Interview: Darmin Nasution
Will efforts be sped up to reduce the number of banks unable to cope with BI’s requirements?
DARMIN NASUTION: For 2012 BI has formulated banking policy frameworks within three complimentary corridors. These are safeguarding the stability of macroeconomic financial systems with the implementation of the housing loan and the value auto loan down payment programmes; bolstering the resilience and competitiveness of banks and applying policies to regulate activities and bank network expansion on the basis of capital; and bolstering intermediation, with a clear mandate for banks to meet productive lending targets, set at 20% in order to stimulate economy growth.
Additionally, we are currently finalising a review on policies within the Indonesian Banking Architecture, focusing on having an efficient, sound, and stable banking industry. The goal of this revision is to support development through easy, safe and affordable financing. The revision will follow five parameters: strengthening capital, increasing competitiveness/efficiency, implementing international standards, increasing access to finance and enforcing customer protection.
What conditions will be evaluated to allow foreign banks to hold over 40% ownership of a local bank?
NASUTION: Based on BI regulation No. 14/8/PBI/2012 regarding the shareholding of commercial banks, an ownership of more than 40% within the banking sector must meet the requirements and obtain approval from BI. For the purchasing bank, these requirements are that the bank rating be at least 2 or equivalent; that the bank meet minimum capital adequacy with suitable risk profile, with tier 1 capital of at least 6% and with a recommendation from the bank supervising authority; that the bank is publicly listed; that the bank is committed to fulfilling the obligation to purchase debt-equity instruments issued by the acquired bank; that the bank is committed to supporting the Indonesian economy; and that the bank is committed to owning the local bank for a defined period as prescribed by BI.
How will BI alleviate the current account deficit?
NASUTION: Since August 2012 BI has taken four measures to adjust the current account deficit to a sustainable level. First, BI will continue to stabilise the rupiah to support the adjustment of the external balance. Second, monetary operations will continue to support the stability of the rupiah while controlling liquidity. In this regard, BI’s rate is held fixed at 5.75% and deposit facility rates have been increased from 3.75% to 4%. The third measure is to deepen the foreign exchange market by reducing the minimum duration of the forward transaction with non-residents from three months to one week. The fourth measure will be to apply the loan-to-value policy, restricting use of unsecured personal loans for credit in sharia-compliant financial services.
What is the scope of the cooperation between BI and the newly created Otoritas Jasa Keuangan (OJK)?
NASUTION: The global financial crisis of 2007-08 caused the Indonesian government to issue the act of the Financial Service Authority, under which regulation and supervision banks will be transferred from BI to OJK.
The following aspects should be considered when setting up this new supervisory framework. First, one of the new roles of the central bank as a macroprudential institution should be to promote the stability of the entire financial system. In order to ensure the success in this new role, the central bank will conduct off- and on-site examinations, having the power to issue macroprudential policies accordingly. Second, banking reporting and data/information sharing mechanisms will become a critical aspect to ensure a smooth transfer. Third, the segregation of duties between BI and OJK must be clearly defined to improve coordination. Lastly, the transfer from BI to the OJK must be carefully prepared in order to avoid problems. To this end, both institutions should formulate a joint programme to improve their capacity and competency. These steps will ensure the country has a more efficient and effective banking regulatory and supervisory system.
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