A new OJK regulation on the Single Presence Policy in Indonesian Banking (“POJK 39/2017”), which revokes Bank Indonesia Regulation No. 14/24/PBI/2012 (“PBI 14/2012”), was issued on 12 July 2017 by the Financial Services Authority (Otoritas Jasa Keuangan or “OJK”). POJK 39/2017 was followed a week later by OJK Circular Letter No. 44/SEOJK.03/017 (“OJK Circular”), which sets out implementation regulations for POJK 39/2017.
The Single Presence Policy is aimed at ensuring that a single entity does not simultaneously hold a controlling interest in more than one bank. Accordingly, POJK 39/2017 provides that, in principle, a party may only be the controlling shareholder of one (1) bank. In line with this, a controlling shareholder of more than one bank is required to comply with the Single Presence Policy by undertaking one of the following actions:
1. merge or consolidate its controlled banks; 2. establish a bank holding company; or 3. establish a holding function.
The actions described in points 1 and 2 above must be completed within one year of the acquisition of a controlling interest in another bank, whereas the action in point 3 must be completed within six months of the acquisition of a controlling interest in another bank.
Among the provisions of the OJK Circular governing the actions described in points 1 and 2 above are the following:
Merger or consolidation
- A controlling shareholder that avails of this option will benefit from the following incentives:
1. Extension of the Maximum Lending Limit (Batas Maksimum Pemberian Kredit) settlement deadline; 2. Easier procedures for the opening of branch offices; 3. Temporary easing of corporate governance requirements; and 4. 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. Upon receiving the plan, the OJK will conduct a fit-and-proper test on the controlling shareholder and on the proposed directors and commissioners of the bank that will become the surviving entity following the merger or consolidation.
Establishment of Bank Holding Company
- A controlling shareholder that intends to avail of this option must submit its takeover plan and/or plan to establish a Bank Holding Company to the OJK, along with its plan for the assignment of the bank’s shares to the Holding Company.
Upon receiving these plans, the OJK will conduct a fit-and-proper test on the proposed directors and commissioners of the Holding Company that will be established. The OJK is required to notify the results of the fit-and-proper test and its approval or rejection of the application to establish the Holding Company by not later than 30 days from the date of receipt of all of the prescribed documents and other requirements.
- The Holding Company must be incorporated as an Indonesian limited liability company that is positioned no more than one level above the bank(s) it directly controls. A Bank Holding Company may be an independent company, or a holding company in the finance field (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 OJK Circular.
- Article 11 of POJK 39/2017 provides that a non-compliant controlling shareholder of more than 1 (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 is required to:
- record only 10% of the shares held by the non-compliant controlling shareholder as shares with voting rights at the General Meeting of Shareholders;
- treat the remaining shares as non-voting shares until such time as they have been assigned to a third party.
- Upon the failure of a bank or a controlling shareholder to comply with the provisions of Article 11, Article 14 of POJK 39/2017 imposes a fine of Rp 500,000,000 (five hundred million Rupiah) on such non-compliant bank, while Article 15 bars a non-compliant controlling shareholder from being the controlling shareholder of an Indonesia bank for a period of 20 (twenty) years.
As mentioned earlier, the Single Presence Policy in Indonesian Banking was previously regulated by PBI 14/2012. The shift in regulatory authority from Bank Indonesia to the OJK that is reflected in POJK 39/2017 is in line with the OJK’s role as the sole financial services regulator under Law No. 21 of 2011 on the Financial Services Authority.