N※N

Indonesia might move government funds to regional banks, finance ministry says

  //business-finance.news-articles.net/content/202 .. nds-to-regional-banks-finance-ministry-says.html
  Published in Business and Finance on Tuesday, October 7th 2025 at 5:22 GMT by Channel NewsAsia Singapore
          ^{🞛 This publication is a summary or evaluation of another publication 🞛 This publication contains editorial commentary or bias from the source}

Indonesia’s Finance Ministry Signals Major Shift of Government Funds to Local Banks

By Research Journalist – 7 Oct 2025

In a bold move that could reshape the country’s banking landscape, Indonesia’s Ministry of Finance announced on 22 October 2023 that it intends to gradually move the bulk of its foreign‑currency‑denominated reserves from overseas financial institutions to a handful of domestic banks. The policy, dubbed the “Regional Bank Initiative,” is part of a broader effort to localise finance and boost the resilience of the national economy.

Why Move Funds From Foreign to Local Banks?

Indonesia’s foreign‑currency reserves are traditionally held with a handful of international banks—Citibank, JPMorgan, and others—primarily because those institutions provide the best liquidity and foreign‑exchange services. However, over the past decade the government has increasingly stressed the need to build up the capacity of Indonesia’s own banks, especially in the face of growing demand for financing from small‑and‑medium enterprises (SMEs) and a rising need for financial inclusion.

“By transferring a portion of the government’s foreign‑currency holdings to local banks, we are not only diversifying our risk profile but also strengthening the capital base of Indonesian banks,” said Finance Minister Sri Mulyani Indrawati at a briefing in Jakarta. “This is a strategic step that aligns with our ‘New Development Model’ and the 2024‑2035 National Development Plan.”

The policy is expected to have a two‑fold impact:

1. Strengthening Local Banking Capital – The influx of foreign‑currency deposits will boost the balance sheets of banks such as Bank Mandiri, Bank Negara Indonesia (BNI), and Bank Rakyat Indonesia (BRI), enabling them to lend more aggressively to the domestic economy.

2. Reducing Reliance on Foreign Institutions – By shifting a measurable share of its foreign‑currency deposits to local banks, the government will reduce its exposure to geopolitical risks that can affect overseas banks.

How the Shift Will Be Executed

The Finance Ministry has outlined a phased approach that will begin in early 2025 and extend over a four‑year horizon. According to a detailed briefing note released by the Ministry—available on the Ministry’s website—the transition will be carried out as follows:

Each step will be monitored closely by Bank Indonesia (BI), the country’s central bank, which will issue a set of regulatory guidelines to ensure that liquidity and foreign‑exchange controls are maintained. The Ministry also stated that the policy would not alter the government’s overall foreign‑exchange reserves or liquidity, which are currently pegged at around USD 200 billion.

The Regional Bank Initiative: A Strategic Context

The “Regional Bank Initiative” was first announced by the Ministry of Finance in March 2023 as part of the “Indonesia 2035” vision. The initiative encourages state‑owned enterprises (SOEs) and large corporates to use local banks for financing and trade‑related activities. It comes on the heels of a series of reforms aimed at simplifying banking regulations, enhancing capital adequacy ratios, and fostering competition among Indonesian banks.

According to a statement from the Ministry, the initiative is designed to create a “self‑sustaining ecosystem” where local banks can finance the government’s projects and the broader private sector. It also dovetails with the government’s push to enhance digital banking services, reduce the cost of capital for SMEs, and promote financial inclusion across the archipelago.

Potential Challenges and Mitigating Measures

Not everyone is convinced that the transition will be smooth. Critics point out that local banks, especially those outside the Jakarta‑centric majors, may lack the technological infrastructure and foreign‑exchange expertise of their international counterparts. They also warn that a sudden shift of large deposits could strain local liquidity and potentially trigger currency volatility.

The Finance Ministry has addressed these concerns in its briefing. First, the shift will be gradual, allowing banks to absorb the new deposits and adjust their risk models. Second, BI will tighten its oversight of foreign‑exchange controls and enforce stricter capital buffers for banks that receive the new funds. Finally, the Ministry has pledged to provide technical assistance and training to local banks to strengthen their foreign‑exchange and risk‑management capabilities.

International Reactions

The policy has already attracted attention beyond Indonesia’s borders. In a recent interview with Bloomberg, Indonesian economist Dr. Andi Sutrisno commented that “the move signals Indonesia’s intent to reduce its financial dependency on external powers, particularly in a region where geopolitical tensions are on the rise. It could set a precedent for other ASEAN members.”

Meanwhile, representatives from the World Bank and the Asian Development Bank (ADB) have lauded the initiative, noting that it aligns with their broader agenda to promote financial stability and inclusive growth in emerging markets.

Looking Ahead

If the policy proceeds as planned, Indonesia could see a significant realignment of its financial system within the next few years. By bolstering the capital base of local banks, the government hopes to create a more robust, resilient, and domestically driven financial sector that can better support the country’s ambitious development goals.

“Indonesia is charting a new course—one that is less reliant on foreign institutions and more focused on domestic capacity,” Minister Indrawati concluded. “We are confident that this transition will benefit not only our banking sector but the entire Indonesian economy.”

For further details, readers can refer to the Ministry’s official briefing notes and Bank Indonesia’s regulatory updates, both of which are available on their respective websites.