Wednesday, 19 June 2013


Indonesia's economic development been re­markably fast in the past decade, which was among others supported by advancement of the banking sec­tor. The banking sector had been able to flourish well, nearly all financial indicators of the nations banking sector were showing impressive performance.

However, the banking authorities and players of the industrial sector must not be off-guard. As neg­ative impact of the debt crisis in Europe mounted, and economic recovery in the USA was slow, all dangers called out for extra attention. As known, the chain ef­fect of overseas crisis were beginning to be strongly felt as indicated by declining national export due to lowered global demand.

In this case Bank Indonesia had prepared nine new regulations for the domestic banking sector. The regulation would anticipate dangers to Indonesia's fi­nancial sectors in the future. The Central Bank had prepared three points of main policy including: (1) to maintain stability of the financial system (2) strength­ening of resilience and competitiveness of the bank­ing sector and (3) strengthening of the intermediary role of banks.

The three policy package accommodated nine rules to be applied by the national banking sector as per January 2013. The nine rules for the Indonesian banking sector were as follows:

The first corridor was Maintenance of the Fi­nancial System stability, which included a series of policies.

Firstly to apply risk management on banks which extended credit or mortgage or automotive credit. This rule was related to Loan to Value ratio on Mortgage (KPR) and Automotive Credit.

Secondly to manage the application of trustee system. This was in response to BI's wish to per­suade exporters to keep their export yields (DHE) in national banks instead of foreign banks abroad. By compiling DHE in domestic banks, the need for forex at home could be fully assured whereby not to bring negative impact on Rupiah.

Thirdly to improve the rules on Minimum Capital Provision Obligation (KPPM) and to oblige main­tenance of Capital Equivalence Maintenance Assets (CEMA). KPPM was related to bank's effort arid ca­pability in taking each kind of risk. Meanwhile CEMA was related to the commitment of foreign banks and Foreign Bank's branch office (KCBA) operating in In­donesia to strengthen productive assets of high value as bumper or resistance to crisis threat.

Fourthly, improvement on stipulations for short term funding facilities for banks. This was relat­ed to the effort and strategy of Bl to extend bail out fund to banks which were having liquidity problems for the short term. To learn a lesson from the case of Bank Century which now had become a big case, it seemed that BI planned to prepare safety belt so the short term funding facility could be actually run in ac­cordance with the set corridors.

The Second Corridor was Strengthening of Bank's Resiliency and Competitiveness consisting of the following policies. Firstly, to regulate ownership of banks in accordance with PBI no. 14/8/PBI/2012. This point needed to be underscored in a separate regulation because this case had for long been an ob­stacle to many parties due to the growing share of foreign banks.

It was about time that foreign ownership in national banks be reviewed so national interest could be well protected. This did not mean that Indonesia was anti-foreign or anti-globalization. The spirit was that foreign banks were welcome to join the national banking sector provided they complied to the rules set by the banking authorities.

Secondly regulation on business and expan­sion of bank's networking based on capital. The spirit of this rule was to prevent brutal cannibalism where banks of strong capital ruled over the banking sector at national level or down to the regions and prov­inces.

Banks of lesser capital were still given enough room to maneuver their operations. The same ap­plied to middle and higher level banks. Naturally small banks would be motivated to strengthen their capital whereby to operate in broader market region. For that purpose bank owners might have to increase their capital from internal resources or involve new inves­tors. It was also possible for banks to be engaged with other banks in the process of merger.

Thirdly to improve stipulations on single pres­ence policy (SPP) or gradual permit stages for banks. This policy was meant to rearrange Indonesia's bank­ing configuration in accordance with bank's internal strength. Owner or shareholder dominating in one or more banks were obliged to establish a holding com­pany. This rule applied to all categories or bank own­ership.

The third corridor was the corridor for Bank's Intermediary Function Strengthening consisting of several policies. Policy one enhancing access to fi­nancing for micro, small and medium (UMKM) busi­ness by general banks. This stipulation led to serious consequences to banks because there was a tone of forcing by the authorities that banks pipeline their credit to UMK whether directly (as executing bank) or by engaging other banks as channeling banks like the Regional Development Bank (BPD) group and/or People's Credit Bank (BPR).

Secondly expanding other financial service access through branchless banking. The fact that operational reach of banks in the remote regions trig­gered the emergence of telecommunication operators rendering banking services like money transfer was inevitable due to objective need.

However, the growing transaction value created need for rules which regulated branchless banking considering the risk of transaction failure which necessitated consumer's protection to be well observed. In this case it was advisable for Bank Indonesia to be engaged with telecommunication authorities to regulate and control brancless banking operations involving several national telecommunication operators. 

Business News - December 14, 2012

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