Indonesia mulls putting banking regulation under central bank

The sun sets on Jakarta, Indonesia. Photo: Bayu Syaits/unsplash

Indonesian President Joko Widodo is considering issuing an emergency decree to return banking regulation to the central bank‘s remit, amid concern about how the COVID-19 pandemic is exposing strain in the financial sector, sources told Reuters.

Bank Indonesia (BI) acted as regulator and supervisor of banks in Southeast Asia’s largest economy until the end of 2013 when the Financial Services Authority (OJK) assumed the role.

The president has been considering returning the role to BI due to dissatisfaction about OJK’s performance during the pandemic, said two people briefed on the matter, who asked not to be identified due to the sensitivity of the issue.

OJK was established under a 2011 law to oversee financial institutions. It was modelled on Britain’s then financial services regulatory structure.

Indonesia is now looking at the French structure, which has an independent administrative authority under the central bank which oversees banking, one of the people said.

“BI is very happy about this … but there will be an addition to its KPIs: it will be told to not only look after currency and inflation, but also unemployment,” said the second person, referring to key performance indicators (KPIs).

Neither BI nor a spokesman for Widodo responded to requests for comment. An OJK spokesman declined to comment at this time on the possible transfer of regulatory authority.

The OJK spokesman said the OJK began urging banks to restructure loans on Feb. 26, and introduced incentives toward that end on March 16, thereby preventing the need for banks to prepare sizeable provisions for bad loans.

DISBAND

The development comes as the government negotiates central bank help to fund a fiscal deficit that is ballooning due to its COVID-19 response.

At a June 18 cabinet meeting, Widodo said he would reshuffle his cabinet or disband government agencies if he felt they had not done enough to tackle crises brought about by the pandemic.

Indonesia‘s supreme audit board earlier this year called OJK’s supervisory role “weak”, pointing to loopholes in its oversight of seven banks. OJK said in response it would improve.

The seven included mid-sized PT Bank Bukopin Tbk <BBKP.JK> which last month said it had a negative cash flow and was limiting withdrawals.

Bukopin this week said it planned a rights issue after which South Korea’s KB Kookmin Bank would own a controlling stake. OJK also urged customers of Bukopin and other banks to ignore social media posts calling on them to withdraw deposits.

The banking industry on aggregate is secure, OJK Chairman Wimboh Santoso said on Monday, citing a higher capital adequacy ratio than international standards at 22.2% in May, a non-performing loan ratio of 3.01% and high liquidity indicators.

OJK expects 15.12 million debtors will need to restructure 1,373.7 trillion rupiah ($96.03 billion) worth of loans due to the pandemic, with 695.34 trillion rupiah being restructured as of June 22.

Reuters

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.