Jakarta. Indonesia's parliament passed a law on Thursday (17/03) aimed at managing financial crises that may force its biggest banks to top up their capital to provide a buffer against problems.
The law establishes rigid, step-by-step protocols to handle a financial crisis, directing the central bank to help with bank liquidity problems and the deposits insurer to deal with bank insolvency.
Under the new system, the required capital-adequacy ratio (CAR) may need to be raised to 20 percent for systemically important banks, Fauzi Ichsan, chief executive of the Indonesia Deposit Insurance Corp, told reporters on Thursday. The required CAR now starts at 8 percent of risk-weighted assets.
Banks in Southeast Asia's largest economy already have an average CAR of 21.5 percent as of January. But this year they are expected to face loans going bad at the highest rate since the global financial crisis.
Nelson Tampubolon, chief banking supervisor at Indonesia's Financial Services Authority, said the main point of the law is to force shareholders to take part in any bank rescue.
"Banks should be able to solve their own problems, by [getting help from] their owner, their strategic partners or creditors," he said
Tampubolon also said banks will be required to issue convertible bonds that can be converted into equity in a crisis.
The law sets up a financial stability committee chaired by Indonesia's finance minister to assess the financial situation periodically and report to the president. That includes advising the president to make a decision within 24 hours when a crisis strikes.
The president may approve or reject proposals given by the committee. The law does not say whether the president would be allowed to use state funds to help troubled banks.
The original draft of the law allowed the use of the state budget to indirectly help failing banks, but that was scrapped last week to protect state finances from being affected by a crisis.
Indonesia's biggest banks by assets are Bank Mandiri , Bank Rakyat Indonesia, which are state controlled, and Bank Central Asia. Based on their latest financial statements, they had CARs at the end of 2015 of 18.6 percent, 20.59 percent and 18.7 percent, respectively.
The Financial Services Authority has instructed the country's biggest banks to set aside more capital this year in what it calls a "capital surcharge", while Bank Indonesia has set up a regulation for countercyclical capital buffers.
REsource: http://www.jakartaglobe.beritasatu.com
The law establishes rigid, step-by-step protocols to handle a financial crisis, directing the central bank to help with bank liquidity problems and the deposits insurer to deal with bank insolvency.
Under the new system, the required capital-adequacy ratio (CAR) may need to be raised to 20 percent for systemically important banks, Fauzi Ichsan, chief executive of the Indonesia Deposit Insurance Corp, told reporters on Thursday. The required CAR now starts at 8 percent of risk-weighted assets.
Banks in Southeast Asia's largest economy already have an average CAR of 21.5 percent as of January. But this year they are expected to face loans going bad at the highest rate since the global financial crisis.
Nelson Tampubolon, chief banking supervisor at Indonesia's Financial Services Authority, said the main point of the law is to force shareholders to take part in any bank rescue.
"Banks should be able to solve their own problems, by [getting help from] their owner, their strategic partners or creditors," he said
Tampubolon also said banks will be required to issue convertible bonds that can be converted into equity in a crisis.
The law sets up a financial stability committee chaired by Indonesia's finance minister to assess the financial situation periodically and report to the president. That includes advising the president to make a decision within 24 hours when a crisis strikes.
The president may approve or reject proposals given by the committee. The law does not say whether the president would be allowed to use state funds to help troubled banks.
The original draft of the law allowed the use of the state budget to indirectly help failing banks, but that was scrapped last week to protect state finances from being affected by a crisis.
Indonesia's biggest banks by assets are Bank Mandiri , Bank Rakyat Indonesia, which are state controlled, and Bank Central Asia. Based on their latest financial statements, they had CARs at the end of 2015 of 18.6 percent, 20.59 percent and 18.7 percent, respectively.
The Financial Services Authority has instructed the country's biggest banks to set aside more capital this year in what it calls a "capital surcharge", while Bank Indonesia has set up a regulation for countercyclical capital buffers.
REsource: http://www.jakartaglobe.beritasatu.com
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