TO REVIEW THE CHALLENGES OF MONETARY SERVICE AUTHORITY

The Government and businesspeople agreed that growth of financial industry in Indonesia would slowdown next year. This was underlined by BI’s prediction that growth of credit by next year would only be around 15.3%-16.6% which was way below the projection of credit growth 2013 at 20.8%.

The tight credit pipelining was in line with the grim prospect of Indonesia’s economy. Economic growth next year was estimated at not more than 6%. Unless efficient, bank’s performance could be corrected. Credit in the consumer goods sector would be stagnated due to Loan to Value regulations [LTV] regulation; on the other hand, banks were handicapped by tight liquidity.

By prediction, many institutional customers fund stepped out the banking sector and turn to buying state promissory notes to jack up yields. Price war in offering bank interest was the measures taken, especially by small banks to raise fund.

Drying up liquidity was threatening and the Fed intended to axe stimulus of USD 10 billion gradually before finally ending it by end of 2014.

Bank liquidity problem might trigger chain effect to financing industry. As known, multi finance relied on bank’s financing. If liquidity was hard, multi finance could take the option of lifting financing interest. However the multi finance industry was optimistic that by next year financing would grow by 10% against this year.

Drying up liquidity was one of the challenges for the Financial Service Authority [OJK] who in 2014 would supervise the banking industry. Burden was getting heavier as OJK must pass a transition period, like recruiting controllers personnel from BI.

As known, controlling process of the financial service industry was entering a new phase. As per 2014, OJK would take over the role of Bank Indonesia to control the banking industry. Previously since this year till 2013 OJK had been regulating and controlling non-bank financial Industry [IKNB.

As the banking industry were combined under OJK supervision, burden for this 3 year old institution was getting heavier as people’s expectation grew higher. The vision was already seen this year. Since early January to December 20 2013, OJK rendered at least 6,824 services to consumers. Of that number 6,084 were request for information or inquiries from the public, 473 requested information from consumers and the people and 845 were consumers’ complaint.

Of the total 845 complaints, 60% were complaints related to non bank financial institution, 20% were complaint from the stockmarket and another 20% from the banking industry. By calculation, from January to third week of December 2013, at least 2 complaints per day were sent to OJK per day.

OJK had taken some actions in their capacity as controlling body. In the insurance industry, for example, in October  22 OJK cancelled permit of Bumi Asih Jaya. When their permit was cancelled, Bumi Asih left outstanding claims of Rp85.6 billion. The total number of insurance policy holders was 10,854 and OJK’s step had long ensuing after effect.

The Management of Bumi Asih brought the case to the State Court [PTUN]. Bumi Asih claimed that this non bank financial regulator had broken the procedure in restricting activities [PKU] and cancelling of work permit. OJK’s decision was accused of violating public’s interest. His was the first time that OJK had to face claims. But OJK was ready to face the charges.

The case of Bumi Asih should be a reminder to regulations. Meaning OJK would prepare a multilayer control system, starting from analayzing team, crackdown and legal team. Other case of disputes to serve as lesson for OJK was the case of Bank Century. The legal process going on in KPK Antigraft Body and political process in Parliament related to bail out of Bank Century worth Rp6.7 trillion was inseparable from BI’s policy of 1008.

Next year the task burden and potential legal claims would be more as OJK;s domain of control was wider, not just to watch activities of non bank institutions but also actions of the baking industry it self. Next year this case would need extra controlling expecially in case of small banks.

To undertake heavy task OJK must increase controller personnel by quality and quantity. The total value of industry within the radar of OJK was astronomic. In total, the financial industry banks and non banks alike came to more than Rp 10,000 trillion. The breakdown: bank asset Rp4,700 trillion, stockmarket capitalization Rp4,158 trillion and non bank financial industry [including insurance, pension plan, syariah financing] came to Rp 1,274 trillion.

With enormous valuation of the financial industry, regulators needed vast energy to do their task. Last September, OJK opened employment opportunity in large scale. The number of supervisors from BI and Bapapam was rated as insufficient.

