Indonesia on Tuesday approved the purchase by Singapore’s DBS of a 40 percent stake in Bank Danamon, but demanded the city-state open up its financial sector before any full takeover.
More than a year after DBS launched its bid to make the biggest ever bank acquisition in Indonesia, central bank governor Darmin Nasution said it could acquire part of Danamon but could not yet take a controlling stake.
“We will not give them more unless there is some reciprocity,” he said, referring to demands that Singapore give Indonesian banks access to its market in return for the deal.
A spokesman for Singapore’s central bank said the city-state and Indonesia were “exploring further access into each other’s markets”.
The approval was in line with new bank rules, brought in several months after DBS launched its takeover bid, that limit bank purchases to 40 percent initially and allow full takeovers only later.
DBS will now have to undergo three financial health checks before a full takeover can be approved, which will take 18 months.
It is seeking to buy the controlling stake from Fullerton Financial Holdings, owned by Singapore state investment firm Temasek Holdings.
The deal was launched in April last year but stopped in its tracks when the Indonesian central bank announced the new rules to replace some of the loosest in Asia.
It came after the takeover bid sparked vocal opposition, including from lawmakers, who demanded that Singapore admit Indonesia’s fast-growing banks.
The outcry echoed nationalism seen in other sectors such as mining which has been growing as Indonesia’s economy booms, and which has made investors more nervous about entering an already difficult business environment.
Other foreign banks have been watching with interest to see how the DBS-Danamon deal works out, with many waiting in the wings to move into the untapped market where millions still lack bank accounts.
Indonesia’s state-owned Bank Mandiri, Bank Negara Indonesia and Bank Rakyat Indonesia are all hoping to enter the Singapore market, said central bank spokesman Difi A. Johansyah.
The Singapore central bank said options it was exploring with its Indonesian counterpart were “broader provision of financial services, both in wholesale banking and to, for example, Indonesian students and work permit holders in Singapore”.
Before the new rules, foreign banks could buy stakes in local lenders of up to 99 percent in one go. The loose regulations were introduced to boost foreign investment in the wake of the 1997-98 Asian financial crisis.
Indonesia’s population of 240 million and its booming middle class have made it a key target for foreign banks, particularly since much of the global economy remains in the doldrums.
DBS could not immediately be reached for comment. Danamon said the bank would not comment until it had received formal written notification from the Indonesian central bank.
Indonesia approves DBS purchase of Danamon stake
