Business Banking and Finance in Indonesia

Banking environment

Banking institutions in Indonesia are classified either as commercial or rural banks. The core difference is that the rural banks have restricted operational areas and are not directly involved in payment systems.

Commercial banks in Indonesia are either non-Syariah or Syariah-based. Syariah (or Sharia) banking involves adherence to Islamic Syariah principles, including prohibitions on interest and investment in businesses that provide goods or services against Islamic principles (e.g. pork and alcohol). There are more than 120 commercial banks in Indonesia, of which four are state banks and the rest private banks, foreign joint ventures and foreign bank branches. Restructuring of the banking sector following the economic crisis of 1997 has led to the entry of foreign investors into many of the large locally owned banks. 

Business and banking

Business entities in Indonesia are required to open bank accounts on-shore as the Indonesian Rupiah cannot be circulated or converted in the global market. Account opening procedures for businesses include submission of legal documents such as the deed of incorporation, and licenses and certificates of approval from relevant government agencies.

Local financing options for Australian businesses operating in Indonesia include banks and capital markets. An alternative is becoming a publicly listed company on the Indonesian stock exchange, raising funds by selling shares to local and foreign investors.

In addition to regulating and overseeing the banking sector, Otoritas Jasa Keuangan (OJK), Financial Service Authority supervises foreign investment activities. Its role includes:

  • Monitoring banking and investment accounts that foreign joint venture companies must open to bring foreign currency into Indonesia
  • Ensuring that foreign investment capital originates from offshore
  • Registering all offshore loans received by companies, including Indonesian Limited Liability (PMA) companies.

There are no foreign exchange controls in the Indonesian banking system. Accordingly, investors may freely transfer funds to and from abroad. However, transfer of funds exceeding US$10,000 (or equivalent) from and within the country should be reported to the central bank. Repatriation of profits, costs related to expatriate employment, expenses (including loan principal and interest), royalty and technical fees and capital is permitted. No prior permits are necessary to transfer foreign exchange. In addition, there are no restrictions on outward direct investment. 

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Other sources of financing

Indonesian individuals and companies are permitted to borrow from overseas. However, they must register these loans with OJK and then submit monthly reports regarding the status of the loans. Failure to register and report will result in penalties for the borrower.

Banking is one sector that has been a focus of Indonesia’s new system of designated special economic zones (SEZ), which offer administrative incentives such as easier licensing processes and tax concessions.

The banking and finance sector has seen some modernisation in recent years, facilitated particularly by Indonesia’s growing telecommunications industry. Online payment solutions are gaining traction across the archipelago and advancements in technology are easing previously unwieldy domestic and international business transactions.

Australian investment in Indonesia’s banking, finance and insurance sectors is already conspicuous. ANZ is one of Indonesia’s 10 largest private commercial banks, while the Commonwealth Bank of Australia has operated in Indonesia since 1997, specialising in retail and small business banking and insurance. A number of other prominent Australian financial services groups, including Macquarie and IAG, also operate in Indonesia. Banking is one of the few sectors where a company can set up a representative office or a branch, without having to set up a limited liability company. 

Want to learn more? Explore our other Indonesia information categories or download the Indonesia Country Starter Pack.