FINANCIAL STABILITY REVIEW

No. 26, March 2016

FINANCIAL STABILITY REVIEW

No. 26, March 2016

Mitigating Systemic Risk to Maintain Financial

System Stability and Stimulate Intermediate
Amidst Global and Domestic Challenges
MACROPRUDENTIAL POLICY DEPARTMENT
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Director
Publisher : Erwin Rijanto Filianingsih Hendarta Yati Kurniati Dwityapoetra S. Besar

Bank Indonesia
Jl. MH Thamrin No.2, Jakarta Coordinator and Editor
Indonesia Retno Ponco Windarti – Kurniawan Agung – Sri Noerhidajati - Diana Yumanita – Januar Hafidz – Rozidyanti

The preparation of the Financial Stability Review is one of the avenues through
which Bank Indoensia achieves its mission ”to safeguard the stability of the Indonesian Rupiah by
maintaining monetary and financial system stability for sustainable national economic development”.
FSR is published biannually with the objectives :
• To improve public insight in terms of understanding financial system stability
• To evaluate protential risks to financial system stability
• To analyze the developments of and issues within the financial system
• To offer policy recommendations to promote and maintain financial system stabilty
Drafting Team
M. Firdaus Muttaqin, Ita Rulina, Arlyana Abubakar, Ndari Suryaningsih, Dadang Muljawan, Indra Gunawan,
Cecep Ridwan, Danny Hermawan, Shanty Noviantie, Herriman Budi Subangun, Reska Prasetya, Rita Harahap,
Bayu Adi Gunawan, Heny Sulistyaningsih, Ardhi Santoso H.M., Hero Wonida, Arifatul Khorida, Mega
Ramadhanty Chalid, Justina Adamanti, Maulana Harris Muhajir, Marluga Sidabutar, Syaista Nur, Zulfia Fathma,
Afaf Munawwarah, Teguh Afriyanto, Dhanita Fauziah Ulfa, Arisyi Fariza Raz, Anindhita Kemala D., Apsari
Anindita N.P, Rieska Indah Astuti, Amalia Insan Kamil, Randy Cavendish, Harris Dwi Putra, Pita Pratita, Diana
Yalesperdani, Arif Waluyo Birowo, Irman Robinson, Fitriany, IG.N. Yudia Sinartha, Eka Putra, Indra Gunawan
Sutarto, Yansen Lokanata, Rifki Ismail, RR. Diva Amelia Putri, Dahnila Dahlan, Illinia Ayudhia Riyadi, Ebrinda
Daisy Gustiani, Nadya Astrid Puspitaningrum, I Made Satria Yudistira, Fransiskus Xaverius Tyas Prasa, Santi
Permatasari, Willy Togi, Kartina Eka Darmawanti, Meliana Rizka, Fiona Rebecca Hutagaol

Information and Orders : OTHER DEPARTMENT CONTRIBUTION ON SELECTED ANALYSIS

This edition is published in March 2016 and is based on data and information available as of Dec 2015, unless
Economic and Monetary Policy Department
stated otherwise.
Financial System Surveillance Department
SME Development Department
The PDF format is downloaded from https://www.bi.go.id
Statistics Department
Source : Bank Indonesia, unless stated otherwise
Payment System Policy and Oversight Department
For inquiries, comment and feedback please contact : Payment System Management Department
Financial Market Development Department
Bank Indonesia
Macroprudential Policy Department (DKMP)
PRODUCTION AND DISSEMINATION TEAM
Jl. MH Thamrin No.2, Jakarta, Indonesia
Saprudin, Rio Akbar, Vergina Hapsari, I Made Yogi
Email : BI-DKMP@bi.go.id
 “Mitigating Systemic Risk
to Maintain Financial System Stability and Stimulate Intermediate
Amidst Global and Domestic Challenges”

MACROPRUDENTIAL POLICY DEPARTMENT

 CONTENTS

Foreword xv
Executive Summary xvii

1. Financial System Stability 3

1.1 Global and Regional Financial Market Risks 5
1.2 Domestic Financial Market Risks 7
1.3 Financial System Stability in Indonesia 8
1.4 Domestic Financial Imbalances 10

2. Assessment Of Financial Market Conditions And Risks 19

2.1. Role of Financial Markets as a Source of Economic Financing 21
2.2. Financial Market Risks 24
Box 2.1 Adjusting the Foreign Exchange Transaction Threshold to Manage Supply and 41
Demand

3. Assessment Of Conditions And Risks The Household 45

And Corporate Sectors
3.1. Household Sector Assessment 47
3.2. Corporate Sector Assessment 54
Box 3.1 Financial System Surveillance and Assessment Framework: The Corporate Sector, 66
Household Sector and Nonbank Financial Industry

4. Banks And Nonbank Financial Institutions 71

4.1. The Banking Sector 73
4.2. Nonbank Financial Industry 101
Box 4.1 People’s Business Credit (KUR) Scheme to Drive MSME Development 110

5. The Islamic Financial Sector 115

5.1. Assessment of Islamic Financial Markets 117
5.2. Islamic Banking Sector 126
5.3. Nonbank Financial Industry 132
Box 5.1 Islamic Hedging Instruments 135
Box 5.2 Islamic Social Finance 138
Box 5.3 The Role of Bank Indonesia in Supporting Global Islamic 140
Financial System Stability

ii
6. Strengthening Financial System Infrastructure 145
6.1. Payment System Performance 147
6.2. Payment System Transaction Performance 149
6.3. Payment System Indicators 150
6.4. Payment System Risks and Mitigation Efforts 152
6.5. Digital Financial Services and Financial Inclusion 154
Box 6.1 Implementation of Chip and Six-Digit Online PIN Technology for ATM/Debit Cards 159
Box 6.2 Financial Services Digitalisation at Islamic Boarding Schools 161
Box 6.3 Implementation of the Second Generation BIBox RTGS system and BI-SSSS 164

7. Bank Indonesia Policy Response Towards Maintaining Financial 167

System Stability
7.1. Implementation and Evaluation of Looser Loan-to-Value Ratio (LTV) and Financing-to- 169
Value Ratio (FTV) for Housing Loans and Down payments on Motor Vehicle Loans
7.2. Adjustment to the RR-loan to Funding Ratio (RR-LFR) and Checking Account Services 171
to Meet MSME Loan Requirements
7.3. Mandatory Countercyclical Capital Buffer (CCB) 173
7.4. Macro Prudential Policy Surveillance and Inspections 174
7.5. Coordination with the Government and other Authorities 174
Box 7.1 Bank Indonesia Circular Letter (SEBI) No. 17/25/DKMP, dated 12th October 2015, 177
Concerning the Loan-to-Value Ratio (LTV) or Financing-to-Value Ratio (FTV) for
Motor Vehicle Loans or Financing
Box 7.2 Countercyclical Capital Buffer (CCB) Policy 179
Box 7.3 Policy to Determine the 0% CCB Rate 181
Box 7.4 Provisions of the Regulation concerning the Prevention and Resolution of Financial 186
System Crisis

8. Outlook, Challenges and Policy Direction 189

8.1. Financial System Stability Challenges 191
8.2. Banking Sector Resilience and Financial System Stability 193
8.3. Policy Direction in 2016 195
Box 8.1 Policy to Convert DAU and/or DBH Funds into Noncash Disbursements and its 198
Impact on Regional Bank Liquidity

Article
Article 1 Selection of Early Warning Indicators to Identify Corporate Sector Distress: Efforts 201
to Strengthen Crisis Prevention
Article 2 Bank Industry Rating and Risk Register: Bank Indonesia’s Macroprudential 220
Supervisory Tools

iii
 LIST OF TABLE

1. Financial System Stability Table 3.10 Stress Tests of 187 Highly Indebted 65
Corporations by BUKU Bank Group

Table 1.1 Global Economic Outlook 6 Table 3.11 Corporate External Debt by Commodity 65

Table 3.12 Corporate Domestic Debt by Commodity 65

2. Assessment Of Financial Market

Conditions And Risks
4. Banks And Nonbank Financial Institutions
Table 2.1 Bank and Nonbank Financing 21
(Rp, trillions) Table 4.1 LA/NCD per BUKU Bank Group 74

Table 2.2 Sources of Funds by Number of Banks 23 Table 4.2 Statutory Reserve Requirement 74

Table 2.3 Bank Sources of Funds by Volume 24 Table 4.3 LDR by BUKU bank Group 75

Table 2.4 Comparison of NDF Spread in the Region 30 Table 4.4 Deposit Growth by BUKU Bank Group 76
(%, yoy)
Table 2.5 Yields of 10-Year Government Bonds in 31
the Region Table 4.5 Deposit Growth by BUKU Bank Group 77

Table 2.6 Volatility of 10-Year Government Bonds 32 Table 4.6 Market Share of Deposits per Island 78
in the Region
Table 4.7 Market Share of Credit in Indonesia 80
Table 2.7 Composition of SBN Holdings 33 based on Project Location

Table 2.8 Corporate Bond Holdings 35 Table 4.8 Credit Growth by BUKU Bank Group 80

Table 2.9 Foreign Shareholdings by Business Group 36 Table 4.9 MSME Credit Growth and Share by 82
(Rp, trillions) BUKU Bank Group

Table 2.10 Foreign Shareholdings by Economic 36 Table 4.10 Gross NPL by Region 84
Sector (billions of units)
Table 4.11 Gross NPL Ratio by BUKU Bank Group 85
Table 2.11 Index Volatility by Sector 37
Table 4.12 Deposit Rates by BUKU Bank Group 88

Table 4.13 Lending Rates by BUKU Bank Group 88

Table 4.14 Value of SBN Holdings by BUKU Bank 90

3. Assessment Of Conditions And Risks The group
Household And Corporate Sectors
Table 4.15 Share of SBN Holdings by BUKU Bank 90
Table 3.1 Consumption, Loan Repayments and 49 group
Savings based on Monthly Income
Table 4.16 Banking Industry Profit/Loss (Rp, trillions) 92
Table 3.2 DSR Composition based on Monthly 50
Income Table 4.17 Breakdown of Income Accounts 93
(Rp, trillions)
Table 3.3 Savings Composition based on Monthly 50
Income Table 4.18 Breakdown of Expense Accounts 94
(Rp, trillions)
Table 3.4 Personal Loans by Type 52
Table 4.19 NIM Ratio by BUKU Bank Group 94
Table 3.5 Corporate Financial Performance 57
Indicators by Sector Table 4.20 CAR by BUKU Bank Group 96

Table 3.6 Corporate Financial Performance 58 Table 4.21 Interconnectedness between the 105
Indicators by Major Export Commodity Banking and Finance Industries

Table 3.7 Corporate Credit by Economic Sector 61 Table 4.22 Interconnectedness between the 108
Banking and Insurance Industries
Table 3.8 Credit to Major Export Commodities 62
Table 4.23 Performance of Public Listed Insurance 109
Table 3.9 Position of Private External Debt by 63
Economic Sector

iv
Table 4.24 Capital Requirements for Public Listed 109
Insurance Companies 8. Outlook, Challenges and Policy Direction
Table Box 4.1.1 KUR Growth Simulation 112
Table 8.1 Projected Global Economic Growth 191
Table Box 4.1.2 MSME Loan Growth Simulation 112
Table 8.2 Export Elasticity in Indonesia to GDP in 191
Table Box 4.1.3 Comparison of the Previous KUR Scheme 113 other Countries
(2007-2014) and the New KUR Scheme
Table Box 8.1.1 Budget Posture in 2016 198
(commencing in 2015)
Table Box 8.1.2 Regional Transfers 198

5. The Islamic Financial Sector

Article 1
Table 5.1 Sovereign Sukuk by Type 119 Table Article 1.1 Statistical Errors 210

Table 5.2 Number of Sharia-Compliant Issuers 123 Table Article 1.2 Summary of Candidate EWI of Corporate 211
Financial Distress
Table 5.3 Regional Gross NPF 130
Table Article 1.3 Statistical Evaluation of Candidate EWI 212
Table 5.4 Stress Test: Capital Resilience 132 of Corporate Financial Distress
Table Box 5.1.1 DSN Fatwa concerning the Trade of 136 Table Article 1.4 Comparison of Statistical Evaluation: All 216
Currency and Hedging Transactions Sample Vs Real-Time Estimation Problem

6. Strengthening Financial System

Infrastructure

Table 6.1 BI-RTGS, BI-SSSS, SKNBI, Card-Based 149

Instruments and E-Money

Table 6.2 Ten Large banks with Most 153

Counterparties

Table 6.3 Individual and Business DFS Agents 157

7. Bank Indonesia Policy Response Towards

Maintaining Financial System Stability

Table 7.1 LTV/FTV Ratio for Banks Meeting the 170

Prevailing Requirements

Table 7.2 Downpayments on Motor Vehicle Loans 170

Table 7.3 Credit Growth and NPL by Loan Type 170

Table 7.4 MSME Credit Achievements 172

v
 LIST OF GRAPH AND FIGURE

1. Financial System Stability Graph 1.28 Price Volatility on the Domestic and 16
Chinese Capital Markets

Graph 1.1 Commodity Price Indexes for Coal, 5 Graph 1.29 Stock Market Correlation in Indonesia, 16
CPO and Rubber Singapore, United States, Europe and
China
Graph 1.2 Brent Oil Price 6

Graph 1.3 Credit Default Swaps (CDS) in 6

Advanced Countries and the Region
2. Assessment Of Financial Market
Graph 1.4 Jakarta Composite Index (JCI) and 6 Conditions And Risks
Global Indexes
Graph 2.1 Volume of IPOs and Rights Issues on 22
Graph 1.5 VIX Index in 2015 6
the Stock Market
Graph 1.6 Annual Inflation and GDP Growth 7
Graph 2.2 Bank and Nonbank Financing 22
Graph 1.7 Balance Of Payments (BOP) in 2015 7 (Rp, trillions)

Graph 1.8 Financial System Stability Index (FSSI) 9 Graph 2.3 Comparison of the Corporate Bond 22
Yield Curve and Average Lending
Graph 1.9 Sectoral Stock Price Indexes in 2015 9 Rates on Investment Loans and
Working Capital Loans
Graph 1.10 Composite Stock Price Indexes of 9
Several Regional Countries Graph 2.4 Outstanding Value of MTN and NCD 22

Graph 1.11 Share Transaction Volume and Prices 9 Graph 2.5 Outstanding Matured MTN and NCD 23

Graph 1.12 SBN Transaction Volume and Prices 9 Graph 2.6 Financial Market Volatility 25

Graph 1.13 Rupiah Exchange Rates 10 Graph 2.7 Non-Resident Flows: Stocks, SBN 25
and SBI
Graph 1.14 Appreciation and Depreciation 10
against the US Dollar Graph 2.8 Overnight Rupiah Interbank Rate 26

Graph 1.15 Annual Rupiah Volatility 10 Graph 2.9 Overnight Rupiah Interbank Rate 26
Volatility
Graph 1.16 Total Assets of Financial Institutions 10
Graph 2.10 Rupiah Interbank Money Market 27
Graph 1.17 Financial Cycle and Bank Lending 11 Performance
Procyclicality
Graph 2.11 Rupiah Interbank Transactional 27
Graph 1.18 Bank Credit Quality 12 Behaviour

Graph 1.19 Fiscal Achievements 12 Graph 2.12 Foreign Exchange Interbank Money 27
Market Performance
Graph 1.20 Local Government Funds held at 12
Regional Banks Graph 2.13 O/N Foreign Exchange Interbank Rate 27

Graph 1.21 Composition of External Debt to GDP as 13 Graph 2.14 Foreign Exchange Interbank Rate 27
well as GDP and External Debt Growth Volatility

Graph 1.22 Private Nonbank External Debt by 14 Graph 2.15 Foreign Exchange Interbank 27
Original Transactional Behaviour

Graph 1.23 Debt Service Ratio (DSR) of Private 14 Graph 2.16 Interbank Repo Transactions 28
Nonbank Corporations
Graph 2.17 Lending Facility (LF) Transactions 28
Graph 1.24 Private Nonbank External Debt by 14
Creditor Graph 2.18 Rupiah Exchange Rate Performance 29

Graph 1.25 Non-Resident SBN Holdings 15 Graph 2.19 Rupiah Volatility 29

Graph 1.26 Non-Resident Stock Holdings 15 Graph 2.20 Foreign Exchange Market Risk 30
Premium
Graph 1.27 Market Share and Export Value based 15
on Destination and Currency Graph 2.21 Composition of the Domestic Foreign 30
Exchange Market

vi
Graph 2.22 SBN Yield Curve 31 3. Assessment Of Conditions And Risks The
Graph 2.23 Rebased SBN Yield by Tenor 31
Household And Corporate Sectors
Graph 2.24 Rebased 10-Year Government Bond 31 Graph 3.1 Contribution of Household 47
Yields in Emerging Market Economies Consumption to GDP

Graph 2.25 Rebased SBN Volatility by Tenor 32 Graph 3.2 Real Sales Growth 47

Graph 2.26 SBN Holdings 33 Graph 3.3 Consumer Confidence Index (CCI), 48
Current Economic Condition Index
Graph 2.27 Net Foreign Flows to SBN and IDMA 33 (CECI) and Consumer Expectation
Index (CEI)
Graph 2.28 SBN and Corporate Bond Transaction 34
Turnover Graph 3.4 Price Expectations for the Upcoming 48
Three Months
Graph 2.29 SBN-to-GDP Ratio 34
Graph 3.5 Price Expectations for the Upcoming 48
Graph 2.30 Corporate Bond Yield Curve 34
Six Months
Graph 2.31 Corporate Bond Yield Volatility by 34
Graph 3.6 Composition of Household Spending 49
Tenor
Graph 3.7 Composition and Growth of Deposits 51
Graph 2.32 Net Foreign Flow to Corporate Bonds 35
and Holdings Graph 3.8 Composition and Growth of 51
Individual Deposits
Graph 2.33 Regional Stock Indexes 35
Graph 3.9 Composition of Bank Credit 52
Graph 2.34 Stock Price Volatility 35
Graph 3.10 Household Credit by Loan Type 53
Graph 2.35 Foreign Capital Inflows to Regional 36
Stock Markets Graph 3.11 Credit Growth and NPL in the 53
Household Sector
Graph 2.36 Net Foreign Buys/Sells on the Stock 36
Market and the JCI Graph 3.12 Household NPL by Loan Type 53
Graph 2.37 Stock Market Turnover Ratio 37 Graph 3.13 Composition of Household Credit by 54
Loan Type
Graph 2.38 JCI and LQ45 Capitalisation 38
Graph 3.14 Global Commodity Prices 55
Graph 2.39 JCI Share Trade Frequency 38
Graph 3.15 Actual and Projected Corporate 56
Graph 2.40 Position of Mutual Funds 38
Activity
Graph 2.41 NAV of Mutual Funds by Type 38
Graph 3.16 Production Capacity Utilisation 56
Graph 2.42 NAV Volatility of Mutual Funds 39
Graph 3.17 Key Corporate Financial Performance 57
Graph 2.43 Growth of Mutual Fund 39 Indicators

Graph 2.44 Risk Profile of Mutual Fund Products 39 Graph 3.18 Financial Performance of Publicly 58
Listed Non-Financial Corporations
Graph 2.45 Average NAV of Closed-End and 40
Open-Ended Mutual Funds Graph 3.19 Corporate Financial Performance 59
Indicators by Major Export
Box Graph 2.1.1 Currency Depreciation in Emerging 41 Commodity
Markets
Graph 3.20 Corporate Repayment Capacity 60
Box Graph 2.1.2 One-Month Swap Premium 41
Graph 3.21 Corporate Performance based on the 60
Box Graph 2.1.3 Purchases of Foreign Exchange 42 Altman Z-Score
without an Underlying Transaction
Graph 3.22 Distressed Corporate Performance 60
Box Graph 2.1.4 Average Daily Forward Sell 42 against GDP
Transactions

vii
 LIST OF GRAPH AND FIGURE

Graph 3.23 Corporate Credit by BUKU Bank Group 61 Graph 4.23 Total NOP by BUKU Bank Group 89

Graph 3.24 Corporate Deposits 62 Graph 4.24 NOP Ratio by BUKU Bank Group 89

Graph 3.25 Corporate Credit by BUKU Bank Group 62 Graph 4.25 Private Foreign Loans (USD, millions) 91

Graph 3.26 Non-Financial Corporate External 63 Graph 4.26 Foreign Loans by Borrowing Bank 91
Debt
Graph 4.27 Growth of Bank Foreign Loans 91
Graph 3.27 Composition of Corporate Debt 64
Graph 4.28 Maturity of Bank Foreign Loans (%) 91
Box Figure 3.1.1 Financial System Surveillance and 68
Assessment Framework Graph 4.29 Maturity Profile of Long-Term Foreign 92
Loans (Annual)

Graph 4.30 Maturity Composition of Long-Term 92

Foreign Loans
4. Banks And Nonbank Financial Institutions
Graph 4.31 Return on Assets (ROA) by BUKU 93
Bank Group (%)
Graph 4.1 Liquidity Growth in the Economy and 74
Bank Liquidity Ratio Graph 4.32 BOPO efficiency ratio by BUKU Bank 95
Group (%)
Graph 4.2 Bank Liquid Assets 74
Graph 4.33 CIR Ratio by BUKU Bank Group (%) 95
Graph 4.3 Deposit and Credit Growth (yoy) 75
Graph 4.34 Banking Industry CAR (%) 95
Graph 4.4 Deposit Growth (yoy) 76
Graph 4.35 Banking Industry Tier 1 Ratio (%) 95
Graph 4.5 Deposit Rates 77
Graph 4.36 CAR in ASEAN 5 96
Graph 4.6 Deposit Growth by Type 77
Graph 4.37 Credit Growth in ASEAN 5 97
Graph 4.7 Composition of Bank Deposits 77
Graph 4.38 Gross NPL in ASEAN 5 97
Graph 4.8 Average 1-Month Term Deposit Rate 78
by BUKU Bank Group Graph 4.39 NIM in ASEAN 5 as of December 97
2015
Graph 4.9 Credit Growth 79
Graph 4.40 ROA in ASEAN 5 as of December 97
Graph 4.10 Credit Growth by Loan Type 79 2015
Graph 4.11 Market Share of Different Loans 79 Graph 4.41 Operating Costs to Operating Income 97
in ASEAN 5 as of December 2015
Graph 4.12 GDP Growth by Sector 79
Graph 4.42 Cost-to-Income Ratio (CIR) in ASEAN 97
Graph 4.13 Credit Growth by Economic Sector 80
5 as of December 2015
Graph 4.14 MSME Credit Growth 81
Graph 4.43 Stress Testing NPL Increases 98
Graph 4.15 Pertumbuhan Kredit UMKM pada 6 82
Graph 4.44 CAR Fluctuations Delta (bps) 98
Sektor Ekonomi
Graph 4.45 Stress Testing Higher Interest Rates 99
Graph 4.16 NPL Ratio 83
Graph 4.46 CAR Fluctuation Delta (bps) 99
Graph 4.17 Gross NPL Ratio by Economic Sector 83
Graph 4.47 Stress Testing Rupiah Depreciation 100
Graph 4.18 Gross NPL Ratio by Loan Type 83
Graph 4.48 CAR Fluctuation Delta (bps) 100
Graph 4.19 Gross NPL Ratio by Region 85
Graph 4.49 Stress Testing Lower SBN Prices 100
Graph 4.20 Gross NPL of MSME Loans by 85
Business Scale Graph 4.50 CAR Fluctuation Delta (bps) 100
Graph 4.21 Gross NPL of MSME Loans by 85 Graph 4.51 Finance Company Performance 102
Economic Sector
Graph 4.52 FC Financing 102
Graph 4.22 Share and Gross NPL of MSME Loans 87
by Economic Sector Graph 4.53 Financing by Currency 102

viii
Graph 4.54 NPF Ratio of Finance Companies 102 Graph 5.12 Project-Based Sukuk Maturing in 121
2018
Graph 4.55 Share of FC Financing base on Bank 103
Lending Rates Graph 5.13 Project-Based Sukuk Maturing in 121
2043
Graph 4.56 Financing and Funding Growth 103
Graph 5.14 Series 4 Retail Sukuk 121
Graph 4.57 Sources of Funds 103
Graph 5.15 Series 5 Retail Sukuk 121
Graph 4.58 Growth of External Debt at Finance 104
Companies Graph 5.16 Jakarta Islamic Index (JII) Performance 122

Graph 4.59 ROA, ROE and BOPO of Finance 104 Graph 5.17 Islamic Stock Market Capitalisation 122
Companies
Graph 5.18 Number of Islamic Stocks 122
Graph 4.60 Insurance Industry Asset Share 105
Graph 5.19 Jakarta Islamic Index Volatility 123
Graph 4.61 Insurance Industry Assets and 105
Investments Graph 5.20 PUAS Transaction Volume 124

Graph 4.62 Ratio of Current Assets to Current 106 Graph 5.21 SIMA Yield 124
Liabilities
Graph 5.22 SBIS Volume and Growth 125
Graph 4.63 Gross Premiums and Claims 106
Graph 5.23 Islamic Mutual Funds 125
Graph 4.64 Insurance Indicators 106
Graph 5.24 Composition of Islamic Mutual Funds 125
Graph 4.65 Insurance Industry External Debt 107 based on NAV

Graph 4.66 Weighted Average Rupiah Deposit 107 Graph 5.25 Islamic Banking Industry Assets 126
Rate of BUKU 1 Banks
Graph 5.26 Market Share of Banking Industry 126
Graph 4.67 Asset Composition of Public Listed 109
Graph 5.27 Deposits 126
Insurance Companies
Graph 5.28 Market Share of Conventional 126
Figure 4.1 Achievement of the MSME Credit 86
Banking Deposits
Ratio by Commercial Banks in 2015
Graph 5.29 Composition of Deposits at Islamic 127
Box Figure 4.1.1 Financeable Value Chain through 111
Banks
KUR
Graph 5.30 Financing 127

Graph 5.31 Market Share 127

5. The Islamic Financial Sector Graph 5.32 Financing by Type 127

Graph 5.1 Sovereign Sukuk by Currency 118 Graph 5.33 Financing-to-Deposit ratio (FDR) of 128
Islamic Banking Sector
Graph 5.2 Total Sovereign Sukuk Issuances 118
(Rp, trillions) Graph 5.34 Returns on Demand Deposits and 128
Savings Deposits
Graph 5.3 Sovereign Sukuk Yield 118
Graph 5.35 Returns on 1, 3, 6 and 12-Month 128
Graph 5.4 Issuances of Global Sukuk 119 Islamic Term Deposits

Graph 5.5 Auctions of Sovereign Bonds in 2015 119 Graph 5.36 Return Structure of Deposits in 129
November 2015
Graph 5.6 Sukuk Tenors 120
Graph 5.37 Islamic Bank Liquidity 129
Graph 5.7 SPNS Maturing in 2/2015 120
Graph 5.38 Gross NPF 130
Graph 5.8 SPNS Maturing in 8/2015 120
Graph 5.39 Gross NPF by Financing Type 130
Graph 5.9 SPNS Maturing in 10/2015 120
Graph 5.40 Gross NPF by Economic Sector 130
Graph 5.10 Project-Based Sukuk Maturing in 121
2022 Graph 5.41 Islamic Bank Capital Adequacy Ratio 131

Graph 5.11 Series 5 Retail Sukuk 121 Graph 5.42 BOPO Efficiency Ratio 131

ix
 LIST OF GRAPH AND FIGURE

Graph 5.43 ROA and ROE 131 Graph 7.4 Bank Intermediation Function 172

Graph 5.44 Takaful Industry Assets 133 Graph 7.5 Non-Oil and Gas Export Loans 173

Graph 5.45 Investment Composition in the 133 Box Graph 7.3.1 Credit-to-GDP Gap Indicator 182
Takaful Industry
Box Graph 7.3.2 CCB Rate per the Single Indicator 182
Graph 5.46 Takaful Assets and Investments 133
Box Graph 7.3.3 Financial Cycle and Business Cycle 182
Graph 5.47 Takaful Contributions and Claims 133
Box Graph 7.3.4 Real GDP Growth 183
Graph 5.48 Takaful Term Deposits/Liquid Assets 133
of Islamic Banks Box Graph 7.3.5 Inflation (yoy) 183

Graph 5.49 Investments/Gross Claims 133 Box Graph 7.3.6 Exchange Rate (Rp/USD) 183

Graph 5.50 Takaful Deposits/Liquid Assets of 134 Box Graph 7.3.7 Private External Debt in Rupiah (yoy) 183
Islamic Banks
Box Graph 7.3.8 Credit Growth (yoy) 184
Box Graph 5.1.1 Foreign Exchange Financing at Islamic 135
Box Graph 7.3.9 Deposit Growth 184
Banks
Box Graph 7.3.10 NPL Ratio (%) 184
Box Graph 5.2.1 Efficient Frontiers 138
Box Graph 7.3.11 Return on Assets (%) 184
Box Graph 5.2.2 Credit Rationing 138
Box Graph 7.3.12 CAR Ratio (%) 185

Box Graph 7.3.13 RPPI Growth (yoy) 185

6. Strengthening Financial System Infrastructure Box Graph 7.3.14 JCI Volatility 185

Graph 6.1 Turnover Ratio 151 Box Figure 7.3.1 Implementation Framework of CCB 181
Policy in Indonesia
Graph 6.2 Turnover Ratio by BUKU Bank Group 151

Graph 6.3 Queued Transactions (Value) 152

Graph 6.4 Queued Transactions (Volume) 154 8. Outlook, Challenges and Policy Direction
Graph 6.5 Indonesia Financial Inclusion 155
Graph 8.1 Stock Market Indexes after FOMC in 192
Composite Index
December 2015
Graph 6.6 Total DFS Agents 156
Graph 8.2 10-Year Yields after FOMC in 192
Graph 6.7 Respective Shares of E-Money 157 December 2015
Transactions at DFS Agents in
Graph 8.3 Indonesia Dependency Ratio 193
Semester II 2015
Graph 8.4 Projected Credit Growth 194
Graph 6.8 E-Money Transaction Value at DFS 158
Agents Graph 8.5 Projected Deposit Growth 194
Graph 6.9 E-Money Account Holders at DFS 158 Box Graph 8.1.1 State Budget Realisation (2012-2015) 199
Agents
Box Graph 8.1.2 Local Government Funds Deposited 199
Figure 6.1 DFS Agents in Indonesia 156 at Regional Banks

Box Graph 8.1.3 Share of Local Government Funds to 200

Total Regional Bank Deposits
7. Bank Indonesia Policy Response Towards Box Graph 8.1.4 Regional Bank Position on Interbank 200
Maintaining Financial System Stability Money Market

Graph 7.1 Performance of Housing Loans 170 Box Graph 8.1.5 BPD Counterparties on the Interbank 201
Money Market (Transaction
Graph 7.2 Residential Property Price Growth 171 Frequency

Graph 7.3 Medium-Sized Residential Property 171 Box Graph 8.1.6 Counterparties BPD Di PUAB 201
Price Growth (Nominal)

x
Figure 8.1 Policy to Convert Restructured Funds 195
into SBN (PMK 235)

Article 1
Graph Article 1.1 Determining Stress Events based on 205
the Altman Z-Score

Graph Article 1.2 Rupiah Exchange Rate and Corporate 206

Performance

Graph Article 1.3 NPL Ratio (%) and Delisted 206

Corporations

Graph Article 1.4 Selected EWI 213

Graph Article 1.5 Comparison of EWI Performance: 214

All Sample Vs Real-Time Estimation
Problem

Figure Article 1.1 Early Warning Indicators 206

Figure Article 1.2 Framework to Determine EWI of 207

Corporate Financial Distress

Article 2
Figure Article 2.1 Macroprudential Supervision Cycle 221

Figure Article 2.2 Bank Industry Rating Framework 225

Figure Article 2.3 BankIR Analysis Stages 229

xi
 LIST OF ABBREVIATIONS

ABIF : ASEAN Banking Integration D-SIB : Domestic Systemically

Framework Important Banks
AFS : Available for Sale DSR : Debt Service Ratio
AKSI : Indonesia Sharia Financial DP : Down Payment
Architecture
EAPP : Expanded Asset Purchase
APMK : Card-Based Payment Program
Instruments
ECB : European Central Bank
AS : United States
EM : Emerging Market
ASEAN : Association of Southest Asian
FA : Financial Account
Nations
FDI : Foreign Direct Investment
ATM : Automated Teller Machine
FKSSK : Financial System Stability
ATMR : Risk-Weighted Assets
Coordination Forum
BBM : Fossil Fuels
FLI : Intraday Liquidity Facility
BCBS : Basel Committee on Banking
FSB : Financial Stability Board
Supervision
FSSC : Financial System Stability
BIS : Bank for International
Committee
Settlement
G20 : The Group of Twenty
BI-RTGS : Bank Indonesia Real Time
Gross Settlement GDP : Gross Domestic Product
BI-SSSS : Bank Indonesia Scripless GNNT : Non-cash National Movement
Securities Settlement System
GWM : Reserve Requirement (RR)
BOJ : Bank of Japan
HTM : Hold to Maturity
BOPO : Efficiency Ratio of Operating
Costs to Operating Revenue
IDMA : Inter-dealer Market
Association
BPD : Regional Banks
IEK : Consumer Expectation Index
BPR : Rural Banks (CEI)
bps : Basis point IHK : Consumer Price Index (CPI)
BUKU : Commercial Bank Groups IHSG : Jakarta Composite Index (IDX
based on Business Activity Composite)
CAR : Capital Adequacy Ratio IKK : Consumer Confidence Index
(CCI)
CCB : Countercyclical Capital Buffer
IKNB : Nonbank Financial Institution
CDS : Credit Default Swap
IMF : International Monetary Fund
CIR : Cost to Income Ratio
ISIK : Financial Intitution Stability
CPO : Crude Palm Oil
Index
DER : Debt to Equity Ratio
ISPK : Financial Market Stability
DPK : Third Party Deposits Index

xii
ISSK : Indonesia Financial Stability PBOC : Peoples’ Bank of China
Index (PBOC)
JPSK : Financial System Safety Net PD : Probability of Default
KI : Investment Credit PDB : Gross Domestic Product
KK : Credit Consumer PDN : Net Open Position
KMK : Working Capital Credit PIN : Personal Identification
Number
KPA : Mortgage Facilities for
Apartments PLN : Offshore Loan
KPMM : Minimum Capital Adequacy PMK : Crisis Management Protocol
Requirement
PP : Finance Company
KPR : Mortgage Facilites for Houses
PUAB : Interbank Money Market
LCR : Liquidity Coverage Ratio
QAB : Qualified ASEAN Banks
LDR : Loan to Deposit Ratio
RBB : Bank Business Plan
LKD : Digital Financial Services
ROA : Return on Asset
LTV : Loan to Value
ROE : Return on Equity
LPS : Indonesia Deposite Insurance
SBDK : Prime Lending Rate
Corporation
SBI : Bank Indonesia Certicates
L/R : Profit/Loss
Minerba : Mineral and Coal Mining
SBN : Tradeable Government
Securities
(MInerba) Act
SBT : Net Weighted Balance
MTM : Marked to market (MTM)
SD : Certificate of Term Deposit
NAB : Net Asset Value (NAV)
SKDU : Business Survey
NCD : Negotiable Certificate of
Deposit SKNBI : Bank Indonesia – National
Clearing System
NFA : Net Foreign Asset
SNRT : Household Survey
NFL : Net Foreign Liabilities
SUN : Government Bonds
NII : Net Interest Income
TDL : Basic Electricity Rate
NIM : Net Interest Margin
TOR : Turn Over Ratio
NPF : Non Performing Financing
TPT : Textiles and Textile Products
NPI : Indonesia Balance of Payment
ULN : External Debt
NPL : Non Performing Loan
UMKM : Micro, Small and Medium
OJK : Indonesia Financial Services
Enterprise (MSMEs)
Authority
WEO : World Economic Outlook
OTC : Over the Counter

xiii
xiv
FOREWORD
Praise the Lord God Almighty for His blessings in the
completion of the 26th Edition of the Financial Stability
Review (FSR), March 2016. As a routine semesterly
publication, the Financial Stability Review represents
a form of public accountability in terms of Bank
Indonesia task implementation and authority in the
area of macroprudential supervision and regulation.
The FSR is expected to build public understanding
concerning the importance of macroprudential policy
to maintain financial system stability (FSS) and how
Bank Indonesia formulates and institutes such policy.
In that context, Bank Indonesia hopes the public will
understand the essence and goal of macroprudential
policy, namely to prevent and reduce systemic risk,
promote a balanced and quality intermediation
function, enhance financial system efficiency and
expand financial access to maintain financial system
stability as well as support monetary stability and
payment system stability, including money supply.
The gradual uptick in the frequency of economic
crises and shocks, coupled with increasing complexity,
cannot be overcome through monetary policy alone,
especially in terms of the complex issues surrounding
the financial cycle. Here, macroprudential policy
complements monetary policy to manage potential
instability due to contagion in part or all of the financial
system as a result of interaction between factors of
size, business complexity, interconnectedness and
procyclicality of financial institutions. Macroprudential
policy is also applied by various central banks around
the world, including the United Kingdom, South Korea,
Turkey and New Zealand.
One effort underlying macroprudential policymaking
is the financial system stability assessment in order
to gauge the interconnectedness and interaction
between economic players (financial markets,
corporate sector, households as well as the banking and
nonbank financial industries) and measure the impact
on financial system stability. The assessment identifies
various potential sources of risk and fragilities amongst
economic players as a whole that could undermine
financial system stability, which are outlined in the
Financial Stability Review (FSR). Complementing the
overall financial system stability assessment, in this
edition of the FSR, Bank Indonesia also assesses risk in
the sharia financial system and reviews public access
to finance through digital financial services (DFS),
amongst others, in pursuance of Bank Indonesia’s
avowed commitment to develop the sharia economy
and maintain sharia financial system stability, while
expanding public access to finance.
In general, the FSS assessment conducted in the
second semester of 2015 confirmed that financial
system stability was maintained despite onerous
global and domestic challenges. The domestic
financial system remained adequately resilient in
spite of moderating performance in the banking
sector, nonbank financial industry, households and
corporate sector. In Indonesia, the banking industry,
which accounts for around 80% of financial system
assets, remained very resilient with low levels of
credit risk against a backdrop of limited credit growth.
Ample bank liquidity absorbed the potential credit,
market and liquidity risks. Similarly, nonbank financial
xv
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

industry resilience was sufficient to absorb the risks
that surfaced during the second semester.
In response to the financial system stability assessment
performed in the second semester of 2015, Bank
Indonesia eased macroprudential policy by loosening
the LTV ratio and reserve requirement (RR) in order
to stimulate the economy through bank credit growth.
Bank Indonesia also applied countercyclical policy
to maintain financial system stability. In addition to
accommodative LTV and RR regulations as well as
the implementation of countercyclical policy, Bank
Indonesia also responded with macroprudential
policy in the form of surveillance and thematic
inspections of the banking sector. The combination of
policies prevented further declines in terms of credit
growth, while simultaneously mitigating potential
financial system risks. Furthermore, policy measures
were strengthened through inter-authority policy
coordination, both bilaterally and through the Financial
System Stability Coordination Forum (FSSCF), which
were also complemented by a crisis management
protocol for each respective member of the Financial
System Stability Coordination Forum (FSSCF).
This edition of the Financial Stability Review (FSR)
will hopefully benefit all readers to analyse the
developments, risks and prospects of the financial
system in Indonesia as well as the measures required
to create and maintain financial system stability.
Suggestions, comments and constructive criticisms
are warmly welcomed to enhance future editions of
the Financial Stability Review (FSR).

