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The Indonesian government has issued a regulation for the relief fund to the banking sector to cope with the financial impacts of the Covid-19 outbreak. The regulation states that the government may channel fund to the so-called participating banks. The participating banks will in turn pass the fund on to the “executing banks”, smaller banks who meet certain requirements. President Joko Widodo has earlier urged banks to loosen their terms on debtors and restructure loans as many are unable to repay in time amid massive job losses or salary cuts due to the outbreak.

Bank Mandiri, Indonesia's biggest bank by assets, is set to meet the 300 million ringgit ($74 million) capital requirement to operate as a full banking branch in Malaysia. Financial authorities from Indonesia and Malaysia signed a bilateral agreement allowing greater access for lenders from both countries to fully operate in the respective jurisdictions. Bank Mandiri will open several new offices and a string of ATMs in the country, though it will not specifically target the retail banking market in Malaysia. Mandiri had already opened one subsidiary in Malaysia called Mandiri International Remittance whose service is limited to sending money to and from Indonesia. When it has a full branch in Malaysia, it will also be able to offer credit services.

The government will sell sharia-compliant bonds for retail investors over the next two weeks to help plug the state budget deficit and deepen the local bond market, senior finance ministry officials said. The thee-year Islamic bond would be sold at its face value, starting Friday until March 4, 2016, bearing a coupon of 8.3 percent. At that rate, the sukuk would yield 80 basis points higher than time-deposit interest guaranteed by the Deposit Insurance Agency (LPS) and 130 bps higher than the benchmark rate set by the central bank. The government seeks to raise between Rp 25 trillion and Rp 30 trillion ($1.85 billion-$2.22 billion) from the sukuk sale.

Dubai-based bank Emirates NDB has expressed interest in spending $300 million to establish Islamic banks in Indonesia as it seeks to tap into the archipelago's underdeveloped financial sector. Emirates NDB would join Middle Eastern banking rivals Qatar's Masraf al Rayan and Dubai Islamic Bank in its quest to set up shop in the nation. Emirates NDB will have to team up with local partners in order to fulfill its aim of establishing a new bank as a current government regulation limits foreign ownership to 40 percent, said Dhani Gunawan, OJK director of Islamic banking research and development, supervision and licensing. Meanwhile, Al Rayan seeks to acquire shares in existing Islamic banks, he added.

President Joko Widodo has laid out his invitation for increased foreign investment in Indonesia before the Islamic Development Bank, which already has sizeable interests in the country. Joko, on a tour of the Middle East, met with Jeddah-based IDB president Ahmad Mohamed Ali to discuss a wide range of topics, from ways to finance infrastructure projects and increase investment by Middle East countries into Indonesia, to expanding the nation’s Islamic banking industry. The IDB currently finances nearly $4.2 billion in development projects in Indonesia. The group is also processing a member-country partnership strategy with Indonesia for the 2015-2019 period.

Indonesian Islamic banks would survive a rupiah drop to as low as 16,000 against the US dollar, thanks largely to low levels of bad loans, a senior official at Indonesia's Financial Services Authority said. The banking industry's non-performing financing ?? bad loans in sharia banks ?? reached 1.3 percent as of July 2015, still lower than the 5 percent benchmark set by the OJK. In comparison, bad loans among conventional lenders stood at 2.5 percent of total loans at the end of July, according to OJK data. The rupiah has fallen 15.13 percent so far this year, trading at 14,322 against the greenback on Monday, according to the Jakarta Interbank Offered Rate.

The Indonesian government is planning to establish a Shariah-compliant bank in order to manage Rp 40 trillion ($4 billion) worth of Indonesian hajj funds. State-Owned Enterprises Minister Dahlan Iskan said the establishment of the bank will support the implementation of a new policy issued by the Ministry of Religious Affairs obliging hajj funds to be managed exclusively by Shariah banks.Dahlan said the government wants to support the development of Shariah banking in Indonesia with the new bank since the sector controls only 4.9 percent of market shares in Indonesia’s banking industry, The government has stakes in four lenders that run their own Shariah units. None of these banks, however, focus solely on Shariah banking.

Indonesia’s proposed Shariah megabank would improve industry awareness, lower costs and help the bank compete to win plantation, mining and infrastructure business. Combining the Islamic units of the government-held lenders is the most feasible of three options being considered by the State-Owned Enterprises Ministry. The other two options being considered are setting up a new state-owned Islamic lender or converting an existing government-held bank into a Shariah-compliant operation. It is possible the government could proceed with more than one of the choices. The ministry is currently in discussions with Bank Indonesia and will present a finalized proposal to the State-Owned Enterprises Ministry by the end of May. Government approval is expected by the end of the year.

Indonesian corporate sukuk sales are expected to reach a full-year record as $92 billion of state-backed development projects buoy issuance. Bank Muamalat Indonesia and Adira Dinamika Multi Finance were among issuers of Rp 1.5 trillion ($154 million) of securities. The government is seeking to reduce fuel subsidies to set aside more funds for roads, railways and power stations to spur growth. Finance companies have accounted for 72 percent of sales this year, while state-owned construction company Hutama Karya and electricity producer Perusahaan Listrik Negara may sell Islamic bonds in 2013. The sectors with the biggest potential to actively tap into the sukuk market will be those involved in infrastructure-related projects and utilities.

The Finance Ministry raised Rp 14.9 trillion ($1.5 billion) from the sale of rupiah-denominated Islamic bonds to Indonesian citizens on Monday. The sale of the Shariah-compliant sukuk notes is intended to plug its budget deficit but also to spur growth in the Islamic finance sector in the country. The sukuk is called Sukuk Retail Indonesia (Sukri) and was sold to retail investors. Indonesia also plans to sell dollar-denominated sukuk and conventional bonds this year.

Islamic Banks expect rapid growth in 2013. According to a central bankier, Indonesian banks will register higher profits in upcoming year despite more stringent rules imposed by the Indonesian central bank. The total amount of Islamic assets including Islamic-compliant rural banks grew up by 37 percent comparing to last year, a deputy governor of Bank Indonesia said. He expects that the amount of Islamic assets will continue growing in the next year.