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Books and Analytical Papers > IMF Staff Country Reports

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Cover IMF Staff Country Reports
Indonesia: Financial Sector Assessment Program-Detailed Assessment of Observance-Basel Core Principles for Effective Banking Supervision
International Monetary Fund. Monetary and Capital Markets Department
This paper presents a Detailed Assessment of Observance of the Basel Core Principles for Effective Banking Supervision for the Indonesia Financial Sector Assessment Program. The Financial Services Authority (OJK) achieves good baseline supervision; building supervisory capacity and enhancing the supervisory framework will contribute to achieving higher supervision standards. It is crucial for legislation to recognize the safety and soundness of banks and the banking sector as the OJK’s primary responsibility, given its broader mandates. The OJK is encouraged to continue to examine banks’ evolving business models to identify changing risk profiles early. There is further scope for the OJK to dedicate more attention to assessing a bank’s risk culture, model governance and stress testing. There is scope for more analysis of models, model governance, model validation, and the role of the independent risk management unit to verify and validate the results. Material enhancements are needed to effectively mitigate the risks associated with related party transactions and potential sources of concentration risk. While the OJK has broad powers for corrective measures, a portfolio view of noncompliance with regulations will help address early unsafe and unsound practices.
Keywords:
IMF-World Bank Financial Sector Assessment Program; bank Indonesia rupiah securities; banking segment; staff team of the International Monetary Fund; bank rating; Credit risk; Financial sector stability; Anti-money laundering and combating the financing of terrorism (AML/CFT); Market risk; Bank supervision; Global
Cover IMF Staff Country Reports
Indonesia: Financial Sector Assessment Program-Financial System Stability Assessment
International Monetary Fund. Monetary and Capital Markets Department
This paper presents financial sector stability assessment as part of Financial Sector Assessment Program in Indonesia. The financial system appears to be broadly resilient, has strong capital and liquidity buffers but remains relatively small and dominated by banks, especially few state-owned banks. Household and corporate indebtedness and public debt are low. The increase in banks’ holdings of government bonds and loans to state-owned enterprises has tightened the sovereign-bank nexus, but banks appear to be resilient. Credit risk tends to be higher in pandemic-hit industries and highly leveraged corporations. The mission recommends strengthening loan quality recognition by banks and risk assessment of small banks. Corporate and banks foreign exchange (FX) liquidity analysis could be integrated to identify systemic FX risks which can inform the setting of micro- and macroprudential policy instruments. Strengthening independence of the supervisor and providing clarity on primary supervisory objectives is important. Indonesia’s resolution framework should be more closely aligned to the FSB Key Attributes, including regarding the bail-in tool, and should cover financial conglomerates in the framework. Authorities should not delay resolution of weak banks by providing liquidity assistance from the deposit insurance fund.
Keywords:
banks FX liquidity analysis; systemwide FX liquidity stress test; coverage ratio; bank FX liquidity stress test; banking sector; Financial sector stability; Anti-money laundering and combating the financing of terrorism (AML/CFT); Macroprudential policy; Commercial banks; Financial Sector Assessment Program; Global