Jakarta, March 2016

Governor of Bank Indonesia

Agus D. W. Martowardojo

xvi
EXECUTIVE SUMMARY
The multispeed economic recovery in advanced
countries, coupled with economic moderation in
emerging market economies (EME), particularly China,
contributed to heightened global risks. During the
second semester of 2015, the US recovery was weaker
than expected in line with a flagging consumption
sector, manufacturing industry and housing market,
which pushed back expectations concerning the
timing of the proposed Federal Funds Rate (FFR) hike.
The resultant risks on global financial markets hurt
the international commodities market. Furthermore,
broad US dollar appreciation placed additional
downward pressures on demand for commodities,
while supply tended to increase. Such conditions
perpetuated the international commodity price slide,
primarily affecting oil, coal, crude palm oil (CPO) and
rubber. The inauspicious global economic conditions
triggered monetary policy divergence around the
world. Sluggish growth and low inflation in Europe
compelled the European Central Bank (ECB) to extend
and expand quantitative easing policy. A similar policy
stance was adopted by the Bank of Japan (BOJ),
which applied a negative policy rate. Meanwhile, the
People’s Bank of China (PBoC) devalued the yuan and
introduced a more flexible exchange rate regime.
The uncertain global economic recovery, tumbling
international commodity prices and the divergent
monetary policy responses exacerbated global
financial market uncertainty. Consequently, the credit
default swap (CDS) spread widened and the risk of a
sudden foreign capital reversal from EMEs increased.
Nevertheless, the 25bps hike to the Federal Funds
Rate (FFR) in December 2015 was well anticipated
by the markets, thus the international impact was
limited. A drop in the VIX index, which illustrates
xvii
 FINANCIAL STABILITY REVIEW
No. 26, March 2016
market expectations of stock market volatility for the
upcoming 30 days, after the FFR hike confirmed that
market players had anticipated the normalisation of
monetary policy by the Federal Reserve in terms of
their investment activity.
To a degree, global financial developments triggered
pressures and compounded risks on domestic financial
markets. Risk accumulated as foreign capital inflows
ebbed and demand dwindled for commodities,
combined with lower prices, which placed significant
pressures on the exchange rate and balance of
payments (BOP). A USD2.9 billion decline of foreign
capital inflows had a major impact on the balance
of payments deficit in 2015, which undermined the
exchange rate and ultimately eroded corporate sector
performance. Furthermore, the relatively high position
of private external debt amplified the intensity of
pressure on corporate performance, which led to
lower tax revenues and, therefore, narrowed fiscal
space.
On the other hand, the impact of sliding commodity
prices and dwindling domestic demand on financial
institutions was relatively limited. A solid capital
base, together with adequate liquidity despite bank
procyclicality, helped to maintain the performance of
domestic financial institutions. In the second semester
of 2015, the Financial System Stability Index (FSSI)
remained in normal territory despite increasing on
the previous semester, indicating a resilient financial
system against a backdrop of escalating domestic and
global risks.
Global economic shocks did, however, affect the
domestic economy. In addition, domestic economic
moderation along with segmented and shallow money
xviii
and capital markets also influenced domestic financial
market conditions.
Risk on the domestic financial markets was relatively
well mitigated despite a build-up of pressure on the
interbank money market, foreign exchange market,
stock market and tradeable government securities
(SBN) market. The risks were mitigated, in part, due
to ongoing financial market deepening undertaken
by Bank Indonesia in conjunction with other relevant
authorities and the industry.
Risks on the interbank money market manifested
in the form of volatility at the end of the second
semester of 2015 due to growing demand for liquidity
from banks towards yearend to meet the Liquidity
Coverage Ratio (LCR) in line with the change in the
pattern of public spending. Pressures intensified on
the foreign exchange market as a result of broad US
dollar appreciation against nearly all global currencies.
Notwithstanding, the increase in rupiah volatility was
less than the regional average.
A 4.2% drop in the IDMA index along with higher
SBN yields for all tenors, especially short-term,
were indicative of pressures accumulating on the
tradeable government securities (SBN) market. Such
conditions demonstrated elevated short-term risk
in the Indonesian economy. SBN market pressures
were also accompanied by a decline in non-resident
interest despite higher yields. Nonetheless, the higher
yields available in Indonesia compared to other peer
countries attracted foreign investors to the SBN
market.
Congruous with escalating risk on the SBN market,
corporate bond market risk was also noted to
increase on the back of higher yields and volatility.
Compensating the downshift in domestic corporate
performance, however, investors anticipated higher
yields for all corporate bond instruments. In addition,
the average volatility of corporate bond yields for all
tenors also increased from 10.66% in the first semester
to 11.43% in the second.
Escalating risk also affected the stock market in
Indonesia, reflecting a 6.47% dip in the Jakarta
Composite Index (JCI) at the end of the second semester
of 2015, similar to trends in several neighbouring
countries. The mining, agricultural and manufacturing
sectors contributed heavily to sliding share prices on
the Indonesia Stock Exchange. In line with share price
corrections, stock market trade value also decreased.
Meanwhile, non-resident investors booked a net sell
totalling Rp26.33 trillion.
In the household sector, performance was observed
to decline during the second half of 2015. As a
consequence of economic moderation, household
consumption growth, as the main contributor to GDP,
slowed from 5.21% in 2014 to 4.94% in 2015. Against a
backdrop of weaker household consumption growth,
potential risks stemmed from an increase in the debt
service ratio (DSR), particularly amongst low-income
households, along with a slump in individual bank
loans accompanied by higher non-performing loans
(NPL). Nevertheless, the Consumer Survey conducted
by Bank Indonesia revealed that households remained
upbeat concerning economic conditions in 2016.
Congruent with the household sector, corporate
performance also deteriorated in all sectors,
especially the commodity sectors. Accordingly,
corporate financial performance indicators, including
productivity, profitability, solvency, liquidity and the
debt equity ratio (DER), tended to decline. Worsening
performance undermined corporate repayment
capacity, reflecting a bump in the debt service ratio
(DSR) and a drop in the interest coverage ratio (ICR).
Furthermore, rising corporate external debt and
domestic foreign exchange debt also exacerbated risks
in the corporate sector. Nonetheless, the business
community remained optimistic on economic
conditions conducive to growth at the end of 2015 as
well as expected business gains in 2016.
Despite the various shocks as well as global and
domestic economic fragilities, the banking sector
remained resilient during the second half of 2015 with
a Capital Adequacy Ratio (CAR) of 21.39% recorded
at the end of the reporting semester, which was
well in excess of the 8% threshold. The high Capital
Adequacy Ratio (CAR) of the banking industry was
the manifestation of bank efforts to meet the Basel
III capital requirements and anticipate potential risks
that could emerge. The new capital requirements
forced banks to hold more capital in the form of a
capital conservation buffer, countercyclical capital
buffer and capital surcharge for systemically important
banks (SIBs), commencing at the beginning of 2016.
Despite economic moderation and slower credit
growth, the banking industry enjoyed slight gains in
profit, reflecting increases in the return on assets (ROA)
and net interest margin (NIM). Conversely, increases
in the BOPO efficiency ratio and cost-to-income ratio
(CIR) evidenced a less efficient banking industry.
Liquidity in the banking sector tended to increase on
the previous semester in line with government financial
expansion in the reporting period that boosted the
banks’ position of liquid assets. Notwithstanding,
xix
 FINANCIAL STABILITY REVIEW
No. 26, March 2016
potential liquidity pressures were expected to linger
into 2016 due to changes in the pattern of government
financial expansion, the conversion of the General
Allocation Fund (DAU) and Profit Sharing Fund (DBH)
into tradeable government securities (SBN) as well as
a potential shift in deposits of the nonbank financial
industry to tradeable government securities.
The economy rebounded in the final quarter of 2015,
which spurred credit growth. Consequently, credit
growth accelerated from 10.38% (yoy) at the end
of the first semester of 2015 to 10.45% (yoy) at the
end of the second, contrasting deposit growth that
decelerated from 12.65% (yoy) to 7.26% (yoy) over
the same period. Slower deposit growth stemmed
from attractive SBN issuances coupled with end-of-
year tax collection. A further slowdown was negated,
however, by government financial expansion due to
the commencement of various infrastructure projects
at the beginning of 2016.
Credit risk tended to ease towards the end of the
year as a result of bank efforts to raise credit quality,
reflecting an improvement in gross non-performing
loans (NPL) to 2.49%, which was well below the 5%
threshold and down from 2.56% in the first semester
but up from 2.16% one year ago due to ongoing
economic moderation, sliding commodity prices and
worsening corporate performance. The most notable
increase in non-performing loans (NPL) affected
working capital loans. By economic sector, however,
nearly all sectors, except the construction sector,
experienced an increase in gross NPL.
Concerning market risk, global financial market
shocks in 2015 had a relatively limited impact on the
national banking industry. Interest rate risk linked to
xx
the accumulation and distribution of funds was well
mitigated. Despite increasing exchange rate volatility,
market risks stemming from currency risk remained
relatively low in the second semester of 2015 due
to the net long position maintained by the banking
industry as well as the low net open position (NOP).
In line with slower credit growth, banks allocated
a portion of their funds/liquidity to tradeable
government securities (SBN) due to the relatively
low inherent risks. In terms of credit risk, scenario-
based analysis (macro stress tests) using the worst-
case scenario revealed that bank capital, in general,
was adequate to absorb potential losses. Therefore,
banking industry resilience in the face of market and
credit risks, in general, was proven to be solid.
In harmony with the upward trend of bank credit
growth, loans extended to micro, small and medium
enterprises (MSMEs) also enjoyed positive growth
accompanied by mitigated credit risk. Accordingly,
MSME credit growth accelerated from 6.78% (yoy) last
semester to 8.0% (yoy). Despite ongoing economic
moderation, MSME credit growth to various economic
sectors remained in positive territory, including
the agricultural and forestry sector as well as the
manufacturing industry. At the end of the reporting
period, MSME credit risk improved, with the level of
NPL dropping from 4.65% in semester I to 4.20% at
the end of 2015 in line with bank efforts to raise loan
quality.
The nonbank financial industry performed well despite
a slowdown in terms of asset growth in the finance
company industry and insurance industry. Domestic
economic moderation coupled with weaker public
purchasing power undermined financing volume,
which eroded the asset growth of finance companies
to 1.29%. On the other hand, credit risk at finance
companies was relatively low at just 1.45%. Similarly,
the insurance industry maintained performance
despite total asset growth falling 6.93% (yoy) in the
reporting period. Furthermore, risk in the insurance
industry also built-up in comparison to one year ago
as the ratio of gross claims to gross premiums jumped
from 62.40% to 68.90% in the second semester of
2015.
Mirroring the conventional financial sector, the sharia
financial sector experienced pressures but growth
remained in positive territory. Indicatively, sukuk
yields increased, the sharia stock price index slumped
and transaction volume on the sharia interbank
money market decreased. Furthermore, the share of
sharia financial markets remained relatively limited.
Nonetheless, Bank Indonesia promulgated regulations
concerning sharia repo in 2015 and sharia hedging
at the beginning of 2016 in order to develop sharia
instruments and deepen sharia financial markets. In
terms of the financial institutions, Islamic bank capital
was noted to remain solid, with the Capital Adequacy
Ratio (CAR) recorded at 15.31% in the reporting
semester and supported by capital injections to
various Islamic banks from their respective parent
companies. Liquidity risk at Islamic banks eased,
reflecting an increase in liquid assets (LA/NCD and
LA/Deposits). Credit risk was also noted to improve,
falling from 5.09% to 4.84% at Islamic Banks and from
3.76% to 3.03% at sharia business units due, amongst
others, to credit restructuring and consolidation.
In terms of financial system infrastructure, the
payment system performed securely, efficiently and
without disruption throughout the second semester
of 2015. Bank Indonesia, as payment system host,
implemented various payment system policies
throughout the reporting period to support the
users of payment system infrastructure. The policies
included implementation of the second generation
Bank Indonesia – Real Time Gross Settlement (BI-
RTGS) system and Bank Indonesia – Scripless Securities
Settlement System (BI-SSSS) on 16th November
2015, which will strengthen large value payment
infrastructure. Payment system policy was also taken
to harmonise Bank Indonesia regulations in order to
mitigate systemic and operational risks, while the
nominal BI-RTGS limit was also adjusted.
Settlement, liquidity, operational and systemic risks in
the payment system were well mitigated. Settlement
risk remained relatively low, indicated by the low
value and volume of unsettled transactions during
the window time. Similarly, liquidity risk was also
considered low, reflecting relatively minimal use of
the Intraday Liquidity Facility (ILF) as a funding facility
provided to banks by Bank Indonesia in the form of
repurchase agreements (repo) for securities. Bank
Indonesia minimised incidences of operational risk
through the Business Continuity Plan (BCP), including
the provision of a back-up system. In addition, Bank
Indonesia monitored potential systemic risk that could
surface as a result of interconnectedness in the Bank
Indonesia – Real Time Gross Settlement (BI-RTGS)
system.
Financial infrastructure was also strengthened by
expanding public access to financial services through
digital financial services (DFS). One indicator used
to gauge public access to financial services is the
inclusivity index. At the end of 2015, the index
followed an upward trend to the medium level,
namely 35.8%. Furthermore, digital financial services
xxi
 FINANCIAL STABILITY REVIEW
No. 26, March 2016
(DFS) have demonstrated positive performance as the
number of host banks and agents increased along with
e-money transactions at DFS agents.
In response to the rigorous assessments conducted,
Bank Indonesia eased macroprudential policy in the
second semester of 2015 by loosening the loan-to-
value ratio (LTV) as well as financing-to-value ratio
(FTV) and lowered the reserve requirement in order to
catalyse economic growth through bank credit. Bank
Indonesia also reinforced countercyclical policy to
maintain financial system stability. The looser LTV/FTV
ratios have already begun to stimulate credit growth.
Furthermore, efforts were taken to encourage bank
intermediation through financial market deepening
and extending loans to productive sectors (the loan
to funding ratio was tied to the reserve requirement),
which expanded space to disburse loans and
encouraged banks to begin issuing SSB. Bank Indonesia
also instituted the countercyclical capital buffer (CCB)
to prevent heightened systemic risk and excessive
credit growth, while absorbing potential losses. In
general, the combination of macroprudential policies
reversed the credit slump and controlled the risks
emerging in the financial system.
To maintain financial system stability and protect
the banking industry from excessive risk-taking
behaviour, Bank Indonesia also engaged in financial
system surveillance, including thematic inspections
and compliance audits. Surveillance primarily
targeted large banks to identify sources of fragility
and volatility, thus detecting potential systemic
pressures in the financial system. In addition, Bank
Indonesia also strengthened policy coordination with
the relevant authorities to effectively respond to
economic challenges that could trigger instability in
Indonesia. This was achieved, amongst others, through
xxii
macroprudential-microprudential coordination
between Bank Indonesia and the Financial Services
Authority (OJK), coordination between Bank Indonesia
and the Government, coordination between Bank
Indonesia and the Deposit Insurance Corporation (LPS),
through the Financial System Stability Coordination
Forum (FSSCF) to prevent and resolve a crisis as well
as membership at various international forums.
Moving forward, Bank Indonesia predicts financial
system stability to confront various external and
internal challenges in 2016. Therefore, an appropriate
strategy is required to identify potential risks and
mitigation efforts. Externally, global conditions
could undermine financial system stability, including
stagnant international growth, soft commodity prices
and persistent economic moderation in China as a
major destination for exports from Indonesia.
The risk of slower credit growth and rising non-
performing loans (NPL) due to lower commodity
prices demands vigilance. Commodity prices are not
expected to rebound in 2016 due to the weak global
economic outlook, supply and demand factors as well
as geopolitical influences. Strong downside risks will
linger due to the interminable downward oil price
trend as demand dwindles from the EU and China.
In addition, crude oil supply is expected to remain
abundant as a result of the supply policy adopted in
the Middle East to maintain market share. Conversely,
the upside risks of economic momentum achieved in
major trading partners, such as the United States and
India, are predicted to boost export performance in
Indonesia and, therefore, stimulate credit growth in
2016.
Bank Indonesia predicted the uncertainty on global
financial markets to subside at the beginning of 2016
after the Federal Reserve confirmed a 0.25bps hike
in the Federal Funds Rate (FFR) in December 2015.
The US economic outlook will determine the further
normalisation of monetary policy by the Fed, which
could affect capital flows and exchange rates. The high
potential risk of exchange rate volatility will adversely
impact corporate and bank balance sheets, which
could trigger currency risk in the financial system.
In terms of bank intermediation, Bank Indonesia
predicts domestic economic momentum and solid
domestic consumption to drive credit and deposit
growth in 2016. The Government’s program to
accelerate infrastructure development is one of
the keys to stimulating credit growth due to the
inherently strong multiplier effect on other sectors.
Macroprudential policy in the form of a looser loan-
to-value ratio (LTV) and RR-loan to funding ratio (RR-
LFR), monetary policy to lower the primary reserve
requirement and reductions to the BI Rate at the
beginning of 2016 are expected to effectively spark
bank intermediation. Meanwhile, efforts to stimulate
sustainable economic growth will continue to confront
structural issues, including the lingering dominance of
household consumption, the sluggish contribution of
exports, fragile food and energy security as well as
shallow financial markets. In terms of bank liquidity,
however, the declining expansion of rupiah liquidity
and potential foreign capital outflows also demand
heightened vigilance.
Bank Indonesia has projected economic growth in 2016
in the range of 5.2-5.6%, with inflation controlled at
4±1%. Meanwhile, a wider current account deficit was
also predicted in comparison to 2015, as infrastructure
project implementation intensifies, but should remain
below 3% of GDP. Congruent with greater economic
momentum, the financial system stability outlook
has improved on last year. Bank credit and financing
growth is projected in the 12-14% range. Meanwhile,
deposit growth is estimated in the range of 13-15%
as credit growth accelerates and the government
undertakes more expansive financial operations. The
intermediation process could face potential challenges
in 2016, in particular linked to deposit accumulation
due to the growing requirement for currency during
Ramadan, the transfer of equalisation funds to local
governments in the form of tradeable government
securities (SBN) as well as the crowding out effect of
SBN issuances.
Reflecting the future opportunities and challenges,
Bank Indonesia will direct policy towards strengthening
the macroprudential and monetary policy mix, while
reinforcing the payment system and rupiah money
supply. From a macroprudential perspective, Bank
Indonesia will focus policy on maintaining financial
system stability by strengthening bank capital,
preserving adequate liquidity and deepening the
financial markets. To ensure balanced and equitable
economic growth, Bank Indonesia will encourage the
bank intermediation function nationally and regionally
to facilitate the disbursement of credit/financing to
productive economic sectors with high added value to
the economy as the priority set by the Government. In
conjunction with the Financial Services Authority (OJK)
and Government, Bank Indonesia will continue to
develop the sharia economy and finance in Indonesia
through sharia-compliant monetary instruments
and a proliferation of sharia-compliant financial
instruments for investment and liquidity management
purposes. Furthermore, Bank Indonesia will focus on
strengthening the role of micro, small and medium
enterprises (MSMEs) by expanding and deepening
financial infrastructure and enhancing MSME capacity.
xxiii
Financial system stability in Indonesia was maintained throughout the second
semester of 2015 despite escalating global and domestic risks. A multispeed economic
recovery persisted in advanced countries, while growth moderated in emerging
market economies (EME), particularly China. Heightened global risk stemmed from
uncertainty surrounding the proposed policy rate hike by the Federal Reserve,
coupled with mounting risks in developing countries. Such disparity perpetuated
the interminable commodity price slide and triggered monetary policy divergence,
thereby exacerbating uncertainty on global financial markets and potentially sparking
a capital reversal from emerging market economies. On the home front, in addition
to the economic slowdown, the balance of payments (BOP) was also a source of
vulnerability due to dwindling demand for exports and low commodity prices as well
as spiralling corporate external debt, especially at indebted firms operating in the
commodity sectors. Meanwhile, accelerated government capital spending to offset
sluggish demand from the private sector failed to have a significant impact during the
second semester of 2015.

1
Global uncertainty, combined with the domestic economic downshift, amplified risk
on financial markets, reflecting undulating exchange rate volatility as well as the prices
of shares and tradeable government securities (SBN) during the reporting period.
The impact of soft commodity prices and dwindling domestic demand for financial
instruments was relatively limited due to a solid capital base and maintained liquidity
in the banking industry despite procyclical lending. Risk did increase in the financial
system but stability was preserved, as indicated by a Financial System Stability Index
(FSSI) that remained in normal territory at 0.93, well below the threshold of 2.

FINANCIAL SYSTEM
STABILITY
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

ISSK

Financial System Stability was Maintained Despite Heightened

Global and Domestic Risks

Domestic Economic Risks

• Domestic economic
growth decelerated
• Balance of Payments
(BOP) deficit
• Rupiah depreciation

Global Risks
• Global economic moderation persisted, especially in China
• Monetary policy divergence
• FFR uncertainty
• Heightened risk in EMEs
• Commodity prices continued to slide

Domestic
Increased Interconnectedness Financial
with China amidst Economic Imbalances
Rp
Limited Fiscal Space
moderation in China

Dominant Non-Resident
Increased Private Nonbank
Holdings on Domestic Procyclical Lending $

External Debt Risk

Financial Markets

Financial system stability was maintained in Indonesia, reflecting a Financial System Stability Index (FSSI)
in the normal zone at 0.93, well below the threshold of 2.

2008 Crisis
2005 Crisis

2.0

0.93

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
DEC

4
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Global economic conditions triggered monetary

1.1. Global and Regional Financial policy divergence around the world, which raised
Market Risks uncertainty on global financial markets, reflecting a
wider credit default swap (CDS) spread (Graph 1.3)
In 2015, domestic financial system conditions were and a capital reversal in emerging market economies
influenced by the dynamics of global financial markets (EME), including Indonesia. Moreover, global financial
and the global economy. Global economic growth market risks escalated in the second half of the year as
moderated on weak recoveries in advanced countries uncertainty surrounding the timing and magnitude of
and sluggish growth in emerging market countries, the proposed Federal Funds Rate (FFR) hike endured,
particularly China. Demand consequently dwindled, the European Central Bank (ECB) extended and
which perpetuated the international commodity price expanded quantitative easing policy and the People’s
slide (Table 1.1). The oil price averaged USD46.74 per Bank of China (PBoC) unexpectedly devalued the yuan
barrel in the second semester of 2015, down 19.47% and adopted a more flexible exchange rate regime.
on the previous period. Cheaper oil was the result of The majority of global and regional bourses therefore
repealed oil export restrictions in the United States experienced corrections, particularly in Singapore,
coupled with abundant supply from OPEC members Thailand and Indonesia (Graph 1.4). Nonetheless, the
(Graph 1.2). Meanwhile, the average coal price fell 25bps hike to the US policy rate on 17th December 2015
10.14% over the same period due to fewer imports to was well anticipated by the markets and, thus, global

Graph 1.1. Commodity Price Indexes for Coal, CPO and Rubber
9.0

8.0
Index (1 January 2013=100)

7.0

6.0

5.0

4.0

3.0

2.0

1.0
0.0
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15

Crude Palm Oil (CPO) Rubber Coal

Source: Bloomberg

China linked to government policy to protect industry shocks were avoided, as reflected by a decline in the
along with efforts to reduce carbon emissions from VIX Index after the hike (Graph 1.5). Such conditions
power stations. Furthermore, the average price of were confirmed by investor behaviour, namely by
crude palm oil (CPO) dropped 3.63% on the previous anticipating the normalisation of US monetary policy
semester due to excessive supply from Malaysia in their investment activities.
combined with low prices of soybean and oil as viable
substitutes for CPO. The average rubber price also
decreased 12.25% as a result of cheaper oil and a
sluggish automotive industry.

5
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Table 1.1. Global Economic Outlook

Outlook Perekonomian Dunia

2015
Consensus
2014 IMF BI
Forecast
Jan Oct Jan Dec Feb Dec
Global 3.4 3.5 3.1 3.6 3.2 3.6 3.1
United States 2.4 3.6 2.6 3.2 2.4 3.0 2.6
Europe 0.9 1.2 1.5 1.1 1.5 1.1 1.5
Japan -0.1 0.6 0.6 1.2 0.6 1.2 0.6
China 7.4 6.8 6.8 7.0 6.9 7.0 6.8
India 7.3 6.3 7.3 6.3 7.5 6.4 7.3
Source: International Monetary Fund (IMF), Bloomberg and Bank Indonesia

Graph 1.3. Credit Default Swaps (CDS) in Advanced Countries

Graph 1.2. Brent Oil Price and the Region
SA
USD/Barel USD 203.33
Appreciation Japan
70 66.37 46.86
65 59.4 62.3 Germany 12.79
55.8 Increased OPEC
60 Production
China 108.32
55.9
55 64.6 52.71 US
17.56
47.2 48.1
50 Philippines
51.33
44.4
45
47.0
37.7 Malaysia
Iran Nuclear Deal 180.22
40 OPEC
40.7 Meeting Thailand
134.80
35 - Quote
Unchanged Brazil 491.71
30 Yuan
Devaluation Expected Increase in Turkey
25 273.14
Exports from Iran
20 Indonesia 229.92
Jan 15

Feb 15

Mar 15

Apr 15

May 15

Jun 15

Jul 15

Aug 15

Sep 15

Oct 15

Nov 15

Dec 15

India

100 200 300 400 500 600

Monthly Average Brent Price 31 Dec 2015 30 Sep 2015

Source: Bloomberg Source: Bloomberg

Graph 1.4. Jakarta Composite Index (JCI) and Global Indexes Graph 1.5. VIX Index in 2015

World -0.1 45

EM Asia -8.2
40
US (Dow Jones) -1.2
Japan (Nikkei) 9.1 35
England (FTSE) -4.4
India (SENSEX) -5.6 30
Hong Kong (Hangseng) -7.3
Sanghai (SHCOMP) 10.5 25

Strait Times (STI) -14.3

20
Kuala Lumpur (KLCI) -3.9
Philipine -3.9 15
Thailand (SET) -14.0
10
6.2
Indonesia (IHSG) -12.1
23-Sep
30-Sep

14-Oct
21-Oct
28-Oct
4-Nov
11-Nov
18-Nov
25-Nov
2-Dec
9-Dec
16-Dec
23-Dec
1-April
8-April
15-April
22-April
29-April
6-May
13-May
20-May
27-May
3-Jun
10-Jun
17-Jun
24-Jun
1-Jul
8-Jul
15-Jul
22-Jul
29-Jul
5-Aug
12-Aug
19-Aug
26-Aug
2-Sep
9-Sep
16-Sep

7-Oct

%
-20 -15 -10 -5 0 5 10 15
Source: Bloomberg Source: Bloomberg

6
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Moderating domestic economic growth compounded

1.2. Domestic Financial Market Risks
Economic stability was maintained in Indonesia during
the second half of 2015, with inflation controlled within
the target of 4±1% at 3.35%. Domestic economic risk
stemmed primarily from economic moderation (Graph
1.6), which was inextricably linked to the reliance on
commodities in the economic structure coupled with
a change in the global landscape that placed pressures
on the balance of payments (BOP) and rupiah exchange
rate. The balance of payments (BOP) recorded a
deficit of USD2.9 billion in 2015 after foreign capital
inflows dried up. Nevertheless, the current account
deficit showed early signs of improvement, reducing
to 2.0% of GDP from 3.1% of GDP at the end of 2014.
The current account deficit narrowed due to sluggish
domestic demand that undermined import activities
to a greater extent than the decline in exports (Graph
1.7).
pressures on the rupiah as well as corporate and
financial sector performance, while constricting fiscal
space, which further strained the domestic economy.
Exchange rate pressures eroded non-resident capital
investment in the form of portfolio investment. Such
conditions influenced the supply of foreign exchange
on domestic markets.
Exchange rate pressures also affected imported
production input prices and lowered domestic
demand, which hurt sales and corporate investment.
The decline in sales and corporate investment, in turn,
weakened corporate demand for loans and therefore
compelled the financial sector to hold the level of
financing. The high position of private external debt
amplified the pressures on corporate performance,
which contributed to lower tax revenues that narrowed
fiscal space. Consequently, government spending to
prop up the economy experienced a decline to GDP.
Nominally, however, the majority of government
spending components were actually observed to
increase.

Graph 1.6 Annual Inflation and GDP Growth Graph 1.7 Balance Of Payments (BOP) in 2015

Billion USD %
9
50,000 3.00
8
40,000
2.00
7
30,000
1.00
6 20,000

5 10,000 0.00

4 0 -1.00
2009

2010

2011

-10,000
H1-2015

3 -2.00
2012

2013

-20,000
2015

2
-3.00
2009 2010 2011 2012 2013 2014 2015 -30,000
2014

-40,000 -4.00
Consumer Price Index (CPI) Inflation PGDP Growth
Source: Bank Indonesia Financial Account Capital Account
Current Account Current Account (%GDP), RHS
Source: Bank Indonesia

7
 FINANCIAL STABILITY REVIEW
No. 26, March 2016
1.3 Financial System Stability in
Indonesia
Financial system stability was maintained in Indonesia
despite heightened global and domestic risks. Sound
financial system conditions were reflected in the
Financial System Stability Index (FSSI), which increased
slightly on the previous semester to 0.93 but remained
in normal territory and well below the threshold of
2. Financial system stability was supported by a solid
capital base, adequate liquidity and relatively stable
financial markets.
The transmission of global risks and domestic
economic moderation can be differentiated according
to the trade channel and the financial market channel.
Through the trade channel, sliding commodity prices
and weaker demand from the real sector placed
pressures on corporate performance, especially firms
operating in the commodity sector, and households.
The decline in corporate and household performance
spilled over to affect financial intermediation and
financial market performance.
The impact of negative global and domestic sentiment
through the financial market channel increased
volatility and spurred price corrections on Indonesian
financial markets in the second half of the year. On
the stock market, the Jakarta Composite Index (JCI)
fell 6.47% to 4,593.01. Meanwhile, the IDMA Index
dropped 97.47 to 93.33. Furthermore, the exchange
rate depreciated by 3.37% to close at a level of
Rp13,788 per USD. Non-resident investors also
adjusted their portfolios in response to the negative
global and domestic sentiment, prompting a net
8
foreign capital outflow of Rp5.34 trillion in semester
II 2015.
Share prices in all sectors experienced corrections,
particularly the mining sector, agriculture and the
manufacturing industry (Graph 1.9). Accordingly, the
average monthly trade value fell from Rp130.46 trillion
last semester to Rp104.64 trillion. Furthermore, non-
resident investors booked a net sell on the stock market
totalling Rp26.33 trillion. Likewise, performance of
the tradeable government securities (SBN) market
also deteriorated, with higher yields for all tenors,
especially short and medium. Consequently, non-
resident inflows to the SBN market plummeted from
Rp76.18 trillion in the previous semester to Rp20.99
trillion (Graph 1.12).
Developments on the stock market and SBN market
affected the supply and demand of foreign exchange,
hence depressing the domestic foreign exchange
market. Conditions were further intensified by broad
US dollar appreciation against nearly all major global
currencies, accompanied by increasing exchange rate
volatility. Compared to other countries in the region,
however, rupiah volatility was below the average
(Graph 1.15).
The spillover from global and domestic economic
factors was relatively minimal due to solid capital
growth and adequate liquidity despite slower credit
growth. Credit risk improved, reflecting a drop in gross
non-performing loans (NPL) from 2.56% to 2.49%
in the second semester. Furthermore, the impact of
global and domestic factors on the nonbank financial
industry was also limited because of the relatively
small portion of external debt in the funding structure
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

together with financing concentrated on domestic sector, with total assets of Rp1,795.41 trillion in
consumption. The market share of the nonbank December 2015 accounting for 21.78% of all financial
financial industry paled in comparison to the banking institutions (Graph 1.16).

Graph 1.8 Financial System Stability Index (FSSI) Graph 1.9 Sectoral Stock Price Indexes in 2015
Jakarta Composite
-6.47%
Index (JCI)
Infrastructure -6.13%
-27.50%
Mining

Financial -2.05%

2.0 Manufacturing -3.47%

Miscellaneous -13.43%
Industries
Consumption -4.47%

Trade -7.56%

Agriculture -13.60%

Property -2,15
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Dec
-30.00% -25.00% -20.00% -15.00% -10.00% -5.00% 0.00% 5.00%

Source: Bank Indonesia Source: Bloomberg

Graph 1.10 Composite Stock Price Indexes of Several Regional Countries

180 300

160
250
140
Index (1 Jan 2010=100)

Index (1 Jan 2010=100)

120 200

100
150
80

60 100

40
50
20
0 0
Jan-10 Jan-11 Dec-14 Jun-14 Dec-15 Jan-10 Jan-11 Dec-14 Jun-14 Dec-15

Hong Kong South Korea Taiwan Indonesia Malaysia Philipines

China India Singapore Thailand

Source: Bloomberg

Graph 1.11 Share Transaction Volume and Prices Graph 1.12 SBN Transaction Volume and Prices
5800 20.00 12.00 45

5600 15.00
35
10.00
5400 10.0
25
5200 5.00 8.00

5000 - 15
6.00
4800 (5.00)
5
4600 (10.0) 4.00
-5
4400 (15.00)
2.00
4200 (20.00) -15

4000 (25.00) -25

Jan 13

Apr 13

Jul 13

Oct 13

Jan 14

Apr 14

Jul 14

Oct 14

Jan 15

Apr 15

Jul 15

Oct 15

Jan 13

Apr 13

Jul 13

Oct 13

Jan 14

Apr 14

Jul 14

Oct 13

Jan 15

Apr 15

Jul 15

Oct 15

Net Buy/Sell (RHS) Jakarta Composite Index (JCI) Net Buy/Sell (RHS) 10-year SBN Yield

Source: Bloomberg Source: Bloomberg, Bank Indonesia

9
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 1.13 Rupiah Exchange Rates Graph 1.14 Appreciation and Depreciation against the US Dollar
IDR/USD % YTD 2015* vs 2014
12,700
29.3 BRL
-4.4 CNY
12,429 -2.0
12,400 12,385 -26.0
12,244 -15.0 ZAR
12,160
12,167 -20.4 TRY
12,142 -19.6
12,100
-18.6 MYR
11,919 -16.2
11,892 11,898
11,833 -6.5
-7.8 SGD
11,800
11,629 11,770 -11.8
-19.6 EUR
11,710
-10.2 IDR
11,500 11,439 11,682 -11.3
11,420 -0.8
11,532 JPY
-12.4
11,200 -8.8
-5.2 THB
-7.2
2-Jan
15-Jan
28-Jan
10-Feb
24-Feb
9-Mar
20-Mar
2-Apr
16-Apr
29-Apr
13-May
27-May
10-Jun
23-Jun
6-Jul
23-Jul
5-Aug
19-Aug
1-Sep
14-Sep
28-Sep
9-Oct
23-Oct
5-Nov
18-Nov
1-Dec
15-Dec
30-Dec -6.9
KRW
-4.7
-4.8 INR
Daily IDR/USD Rate Quarterly Average Monthly Average -4.7
-2.5 PHP

Source: Bloomberg % -30.00 -25.00 -20.00 -15.00 -10.00 -5.00 0.00

Point-to-Point Average data s.d 31 Dec 2015

Source: Bloomberg

Graph 1.15 Annual Rupiah Volatility Graph 1.16 Total Assets of Financial Institutions
%
30
0.48% 3.30% Commercial Banks
0.15%
25
0.11% Islamic Banks
2.59%
20 5.16% Rural Banks

Insurance Companies
15 10.07%
13.6
Pension Funds
10 1.23% Finance Companies
2.51%
5 Venture Capital Firms

- Guarantee Companies

BRL ZAR TRY MYR KRW IDR SGD THB INR PHP Pawn Brokers
74.4%

2014 2015 Regional Average Mutual Funds

Source: Bloomberg Source: Financial Services Authority (OJK)

entered a contractionary phase due to the credit

1.4 Domestic Financial Imbalances slump, consistent with less private demand and
sluggish exports as well as government spending that
failed to fully catalyse demand for credit. In addition,
Domestic financial imbalances influenced the speed the dominant portion of private corporate external
and magnitude of spillover from global and domestic debt, which had no accompanying hedging strategy,
economic factors on financial system stability in the also increased private sector exposure to global
second semester of 2015. Besides, the financial cycle conditions.

