indonesian banking development:
TRANSCRIPT
INDONESIAN BANKING DEVELOPMENT:
Financial services liberalization, the regulatory framework,
and financial stability
By Dwityapoetra S. Besar
Workshop On Trade In Financial Services And Development
Geneva, June 2012
1
Agenda
1
2
Indonesia’s Experience
Challenges Facing Indonesia’s Banking/Financial Sectors
3 Conclusions
Appendix
Indonesia’s Financial Sector
3
79.50%
1.10%8.80%
3.10%4.40% 2.70%
0.40%
Asset Composition of Financial Institutions
Commercial Banks
Rural Banks
Insurance
Pension Funds
Finance Companies
Securities Companies
Pawnshops
Indonesia is a bank-based financial system (79.5% is the share of bank’s asset). There are 121 banks with 13.453 offices. 14 largest banks hold 70% of the banking assets. There are 47 banks owned by foreigners with 45,8% of the share.
Indonesian experience: liberalisation and crisis
4
7.8
4.8
8.5
7.2
-1
8.8
6.9
2.5
5.84.9
5.8
7.5 7.5
8.9
7.2 7.3 7.58.2 7.8
4.9
-13.4
0.8
4.9
3.64.5 4.8 5
5.7 5.56.3 6
4.5
6.1 6.5 6.3
-15
-10
-5
0
5
10
15
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: Indonesian Statistic Bureau
IDR Devaluiation
due to oil price hike
& global stagflation
in 1974 and 1983
Asian Financial
Crisis in 1998-1999Global Financial
Crisis in 2008-2009
Banking deregulations in
1983, 1988 (Pakto), and 1991
Ave GDP growth
before crisis is 6.5%
Liberalisation
1966-1973
Crisis after financial services liberalizations. Financial liberalization is likely to have a positive effect on growth through financial development, even if it increases financial fragility.
Comparison of Banking Liberalization in ASEAN
5
0 2 4 6 8 10
Malaysia
Filipina
Thailand
Indonesia
Singapura
Level of Banking liberalization in ASEAN 5
Country License Min. Capital
(USD mil)
Foreign Equity
Participation
Hosting bank
from ASEAN
Restriction
INDONESIA Single 334 99% 7 banks No
SINGAPORE Multiple 1,200 >10% need MAS approval 9 banks Branch, ATM
MALAYSIA Multiple 600 30% 6 banks Branch, ATM,
product
THAILAND Multiple 325 40% 6 banks Branch, ATM
PHILLIPINES Multiple 150 49% 4 banks Branch, ATM
Indonesia has relatively liberalized banking markets compared to other ASEAN countries.
Agenda
1
2
Overview of Indonesia’s Economic and Banking Development
Challenges Facing Indonesia’s Financial Sectors
3 Conclusions
Appendix
Challenges facing Indonesia’s Financial Sectors
7
• Mitigate the negative impacts from financial liberalization and global
financial crisis. Financial liberalization, by giving banks and other financial
intermediaries more freedom of action, can increase the opportunities to take on
risk, thereby increasing financial fragility. Indonesia as an open and relatively
liberalized economy could be affected by the crisis via trade and financial
channels. To survive, Indonesia need to develop its economy while consider its
global financial reform commitments that restricted the banks and intermediation
process.
• Improve financial sector (banks) competitiveness. Banks conduct inefficient
operations (domestic and regional). Banking market is characterized by oligopoly
type of market. Financial/banking services and products are relatively limited.
• Enhanced access to finance for all public. Indonesia’s financial sectors are
still relatively limited and concentrated in big cities. Meanwhile there has been
increasing demand due to rising middle class workers.
