Closure of Silicon Valley Bank Will Not Directly Impact Indonesia
The closure of SVB was expected to have no direct impact on Indonesian banks that did not have business ties, facility lines, or investments in SVB securities.
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BENEDIKTUS KRISNA YOGATAMA, MEDIANA
·5 minutes read
AFP/JUSTIN SULLIVAN
A worker (C) tells people that the Silicon Valley Bank (SVB) headquarters is closed on March 10, 2023 in Santa Clara, California. Silicon Valley Bank was shut down on Friday morning by California regulators and was put in control of the U.S. Federal Deposit Insurance Corporation. Prior to being shut down by regulators, shares of SVB were halted Friday morning after falling more than 60% in premarket trading following a 60% declined on Thursday when the bank sold off a portfolio of US Treasuries and $1.75 billion in shares to cover declining customer deposits.
JAKARTA, KOMPAS — The Financial Services Authority (OJK) has assessed that the closure of Silicon Valley Bank (SVB) by the United States’ Federal Deposit Insurance Corporation (FDIC) on 10 March will not have a direct impact on the Indonesian banking industry, which is in a strong and stable condition. However, the problem that has befallen SVB will make investors more careful in funding start-ups.
In a press statement on Monday (3/13/2023), Dian Ediana Rae, the OJK’s banking supervision head, said that the closure of SVB was expected to have no direct impact on Indonesian banks that did not have business ties, facility lines, or investments in SVB securities. Unlike SVB and US banking in general, banks in Indonesia did not provide credit or investments to start-ups and crypto.
"Therefore, the OJK hopes that neither the public and industry will be affected by the various speculations that develop," he said.
According to Dian, after the 1998 financial crisis, Indonesia had taken fundamental steps in strengthening institutions, legal infrastructure and governance, as well as in customer protection, to create a strong, resilient, and stable banking system.
The OJK assured that it would continue to monitor the various developments that occur globally and their implications for Indonesian banks. The OJK also ensured the application of good bank risk management and governance over every productive asset portfolio and fund, as well as in mitigating concentrated risks that could impact banks’ performance.
"In addition, the OJK asks banks to always take strategic steps, including improving the function and role of assets and liabilities committees, managing assets and obligations, evaluating the sufficient of risk reserves, and conducting comprehensive stress tests," said Dian.
The risk is too big [not to save SVB].
Segara Institute executive director Piter Abdullah made similar comments when contacted on Monday. According to him, as the US government was helping to save SVB, there was no need to worry that there would be a systemic impact. The market would calm down. Even if there was turmoil, according to him, it would be temporary.
"The risk is too big [not to save SVB]. The US government will definitely not have forgotten that the Lehman Brothers’ bankruptcy in 2008 triggered a global financial crisis," said Piter.
Bahana Sekuritas economist Satria Sambijantoro added that the Federal Reserve (Fed), the US central bank, was now at the intersection of choosing between prioritizing inflation control and ensuring that the banking system ran. With a bank rescue policy, the Fed would flush the market with liquidity.
AP PHOTO/BOBBY CAINA CALVAN
A branch of Signature Bank is photographed, late Sunday, March 12, 2023, in New York. Regulators announced that the New York-based bank had failed and was being seized. At more than $110 billion in assets, Signature Bank is the third-largest bank failure in U.S. history. Signature's failure comes just days after the failure of Silicon Valley Bank.
Pressure for ‘start-ups’
According to Bank Permata chief economist Josua Pardede, it is believed that after the US regulator stated that it would reimburse SVB’s depositors as an anticipatory measure, this led to positive sentiment among players in the global financial industry. However, the policy is believed to have implications for the limited effort to place start-up funds.
"Seeing the start-up journey in Indonesia, funding will be more difficult when interest rates rise like now, with added negative sentiment from the SVB incident. However, in the long run, this condition will return [to normal] due to Indonesia’s economic fundamentals. If Indonesia still has prospects, of course funding will return here," said Josua.
Researcher Nailul Huda at the Center of Innovation and Digital Economy of the Institute for Development of Economics and Finance (Indef) added that so far there had been no indications of misappropriation of funds in the SVB case, as this would require an investigation by US authorities. He suspected that the cause of SVB's collapse was the sharp increase in interest rates and poor fund management.
The Indian government was closely watching the implications of the SVB case on start-up funds circulating outside the US. In Indonesia, he viewed that there was a potential for negative sentiment in the capital market. The country’s start-ups were expected to find it increasingly difficult to get funding from abroad.
"Moreover, the portion of funds from the United States to Indonesian start-ups is estimated to be relatively large," Nailul said.
Nilzon Capital’s principal advisor, Frizon Akbar Putra, said that based on limited observations, a number of venture capital companies had requested clarification from start-ups in Indonesia about whether they had been exposed to impacts from the SVB case. However, he believed the majority of start-ups in Indonesia used banking services in Indonesia and Singapore, or did not have direct ties to SVB.
Start-ups must be aware that there are real financial risks that lurk.
"In fact, the thing that requires attention is whether the venture capital companies that fund start-ups are ready to disburse funding in a limited time. Many regional and global venture capital companies store their funds at SVB," he said.
Frizon also said the FDIC’s statement regarding SVB’s liquidity bailout and takeover had caused some relief because venture capital companies could secure their funds in SVB. The condition was that the funds were not placed in certain bonds, SVB shares, or derivative products involving SVB as an issuer.
"Start-ups must be aware that there are real financial risks that lurk, [and] even the financial sector can experience pressure at any time," he said.