10
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Imbalances were also evident from the large non-
resident holdings of rupiah assets on relatively shallow
domestic financial markets, which compounded
market and liquidity risks in the financial sector when
capital flowed out of the country.
greater interconnectedness between Asian countries
through financial intermediation and investment
increased contagion risk, in particular from China.
1.4.1 Bank Lending Procyclicality
A contractionary financial cycle was confirmed in the
second semester of 2015. Financing growth, primarily
in the form of bank loans, slowed due to less demand
despite stable lending rates (Graph 1.17). Meanwhile,
private sector debt continued to grow albeit more
slowly after cash flow and profitability decreased. The
adjustment process was also observed on the bank
balance sheet as a reflection of demand for credit.
Credit standards were tightened and banks restructured
credit, while writing off bad debt to prevent further
declines in credit quality (Graph 1.18). Adjustments
were the manifestation of bank procyclicality that led
to economic contraction in Indonesia.
Economic contraction occurs when lending standards are
tightened based on the perception that risk of economic
moderation will erode credit quality. The distribution
of bank funding becomes more selective and focused
Furthermore, on certain economic sectors and quality borrowers.
Borrowers include consumers and producers that have
accounts receivable on other consumers. Limited
access to bank funding for such borrowers disrupts
the financing chain in the real sector. Therefore, bank
procyclicality has the potential to exacerbate economic
contraction and dampen the effect of accommodative
monetary policy and fiscal stimuli.
1.4.2 Limited Fiscal Space
The fiscal deficit was controlled at the end of 2015 despite
pressures accumulating. Tax revenues increased in 2015
on the previous year but only achieved 83.3% of the
target due to domestic economic moderation and lower
commodity prices. Weaker commodity prices combined
with disappointing domestic oil lifting, which only
reached 778 thousand barrels per day of the targeted 825
thousand barrels per day, contributed to commodity non-
tax revenues of just 74.1% of the target (Graph 1.19).

Graph 1.17 Financial Cycle and Bank Lending Procyclicality

1998Q2 2007Q2
0.08 0.02 40.0 8.0
1995Q2Q2
0.06
0.02
35.0 7.0
2005Q2Q2
0.04 30.0
0.01 6.0
2013Q3
0.02 25.0
0.01 5.0
0 20.0
2014Q2
1993Q4
1994Q2
1994Q4
1995Q2
1995Q4
1996Q2
1996Q4
1997Q2
1997Q4
1998Q2
1998Q4
1999Q2
1999Q4
2000Q2
2000Q4
2001Q2
2001Q4
2002Q2
2002Q4
2003Q2
2003Q4
2004Q2
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4

2014Q4
2015Q2
2015Q4

- 4.0
(0.02) 15.0
2009Q3Q2 (0.01) 3.0
(0.04) 10.0

(0.01) 5.0 2.0

(0.06)

(0.01) 0.0 1.0

(0.08)
2000Q2Q2
Dec 01
Jun 02
Dec 02
Jun 03
Dec 03
Jun 04
Dec 04
Jun 05
Dec 05
Jun 06
Dec 06
Jun 07
Dec 07
Jun 08
Dec 08
Jun 09
Dec 09
Jun 10
Dec 10
Jun 11
Dec 11
Jun 12
Dec 12
Jun 13
Dec 13
Jun 14
Dec 14
Jun 15
Dec 15

(0.10) (0.01)
1998Q2 2009Q3

Financial Cycle (BPF/LHS) Business Cycle (BPF/LHS) GDP Growth (%, RHS) Credit Growth (%, yoy)
Financial Cycle Trough Crisis Financial Cycle Peak
Source: Bank Indonesia
Source: Bank Indonesia

11
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 1.18 Bank Credit Quality

Trillion Rp %

80 3.0
2.73%
70
2.5
60
2.0
50

40 1.5

30
1.0
20
0.5
10

0 0.0
Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Jan

2012 2013 2014 2015 2016

Write Offs (yoy) Restructuring (yoy) NPL (%, RHS)

Source: Financial Services Authority (OJK)

Increased government capital spending in the form of 1.4.3 Growing Private Nonbank External Debt
infrastructure development in the second half of the The position of external debt in Indonesia continued
year failed to stimulate economic growth. Furthermore, to grow, albeit more slowly, at 5.99% (yoy) in the
government spending was impeded by nomenclature second semester of 2015. The private sector dominates
restructuring at government ministries, which also external debt in Indonesia, accounting for 53.98% of
prolonged state budget legislation in 2015, as well as the USD310.72 billion total. The ratio of external debt
structural issues such as licensing and land acquisition. to GDP increased to 36.05% in the reporting period
The government strategy to accelerate 2016 budget from 34.41% previously, reflecting heightened potential
funding through prefunding at the end of 2015 adversely risk in the event of rupiah depreciation. Nevertheless, a
impacted deposit growth, primarily at regional banks, portion of the external debt originated from affiliated
thereby limiting lending at such banks. loans, which helped to mitigate risk.

Graph 1.19 Fiscal Achievements Graph 1.20 Local Government Funds held at Regional Banks
2000 0
Trillion Rp
1500 300
-50

1000 250
-100

500
-150 200

0
-200 150
-500

-250 100
-1000 Semester I 2015

Oct-15 Nov-15
-1500 -300
50
Rp79.66 T
ABNP 2015 2015
-2000 -350
0
01
03
05
07
09
11
01
03
05
07
09
11
01
03
05
07
09
11
01
03
05
07
09
11
01
03
05
07
09
11
01
03
05
07
09
11

Local government Employee Commodity Non-

transfers procurement Tax Revenues 2010 2011 2012 2013 2014 2015
Capital Spending Grants Tax Revenues Source: Bloomberg
Procurement Other Non-Tax Revenues

Source: Director General of the Treasury

12
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Private eternal debt is dominated by nonbank Risks linked to repayment capacity remained high,
corporations, accounting for 80.62% or USD135.22 particularly for indebted corporations engaged in
billion. Notwithstanding, private nonbank external commodities, in line with declining export revenues
debt growth has slowed from 8.85% to 2.19% and the and further rupiah depreciation. Fragility was reflected
structure of such debt has become sounder with the in the higher debt service ratio (DSR) (Graph 1.23). In
prevalence of long-term loans. In semester II 2015, addition, deteriorating macro conditions and weaker
long-term private nonbank external debt growth financial markets in Asia could potentially reduce
decelerated to 8.93% from 13.20% in the first half of the the sustainability of corresponding external funding
year. Meanwhile, the contraction of short-term external sources, especially as the portion of external debt from
debt deepened from -10.50% to -24.49% over the same such countries increases (Graph 1.24).
period (Graph 1.22).

Graph 1.21 Composition of External Debt to GDP as well as GDP and

External Debt Growth
% %
60 8

50 7

40 36.05
6
30
5
20
5.04
4
10

0 3
5.99
Mar ‘04

Mar ‘05

Mar ‘06

Mar ‘07

Mar ‘08

Mar ‘09

Mar ‘10

Mar ‘11

Mar ‘12

Mar ‘13

Mar ‘14

Mar ‘15
Sep ‘04

Sep ‘05

Sep ‘06

Sep ‘07

Sep ‘08

Sep ‘09

Sep ‘10

Sep ‘11

Sep ‘12

Sep ‘13

Sep ‘14

Sep ‘15
-10 2

External Debt to GDP (%) External Debt Growth (yoy, RHS) GDP Growth (yoy, RHS)

Source: CECI and External Debt Statistics, December 2015, Bank Indonesia

Government + Central Government +

Billion USD Private Billion USD
Bank + Private Central Bank
180 35

160 Private
30
140
25
120
Government + Central
Bank Bank (rhs)
100 Government 20
Nonbank
80 Corporation 15
Central Bank
60 (rhs)
10
40
5
20

0 0
Dec ‘03
Dec ‘04
Dec ‘05
Dec ‘06
Dec ‘07
Dec ‘08
Dec ‘09
Dec ‘10
Dec ‘11
Dec ‘12
Dec ‘14
Dec ‘15
Dec ‘03
Dec ‘04
Dec ‘05
Dec ‘06
Dec ‘07
Dec ‘08
Dec ‘09
Dec ‘10
Dec ‘11
Dec ‘12
Dec ‘13
Dec ‘14
Dec ‘15
Dec ‘03
Dec ‘04
Dec ‘05
Dec ‘06
Dec ‘07
Dec ‘08
Dec ‘09
Dec ‘10
Dec ‘11
Dec ‘12
Dec ‘14
Dec ‘15

Source: External Debt Statistics, December 2015, Bank Indonesia

13
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 1.22 Private Nonbank External Debt by Original Graph 1.23 Debt Service Ratio (DSR) of Private Nonbank
Maturity Corporations
% Billion USD Rasio
40 150 40.0 37.7
30 35.0
125 30.5
30.0 28.1
20
100 25.0
10
20.0
0 75 20.1
15.0
-10
50 10.0
-20 7.2
5.0 8.0
25
-30
0.0

Tw.l 2013

Tw.II 2013

Tw.III 2013

Tw.IV 2013

Tw.l 2014

Tw.II 2014

Tw.III 2014

Tw.IV 2014

Tw.I 2015

Tw.II 2015

Tw.III 2015

Tw.IV 2015
-40 0
2009 2010 2011 2012 2013 2014 2015

Short-Term (RHS) Long-Term (RHS)

Short-Term Growth Long-Term Growth
Total DSR Tier-1 Public DSR Tier-2 Private DSR

Source: Bank Indonesia Source: Bank Indonesia

Graph 1.24 Private Nonbank External Debt by Creditor

Billion USD
180
160
140
120
100
80
60
40
20
0
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

China and Hong Kong Japan United States Europe Other Asian Countries Other Countries

Source: Bank Indonesia

1.4.4 Large Non-Resident Holdings on Domestic on the stock market fell 0.42% but remained dominant
Financial Markets at 63.81% of market capitalisation.
The structure of the stock market and tradeable
government securities (SBN) market in Indonesia On one hand, large non-resident holdings of
remained vulnerable to external factors due to the large rupiah assets increase liquidity and capital market
non-resident holdings, which are sensitive to a sudden capitalisation. On the other hand, however, such
capital reversal. Furthermore, non-resident investors conditions are indicative of a financing deficit in the
were responsive to sentiment, which triggered trade current account that is vulnerable to a foreign capital
fluctuations (Graph 1.25). Non-resident SBN holdings reversal. Foreign investors are generally more sensitive
had increased to Rp558.52 trillion by the end of 2015, to changes in risk-return triggered by changes in market
accounting for 38.21% of the total rupiah SBN traded. sentiment and domestic economic fundamentals
The position of such holdings increased 4.27% on the as well as global risks, particularly the FFR hike and
previous semester. Conversely, non-resident holdings economic moderation in China.

14
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 1.25 Non-Resident SBN Holdings Graph 1.26 Non-Resident Stock Holdings
Trillion Rp
100%
1600
90%
1400 80% 58.1%
535
1200 502 70%
443 60%
1000 362
50%
301
800 285 869 40%
746 791
600 651 704 30%
573 20% 41.9%
400
10%
200 0%

Feb 13

Apr 13

Jun 13

Aug 13

Oct 13

Dec 13

Feb 14

Apr 14

Jun 14

Aug 14

Oct 14

Dec 14

Feb 15

Apr 15

Jun 15

Aug 15

Oct 15
Dec 15
0
Jun-2013 Dec-2013 Jun-2014 Dec-2014 Jun-2015 Dec-2015

Resident Non-Resident
Resident Non-Resident
Source: Bank Indonesia Source: Bloomberg

1.4.5 Increased Interconnectedness between competitiveness of export prices from Indonesia and
Indonesia and China amidst Economic Moderation in
China
subsequently undermine the performance of export-

Trade and financial links between Indonesia and China oriented companies.

have strengthened over time. Exports to China have

offset weak demand from advanced countries since In addition, the influence of Chinese financial markets on

the global financial crisis, with total export value now domestic markets is becoming stronger. Consequently,

the fifth largest (Graph 1.27). Meanwhile, export shocks that occur on financial markets in China would

exposure in yuan is significant after the USD, SGD, EUR aggravate price volatility on financial markets at home

and JPY. Strong trade links have also left Indonesia’s (Graph 1.28). In contrast, strong financial links through

macroeconomy and financial sector vulnerable to the banking channel are limited because the market

economic moderation in China and yuan devaluation. share of Chinese banks in Indonesia remains relatively

Yuan devaluation, in particular, would reduce the small.

Graph 1.27 Market Share and Export Value based on Destination and Currency
(%) Billion USD Billion USD
100 9.0 200
17,74 billion 26,20 billion 24,17 billion 25,07 billion
USD USD USD 20,06 billion 14,88 billion 8.0 180
USD
USD USD
80 7.0 160
140
6.0
60 120
5.0
100
4.0
40 80
3.0 60
2.0 40
20
1.0 20
0.0 0
0
2010 2011 2012 2013 2014 2015** EUR SGD JPY CNY USD
Australia China South Korea Japan

ASEAN Europe United States

Source: Bank Indonesia

15
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 1.28 Price Volatility on the Domestic and Chinese Capital Graph 1.29 Stock Market Correlation in Indonesia,
Markets Singapore, United States, Europe and China

250 180 80%

160 70%
Index (1 July 2014=100)

200 60%
140 57.85%
120 50%
150
100
40% 32.87%
80 31.79%
100 30%
60 24.30%
20% 22.67%
50 40
10%
20
0%
0 0

Jan 10
Apr 10
Jul 10
Oct 10
Jan 11
Apr 11
Jul 11
Oct 11
Jan 12
Apr 12
Jul 12
Oct 12
Jan 13
Apr 13
Jul 13
Oct 13
Jan 14
Apr 14
Jul 14
Oct 14
Jan 15
Apr 15
Jul 15
Oct 15
Feb-15
Aug-14

Sep-14

Nov-14

Jan-15

Apr-15

Apr-15

Apr-15

Annual JCI Volatility Annual IDMA Volatility Indo - China Indo - US China - Sing
Chinese Share Prices (RHS) Indo - Sing Indo - EUR

Source: Bloomberg Source: Bloomberg

16
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

17
The financial markets play a critical role in the economy as a source of financing
and an alternative source of funding for banks as well as nonbanks. Bank loans are
currently the dominant source of economic financing but the role of financial markets
is expected to expand as they develop and deepen. Sources of economic financing,
in particular from the bond market, dried up in the second semester of 2015 due
to intense pressures on the financial markets. On the stock market, however, initial
public offerings (IPO) and rights issues enjoyed robust growth in terms of both value
and the number of issuers.

As transpired in neighbouring countries, risks escalated on financial markets during the

second semester of 2015 but remained under control. Heightened risks were reflected
in higher interest rates and volatility on the interbank money market, exchange rate
depreciation, rising risk premiums and foreign exchange market volatility, a Jakarta
Composite Index (JCI) slump and greater volatility on the stock market as well as

2
increasing yields of tradeable government securities (SBN). Nonetheless, mutual funds
continued to record growth, albeit slower due to pressures felt on the stock market
and SBN market.

In conjunction with other relevant authorities, Bank Indonesia has and will continue to
deepen the financial markets in terms of regulations and new product development
in order to mature the financial markets. Therefore, Bank Indonesia introduced policy
to manage the supply and demand of foreign exchange, hence deepening the foreign
exchange market and supporting exchange rate stability.

ASSESSMENT OF FINANCIAL MARKET

CONDITIONS AND RISKS
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Risks Escalated on Financial Markets but

Remained Under Control

Money Markets

The risks on the money markets were relatively well mitigated despite rising interest rates.

Interbank Money Market Repo Market

O/N Rupiah Interbank Rate Interest Rate up to
up to 6.02%-7.31%
Rp

6.02%
Daily Transaction
O/N Volatility up to Volume down to
5.15%
Rp5.97 trillion
Daily Transaction
Volume up to
Rp23.41 trillion

Foreign Exchange Market Bond Market

Marker risks increased for Bonds, government

Foreign exchange market risk
securities (SBN) and corporate bonds.
accumulated on regional pressures.

IDMA Index down to

Rupiah exchange rate
93.33
down to
Rp13,795/USD 10-Year ON yield
Rp

up to
$

Volatility up to
8.75%
10.2%
10-Year ON Volatility
Risk Premium up to
down to
4.45 point SBN
15.45%

Net Inflow of Non-

Resident Capital
Jakarta Composite Index (JCI)
Rp21 trillion

Risks increased on the stock market due to

global market uncertainty.
10-Year Yield (A)
JCI down to up to
4.593 12.37%

Volatility up to Volatility up to
6.36% 11.43%
Net Outflow of Non- Net Outflow of Non-
Resident Capital Corporate Bonds Resident Capital
Rp26.3 trillion Rp3.13 trillion

20
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

On the stock market, initial public offerings (IPO) and

2.1 Role of Financial Markets as a rights issues nearly doubled from Rp18.59 trillion in
Source of Economic Financing the first semester to Rp34.94 trillion in the second.
Nominally, the increase in stock market financing
The financial markets play an important role in was also observed in terms of more issuers, rising
terms of economic financing and as an alternative from 18 to 19 over the same period. Interest in
source of bank funding to deposits. Although bank conducting IPOs and rights issues returned at the
loans continue to dominate sources of economic end of the year after financial market sentiment
financing, the role of financial markets will improved in line with less uncertain global financial
become increasingly significant in the future as the markets in the wake of the policy rate hike by the
financial markets mature. For the banking industry, Federal Reserve.
financial markets are required to support fund
management in the near and long term. In general, Issuances of corporate bonds and sukuk stood at
short-term management aims to optimise liquidity Rp17.65 trillion in the second semester of 2015,
management through borrowing and placements down on the previous period. The number of issuers
on the interbank money market, bond market and engaged in issuing bonds also declined in the second
other money markets. On the other hand, long- semester, from 33 to 18, due to the front-loading
term management utilises financial markets to trend at the beginning of the year. Furthermore,
expand the capital base through the stock market consistent with financial market pressures, the cost
and bond market. of funds of issuing bonds increased. Nonetheless,

Table 2.1 Bank and Nonbank Financing (Rp, trillions)

Rp, trillions
2013 2014 2015
Notes
Sem I Sem II Sem I Sem II Sem I Sem II

A. Bank Credit 251.26 333.75 175.29 206.15 153.74 230.08

B. Nonbank Financing 93.52 67.67 64.78 50.06 67.64 45.96

B1. Capital Market 74.75 40.46 51.88 44.78 63.95 52.58

- IPO and Rights Issues 29.75 27.70 26.35 21.67 18.59 34.94

- Corporate Bonds and Sukuk 45.00 12.76 25.53 23.11 45.36 17.65

B2. Finance Companies 18.76 27.21 12.90 5.27 3.69 -6.63

Total 344.78 401.42 240.07 256.20 221.38 276.04

Source: Financial Services Authority (OJK) and Indonesian Central Securities Depository (KSEI) reports
Note: Bank Credit disbursed through to December 2015, not positional data.

Sources of nonbank financing, consisting of AAA-rated corporations still had access to cheaper
financing from the capital market and Finance funds than borrowing from the banks.
Companies (FC), experienced a decline in the
second semester of 2015. The decline stemmed Medium-Term Notes (MTN) and Negotiable
from FC funding in line with domestic economic Certificates of Deposit (NCD) remained viable
moderation. In contrast, financing sourced from alternative sources of nonbank financing.
the capital market, including the corporate bond Accordingly, MTN and NCD volume in the second
and stock markets, continued to grow, albeit more semester of 2015 was recorded at Rp7.71 trillion,
slowly.
21
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 2.1 Volume of IPOs and Rights Issues on the Stock Market Graph 2.2 Bank and Nonbank Financing (trillion Rp)
Trillion Rp
35 20

30 18
16
25 14

20 12
10
15
8
10 6
4
5
2
0 0
1 2 3 4 5 6 7 9 10 11 12 2 3 4 5 6 7 8 9 10 11 12

Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
2014 2015

Rights Issue IPO Bonds Corporate Bonds (Rp, trillions) Average 5-Year Corporate Bond Yield (%)
Investment Loans (%)
Source: Financial Services Authority (OJK), Indonesia Stock Exchange, processed
Source: Financial Services Authority (OJK), Bank Indonesia, Bloomberg, processed

half of the Rp15.78 trillion posted in the previous utilised the stock market for additional funding to
period. Despite the decline, however, issuances the tune of Rp1.00 trillion through initial public
remained solid in line with the large value of offerings (IPO) and rights issues, which represents
maturing MTN and NCD. an increase in terms of both value and the number
of issuing banks.
In the case of banks, the financial markets function
as an alternative source of funding to deposits The interbank money market functions as a means
and, simultaneously, as an outlet for placements. to optimise short-term liquidity management
In the accumulation of funds, one bank issued at banks, providing an outlet for banks to place
bonds, amounting to Rp500 billion, in the second excess funds while also providing access to loans to
semester of 2015 compared to six banks in the meet short-term liquidity shortfalls. In the second
first semester totalling Rp11.36 trillion. The ratio semester of 2015, a total of 86 banks borrowed on
of bank bonds to corporate bonds in the reporting the interbank money market and 100 banks placed
semester was recorded at just 2.83%, down from funds on the rupiah interbank money market, with
25.13% previously. Over the same period, banks a total daily volume averaging Rp23.41 trillion,

Graph 2.3 Comparison of the Corporate Bond Yield Curve and Graph 2.4 Outstanding Value of MTN and NCD
Average Lending Rates on Investment Loans and Trillion Rp
Working Capital Loans 35.0
%
16 30.0
15
14 25.0
12.24%
13
20.0
12
11 15.0
10
10.0
9
8 5.0
7
1 2 3 4 5 6 7 8 9 10 -
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15

AAA, June 2015 AAA, June 2013

BBB, June 2015 Average Lending Rates on Investment
Loans and Working Capital Loans
MTN NCD

Source: Financial Services Authority (OJK), Bloomberg, processed Source: Indonesian Central Securities Depository (KSEI), processed

22
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

in the banking industry undermined demand for

Graph 2.5 Outstanding Matured MTN and NCD
foreign currency loans, which stifled activity on
Trillion Rp
2,5
the foreign exchange interbank money market in
2,0 the reporting period in terms of both value and

1,5
the number of banks transacting. Consequently,
only 33 banks borrowed on the foreign exchange
1,0
interbank money market in the second semester of
0,5
2015, down from 40 in the previous semester and
0,0 39 one year ago. Banks placing foreign exchange
1 2 3 4 5 6 7 8 10 11 12 1 3 4 5 6 7 8 9 10 11 12

2016 2017 on the interbank money market also decreased

MTN NCD
from 39 in the first semester of 2015 and 42 in
Source: Indonesian Central Securities Depository (KSEI), processed
the second semester of 2014 to 31 banks in the
up slightly from Rp23.00 trillion in the previous reporting period. Less foreign exchange interbank
semester. The increase in interbank transactions money market activity was also the result of greater
was consistent with growth in demand for short- diversification of foreign exchange monetary
term liquidity. operation transactions along with issuances of
foreign exchange SBBI by Bank Indonesia, which
Departing from conditions on the rupiah interbank expanded the outlets for bank foreign exchange
money market, excess foreign exchange liquidity placements.

Table 2.2 Sources of Funds by Number of Banks

Trillion Rp
2012 2013 2014 2015
Description
Sem I Sem II Sem I Sem II Sem I Sem II Sem I Sem II
Fund Accumulation
I. Domestic
Borrowing from Rupiah Interbank Money Market 54 79 74 81 81 76 76 86
Borrowing from Foreign Exchange Interbank Money 51 51 50 48 47 39 40 33
Market
Repo to BI/Lending Facility 3 4 3 10 1 7 19
Repo by Bank 6 7 7 10 16 16 18 18
Bond Markets 7 6 8 3 2 3 6 1
- Bonds 2 2 3 1 2 1 1
- Continuous Bonds 4 4 4 3 1 1 4
- Sukuk 1 1 1
Stock Market 3 4 7 9 3 3 - 4
- IPO 4 2 1 1 - 1
- Rights Issue 3 4 3 7 2 2 1 3
II. International
USD Bonds 1 1
Fund Distribution
I. Domestic
Lending to Rupiah Interbank Money Market 89 95 93 95 94 99 98 100
Lending to Foreign Exchange Interbank Money 48 47 48 49 45 42 39 31
Market
Deposit Facility 107 105 110 100 107 134 98 114
Term Deposits 51 65 39 - - - -
Bank Indonesia Certificates of Deposit (SDBI) - - - 43 50 76 79 74
Bank Indonesia Certificates (SBI) 95 86 91 98 98 108 75 74
Reverse Repo SUN 38 30 31 25 36 59 37 17
Tradeable Government Securities (SBN) 86 86 88 88 91 87 84 95

Source: Bank Indonesia, Financial Services Authority (OJK)

23
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Table 2.3 Bank Sources of Funds by Volume

Trillion Rp
2012 2013 2014 2015
Notes
Sem I Sem II Sem I Sem II Sem I Sem II Sem I Sem II
Fund Accumulation
I. Domestic
Borrowing from Rupiah Interbank Money Market
- Borrowing Volume 1,066 1,233 1,374 1,241 1,326 891 845 844
- Average Daily Volume of Rupiah Borrowing 5.0 6.1 6.0 6.0 6.7 7.1 6.8 6.9
- Average Daily Volume of USD Borrowing (millions) 544.2 311.4 224.2 246.0 262.4 291.6 242.7 208.6
Repo to BI/Lending Facility 0.4 1.1 0.5 5.5 - - 11.4
Repo by Bank 32.7 41.0 31.1 32.3 - - 81.4 29.0
Bond Markets 6.8 7.1 8.5 3.7 5.0 2.0 11.4 0.5
- Bonds 0.5 0.3 1.2 1.0 1.3 1.5 0.5
- Continuous Bonds 5.5 6.8 6.6 3.7 4.0 0.7 9.4
- Sukuk 0.8 0.7 0.5
Stock Market 1.9 4.7 4.2 9.4 1.5 2.1 0.6 1.0
- IPO 1.7 0.6 0.1 0.1 - 0.1
- Rights Issue 1.9 4.7 2.4 8.8 1.5 2.0 0.6 0.9
II. International
USD Bonds 500 500
Fund Disbursement
I. Domestic
Borrowing from Rupiah Interbank Money Market
- Average Daily Volume of Rupiah Lending 5.0 6.1 6.0 6.0 6.7 7.1 6.8 6.9
- Average Daily Volume of USD Lending (millions) 544.0 311.4 224.6 247.8 262.8 291.4 242.7 208.6
Deposit Facility 118.3 81.6 121.1 123.5 125.3 98.5 127.2 112.3
Term Deposits 88.7 180.9 51.7 - - - -
Bank Indonesia Certificates of Deposit (SDBI) - - - 26.5 23.3 102.3 62.4 39.9
Bank Indonesia Certificates (SBI) 89.9 79.4 82.1 89.6 98.6 87.0 72.7 31.1
Reverse Repo SUN 60.3 81.4 73.5 74.6 74.4 88.6 64.1 5.7
Government Securities (SBN) 286.0 282.0 298.0 316.0 338.0 374.0 346.7 350.0

Source: Bank Indonesia, Financial Services Authority (OJK)

global and domestic sentiment, namely through a

2.2 Financial Market Risks
Risks tended to accumulate on the domestic financial
markets during the second half of 2015 but were well
mitigated. Risks originated from increasingly uncertain
global financial markets due to sluggish global growth
that triggered monetary policy divergence amongst
advanced countries, economic moderation in China
and uncertainty surrounding the normalisation of the
policy rate in the United States as well as perpetuated
the international commodity price slide. On the home
front, slower economic growth and less fiscal space
heightened risks on domestic financial markets. Non-
resident investor behaviour in response to negative
shift in portfolios that prompted capital outflows, also
exacerbated pressures on domestic financial markets.
Escalating risk on domestic financial markets
affected the interbank money market, foreign
exchange market, stock market and bond market,
indicated by interbank rates and volatility, exchange
rate depreciation, higher risk premiums and
volatility, a Jakarta Composite Index (JCI) slump and
higher stock market volatility as well as increasing
SBN yields. Nevertheless, the heightened risk was
well mitigated in line with developments in other
emerging market economies (EME).

24
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 2.6 Financial Market Volatility Graph 2.7 Non-Resident Flows: Stocks, SBN and SBI

Rupiah Interbank Money Market Trillion Rp Flow Asing di SBI, SBN dan Saham
60% 150

100
Mutual Funds Exchange Rate

15% 10% 50

12% 0
17%

22%
Bonds Government -50
Securities (SBN)

--100
Sem I Sem II Sem I Sem II
Stock
2009 2010 2011 2012 2013 2014 2015
Sem I 2014 Sem II 2014 Sem I 2015 SemII 2015
Bank Indonesia Certificates (SBI) Government Securities (SBN) Stock
Source: Bloomberg, processed
Note: Further from the centre indicates higher risk Source: Bloomberg and Bank Indonesia

2.2.1 Money Market semester of 2015, the weighted average overnight

Risk on the money market was well mitigated despite interbank rate stood at 6.02%, up from 5.80% in
a slight increase of interest rates towards the end the previous semester and 5.83% one year ago.
of the second semester of 2015. Such conditions Consistent with the higher overnight interbank
affected the uncollateralised and collateralised rate, the weighted average rates of all tenors also
markets, reflecting higher interbank rates (rupiah increased from 5.94% in semester II 2014 and
and foreign exchange) as well as interbank repo 5.86% in semester I 2015 to 6.21% in the reporting
rates. Growing demand for liquidity towards the period. Furthermore, higher interbank rates were
end of the year and anticipation of meeting the accompanied by greater volatility, increasing from
Liquidity Coverage Ratio (LCR) contributed to higher 58.74% to 63.93%.
money market rates. In addition, money market
segmentation combined with relatively shallow Interbank transaction volume in the second
markets limited the markets’ ability to absorb risk, semester of 2015 remained relatively unchanged
leading to greater volatility. from the previous period, increasing slightly from
Rp13.60 trillion to Rp13.72 trillion. Similarly, the
2.2.1.1 Interbank Money Market average daily transaction volume of all tenors also
Risk on the interbank money market tended rose moderately from Rp23.00 trillion to Rp23.41
to build, reflecting higher interbank rates and trillion in the reporting period.
volatility in the second semester of 2015, triggered
by greater demand for liquidity towards the end In terms of transactional behaviour, bank behaviour
of the year and bank anticipation of meeting the on the rupiah interbank money market was also
Liquidity Coverage Ratio (LCR) amidst a change in relatively unchanged. Similar to the previous
the government’s spending patterns. In the second semester, BUKU 4 and 1 banks continued to act

25
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

as placing banks, while BUKU 3 and 2 banks were of 2015 from 0.09% and 0.11% to 0.10% and 0.1%
takers. A number of BUKU 2 banks, however, respectively. The higher rates were not only due
especially foreign bank branches, increased their to greater demand for foreign exchange towards
interbank borrowings in order to meet greater yearend but were also influenced by higher foreign
demand for liquidity. exchange monetary operation rates set by Bank
Indonesia.
In terms of market share, BUKU 4 and BUKU 2
banks tended to dominate interbank transactions. Higher foreign exchange interbank rates were
Concerning transaction volume, the share of both accompanied by a wider max-min spread and
bank groups accounted for 68% of total interbank greater volatility. The average spread in semester II
transaction volume. Nonetheless, the number of 2015 stood at 0.16%, up from 0.09% in the previous
counterparties of BUKU 3 banks exceeded those period. Meanwhile, average volatility was recorded
of BUKU 2 banks. In addition, the size of BUKU 3 at 21.2%, increasing from 17.9% in the previous
banks was larger than BUKU 2 banks, therefore period and 14.5% the year earlier.
in the event of default, the risks that emerged at
BUKU 3 banks would be more intense than at BUKU Against a backdrop of adequate foreign exchange
2 banks. liquidity in the banking sector, foreign exchange
interbank transaction volume dropped off for all
Congruent with conditions on the rupiah interbank tenors, including overnight. In semester II 2015,
money market, higher interest rates on the foreign the average daily O/N foreign exchange interbank
exchange interbank money market in the fourth transaction volume stood at USD417.85 million,
quarter of 2015 precipitated higher rates in the down from USD487.17 million previously. Similarly,
second semester than the first. The weighted the average daily foreign exchange interbank
average daily overnight interbank rate and average transaction volume for all tenors fell from USD533.3
rate for all tenors increased in the second semester million to USD463.2 million over the same period.

