Regulation 14/8/PBI/2012 Issued by The Bank Indonesia ("BI") which Imposes Caps on Ownership of Indonesia's Conventional and Shariah Commercial Banks

BI has issued Regulation 14/8/PBI/2012 ("the Regulation ") which imposes caps on the ownership of Indonesia's conventional and Shariah commercial banks.

Local branches of overseas-domiciled banks are expressly excluded from the ambit of the Regulation.

Prior to the coming into effect of the Regulation, a foreign investor could own up to 99% of the issued and paid-up capital of an Indonesian commercial bank.

New Ownership Caps

1. The new ownership caps are of general applicability to both Indonesian and non-Indonesian entities , which we summarise as follows:
   • Maximum 40% ownership is imposed to bank and non-financial institution;
   • 30% in the case of legal entities other than financial institutions;
   • 20% ownership in the case of individual shareholders; and
   • 25% in the case of an investment by an individual shareholder in a Shariah bank.
2. In addition to shareholder categories, the Regulation also applies the aforesaid ownership caps to two or more shareholders that:
   • are linked by a relationship of ownership;
   • are linked by a familial relationship (up to the second degree); and/or
   • are acting in concert, whether based on a written or unwritten agreement.

   In the aforesaid situations, the shareholders concerned shall be treated as a single entity.

3. Under the Regulation, any potential non-Indonesian controlling shareholder must also:
   • be committed to supporting the development of the Indonesian economy through the bank it owns;
   • in the case of a financial institution, present a recommendation from the financial services authority in its country of origin; and
   • satisfy the ratings requirements stipulated in the Regulation which is recognised by BI based on Bank Indonesia Circular No. 13/31/DPNP.
4. The Regulation, however, expressly provides that BI may grant exemptions so that investor in the form of a bank may own more than 40% of a target bank, provided that certain conditions are complied with by both the investor bank and the target bank. This exemption only applies to investors in the form of banks.

Timeframe for Compliance with Ownership Caps

1. An investor to which an ownership cap applies and which is unable to avail of an exemption has 5 years counting from 1 January 2014 to bring itself into compliance with the requirements of the Regulation.

2. This limit however may be extended by between 10 and 20 years in certain cases.

Obligations of bank should investor fail to comply with the Regulation

1. An investor that fails to comply with the Regulation's requirements is subject to the following sanctions:
   • the determination of the quorum and voting rights at the bank's shareholders' general meeting will be based on the maximum ownership limit applicable to the investor under the Regulation;
   • payment of dividends in respect of shares held in excess of the applicable cap will be deferred until such time as the investor complies with the maximum ownership limit;
   • the investor may be made the subject of a fit and proper test by BI; and
   • BI may direct the investor to merge or amalgamate its bank with another bank.
2. The following sanctions may be imposed on a bank that fails to comply with its obligations under the Regulation:
   • Issuance of written warnings;
   • Prohibition on opening of new branches;
   • Freezing of certain operations; and
   • Directors and commissioners may be made the subject of fit and proper tests by BI.