A decision by Southeast Asia's biggest bank to quit a year-long pursuit of Indonesia's Bank Danamon highlights how tough the country's regulatory framework is and could deter other foreign banks from showing interest in the banking sector, Fitch Ratings said on Thursday.
Singapore lender DBS on Wednesday walked away from a $7.2 billion deal to buy Bank Danamon in what would have been Southeast Asia's largest banking takeover.
"We believe the collapse of the deal is likely to discourage some long-term foreign buyers looking to establish and build a local franchise," Fitch said in a report.
(Read more: DBS, Danamon bank deals collapses)
DBS said regulatory hurdles were the main reason from walking away from the deal, with Jakarta capping foreign ownership of banks at 40 percent – much lower than DBS's plan to buy a 67 percent stake.
Fitch said that owning a minority stake in Danamon would have made it difficult for DBS to achieve the same degree of integration in Indonesia that it has with its subsidiaries elsewhere in the region.