Graph 2.8 Overnight Rupiah Interbank Rate Graph 2.9 Overnight Rupiah Interbank Rate Volatility
% %
% PUAB O/N %

10 5 160 8.0

140 7.0
4
8 120 6.0

100 5.0
3
6 80 4.0

2 60 3.0

4 40 2.0
1
20 1.0

2 0 0 0.0
Sep 14

Sep 15
Jan 14
Feb 14
Mar 14
Apr 14
May 14
Jun 14
Jul 14
Aug 14

Oct 14
Nov 14
Dec 14
Jan 15
Feb 15
Mar 15
Apr 15
May 15
Jun 15
Jul 15
Aug 15

Oct 15
Nov 15
Dec 15
Dec 09
Apr 10

Aug 10
Dec 10
Apr 11
Aug 11
Dec 11

Apr 12
Aug 12
Dec 12
Apr 13
Aug 13
Dec 13
Apr 14
Aug 14
Dec 14

Apr 15
Aug 15
Dec 15

Weighted Average Rate Highest Rate (%)

O/N Rupiah Interbank Rate Volatility Weighted Average of Loans (RHS)
Max-Min Spread (RHS)

Source: Bank Indonesia Source: Bank Indonesia

26
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 2.10 Rupiah Interbank Money Market Performance Graph 2.11 Rupiah Interbank Transactional Behaviour
% Trillion Rp Trillion Rp
8.0 35 150

7.0
30
100
6.0
25
5.0 50
20
4.0
15 0
3.0
10 -50
2.0

1.0 5
-100
- -
Sep 2011
Nov 2012
Jan 2012
Mar 2012
May 2012
Jul 2012
Sep 2012
Nov 2012
Jan 2013
Mar 2013
May 2013
Jul 2013
Sep 2013
Nov 2013
Jan 2014
Mar 2014
May 2014
Jul 2014
Sep 2014
Nov 2014
Jan 2015
Mar 2015
May 2015
Jul 2015
Sep 2015
Nov 2015
-150

Jul 2013
Aug 2013
Sep 2013
Oct 2013
Nov 2013
Dec 2013
Jan 2014
Feb 2014
Mar 2014
Apr 2014
May 2014
Jun 2014
Jul 2014
2014/Aug
Sep 2014
Oct 2014
Nov 2014
Dec 2014
Jan 2015
Feb 2015
Mar 2015
Apr 2015
May 2015
Jun 2015
Jul 2015
Aug 2015
Sep 2015
Oct 2015
Nov 2015
Dec 2015
Average Daily O/N Volume Average Daily Non-Overnight Volume
BUKU 4 BUKU 3 BUKU 2 BUKU 1
Weighted Average of All Rates Weighted Average O/N Rate
Source: Bank Indonesia
Source: Bank Indonesia

Graph 2.12 Foreign Exchange Interbank Money Graph 2.13 O/N Foreign Exchange Interbank Rate
Market Performance
% Million USD 0.50 0.40
0.30 1,600
0.45
0.35
1,400
0.25 0.40
0.30
1,200 0.35
0.20 0.25
1,000 0.30

0.25 0.20
0.15 800
0.20 0.15
600
0.10
0.15
400 0.10
0.10
0.05
200 0.05
0.05
0 0 0 0
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Dec 2011
Feb 2012
Apr 2012
Jun 2012
Aug 2012
Oct 2012
Dec 2012
Feb 2013
Apr 2013
Jun 2013
Aug 2013
Oct 2013
Dec 2013
Feb 2014
Apr 2014
Jun 2014
Aug 2014
Oct 2014
Dec 2014
Feb 2015
Apr 2015
Jun 2015
Aug 2015
Oct 2015
Dec 2015

Average Daily Overnight Volume Average Daily Non-Overnight Volume Weighted Average Lending Rate Highest Rate (%);
Weighted Average of All Rates Weighted Average O/N Rate Max-Min Spread (RHS)

Source: Bank Indonesia Source: Bank Indonesia

Graph 2.14 Foreign Exchange Interbank Rate Volatility Graph 2.15 Foreign Exchange Interbank Transactional Behaviour
% Billion USD
70 0.30 5
4
60
0.25 3
50 2
0.20
1
40
0.15 0
30
-1
0.10
20 -2

0.05 -3
10
-4
0 0.00 -5
Sep 14

Sep 15

Jul 2013
Aug 2013
Sep 2013
Oct 2013
Nov 2013
Dec 2013
Jan 2014
Feb 2014
Mar 2014
Apr 2014
May 2014
Jun 2014
Jul 2014
Aug 2014
Sep 2014
Oct 2014
Nov 2014
Dec 2014
Jan 2015
Feb 2015
Mar 2015
Apr 2015
May 2015
Jun 2015
Jul 2015
Aug 2015
Sep 2015
Oct 2015
Nov 2015
Dec 2015
Jan 14
Feb 14
Mar 14
Apr 14
May 14
Jun 14
Jul 14
Aug 14

Oct 14
Nov 14
Dec 14
Jan 15
Feb 15
Mar 15
Apr 15
May 15
Jun 15
Jul 15
Aug 15

Oct 15
Nov 15
Dec 15

USD Interbank Money Weighted Average of Loans (RHS) BUKU 4 BUKU 3 BUKU 2 BUKU 1
Market Volatility
Source: Bank Indonesia Source: Bank Indonesia

27
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Departing from historical trends, a change in bank BI efforts to deepen the repo market began with the
behaviour was noted in 2015. BUKU 3 banks, which Mini Master Repo Agreement (MRA) in December
had previously acted as takers, became placing 2013, with eight participating banks. The program
banks in 2015. Conversely, BUKU 4 banks, which effectively encouraged banks to undertake repo
had previously been placing banks, became takers transactions and at the end of semester I 2015, a
in 2015 due primarily to greater customer demand total of 74 banks had signed the MRA. In addition,
for foreign exchange coupled with a change in the 18 members of the Indonesian Islamic Global
banks’ foreign exchange liquidity management Market Association (IIGMA) signed up for the MRA
strategy in line with MO transactions undertaken program in semester II 2015 as part of the ongoing
by Bank Indonesia. efforts to overcome liquidity problems at Islamic
banks.
2.2.1.2. Bank Repo Market1
In line with the rising interbank rates during the Repo transaction between the banking sector and
second half of the year, the bank repo market rate Bank Indonesia also declined during the reporting
also climbed, while transaction volume decreased. period, reflecting a significant decrease in total
The average daily bank repo market rate for all Lending Facility (LF) transaction volume from
tenors increased from a range of 5.89-6.42% to Rp11.37 trillion to Rp3.10 trillion. The higher
6.02-7.31%. Notwithstanding, the average daily transaction volume in the first half of the year was
transaction volume for all tenors fell dramatically incidental, however, as a result of a communication
from Rp13.57 trillion to Rp5.97 trillion due to the network disruption to the Bank Indonesia – Real
introduction of the Global Master Repurchase Time Gross Settlement (BI-RTGS) system on 24th
Agreement (GMRA) for repo transactions, which March 2015, which triggered a surge of Lending
required a period of adjustment for banks switching Facility (LF) transactions to meet the short-term
from the Mini Master Repo Agreement (MRA) in liquidity requirements of the banking industry.
place previously.

Graph 2.16 Interbank Repo Transactions Graph 2.17 Lending Facility (LF) Transactions
Trillion Rp % Trillion Rp %

35 9.0 12.0 8.5

8.0 8.0
30
10.0
7.0 7.5
25
6.0 8.0 7.0
20 5.0 6.5
6.0
15 4.0 6.0
4.0 5.5
3.0
10
5.0
2.0 2.0
5 4.5
1.0
0 4.0
0 0 7 9 11 1 3 5 7 9 11 1 3 5 10 12 2 4 6 8 10 12 2 4 6 8 10 12

6 9 11 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10 12 2 4 6 8 10

Total Volume Lending Facility (LF) Rate (RHS)

Repo Volume Repo Rate (RHS)
Source: Bank Indonesia
Source: Bank Indonesia

1 A repurchase agreement (repo) is a contract in which the vendor of a security agrees to repurchase it from the buyer at an agreed price on a predetermined date. In general, the repo market
consists of interbank repo and repo with Bank Indonesia through the Lending Facility (LF).

28
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

2.2.2 Foreign Exchange Market
Risk on the foreign exchange market intensified
during the second half of 2015 due to uncertain
financial markets
domestic and global sentiment. Heightened risk
manifested as exchange rate depreciation, with
the rupiah falling from Rp13,339 per USD at the
end of semester I to close at Rp13,795 per USD at
the end of the year and volatility increasing from
7.1% to 10.2%. Greater volatility, however, did not
significantly affect transaction volume, dropping
moderately from USD350.64 billion to USD339.45
billion in the reporting period.
The build-up of risk on the foreign exchange market
was also reflected in the average NDF spread
against domestic forwards. In semester II 2015,
the average NDF spread against 1-month domestic
forwards stood at 41.45 points, increasing from
25.77 points in the previous semester. Compared
to other countries in the region, NDF spread was
highest in Indonesia, indicating lingering concerns
regarding the domestic economy, in particular the
stemming from negative outlook for the rupiah.
Spot transactions continued to dominate the
foreign exchange market, accounting for 63.72%
of the total. Meanwhile, the share of derivatives
in the form of swap and forward transactions
accounted for 30.24% and 6.04% respectively,
increasing from 24.64% and 5.50% previously. The
increase in derivative transactions was consistent
with Bank Indonesia efforts to maintain rupiah
exchange rate stability by requiring indebted
nonbank corporations to hedge against external
debt, which became effective on 1st January 2015.
Despite the increase, the composition of swap and
forward transactions remained relatively low due
to weak demand from the business community and
relatively high premium costs.

Graph 2.18 Rupiah Exchange Rate Performance Graph 2.19 Rupiah Volatility
%
90 15000 400 15,500

80 300 15,000
14000
70 200 14,500
13000
14,000
60 100
12000
13,500
50 0
11000 13,000
40 41,6% -100
10000 12,500
30 -200 12,000
9000
20
-300 11,500
10 8000
-400 11,000
Jan 14
Feb 14
Mar 14
Apr 14
May 14
Jun 14
Jul 14
Aug 14
Sep 14
Oct 14
Nov 14
Dec 14
Jan 15
Feb 15
Mar 15
Apr 15
May 15
Jun 15
Jul 15
Aug 15
Sep 15
Oct 15
Nov 15
Dec 15

0 7000
Sep-09
Jun-08
Nov-08
Apr-09

Feb-10

Jun-13

Jul-15
Jan-08

Jul-10
Dec-10

Apr-14

Sep-15

Dec-15
Nov-13

Sep-14
May-11

Mar-12

Jan-13
Aug-12
Oct-11

NDF-FWD Spread 1B Average Daily 20D Spread NDF 1B (RHS)

Volatility Exchange Rate (RHS)

Source: Bloomberg, processed Source: Bloomberg, processed

29
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 2.20 Foreign Exchange Market Risk Premium

%
70
29 2015
60
24
50
19
40 41.6%
14
30
9
20
4
10

Feb-15

May-15

Aug-15

Nov-15
Mar-15

Jun-15

Sep-15

Dec-15
Jan-15

Apr-15

Jul-15

Oct-15
0
Sep-09
Jun-08

Nov-08

Apr-09

Feb-10

Jun-13

Jul-15
Jan-08

Jul-10

Dec-10

Apr-14

Sep-15

Dec-15
Nov-13

Sep-14
May-11

Mar-12

Jan-13
Aug-12
Oct-11

Source: Bloomberg, processed

Table 2.4 Comparison of NDF Spread in the Region Graph 2.21 Composition of the Domestic Foreign Exchange Market

70 Billion USD
2014 2015 60
Countries
Sem I Sem II Sem I Sem II 50

Thailand 0.01 0.02 0.04 0.06 40

Malaysia (0.00) 0.00 (0.00) (0.00) 30

Philippines (0.01) 0.01 (0.02) 0.05 20

10
India (0.12) (0.11) (0.08) (0.05)
0
Indonesia (54.18) 14.20 25.77 41.45
Oct 2011
Dec 2011
Feb 2012
Apr 2012
Jun 2012
Aug 2012
Oct 2012
Dec 2012
Feb 2013
Apr 2013
Jun 2013
Aug 2013
Oct 2013
Dec 2013
Feb 2014
Apr 2014
Jun 2014
Aug 2014
Oct 2014
Dec 2014
Feb 2015
Apr 2015
Jun 2015
Aug 2015
Oct 2015
Dec 2015
Source: Bloomberg, processed

Spot Swap Forward Option

Source: Bank Indonesia

2.2.3 Bond Market In general, the yields of all tenors increased,

2.2.3.1 Tradeable Government Securities (SBN) in particular short-term yields (Graph 2.24),
Market indicating relatively high short-term risks in the
Negative global and domestic sentiment amplified Indonesian economy. Consequently, investors
pressures on the SBN market, which lowered requested relatively high risk premiums for short-
prices and raised yields. In the second semester term investments. The high perception of risk was
of 2015, the IDMA Index revealed a 4.2% drop in also reflected in the flattening spread between
SBN prices on the previous period, falling from the 3-year and 20-year tenors (Graph 2.25). The
97.47 to 93.33. Furthermore, the yield of the 10- flattening yield curve showed that investors
year benchmark tenor increased from 8.26% to remained fairly positive in the medium and long-
8.75%. Notwithstanding, SBN volatility, which had term outlook but were more sceptical in the near
intensified at the beginning of the year, began term.
to ease in the second semester, decreasing from
18.11% to 15.45% on the 10-year tenor.

30
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 2.22 SBN Yield Curve Graph 2.23 Rebased SBN Yield by Tenor

10.0 % 220 rebased 1/1/2013

9.5 200

9.0 180
160
8.5
140
8.0
120
7.5
100 Short-Term : 1-5 years
7.0 Medium-Term : 6-10 years
80
Long-Term : 11-30 years
6.5 60

Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
6.0
1 2 3 4 5 6 7 8 10 11 12 13 15 16 18 20 30
(Tahun)

Dec-14 Jun-15 Dec-15 Short-Term Medium-Term Long-Term

Source: Bloomberg, processed Source: Bloomberg, processed

Higher yields and less volatility on the SBN eased on global financial markets towards the
market in the second semester of 2015 mirrored end of the year, after the Federal Reserve hiked
developments in neighbouring countries in line with its policy rate 25bps, yields have not yet fallen to
negative global sentiment. Although uncertainty previous levels.

Table 2.5 Yields of 10-Year Government Bonds in the Region Graph 2.24 Rebased 10-Year Government Bond Yields in
Emerging Market Economies

  Indo Indi Thai Maly Phil

140 rebased 1/1/2013
Jun-13 7.06 7.69 3.63 3.72 4.07 130
Jul-13 7.79 8.79 3.86 4.04 3.12 120
Aug-13 8.52 8.86 4.13 4.04 3.18 110
Sep-13 8.32 8.97 3.87 3.76 3.61 100
Oct-13 7.35 8.78 3.79 3.65 3.40 90
Nov-13 8.59 9.09 3.91 4.30 3.35 80
70
Dec-13 8.37 9.17 3.80 4.20 3.42
60
Jan-14 8.81 8.86 3.78 4.22 4.24
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Feb-14 8.34 9.06 3.54 4.10 4.38
Mar-14 7.99 9.11 3.51 4.01 3.85
Apr-14 7.86 9.02 3.42 3.95 3.98 Indonesia India Thailand
May-14 7.95 8.77 3.57 3.97 3.61 Malaysia Philippines
Jun-14 8.09 8.58 3.57 3.93 3.78
Jul-14 7.94 8.58 3.44 3.81 3.72 Source: Bloomberg, processed

Aug-14 8.09 8.75 3.31 3.83 3.77

Sep-14 8.28 8.75 3.20 3.84 3.93
Oct-14 7.97 8.41 2.98 3.79 3.85
Nov-14 7.69 8.22 2.66 3.74 3.55
Dec-14 7.74 8.02 2.49 4.04 3.62
Jun-15 8.26 8.09 2.62 3.82 3.68
Jul-15 8.42 8.06 2.50 3.88 3.76
Aug-15 8.50 8.02 2.52 4.32 3.67
Sep-15 9.51 7.82 2.53 4.10 3.76
Oct-15 8.67 7.80 2.46 4.05 3.80
Nov-15 8.43 7.89 2.39 4.00 4.16
Dec-15 8.75 7.86 2.25 3.89 4.27

Source: Bloomberg, processed

31
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Table 2.6 Volatility of 10-Year Government Bonds in the Region Graph 2.25 Rebased SBN Volatility by Tenor

45 %
  Indo Indi Thai Maly Filip
Jun-13 19.06 9.28 44.58 27.28 46.42 40

Jul-13 36.63 38.82 16.26 33.27 40.38 35

Aug-13 19.85 25.99 19.78 16.57 35.80 30
Sep-13 32.18 8.14 22.74 21.85 39.93 25
Oct-13 28.82 8.67 10.76 12.71 23.20
20
Nov-13 17.09 11.56 16.30 23.20 14.92
15
Dec-13 8.44 11.65 11.23 14.62 47.50
Jan-14 26.04 12.36 12.62 19.38 49.49 10

Feb-14 10.53 8.09 10.26 9.46 13.51 5

Mar-14 11.18 7.73 12.66 9.79 38.94 0

Oct-15
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13

Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14

Feb-15
Apr-15
Jun-15
Aug-15

Dec-15
Apr-14 4.28 9.40 12.25 12.80 9.75
May-14 5.36 9.04 21.80 14.81 17.12
Jun-14 4.11 8.11 8.92 8.25 11.45
Short-Term Medium-Term Long-Term
Jul-14 4.22 7.85 11.49 7.68 10.82
Aug-14 4.40 7.60 10.90 12.04 7.84 Source: Bloomberg, processed
Sep-14 8.32 7.83 10.76 5.09 7.03
Oct-14 6.99 8.06 16.13 14.32 6.02
Nov-14 6.98 5.52 17.91 9.60 12.14
Dec-14 17.73 8.77 25.44 25.80 8.62
Jun-15 18.11 9.90 25.71 27.06 29.16
Jul-15 10.76 4.36 13.12 21.74 33.09
Aug-15 13.43 4.61 21.62 27.22 31.42
Sep-15 13.61 6.73 23.26 22.64 27.92
Oct-15 22.25 4.51 20.11 13.37 24.42
Nov-15 7.81 3.66 19.32 20.36 14.63
Dec-15 15.45 3.47 8.57 13.14 44.29

Source: Bloomberg, processed

Negative global and domestic sentiment stifled
foreign investor interest in tradeable government
securities (SBN) during the second half of 2015.
Nonetheless, relatively attractive SBN yields in
comparison to other peer countries maintained
a net inflow of non-resident capital, albeit not as
large as that recorded the previous period. Foreign
investors snapped up Rp20.99 trillion worth of
tradeable government securities in the second
semester, down from Rp76.18 trillion previously.
Foreign investors entered the SBN market in
semester II 2015 after the Federal Reserve confirmed
the policy rate hike, which eased uncertainty on
global financial markets. Consequently, foreign SBN
holdings shrank from 40% at the end of semester I
to 38% at the end of the subsequent period.
The holdings of domestic SBN investors, primarily
banks, were also observed to decline. At the end
of the second semester of 2015, banks held 24% of
the total tradeable government securities (SBN) in
circulation, down from 27% previously. In contrast,
the SBN holdings of individual domestic investors
increased to 3% of the total. Such developments
were in line with a government program to boost
individual holdings of tradeable government
securities (SBN) by increasing issuances of
Indonesian Retail Government Bonds (ORI). The
holdings of Bank Indonesia also expanded due to
purchases on the secondary market to maintain
rupiah stability.

32
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Table 2.7 Composition of SBN Holdings

2014 2015

Holder Sem - I Sem - II Sem - I Sem - II ∆ Sem II-I

Total % Total % Total % Total %
Banks 355.6 31% 375.6 31% 369.1 27% 350.1 24% (19.0)

Central Bank 51.2 5% 41.6 3% 80.6 6% 148.9 10% 68.3

Mutual Funds 45.8 4% 45.8 4% 56.3 4% 61.6 4% 5.3

Insurance Companies 151.4 13% 150.6 12% 161.8 12% 171.6 12% 9.8

Foreign 403.6 36% 461.4 38% 537.5 40% 558.5 38% 21.0

Pension Funds 39.0 3% 43.3 4% 46.3 3% 49.8 3% 3.5

Securities Companies 1.0 0% 0.8 0% 0.7 0% 0.3 0% (0.5)

Individuals 84.2 7% 30.4 3% 0.0 0% 42.5 3% 42.5

Others   0% 61 5% 104 8% 79 5% (26)

Source: Ministry of Finance

Graph 2.26 SBN Holdings Graph 2.27 Net Foreign Flows to SBN and IDMA
Trillion Rp Trillion Rp

1600
90 115
1400 80 110
1200 70
105
1000 60
50 100
800
40 95
600
30
90
400
20
200 85
10

0 0 80
Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Sem I Sem II Sem I Sem II
2012 2013 2014 2015
Banks Central Bank Mutual Funds Insurance
Companies
Foreign Pension Funds Securities Individuals Net Foreign Flow to SBN IDMA (RHS)
Companies
Source: CEIC Source: Bank Indonesia

SBN trade declined in line with the escalating risk to-GDP ratio is lowest in Indonesia compared to
on the SBN market, reflecting a decrease in the several neighbouring countries. In December 2015,
turnover ratio from 29% to 18%. The ratio of SBN the SBN-to-GDP ratio in Indonesia was recorded at
to GDP in Indonesia currently remains relatively 42.77%, up from 40.18% last semester. The highest
low. Although issuances of tradeable government ratio in the region was found in the Philippines,
securities (SBN), as a source of government followed by Thailand and Malaysia.
financing, have continued to increase, the SBN-

33
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 2.28 SBN and Corporate Bond Transaction Turnover Graph 2.29 SBN-to-GDP Ratio
35%

30%
140%

25% 120%

20% 100%

15% 80%

10% 60%

5% 40%

0% 20%
Aug-08
Nov-08
Feb-09
May-09
Aug-09
Nov-09
Feb-10
May-10
Aug-10
Nov-10
Feb-11
May-11
Aug-11
Nov-11
Feb-12
May-12
Aug-12
Nov-12
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15

Mar-10
Jun-10
Sep-10
Dec-10

Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Mar-11
SBN Turnover Corporate Bond Turnover

Indonesia Malaysia Thailand Phillipines

Source: Ministry of Finance, Financial Services Authority (OJK), processed
Source: CEIC, processed

2.2.3.2 Corporate Bond Market Outstanding corporate bonds were observed to

Risk on the corporate bond market also increased
in line with risk on the SBN market, indicated by
higher yields and volatility. In addition to the impact
of SBN price corrections, domestic corporate
performance deteriorated as investors requested
higher yields. In semester II 2015, the yields of all
corporate bonds increased on the previous period
(Graph 2.30). The average volatility of corporate
bond yields for all tenors also jumped from 10.66%
to 11.43%.
increase despite growing pressure on financial
markets. Accordingly, outstanding corporate bonds
increased Rp25.8 trillion on the previous semester,
while non-resident holdings fell to Rp18.97 trillion
from Rp22.10 trillion over the same period.
Lingering negative global sentiment compelled
foreign investors to sell corporate bonds, prompting
a net outflow of Rp3.13 trillion in the reporting
semester.

Graph 2.30 Corporate Bond Yield Curve Graph 2.31 Corporate Bond Yield Volatility by Tenor
% %
16 30
15
25
14

13 20
12
15
11

10 10

9
5
8
0
7
Jun-14

Jul-14

Aug-14

Sep-14

Oct-14

Nov-14

Dec-14

Jan-15

Feb-15
Marr-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15
Dec-15

1 2 3 4 5 6 7 8 9 10

AAA Dec’15 A Dec’15 BBB Dec’15

AAA Jun’15 A Jun’15 BBB Jun’15 Short-Term Medium-Term Long-Term
Source: Indonesia Bond Pricing Agency (IBPA) Source: Bloomberg, processed

34
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Table 2.8 Corporate Bond Holdings Graph 2.32 Net Foreign Flow to Corporate Bonds and Holdings

2014 2015 Trillion Rp Trillion Rp

7 25
Holder Sem I Sem II Sem I Sem II
6
Total % Total % Total % Total % 5 20
4
Corporate 11.45 5.4% 11.58 5.3% 10.57 4.6% 9.37 3.9%
3 15
Individuals 5.79 2.7% 6.34 2.9% 6.28 2.7% 6.32 2.6% 2
1
Mutual 10
41.50 19.6% 42.67 19.7% 48.49 20.9% 54.38 22.4% 0
Funds
-1
Securities 5
1.10 0.5% 1.17 0.5% 0.92 0.4% 0.68 0.3% -2
Companies
-3
Insurance 0
34.09 16.1% 33.71 15.6% 34.22 14.7% 36.66 15.1% -4 Sem 1 Sem 2 Sem 1 Sem 2
Companies
Pension 2011 2012 2013 2014 2015
60.41 28.6% 60.51 27.9% 65.17 28.1% 68.92 28.4%
Funds
Financial Net Flow Outstanding Foreign Holdings (RHS)
46.43 22.0% 47.85 22.1% 49.11 21.2% 54.07 22.3%
Institutions
Foundations 2.64 1.3% 2.58 1.2% 1.38 0.6% 3.06 1.3% Source: CEIC, processed

Others 7.93 3.8% 10.23 4.7% 10.34 4.5% 8.98 3.7%

TOTAL 211.34   216.64   232.07   242.44  

Source: OJK reports, processed

No significant changes were observed in the holdings
of corporate bonds, revealing a disparity between
the behaviour of investors in tradeable government
securities and investors in corporate bonds, namely
that most corporate bonds were held to maturity.
Pension funds dominated
accounting for 28.4% of the total, followed by mutual
funds (22.4%) and financial institutions (22.3%).
2.2.4 Stock Market
Risks also accumulated on the domestic stock market
in the second semester of 2015. Indicatively, the
Jakarta Composite Index (JCI) slumped and volatility
increased. At the end of the reporting period, the
IDX Composite slumped 6.47% to 4,593, mirroring
conditions at several bourses in the region. Negative
global and domestic sentiment triggered the JCI
corporate bonds, slump as investors adjusted their portfolios on the
stock market. Consequently, stock market volatility
increased in the second half of the year. Nevertheless,
the JCI rebounded and volatility eased after assurance
concerning the FFR hike was received, albeit not to the
level recorded in the first semester.

Graph 2.33 Regional Stock Indexes Graph 2.34 Stock Price Volatility
140 Rebased 45
40
130
35
120 30
25
110
20
100 15
10
90 5
80 0
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15

Indonesia Thailand Malaysia Philipines Dow Jones MSCI Euro MSCI Asia Indonesia

Source: Bloomberg, processed Source: Bloomberg, processed

35
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

In the second semester, investors booked a net Meanwhile, non-resident investors booked a net
sell (outflow) totalling Rp26.33 trillion. Financial increase of 25.1 billion share units held in Indonesia
institutions and corporations were most inclined as IPOs and rights issues increased on the Indonesia
to reduce shareholdings. By sector, declines in Stock Exchange. Most additional units originated from
foreign holdings primarily affected basic industry, the mining sector, amounting to 70.77 billion units in
miscellaneous industries and the agricultural sector. semester II 2015 (Table 2.7).

Graph 2.35 Foreign Capital Inflows to Regional Stock Markets Graph 2.36 Net Foreign Buys/Sells on the Stock Market and the JCI
110 Trillion Rp
50 5,500
105
40 5,000

100 30 4,500
20
95 4,000
10
3,500
90 0
3,000
85 -10
2,500
Aug-10
Nov-10
Feb-11
May-11
Aug-11
Nov-11
Feb-12
May-12
Aug-12
Nov-12
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Dec-15

-20

-30 Sem I Sem II Sem I Sem II 2,000

2009 2010 2011 2012 2013 2014 2015
India Philipines Indonesia Thailand

Source: Bloomberg, processed

Stocks JCI (RHS)

Source: Bloomberg, processed

Table 2.9 Foreign Shareholdings by Business Group (Rp, trillions)

Trillion Rp

Equity Jun-14 Dec-14 Jun-15 Dec-15 ∆ Sem II’14 ∆ Sem I’15 ∆ Sem II’15
Corporate 386.97 383.50 365.51 317.01 (3.47) (17.99) (48.50)
Individuals 28.17 13.97 13.32 10.93 (14.19) (0.65) (2.39)
Mutual Funds 296.42 343.24 317.03 289.14 46.82 (26.21) (27.89)
Securities Companies 64.10 78.62 80.86 218.07 14.52 2.24 137.21
Insurance Companies 14.68 16.00 16.56 17.06 1.32 0.56 0.50
Pension Funds 97.31 115.99 111.42 111.60 18.68 (4.57) 0.18
Financial Institutions 292.58 314.56 324.61 283.95 21.98 10.05 (40.66)
Foundations 2.73 3.64 3.67 2.20 0.91 0.03 (1.47)
Others 518.02 571.23 569.10 406.42 53.21 (2.13) (162.68)
TOTAL 1,700.98 1,840.75 1,802.08 1,656.39 139.8 (38.7) (145.7)

Source: OJK reports

Table 2.10 Foreign Shareholdings by Economic Sector (billions of units)

Billion Unit

Sektor Jun-14 Dec-14 Jun-15 Dec-15 ∆ Sem II’14 ∆ Sem I’15 ∆ Sem II’15

Financial 207.78 211.07 213.48 241.78 3.29 2.41 28.30

Consumption 34.08 32.51 30.76 38.29 (1.57) (1.75) 7.53
Trade 213.94 214.08 211.77 254.57 0.14 (2.31) 42.80
Infrastructure 89.46 94.47 94.98 128.58 5.00 0.52 33.60
Property 136.95 145.20 155.26 159.63 8.25 10.06 4.37
Miscellaneous Industries 90.51 107.50 106.26 36.34 16.99 (1.24) (69.92)
Basic Industry 124.78 137.65 131.95 75.41 12.88 (5.70) (56.55)
Mining 87.74 91.56 92.51 163.27 3.82 0.95 70.77
Agriculture 64.80 75.13 79.74 43.97 10.34 4.60 (35.77)
TOTAL 1.050.0 1.109.2 1.116.7 1.141.8 59.1 7.5 25.1

Source: Indonesian Central Securities Depository (KSEI)

36
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Table 2.11 Index Volatility by Sector

  2014 2015

  TW1 TW2 TW 3 TW 4 TW1 TW2 TW 3 TW 4

JCI 10.18 11.90 13.43 7.72 11.17 14.97 11.76 6.36

Financial 11.84 17.47 26.41 1.69 11.73 19.78 14.81 11.35

Agriculture 33.52 25.36 13.48 20.09 19.03 29.63 22.21 42.83

Basic Industry 5.71 12.80 22.61 3.21 16.27 20.54 18.32 3.97

Consumption 17.12 8.97 7.31 11.99 18.63 22.36 21.79 7.35

Property 10.11 20.47 26.65 11.74 19.16 19.97 37.58 14.19

Mining 7.78 11.28 23.51 7.25 14.56 15.57 8.46 14.24

Infrastructure 20.17 19.80 10.86 5.96 12.77 15.25 12.51 6.49

Trade 9.31 10.95 8.39 19.45 13.81 14.73 6.80 18.94

Miscellaneous Industries 15.57 17.01 21.34 13.28 23.15 29.08 29.13 5.28

Source: Bloomberg, processed

By sector, stock price volatility in the agricultural and Technically, the JCI slump in the middle of the second
trade sectors tended to increase on the previous semester, primarily in August and September 2015,
semester due to sliding commodity prices that was triggered by a drop in blue chip stock prices, with
undermined issuer performance. the LQ45 index falling 7.27% from 839.14 to 778.11.
The LQ45 decline affected all sectors, in particular
The average daily transaction volume on the stock the financial sector, consumption and miscellaneous
market was recorded at Rp5.19 trillion in semester industries, in line with economic moderation that
II 2015, down from Rp6.31 trillion previously. eroded domestic demand.
Furthermore, the turnover ratio was also noted to
decline over the same period, indicating a less liquid
stock market. Daily transactions on the stock market
were dominated by domestic investor buys.

Graph 2.37 Stock Market Turnover Ratio

Trillion Rp
0.45% 9
0.40% 8
0.35% 7
0.30% 6
0.25% 5
0.20% 4
0.15% 3
0.10% 2
0.05% 1
0.00% 0
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Juni-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Juni-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Juni-15
Aug-15
Oct-15
Dec-15

Transaction Turnover Daily Transaction Volume (RHS)

Source: CEIC, processed

2
Mutual funds are an investment media used to accumulate funds from the public for investment in securities portfolios.

37
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 2.38 JCI and LQ45 Capitalisation Graph 2.39 JCI Share Trade Frequency
Trillion Rp Trillion Rp
6,000 80% 100%
90%
75%
5,000 80%
70% 70%
4,000 60%
65%
50%
3,000 60% 40%
30%
55% 20%
2,000
50% 10%
0%
1,000 45%

Aug-08
Dec-08

Dec-09
Apr-10

Aug-11
Dec-11

Apr-13
Aug-13

Dec-14
Apr-09
Aug-09

Aug-10
Dec-10

Apr-12
Aug-12

Dec-13
Apr-14

Apr-15
Aug15
Dec-15
Apr-11

Dec-12

Aug-14
0 40%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

JCI Capitalisation LQ45 Capitalisation LQ45 Share (RHS) LQ45 NON LQ45

Source: Bloomberg, processed Source: Bloomberg, processed

2.2.5. Mutual Fund2
Mutual funds continued to grow positively in semester
II 2015 despite the pressures on the SBN and stock
markets. Net asset value (NAV) was observed to grow
2.29%, decelerating from 8.64% in the previous period
due to lower prices of underlying assets on the stock
and SBN markets, coupled with the dominance of
equity shares (37.9%). Meanwhile, protected funds
enjoyed the most notable NAV increase as a result of
the investors’ proclivity to invest in safer portfolios,
such as protected funds. Differing risk factors ultimately
raised investment fund volatility in the second half of
the year, particularly of equity funds.
In terms of the products, the yields of all types of
mutual funds improved on the previous period,
indicated by the risk profile quadrants (Graph 2.44)
that showed the majority in a position of excess
return in December 2015 (red points) compared to
the position in June 2015 (green points). On the risk
side, the majority of volatility (beta) for equity funds
and bonds tended to increase in the second semester
in line with the risk of the corresponding underlying
assets.
In addition to the underlying assets, mutual funds
can also be grouped as closed-end or open-ended.
Investors can resell open-ended mutual funds to the
investment manager, while investment managers are
not obligated to rebuy closed-end funds redeemed by
investors. In other words, closed-end funds can only
be sold to other investors on the secondary market.

Graph 2.40 Position of Mutual Funds Graph 2.41 NAV of Mutual Funds by Type
300 1200 300 Trillion Rp

250 1000 250

200 800 200

150 600 150

100 400 100

50 200 50

0 0 0
Jan
Mar
May
Juli
Sept
Nov
Jan
Mar
May
Juli
Sept
Nov
Jan
Mar
May
Juli
Sept
Nov
Jan
Mar
May
Juli
Sept
Nov

1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11

2012 2013 2014 2015 2012 2013 2014 2015

Units in Circulation NAV (Rp, trillions) Total Mutual Funds (RHS) Equity Funds Money Market Funds Discretionary Funds
(millions) Fixed-Income Funds Protected Funds Other Funds

Source: OJK reports Source: OJK reports

38
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 2.42 NAV Volatility of Mutual Funds Graph 2.43 Growth of Mutual Fund
45 % 50%
40 40%
35
30%
30 20%
25 10%
20 0%
15 -10%
10
-20%
5
-30%
0 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11
Jul-14

Aug-14
Sep-14

Oct-14

Nov-14

Dec-14
Jan-15

Feb-15
Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15
Dec-15
2012 2013 2014 2015

NAV Units in Total Mutual JCI IDMA

Fixed-Income Funds Discretionary Funds Equity Funds Circulation Funds

Source: OJK reports, various periods Source: OJK reports, various periods

In semester II 2015, open-ended mutual funds closed-end funds accelerated from 0.62% to 0.81%.
experienced a decline. Nonetheless, at the end of the Furthermore, open-ended funds were considered
semester, there were 1,284 open-ended mutual fund more volatile because they tended to mimic the
products circulating on the market compared to just corresponding underlying assets but were also easier
64 closed-end products. Open-ended funds posted to trade. In contrast, closed-end funds were flat
growth of 2.29%, decelerating from 8.64%, while because they are less liquid.

