provisions of the OJK Circular.
Merger or consolidation
A controlling shareholder which chooses to merge or consolidate its controlled banks will benefit from:
- an extension of the maximum lending limit settlement deadline;
- easier procedures for the opening of branch offices;
- the temporary easing of corporate governance requirements; and
- other incentives, as provided for by the prevailing regulations on banking sector consolidation.
A controlling shareholder that intends to carry out a merger or consolidation within the framework of the single presence policy must submit a takeover plan as part of its bank business plan to the OJK. On receiving the plan, the OJK will conduct a fit and proper test on the controlling shareholder and the proposed directors and commissioners of the bank that will become the surviving entity.
Establishment of bank holding company
A controlling shareholder which chooses to establish a bank holding company must submit its takeover plan and/or plan to establish the company to the OJK, along with its plan for the assignment of the bank's shares to the holding company.
Once it has received these plans, the OJK will conduct a fit and proper test on the proposed directors and commissioners of the intended holding company. The OJK must announce the results of the test and its verdict on the application no later than 30 days from the date of receipt of all the prescribed documents and other requirements.
The holding company must be incorporated as an Indonesian limited liability company positioned no more than one level above the bank(s) that it controls directly. A bank holding company may be an independent company or a financial holding company that consolidates the financial sector entities of the controlling shareholder.
The technical procedures for the conducting of the above actions are set out in the circular.
Article 11 of Regulation POJK 39/2017 provides that a non-compliant controlling shareholder of more than one bank is prohibited from exercising acts of control and from holding more than 10% of the shares with voting rights in one bank, while a bank with a non-compliant controlling shareholder must:
- record only 10% of shares held by the non-compliant controlling shareholder as shares with voting rights at the general meeting of shareholders; and
- treat the remaining shares as non-voting shares until they have been assigned to a third party.
Where a bank or a controlling shareholder fails to comply with Article 11, Article 14 of Regulation POJK 39/2017 imposes a fine of Rp500 million, while Article 15 bars a non-compliant controlling shareholder from being the controlling shareholder of a bank for 20 years.
The single presence policy was previously regulated by PBI 14/2012. The shift in regulatory authority from Bank Indonesia to the OJK, as reflected in Regulation POJK 39/2017, is in line with the OJK's role as the sole financial services regulator under Law 21/2011.