Indonesia tightens rules on foreign banks, targeting Korean financial firms
Shinhan, KB face holding company mandate in Indonesia
Korean commercial banks are under pressure from Indonesian financial authorities to establish local holding companies, adding to the regulatory challenges that have hampered their efforts to expand in the market.
According to industry sources on Tuesday, Otoritas Jasa Keuangan, Indonesia's independent financial regulatory agency, mandates that companies with either two or more financial affiliates in the country and total assets exceeding 100 trillion Indonesian Rupiah (approximately $5,95 billion), or three or more affiliates with assets over 20 trillion Rupiah, must set up a holding company or designate one affiliate as such.
To date, six Korean lenders — including KB Kookmin Bank, Shinhan Bank, KEB Hana Bank, Woori Bank and OK Savings Bank — have entered the Indonesian market through acquisitions of local financial firms. Among them, KB Kookmin Bank and Shinhan Bank meet the new regulatory thresholds and are subject to the requirement.
'In Indonesia, this regulation was announced at the end of December last year. It applies to all financial institutions operating in the country, and among Korean firms, Shinhan and KB fall under its scope,' a Shinhan Bank official said.
He added that the Indonesian authorities notified the bank of the new rule in December, and the bank is currently reviewing financial, accounting and tax implications with the goal of submitting a compliance plan by the June deadline set by the Indonesian government.
Shinhan Financial Group, the bank's holding company, operates three affiliates in Indonesia: PT Bank Shinhan Indonesia, PT Shinhan Indo Finance and PT Shinhan Asset Management Indonesia.
A KB Kookmin Bank official also confirmed ongoing discussions with Indonesian regulators regarding the incorporation of a holding company. 'We are in the early stages, and the details are still being developed,' the official said.
KB Financial Group currently operates seven affiliates in Indonesia, including banking unit PT KB Bank Indonesia Tbk, stock brokerage PT KB Valbury Sekuritas, insurer PT KB Insurance Indonesia, asset manager PT KB Valbury Asset Management, auto finance firm PT Sunindo Kookmin Best Finance and financial IT firm PT KB Data System Indonesia.
This latest regulatory development adds further pressure on KB Kookmin Bank, which has struggled to turn around its Indonesian subsidiary, PT KB Bank Indonesia Tbk, after acquiring the troubled Bank Bukopin in 2018. The subsidiary has continued to post financial losses and faces mounting regulatory scrutiny.
'It's a harsh regulatory environment for KB. To establish a holding company, a bank needs to be profitable enough to support it, but that's not the case for KB,' an official from a financial firm, who wished to remain anonymous, said.
Indonesian authorities issued 18 sanctions against PT KB Bank Indonesia Tbk last year, a sharp increase from the one or two annually seen since the 2018 acquisition.
As Indonesia's financial market remains limited in both size and accessibility, regulatory hurdles continue to grow. 'It's becoming clear that foreign financial capital is not being welcomed, and the risk of indirect sanctions is increasing, deterring Korean financial institutions,' the official added.
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