Graph 2.44 Risk Profile of Mutual Fund Products

Equity Funds Discretionary Funds

35
10
30

25 5
20
15 -

10
(5)
5
0 (10)
-5
(15)
-10
-0.5 0.0 0.5 1.0 1.5 2.0 2.5 -1 -0.5 0 0.5 1 1.5 2 2.5 3
Beta Beta

Dec’14 June’15 Dec’15 Dec’14 June’15 Dec’15

Fixed-Income Funds Money Market Funds

3.0
15
10 2.0
5 1.0
-
0.0
(5)
-1.0
(10)
(15) -2.0
(20) -3.0
(25)
-4.0
(30)

-1 -0.5 0 0.5 1 1.5 2 2.5 3 -5.0 -4.0 -3.0 -2.0 -1.0 0 1.0 2.0
Beta Beta

Dec’14 June’15 Dec’15 Dec’14 June’15 Dec’15

Source: Bloomberg, processed

39
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 2.45 Average NAV of Closed-End and Open-Ended

Mutual Funds
Des’12 = 100
120
115
110
105
100
95
90
85
80
Jul-13

Sep-13

Nov-13

Jan-14

Mar-14

May-14

Jul-14

Sep-14

Nov-14

Jan-15

Mar-15

May-15

Jul-15

Sep-15

Nov-15
Closed-End Funds Open-Ended Funds
Source: Bloomberg, processed

40
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Adjusting the Foreign Exchange Transaction Threshold

Box 2.1 to Manage Supply and Demand

The past year of 2015 was replete with onerous
challenges for Indonesia’s economy. Economic
moderation in China coupled with anticipation
of the proposed Federal Funds Rate (FFR) hike
influenced domestic economic
in particular the rupiah exchange rate that
depreciated by as much as 10.2% (yoy) by the end
of the year. Exchange rate depreciation was not
only felt in Indonesia, however, the currencies
of most emerging market economies (EME)
depreciated against the USD. For example, the
Brazilian real (BRL) fell significantly by 32.9% (yoy),
Depreciation also impacted the derivatives
market, where the swap premium increased
significantly for USD forward buy transactions,
which further undermined the rupiah and also
conditions, extended expectations of depreciation and created
imbalances between the demand for forward
buy transactions and the supply of forward sell
transactions. Forward buy transactions were
predominantly used by nonbank corporations to
meet the prevailing hedging requirements.
Box Graph 2.1.1 One-Month Swap Premium
20

the South African rand (ZAR) by 25.3% (yoy) and 18

16
the Turkish lira (TRL) by 19.9% (yoy). A similar 14
12
trend was observed in Southeast Asia, where the 10
8
Malaysian ringgit (MYR) experienced the sharpest 6
4
decline, dropping 18.5% (yoy). 2
0
Box Graph 2.1.1 Currency Depreciation in Emerging Markets
Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15
-5.22 PHP
Source: Commercial Bank reports, processed
-6.22 KRW
-6.48 SGD

-8.81 THB
Confronting the pressures on the spot and
-10.18 IDR derivatives markets, Bank Indonesia decided
-18.54 MYR
-19.98
to manage the supply and demand of foreign
TRL

-25.27 ZAR exchange, hence stabilising the rupiah. To reduce

-32.94 BRL
demand for USD on the spot market, Bank
-35 -30 -25 -20 -15 -10 -5 0
Indonesia issued Bank Indonesia Regulation (PBI)
Source: Bloomberg, processed
No. 17/13/PBI/2015, dated 25th August 2015,
Exchange rate depreciation affected market as the second amendment to Bank Indonesia
behaviour, especially that of importers. In Regulation (PBI) No. 16/16/PBI/2014 concerning
anticipation of broad USD appreciation, importers Foreign Exchange Transactions against the Rupiah
were inclined to buy USD on the spot market even between Banks and Domestic Parties, as well
though import payments were not imminent. as Bank Indonesia Regulation (PBI) No. 17/14/
Such conditions exacerbated currency pressures. PBI/2015, also dated 25th August 2015, as the

41
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

second amendment to Bank Indonesia Regulation as well as Bank Indonesia Regulation (PBI) No.
(PBI) No. 16/17/PBI/2014 concerning Foreign 17/16/PBI/2015 as the third amendment to Bank
Exchange Transactions against the Rupiah between Indonesia Regulation (PBI) No. 16/17/PBI/2014
Banks and Foreign Parties. The amendments to concerning Foreign Exchange Transactions against
both regulations included lowering the threshold the Rupiah between Banks and Foreign Parties.
on purchases of foreign exchange without an The amendments sought to respond to the issues
underlying transaction on the spot market from on the derivatives market as well as balance supply
USD100,000 to USD25,000. By lowering the and demand by increasing foreign exchange supply.
threshold, Bank Indonesia hoped to mitigate the
risk of high public demand for foreign exchange not The policy proved effective in terms of augmenting
linked directly to trade and investment activities, the supply of foreign exchange on the domestic
while still supporting economic activities. The markets. Forward sell transactions by domestic
policy proved to effectively reduce public demand customers and non-resident investors subsequently
significantly for foreign exchange without an increased from a daily average of USD65 million
underlying transaction from an average of USD30- to USD82 million in October 2015. In addition to
35 million per day to just USD15-17 million per day. boosting forward sell transactions, the policy also
successfully lowered the 1-month swap premium
Box Graph 2.1.3 Purchases of Foreign Exchange without an
Underlying Transaction from its peak at 23.5% to a more normal 8% at the
40,000 end of 2015.
35,000
30,000
25,000
Box Graph 2.1.4 Average Daily Forward Sell Transactions
20,000
100,000
15,000 90,000
10,000 80,000
5,000 70,000
0 60,000
50,000
Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

40,000
30,000
Source: Commercial Bank reports, processed 20,000
10,000
On 2nd December 2015, Bank Indonesia issued 0
Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

more regulations to adjust the threshold for

Source: Commercial Bank reports, processed
forward transactions that require an underlying
transaction from USD1 million to USD5 million As part of the follow-up actions, Bank Indonesia
through Bank Indonesia Regulation (PBI) No. will continue to deepen the domestic financial
17/15/PBI/2015 as the third amendment to Bank markets, especially the foreign exchange market.
Indonesia Regulation (PBI) No. 16/16/PBI/2014 Financial market deepening shall be achieved
on Foreign Exchange Transactions against the through coordination, education and socialisation
Rupiah between Banks and Domestic Parties, activities with market players. Consequently, Bank

42
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Indonesia expects the domestic foreign exchange

market to become more efficient, liquid and deep,
thereby supporting rupiah exchange rate stability.

43
 Growth of the household and corporate sectors slowed in the second semester of
2015. Household consumption, as the main driver of economic growth, continued to
track a slowing trend. Nonetheless, households also remained upbeat that economic
conditions would improve, reflecting expectations of greater job availability. The level
of credit risk in the household sector was well mitigated, as evidenced by the relatively
low level of non-performing loans gross (NPL).

Similarly, the corporate sector also expanded more slowly in the reporting period.
Corporate performance deteriorated on the back of several factors, including global
and domestic economic moderation, sliding export commodity prices and rupiah
exchange rate depreciation. Consequently, corporations faced potential risks that
undermined repayment capacity, which heightened credit risk. Nonetheless, credit risk
remained below the safe threshold. Looking ahead, potential risks in the corporate
sector shall continue to demand vigilance, especially in terms of the spiralling private

3
external debt.

ASSESSMENT OF CONDITIONS AND RISKS IN

THE HOUSEHOLD AND CORPORATE SECTORS
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Household and Corporate Performance Deteriorated on

the Back of Domestic Economic Moderation and Sliding
Commodity Prices But the Risks Were Well Mitigated

Sluggish Household Performance Persisted but

the Risks Were Mitigated

Solid Household Consumption Less Ability to Save

Portion of Consumption Portion of Households
reached Able to Save climbed to
69.46% 81.49%

Non-Performing Individual
Growth of Individual Growth of Individual
LOAN Loans (NPL) up to
Deposits down to Loans down to
6.35% (yoy) 1.55%
Rp
8.04% (yoy)

The Performance of Non-Financial Corporations

Deteriorated but Risk Was Mitigated

Profitability Liquidity and Debt Repayment

Solvency Capacity
Corporate ROA
Rp
Rp

down to Rp
Rp Current Ratio Debt Service Ratio
4.02% down to (DSR) up to
ROE down to 1.40% 75.13%
8.64 %
TA/TL down to Debt Equity Ratio
1.86% (DER) up to
1.16%

Deposit Growth Credit Growth Gross NPL

recorded at recorded at Rp
recorded at
11.44% (yoy) 13.33% 2.51%

46
46
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

(RSI) growth of 10.37% (yoy), up from 3.78% (yoy)

3.1 Household Sector Assessment one year ago. RSI1 growth originated from sales
of motor fuels and other household equipment as
3.1.1 Household Sector Profile & Sources of demand spiked during the approach to Christmas,
Vulnerability New Year and end-of-year holidays.
Domestic economic moderation persisted in
Graph 3.2 Real Sales Growth
Indonesia throughout 2015 due to the global %
40
economic downturn combined with increasing
30
global financial market uncertainty. Indonesia’s
20 16.0
economy recorded growth of 4.79% in 2015, down 10.9 10.4
11.7

5.9
from 5.02% in the year earlier. Weaker economic 10
3.8
6.5

0
growth spilled over to affect the household -2.6
-0.4
-1.4

sector as the main contributor to Gross Domestic

-10

Product (GDP), reflecting a decline in household -20

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12* 1**

consumption growth from 5.16% in 2014 to 4.96% 2014 2015 2016

Holy Fasting Month Growth (%, yoy) Growth (%, yoy)

in 2015. Note : *) Preliminary **) Projected
Source: Retail Sales Survey, Bank Indonesia, December 2015

Graph 3.1 Contribution of Household Consumption to GDP

(yoy)
The Consumer Confidence Index (CCI)2, which
105% 6.0%

90%
is a measure of consumer confidence in current
5.6%
75% economic conditions, also rallied. CCI gains were
5.2%
60% attributed to both components, namely the Current
45% 4.8% Economic Condition Index (CECI) and Consumer
30%
4.4% Expectation Index (CEI). The Current Economic
15%

0% 4.0%
Condition Index (CECI), which is a measure of
I II III IV I II III IV I II III IV
2013 2014 2015 consumer expectations of current economic
Proportion of Household
Consumption to GDP
Household Consumption
Growth (RHS) conditions, increased compare to first semester
Proportion of Non-Household GDP Growth (RHS)
Consumption to GDP of 2015 due to greater optimism surrounding job
Source: BPS-Statistics Indonesia, 2016
availability and purchasing conditions for durable
Consistent with early signs of an economic rebound goods. Similarly, the Consumer Expectation Index
in Q4/2015, households were increasingly upbeat (CEI), which is a measure of consumer expectations
on the domestic economic outlook. Accordingly, of economic conditions for the upcoming six
the Real Sales Index (RSI) and Consumer Confidence months, was also observed to increase. The higher
Index (CCI) both recorded gains. Furthermore, the Consumer Expectation Index (CEI) was driven by
Retail Sales Survey conducted by Bank Indonesia in household expectations of job availability in the
December 2015 revealed stronger Real Sales Index next six months, reflecting a corresponding Job

1
The Real Sales Index (RSI) is a measure used to identify sources of inflationary pressures on the demand side and provide a general overview of retail sales and public consumption. The survey
results are available on the official website of Bank Indonesia (bi.go.id).
2
The Consumer Confidence Index (CCI) is a simple average of the Current Economic Condition Index (CECI) and Consumer Expectation Index (CEI). The survey results are available on the official
website of Bank Indonesia (bi.go.id).

47
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 3.3 Consumer Confidence Index (CCI), Current Economic Condition Index (CECI) and Consumer Expectation Index (CEI)

(Index, Weighted Average of 18 Cities)

140.0

130.0

121.0
120.0
119.1
Optimis

110.0
107.5
106.7
100.0 103.5
Effect of Fuel Price Hike
Pesimis

94.0
90.0 Effect of Fuel Price Hike Effect of Fuel Price Reduciton

80.0
11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2012 2013 2014 2015

Current Economic Condition Consumer Confidence Index (CCI) Consumer Expectation Index (CEI) Quarterly Consumer
Index (CECI) Confidence Index (CCI)

Source: Consumer Survey (18 Cities), Bank Indonesia, December 2015

Availability Expectation Index that returned to Moving forward, the household sector is predicted
optimistic territory (>100) after three consecutive to continue facing risks in the form of rising prices,
months of pessimism. In addition, households reflecting a bump in the 3-month Price Expectations
were also more upbeat on incomes and business Index (PEI) (Graph 3.4). Households predicted an
conditions. The economic policy packages released accumulation of inflationary pressures to affect all
by the Government in semester II 2015, which commodity groups, especially housing3. Meanwhile,
included lowering the prices of fuels, electricity households also expected a build-up of inflationary
and gas, while offering incentives and providing pressures in the next six months (June 2016) due
ease of business, also boosted household optimism to annual seasonal pressures in the form of strong
on the domestic economic outlook. demand during the holy fasting month of Ramadan
and in the approach to Eid-ul-Fitr (Graph 3.5).

Graph 3.4 Price Expectations for the Upcoming Three Months Graph 3.5 Price Expectations for the Upcoming Six Months
(Index, Weighted Average of 18 Cities) % (Index, Weighted Average of 18 Cities) %
200 8.0 200 8.0

190 6.0
190
6.0
180 4.0
180
170 2.0 173.8
4.0
160.6 170
160 0.0

152.3 2.0
160 157.4
150 151.7 -2.0 160.5

140 -4.0 150 0.0

1112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 91011121 2 3 4 5 6 7 8 91011121 2 3 1112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6 7 8 9101112 1 2 3 4 5 6
2012 2013 2014 2015 2016 2012 2013 2014 2015 2016

Quarterly Inflation – BPS (RHS) 3-Month Price Expectations Index (LHS) Semesterly Inflation – BPS (RHS) 6-Month Price Expectations Index (LHS)
Holy Fasting Month and Eid-ul-Fitr Holy Fasting Month and Eid-ul-Fitr

Source: Consumer Survey (18 Cities), Bank Indonesia, December 2015

3
The Price Expectations Index (PEI) shows consumer price expectations for the upcoming three and six months.

48
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

3.1.2 Household Financial Performance The survey also showed that the larger a household’s
The results of the Consumer Survey conducted by income, the more indebted the household generally
Bank Indonesia in December 2015 revealed that is. In contrast, the lower a household’s income, the
household consumption declined in semester II more the household tends to spend on consumption.
2015 compare to the same period of the previous
year from 69.70% to 69.46%. Notwithstanding, in Although indebted households tended to be those
comparison to the previous semester, household with higher incomes, it was still important to monitor
consumption actually increased in line with potential risk at low-income households (Rp1.39-2.77
household expectations of an imminent domestic million), reflected by the most significant increase in
economic recovery (Graph 3.6). Consequently, the debt service ratio (DSR>30%), namely from 2.27%
households were less inclined to save, with the to 2.34% (Table 3.2). Conversely, the debt service ratio
amount of income allocated to savings falling from (DSR) of the other income groups actually went down.
18.58% to 17.36%. Furthermore, households were Potential risk at low-income households was also
also less inclined to repay existing loans, with the indicated by an increase in their inability to save from
allocation dropping from 13.73% to 13.18%. 6.81% to 8.34%, which undermined the repayment
capacity of the household sector.

Graph 3.6 Composition of Household Spending

December 2014 June 2015 December 2015

17.29%
18.58% 17.36%

13.02% 13.73% 13.18%

69.70% 67.69% 69.46%

Consumption Loan Repayments Savings

Source: Consumer Survey (30 Cities), Bank Indonesia, December 2015

Table 3.1 Consumption, Loan Repayments and Savings based on Monthly Income

Rp 1.39 - 2.77 million Rp 2.97 - 4.24 million Rp 4.58 - 5.91 million Rp 6.20 - 7.76 million > Rp7.76 Million
Income Average
eq Rp 1 - 2 Million eq Rp 2.1 - 3 Million eq Rp 3.1 - 4 Million eq Rp 4.1 - 5 Million eq > Rp 5 Million

Consumption 72.09% 70.68% 67.69% 66.16% 64.47% 69.46%

Loan Repayments 11.28% 12.13% 14.11% 15.73% 17.77% 13.18%

Savings 16.63% 17.19% 18.20% 18.11% 17.76% 17.36%

Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Source: Consumer Survey (30 Cities), Bank Indonesia, December 2015

49
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Table 3.2 DSR Composition based on Monthly Income

Semester I 2015 Semester II 2015

DSR DSR
Income; million Total Income Total
0-10% 10%-20% 20%-30% >30% 0-10% 10%-20% 20%-30% >30%

Rp 1.44 - 2.89 million 27.54% 17.18% 5.00% 3.10% 2.27% Rp 1.39 - 2.77 million 10.37% 19.41% 5.56% 3.59% 2.34%

Rp 3.06 - 4.37 million 30.33% 17.43% 6.05% 4.28% 2.58% Rp 2.97 - 4.24 million 30.90% 18.36% 5.60% 3.81% 2.48%

Rp 4.67- 6.03 million 21.66% 11.10% 5.09% 3.63% 1.84% Rp 4.58- 5.91 million 30.24% 9.95% 4.54% 2.88% 1.72%

Rp 6.52 - 8.51 million 10.18% 5.06% 2.27% 1.73% 1.12% Rp 6.20 - 7.76 million 19.09% 4.66% 1.87% 1.96% 0.91%

> Rp 8.51 million 10.29% 4.58% 2.36% 1.66% 1.69% > Rp 7.76 million 9.41% 1.39% 4.64% 1.83% 1.39%

Total 100.00% 55.35% 20.77% 14.39% 9.49% Total 100.00% 57.02% 19.39% 14.75% 8.84%

Source: Consumer Survey (30 Cities), Bank Indonesia, June and December 2015

Table 3.3 Savings Composition based on Monthly Income

Semester I 2015

Tabungan
Income; million Total
0-10% 10%-20% 20%-30% >30% Tidak bisa menabung

Rp 1.44 - 2.89 million 27.64% 7.52% 5.53% 3.70% 4.08% 6.81%

Rp 3.06 - 4.37 million 30.43% 8.92% 7.48% 4.54% 4.37% 5.12%

Rp 4.67- 6.03 million 21.57% 6.40% 6.35% 3.32% 3.27% 2.22%

Rp 6.52 - 8.51 million 10.14% 3.49% 2.99% 1.66% 1.08% 0.93%

> Rp 8.51 million 10.22% 3.20% 2.47% 1.77% 1.83% 0.96%

Total 100.00% 29.53% 24.81% 14.99% 14.64% 16.04%

Semester II 2015

Tabungan
Income; million Total
20%-
0-10% 10%-20% >30% Tidak bisa menabung
30%

Rp 1.39 - 2.77 million 10.37% 7.32% 7.03% 4.05% 4.16% 8.34%

Rp 2.97 - 4.24 million 30.90% 9.25% 7.29% 4.46% 3.68% 5.56%

Rp 4.58- 5.91 million 30.24% 5.83% 5.05% 3.27% 2.44% 2.50%

Rp 6.20 - 7.76 million 19.09% 3.38% 2.48% 1.48% 1.17% 0.90%

> Rp 7.76 million 9.41% 3.88% 2.05% 1.87% 1.34% 1.22%

Total 100.00% 29.67% 23.91% 15.13% 12.79% 18.51%

Source: Consumer Survey (30 Cities), Bank Indonesia, June and December 2015

3.1.3 Household Deposits Held at Banks which increase compare to/higher than on the
Growth of household deposits slowed in the second previous semester but decrease comparet to/lower
semester of 2015, decelerating from 11.56% (yoy) than on the same period one year ago (56.64%).
last semester to 6.35% (yoy). Nevertheless, the Similarly, growth of non-individual deposits stood
household sector continued to dominate deposits at 8.45% (yoy) (Graph 3.7).
held at banks, accounting for 56.16% of the total,

50
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 3.7 Composition and Growth of Deposits

Share (%) %. yoy

100%
20
90% 18.30 15.49
13.60 13.97
80% 45.47 43.36 46.00 43.84 12.18 12.65
15 14.16 11.56
70%
60% 10.90 14.01
10 13.64 13.06
50% 12.29 8.45
13.19 11.31 7.26
40%
6.35
54.53 56.64 54.00 56.16 5
30%
20%
-
10% Sem I Sem II Sem I Sem II Sem I Sem II
0%
2013 2014 2015
Sem-I 2014 Sem-II 2014 Sem-I 2015 Sem-II 2015
Non-Individual Individual Total
Individual Non-Individual

Share (%)
100%
6.21 5.94 6.27 5.78
90%
80%
41.24 44.86 42.57 42.10 44.76 45.82 41.94 43.64
70%
60%
50%
40%
30% 51.23 53.15 50.28 51.17
20%
10%
52.55 3.91 51.48 4.74 48.97 3.90 52.27 5.19
0%
Household Non Household Non Household Non Household Non
Household Household Household Household
Sem-I 2014 Sem-II 2014 Sem-I 2015 Sem-II 2015

Savings Deposits Term Deposits Demand Deposits

Source: Commercial Bank reports, Bank Indonesia, December 2015, processed

Note: Household deposits are a proxy of Individual Deposits

In terms of saving, households tended to favour and surpassed the 4.50% (yoy) posted in the same
savings deposits and term deposits, accounting period one year ago. Meanwhile, growth of term
for 52.27% and 41.94% respectively at the end of deposits decelerated significantly from 21.09% to
semester II 2015. Deposit growth in the form of 4.78% in line with demand deposit growth slowing
savings deposits increased nearly two-fold on the from 12.55% to 3.50% in December 2015 (Graph 3.8).
previous semester from 3.95% (yoy) to 7.98% (yoy)

Graph 3.8 Composition and Growth of Individual Deposits

Share (%)
100
6.79 6.43 6.21 5.49 6.27 5.78 30
90
80 25
38.46 38.62 41.24 42.57 44.76 41.94
70
20
60
50 15
40
30 54.75 54.95 51.48 51.48 48.97 52.27 10 7.98
20 6.35
5 4.78
10 3.50
0 Sem II 0
Sem I Sem II Sem I Sem II Sem I
Sem-I 13 Sem-II 13 Sem-I 14 Sem-II 14 Sem-I 15 Sem-II 15
2013 2014 2015 -5

Savings Deposits Term Deposits Demand Deposits Term Deposits Demand Deposits
Savings Deposits Total
Source: Commercial Bank reports, Bank Indonesia, December 2015, processed

51
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

3.1.4. Bank Credit to the Household Sector4 and was also below total credit growth in the
Bank credit growth to individual borrowers banking industry, which was recorded at 10.45%.
followed a slower trend during the reporting period Slower credit growth to the household sector was
in line with economic moderation. In semester attributed to multipurpose loans, which slowed
II 2015, personal loans grew at 8.04% (yoy), precipitously from 31.8% (yoy) to 14.04% (yoy), as
decelerating from 10.23% (yoy) in the previous well as automotive loans that reversed the positive
period. Furthermore, the share of personal loans growth of 7.33% (yoy) and 17.91% (yoy) reported in
to total credit accounted for 44.00%, down slightly semester I 2015 and semester II 2014 respectively
from 44.88% over the same period (Graph 3.9). to negative 2.12% (yoy) in the reporting period.
The majority of personal loans were used for In contrast, housing loans enjoyed robust growth,
consumption (60.85%), with 27.93% used for accelerating from 6.51% (yoy) in semester I 2015 to
productive purposes and 11.22% for investment 6.96% (yoy) in the subsequent period, albeit below
(Table 3.4). the 11.89% (yoy) posted in the same period last
year (Graph 3.10). Strong housing loan growth was
By economic sector, bank credit growth disbursed maintained on the positive response of households,
to the household sector5 in the second semester property developers and banks to the looser loan-
of 2015 decelerated from 15.58% to 10.03% to-value ratio (LTV) set by Bank Indonesia, which

Graph 3.9 Composition of Bank Credit

100% 16.00%
53.26% 54.82% 55.06% 55.02% 55.12% 56.00%
80%
12.00%

60%
8.00%
8.04%
40%
46.74% 45.18% 44.94% 44.98% 44.88% 44.00%
4.00%
20%

0% Sem I Sem II Sem I Sem II Sem I Sem II 0,00%

2013 2014 2015

Individual Non-Individual Growth

Source: Commercial Bank reports, Bank Indonesia, December 2015, processed

Table 3.4 Personal Loans by Type

Des-14 Des-15
Loan
Kredit Pangsa NPL Kredit Pangsa NPL
(Rp. T) (%) (%) (Rp. T) (%) (%)

1. Working Capital 483.32 29.25 3.30 498.67 27.93 3.75

2. Investment 176.97 10.71 3.46 200.25 11.22 4.53

3. Consumption 992.27 60.04 1.42 1,086.46 60.85 1.51

TOTAL 1,652.56 100.00 2.19 1,785.38 100.00 2.47

Source: Commercial Bank reports, Bank Indonesia, December 2015, processed

4
In this section, household sector credit is defined as personal loans for productive and consumptive purposes.
5
Personal loans for consumption.

52
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 3.10 Household Credit by Loan Type

(yoy) %
40
35

30
25

20
15 14.04
10 10.03
6.96
5
0
-2,12
-5
-10

-15
Jan-13

Apr-13

Jul-13

Oct-13

Jan-14

Apr-14

Jul-14

Oct-14

Jan-15

Apr-15

Jul-15

Oct-15
Housing Automotive Multipurpose Total
Source: Commercial Bank reports, Bank Indonesia, December 2015, processed

stimulated the bank intermediation function in ratio jumped from 1.07% to 1.40%, while the NPL
the property sector, especially in the residential of all other household loan types were observe to
property segment. Consistent with Bank Indonesia decline (Graph 3.12). Although the level of non-
relaxing its policy, the Government also supported performing loans (NPL) in the household sector
the property sector through deregulation as per remained well below the threshold, vigilance
the economic stimulus package. was still required considering that such loans are
vulnerable to domestic economic conditions that
A phase of economic moderation is always could undermine household repayment capacity,
followed by rising non-performing loans (NPL). especially for the banking industry.
Such conditions were confirmed by the ratio of
non-performing loans (NPL) in the household Growth of housing loans accelerated during the
sector, which increased from 1.48% to 1.55% in the reporting period but remained below that posted by
reporting period (Graph 3.11). The higher NPL level multipurpose loans. Consequently, the portion of
stemmed from automotive loans, for which the NPL housing loans to total credit shrank on the previous

Graph 3.11 Credit Growth and NPL in the Household Sector Graph 3.12 Household NPL by Loan Type
Trillion Rp NPL %
1.000 2.00 3.0
9,16
2.34
2.5
800 1.60
1,55
2.0
600 1.20 1.55
1.5 1.40
400 0.80
1.0 0.08
200 0.40 0.5

0 - -
Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Household Credit Household NPL (RHS) Housing Automotive Multipurpose Total

Source: Commercial Bank reports, Bank Indonesia, December 2015, processed Source: Commercial Bank reports, Bank Indonesia, December 2015, processed

53
 FINANCIAL STABILITY REVIEW
No. 26, March 2016
period. The shares of multipurpose loans, housing
loans and automotive loans accounted respectively
for 41.30%, 39.94% and 13.16%. The year earlier,
however, housing loans were recognised as the most
Graph 3.13 Composition of Household Credit by Loan Type
41.30% 39.85%
December 2015
3.2 Corporate Sector Assessment
3.2.1 Corporate Sector Exposure
The global economic downswing and the interminable
commodity price slide undermined
performance, especially corporations operating in the
commodities sector. The priority export commodities
from Indonesia included coal, crude palm oil (CPO),
rubber, metals as well as oil and gas. The export share
of the five aforementioned commodities was 43%6 of
the total.
In the second semester of 2015, coal and CPO prices
on the international market continued to follow a
downward trend (Graph 3.14). Decline in coal prices
6
CEIC data, processed (as per the end of September 2015).
7
CEIC data, processed (as per the end of September 2015).
54
dominant (Graph 3.13). The nascent dominance of
multipurpose loans was due to a surge in demand
for credit to fund down payments on housing loans.
5.31%
3.99%
Housing
Automotive
December 41.08% Household Equipment
39.94%
2014 Multipurpose
Other Loans
0.29% 14.79%
0.30% 13.16%
in line with the sluggish global economy and policy in
China to seek more environmentally sound sources
of energy. CPO prices also tumbled on weak demand
from importers, primarily in Europe and the Middle
East, coupled with the increased supply of soybean
corporate as a viable substitute for CPO and dwindling global
demand for biodiesel.
Rubber prices were also slump/weaken on the
international market and rubber exports declined
12.12% (yoy)7 as a result of weaker purchasing power
in net importers combined with the emergence of
new competition in the region from Vietnam and
Cambodia. Furthermore, domestic rubber production
costs remained high and the local rubber industry
failed to optimally absorb rubber production.
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 3.14 Global Commodity Prices

USD USD USD USD

140 22 6.0 1300

20 5.5 1200
10.38 $/mmbtu
120
18 5.0 1100

100 16 4.5 505.99 $/metrik ton 1000

14 4.0 900
80
43.50 $/short ton 12 3.5 800

60 10 3.0 700

8 2.5 600
40
6 2.0 500
33.61 $/bbl 1.44 $/kg
20 4 1.5 500
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15

Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Coal Crude Oil Gas (RHS) Rubber Crude Palm Oil (RHS)

$/metric ton $/metric ton

11000 35000

10000

9000 28000

8000

7000 21000

6000
5000 14000

4000

3000 7000

2000
1000 0
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15

Copper (RHS) Alumunium Lead

Source: Bloomberg, processed

On the other hand, the base metals industry also those with a larger position of foreign currency
faced a number of domestic constraints. In addition liabilities than foreign currency assets on the balance
to the impact of lower metal prices, investment in sheet, were more exposed to rupiah depreciation.
new smelters was delayed, which prevented sales of
refined minerals. Similar problems affected the other 3.2.2 Corporate Performance
major export commodities. The oil and gas industry Congruent with economic moderation, the Business
was constrained by significant declines in the oil price Survey conducted by Bank Indonesia revealed a decline
and limited domestic production. in business activity at the end of semester II 2015
compared to conditions at the end of the previous
The corporate sector also faced rupiah depreciation period. Accordingly, the corresponding weighted net
due to uncertainty on global financial markets that balance (WNB) dropped significantly from 11.90% to
persisted until the end of the year. Consequently, 3.02% over the same period (Graph 3.15)8.
corporations with Net Foreign Liabilities (NFL), namely

8
The weighted net balance (WNB) is the net balance of the respective sector/subsector multiplied by its weight. The net balance is the difference between the percentage of
respondents whose answers increased and those whose answers decreased and neglect those whose answers stable.

55
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

The corporate sector acknowledged that economic tended to decline for nearly all sectors. Economic
conditions were sluggish but conducive and predicted pressures, combined with sliding international
corporate activity to elevate at the beginning of 2016. commodity prices, eroded corporate productivity in
Weaker business activity was primarily due to the all non-financial sectors, evidenced by a drop in asset
mining and quarrying sector, with a weighted net turnover9 from 0.79 to 0.71 and inventory turnover10
balance (WNB) of -1.18%, as a result of persistently from 6.45 to 6.16 in the third quarter of 2015 (Table
low mining product prices. Nonetheless, survey 3.5).
respondents predicted corporate activity to escalate/
increase in the first quarter of 2016, reflecting a Lower productivity led to lower corporate profitability
weighted net balance (WNB) of 8.59%, especially in in general. The return on assets (ROA) and return
the financial, real estate and corporate services sector on equity (ROE) declined respectively from 5.80%
with a weighted net balance (WNB) of 2.96%. and 12.28% to 4.02% and 8.64%, affecting nearly

Graph 3.15 Actual and Projected Corporate Activity Graph 3.16 Production Capacity Utilisation
%qtq %SBT
%
5.0 25.0 90
3.78
4.0 85
3.21 20.0
3.0 80
2.0 15.0
75
1.0
8.59 10.0 70
0.0
65

75,36

75,23
-1.0
5.0
-2.0 5.06 60
3.02 0.0
-3.0
I II III IV I II III IV I II III IV I II III IV I* QI QII QIII QIV QI QII QIII QIV QI QII QIII QIV QI QII QIII QIV
2012 2013 2014 2015
2012 2013 2014 2015 2016
*) Perkiraan
Total Mining and Agriculture, Plantation,
WNB as per the Business Survey (RHS) GDP Growth (LHS) Quarrying Livestock, Forestry and Fisheries

Actual Projected Utilities Manufacturing Industry

Source: Business Survey, Bank Indonesia, Semester II 2015 Source: Business Survey, Bank Indonesia, Semester II 2015

Congruous with the decline in corporate activity,
average production capacity utilisation decreased in
the second semester of 2015 from 77.82% to 75.23%,
affecting the agricultural, plantation, livestock, forestry
and fisheries sector that saw a decline from 79.15% to
76.76% in the reporting period.
In general, global and domestic economic moderation
also undermined the financial performance of the
corporate sector. Corporate financial performance
indicators, reflecting productivity,
solvency, liquidity and the debt equity ratio (DER)
all sectors, most notably the agricultural sector. In
contrast, corporations operating in the trade sector,
services sector and investment sector reported an
increase in profitability.
Corporate resilience was also observed to decline
in nearly all sectors as corporate debt increased in
Q3/2015 compare to the same quarter on the previous
year. The mining and property sectors, however, began
to lower their debt positions. As an aggregate, the
profitability, debt equity ratio (DER)11 increased from 1.13 to 1.16,
leading to a drop in the current ratio from 1.45 to 1.40.

9
Asset turnover indicates the ratio of sales to total assets and, hence, productivity in terms of corporate ability to utilize assets to create sales.
10
Inventory turnover indicates the ratio of sales to average inventory and, thus, productivity in terms of corporate inventory turnover.
11
The debt equity ratio (DER) indicates the ability of corporate capital to meet the corresponding liabilities.

56
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Furthermore, the level of solvency also deteriorated,
reflecting a decline in the TA/TL ratio from 1.89 to 1.86.
In more depth, a disparity emerged between long-
term corporate resilience (solvency) and short-term
resilience (liquidity). Corporations operating in capital
intensive sectors, such as basic manufacturing and
chemicals as well as the mining sector, were shown
to have a sounder level of long-term resilience.
Accordingly, the respective TA/TL ratios increased
from 1.93, 1.94 and 1.92 to 2.04. On the other hand,
corporations active in the miscellaneous industries
sector, infrastructure, utilities and transportation, as
well as property and real estate tended to report a
strong liquidity position (Table 3.5).

Graph 3.17 Key Corporate Financial Performance Indicators

Current Ratio
0.00

2.00

4.00
6.00
Inventory 8.00 ROA
Turnover
10.00

12.00

TA/TL ROE

2014Q3 2014Q3

Source: IDX Corporate Financial Statements, Bloomberg, processed

Note: Smaller ratios, represented by larger graphs, indicate worse performance

Table 3.5 Corporate Financial Performance Indicators by Sector

ROA (%) ROE (%) DER TA/TL Current Ratio Inventory TO Asset TO
No. Sector
2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015

1 Agriculture 8.07% 1.16% 15.89% 2.40% 0.93 1.18 2.07 1.84 0.96 0.94 8.67 7.95 0.82 0.70

Basic Industries and

2 5.01% 2.27% 10.63% 4.70% 1.07 1.07 1.93 1.94 1.49 1.36 5.33 4.87 0.87 0.71
Chemicals

3 Consumer Goods 12.37% 10.85% 24.17% 22.18% 1.00 1.08 2.00 1.92 1.67 1.64 4.63 4.66 1.37 1.31

Infrastruktur. Utilitas dan

4 4.35% 2.67% 11.18% 7.27% 1.64 1.74 1.61 1.57 1.00 1.02 68.13 65.28 0.55 0.52
Transportasi

5 Aneka Industri 6.28% 4.16% 14.34% 9.55% 1.28 1.30 1.78 1.77 1.17 1.19 8.27 7.24 0.92 0.79

6 Pertambangan 2.84% 1.14% 5.86% 2.31% 1.08 0.97 1.92 2.04 1.81 1.46 10.54 9.97 0.55 0.51

7 Properti dan Real Estate 7.12% 5.53% 14.97% 11.60% 1.08 1.07 1.92 1.94 1.80 1.84 1.98 1.94 0.40 0.38

Perdagangan. jasa dan

8 4.53% 4.67% 8.28% 8.75% 0.84 0.89 2.19 2.12 1.65 1.55 7.68 7.79 0.98 0.93
investasi

Agregat 5.80% 4.02% 12.28% 8.64% 1.13 1.16 1.89 1.86 1.45 1.40 6.45 6.16 0.79 0.71

Source: IDX Corporate Financial Statements, Bloomberg, processed

Note: Position as of Q3/2014 and Q3/2015 (observation sample of 401 non-financial corporations)

57
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 3.18 Financial Performance of Publicly Listed Non-Financial Corporations

%
25

20 25

15 20 1.90
8.64
15 1.40
10
1.20
5 10
4.02

0 5
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15

Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
ROA (%) ROE (%) DER TA/TL Current Ratio

Source: IDX Corporate Financial Statements, Bloomberg, processed

Note: Position as of Q3/2014 and Q3/2015 (observation sample of 401 non-financial corporations)

Sliding international commodity
domestic economic moderation had a direct impact
on firms engaged with the major commodities,
such as coal, crude palm oil (CPO), rubber, oil and
gas as well as metals. The productivity of such firms
decreased on significantly weaker sales, which hurt
profitability. Consequently, more attention must
be paid to corporations oriented towards the five
major export commodities.
Corporate vulnerability also increased as liquidity
and solvency indicators fell and debt increased.
Firms operating in the coal and metal sectors,
however, began to reduce their proportions of
prices and debt (Table 3.6). Rising debt in the corporate sector
was indicated by the debt equity ratio (DER), which
demands vigilance against a backdrop of lower
profitability that could undermine repayment
capacity.
Corporate repayment capacity also declined
compare to the previous period, reflecting a jump in
the debt service ratio (DSR) from 74.41% (median)
to 75.13% (median) in Q3/2015.12 The higher DSR
was also accompanied by an increase in the share
of corporations with a DSR>100% from 56.79% to
66.87%. Furthermore, repayment capacity also
declined. The interest coverage ratio (ICR) tracked

Table 3.6 Corporate Financial Performance Indicators by Major Export Commodity

ROA (%) ROE (%) DER TA/TL Current Ratio Asset Turnover Inventory TO
Sector
2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015

Coal 3.44% 1.30% 7.44% 2.71% 1.16 1.01 1.86 1.99 1.95 1.57 0.66 0.59 15.91 16.01

Crude Palm Oil 7.13% 1.79% 13.49% 3.59% 0.87 1.12 2.15 1.89 0.90 0.88 0.79 0.67 9.46 8.44

Rubber 10.44% 5.63% 14.04% 7.92% 0.37 0.45 3.71 3.23 1.93 1.48 0.52 0.41 11.57 9.25

Oil and Gas -0.70% 0.65% -1.96% 1.90% 1.92 1.97 1.52 1.51 1.39 1.04 0.30 0.25 17.84 13.60

Metals 1.21% -1.71% 2.19% -3.05% 0.88 0.72 2.14 2.39 1.40 1.18 0.67 0.59 3.74 3.99

Source: IDX Corporate Financial Statements, Bloomberg, processed

Note: Position as of Q3/2014 and Q3/2015 (observation sample of 67 corporations)

DSR: Principal + Interest Payments/EBITDA

12

58
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 3.19 Corporate Financial Performance Indicators by Major Export Commodity

30% ROA 4.5 Current Ratio

4.0
25%
3.5
20% 3.0
2.5
15%
2.0
10% 1.5
1.0
5%
0.5
0% 0.0

-5%
I II III IV I II III IV I II III IV I II III I II III IV I II III IV I II III IV I II III

2012 2013 2014 2015 2012 2013 2014 2015

2.5 DER 35 Inventory Turnover

30
2.0
25

1.5 20

1.0 15
10
0.5
5
0.0 0

I II III IV I II III IV I II III IV I II III I II III IV I II III IV I II III IV I II III

2012 2013 2014 2015 2012 2013 2014 2015

Coal Crude Palm Oil Rubber Oil and Gas Metals

Source: IDX Corporate Financial Statements, Bloomberg, processed

a downward trend from 2.81 in 2014 to 1.94 in sectors, the Altman Z-Score showed that the share
2015 , which is consistent with the increase in the
13
of corporations in the distress zone increased slightly
share of corporations with an interest coverage in the third quarter of 2015 compared to one year
ratio (ICR) below the threshold of 1.5, indicating a earlier from 37.20% to 43.52%. Moreover, the upward
growing portion of debt at risk. trend of corporations falling into the distress zone has
persisted since the beginning of 2013 but remains
Potential risk of default in the corporate sector also relatively lower than during the crisis period of
increased compare to the same period one year 2008-2009. Plotting the Altman Z-Score against GDP
ago. Accordingly, using data from 193 publicly listed growth showed that economic moderation has had a
non-financial corporations representing all economic significant impact on corporate financial performance.

