The Financial Service
Authority [OJK] was scheming up integrated control regulation on conglomeration
enterprise in Indonesia. This was to ensure contribution of conglomerate companies
to Indonesia’s economic growth.
The regulation was targeted to be ready this year in the
form of OJK Regulations as legal basis, which authorized banks or financial
conglomerations to do or not to do things regulated by OJK.
Some banks had formed conglomerations involving other
financial companies like security, insurance, reksadana, financing etc.
Information Technology had enabled inter-company exchange of data or between
holding company and subsidiary companies.
To protect the consumers, it was necessary to let OJK to
regulate and control matters based on Law no 21 year 2011. OJK was in charge of
controlling and managing the banking sector, Non Bank Financial Industry [IKNB]
the stockmarket and conglomerate companies. Individual control was still
exercised in line with collective inspection of banks.
The tendency to conglomerate in Indonesia was triggered
by stimulus on the demand as well as supply side. On the demand side, in line
with people’s better literacy level, people’s need for products and services
and financial services were getting more complex than ever. On the supply side
big banks specializing in non-bank financial service: life insurance, general
insurance. Leasing and financing, security, syariah banking etc.
OJK data had it that there were 31 financial conglomerate
in Indonesia, many of them linked to foreign companies. Management and
risk-based controlling over financial conglomerates by integrated controllers
would be soon be the same as control by OJK on banks. Evaluation would be based
on financial aspects i.e. capital adequacy ratio and liquidity, risk management
standard and good corporate governance. This was designed to narrow differences
of regulation between holding company and subsidiary companies.
Regulation and integrated control over financial groups
had been internationally. During global economic crisis of 2008, many
conglomerate of global scale fell. And yet those financial institutions
contributed significantly to world’s economy.
It must be borne in mind that conglomerate of the
financial industry was inevitable and became a must so they need to encouraged
and supported to invigorate economy. Moreover, conglomeration in the financial
industry must be motivated to succeed because failure would mean high cost.
OJK was today controlling bank financial system and
non-bank financial institutions with total asset of more than Rp9,000 trillion.
78% of asset in originated from the banking system, the rest from 708 non bank
financial institutions. The amount was exclusive of BJPS Social Insurance
Management Board in 2015 next and micro-and-small and medium financial
institutions [LKM] totaling 26,000.
So establishment of the subsidiary companies by banks was
to accommodate the increasing market demand. To kep the need for financial
services from being served by foreign companies, domestic banks were beginning
to involved other financial institutions.
The conglomeration of 16 banks in Indonesia commanded
over 70% of total asset of the financial industry. For example BNI had 5
subsidiary companies. For that matter banks which were ready and able were
expected to build the Financial Center or Financial Supermarkets to meet the
need for products, services and financial services the integrated way. Such was
also to anticipate the MEA as per January 2016 where the financial sector would
be included.
Normally players of the finance industry responded
positively to OJK’s step to regulate and control conglomeration of financial
institutions. This was to anticipate cases of blank investments due to lack of
regulation and control in the financial sector. OJK must also observe
implementation of rules on financial institutions.
About building of the Financial Center, it was a must
which was inevitable. Again it was demanded by market mechanism where products,
as well as complex and integrated financial services were needed. Therefore it
was felt necessary top develop bodies like Financial Center or Financial
Supermarket by banks which were ready to need the need for products or
financial services the integrated way.
Naturally there would be benefits offered by Financial
Centers to stakeholders. To BI and OJK the benefits were:
Firstly, to help and control the integrated way
management process for the financial industry whereby to develop well and
sustainably and to be able to contribute to national economy in the best possible
way.
Secondly to accelerate the application of standardization
system and Good Corporate governance which was more effective because they were
controlled by the mother bank.
The benefit for financial and banking industry was to
motivate the financial-banking industry to grow simultaneously and sustainably
by effective management system. Furthermore to assist the Government in
promoting national economy through active participation of all industry players
and to increase state’s financial income from tax and/or dividend which were
higher thanks to performance of the financial group.
Lastly to the consumers to allow convenience to the people
in the process of financial inclusion and to offer products and financial and
banking services comprehensively and integratedly as well as more efficient and
competitive by price. (SS)
Business New - April 21, 2014
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