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Source: Reuters

UPDATE 2-Indonesia suspends banks from seeking new wealthy clients

Published: 29 Apr 2011 03:32:50 PST

* Move comes as c.bank probes suspected fraud at Citi Indonesia

* C.bank asks banks to improve procedures, internal supervision

* DBS says suspension may affect wealth business in short term (Adds central bank comment)

JAKARTA/SINGAPORE, April 29 - Indonesia's central bank has asked 23 banks to stop seeking wealthy new customers for a month as police investigate suspected embezzlement at Citibank Indonesia's wealth management unit.

The move, which comes into effect from May 2, could prove a short-term setback to a buoyant private banking industry in Southeast Asia's largest economy.

"This is an effort from Bank Indonesia with banks to increase the quality of service and protection of customers," deputy governor Halim Alamsyah, who is responsible for banking supervision, told Reuters.

The suspension comes a few weeks after the central bank, suspended Citibank Indonesia from recruiting new customers to its Citigold premium service amid a police investigation into suspected embezzlement.

Citi, one of the leading onshore wealth managers in Indonesia together with UBS and Credit Suisse , has said it has uncovered suspicious transactions in its Indonesian operations but has not given the size of loss.[ID:nL3E7F61B3]

The industry-wide suspension applies to both priority or premium customers, who may have savings of over $50,000, and to high net worth individuals who typically invest over $1 million.

Banks will still serve existing customers as normal, though Bank Indonesia has also asked the banks to improve their operating procedures and internal supervision, which will then be evaluated, Alamsyah said.

Foreign banks are trying to grow rapidly in Indonesia, which has a small but wealthy elite and relatively low levels of bank usage. Much of the growing wealth from Indonesia's millionaires is managed offshore in Singapore, however.

Piyush Gupta, CEO of Singapore's DBS , said the bank's consumer business had been gaining traction ahead of the ruling.

"Of course Bank Indonesia's ruling, putting a freeze on all wealth management acquisition activities for a month, will slow down the momentum in this quarter, but in the long-term sense, the business is doing well in Indonesia," he told reporters in Singapore.

DBS, Southeast Asia's largest lender, earlier this year hired two senior private bankers to manage its Indonesia team, and expects 20-30 percent annual growth in net new wealth management assets from Indonesia, China and India.

The suspension is the latest run-in with regulators in Asia for Citi, which trying to grow business in booming emerging markets. Citi recently compensated customers for alleged fraud in India and paid a fine in Japan over stock ownership filings.

Indonesian police have said the Jakarta case involves around $2 million and have taken into custody Melinda Dee, a 47-year-old former wealth manager at Citi.

Andry Asmoro, an analyst at CIMB in Jakarta, said Bank Indonesia's latest move was a serious problem for private banks.

"There's a potential loss while banks still need to fund their operating costs," said Asmoro.

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