13
ICR: EBIT/Interest Expense. Safe ICR threshold is 1.5.

59
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 3.20 Corporate Repayment Capacity

% % % %
100 80 4.5 40.22 40.69 4.5
90 66.87
70 4.0 34.35 4.0
56.79 33.06
80 3.5 3.5
60 30.23
70 49.83 52.02 52.15 28.30 34.12
75.13 3.0 27.59 33.36 3.0
47.00 74.41 50
60 28.60
61.80 2.5 28.36 2.5
50 40 25.36
50.69 51.26 2.0 2.0
40 47.82
30
30 1.5 1.5
20 1.0 1.0
20
10 10 0.5 0.5
0 0 0.0 0.0
2010 2011 2012 2013 2014 2015* 2010 2011 2012 2013 2014 2015*
*Posisi TW III *Posisi TW III
DSR (median) % of Corporations with DSR > 100 and ICR (median) % of Corporations % of Debt at
Negative DSR (RHS) with ICR < 1.5 (RHS) Risk
Source: IDX Corporate Financial Statements, Bloomberg, processed
Note: Position as of Q3/2014 and Q3/2015 (observation sample of 401 non-financial corporations)

Graph 3.21 Corporate Performance based on the Altman Graph 3.22 Distressed Corporate Performance against GDP
Z-Score
Share % GDP % (yoy)
Share%
55 45 7.0
49.5 43.52
50 49.44
44.25 43.52 6.5
45 40
40 6.0
35 35
5.5
30 31.61
30
25 5.0
4.73
20 24.87
25
15 4.5

10 20 4.0
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15

Mar-11
Jun-11
Sep-11

Dec-11
Mar-12

Ju- 12
Sep-12

Dec-12

Mar-13
Jun-13
Sep-13

Dec-13
Mar-14
Jun-14
Sep-14
Dec-14

Mar-15
Jun-15
Sep-15
Safe Zone Distress Zone Grey Zone GDP (RHS) Share of Distressed Corporations

Source: Bloomberg, CEIC, September 2015, processed Source: Bloomberg, CEIC, September 2015, processed

3.2.3 Bank Exposure to the Corporate Sector
Weaker corporate performance required attention as a
result of bank exposure to the corporate sector, which
continued to dominate bank credit. At the end of
semester II 2015, the portion of bank credit disbursed
to the corporate sector increased from 51.41% in the
first semester of 2015 to 51.72%, dominated by BUKU
4 banks with a share of 42.44% of the total and BUKU
3 banks with 38.12%. Such conditions reflect the
orientation of such banks, namely targeting corporate
credit, while BUKU 2 and 1 banks tend to favour retail
credit (Graph 3.23).
Bank loans extended to corporations enjoyed positive
growth in all economic sectors, excluding the mining
sector and others sector. The agricultural sector posted
the strongest credit growth at 25.68% (yoy), followed
by the utilities and the construction sector (Table 3.7).
In terms of credit share, however, most bank loans
were allocated to the manufacturing sector (31.82%),
followed by the trade, hotels and restaurants (THR)
sector (19.75%) as well as the business services sector
(13.70%).

60
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

The growth of corporate loans at the end of semester and rubber sector experienced respective increases
II 2015 was also accompanied by an increase in credit in gross NPL from 1.98%, 1.19% and 1.26% at the
risk, reflecting a bump in non-performing loans (NPL) end of semester II 2014 to 4.93%, 1.34% and 1.75%
from 2.08% at the end of semester II 2014 to 2.51% in in the reporting period, which was still below the 5%
the reporting period. Potential risk was most prevalent threshold.
in the mining sector as the gross NPL ratio climbed from
2.39% to 3.69%. A higher level of NPL was observed Deteriorating corporate performance in the
in all sectors, with the exception of the construction commodities sector could have undermined credit
sector and the others sector. growth, thus requiring careful observation. In
Kalimantan, a region dependent upon coal, corporate
Lower commodity prices heightened credit risk on credit growth is observed to contract -1.02% (yoy),
bank loans to the corporate engaged in the five major accompanied by an increase in non-performing loans
export commodities, albeit moderately due to the (NPL) to 5.31%, thereby indicating a concentration of
small share of such loans against the total. Of the five risk on the island that severely hampered growth in
major export commodities, the oil and gas, metals the region.

Graph 3.23 Corporate Credit by BUKU Bank Group

%
100
90
80
70
60
50
40
30
20
10
0
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec

Mar
Jun
Sep
Dec

2010 2011 2012 2013 2014 2015

BUKU 1 BUKU 2 BUKU 3 BUKU 4

Source: Commercial Bank Reports, December 2015, processed

Table 3.7 Corporate Credit by Economic Sector

Outstanding Credit Gross NPL as Gross NPL as
Pangsa Pert. Des 2015.
No Economic Sector as of December of December of December
(%) yoy (%)
2015 (trillion Rp) 2014 (%) 2015 (%)
1 Manufacturing 668.00 31.82 17.19 1.77 2.33
2 Trade. Hotels and Restaurants 414.65 19.75 16.21 2.61 2.95
3 Corporate Services 287.59 13.70 6.79 0.86 1.25
4 Agriculture 173.41 8.26 25.68 1.03 1.19
5 Transportation. Warehousing and Communications 155.86 7.43 3.80 2.84 3.56
6 Construction 139.86 6.66 20.92 4.66 4.07
7 Mining 124.43 5.93 (5.70) 2.39 3.69
8 Utilities 93.74 4.47 21.34 1.97 2.35
9 Social/Public Services 30.25 1.44 4.60 3.10 3.27
10 Others 11.22 0.53 (20.55) 1.79 1.56
Total 2,099.01 100 13.33 2.08 2.51

Source: Commercial Bank Reports, December 2015, processed

61
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Table 3.8 Credit to Major Export Commodities

Outstanding Credit Share of Total Corporate Credit (%) Annual Growth (%) Gross NPL Ratio (%)
Commodity as of December
2015 (trillion Rp) Des’14 Des’15 Des’14 Des’15 Des’14 Des’15

Crude Palm Oil 178.68 3.84 4.40 12.74 26.77 0.90 0.67

Oil and Gas 93.82 2.56 2.31 8.50 (0.24) 1.98 4.93

Metals 79.66 1.92 1.96 20.44 13.15 1.19 1.34

Coal 43.45 1.18 1.07 5.72 0.41 6.78 6.22

Rubber 17.49 0.42 0.43 (11.99) 13.68 1.26 1.75

Total 413.11 9.91 10.18 10.80 13.47 1.95 2.39

Source: Commercial Bank Reports, December 2015, processed

The flagging domestic economy, together with sliding behaviour in terms of managing their deposits.
commodity prices, also led to slower corporate
deposit growth, decelerating from 12.43% in semester BUKU 4 banks were noted to dominate corporate
I to 11.44% in semester II 2015. Lower deposit rates credit along with BUKU 3 banks, accounting for 39.78%
also contributed to slower deposit growth. In addition, and 36.47% respectively, indicating that the majority
the release of Indonesian Retail Government Bonds of large corporations entrusted their funds to large
(ORI) in 2015, which offered higher interest rates banks, citing security and liquidity as the main factors
than savings deposits, further influenced corporate (Graph 3.25).

Graph 3.24 Corporate Deposits

Trillion Rp %
1,494
1,600 35
1,400 30
1,200
25
1,000
20
800
15
600
11.44 10
400
200 5
Mar-11

Jun-11

Sep-11

Des-11

Mar-12

Jun-12

Sep-12

Des-12

Mar-13
Jun-13

Sep-13

Des-13
Mar-14

Jun-14

Sep-14

Des-14
Mar-15

Jun-15

Sep-15

Des-15

Corporate Deposits Growth (RHS)

Source: Commercial Bank Reports, December 2015, processed

Graph 3.25 Corporate Credit by BUKU Bank Group

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Mar-10
Jun-10

Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15

Dec-15

BUKU 1 BUKU 2 BUKU 3 BUKU 4

Source: Commercial Bank Reports, December 2015, processed

62
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

3.2.4 Private External Debt The growth of external debt at non-financial

External debt in Indonesia continued to track an corporations decelerated to 1.5% (yoy) from 4.5%
upward trend, though growth slowed in the reporting (yoy) previously, indicating that the corporate sector
period to 5.99% (yoy). Furthermore, the private had postponed business expansion. In addition,
sector continued to dominate external debt with weaker public purchasing power also contributed to
a 53.98% share of the total. More specifically, the the corporate decision to hold further expansion.
financial, leasing and corporate services sector was
most dominant, accounting for 29.33%, followed by Domestic loans dominated the financing sources
the manufacturing sector with 20.12% as well as the of non-financial corporations with a 48.13% share,
mining and quarrying sector with 14.70%. Private followed by foreign loans (46.06%) and bonds (5.81%)
external debt posted growth of 2.46% (yoy) in the as of Q3/2015. However, by currency, foreign currency
reporting period, with the trade sector reporting the debt exceeded rupiah denominated debt with a 59.9%
strongest growth at 13.22%. to 40.1% split. Against GDP, foreign currency debt
accounted for 22.48%, while rupiah debt was 15.29%.

Table 3.9 Position of Private External Debt by Economic Sector

Millions of USD (December)

Share in
No Economic Sector
2015 (%)
2009 2010 2011 2012 2013 2014 2015

1 Financial, Leasing and Corporate Services 15,981 21,048 28 ,390 34,862 37,996 48,348 48,929 29.33

2 Manufacturing Industry 19,336 19,471 22 ,646 25,637 28,984 32,747 33,573 20.12

3 Mining and Quarrying 12,103 10,842 16,878 20,346 26,958 26,415 24,519 14.70

4 Utilities 9,707 13,142 14,946 16,855 17,054 18,569 19,539 11.71

5 Transportation and Communications 4,739 6,272 8,108 10,080 10,493 12,285 12,445 7.46

6 Trade, Hotels and Restaurants 3,744 3,157 4,919 6,565 7,751 9,675 10,954 6.57

7 Agriculture, Livestock, Forestry and Fisheries 4,063 4,637 4,969 5,744 7,296 8,101 8,594 5.15

8 Others Sector 3,242 4,130 4,537 4,852 4,348 5,548 5,960 3.57

9 Services 400 769 584 637 974 1,215 1,263 0.76

10 Construction 291 320 755 667 708 1,124 1,071 0.64

Total 73,606 83,789 106,732 126,245 142,561 164,027 166,846 100

Source: External Debt Statistics, December 2015, Bank Indonesia

Graph 3.26 Non-Financial Corporate External Debt

Million USD %
140,000
26.55 External Debt Value 30
120,000
External Debt Growth (yoy, RHS) 25
100,000
20
80,000
15
60,000

10
40,000

20,000 5
1,51
0 0
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan*
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct
Jan
Apr
Jul
Oct

Apr*
Jul*
Oct*

2009 2010 2011 2012 2013 2014* 2015

Source: External Debt Statistics, December 2015, Bank Indonesia

63
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 3.27 Composition of Corporate Debt

Trillion Rp Trillion Rp %
4,500 4,500 22.84 40
250
20.56
4,000 4,000 19.97
218 35
3,500 1,979 3,500
213 15.92
3,000 1,620 3,000 30
182 1,394 14.27
2,500 2,500
12.71 25
2,000 143 994 2,000
110
1,500 797 2,068 1,500 20
1,886
623 1,687 15.29
1,000 1,342 1,000 14.61 14.75
13.32 15
860 1,043
500 500 10.50 11.03
0 0 10
2010 2011 2012 2013 2014 2015* 2010 2011 2012 2013 2014 2015

Domestic Credit External Debt Bonds Foreign Currency Debt Total Foreign Currency Debt to GDP (RHS)
Rupiah Debt Total Rupiah Debt to GDP (RHS)
Source: Commercial Bank reports, CEIC, SIUL, September 2015

An assessment of 2,679 non-financial corporations with
external debt revealed that 25% of the external debt,
totalling USD123.26 billion , had been restructured .
14
Such conditions are indicative of sizeable currency
risk in the corporate sector. Stress tests were also
conducted on the resilience of 187 highly indebted
corporations in the event of default on their domestic
foreign currency loans. The stress tests showed that
the gross NPL ratio of the banking industry would
potentially rise but still remain below the 5% threshold
and that bank capital would be maintained.
The main source of funding for commodity-based
corporations was foreign loans, accounting for
52% of the total. The large share of external debt
at commodity-based corporations was due to the
dominance of the coal sector, oil and gas sector as
well as rubber sector. Consequently, the potential
risks were larger because the majority of foreign loans
to the three sectors originated from non-affiliated
parties. Potential currency risk was somewhat
mitigated, however, as the majority of foreign loans
were long term.
The majority of domestic loans to commodity-
based corporations were also disbursed in a foreign
15
currency, thus increasing potential currency risk. Most
commodity-based corporations with domestic loans
in foreign currency operated in the oil and gas sector,
coal sector and metals sector. The portion of domestic
loans in foreign currency in the three aforementioned
sectors was 86.28%, 69.34% and 50.43%.
In order to mitigate the various risks inherent
with private external debt, especially at nonbank
corporations, at the end of 2014 Bank Indonesia
issued Bank Indonesia Regulation (PBI) No. 16/21/
PBI/2014 and Circular Letter (SE) No. 16/24/DKEM
concerning the Application of Prudential Principals
in the Management of Nonbank Corporate External
Debt. According to the data, of the 1,643 nonbank
corporations that reported their data in semester II
2015, 84% (1,374 corporations) were not required to
hedge and 16% (269 corporations) were obligated to
hedge. Of the 269 corporations required to hedge,
only 31 had engaged in hedging activities and 238
were not yet in compliance of the new regulation.

Accounting for 81.24% of total corporate external debt.

14

Restructuring involves balancing the perception of the corporation, investor and creditor concerning the financial conditions of the corporation, in particular current and future repayment
15

capacity (Darmadji 2001:22).

64
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Table 3.10 Stress Tests of 187 Highly Indebted Corporations by BUKU Bank Group

Bank Group Total Credit (Rp, Trillions) Initial NPL (%) Final NPL (%) Initial CAR (%) Final CAR (%)

Buku 4 1,630 3.26 3.26 19.99 19.79

Buku 3 1,204 3.44 4.74 26.03 25.31

Buku 2 848 3.00 4.49 18.61 17.78

Buku 1 200 2.16 2.48 19.07 19.07

Total 3,881 2.76 3.64 20.47 20.04

Stress Test Scenario:

1. Default assumed on foreign currency loans;
2. Corporations engaged in natural hedging or using hedging instruments were omitted; and
3. Partial hedge implies that only a portion of foreign currency liabilities were covered by the corresponding foreign currency assets.
Source: Debtor Information System (DIS), August 2015 position

Table 3.11 Corporate External Debt by Commodity

Share of Total External Debt (%)

Number of Total (USD,
No Commodity Affiliate/Non-Affiliate Maturity
Corporations millions)
Afiliasi Non Afiliasi Short-term Long-term

1 Coal 108 30.52 69.48 19.03 80.97 8,911

2 Rubber 35 38.44 61.56 44.28 55.72 434

3 Metals 115 8.84 91.16 16.55 83.45 5,338

4 Oil and Gas 39 5.60 94.40 6.67 93.33 13,182

5 Crude Palm Oil 71 15.81 84.19 4.86 95.14 2,163

Total 368 14.78 85.22 12.51 87.49 30,028

Source: External Debt Statistics, December 2015, Bank Indonesia

Table 3.12 Corporate Domestic Debt by Commodity

Share of Total Credit (%)

Number of Total Credit
No Commodity Currency Maturity
Corporations (USD, millions)
Rupiah USD Short-term Long-term

1 Crude Palm Oil 5,827 75.54 24.46 26.25 73.75 215,296

2 Metals 1,957 49.57 50.43 57.65 42.35 56,541

3 Oil and Gas 1,134 13.62 86.38 34.70 65.30 51,245

4 Coal 1,230 30.66 69.34 35.67 64.33 36,712

5 Rubber 1,659 52.00 48.00 68.47 31.53 16,953

Total 11,807 57.79 42.21 34.93 65.07 376,747

Source: Debtor Information System (DIS), August 2015 position

65
 FINANCIAL STABILITY REVIEW
No. 26, March 2016
Financial System Surveillance and Assessment Framework: The
Box 3.1 Corporate Sector, Household Sector and Nonbank Financial Industry
Financial system development, including the
interconnectedness between domestic and
external agents, is becoming increasingly
complex and the potential risks are escalating.
Therefore, such development must be offset with
a solid assessment framework and methodology,
bolstered by surveillance, to detect potential risks
and implement appropriate mitigation measures
with rapidity. Greater interconnectedness
between domestic and external economic
sectors could exacerbate risk through common
exposure. Such conditions were confirmed by
the National Financial Account and Balance Sheet
of Indonesia in 2014, which revealed strong
interconnectedness between the corporate sector
and the financial sector, especially the banking
industry. Furthermore, the corporate sector is also
highly interconnected with the external sector,
thereby exposing the sector to external risks due
to spiralling private external debt, amongst others.
Consequently, financial system surveillance and
the assessment framework must encompass the
financial sector (bank and nonbanks) and the real
sector (corporations and households).
When developing a financial system surveillance
and assessment framework, it is assumed that
excessive risk-taking leads to financial imbalances.
Financial imbalances are one way to trigger a
mismatch in the size and composition of assets and
liabilities in the various economic sectors engaged
in the financial system. Excessive risk-taking
behaviour is evidenced by credit growth beyond
66
economic capacity, banking procyclicality, a build-
up of risks concentrated in certain economic
sectors and increasing external debt.
Financial imbalances can be identified through
two dimensions, namely time series and cross
section. The time series dimension deals with
how risks evolve over time as a result of economic
conditions. On the other hand, the cross-section
dimension looks at how risks are transmitted in the
financial system in a given period as a consequence
of common exposure and interconnectedness
amongst sectors in the financial system. One
common method used to detect transmission
due to interconnectedness between the financial
sector and real sector is mapping the coping
mechanisms of economic agents to shocks or
changes in behaviour due to shocks. A shock can
become a threat if the sectors operating in the
financial system are already vulnerable from the
beginning.
Application of the financial system surveillance
and assessment methodology is currently at the
preliminary stage but is constantly developing as
awareness builds of the importance of maintaining
financial system stability. The leaders of the
G20 concurred that the priority of maintaining
financial system stability is development of a
macroprudential policy framework that aims to
provide analysis tools to limit systemic financial
risks.
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Compiling a risk profile is a critical element of
developing a financial system surveillance and
assessment framework in order to identify the
risks and vulnerabilities of each respective sector
and the financial system as a whole. The risk
profile should identify institutions with a systemic
impact in each sector according to the criteria
of size, interconnectedness, substitutability and
complexity. Furthermore, the risk profile must be
complemented with a selection of early warning
risk indicators that can detect distress, therefore
efforts to prevent a build-up of systemic risk in
the financial system can be anticipated early. A
financial institution is said to become distressed if
the financial institution cannot meet its payment
liabilities to a third party. When predicting
financial distress, the methodology used can be
classified based on the type of data used, namely
an accounting based model or market based
model.
solvency problems in one sector quickly spillover to
other interconnected sectors and trigger potential
instability in the financial system.
The biggest challenge when constructing a
framework and developing a surveillance and
assessment methodology is non-linearity as well
as the need to focus on exceptional-but-plausible
events. Therefore, stress tests represent the
favoured methodology to gauge financial system
resilience under extreme conditions. Stress
tests can be conducted at the institutional level,
sectoral level or financial system level, including
the second-round effects of interconnectedness
between sectors in the financial system.

In addition, network analysis is a method for

modelling interactions between sectors and,
therefore, assessing financial system resilience
to an accumulation of systemic risk. Network
analysis applies balance sheet data and can
help to understand the interconnectedness and
potential transmission of risk between sectors.
Interconnected balance sheets between sectors
can compound systemic risk as liquidity and

67
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Box Figure 3.1.1 Financial System Surveillance and Assessment Framework

Sistem Keuangan

Household Financial Financial Financial

Public Sector NFC
Sector Institutions Infrastructure Market

Identification Balance
Set of Systemic Risk
Excessive Risk Taking Behavior

Financial Imbalances

Area of Build-Up Risk

Domestic Shock External Shock

Area of Assessment and Surveillance

DATA, INFORMASI, RISET

Asesmen Intrasektor

Financial Distress
Profilling Stress Test
Indicator

Time Cross
Series Section
Asesmen Intersektor

Network
Profilling Stress Test
Analysis

Pemberian Sinyal Risiko

Within the On the threshold of Outside the

stable corridor the stable corridor stable corridor

Remedial Action: Resolusi: Crisis

Normal
Develop Instrument Management Protocol

Financial Stability

Sectors omitted from this research

68
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

69
Banking industry resilience was maintained in the second semester of 2015.
Furthermore, a solid and stable capital base was preserved. Nonetheless, the banking
industry confronted pressures in the form of domestic economic moderation, exchange
rate depreciation and global economic headwinds.

Liquidity risk was mitigated throughout the reporting period as liquid assets increased
on the back of slower credit growth. The economic rebound that began in the fourth
quarter of 2015 spurred bank credit growth in the second semester, hence surpassing
that achieved in the first half of the year. On the other hand, fiscal policy at the end
of 2015, which departed from historical norms, also contributed to slower deposit
growth at the end of semester II 2015. An increase in credit growth and slower
deposit growth precipitated a relatively high loan-to-deposit ratio (LDR). Meanwhile,
credit risk was also mitigated, evidenced by a lower gross ratio of non-performing
loans (NPL) compared to the first semester.

4
The nonbank financial industry performed positively despite moderating in the second
half of the year. In addition to weaker asset growth at finance companies and insurance
companies, growth of financing disbursed by finance companies also decelerated. In
terms of risk, the nonbank financial industry successfully mitigated operating risks,
confirmed by the low ratio of non-performing financing (NPF) at finance companies,
while the ratio of gross claims to gross premiums in the insurance industry fell on the
previous period.

BANKS AND NONBANK

FINANCIAL INSTITUTIONS
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Performance Slowed at Financial Institutions but the

Risks were well Mitigated

Bank Risks Accumulated but Resilience was

Maintained

Capital Resilience Adequate Liquidity Rp

Credit Risk Improved
Strengthened Rp Maintained
Gross NPL at
AL/NCD increased to
Rp
Rp

CAR increased to 2.4%

21.39% 93.44%

Market Risk
Efficiency Intermediation began to Well Mitigated
BOPO efficiency Rebound Interest Rate Risk
ratio increased to
Credit Growth Mitigated
81.49 %
up to
CIR increased to 10.45% Currency Risk Eased
59.5%
Deposit Growth
Risk of SBN Price
Profitability slowed to
Changes Mitigated
Rp
ROA increased to 7.26%

2.32 %
Loan-to-Deposit
NIM increased to Ratio (LDR) up to
5.40% 91.95%

The Nonbank Financial Industry Moderated

but Performed Positively

Finance Companies Insurance Companies

Asset Financing
Asset Growth Investment
Growth at Volume Growth
down to Volume Growth
to
1.29% (yoy) 6.93% (yoy) down to
-0.79% (yoy)
5.11% (yoy)
Profitability
Rp
down Efficiency slumps Liquidity Maintained Profitability down
ROA to BOPO (Q3/2015)
Current Ratio
Rp

Rp

3.32% down to Rp
Rp at
ROE to 85.35% 1.67 ROA to
2.24%
11.49%
ROE to
Risks Accumulated
Growth of
Credit Risk Risk of Gross
3.34%
Mitigated Claims to Gross
Funding
NPF at
Sources Premiums
1.45%
down to building to
0.1% 68.90%

72
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

the 2016 state budget. The Federal Funds Rate

4.1 The Banking Sector (FFR) hike in December 2015 had no significant
impact on bank liquidity because the financial
Total assets of the banking industry at the end of authorities, banking industry and market players
the second semester of 2015 stood at Rp6,132.8 had anticipated the move by pricing in.
trillion, with growth decelerating from 14.14% to
9.22% (yoy). Meanwhile, liquidity in the banking In terms of liquidity in the economy, M1 growth
sector increased on the previous period despite accelerated from 9.92% to 12.00% on gains in
pressures building towards yearend. Deposit rupiah checking accounts and demand for Currency
growth in the banking industry also slowed from Outside Banks (COB) as economic activity began to
12.65% to 7.26%. Although the trend of long- ramp up in the second half of the year. Although
term credit growth slowed, credit growth at the private rupiah demand deposits tracked an upward
end of semester II 2015 was recorded at 10.45%, trend as economic activity picked up, growth
increasing slightly from 10.38% previously. In the of local government demand deposits declined
reporting period, the gross ratio of non-performing significantly in line with government financial
loans (NPL) fell from 2.56% to 2.49%. expansion in the second semester. In contrast, M2
growth decelerated from 12.98% to 8.95% over the
4.1.1 Assessment of Liquidity and Risks same period due to rupiah deposits as deposit rates
Banking industry liquidity tended to improve on the were lowered to reduce the cost of funds.
previous period despite pressures emerging towards
yearend. Bank liquidity and risks were mitigated Potential liquidity pressures in the banking
in line with government financial expansion in industry are expected in 2016 due to the change in
the reporting period, which drove an increase in arrangement of government financial expansion as
liquid assets, particularly in the form of placements well as the conversion of the General Allocation Fund
at Bank Indonesia. Consequently, the ratio of (DAU) and Profit Sharing Fund (DBH) to tradeable
liquid assets1 to non-core deposits2 increased in government securities (SBN). Nevertheless, bank
December 2015 compared to the position recorded liquidity should be maintained in 2016, possibly
in June 2015. The ratio of liquid assets to non-core exceeding that recorded in 2015.
deposits illustrates the capacity of a bank to meet
its liabilities in the event of deposit withdrawals By BUKU bank group, the ratio of liquid assets to
and to support credit expansion. Nonetheless, non-core deposits of BUKU 2 and 4 banks increased
pressures on rupiah liquidity appeared at the on the previous semester, while the ratios of BUKU
end of 2015, indicated by a temporary spike in 1 and 3 banks decreased. The increase in the LA/
the interbank rate. Such conditions undermined NCD ratio at BUKU 2 and 4 banks was driven by a
government financial expansion at the end of 2015 significant increase in liquid assets, primarily in the
and occasioned prefunding by the government for form of placements at Bank Indonesia. Industry-

1
Liquid assets include cash, placements at Bank Indonesia, excess reserves and statutory reserves.
2
NCD = 30% of demand deposits + 30% of savings deposits + 10% of term deposits

73
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 4.1 Liquidity Growth in the Economy and Bank Liquidity Ratio

25% 140%

120%
20%
100%
15%
80%

10% 60%

40%
5%
20%

0% 0%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2012 2013 2014 2015

M2 (%yoy) M1 (%yoy) AL/NCD (%) - rhs

Source: Indonesian Economic and Financial Statistics (SEKI), Bank Indonesia, and Monthly Commercial Bank reports, processed

wide, the position of LA/NCD remained above the reporting period demonstrated lower liquidity risk,
50% threshold. Relatively stable and sound liquidity reflecting relatively stable bank liquidity buffers,
conditions in the banking industry during the namely primary reserves and secondary reserves.

Graph 4.2 Bank Liquid Assets Table 4.1 LA/NCD per BUKU Bank Group
(%) Rp T
120 1,400
Rasio AL/NCD (%)
110 1,200
2013 2014 2015
100 1,000
Dec Jun Dec Jun Dec
90 800 BUKU 1 88.10 89.87 102.88 87.15 86.38
80 600 BUKU 2 84.55 94.24 109.44 101.88 113.07

70 400 BUKU 3 93.33 84.21 82.33 91.72 89.15

60 200 BUKU 4 88.39 86.01 107.17 90.20 90.69

50 0 Industry 89.37 86.91 99.83 92.50 93.44

Jun’12 Dec’12 Jun’13 Dec’13 Jun’14 Dec’14 Jun’15 Dec’15

AL/NCD Alat Likuid (Skala Kanan) Source: Bank Indonesia

Liquid = cash + placements at Bank Indonesia + excess reserves + statutory reserves

NCD = 30% of demand deposits + 30% of savings deposits + 10% of term deposits

Source: Bank Indonesia

Table 4.2 Statutory Reserve Requirement

RR-loan to funding Foreign Exchange Total Reserve

Reserve Requirement Primary (%) Secondary (%)
ratio (RR-LFR) (%) (%) Requirement (%)

Sem I - 2012 62.52 19.54 3.42 14.53 100.00

Sem II - 2012 63.15 19.73 2.38 14.74 100.00

Sem I -2013 62.95 19.67 1.71 15.67 100.00

Sem II - 2013 55.76 27.88 0.76 15.61 100.00

Sem I - 2014 56.14 28.07 0.48 15.31 100.00

Sem II - 2014 56.16 28.08 0.64 15.13 100.00

Sem I - 2015 55.18 27.59 1.09 16.14 100.00

Sem II - 2015 54.48 29.05 0.44 16.03 100.00

Source: Bank Indonesia

74
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

4.1.2 Assessment of Intermediation and Risks

Table 4.3 LDR by BUKU bank Group
Bank credit growth tended to accelerate on the
previous period, while deposit growth slowed. On Description
Sem I
2014
Sem II
2014
Sem I
2015
Sem II
2015

an annualised basis, deposit growth in semester II BUKU 1

2015 stood at 7.26%, down from 12.65% in the first Credit (Trillion Rp) 105.89 115.92 128.64 136.77

Deposits (Trillion Rp) 130.58 134.71 164.96 154.16

half of the year. Meanwhile, credit growth climbed
LDR (%) 81.09 86.05 77.98 88.72

slightly from 10.38% to 10.45% over the same BUKU 2

period. Consequently, the loan-to-deposit ratio Credit (Trillion Rp) 593.35 624.93 655.82 678.80

Deposits (Trillion Rp) 663.75 688.87 761.65 714.23

(LDR) increased modestly from 88.62% to 91.95%
LDR (%) 89.39 90.72 86.10 95.04
in the reporting period. By BUKU bank group, the BUKU 3

LDR increase at BUKU 1 and 2 banks surpassed that Credit (Trillion Rp) 1,323.44 1,380.39 1,432.68 1,460.67

observed at BUKU 3 and 4 banks, primarily due to Deposits (Trillion Rp) 1,325.08 1,367.15 1,459.36 1,463.95

LDR (%) 99.88 100.97 98.17 99.78

weaker deposit growth (yoy) at regional banks. BUKU 4

Credit (Trillion Rp) 1,445.75 1,553.07 1,610.90 1,781.89

Deposits (Trillion Rp) 1,715,10 1,923,69 1,933,77 2,080,91

Graph 4.3 Deposit and Credit Growth (yoy)
LDR (%) 84.30 80.73 83.30 85.63
6,000
Industri

5,000 Credit (Trillion Rp) 3,468.43 3,674.31 3,828.04 4,058.13

12.65%
10.45% Deposits (Trillion Rp) 3,834.50 4,114.42 4,319.75 4,413.24
3,000
10.38% LDR (%) 90.45 89.30 88.62 91.95

7.26%
1,000 Source: Bank Indonesia

0
Sem I 2014 Sem II 2014
Deposits
Source: Bank Indonesia
Deposits 19.67% of total deposits (Table 4.4). By currency,
Slower deposit growth in the banking industry
during the reporting semester is predicted to
endure into the first half of 2016 on lower deposit
rates (Banking Survey, Q4/2015), new OJK policy
to cap deposit rates at BUKU 3 and 4 banks as
well as potential crowding out of government
SBN issuances, the majority of which occur at the
beginning of the year. Nevertheless, even slower
deposit growth should be offset by realised state
budget spending as more government infrastructure
projects come online at the beginning of the year,
which is expected to stimulate deposit growth.
Sem I 2015 Sem II 201%
Weaker deposit growth affected all BUKU bank
Credit
groups, in particular BUKU 1 and 2 banks.
Nonetheless, such banks only account for around
however, rupiah deposits and foreign currency
deposits posted growth of 6.73% (yoy) and 9.97%
(yoy) respectively, down from 10.73% (yoy) and
22.41% (yoy) in the previous period.
The deposit growth slump primarily affected
demand deposits and term deposits, for which
growth decelerated from 15.87% (yoy) and 16.39%
(yoy) to 11.0% (yoy) and 4.60% (yoy) respectively.
Regarding term deposits, the slowdown mainly
affected term deposits of over Rp2 billion, with
growth slowing dramatically from 17.81% (yoy) to

75
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

2.42% (yoy), while the growth of term deposits The relatively large market share of term deposits
of less than Rp2 billion slowed more moderately was maintained predominantly at small banks and
from 13.52% (yoy) to 9.20% (yoy). The downtick a portion of medium banks. The comparatively
was blamed on lower deposit rates and was in line limited office network along with limited savings
with weaker credit growth, thereby alleviating the and checking account products and supporting
pressure on banks to accumulate expensive funds. infrastructure were cited as the main reasons why
the deposit structure at small banks was dominated
Concerning deposit composition, the market share by expensive funds. Moving forward, however,
of demand deposits decreased from 24.46% in lower deposit rates, slowed deposit growth and
semester I 2015 to 22.38% in the reporting period. expectations of an economic rebound are expected
The share of term deposits also declined, from to boost the market share of demand deposits and
47.30% to 45.99%, in particular for term deposits savings accounts.
of more than Rp2 billion that dropped from 32.06%
to 30.45%, contrasting the slight increase in term Similar to circumstances in the previous period,
deposits of less than Rp2 billion from 15.24% to deposit accumulation tended to concentrate on the
15.45%. Meanwhile, congruous with stronger island of Java, followed by Sumatra and Kalimantan,
growth in the reporting period, the share of savings in line with the business activity and circulation
deposits increased from 28.24% to 31.63% over the of money that also tended to concentrate on
same period. Java, especially in Jakarta as that national capital

Table 4.4 Deposit Growth by BUKU Bank Group (%, yoy)

Market Share in Semester

BUKU Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015
II 2015

BUKU 1 15.93 23.43 26.33 14.43 3.49

BUKU 2 15.21 17.50 14.75 3.68 16.18

BUKU 3 13.92 5.80 10.13 7.08 33.17

BUKU 4 12.66 14.76 12.75 8.17 47.15

Industry 13.64 12.29 12.65 7.26 100.00

Source: Bank Indonesia

Graph 4.4 Deposit Growth (yoy)

40%
35%
30% 9.97%
25%
20%
15%
10%
5% 7.26%
6.73%
0%
Semester I Semester II Semester I Semester II Semester I Semester II Semester I Semester II
2012 2013 2014 2015

Deposit Growth (yoy) Rupiah Deposit Growth (yoy) Foreign Currency Deposit Growth (yoy)

Source: Bank Indonesia

76
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 4.5 Deposit Rates Graph 4.6 Deposit Growth by Type

(%) (%) (%)

2.7 9.0 50
8.5 40
2.5
8.0
30
2.3
7.5 11.01%
20
2.1 9.20 %
7.0
10
6.5 8.69%
1.9 -
6.0 2.42 %
1.7 (10)
5.5
(20)
1.5 5.0 Semester I Semester II Semester I Semester II Semester I Semester II Semester I Semester II
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12
2012 2013 2014 2015 2012 2013 2014 2015

Demand Savings 1-Month Term Deposits Demand Savings Term Deposits Term Deposits
Deposits (Rp) Deposits (Rp) (Rp) – RHS Deposits (Rp) Deposits (Rp) <=2 billion > 2 billion

Source: Bank Indonesia Source: Bank Indonesia

and economic hub, where the share of deposits 2015 to 7.62% in the subsequent period. Deposit
accounted for 49.96% of the total. Meanwhile, a rates were lowered in the reporting period due to
declining market share outside of Java was reported slower credit growth, which eased competition for
on Sumatra and Kalimantan as commodity-oriented deposits amongst banks. In addition, banks also
businesses on both islands took a hit. lowered deposit rates in order to alleviate the
interest expense and, therefore, maintain income
In terms of interest rates, the average 1-month despite slower credit growth.
term deposit rate fell from 7.76% in semester I

Graph 4.7 Composition of Bank Deposits Table 4.5 Deposit Growth by BUKU Bank Group

30.7% 32.0% 32.1% 30.5% Deposit Growth (yoy)

Term Deposits
Sem I Sem II Sem I Sem II
15.1% 15.2% 15.2% 15.4%
2014 2014 2015 2015

<= 2M
30.4% 31.2% 28.2% 31.6%
BUKU 1 15.83 24.85 17.09 4.79

23.8% 21.6% 24.5% 22.4% BUKU 2 10.22 12.33 14.41 10.12

BUKU 3 18.42 8.28 10.51 7.38

Smt I 2014 Smt II 2014 Smt I 2015 Smt II 201
BUKU 4 8.43 18.91 15.64 11.36
Demand Savings Term Deposits Term Deposits INDUSTRI 12.93 13.90 13.52 9.20
Deposits (Rp) Deposits (Rp) <=2 billion > 2 billion
> 2M
Source: Bank Indonesia
BUKU 1 15.74 33.89 35.37 17.54

BUKU 2 22.61 38.02 22.99 2.34

BUKU 3 15.29 7.71 13.89 9.63

BUKU 4 30.80 40.18 17.74 -7.00

INDUSTRI 21.51 24.58 17.81 2.42

Source: Bank Indonesia

77
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Table 4.6 Market Share of Deposits per Island Graph 4.8 Average 1-Month Term Deposit Rate by BUKU Bank
Group
Deposit Share (%) Total (%)
Island Deposits
2012 2013 2014 2015 (Trillion Rp) 8.8

Java 76.09 76.77 77.15 77.32 3,403.64 8.6

Sumatera 11.88 11.45 11.43 11.17 491.70 8.4

Kalimantan 4.99 4.76 4.46 4.19 184.57 8.2

Sulawesi 2.99 2.92 2.86 3.15 138.45 8.0

7.76
Bali & Nusa 7.8 7.62
2.56 2.60 2.58 2.65 116.59
Tenggara
7.6
Papua and the
1.50 1.50 1.51 1.53 67.16 7.4
Maluku Islands

7.2
Source: Bank Indonesia
7.0
Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15

BUKU 1 BUKU 2 BUKU 3 BUKU 4 Industry

Source: Bank Indonesia

Loan Performance
Although long-term credit growth continued to
track a decelerating trend, credit growth rebounded
in the second half of 2015 from 10.38% to 10.45%
on optimism surrounding the promising economic
outlook for 2016 and lower credit risk linked to the
planned reduction to lending rates (Banking Survey,
Q4/2015).
By currency, rupiah loans accelerated from 9.90%
(yoy) to 11.95% (yoy) in the reporting period,
contrasting the downward trend of foreign currency
loans from 12.78% (yoy) to 2.92% (yoy) due to
rupiah depreciation and expectations of rupiah
depreciation.
In general, credit growth was driven by an increase
in disbursements of investment loans, for which
growth accelerated from 10.14% (yoy) to 14.70%
(yoy) and primarily affected the crude palm oil (CPO)
plantation and electricity subsectors. Meanwhile,
growth of working capital loans and consumer
loans slowed respectively from 10.77% (yoy) and
9.92% (yoy) to 9.04% (yoy) and 9.09% (yoy). The
oil and gas as well as coal subsectors contributed
to the slowdown of working capital loans, while
multipurpose loans and automotive loans were
acknowledged for weaker consumer loan growth.
In terms of market share, working capital credit
continued to dominate bank credit, accounting for
47.72%, followed by consumer loans with 27.25%
and consumer loans with 25.53%.
By economic sector, credit growth increased to
the trade sector, corporate services sector and
electricity sector in line with solid economic
growth in the hotels and restaurants sector,
financial services and corporate services sector,
as well as the utilities sector and the trade sector.
Furthermore, in the trade sector, the retail food
and beverages subsector as well as exporters of
crude palm oil (CPO) were the main contributors
to stronger credit growth. Meanwhile, in the
corporate services sector, the main contributor to
credit growth was the corporate sector.