Banking Challenges: Regional Comparison
54.78 51.71
69.03
50.97 47.71
83.31
2.36 2.62
4.03
2.62 2.35
5.71
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00 BOPO NIM
BOPO NIM
NIM & CTI ratio (Dec 2011)
2,096
1,708
1,457
1,091
590
532
496
435
481*
418*
393*
273*
- 500 1,000 1,500 2,000 2,500
DBS Bank
OCBC
UOB
Maybank
CIMB
Bangkok Bank
Krung Thai Bank
Kasikorn Bank
Mandiri
BRI
BCA
BNI
Total Asset (Rp T) (Dec 2011)
217
166
152
80
52
69
37
43
53*
47*
39*
35*
0 50 100 150 200 250
DBS Bank Ltd
OCBC
UOB
Maybank
CIMB
Bangkok Bank
Krung Thai Bank
KasikornBank
Mandiri
BRI
BCA
BNI
Tier -1 Cap (Rp T) (Dec 2011)
8
29.62% 36.33%
92.81%
105.37%
117.06%
0%
20%
40%
60%
80%
100%
120%
140%
Indonesia Philippines Thailand Singapore Malaysia
Loan to GDP ratio (December 2011)
Source: Central banks, IMF and Bankscope
*) Feb 2012
*) Feb 2012
Banking Indicators and Challenges
9
Indicators Dec-08 Dec-09 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12
Total Asset (T Rp) 2,310.6 2,534.1 3,008.9 2,990.7 2,993.1 3,065.8 3,069.1 3,136.4 3,195.1 3,216.8 3,252.6 3,371.5 3,407.5 3,569.9 3,651.8 3,598.7 3,628.1 3,708.7
Deposits (T Rp) 1,753.3 1,973.0 2,338.8 2,302.1 2,287.8 2,351.4 2,340.2 2,397.2 2,438.0 2,464.1 2,459.9 2,544.9 2,587.3 2,644.7 2,784.1 2,742.3 2,763.9 2,826.0
- Demand Deposits 430.0 465.9 535.9 530.6 529.8 540.8 528.3 561.2 577.0 567.3 524.2 580.6 596.5 616.5 652.6 645.7 624.2 656.0
- Savings Accounts 498.6 605.4 733.2 715.8 713.2 722.7 734.5 740.8 753.7 763.5 785.7 797.0 802.7 827.7 897.9 865.9 883.9 888.0
- Time Deposit 824.7 901.7 1,069.8 1,055.6 1,044.9 1,087.8 1,077.4 1,095.2 1,107.3 1,133.3 1,150.0 1,167.3 1,188.1 1,200.6 1,233.6 1,230.8 1,255.8 1,281.0
- Loans (T Rp) 1,307.7 1,437.9 1,796.0 1,776.1 1,803.9 1,844.2 1,872.6 1,918.6 1,979.6 2,002.3 2,060.8 2,108.6 2,135.5 2,180.5 2,228.5 2,189.2 2,231.7 2,294.9
Capital Adequacy Ratio (%) 16.8 17.4 17.0 17.0 18.0 17.6 17.8 17.4 17.0 17.2 17.3 16.7 17.1 16.6 16.1 18.4 18.5 18.3
NPL Gross (without channeling)
(%) - - 2.6 2.8 2.8 2.8 2.8 2.9 2.7 2.8 2.8 2.7 2.7 2.5 2.2 2.4 2.3 2.3
Return on Assets (%) 2.3 2.6 2.7 3.0 2.8 3.1 3.0 3.0 3.1 3.0 3.0 3.1 3.1 3.1 3.0 3.7 3.4 3.1
Net Interest Margin (%) 5.7 5.6 5.7 5.6 5.5 5.9 5.8 5.8 5.8 5.8 5.9 6.0 6.0 5.9 5.9 6.1 5.4 5.2
Ops. Expense/Ops. Income (%) 88.6 86.6 80.0 83.5 80.5 77.8 78.5 78.2 80.0 81.6 80.8 79.4 79.1 79.0 81.5 91.8 77.5
Loan to Deposit Ratio (%)* 74.6 72.9 75.5 75.8 77.5 77.2 78.8 78.8 80.0 80.1 82.6 81.7 81.4 81.3 79.0 78.8 79.7 80.2
No. of Banks
124 121 122 121 121 121 121 121 121 120 120 120 120 120 120 120 120 120
Banking System is sound with stable CAR, continuous credit expansion and low NPL.
