On 7 December 2016, the Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) issued its new Regulation No. 56/POJK.03/2016 regarding ownership of shares in Commercial Banks (“OJK Regulation 56/2016”),revoking Regulation No. 14/8/PBI/2012 (“BI Reg 14/8”) which was previously issued by Bank Indonesia. OJK Regulation 56/2016 provides a guideline that limits shares ownership of both conventional and sharia banks in Indonesia (“Banks”) and provides that OJK will be the supervisory body for all financial institutions instead of Bank Indonesia.
Maximum shares ownership
OJK Regulation 56/2016 stipulates that the maximum shares ownership (“Ownership Limit”) of the Banks will be based on the category of and the relationship between the shareholders as follows:
Under OJK Regulation 56/2016, shareholders are considered as one party if they have an ownership relationship, have a family relationship up to the second degree and/or cooperate or act in concert to achieve a common goal. The total share ownership for such one party is limited to the maximum ownership limit of the category of such shareholders as one party and each shareholder must comply with the ownership limit set for it based on its category.
Exemptions to the Ownership Limit
The Ownership Limit does not apply to:
Shareholders with ownership above 40%, who are granted the permission, will have to publicly list the Bank so that it reaches 20% of public ownership and obtain approval from OJK to issue debt equity instruments. The implementation of increasing the shares ownership above 40% of the Bank’s capital is further subject to Articles 8 to 9 of OJK Regulation 56/2016.
Additional requirements for foreign shareholders
OJK Regulation 56/2016 has additional requirements applicable to a foreign ‘controlling shareholder’, being any new foreign shareholder that holds more than 25% of the shares of an Indonesian Bank (“Foreign Controlling Shareholder”). In addition to being approved as ‘fit and proper’ by OJK, a Foreign Controlling Shareholder must commit to support Indonesian economic development through the Indonesian Bank and obtain a recommendation from the financial supervisory regulator in its home jurisdiction. It must also possess a certain level of investment rate as follows:
It is worthy to note that in terms of limitations to foreign investment in the Banks, Government Regulation No. 29 Year 1999 concerning Shares Purchase of Commercial Banks (which remains valid until today) provides that the total of shares ownership of Banks by foreign individuals and foreign legal entities acquired through direct purchase or through Indonesian Stock Exchange is 99% of the number of shares of the Bank in question. This is also applicable for Indonesian sharia banks pursuant to Bank Indonesia regulation No. 11/3/PBI/2009 which was amended by regulation No. 15/13/PBI/2013 where the maximum limit of foreign ownership in Indonesian sharia bank is 99%.
Shareholders who own more shares than the prescribed limit must adjust their ownership within 5 years after the last assessment period or the sale of shares if:
Legal consequence for failure to comply
Shareholders who have failed to comply with the Adjustment Obligation may receive the following restrictions:
Banks that are owned by shareholders which do not fulfill their Adjustment Obligation must: (i) record the relevant shareholder’s right up to the Ownership Limit; (ii) ensure that the use of voting right by the relevant shareholder and quorum calculation in a General Meeting of Shareholders up to the Ownership Limit; (iii) delay the payment of dividend for the excess of shares owned by the relevant shareholder until the Adjustment Obligation is fulfilled; and (iv) not grant or extend the fund provision facility period to the relevant shareholder, including its affiliates.
OJK, based on its consideration, may give approvals to the shareholders to own the Bank’s shares exceeding the Ownership Limit for a certain period of time. OJK, in administering these shareholders, also has the capacity to order the Banks to perform a merger or acquisition.
Banks must prepare an action plan to adjust its shares ownership scheme. Such action plan must be approved by the General Meeting of Shareholder (“GMS”) and delivered to OJK for its approval no later than 4 months from when the obligation to adjust with the Ownership Limit arises. The action plan must at least include the adjustment plan to the Ownership Limit, stages of implementation, and its time duration.
OJK must receive this action plan within 10 working days from the realization of the action plan or according to the stages of the action plan itself. To OJK, this action plan is directed to the Department of Bank Supervision, Department of Sharia Banks or Regional Office of OJK in Jakarta, for Banks having its main office in Jakarta or Regional Office of OJK or other relevant OJK office, for Banks having its main office outside Jakarta.
Administrative sanctions may be imposed for failure to conform to the obligations above in the form of:
Furthermore, OJK may impose the retaking of fit and proper test to the Board of Commissioners and/or Board of Directors of such Bank.
Shareholders in Banks that had their financial-soundness/good governance levels assessed for the relevant position back in December 2013 are required to adjust to the relevant share-ownership cap by 1 January 2019. Meanwhile, shareholders in Banks which are intending to voluntarily sell their shares or which have ranked between 3 and 5 over 3 consecutive years during the period from 1 January 2014 until OJK Regulation 56/2016 came into force must adjust to the cap within 5 years of the last assessment period.
Single Presence Policy (“SPP”)
A separate but relevant point of discussion in light of this issue on shares ownership for Banks is the SPP as promulgated under Bank Indonesia Regulation No. 14/24/PBI/2012 concerning Single Ownership in Indonesian Banks (“BI Reg 14/24”). Under the SPP, a party may only become a Controlling Shareholder in one Bank. However, a party may become a Controlling Shareholder in two banks if:
Controlling Shareholders of more than one Bank are obliged to restructure their ownership by:
For the first two of these restructuring options, the act must be implemented within one year of the entry into force of BI Reg 14/24. For the establishment of a holding function, the act must have been carried out within six months of the entry into force of BI Reg 14/24.
Controlling Shareholders that have failed to comply with the SPP are prohibited from executing controlling functions and from acquiring more than 10% from the bank’s total shares. The excess shares must be transferred to any party within one year after the period stipulated in Article 3 (3) of BI Reg 14/24. A controlling shareholder that fails to transfer excess shares will be prohibited from becoming a Controlling Shareholder in Indonesian Banks for 20 years.
This alert is for general information only and is not a substitute for legal advice.
 Non-banking financial institutions referred to in OJK Regulation 56/2016 are financial institutions that in their incorporations are permitted to take long-term investment participation and supervised by OJK. A non-banking financial institution that does not meet such requirements is considered a non-financial institution and therefore is only permitted to own a maximum of 30% of the bank’s capital.
 A “Controlling Shareholder” is defined as a party that controls 25% or more of the shares in the bank or, if it holds less than 25%, a party that has direct or indirect control over the bank.