78
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 4.9 Credit Growth

40%
35%
30%
25%
20%
15% 11.95%
10.45%
10%
5%
2.98%
0%
Semester I Semester II Semester I Semester II Semester I Semester II Semester I Semester II
2012 2013 2014 2015

Credit Growth (yoy) Rupiah Credit Growth (yoy) Foreign Currency Credit Growth (yoy)
Source: Bank Indonesia

Graph 4.10 Credit Growth by Loan Type Graph 4.11 Market Share of Different Loans

(%)
16
14.70
14 Investment Loans
13.16
11.49
12 26%
10.8310.77 10.14 9.92
10 9.04 9.09 Working
8 47%
Capital Loans
6
4
2
27%
-
Working Capital Loans Investment Loans Consumer Loans Consumer Loans

II-2014 I-2015 II-2015

Source: Bank Indonesia Source: Bank Indonesia

Graph 4.12 GDP Growth by Sector

Agriculture
(%) Mining
Manufacturing
15 Electricity
Water
Construction
10
Trade
Transportation and Warehousing
5 Hotels and Restaurants
Information and Communications
Financial Services
- Real Estate
Jun-14 Dec-14 Jun-15 Dec-15 Corporate Services
Government Administration
(5) Education Services
Health Services
Services and Others
(10)

Source: BPS-Statistics Indonesia

In the second semester of 2015, the trade sector posting gains from -0.19% (yoy) and 5.59% (yoy) to
accounted for the second largest share of bank 5.37% (yoy) and 22.58% (yoy) over the same period.
credit (21.6% of the total), with growth accelerating In contrast, weaker credit growth in the mining
from 9.54% (yoy) to 11.16% (yoy). In addition, the sector stemmed from sliding commodity prices,
corporate services sector (8.61% of total credit) and dwindling demand on the international market and
the electricity sector (2.45% of total credit) both sluggish GDP growth in the sector.
contributed to stronger credit growth, respectively

79
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 4.13 Credit Growth by Economic Sector

(%)
30

25
17.43 19.87 22.58
20
15.07
15
11.16 10.45
10 8.58
5.37
3.34 2.87
5

(5)
(4.62)
(10)
de

re

es

al
er

ice

cit
rin

tio

io

in

t
ltu

vic
a

To
th

ct

in

tri
Tr

rv
tu

rta

icu

er
O

ru

M
Se

ec
ac

po

lS
st

El
Ag
uf

te
n

cia
ns

Co
an

ra
a

So
po
Tr
M

r
Co
II-2014 I-2015 II-2015

Source: Bank Indonesia

Bank lending tended to concentrate on the island household consumption are also concentrated in
of Java in the second semester of 2015, followed the same area. Therefore, more balanced lending
by Sumatra, Kalimantan and Sulawesi. An increase to other areas outside of Java is required in order
in market share of credit was reported on nearly all to alleviate credit concentration risk and support
islands, with the exceptions of commodity-reliant equitable development providing demand for
Kalimantan and Sumatra as a result of tumbling credit is there in line with the requirement.
commodity prices.
By BUKU bank group, slower credit growth in the
On the island of Java, lending tended to concentrate reporting period affected all bank groups, except
in the Special Capital Region of (DKI) Jakarta, BUKU 4 banks. The most notable decline in credit
accounting for 32.76% of the total, in line with the growth was reported by BUKU 1 banks, falling from
the city’s status as an economic and business hub. 21.49% (yoy) to 17.99% (yoy), due to less corporate
The credit concentration in one area also implies demand for loans as corporate performance
that the risks inherent to economic activities and deteriorated combined with prudent bank lending.

Table 4.7 Market Share of Credit in Indonesia based on Table 4.8 Credit Growth by BUKU Bank Group
Project Location

Share of Credit (%) Sem I Sem II Sem I Sem II Market Share

Total Credit BUKU
Island 2014 2014 2015 2015 in Semester II
(Trillion Rp)
2012 2013 2014 2015
BUKU 1 17.81 17.74 21.49 17.99 3.37
Java 68.61 69.14 69.43 69.72 2,800.55
BUKU 2 17.56 12.11 10.53 8.62 16.73
Sumatera 15.74 15.26 14.95 14.87 597.51

Kalimantan 6.63 6.64 6.53 6.10 245.22 BUKU 3 19.03 10.70 8.25 5.82 35.99

Sulawesi 4.96 4.78 4.75 4.93 197.97 BUKU 4 15.42 11.74 11.42 14.73 43.91

Bali & Nusa Industry 17.21 11.59 10.37 10.45 100.00

2.88 2.99 3.16 3.17 127.23
Tenggara

Papua and the

1.18 1.19 1.19 1.21 48.49
Maluku Islands

Source: Bank Indonesia Source: Bank Indonesia

80
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

MSME Credit second half of 2015, most notably the agricultural

Bank loans disbursed to micro, small and medium sector and manufacturing industry, for which
enterprises (MSMEs) totalled Rp790.5 trillion in growth accelerated respectively from 11.47% (yoy)
the reporting period, accounting for 19.3% of and 8.09% (yoy) in semester I 2015 to 12.00% (yoy)
total outstanding bank credit. Furthermore, MSME and 9.95% (yoy) in semester II 2015. Growth in
credit growth accelerated from 6.78% (yoy) in the the reporting period was down, however, on that
previous semester to 8.0% (yoy) but was down posted in the same period one year ago, namely
from 15.09% (yoy) in the same period one year 16.96% (yoy) and 19.64% (yoy). Meanwhile, the
ago. The annual decline of MSME credit growth most significant decline during the second semester
was attributed to domestic economic moderation of 2015 was observed in the mining and quarrying
as well as dwindling demand for goods and services sector, for which the contraction deepened from
in line with weaker public purchasing power, which -0.81% (yoy) in semester I 2015 to -19.20% (yoy)
prompted the business community to postpone in semester II of the same year and reversed the
business expansion. Notwithstanding, optimism positive 19.61% (yoy) posted in semester II of 2014.
surrounding the promising economic outlook

Graph 4.14 MSME Credit Growth

Trillion Rp (%)
900 25.0
800 384.0
700 20.0

600 19.32
15.0
500
400
10.0
300 230.0
200 8.0 5.0
100 176.4
- 0.0
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15

Medium Enterprises Small Enterprises Micro Enterprises

MSME Credit Growth (yoy) – RHS MSME Credit Share (RHS)
Source: Bank Indonesia

prevented further declines in MSME credit growth, The decline of MSME credit in the mining and
evidenced by an increase in MSME investment quarrying sector stemmed from sliding commodity
credit from 4.21% (yoy) to 9.19% (yoy). In contrast, prices on the international market, thus spurring a
growth of MSME working capital loans dropped drop in performance at corresponding MSMEs as
moderately from 7.78% (yoy) to 7.57% (yoy). supporters of large-scale industry in the sector.

By economic sector, an MSME credit contraction By region, the distribution of MSME credit
touched nearly all sectors, with several sectors remained concentrated in centres of economic
reporting significant declines. Despite the backdrop activity, such as the islands of Java and Sumatra,
of domestic economic moderation, a number of accounting for 57.76% and 20.25% respectively.
economic sectors maintained positive growth in the Conversely, the shares of Kalimantan, Sulawesi,

81
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 4.15. MSME Credit Growth in Six Economic Sectors

60.0%

50.0%

40.0%

30.0%

20.0%
12.0%
11.6%
10.0%
10.0%
9.3%
0.0%
-4.6%
-10.0%
-19.2%
-20.0%
Mar

Mar
Jan

May

Jul

Sep

Nov

Jan

May

Jul

Sep

Nov

Jan

Mar

May

Jul

Sep

Nov
-30.0%
2013 2014 2015

Agriculture Trading Mining Transportation & Manufacturing Real Estate

Telecommunication
Source: Commercial Bank Monthly Report

Table 4.9 MSME Credit Growth and Share by BUKU Bank Group

MSME Credit Growth (yoy) MSME Credit Share

BUKU Sem I Sem II Sem I Sem II Sem I Sem II Sem I Sem II Sem I Sem II Sem I Sem II
2013 2013 2014 2014 2015 2015 2013 2013 2014 2014 2015 2015

BUKU 1 15.25 17.28 18.02 16.54 10.85 -0.60 5.45 5.52 5.48 5.59 5.68 5.14

BUKU 2 22.34 17.83 61.04 46.05 -3.78 -11.09 12.84 13.11 17.61 16.64 15.87 13.70

BUKU 3 15.84 5.09 11.89 4.81 -2.29 6.40 31.61 31.51 30.13 28.69 27.57 28.26

BUKU 4 14.09 22.39 9.58 13.28 16.12 16.41 50.11 49.86 46.78 49.08 50.87 52.89

Source: Commercial Bank Monthly Report, 2015, processed

Bali and Nusa Tenggara as well as Papua and By BUKU bank group, BUKU 4 banks dominated
Maluku were relatively low at just 7.05%, 7.12%, MSME credit disbursements in the second semester
5.27% and 2.25% respectively due to the majority of 2015, accounting for 52.89%, followed by BUKU
of banking infrastructure being located in urban 3 banks (28.265), BUKU 2 banks (13.70%) and then
areas. By sector, most MSME credit was absorbed BUKU 1 bank (5.14%). BUKU 4 banks dominated
by medium enterprises in the Wholesale and Retail MSME lending because of competitive advantage
Trade sector, accounting for a 52.21% share of the to distribute such loans at a maintained quality.
total due to bank competence in that segment and Competitive advantage manifested in the form of
the relatively low risk. MSME credit disbursements a broad office network that stretched into villages
to other sectors were relatively low, including the in rural areas combined with adequate human
manufacturing industry (10.05% share) as well as resources. In terms of growth, BUKU 2 and 1 banks
the agricultural, hunting and forestry sector (8.12% both experienced weaker growth on the year
share). earlier. The decline stemmed from bank efforts to
maintain loan quality and dwindling demand. In
contrast, BUKU 3 and 4 banks continued to enjoy
positive growth in the reporting period.

82
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Credit Risk When compared to the second semester of 2014,

The gross NPL ratio increased from 2.16% one year the trade sector and manufacturing industry
ago to 2.49% in the reporting period but dropped contributed to the increase of non-performing
from 2.56% in semester I 2015. Banks undertook a working capital loans, particularly exports of wood
range of efforts to improve credit quality towards as well as iron and steel casting. Meanwhile, the
yearend, including credit restructuring. All types transportation and mining sectors exacerbated the
of loans were affected by higher credit risk in the ratio of non-performing investment loans, most
reporting period, most notably working capital notably the domestic sea transport subsector as
loans for which the gross NPL ratio jumped from well as the mining and quarrying sector. Finally,
2.49% in semester II 2014 to 2.99%. In comparison the increase of non-performing consumer loans
to the previous period, however, the gross NPL stemmed primarily from housing loans for large
ratio of working capital loans was relatively stable houses in excess of 70m2.
at around 2.98%

Graph 4.16 NPL Ratio

(%)
4.5
4.0
3.5
3.0
2.5
2.49
2.0
2.16
1.5
1.0 1.25
1.08
0.5
-

2008 2009 2010 2011 2012 2013 2014 2015

Gross NPL Net NPL

Source: Bank Indonesia

Graph 4.17 Gross NPL Ratio by Economic Sector Graph 4.18 Gross NPL Ratio by Loan Type
(%) (%) 3.5
2.98 2.99
6 3.0 2.72 2.61
2.49
5 4.05 4.13 2.5 2.35
3.41 3.84
4 2.0
2.47 1.68
3 2.50 1.94 2.03 2.49 1.42 1.50
1.51 1.68 1.5
2
1.0
1
0 0.5
0.0
e

rs

on

ure

tal
s

s
ice

icit
ce
d

rin

nin
he
Tra

To
ati

cti

ult

rvi
erv

ctr
ctu
Ot

Mi
tru
ort

Working Capital Loans Investment Loans Consumer Loans

Se
ric

Ele
eS
ufa

ns
sp

Ag

ial
rat
Co
n
n

c
Tra
Ma

So
rpo

Sem II-2014 Sem I-2015 Sem II-2015

Co

Sem II-2014 Sem I-2015 Sem II-2015

Source: Bank Indonesia Source: Bank Indonesia

83
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Nonetheless, in comparison to the first semester increase in all regions, except Sulawesi. Kalimantan,
of 2015, the quality of investment loans and as a region hit hard by tumbling commodity prices,
consumer loans was observed to improve. The recorded the largest NPL increase, rising from
improvement in non-performing investment loans 3.01% to 3.86% over the reporting period.
was contributed by the construction and trade
sectors, specifically the construction of toll roads By BUKU bank group, an increase in gross non-
and coal exports. Meanwhile, the gains in non- performing loans (NPL) from semester II 2014 to
performing working capital loans originated from semester II 2015 affected all bank groups with the
housing loans for houses smaller than 70m2 as well exception of BUKU 1 banks. On the other hand,
as multipurpose loans. BUKU 4 banks recorded the largest increase in
the gross NPL ratio, namely from 1.49% to 1.90%.
By economic sector, the gross NPL ratio increased Notwithstanding the increase, the level of non-
for nearly all sectors, with the exception of the performing loans (NPL) remained below the 5%
construction sector. In the second semester of 2014, threshold.
the construction sector recorded the highest gross
NPL ratio at 4.61%, which subsequently dropped Table 4.10 Gross NPL by Region
to 4.05% in the second semester of 2015 as the Share of
Sem-I Sem-II Sem-I Sem-II
Island Credit in
NPL ratio of the toll road construction subsector 2014 2014 2015 2015
2015

Java 1.93 1.94 2.27 2.27 69.72

fell from 3.45% to 0.12%. On the other hand, the
Sumatera 2.77 2.60 3.34 2.82 14.87
mining sector and manufacturing industry recorded Kalimantan 2.44 3.01 3.42 3.86 6.10

the most significant increase in gross NPL ratio, Sulawesi 3.25 3.01 3.40 2.98 4.93

jumping from 2.52% and 1.86% in second semester Bali & Nusa
Tenggara
1.69 1.37 1.84 2.15 3.17

of 2014 to 4.13% and 2.50% respectively in the Papua & the

2.86 3.59 4.09 3.72 1.21
Maluku Islands
reporting period. The increase stemmed from the Source: Bank Indonesia

coal mining subsector and articles from plastic.

Bank efforts to mitigate credit risk reduced the gross
NPL ratio in the second semester of 2015 compared
to the previous period. The declines affected
the majority of economic sectors, excluding the
manufacturing industry, transportation, mining and
electricity. Amongst the various subsectors, the non-
performing loans (NPL) of the sea transportation
subsector experienced the most notable increase,
climbing from 5.15% to 8%.
Geographically, on the previous semester, the gross
NPL ratio of the banking industry was observed to
MSME Credit Risk
At the end of the reporting period, MSME credit
risk tended to increase, indicated by a steady rise
in the gross NPL ratio from the beginning of the
year. In general, the deterioration in MSME loan
quality was congruous with the domestic economic
downtick, which prompted an increase in the gross
NPL ratio of MSME loans on the previous year.
Nevertheless, bank efforts to improve the quality
of MSME loans successfully reduced the gross NPL
ratio from 4.65% in the first semester of 2015 to
4.20% in the second.

84
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Table 4.11 Gross NPL Ratio by BUKU Bank Group Graph 4.19 Gross NPL Ratio by Region
(%)
BUKU Sem-I 2014 Sem-II 2014 Sem-I 2015 Sem-II 2015 5.00

BUKU 1 2.23 2.11 2.38 2.09

4.50
4.20%
BUKU 2 2.92 3.11 3.59 3.49
4.00
BUKU 3 2.39 2.49 2.80 2.78 3.97%
BUKU 4 1.63 1.49 1.94 1.90 3.50 3.23%

Industry 2.16 2.16 2.56 2.49 3.19%

3.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Bank Indonesia

2012 2013 2014 2015

Source: Bank Indonesia

From a business owner’s perspective, less demand Improvements to MSME loan quality were reported
for goods and services were disclosed as the main for a number of sectors in the second semester
determinants of the surge in gross NPL during 2015. of 2015, primarily the wholesale and retail trade
On the other hand, the banks attributed the higher sector (3.96%) and the agricultural sector (4.53%).
gross NPL ratio to: (i) insufficient bank business In contrast, the mining and quarrying sector
preparation to disburse loans to micro, small and continued to experience a decline of MSME loan
medium enterprises (MSMEs); (ii) HR constraints quality, with the corresponding gross NPL ratio
(quality and quantity) to manage MSME loans; and soaring to 10.43% on the back of sliding commodity
(iii) limited office networks to monitor MSME loans. prices that impacted micro, small and medium
enterprises (MSMEs) as supporting industries in
In terms of business scale, the highest gross NPL the sector.
ratio affected small enterprises, followed by
Graph 4.21 Gross NPL of MSME Loans by Economic Sector
medium and then micro enterprises. By BUKU
bank group, however, the highest gross NPL ratio Mining and Quarrying 10.43%
Construction 7.36%
for MSME loans was reported by BUKU 2 banks Transportation and Communications 5.16%

(7.80%), followed by BUKU 3 banks (4.68%), BUKU Agriculture and Forestry 4.53%
Utilities 4.48%
1 banks (4.56%) and BUKU 4 banks (2.98%). Real Estate 4.35%
Social Services 4.13%
Fisheries 3.97%
Graph 4.20 Gross NPL of MSME Loans by Business Scale
Wholesale and Retail Trade 3.96%
(%)
Government Administration 3.87%
7.00
Manufacturing Industry 3.68%
6.00
Accommodation 3.12%
5.00
4.00 Financial Intermediaries 2.41%

3.00
Education Services 2.08%
Individual Services 2.07%
2.00
Health Services 1.73%
1.00
0.00
0% 2% 4% 6% 8% 10% 12%
Dec-13

Feb-14

Apr-14

Jun-14

Aug-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Aug-15

Oct-15

Dec-15

Source: Monthly Commercial Bank reports, 2015, processed

MSMEs Micro Small Medium Banking Industry

Source: Monthly Commercial Bank reports, 2015, processed

85
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

MSME Lending Requirements to accommodate the regulations and contribute

Aimed at promoting MSME development, through
Bank Indonesia Regulation (PBI) No. 14/22/PBI,
dated 21st December 2012, amended by Bank
Indonesia Regulation (PBI) No. 17/12/PBI, dated
25th June 2015, concerning Loan/Financing
Disbursements by Commercial Banks and Technical
Assistance to Develop Micro, Small and Medium
Enterprises (MSMEs), commercial banks
required to allocate 20% (incrementally) of total
credit to micro, small and medium enterprises
(MSMEs). Accordingly, as of yearend 2015,
commercial banks were required to allocate a
minimum of 5% of total credit to MSMEs, while
continuing to mitigate credit risk. In the specific
case of joint venture banks and foreign banks, of
which neither has sufficient expertise to disburse
MSME loans, non-oil and gas export loans to non-
MSMEs are considered as MSME loans in order
positively to the national economy.
In the execution of this policy, Bank Indonesia applies
incentives/disincentives for commercial banks.
As an incentive, banks that achieve the required
ratio of MSME loans to total credit are rewarded
with a looser RR-loan to funding ratio (RR-LFR) if
are non-performing loans (NPL) are maintained below
the threshold. In addition, Bank Indonesia also
provides HR training to enhance bank competence
in terms of disbursing MSME loans, provides
training to prospective MSME borrowers, facilitates
credit ratings as well as presents and publicises
awards. In contrast, the disincentives include
reducing demand deposit services for conventional
commercial banks that do not achieve the required
ratio of MSME loans to total credit or if the quality
of the loans deteriorates.

Figure 4.1. Achievement of the MSME Credit Ratio by Commercial Banks in 2015

Achieved: NPL of MSME Credit <5%

and/or NPL of Total Credit <5%

64 Banks
Achieved an MSME
Credit Ratio of 5%

102 Banks
Not Achieved: NPL of MSME Credit
>5% and/or NPL of Total Credit >5%
118 Commercial
38 Banks
Banks

4 Foreign Banks
Not Achieved an MSME
Credit Ratio of 5%
6 National Private Commercial Banks
16 Banks
4 Regional Banks

86
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Micro and Small Business Loans Through Economic Minister Regulation (Permenko) No. 6
People’s Business Credit (KUR) is a government scheme of 2015, dated 7th August 2015, as amended by Permenko
to provide micro and small business loans to productive No. 8 of 2015, dated 26th October 2015, the government
and feasible yet unbankable businesses. The KUR scheme refined its guidelines for the disbursement of KUR. The
originally began in 2007 with the participation of 33 regulation changed the scheme from a guarantee scheme
banks, consisting of four state-owned banks, 26 regional to a subsidised guarantee scheme with lower interest rates
banks, three national private commercial banks and two and a change to the scope of beneficiaries. Under the new
credit guarantee companies. KUR realisation from 2007 KUR scheme, the government was more selective when
until 2014 totalled Rp178.8 trillion, with non-performing appointing participating banks, approving just five (three
loans (NPL) maintained at 3.19%. state-owned banks and two national private commercial
banks) as well as two credit guarantee companies.
Considering the direction of government policy to
enhance MSME competitiveness, KUR disbursements Within a comparatively short timeframe in 2015,
were stopped temporarily at the end of 2014 to provide namely from 14th August to 31st December, actual
the opportunity for evaluation. Based on the evaluation, KUR realisation totalled Rp22.8 trillion, or 78% of the
the significant increase in non-performing loans (NPL) Rp30 trillion targeted for 2015. KUR disbursements in
experienced at several participating banks was attributed 2015 tended to concentrate in the trade sector (55.12%
to: (i) side streaming; (ii) a lack of socialisation activities share). In contrast, disbursements to the manufacturing
that led to KUR being perceived as grants; (iii) weak bank industry, which contributes greatly to GDP, were relatively
monitoring; and (iv) insufficient HR understanding at low at just 3.51% in the same period. Consequently, KUR
participating banks concerning KUR lending procedures. disbursements to the manufacturing industry should be
Following on from the evaluation, the government encouraged, while still adhering to prudential principles.
reinstated the KUR program but tightened regulations In addition, KUR allocation should also be promoted to a
and improved the scheme. number of sectors that tend to mitigate risk well, including
the information sector and education services.

Graph 4.22 Share and Gross NPL of MSME Loans by Economic Sector
% % % %
60 15.52% 17 60 17
15.63%
14.24%
15 15
50 50
12.23%
13 13
40 40
9.86% 11 11
8.53%
30 7.91% 9 30 9
26.22%
6.38% 21.52% 7 6.28% 7
5.38%
20 4.75% 5.47% 4.77% 20 4.68% 4.60%
13.72% 13.96% 3.76% 5 5
10.68% 7.87%
10 5.05% 5.18% 3.06% 4.16% 1.70% 10 1.10% 1.95% 1.73%
3 4.03% 3
1.70%
3.39% 2.07% 2.03% 1.73% 1.47% 0.98% 0.60% 2.48% 2.95% 3.64% 1.17%
0.08%
0 1 0 1
de

re

es

te

er
tio t
ice

ice

ice

ice

ra en

cit
in

tio

io

io

in

io
tu

ta

at
vic
a

n
ur

at

ct

in

at

tri
ist m
Tr

rv

rv

rv

rv

W
rta

Es
ul

er
tru

M
od

rm
ct

in rn
Se

Se

Se

Se

ec
ric

po

lS

al

n
a

m ve

El
m

ns

fo

ea
Ag

uf

Re
er

te

th

n
cia
ns

tio

Ad Go

In
Co
an

Cl
th

ra

al
a

co

an

He
po

a
O

Tr
M

uc
Ac

Fin

r
Co

Ed

KUR NPL Ratio (RHS) Sectoral GDP Sectoral Share KUR NPL Ratio (RHS) Sectoral GDP Sectoral Share

Source: Bank Indonesia

87
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

4.1.3 Market Risk were lowered slightly, consistent with maintained

Market risk in the banking industry, comprised
of interest rate risk, currency risk and the risk
of lower tradeable government securities (SBN)
prices, was relatively well mitigated. Interest rate
risk during the reporting period was relatively
stable as banks lowered deposit and lending rates
slightly. Currency risk was relatively limited due
to the banks’ proclivity to maintain a net long
position. Meanwhile, the risk of lower SBN prices
escalated moderately on falling SBN prices and the
large portion of available for sale (AFS) government
securities (SBN).
The interest rate risks associated with accumulating
and disbursing funds were relatively well mitigated.
In general, deposit rates in the banking industry
liquidity throughout the second semester of
2015 and slower credit growth. At the end of
the reporting semester, the 1-month rupiah term
deposit rate was lowered from 7.78% to 7.60%.
Furthermore, deposit rates fell at all BUKU bank
groups and for all types of deposits. Deposits rates
at BUKU 4 banks were lower than other BUKU bank
groups. The lower industry-wide deposit rate was
occasioned by foreign banks and joint venture banks
that lowered their rates to maintain profitability.
Congruous with the reductions to deposit rates,
banks also lowered lending rates in general. Interest
rates on rupiah working capital loans were observed
to drop from 12.71% to 12.48% and rates on rupiah
investment loans fell from 12.30% to 12.12%, while

Table 4.12 Deposit Rates by BUKU Bank Group Table 4.13 Lending Rates by BUKU Bank Group

1-Month Rupiah Working Smt II Smt I Smt II Smt I Smt II

Smt II Smt I Smt II Smt I Smt II
Rupiah Term Capital Loans (%) 2013 2014 2014 2015 2015
2013 2014 2014 2015 2015
Deposits (%)
BUKU 1 15.41 16.42 18.31 17.99 17.57
BUKU 1 8.82 9.00 9.17 8.72 8.67
BUKU 2 12.82 13.52 13.71 13.15 13.01
BUKU 2 8.37 8.24 9.11 8.12 7.90
BUKU 3 12.12 12.68 12.68 12.53 12.37
BUKU 3 8.44 8.67 8.91 8.20 8.13
BUKU 4 11.72 12.08 12.22 12.31 12.02
BUKU 4 7.02 7.77 7.95 7.00 6.76

Industry 7.92 8.27 8.58 7.78 7.60 Industri 12.14 12.64 12.81 12.71 12.48

Rupiah Rupiah Investment Smt II Smt I Smt II Smt I Smt II

Smt II Smt I Smt II Smt I Smt II
Demand Loans (%) 2013 2014 2014 2015 2015
2013 2014 2014 2015 2015
Deposits (%)
BUKU 1 16.15 17.21 16.21 15.75 14.29
BUKU 1 2.57 2.83 2.59 2.87 3.06
BUKU 2 12.47 13.17 13.62 13.37 13.16
BUKU 2 2.41 2.74 2.50 2.61 2.36
BUKU 3 12.88 13.15 13.17 13.11 13.01
BUKU 3 2.37 2.49 2.52 2.59 2.49

BUKU 4 1.80 1.92 1.90 1.74 1.75 BUKU 4 10.60 11.05 11.25 11.25 11.19

Industry 2.12 2.32 2.22 2.25 2.10 Industri 11.83 12.25 12.36 12.30 12.12

Rupiah Rupiah Consumer Smt II Smt I Smt II Smt I Smt II

Smt II Smt I Smt II Smt I Smt II
Savings Loans (%) 2013 2014 2014 2015 2015
2013 2014 2014 2015 2015
Deposits (%)
BUKU 1 14.18 14.16 14.03 14.03 13.99
BUKU 1 3.30 3.06 2.97 3.16 2.79
BUKU 2 13.21 12.86 13.27 13.54 13.49
BUKU 2 4.25 3.08 3.03 2.92 2.66

BUKU 3 2.47 2.55 2.68 3.03 3.15 BUKU 3 14.91 15.16 15.28 15.45 15.30

BUKU 4 1.43 1.42 1.35 1.27 1.31 BUKU 4 11.13 11.46 11.90 12.22 12.60

Industry 2.01 1.88 1.87 1.85 1.86 Industri 13.13 13.30 13.58 13.82 13.88

Source: Bank Indonesia Source: Bank Indonesia

88
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

rates on consumer loans bucked the trend and were

Graph 4.23 Total NOP by BUKU Bank Group
raised from 13.82% to 13.88%. Lower lending rates
were precipitated by reductions to deposit rates 4.0
3.5
that decreased bank interest expenses. In addition,

Trillion Rp
3.0
2.5
lower rates on working capital loans and investment 2.0
1.5

loans were the result of bank efforts to increase 1.0

0.5
0.0
lending against a backdrop of weaker demand. In -0.5
BUKU 1 BUKU 2 BUKU 3 BUKU 4
contrast, demand for consumer loans, particularly
Source: Bank Indonesia
housing loans, remained strong, thereby pushing
up the corresponding interest rate. By BUKU Graph 4.24 NOP Ratio by BUKU Bank Group
PDN Ratio
bank group, lending rates at BUKU 4 banks were 6%
5%
lower than other BUKU groups in line with lower 4%
3%
deposit rates at BUKU 4 banks as the dominant cost 2%

component of stipulating lending rates. 1%

0%
Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15

BUKU 1 BUKU 2 BUKU 3 BUKU 4 Industry

Currency Risk
Source: Bank Indonesia

In semester II 2015, market risk originating

from currency risk was relatively well mitigated
despite mounting exchange rate volatility. The
net long position and low net open position
(NOP) maintained by banks contributed to the
low currency risk during the reporting period. At
the end of semester II 2015, the banking sector
booked a net long position totalling Rp4.36 trillion,
down slightly from Rp5.42 trillion at the end of
the previous semester. Meanwhile, the net open
position (NOP) stood at 1.92%, down from 2.59%
over the same period, which was well below the
20% threshold. By BUKU bank group, BUKU 2 banks
recorded the highest net open position (NOP) at
2.49%, followed by BUKU 3 banks (1.36%), BUKU 4
banks (1.17%) and BUKU 1 banks (1.14%). On the
liabilities side, banks were not exposed to short
or long-term maturity risk. In general, the value of
bank liabilities remained relatively stable, reflecting
prudent risk management of maturing liabilities.
Risk of Lower SBN Prices
Banking industry risk stemming from changes in the
prices of tradeable government securities (SBN)
was well mitigated. In the second semester of 2015,
the banks’ SBN portfolio increased 19.6% from
Rp315.5 trillion at the end of the previous period
to Rp377.3 trillion. By bank group, the majority of
SBN holdings belonged to BUKU 4 banks, followed
by BUKU 3 and BUKU 2 banks. Furthermore, all
portfolios noted an increase, namely trading, held
to maturity (HTM) and available for sale (AFS). The
credit growth slump contributed to the increases as
banks extended their allocation of funds/liquidity
to tradeable government securities (SBN). In terms
of portfolio, most BUKU bank groups maintained an
AFS portfolio exceeding 50%, with the exception of
BUKU 1 banks (29.28%) that tended to favour held
to maturity (64.38%).

