Jakarta, 02 January 2016
OJK starts listing ’important’ banks
The Financial Services Authority (OJK) has postponed the completion of a list of the country’s major banks pending the endorsement of a financial system bill by the House of Representatives sometime in early 2016.
The financial authority is preparing the list of the banks, known as domestic systemically important banks (DSIB), while at the same time drafting a regulation requiring those lenders to increase their capital.
OJK chairman Muliaman D. Hadad said the list of the important lenders needed to await the passing of the Financial System Safety Net (JPSK) bill. The government and the House are expected to resume deliberations on the bill soon.
“The list of the important banks [DSIB] is mandated in the JPSK bill […] we will hold the compilation until the bill is endorsed. In a first step, we will discuss details of the list with Bank Indonesia [BI] and complete it when the JPSK bill is endorsed [by the House],” Muliaman said recently.
The DSIB is a term used to describe banks that are so important that their insolvency could impact the whole economy. These banks typically have broad business networks and operate subsidiaries in various financial sectors.
In order to reduce negative effects to the financial system and economic stability, the DSIB banks will be required to hold extra capital to increase their capability of absorbing losses in case they “fail”.
Despite the delay in listing the important banks, Muliaman said the OJK would strictly implement the upcoming DSIB regulation, as it was part of the full adoption of Basel III rules by 2019, according to a timeframe set by the Basel Committee on Banking Supervision — an international association of banking supervisory authorities.
“The current level of capital adequacy ratio [CAR] in the domestic banking industry remains high, standing at 21 percent, which would not be a problem even if the Basel III rules were implemented right now,” he said.
The minimum total capital set in the Basel III framework was set at 8 percent, but starting from 2016, banks have to meet an additional capital buffer of 0.625 percent, raising the minimum total capital to 8.625 percent.
The benchmark is set to increase each year to reach 10.5 percent by 2019, when the Basel III requirements are set to be fully implemented.
The proposed OJK rules include a capital surcharge for banks categorized as DSIB based on the assessment of five categories (so-called buckets) to calculate their potential systemic risk.
The bucket categorization divides banks and charges them with 1 to 3.5 percent of additional capital of their total risk-weighted assets. The OJK will add a Bucket 6 if it finds banks with a very high systemic importance score. Currently, the OJK has found no bank listed in Bucket 5.
The OJK and BI will coordinate to determine which banks should be regarded as DSIB, based on a set of indicators that will specify their “systemic importance score”.
– Source: Jakarta Post