But some problems remains and need to be resolved.
Financial stability challenges
10
• The case for macroprudential policy – Fills a clear gap.
The macroprudential approach provides targeted and effective policy action.
But, need to study the impact and continue develop theory and policy
• Macroprudential policy in Indonesia – An emerging framework.
It helps to manage large capital inflow to Indonesia but important challenges
remain:
Difficulties to identify risks early
Data and understanding of systemic risk and how to fight it
Coordination between authorities in crisis management and resolution.
Need a clear mandate in crisis prevention and management/resolution
• Improving financial system – Necessary condition
Indonesia banking sector is still developing and has incompetitive market.
ASEAN Banking Integration Framework 2020
Key Performance Indicators
ASEAN Banks
Non ASEAN
Banks
Integrasi Sektor
Keuangan ASEAN 2020
Harmonisasi Regulasi
Qualified ASEAN Banks
Capacity Building
Infrastruktur SSK
ASEAN Banking Integration Framework (ABIF)
• Good performance
Mampu bersaing dgn bank ASEAN di dalam negeri
Mampu melakukan ekspansi ke negara
ASEAN
• Optimal competition
• Presence of QAB in
ASEAN
Strong and competitive banking sector
11
Challenges to improve financial access
12
Below
poverty line
Living in
villages
13.33% 64.25%
unbankable
60%
SME sector
99.91%
Of 51.3 mill
SME
that are
unbankable
60-70%
Sumber : Biro Pusat Statistik dan Worldbank
Agenda
1
2
Overview of Indonesia’s Economic and Banking Development
Challenges Facing Indonesia’s Financial Sectors
3 Conclusions
Appendix
Summary
14
• Indonesia and other countries have experienced the cycle of financial
liberalization, development and crisis. The successful financial liberalization
should be supported by a sound financial stability infrastructure, good
governance, and access to finance based on national characteristics. Strong
institutions cannot be created overnight, more research effort should be focused
on the design and implementation of prudential regulations and supervision
especially in developing countries.
• This global financial crisis adds more aspects to be considered. There are
dynamic interactions between financial liberalization, financial prudential
regulation/policy, economic policy and politics. But, the most important issue is
really on how we could do it gradually by considering economic development and
increase international trade.
• Next challenges are to deal with global stagnation, systemic risk/crisis and
contagion effects (trade and financial). Would implementing global
commitments, macroprudential policy and strengthening financial sector be
sufficient? It will need stronger commitments, discipline, sacrifice and real work
to ensure that the problems are effectively solved.
Thank You [email protected]
Appendixes
Map of Indonesia
17
This figure shows the map of Indonesia. There are 33 provinces separated in five big islands: Java, Sumatra,
Kalimantan, Sulawesi (Celebes), and Irian Jaya. The capital city is Jakarta located in Java. Source: Central
Intelligence Agency (2009). Available at : https://www.cia.gov/library/publications/the-world-
factbook/geos/id.html.
Macroeconomic indicators shows good condition
18
GDP Growth Inflation
Balance of Payments Foreign Exchange Reserves
Billion
USD
* Bank Indonesia projection
Source: Bank Indonesia
5.7% 5.5%
6.3% 6.0%
4.6%
6.1% 6.5% 6.3% 6.4%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2005 2006 2007 2008 2009 2010 2011 Q12012
Q22012* -10.00
-5.00
0.00
5.00
10.00
15.00
20.00
Jan
Mar
May Ju
l
Sep
No
v
Jan
Mar
May Ju
l
Sep
No
v
Jan
Mar
May Ju
l
Sep
No
v
Jan
Mar
2009 2010 2011 2012
%
CPI (%, yoy) Core (%, yoy)
Volatile Food (%, yoy) Administered (%, yoy)
-
2.00
4.00
6.00
8.00
10.00
12.00
-
20.00
40.00
60.00
80.00
100.00
120.00
140.00
Jan
Feb
Ma
rA
pr
Ma
yJun
Jul
Aug
Sep
Oct
No
vD
ec
Jan
Feb
Ma
rA
pr
Ma
yJune
Jul
Aug
Sep
Oct
No
vD
ec
Jan
Feb
Ma
rA
pr
2010 2011 2012
foreign exchange reserves (LHS)
month of import & government debt service (RHS)
0
30
60
90
120
150
-10
-5
0
5
10
15
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
**
2008 2009 2010 2011* 2012
Current Acc.
