Jakarta, Reportase – Chief Executive of the Banking Supervision of the Financial Services Authority (OJK) Dian Ediana Rae said the global banking crisis was mainly triggered by the failure of a number of banks in the United States and Europe, but did not have a significant impact on the Indonesian banking industry.
“Various indicators show that Indonesian banking is in solid condition with an average prudential ratio that remains above the global banking average,” said Dian in her official statement, Monday (27/3/2023).
As an illustration, in the position of January 2023, the capital adequacy ratio (Capital Adequacy Ratio/CAR) is 25.93 percent and around 85 percent of the capital component is classified as core capital (Tier 1 capital; CET 1). As a comparison, the core capital ratio of American banks is 13.52 percent and that of Europe is 16.13 percent. In addition, Indonesia’s banking liquidity performance was well maintained, as shown by the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) which were recorded at 232.22 percent and 134.58 percent, respectively.
This liquidity condition is also much better compared to the ratios of LCR and NSFR in American banks of 120.43 percent and 123.20 percent and banks in Europe of 152.39 percent and 120.21 percent.
In line with the directions of the Basel Committee on Banking Supervision (BCBS) on 22-23 March 2023 in Hong Kong, Dian asked Indonesian banks to continue to strengthen the implementation of governance, risk management and the precautionary principle. Among other things, by conducting stress testing and monitoring of the bank’s asset and liability portfolio including the risk concentration on loans and funding.
Currently, Dian observes that banking assets are also maintained at a proportional composition with the composition of Third Party Funds (DPK) which are dominated by current accounts and saving accounts (CASA) or low-cost funds which are increasing so that they are not sensitive to movements in interest rates.
Furthermore, in addressing the SVB effect, even if it has minimal impact on the Indonesian banking industry, Dian emphasized to banks that the basic principles of prudence continue to be a concern. The capital adequacy ratio and the availability of liquidity in high quality assets must be maintained. Speculative practices of excessive risk-taking behavior must be avoided.
In addition, to test banking resilience, banks are regularly asked to conduct stress tests on various scenarios.
“It is well realized that global dynamics and fast macroprudential policies need to be carefully anticipated. Global geopolitical tensions and volatility in market conditions will continue to occur with various dynamics,” said Dian.
“As long as the precautionary principle and sound banking practices are maintained, Indonesian banking will remain resilient and will continue to grow healthily in accordance with current conditions,”
Furthermore, Dian said that the OJK will continue to strengthen coordination between authorities, especially with Bank Indonesia, the Ministry of Finance, and the Financial Guarantee Institutions that are members of the Financial System Stability Committee (KSSK) to ensure that the stability of the national financial system is maintained.
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