Today the number of Bappepam LK was around 1,037 people. Meanwhile the number of BI’s controllers numbered 1,400 persons. OJK needed at least 2,000 persons to control the financial industry.

The process of transfer of personnel from BI to OJK was also potentially problematic. BI would transfer 1,159 employees to OJK as bank controllers and supervisors. The point was according to OJK Law BI employees transferred to OJK had transistion period till 2016. At that time employees of BI may choose whether to return to BI or stay at OJK. This was the point that might affect OJK performance in the future.

Not less alarming was that OJK would have to face fluctuation of the stockmarket and domestic and global moneymarket till election. So OJK needed to calculate thoroughly before running policies, because Government’s policy might flare up to political domain and even legal domain such as the case of Bank Century which now surfaced once more.

However OJK understood that Indonesia at least two secret weapons to anticipate possible crisis next year. Firstly, Indonesia’s financial industry had stronger resistance power; although tightening lately, liquidity of national banks were notably high. Secondly, decision makers were striving to prepare better crisis protocol. At this point, distribution of task in the in the FKKSK Forum must run well.

In 2013 – 2014, OJK was still focusing arrention on building infra-structure and regulations. As a young institution which was barely 2.5 years old, OJK had the hard task of controlling the financial industry with value of above 10,000 trillion. This amount was 5 times as mush as APBN state budget 2014 amounting to Rp1,800 trillion.

OJK needed to watch on policical maneuver of injection of extra capital to the Deposit Insurance Agency [LPS] to Bank Mutiara. Remember that the case of Bank Century started in Senayan. Some foreign investors were aiming at banks and insurance agencies. Meaning, amidst all the challenges of 2014, investors still saw bright prospect in Indonesia.

One thing was sure that by January 2014 OJK was functioning as financial controller the integrated way. OJK was the superior institution which controlled the banking industry, the capital market, insurance and pension financing agencies, because by January 1, 2013 the non bank financial institutions Bapepam LK already moved to OJK.

It was this point the OJK was going to face hard challenges because the institutions to be controlled by OJK was so numerous. In the banking sector, OJK did not only have to control but also to manage permit for office establishment and to cancel bank permit.

No only that, OJK had the authority to look into bank’s company’s basic phiolosophy and masterplan. Even today around 80% of asset of the financial industry were dominated by banks. Meaning, it was not easy to control the dynamic banking industry. Even BI who was experienced in controlling banks was stolen several times.

Among non bank institutions, OJK had to right to put sanction at many levels from administrative sanction to cancelling permit or to freeze financial institutions who disadvantaged investors.

In this sector, the type of fraudulence that often occurred was blank investment. Information from this site disclosed that over the year 2013 especially in gold investment. Thousands of people were cheated and trillions of Rupiah evaporated in thin air. In spite of many cases detected, many consumers were still not aware and cheaters appeared to offer tempting profit beyond reason.

Not just that, OJK would also be filled with two big organizations, i.e. Bappepam-LK employees and BI. Last Thursday, BI had sent 1,200 people to OJK, while Bappepam-LK around 800 people. To accommodate two organizations in one mother ship, was not easy task. The case of sectoral ego was bound to show in the internal organization. Moreover there was different standard of salaries between BI employees and Bappepam employees placed in OJK.

There were only trivial problems faced by OJK. Of course we did not wish OJK to be like the Financial Service Authority [FSA] in Engtland. As they failed, FSA was dismissed and the function of banking was again returned to Bank of Engtland.

OJK had stacks to homework to be done next year, among others to scheme up regulations, new or old which was improved in relation to the moneymarket. OJK official release stated that there were 36 bills to be accomplished next year. The rules were about investment management, transactions of underwriters, and regulations related to emitents and public companies.

Besides, OJK had also perfectionized some regulations related to institutions and supporting professions to the stockmarket, imposition of sanction, and regulations related to Self Regulatory Regulations [SRO].

Many challenges were being faced and to be faced by OJK with the same vision an based on the spirit of unity and within OJK so all challenges could be firmly faced.

Business News - December 31, 2013