Cap & Fin Account
Overall Balance
Reserve Assets (RHS)
Billion USD Billion USD
Market view on Indonesia’s condition-rating
19
Ra
tin
g h
isto
ry
Market view on Indonesia development. After liberalization, Indonesian rating slightly improved but dropped during the financial crisis. Now, it is an investment grade.
Balance of Payments
20
Balance of Payments
Indonesia’s Balance of Payments in Q1/2012 strengthened by recording a lower deficit of US$1.0 billion deficit
compared to US$3.7 billion deficit in Q4/2012.
0
30
60
90
120
150
-10
-5
0
5
10
15
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1*
*
2008 2009 2010 2011* 2012
Current Acc.
Cap & Fin Account
Overall Balance
Reserve Assets (RHS)
Billion USD Billion USD
Foreign Direct Investment
21
Realized foreign direct investment (USD billion) Realized domestic direct investment (IDR trillion)
The investment realization on Quarter 1 (January - March) of 2012 is Rp 71.2 trillion
consisted of Rp 19.7 trillion of Domestic Direct Investment (PMDN) and Rp 51.5 trillion of
Foreign Direct Investment (FDI). It increases 32% compared to the same period in 2011.
Although there are some uncertainties in United States of America and European
economy, the investment activities in Indonesia are doing well.
Source: BKPM
* US$ / Rp. exchange rate of 9,180, the BI middle exchange rate as of March 30, 2012.
6.0
10.3
14.9
10.8
16.2
19.5
5.7
2006 2007 2008 2009 2010 2011 Q1 2012
20.8
34.9
20.4
37.8
60.6
76.0
19.7
2006 2007 2008 2009 2010 2011 Q1 2012
Financial Account
22
In Q1/2012, the financial account shifted to a surplus
at US$2.2 billion from a deficit of US$1.0 billion in the
Q4/2011. This surplus was mainly supported by
purchases of foreign currency-denominated government
securities, followed by purchases of stocks and private
sector debt securities in line with positive market
perceptions of the domestic economy.
Financial Account: Total
-15
-10
-5
0
5
10
15
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
**
2008 2009 2010 2011* 2012
Financial Account: Total
Other Inv. Portfolio Inv. Direct Inv. Financial Account
Billion USD
-8
-6
-4
-2
0
2
4
6
8
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1*
*
2008 2009 2010 2011* 2012
Portfolio Investment
Debt Securities Equity Total
Billion USD
Foreign portfolio investment recorded a surplus of
US$3.2 billion in Q1/2012 after experienced net
outflows in the last two quarters. Such a significant
jumped up was especially due to large inflows in foreign
currency-denominated government and corporate debt
securities and domestic stocks.
Indonesian banks – Foreign and domestic banks
23
No Type of banks Des-00 Des-06 Des-11 Mar-12
% change bw
2000 and
2008
1 State owned banks:
a. Government of Republic of Indonesia 5 5 4 4 -25,0
b. Local (provincial) governments 26 26 26 26 0,0
2 Private domestic owned banks 78 55 56 56 -39,3
3 Foreign owned banks:
a. Subsidiary (Joint Venture) 29 29 13 13 -123,1
b. Branch office 10 11 10 10 0,0
4 Sharia banks 3 4 11 11 72,7
Total 151 130 120 120 -25,8
This table shows number of banks based on different types of banks operating in Indonesia from Dec 2000 to March 2012.
