Indonesia looks to future proof banks
(17 September 2015 – Indonesia) To future proof its banking industry, Indonesia is preparing a major overhaul of financial safety regulations.
According to the head of the Indonesia Deposit Insurance Corp, Fauzi Ichsan, regulators are working on a list of important banks, likely to include the country’s top 15 by assets, and parliament may pass a law this year setting out rules for bailouts.
Amid currency volatility, a weakening economy and slow growth for the country’s largest lenders, Indonesia is also facing further disruption with the US Federal Reserve preparing to lift US interest rates.
According to Ischan, Indonesian banks on the list could face higher deposit-insurance premiums and additional capital buffers.
The banking industry’s capital adequacy ratio of 20 percent and nonperforming loan ratio of 2.6 percent are both better than during the global credit crisis, and no lenders are currently being considered as failing.
The Basel Committee on Banking Supervision and the Financial Stability Board have led an international push to design a broad framework for banks “too-big-to-fail”, with Indonesia bringing itself with other nations in identifying its most important lenders.
The risk for Indonesia’s lenders could escalate if economic growth slips further and the rupiah slump deteriorates, Ichsan said.
“If gross domestic product growth falls below 4 percent that would be alarming,” as well as if the rupiah hits 16,000 against the dollar, he said. “It would eat up capital through loan provisions and write offs.”
Indonesia Deposit Insurance Corp has US$4 billion (A$5.5 billion) in assets, enough to cover two commercial bank collapses, according to the organisation’s stress tests.
“More than two banks would be challenging,” he said.
The financial safety net bill, which parliament started discussing last month after approval by President Joko Widodo, will set out the process for dealing with a financial crisis and detail the requirements for banks to get bailouts.
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