Indonesia-Malaysia Financial Agreement a Model for Bilateralism

Posted by Reading Time: 4 minutes

By Charles Small

Indonesia’s Financial Services Authority (OJK) banking supervision commissioner Nelson Tampubolon has said a recent agreement with Malaysia, which eases Malaysian restrictions on Indonesian banks, is a model for future bilateral agreements. He intends to use the agreement as a basis for planned negotiations with Singapore.

The “Heads of Agreement” document was signed on December 31, 2014 in Jakarta by Bank Indonesia (BI) Governor Agus Martowardojo, OJK Chairman Muliaman D. Hadad, and Bank Negara Malaysia (BNM) Governor Zeti Akhtar Azis. OJK is responsible for micro-prudential, and Bank Indonesia for macro-prudential banking supervision in Indonesia.

The agreement forms part of the ASEAN Banking Integration Framework (ABIF), which applies to the 10 ASEAN nations. During the ABIF implementation process, guidelines are formed multilaterally by ASEAN central banks and financial supervisory authorities, followed by bilateral agreements on entry of banks into ASEAN member states.

Related-Reading-Icon-Asean LinkRELATED: EU-Singapore Finalize Free Trade Agreement

Under ABIF guidelines, ASEAN banks are to be given equal treatment if they acquire Qualified ASEAN Bank (QAB) status, which only “indigenous” banks established and based in an ASEAN country and owned by ASEAN citizens are eligible for. QAB candidates which meet prudential requirements of an ASEAN country may operate in said country. For Indonesian citizens, applications are to be submitted to OJK.

The ABIF agreement is intended to be incorporated as a provision in the Protocol to Implement the Sixth Package of Commitments on Financial Services under the ASEAN Framework Agreement on Services (AFAS).

Tampubolon has confirmed that due to the principle of reciprocity, no more Malaysian banks beyond CIMB Niaga, BII-Maybank, and Maybank Syariah will be permitted to operate in Indonesia until Indonesian banks may operate in Malaysia under similar conditions. Regulator BNM has limited the operations of the Indonesian Bank Mandiri until now. However, minimum capital requirements of 300 million ringit remain an obstacle for ASEAN banks opening full branches in the country.

With Malaysia at the helm, the pressure is on ASEAN to form the comprehensive ASEAN Economic Community single market agreement by the end of 2015. For detailed information on how your business may be effected by the changes, do not hesitate to get in touch with Asia Briefing for a customized report at:  editor@asiabriefing.com


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