Various years. Source: Indonesian Banking Statistics. Bank Indonesia
Foreign and domestic banks activities
24
Dec-00 Mar-12 Dec-00 Mar-12 Dec-00 Mar-12 Dec-00 Mar-12 Dec-00 Mar-12
State owned banks 522,4 1328,2 108,1 776,8 59,3 242,9 68,5 395,4 184,7 401,0
50,2 36,4 38,2 35,3 37,2 37,2 44,6 44,0 48,1 32,5
Private domestic owned banks 358,3 1454,2 86,3 908,0 52,7 218,9 76,9 371,8 146,5 570,8
34,4 39,8 30,5 41,3 33,1 33,5 50,1 41,4 38,2 46,3
Provincial government banks 26,1 304,0 10,1 175,7 10,8 88,4 4,8 67,3 4,2 79,5
2,5 8,3 3,6 8,0 6,8 13,5 3,1 7,5 1,1 6,4
Subsidiary (JV) banks 50,2 181,1 30,4 120,4 9,8 25,2 0,4 18,4 12,5 67,3
4,8 5,0 10,7 5,5 6,1 3,9 0,3 2,0 3,3 5,5
Foreign branch offices 82,3 268,5 46,9 136,5 26,7 67,2 2,7 18,7 35,4 55,6
7,9 7,3 16,6 6,2 16,7 10,3 1,8 2,1 9,2 4,5
Sharia banks 1,9 116,9 1,3 82,7 0,2 10,1 0,3 26,6 0,5 59,8
0,2 4,0 0,5 3,8 0,1 1,6 0,2 3,0 0,1 4,8
Total 1041,2 3652,8 283,1 2200,1 159,5 652,6 153,6 898,3 383,8 1234,0
This table presents market share of Indonesian banks in December 2000 and March 2012. Source: Bank Indonesia. December 2000 and March 2012. Indonesian Banking Statistics.
(unit IDR T)
Demand Deposits (%
of Total)
Savings Accounts (%
of Total)
Time Deposits (% of
Totals)Bank Type
Assets (% of Total) Loans (% of Total)
Banking market competition
25
Metropolitan Area
Variables
Coefficient P-value Coefficient P-value Coefficient P-value Coefficient P-value
Lagged total revenue -0.022 0.000 -0.319 0.000 0.012 0.000 -0.006 0.848
Fixed asset cost 0.050 0.000 0.107 0.002 0.100 0.000 0.030 0.000
Labor cost 0.304 0.000 0.184 0.007 0.180 0.000 0.218 0.000
Wholesale funding cost 0.102 0.000 0.113 0.120 0.336 0.003 0.274 0.042
Total Deposit 0.695 0.000 0.429 0.000 0.706 0.000 0.892 0.000
Time 0.124 0.000 -0.213 0.000 0.155 0.000 -0.019 0.719
Number of obs 4,366 323 1,111 1,172
Number of banks 132 54 55 41
H-stat 0.45 0.31 0.62 0.52
F-statistics for H=0 7379.6 0.000 11.91 0.000 31.02 0.000 10.15 0.000
F-statistics for H=1 11430.3 0.000 61.09 0.000 11.27 0.000 8.75 0.000
AR(2) p-value 0.655 0.664 0.753 0.542
Sargan -Hansen, p-value 1.0 1.0 1.0 1.0
This table shows the result of Panzar-Rosse (1987) using Two steps Generalized Method of Moment (Arellano Bond, 1991) with
robust standard errors. The dependent variable is total revenue. The set of explanatory variables are fixed asset cost, labor cost,
wholesale funding cost, bank's deposit market. All variables are in logarithmic value. AR(2) is the p-value for the test for 2nd-
order autocorrelation in the residuals. Sargan is the p-value for the Sargan test for the validity of the over-identifying
restrictions. Hansen J the p-value for the Hansen test for the validity of the over-identifying restrictions. Metropolitan area is
Jakarta, Banten and West Java that is most populated and active banking market. Java and Sumatra is provinces in Java and
Sumatra islands excluding Jakarta, Banten and West Java. The Periphery is other provinces that are less populated and less
active banking markets (See section 3.2 for further details).
