FOREIGN BANKS WHICH OPERATE IN INDONESIA

FOREIGN BANKS WHICH OPERATE IN INDONESIA

The presence of foreign banks in Indonesia has increased. They are such as Bank of America, Bangkok Bank, Bank of China, Citibank, HSBC, Standard Chartered, The Bank of Tokyo-Mitsubishi UFJ, Deutsche Bank, JPMorgan Chase, Royal Bank of Scotland, etc. Indonesia. Indonesia is considered the most open countries in the field of finance. It is not a surprise if foreigns bank in Indonesia can grow incredibly. The rapid growth of foreign banks in this country is supported by a high public confidence in foreign banks. The Indonesian people had a high trust on foreign banks because they had a view that foreign banks must be healthy and safe during the crisis.

When the crisis hit the USA and Europe, some banks could not survive. Then the perception of the people of Indonesia to foreign banks changed. Even the level of their confidence in foreign banks has declined. Public confidence declined because they feared, the crisis experienced by foreign banks that have branches in Indonesia will have a major negative impact for Indonesia. Bank of Indonesia, the Central Bank, takes immediate anticipatory measures. In these rules, branches of foreign banks are required to meet the minimum capital requirement of 8% of the total obligation, or not at least 1 trillion rupiah. Minimum capital reserves are assets that can be used when the branch offices of foreign banks facing liquidity problems.

The Indonesian people, does not need to be concerned with the present of foreign banks in Indonesia, since BI has done anticipatory measures. But that does not mean, the public concerns can be ignored. The community’s concerns should be addressed by improving the rules on foreign ownership in the banking sector in Indonesia in order to make the presence of foreign banks in this country is very strong. Improving foreign ownership rules in the banking sector in the duty of government.

 The presence of foreign banks influences domestic bank performance. Their presence may stimulate domestic banks to reduce costs and increase efficiency of existing financial services through competition. In the presence of foreign banks domestic are pressured to improve the quality of their services in order to retain their market shares. This may improve the quality of existing financial services of domestic banks.

In particular, foreign banks presence may put old-style banking practices under pressure. Moreever, increased compettion may lead to lower interest rate margins and profits. Foreign banks may also introduce new financial services, increases the quality of human capital in the domestic banking systems in a number of ways. Finally, the presence of foreign banks has a positive impacts the banking sector in Indonesia.

References

Claessens, S.A. (2001). How does Foreign Entry Affect Domestic Banking Markets?. Journal of Banking and Finance. Vol.25. No.5 pp 891-911

International Monetary Fund. (2000). International Capital Markets : Developments, Prospects and Key Policy Issues. Washington DC : IMF

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