The national banking industry needs to implement good governance, risk management and the precautionary principle. In addition, the capital adequacy ratio and liquidity availability should be maintained.
By
BENEDIKTUS KRISNA YOGATAMA
·5 minutes read
KOMPAS/TOTOK WIJAYANTO (TOK)
Chairman of the OJK Board of Commissioners Mahendra Siregar (center) is a speaker with BCA President Director Jahja Setiaatmadja (left) at the Kompas Collaboration Forum at Kompas Gramedia Building, Jakarta, Friday (14/4/2023). The discussion was themed Behind the Collapse of Silicon Valley Bank.
JAKARTA, KOMPAS — The Financial Services Authority (OJK) has urged the banking industry to prepare a number of anticipatory measures to minimize the risk of contagion from the impact of the banking crisis in the United States and Europe. Even though the national banking industry is healthy, anticipatory measures are still needed.
In his remarks at the Kompas Collaboration Forum (KCF) themed "Behind the Collapse of Silicon Valley Bank", held at the Kompas Gramedia Building in Jakarta on Friday (14/4/2023), the OJK Board of Commissioners chairman, Mahendra Siregar, said the collapse of Silicon Valley Bank and a number of other banks in the US and Europe had occurred because the depositor structure was too concentrated in a certain economic sector, namely technology start-ups. When many technology start-ups failed, the banks in question were also in trouble.
The majority of depositors was also dominated by companies that were not in the diversified retail segment. As they were too focused on this particular segment, the banks were more vulnerable when there was a massive withdrawal of funds.
Apart from Mahendra, those who also presented as speakers a the discussion were the president director of PT Bank Central Asia Tbk (BCA), Jahja Setiaatmadja; Kompas senior journalist Simon Saragih; and Kompas Research and Development researcher Karina Isna Irawan. The discussion was chaired by Kompas chief editorSutta Dharmasaputra. Attending the discussion were a dozen chief executive officers (CEOs) and corporate directors grouped in the Kompas CEO Forum.
Mismatch
Mahendra said there was also a mismatch between assets and liabilities. Most of Silicon Valley Bank’s assets consisted of US government bonds, which were long-term instruments. However, the majority of liabilities, or third-party funds (TPF) , consisted of short-term instruments.
Learning from these problems, Mahendra asked banks to monitor their asset and liability portfolios, including the risk of concentration in loans and funding. In this regard, the OJK must also closely monitor the composition of the economic sector that was the source of TPF and the targeted segments of the credit sector to ensure they are diversified.
In order to maintain resilience, the OJK also asked banks to be strict in implementing good governance, risk management and the precautionary principle. In addition, banks are also required to conduct periodic stress tests for various scenarios.
BENEDIKTUS KRISNA YOGATAMA
Development of the Banking Industry February 2023. Source: Financial Services Authority (OJK)
The banking industry was also expected to maintain the capital adequacy ratio (CAR) and availability of liquidity and to avoid high-risk speculation.
"Each bank needs to do more detailed risk mitigation in managing assets and liabilities," said Mahendra.
As reported, a number of banks collapsed in the US, namely Silicon Valley Bank, Signature Bank, and Silvergate Bank. The US banking crisis then spread to Europe, where Credit Suisse had to receive liquidity injections.
Minimal impact
Mahendra emphasized that the banking crises in the US and Europe did not actually have a major impact on the Indonesian economy and financial system. In addition, the domestic banking industry was generally healthy and still growing. However, precautionary measures were still needed.
Until now, capital in the national banking industry had been relatively solid as reflected in the banking industry's CAR, which was at the fairly high level of 26.1 percent as of February 2023.
Likewise, the level of liquidity is reflected in the ratio of liquid assets/non-core deposits (AL/NCD) and liquid assets (AL)/TPF, which were respectively at 129.58 percent and 29.09 percent as of February 2023. Credit risk is also relatively low, with a nonperforming loan (NPL) ratio of 0.75 percent.
In addition, lending grew 10.64 percent on an annual basis to Rp 6.375 quadrillion, while TPF grew 8.18 percent on an annual basis to Rp 7.989 quadrillion (US$ 540.43 billion). Therefore, according to Mahendra, the public need not worry too much.
Moreover, no Indonesian bank had so far provided credit to technology or crypto start-ups, because according to existing regulations, these sectors did not meet the requirements for bank loans, especially as regards the 5Cs of character, capital, collateral, capacity, and condition.
KOMPAS/TOTOK WIJAYANTO (TOK)
President Director of BCA Jahja Setiaatmadja.
Meanwhile, BCA president director Jahja Setiaatmadja said the lender had a special subsidiary that helped start-ups to develop. From that subsidiary, Jahja said, he had learned that no domestic banks had proved funding to technology start-ups. By their character, start-ups were more suited to seek funding through investors or venture capital.
“This is different from start-ups in the US, which seek funding from banks. On the other hand, US banks also have no problem extending loans to start-ups. That doesn't happen in Indonesia," said Jahja.
According to him, technology start-ups basically use different development indicators compared to conventional businesses. Start-ups tend to inflate market value or valuation and sell future expectations. Conventional businesses are based on real profits and the health of the company.
Economist and Atma Jaya University rector Agustinus Prasetyantoko, who also attended the forum, said the banking turmoil in the US and Europe did not have a major impact on the country. However, he warned banks to remain vigilant.
From the macro viewpoint, the Indonesian banking system and economy were indeed healthy and were still growing. However, it was necessary to look at the micro condition per economic sector in more detail.
We need to be vigilant and monitor details at the micro level.
“Various macro indicators show a positive condition, but we need to be vigilant and monitor details at the micro level. Thus, the [anticipatory measures] can be more specific," said Prasetyantoko.
Anton Supit, the employment and social security chairman at the Association of Indonesian Employers (Apindo), said that even though the global banking crisis had a minimal impact on the country, this did not mean that the government and stakeholders did not need to prepare mitigation measures. Crises abroad needed to be studied so that Indonesia could prevent potential future crises.