All Java & Sumatra The Periphery
Dependent Variable: Total revenue
(1) (2) (3) (4)
Banking performance is also positive
1,272
2,311
3,089 3,652 3,682
Des2004
Des2008
Des2010
Des2011
Feb2012
Total Asset ( T Rp)
19.36 16.2 17 16.1
18.4
Des2004
Des2008
Des2010
Des2011
Feb2012
CAR (%)
76.69
84.1
80 81.5
85.9
Des2004
Des2008
Des2010
Des2011
Feb2012
Eff Ratio (%)
133
124 121 120 120
Des2004
Des2008
Des2010
Des2011
Feb2012
No of banks
61.8
77.2 76.8 80 79.4
Des2004
Des2008
Des2010
Des2011
Feb2012
LDR (%)
7,939
10,936
13,971
14,797
14,839
Des2004
Des2008
Des2010
Des2011
Feb2012
No of bank offices
0.25 0.43 0.54 0.65 0.62 0.42
0.82 1.07
1.23 1.26
0.30
0.50
0.73
0.90 0.88
Des2004
Des2008
Des2010
Des2011
Feb2012
Deposits (T Rp )
Giro Deposito Tabungan
0.29 0.68 0.88 1.07 1.06
0.12
0.26 0.35
0.46 0.48
0.15
0.37
0.54
0.67 0.67
Des2004
Des2008
Des2010
Des2011
Feb2012
Loan ( T Rp)
Modal Kerja Investasi Konsumsi
26
Sound Financial Sector
27
Stability in the banking system remains firm alongside steady improvement in
credit growth
Sufficient CAR (%) Sound level of NPLs (%)
17 17
18
17.6 17.8
17.4
17 17.2 17.3
16.7
17.1
16.6
16.1
18.4 18.5 18.3
14.5
15
15.5
16
16.5
17
17.5
18
18.5
19
2.6 2.8 2.8 2.8 2.8
2.9 2.7
2.8 2.8 2.7 2.7
2.5
2.2 2.4
2.3 2.3
0
0.5
1
1.5
2
2.5
3
3.5
1. Improving bank capital and liquidity standards
2. Addressing systemically important financial institutions (SIFIs)
3. Expanding and refining the regulatory perimeter
4. Improving the OTC and Commodity Derivatives Markets
5. Developing macro-prudential frameworks and tools
6. Strengthening and converging accounting standards
7. Strengthening adherence to international supervisory and regulatory standards
8. Other issues
Implementation of Basel III and strenghtened bank risk management
Methodology to supervise SIFIs
Shadow banking, hedge funds, securitization
OTC derivatives’ standard contract, CCP, etc
Regulatory system revision, macro prudential policy frameworks, Early Warning Exercise (EWE)
Accounting standard convergence under the IASB and FASB in many fronts
FSAP, international standard, peer review, etc
EMDEs, consumer finance protection, credit rating agencies, etc
28
Global Financial Sector Reform- G20’s Committments
29
Global financial sector reform: Basel III
2012 2013 2014 2015 2016 2017 2018 2019
BASEL II
(Pillar 1, Pillar 2, Pillar 3)
Issue regulations
BASEL III CAPITAL
Minimum Total Capital 8,0 8,0 8,0 8,0 8,0 8,0 8,0
Minimum Total Capital +
Conservation Buffer
8,0 8,0 8,0 8,625 9,25 9,875 10,5
Capital Instruments excl from
Tier 1 and Tier 2
Phased Out gradually 10 years from 2013 to 2023 or early redemption date
before 2023
Countercyclical Cap Buffer Maximum 2,5
Financial Stability Policy-
Macroprudential policy in Indonesia
30
Bank Indonesia has the mandate to conduct macroprudential policy. (Indonesia
FSA Act, article 40). This mandate will also be stated in Bank Indonesia Act.
