Realising Asean Banking Integration Framework

For the past two decades, Indonesia's biggest foreign direct investors have been pumping capital into its oil palm and rubber plantations. There can only be healthy agricultural development and value adding to Indonesia's economy when there is sustained profitability that is reinvested in the decades to come. To better facilitate financial and investment ties between Malaysia and Indonesia, regulators from both countries are working to integrate their systems.

KUALA LUMPUR: Bank Negara, Bank Indonesia and Otoritas Jasa Keuangan have signed a heads of agreement (HoA) that serves as a precursor to the conclusion of the Asean Banking Integration Framework (ABIF).

The HoA outlines the areas that will be bilaterally implemented between Malaysia and Indonesia under the ABIF. It defines qualified Asean banks (QABs), which entails the presence of Malaysian and Indonesian banks in each other’s jurisdiction.

In a statement, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said the HoA also identified market access and operational flexibilities that would be accorded to the banking institutions once conferred and established as a QAB in the respective jurisdiction.

“For Indonesia and Malaysia, greater financial integration has the potential to significantly facilitate greater bilateral trade and cross-border investments between our respective countries, and thus contributes to growth that will be mutually reinforcing,” she added.

The HoA was signed by Zeti (centre), Bank Indonesia governor Agus D.W. Martowardojo (left) and Otoritas Jasa Keuangan chairman of Board of Commissioners Dr Muliaman D. Hadad (right).

The HoA paves the way for the finalisation of the ABIF guidelines and the subsequent endorsement of ABIF under the Asean Framework Agreement on Services.

The ABIF allows Asean countries to deepen regional banking integration via mutually beneficial arrangements, based on the level of readiness.

The immediate objective of ABIF is to achieve a more integrated banking sector, spearheaded by QABs that have meaningful presence across Asean countries. The ABIF process consists of two stages – multilateral and bilateral.

The multilateral stage is the establishment of the ABIF guidelines, while the bilateral stage comprises negotiations among the Asean countries on the admission of QABs and the reciprocal arrangements, in particular, relating to market access and operational flexibility.