In a crisis management, there is Financial Stability Coordination Committee
(FSCC) (Indonesia FSA Act. Article 44)
Members of the FSCC:
Minister of Finance
Governor of Bank Indonesia
Head of Board of Commisioner of Financial Services Authority
Head of Board of Commisioner of Indonesia Deposit Insurance Agency
Financial safety nets arrangement will be regulated in the Indonesian Financial
Safety Nets Act
Financial stability issues-
Macroprudential Policies for Managing Capital Flows
31
The Measures Objectives
• Minimum Holding Period on BI bills, 1 month holding period (June 2010) and 6 month holding (May 2011)
•To “put sand in the wheels” on short-term and
speculative capital inflows, and mitigate risks of
sudden reversals.
Reinstate limits on short-term
offshore borrowing of the banks
• Maximum of 30% of capital
• Effective end January 2011
• To limit the short-term and volatile capital inflows.
• To limit FX exposure of the banking system
stemming from capital inflows.
Increase FX reserve requirements of
the banks from 1% of FX deposits to:
• 5% effective March 2011
• 8% effective June 2011
• To strengthen FX liquidity management, thereby
the resilience, of the banking system in facing
increasing FX exposure stemming from capital
inflows
• Helps absorb domestic liquidity.
Financial Stability Policy-
Macroprudential Policies for Managing Domestic Liquidity & Credit
Overheat
32
The Measures Objectives
• Lengthen (from weekly to monthly) auction and offer longer maturity (3, 6, 9 months) of BI bills since June 2010.
• To enhance the effectiveness of domestic liquidity
management, including from capital inflows, by
locking up to longer term and helsp develop
domestic financial markets.
• Increase Rupiah reserve requirement from 5% to 8%, effective Nov 2010.
• To absorb domestic liquidity and enhance liquidity
management of the banks, without exerting
negative impact on lendings that are needed to
stimulate growth.
The Measures Objectives
• Implement Loan to Value Ratio (LTV) for mortgage and Down Payment for Automotive loans since June 2012.
• To reduce excessive growth of specific
consumptions loans (housing and automotive) and
mitigate increasing credit risk in banking sector.
Financial Stability Condition
33
Overall Indonesian Financial System has been relatively stable since global crisis in 2007-08
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
19
96
M0
2
19
96
M0
8
19
97
M0
2
19
97
M0
8
19
98
M0
2
19
98
M0
8
19
99
M0
2
19
99
M0
8
20
00
M0
2
20
00
M0
8
20
01
M0
2
20
01
M0
8
20
02
M0
2
20
02
M0
8
20
03
M0
2
20
03
M0
8
20
04
M0
2
20
04
M0
8
20
05
M0
2
20
05
M0
8
20
06
M0
2
20
06
M0
8
20
07
M0
2
20
07
M0
8
20
08
M0
2
20
08
M0
8
20
09
M0
2
20
09
M0
8
20
10
M0
2
20
10
M0
8
20
11
M0
2
20
11
M0
8
20
12
M0
2
FSI 1996 - 2012 Asia Financial Crisis1997/1998: 3.23
Mini Crisis 2005: 2.33 Global Crisis (Nov 2008): 2.43
Mei 2012: 1.69
April 2012: 1.63
Indonesia Financial Inclusion Strategy
34
Access Wider Public to
Financial Products and Institutions
Financial Education
Mapping Financial
Information
Intermediation
Facilitation
Distribution Channel
Supportive Regulation
Regime
Infrastruktur
• Curriculum
(Elementary-
Junior High
School)
• Education for
Indonesian
workers to
work in
abroad
• Financial
identification
number
• Household
Survey • Bazaar
intermediation • Workshop on
entrepreneursh
ip
• My saving
program
• Branchless
banking
• Mobile
banking
• KYC
• Agent
• Research
• benchmarking
• consultancy
• seminar
• focus group discussion
Isu Strategis No. 3: Financial Inclusion