89
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Table 4.14 Value of SBN Holdings by BUKU Bank group Table 4.15 Share of SBN Holdings by BUKU Bank group

Smt II Smt I Smt II Smt I Smt II Smt II Smt I Smt II Smt I Smt II
Trading BUKU 4
2013 2014 2014 2015 2015 2013 2014 2014 2015 2015

BUKU 1 0.04 0.10 0.03 0.23 0.26 Trading 0.54 1.09 1.29 2.34 1.46

BUKU 2 5.47 9.68 12.16 7.84 13.51 AFS 72.62 68.39 66.53 62.47 61.47

BUKU 3 9.57 17.18 11.32 15.93 17.31 HTM 26.84 30.51 32.18 35.19 37.07

BUKU 4 0.80 1.97 2.39 3.61 2.62

Industry 15.88 28.93 25.90 27.62 33.70 Smt II Smt I Smt II Smt I Smt II
BUKU 3
2013 2014 2014 2015 2015

Trading 13.14 20.82 13.17 15.16 13.53

Available for Smt II Smt I Smt II Smt I Smt II
Sale (AFS) 2013 2014 2014 2015 2015 AFS 71.06 61.93 65.59 64.40 62.25

BUKU 1 1.27 1.01 1.13 1.17 1.21 HTM 15.80 17.25 21.24 20.44 24.22

BUKU 2 15.10 18.60 19.09 25.44 27.92

BUKU 3 51.77 51.11 56.35 67.67 79.62 Smt II Smt I Smt II Smt I Smt II
BUKU 2
2013 2014 2014 2015 2015
BUKU 4 108.10 123.26 123.14 96.44 110.74
Trading 14.90 22.87 26.02 15.06 20.77
Industry 176.23 193.98 199.71 190.73 219.50
AFS 41.16 43.93 40.84 48.86 42.93

HTM 43.95 33.20 33.14 36.08 36.30

Held to Smt II Smt I Smt II Smt I Smt II
Maturity (HTM) 2013 2014 2014 2015 2015

BUKU 1 1.57 1.99 2.35 2.58 2.67 Smt II Smt I Smt II Smt I Smt II
BUKU 1
2013 2014 2014 2015 2015
BUKU 2 16.12 14.06 15.49 18.79 23.61
Trading 1.38 3.09 0.83 5.87 6.34
BUKU 3 11.51 14.24 18.25 21.47 30.97
AFS 43.98 32.56 32.16 29.44 29.28
BUKU 4 39.95 55.00 59.56 54.32 66.79
HTM 54.64 64.35 67.01 64.69 64.38
Industry 69.16 85.28 95.65 97.16 124.05

Source: Bank Indonesia, processed Smt II Smt I Smt II Smt I Smt II

Industri
2013 2014 2014 2015 2015

Trading 6.08 9.39 8.06 8.75 8.93

AFS 67.45 62.94 62.16 60.45 58.18

HTM 26.47 27.67 29.77 30.80 32.88

Source: Bank Indonesia, processed

4.1.4 Assessment of Banking Industry Foreign
Loans
Foreign loans are an alternative source of bank
funding and used to improve the funding maturity
structure as well as manage liquidity. Banks are
currently more inclined to utilise foreign loans
as an alternative source of funding due to the
relatively cheap costs compared to deposits as well
as greater flexibility. Foreign loans are classified
as either short term (up to one year) or long term
(more than one year). In addition, foreign loans
are originated from an affiliated party (parent
company or business group) or non-affiliated party.
Affiliated loans typically come with lower lending
rates and less stringent lending requirements
than non-affiliated loans. Pursuant to prevailing
regulations, however, banks are only permitted to
draw on short-term foreign loans to a maximum of
30% of capital.
In December 2015, foreign loans in Indonesia grew
5.77% (yoy), decelerating from 6.36% (yoy) in the
first half of the year. Therefore, the position of
outstanding foreign loans at the end of December
2015 stood at USD310.72 billion, consisting
of USD143.01 billion held by the government

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 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 4.25 Private Foreign Loans (USD, millions) Graph 4.26 Foreign Loans by Borrowing Bank

Million USD Million USD

180,000 18,000
160,000 16,000
140,000 14,000
120,000 12,000
100,000 10,000
80,000 8,000
60,000 6,000
40,000 4,000
20,000 2,000
0 0
SMT 1

SMT 2

SMT 1

SMT 2

SMT 1

SMT 2

SMT 1

SMT 2

SMT 1*

SMT 2**

SMT 1

SMT 2

SMT 1

SMT 2

SMT 1

SMT 2

SMT 1

SMT 2

SMT 1*

SMT 2**
2011 2012 2013 2014* 2015 2011 2012 2013 2014* 2015

Banks Nonbanks State-Owned Private-Foreign Private Joint National

Banks Venture Private
Source: Bank Indonesia, processed Source: Bank Indonesia, processed

Graph 4.27 Growth of Bank Foreign Loans Graph 4.28 Maturity of Bank Foreign Loans (%)

Million USD 100%

35,000 40.00% 90% 38.34%
35.00% 80%
30,000 44.07%
70%
25,000 30.00%
60%
25.00%
20,000 50%
20.00% 61.66%
15,000 40%
15.00% 55.93%
30%
10,000
10.00% 20%
5,000 5.00% 10%
0 0.00% 0%
SMT 1

SMT 2

SMT 1

SMT 2

SMT 1

SMT 2

SMT 1

SMT 2

SMT 1*

SMT 2**

SMT 1

SMT 2

SMT 1

SMT 2

SMT 1

SMT 2

SMT 1

SMT 2

SMT 1*

SMT 2**
2011 2012 2013 2014* 2015 2011 2012 2013 2014* 2015

Bank Foreign Loans Growth (yoy) of Bank Foreign Loans Short-Term Long-Term

Source: Bank Indonesia, processed Source: Bank Indonesia, processed

and central bank (46.02% of the total) as well billion (24.82%), state-owned banks with USD5.66
as USD167.71 billion held by the private sector billion (17.41%) and foreign banks with USD2.99
(53.98%). billion (9.20%).

The total outstanding external debt of the banking The majority (55.93%) of banking industry foreign
industry was recorded at USD32.50 billion, with loans were short term, amounting to USD18.18
growth decelerating notably from 14.22% last billion, primarily in the form of cash and deposits.
semester to 2.49% and relatively stable interest In the case of long-term foreign loans, however,
rates. The share of banking industry foreign loans the majority will mature in 2018, totalling USD3.36
accounted for 19.38% of the private sector total billion (24.34% share). Furthermore, USD2.78
or 10.46% of the overall total. National private billion of long-term foreign loans will mature in
commercial banks held USD15.78 billion in foreign 2016, accounting for 20.13%. According to the Bank
loans, accounting for a dominant share of 48.57%, Business Plan (BBP) submitted to Bank Indonesia,
followed by joint venture banks with USD8.07 Indonesia’s banking industry is planning to request

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 4.29 Maturity Profile of Long-Term Foreign Loans (Annual) Graph 4.30 Maturity Composition of Long-Term Foreign Loans
Tahun
0.57%
2.39% 0.00%
2025 3,338.39

2024 15.59 3.47%

2018
2023 79.29 4.84%
2025
24.34%
2022 0.00 2016
2021 330.38 2017
19.95% 2019
2020 478.62
2020
2019 667.58
2021
2018 3,360.11 2023
24.19%
2017 2,754.22 2024
20.13%
2022
2016 2,778.96

December 15 2.000 2.000 December15

Million USD
Source: Bank Indonesia, processed Source: Bank Indonesia. processed

long-term foreign loans to the tune of USD8.59 4.1.5 Profitability, Efficiency and Capital
billion in 2016. The risks inherent to foreign loans Profitability
will be mitigated through natural hedging, namely Banking industry profitability increased slightly
by extending the foreign funds as foreign currency despite the credit slump and economic moderation.
loans to generate foreign exchange. Net profit after tax in semester II 2015 stood at
Rp53.83 trillion, up from Rp50.84 trillion in the
Foreign loan developments in December 2015 were previous period.
consistent with domestic economic moderation.
Moving forward, Bank Indonesia will continue to Only BUKU 4 banks reported profits gains,
monitor the position of foreign loans, particularly contrasting the other BUKU bank groups that noted
in the private sector. Such surveillance aims to a decline in profits on the previous period.
mitigate potential risks that could undermine
macroeconomic stability, while simultaneously The return on assets (ROA) of the banking industry
promoting foreign loans to optimally support increased from 2.29% in semester I 2015 to 2.32%
economic financing. in the reporting period. Again, BUKU 4 banks

Table 4.16 Banking Industry Profit/Loss (Rp, trillions)

Profit Before Tax Profit After Tax

Group 2014 2015 2014 2015

I Ii I Ii I Ii I Ii

BUKU 1 1.40 1.07 1.46 1.63 1.10 0.52 1.15 1.12

BUKU 2 8.76 7.05 7.12 6.41 7.06 4.76 5.29 4.72

BUKU 3 21.79 16.04 15.65 11.72 17.20 12.22 12.03 8.80

BUKU 4 41.52 45.94 40.16 49.28 33.07 36.23 32.38 39.20

Industry 73.47 70.11 64.39 69.04 58.43 53.72 50.84 52.83

Source: Bank Indonesia, Monthly Commercial Bank reports, processed (including Islamic Banks)
Notes: P/L in semester II is the P/L delta at yearend subtracted by P/L in semester I.

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 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 4.31 Return on Assets (ROA) by BUKU Bank Group (%)

(%)

4.50

4.00
3.50

3.00
2.32%
2.50
2.00

1.50
1.00

0.50

0.00
2013 - I 2013 - II 2014 - I 2014 - II 2015 - I 2015 - II

BUKU 1 BUKU 2 BUKU 3 BUKU 4 Industry

Source: Indonesian Banking Statistics, processed

contributed to the increase, while the other bank derivatives) that accounted for a 58.14% share.
groups reported a decline in ROA on the previous Fee-based income increased moderately by 0.32%
period. on the previous period, accounting for a relatively
large 25% share of total non-interest income.
In terms of income, interest operating income grew
4.27% on the previous semester, dominated by The interest operating expenses also increased, by
interest income from loans (70.07%) that increased 0.02%, in the reporting semester, dominated by those
5.27% on semester I 2015. In contrast, interest to a third party (54.61%). Operating expenses excluding
income from securities and placements at Bank interest increased significantly, however, climbing
Indonesia contracted respectively by -6.26% and 17.44% on the previous period and dominated by spot
-8.84%. Meanwhile, non-interest operating income and derivatives (30%), followed by payroll (21%) and
soared 22.95% on the previous period, originating provisions for impairment losses (20%).
primarily from trading transactions (spot and

Table 4.17 Breakdown of Income Accounts (Rp, trillions)

2013 2014 2015

Income Account Share
I II I II I II

Interest Operating Income 212.91 245.17 268.96 299.03 316.32 329.82 100%

Placements at Bank Indonesia 4.55 3.49 3.27 4.55 3.99 3.63 1%

Bonds 11.94 14.37 17.32 19.89 22.06 20.68 6%

Credit 154.31 177.21 193.30 210.60 219.53 231.10 70.07%

Non-Interest Operating Income 72.76 66.88 80.22 68.21 93.94 116.90 100%

Bond Sales 2.12 2.08 3.24 3.07 3.40 2.19 2%

Trading (Spot & Derivatives) 25.19 33.42 30.94 19.81 39.72 67.96 58.14%

Dividends. Commissions/Provisions/Fees 21.27 23.63 26.67 27.54 28.77 29.09 25%

Non-Operating Income 11.07 14.97 12.82 12.41 12.15 11.93 100%

Source: Bank Indonesia, Monthly Commercial Bank reports, processed

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Table 4.18 Breakdown of Expense Accounts (Trillion Rp)

2013 2014 2015

Expense Account Share
I II I II I II

Interest Operating Expense 98.75 116.36 136.06 157.78 168.99 169.02 100%

To Another Bank 1.74 2.10 2.24 2.37 2.96 3.52 2%

To a Third Party 52.86 63.50 79.56 93.37 94.76 92.31 54.61%

Bonds 2.80 3.08 3.51 3.49 3.92 4.04 2%

Loans Received 1.18 1.31 1.76 1.75 1.91 2.43 1%

Operating Expenses Excluding Interest 124.89 126.21 138.92 139.92 177.46 208.41 100%

Bond Losses 2.01 0.95 1.66 0.92 1.39 1.46 1%

Spot and Derivatives 21.67 27.02 27.18 16.70 35.92 62.19 29.84%

Insurance Premiums 4.26 4.55 4.76 5.13 5.82 6.11 3%

Provisions for Impairment Losses 26.99 14.67 27.38 27.70 44.44 42.22 20%

Payroll 35.02 36.77 39.62 41.13 45.20 44.08 21%

Non-Operating Expenses 8.74 11.69 13.56 11.83 11.57 12.18 100%

Source: Bank Indonesia, Monthly Commercial Bank Reports, processed

Table 4.19 NIM Ratio by BUKU Bank Group

2013 2014 2015

Kelompok
I II I II I II

BUKU 1 7.04 7.12 6.19 6.27 6.06 6.28

BUKU 2 5.14 5.22 5.44 5.27 4.93 5.05

BUKU 3 4.90 4.93 4.49 4.52 4.29 4.43

BUKU 4 5.91 6.14 6.35 6.28 6.18 6.29

Industry 5.44 5.56 5.49 5.46 5.27 5.40

Source: Bank Indonesia, Monthly Commercial Bank Reports, processed

Another profitability indicator, namely net interest Efficiency

margin (NIM), was observed to increase by 13bps to Banking industry efficiency decreased to some
5.40%, affecting all BUKU bank groups. The NIM ratio degree, reflecting increases in the BOPO efficiency
is not only an indicator of lending activity, however, ratio and cost-to-income ratio (CIR). The BOPO
considering that the ratio is calculated from net efficiency ratio rose from 81.40% last semester to
interest income divided by earning assets (including 81.49% in the reporting period, affecting BUKU 2
loans, bonds, placements at Bank Indonesia and and 3 banks due to increases in the cost of interest
investments). The relatively high banking industry on loans received, interest operating expenses
NIM in comparison to peer countries in ASEAN to other banks and overheads, including the cost
was due to the dominance (85%) of credit interest of goods and services as well as promotional
income in Indonesia’s banking sector stemming from costs. Nonetheless, the cost of interest on loans
a combination of credit volume and the high lending received, interest operating expenses to other
rates offered. banks, goods and services as well as promotional
costs represented a relatively small share of total
operating expenses.

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 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 4.32 BOPO efficiency ratio by BUKU Bank Group (%) Graph 4.33 CIR Ratio by BUKU Bank Group (%)
(%)
(%)
80
100
90 70
80 60
81.49
70 50 59.47
60
50 40
40 30
30 20
20
10 10
0 0
2013 - I 2013 - II 2014 - I 2014 - II 2015 - I 2015 - II 2013 - I 2013 - II 2014 - I 2014 - II 2015 - I 2015 - II

BUKU 1 BUKU 2 BUKU 3 BUKU 4 Industry BUKU 1 BUKU 2 BUKU 3 BUKU 4 Industry

Source: Indonesian Banking Statistics, processed Source: Bank Indonesia, Monthly Commercial Bank reports, processed

The cost-to-income ratio (CIR) was also noted up from 20.28%. The composition of bank capital
to increase from 57.06% to 59.47% because the remained dominated by core capital (Tier 1) with
operating expenses excluding interest exceeded net an 88.84% share. Banks maintained a high level
interest income and non-interest income, coupled of CAR in anticipation of the new Basel III capital
with a decline in non-operating income. All BUKU requirements in the form a capital conversion
bank groups reported an increase in the cost-to- buffer, countercyclical buffer and capital surcharge
income ratio (CIR), except BUKU 1 banks. applicable to systemically important banks (SIB),
effective from the beginning of 2016. In addition
Capital to meeting the new requirements, prudent bank
The level of capital was maintained in the banking lending amidst domestic economic moderation
industry, reflecting a Capital Adequacy Ratio (CAR) also contributed to the CAR increase in the banking
well above the minimum 8% threshold at 21.39%, industry.

Graph 4.34 Banking Industry CAR (%) Graph 4.35 Banking Industry Tier 1 Ratio (%)
(Billion Rp) (%)
4,500 22.00
4,000
21.00 24.00 21.39
3,500 21.39
22.00
3,000 20.00 20.00
2,500 18.00 19.00
19.00
2,000 16.00
1,500 18.00 14.00
12.00
1,000
17.00 10.00
500
2013-I

2013-II

2014-I

2014-II

2015-I

2015-II

- 16,00
2013 - I 2013 - II 2014 - I 2014 - II 2015 - I 2015 - II

Capital Risk-Weighted Assets CAR CAR Tier 1

Source: Bank Indonesia, processed Source: Bank Indonesia, processed

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 FINANCIAL STABILITY REVIEW
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Table 4.20 CAR by BUKU Bank Group

Highest CAR Lowest CAR Average CAR CAR

% 2014 2015 2014 2015 2014 2015 2014 2015

I II I II I II I II I II I II I II I II

BUKU 1 215.19 93.51 145.53 142.94 10.43 10.19 10.02 8.98 28.34 22.25 25.28 29.42 18.97 17.64 19.86 23.24

BUKU 2 88.71 68.01 61.48 121.23 12.81 10.68 12.11 14.67 24.78 23.87 22.53 26.23 21.41 20.91 19.96 22.40

BUKU 3 78.28 78.01 77.04 80.56 12.25 13.55 13.56 14.20 21.29 21.25 21.56 22.76 21.45 21.78 22.35 23.50

BUKU 4 18.63 17.89 20.16 20.16 15.85 16.59 17.23 18.61 17.01 17.08 18.66 19.29 17.01 17.12 18.78 19.26

Industry 19.45 19.57 20.28 21.39

Source: Bank Indonesia, processed

ASEAN 5 Banking Indicators evidenced by the return on assets (ROA) and net
Indonesia’s banking industry performed relatively interest margin (NIM). The efficiency of Indonesian
well amongst peer countries in the ASEAN region. banks, however, was comparatively low amongst
In terms of capital resilience, the banking industry ASEAN countries.
in Indonesia maintained a comparatively high
Capital Adequacy Ratio (CAR). Furthermore, during 4.1.6 Stress Testing Bank Capital
the second half of the year, when credit growth was Stress tests were used in the assessment of risk
observed to slow in peer countries, credit growth in to measure capital resilience (CAR) in the banking
Indonesia remained stable and was the strongest in industry nationwide as well as by BUKU bank group.
the region. Nevertheless, credit risk in Indonesia Stress tests incorporated credit risk and market risk
also demanded vigilance because gross NPL was the (interest rates, exchange rates and SBN prices),
second highest in the region after Thailand (2.6%). using bank balance sheet and performance data for
In terms of profitability, the banking industry in December 2015.
Indonesia was the most profitable in ASEAN 5, as

Graph 4.36 CAR in ASEAN 5

Banking Industry CAR (%)
22%
21.4%

20%

18%
17.4%

16% 16.1%
15.9%

14% 15.5%

12%
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Jan-15

Sep-15

Dec-15

Indonesia Malaysia Singapura Thailand Philipines

Source: The respective websites of each central bank, Bankscope

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 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 4.37 Credit Growth in ASEAN 5 Graph 4.38 Gross NPL in ASEAN 5
Credit Growth (yoy, %) Gross Banking Industry NPL (%)
10%
35%

30% 8%
25%
6%
20%

15% 4%
10.6% 2.6%
10% 8.2% 2.5%
7.9% 2% 2.2%
5% 4.3% 2.2%
0.0% 1.1%
0% 0%
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Jan-15

Sep-15

Dec-15

2005

2006

2007

2008

2009

2013

2014

Jan-15
2010

2011

2012

Sep-15

Dec-15
-5%

Indonesia Malaysia Singapura Thailand Philipines Indonesia Malaysia Singapura Thailand Philipines

Source: The respective websites of each central bank, Bankscope Source: The respective websites of each central bank, Bankscope

Graph 4.39 NIM in ASEAN 5 as of December 2015 Graph 4.40 ROA in ASEAN 5 as of December 2015

5.2% 2.3%

3.3% 1.3%
2.5% 1.2% 1.1% 1.0%
2.0%
1.6%

Indonesia Malaysia Philipines Thailand Singapura Indonesia Malaysia Philipines Thailand Singapura

Source: The respective websites of each central bank, Bankscope Source: The respective websites of each central bank, Bankscope

Graph 4.41 Operating Costs to Operating Income in Graph 4.42 Cost-to-Income Ratio (CIR) in ASEAN
ASEAN 5 as of December 2015 5 as of December 2015

81.5% 64.2%
79.8% 59.5%
48.2% 48.8%
75.6% 43.7%
70.8%
68.2%

Indonesia Malaysia Philipines Thailand Singapura Indonesia Malaysia Philipines Thailand Singapura

Source: The respective websites of each central bank, Bankscope Source: The respective websites of each central bank, Bankscope

Capital Resilience to Credit Risk According to the worst-case scenario macro stress
The overarching goal of stress testing credit risk is to test, assuming GDP would drop -3% below the
gauge capital resilience amidst domestic economic baseline, the BI Rate would be raised 200bps and the
moderation in terms of rising gross non-performing rupiah would depreciate 20%, the banking industry
loans (NPL). The stress tests were performed using in general was shown to remain resilient with gross
scenario-based analysis, otherwise known as macro NPL remaining around 4% for the next two years
stress tests, which predict the impact of rising gross and the Capital Adequacy Ratio (CAR) dropping
NPL on capital, assuming deviation of -1%, -2% and moderately from 21.2% to 19.5%. Furthermore, no
-3% from the projected GDP baseline. In addition BUKU bank group was shown to have a resultant
to scenario-based analysis, sensitivity analysis was CAR fall below the 8% threshold. Nevertheless,
also used to predict the outcome of rising gross Bank Indonesia will remain vigilant of banks that
NPL on capital, assuming increases in gross NPL of could potentially need to supplement capital in
5% to 15%. order to meet the statutory reserve requirement.

97
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 4.43 Stress Testing NPL Increases

25% 23.50%
22.74%
21.16% 20.88%
19.26%
20% 17.61% 17.45%
15.93% 15.66%
15% 13.03%

10%

5%

0%
Industry BUKU 1 BUKU 2 BUKU 3 BUKU 4

Initial CAR 5.0% 7.5% 10.0% 12.5% 15.0%

Graph 4.44 CAR Fluctuations Delta (bps)

-360.42
BUKU 1
-31.21
-604.85
BUKU 2
-112.90
-785.75
BUKU 3
-153.60
-513.55
BUKU 4
-102.64
-523.10
Industry
-82.98
-900 -800 -700 -600 -500 -400 -300 -200 -100 0

5.0% 7.5% 10.0% 12.5% 15.0%

According to the sensitivity analysis (Graph 4.41 and
Graph 4.42), assuming an increase in the gross NPL
ratio of 5% - 15% on the position in December 2015
(2.49%), banking industry CAR was shown to remain
above the 8% threshold along with the CAR of each
BUKU bank group. Historically over the past five
years, the gross NPL ratio of the banking industry has
never topped 5%.
Capital Resilience to Market Risk
Capital resilience to market risk was assessed
based on the risk of higher interest rates, rupiah
depreciation and lower SBN prices. Higher interest
rates would affect bank liabilities and receivables,
particularly short term, due to repricing. Banks with
a net liability are more prone to losses on higher
interest rates due to a corresponding increase on the
liabilities side.
In terms of currency risk, banks with a short net open
position (NOP) would be more exposed to rupiah
depreciation. Conversely, banks maintain a net
long position would gain from rupiah depreciation.
In addition to interest rate risk and currency risk,
stress tests were also conducted for lower SBN
prices. Banks holding trading and available for sale
(AFS) government securities (SBN) would vulnerable
to losses due to a decline in the marked-to-market
value of SBN.
Stress Testing Higher Interest Rates
Bank vulnerability to the risk of higher interest rates
was measured through the exposure of short-term
rupiah net assets and liabilities (less than one year)
based on bank maturity profile data. Stress tests were
conducted using sensitivity analysis, namely a hike in
the BI Rate of 1% to 5%. Assuming a 5% bump in the BI

98
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 4.45 Stress Testing Higher Interest Rates

25%
20.88% 23.50% 22.64%
22.74%
21.16% 20.28% 21.05% 19.73%
20% 19.26% 18.52%

15%

10%

5%

0%

Industry BUKU 1 BUKU 2 BUKU 3 BUKU 4

Initial CAR 100bps increase 200bps increase 300bps increase 400bps increase 500bps increase

Graph 4.46 CAR Fluctuation Delta (bps)

-74.32
BUKU 1
-14.86
-86.80
BUKU 2
-17.36
-115.52
BUKU 3
-23.10
-169.22
BUKU 4
-33.84
-88.49
Industry
-17.70

-180 -160 -140 -120 -100 -80 -60 -40 -20 0

100bps increase 200bps increase 300bps increase 400bps increase 500bps increase

Rate, banking industry CAR would decrease 88.5bps Stress Testing Lower SBN Prices
to 20.28%. Furthermore, no BUKU bank group would Bank vulnerability to the risk of lower SBN prices
experience a decline in the Capital Adequacy Ratio was determined by bank SBN portfolio exposure to
(CAR) to below the 8% threshold, decreasing in the trading and AFS SBN. Lower SBN prices were stress
range of just 1-2%. tested using sensitivity analysis, applying a 5% to
25% decline in SBN prices. According to the worst-
Stress Testing Rupiah Depreciation case scenario, banking industry CAR could potentially
Rupiah depreciation was stress tested using sensitivity drop 142.8bps to 19.74%. In addition, no BUKU bank
analysis, namely rupiah depreciation of 10% to 50%. group would experience a CAR decline to below the
Under the worst-case scenario of 50%, industrywide 8% threshold. In general, the results of the stress tests
bank CAR would increase 13.8bps to 21.30% as clearly showed that the impact on banking industry
a result of the net long position maintained in the CAR would be relatively minimal, indicating adequate
banking industry. Consequently, no BUKU bank group bank capital to anticipate the losses associated with
would experience a decline in CAR to below the 8% lower SBN prices.
threshold, in fact the CAR of each BUKU bank group
would increase on the significant net long position Subsequent integrated stress tests, namely by
maintained. combining the wort-case stress tests of credit risk

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 4.47 Stress Testing Rupiah Depreciation

25% 22.74% 22.75% 23.50% 23.71%

21.16% 21.30% 20.84% 21.14%
20% 19.26% 19.31%

15%

10%

5%

0%
Industry BUKU 1 BUKU 2 BUKU 3 BUKU 4

Initial CAR 10% Depreciation 20% Depreciation 30% Depreciation 40% Depreciation 50% Depreciation

Graph 4.48 CAR Fluctuation Delta (bps)

4.80
BUKU 1
0.96
20.61
BUKU 2
21.10
25.53
BUKU 3
23.32
0.90
BUKU 4
0.18
13.78
Industry
11.87

0 5 10 15 20 25 30

10% Depreciation 20% Depreciation 30% Depreciation 40% Depreciation 50% Depreciation

Graph 4.49 Stress Testing Lower SBN Prices

25% 23.50%
22.74% 22.47% 21.99%
21.61% 20.88%
19.74% 19.46% 19.26%
20%
17.83%

15%

10%

5%

0%
Industry BUKU 1 BUKU 2 BUKU 3 BUKU 4

Initial CAR 5% Decline 10% Decline 15% Decline 20% Decline 25% Decline

Graph 4.50 CAR Fluctuation Delta (bps)

-143.77
BUKU 1
-28.75
-151.80
BUKU 2
-30.36
-142.05
BUKU 3
-28.41
-27.22
BUKU 4
-5.44
-142.05
Industry
-28.56
-160 -140 -120 -100 -80 -60 -40 -20 0

5% Decline 10% Decline 15% Decline 20% Decline 25% Decline

100
 Assessment Of Assessment Of Conditions
Financial System Financial Market And Risks The Household
Stability Conditions And Risks And Corporate Sectors
and market risk, revealed that banking industry
and BUKU bank group CAR would remain above
the 8% threshold. Nevertheless, some banks were
expected to require additional capital if the economy
moderated significantly for a prolonged period.
4.2 Nonbank Financial Industry
During the second semester of 2015, the nonbank
financial industry3 continued to perform soundly
despite slower growth in comparison to the first half
of the year. The total assets and financing of finance
companies experienced slower growth in line with
domestic economic moderation. Similar conditions
were observed for the insurance industry, which
reported slower growth of assets and investments.
In terms of risk, however, non-performing financing
(NPF) at finance companies was well mitigated on
decelerating growth. The ratio of gross claims to
gross premiums in the insurance industry declined
on the last period. Meanwhile, interconnectedness
between banks and finance companies also tended
to decrease, indicated by a drop in placements
at banks as well as loans from banks. In contrast,
however, interconnectedness between the banking
sector and insurance industry increased.
4.2.1 Finance Companies
Finance companies maintained performance during
the second semester of 2015 on slower growth.
The total assets of finance companies expanded
3
In this case, finance companies and insurance companies.
4
Source: www.gaikindo.or.id
5
Source: GDP Report according to use (Q4/2015 data), Bank Indonesia
Banks And Strengthening Bank Indonesia Policy
Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction
1.29% (yoy) to Rp425.75 trillion, decelerating from
4.91% (yoy) in the same period one year ago and
from 4.14% (yoy) in semester I 2015. The slowdown
stemmed from negative growth of financing
volume (-0.78%, yoy), valued at Rp363.27 trillion,
reversing the positive 2.48% (yoy) posted in the
previous period. Domestic economic moderation
precipitated slower financing growth accompanied
by weaker public purchasing power.
Consumer financing remained dominant with
a 68.01% share of total financing, followed by
leasing (29.01%), factoring (2.96%) and credit cards
(0.03%). By sector, the others sector dominated FC
financing with a 50.32% share (primarily automotive
financing), down slightly from 50.47% in the first
half of the year. The decline was consistent with
weaker motor vehicle sales, which fell from 525,491
units4 in semester I to 487,800 units in semester II
2015.
Negative growth of leasing (5.03%, yoy) further
undermined financing growth at finance companies
due to sliding coal and CPO prices, considering that
around 13% of total leasing financing is allocated
to the mining sector. Consumer financing posted
slower growth in the reporting period, decelerating
from 5.14% (yoy) to 0.54% (yoy) due to weaker
household consumption growth5, which fell from
9.39% in semester II to 8.92% in semester II 2015
but increased from 8.36% in semester I 2015. The
respective market shares of factoring and credit
cards were still very small in the reporting period.
101
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 4.51 Finance Company Performance Graph 4.52 FC Financing

(Trillion Rp)
(Trillion Rp)
500 400
350
400
426 300
420 430 223 237 246 249 247
401 413
300 359 366 370 250 210
348 361 363
321 200
200 150
5 8 8 9 10 11
100
100
50
106 117 116 111 111 105
-
Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15
Assets Financing Leasing Consumer Financing
Factoring Credit Cards

Source: Bank Indonesia Source: Bank Indonesia

Graph 4.53 Financing by Currency Graph 4.54 NPF Ratio of Finance Companies

(Trillion Rp) %
400 3
61 55 55 52
64 2.5
300 54
2 1.62
200 314 1.5 1.61
300 311 311
285 1.41 1.45
267
1
100
0.5
0
Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 0
Mar-12

Jun-12

Sep-12

Dec-12

Mar-13
Jun-13

Sep-13

Dec-13

Mar-14
Jun-14

Sep-14

Dec-14

Mar-15
Jun-15

Sep-15

Dec-15
Rupiah Foreign Currency

Source: Bank Indonesia Source: Bank Indonesia

Financing denominated in rupiah and a foreign
currency posted growth in negative territory, with
rupiah financing declining 1.14% (yoy) on the
previous semester. Furthermore, rupiah financing
remained dominant at
accounting for 85.67% of the total.
Financing risk at finance companies was well
mitigated on slower financing growth, evidenced
by a relatively low and stable non-performing
financing (NPF) ratio of 1.45%. A potential
increase in non-performing financing (NPF) would
demand vigilance, however, if domestic economic
moderation persists. According to simulation
results6, finance company profits would only be able
to sustain an increase of NPF to 4.63%, assuming all
current financing (C) became doubtful (D).
finance companies, Consistent with slower financing growth, sources
of funds for finance companies also tended to
slow. The total funding volume grew by only 0.1%
(yoy), down from 3.99% (yoy) in the first semester
of 2015, due to a decline in domestic loans to
2.15% (yoy) after bank lending rates for finance
companies were raised. Similarly, growth of foreign
loans also decelerated to 6.24% (yoy) despite the
portion of foreign loans remaining comparatively
large at 31.01% as a result of higher lending rates

6
Simulated using FC profit data for December 2015.

102
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

on rupiah loans than foreign currency loans. At the companies was Rp15.90 trillion. The majority of FC
end of semester II 2015, only 21.18% of FC loans financing was in the form of rupiah loans, accounting
from banks were extended with an interest rate of for Rp56.31 trillion, while foreign currency loans
below 10%, while 78% of the loans came with rates totalled Rp2.74 trillion. Notwithstanding the small
exceeding 10%, thus the cost of funds at finance portion, potential currency risk was still faced by
companies was relatively high (Graph 4.53). finance companies.

At the end of the reporting semester, 45 indebted The majority of indebted finance companies with
finance companies were recorded with total foreign loans and rupiah financing hedged against
outstanding foreign loans amounting to Rp107.21 currency risk. Such risk mitigation measures have
trillion. Of the 45, banks held shareholdings in six also reduced contagion risk from possible defaults
finance companies in the range of 25-99%. The on foreign currency loans borrowed by finance
total outstanding foreign loans of the six finance companies from their respective parent bank.

Graph 4.55 Share of FC Financing base on Bank Lending Rates

%
60

50 49.41

40

30 29.41

20
21.18
10
Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

<10% 10%-12% >12%

Source: Bank Indonesia

Graph 4.56 Financing and Funding Growth Graph 4.57 Sources of Funds

(Trillion Rp)
%
400 345 351 346
20 329 338
350
294 37 39 40
300 33 35
15 31 53 51 53 56 61
250 51
10 200 101 109 114 121 107
81
150
5 100
0.10 131 142 142 141 136 138
50
-
(0.78) -
Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15

Domestic Loans Foreign loans Securities

Capital Total Funding
Total Funding Total Financing

Source: Bank Indonesia Source: Bank Indonesia

103
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

The efficiency of finance companies was noted simulations showed that only one finance company
to decline in the reporting period, with the would potentially experience negative equity.
corresponding BOPO efficiency ratio increasing from
84.87% to 85.35%. Congruously, FC profitability also The interconnectedness between the banking and
slumped, indicated by the return on assets (ROA) finance industries subsided in the reporting period
and return on equity (ROE) declining respectively as bank loans to finance companies decreased
from 3.43% and 12.53% to 3.32% and 11.49%. along with FC placements at banks. Disbursed funds
by banks at the end of the second semester of 2015
Based on stress tests, the capital resilience of fell from 5.57% (yoy) to 2.65% (yoy). In terms of
finance companies to rupiah depreciation was well funding sources, however, FC funds allocated to
maintained. Capital resilience was tested using a banks in the form of deposits (demand, savings and
sample of 29 finance companies with Net Foreign term deposits) and securities declined respectively
Liabilities (NFL) 7
against a scenario of rupiah by 2.04% and 90.38%.
depreciation to a level of Rp18,000 per USD. The

Graph 4.58 Growth of External Debt at Finance Companies

% %
40 40
32.33 35
35
30
30
25
25 20
20 15
15 10
5
10 -
5 (5)
(6.24)
- (10)
Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Position of External Debt to Total Liabilities Annual External Debt Growth (RHS)

Source: Bank Indonesia

Graph 4.59 ROA, ROE and BOPO of Finance Companies

% %

25 88
11.49 86
20
84
15 82
80
10 85.35 78

3.32 76
5
74
- 72
Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

ROA ROE BOPO (RHS)

Source: Bank Indonesia

7
Net Foreign Liabilities (NFL) = foreign currency liabilities > foreign currency assets

104
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Table 4.21 Interconnectedness between the Banking and Finance Industries

Component Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 ∆ yoy % yoy

Investments (Rp, billions) 28,976 26,155 26,811 23,340 25,531 (1,280) (4.77)
Term, Demand & Savings 14,954 15,720 15,824 13,793 15,501 (323) (2.04)
Deposits
Spot and Derivatives 6,689 3,779 4,235 6,871 7,405 3,171 74.88
Banker’s Acceptances - - - - - 0  
Securities Held by Finance 5,292 5,040 4,644 453 447 (4,197) (90.38)
Companies
Disbursed Loans 2,001 1,542 2,035 2,125 2,136 101 4.98
Loan Capital 40 74 73 99 41 (32) (43.70)
Liabilities (Rp, billions) 123,440 130,166 126,356 122,915 123,012 (3,344) (2.65)
Bank Debt 106,150 107,460 103,766 99,636 97,994 (5,772) (5.56)
Spot and Derivatives 1,155 1,858 2,593 2,059 1,896 (697) (26.89)
Securities Issued by Finance 10,628 12,870 11,775 12,633 14,370 2,596 22.04
Companies
Banker’s Acceptances - - 5 35 2 (3) (57.16)
Investments from Banks 5,507 7,977 8,217 8,552 8,750 533 6.49

Source: Monthly Commercial Bank reports

4.2.2 Insurance Companies and reinsurance companies with total assets

The insurance industry maintained performance amounting to Rp803.72 trillion. The majority
despite slower growth. Total assets grew at 6.93% of insurance companies were owned by private
(yoy), down from 12.26% (yoy) in the first half of the nationals and not listed on the Indonesia Stock
year. Similarly, investment volume also decelerated Exchange. The total assets of the insurance industry
from 14.83% (yoy) to 5.11% (yoy) over the same were dominated by 50 life insurers with a 41.02%
period. share, followed by two social insurance companies
(29.07%), 84 general and reinsurance companies
A total of 139 insurance companies were operating (16.49%) and three compulsory insurance
at the end of semester II 2015, including insurance companies (13.42%).

Graph 4.60 Insurance Industry Asset Share Graph 4.61 Insurance Industry Assets and Investments
(Trillion Rp) %
900 87.05 90
777 804
800 82.83 81.94 755 85
692 80.77 80.02 79.79
29.07% 700 78.22 641 80
615 616 610 622
600 542
523 509 505 75
41.02%
500 455
70
400
65
300
13.42%
60
200
16.49% 55
100
- 50
Life Insurance Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15
General Insurance and Reinsurance
Compulsory Insurance Social Insurance Assets Investments Ratio (RHS)

Source: Financial Services Authority (OJK) Source: Financial Services Authority (OJK)

105
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 4.62 Ratio of Current Assets to Current Liabilities Graph 4.63 Gross Premiums and Claims

Trillion Rp 300 90%

*) include BPJS 1.65 78.5% 68.90%
71.9% 72.6% 71.34% 80%
1.80 800 250 67.4%
1.60 700 64.2% 62.4% 70%
1.40 600 200 60%
1.20
500 50%
1.00 150
400
0.80 40%
300
0.60
200 100 30%
0.40
0.20 100 20%
50
- - 10%
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
- 0%
2011 2012 Sem I Sem II Sem I Sem II Sem I Sem II
2013 2013 2014 2014 2015 2015

Gross Premiums Gross Claims Ratio of Gross Claims to

Current Aset Current Liabilities CA/CL (RHS) Gross Premiums (RHS)

Source: Financial Services Authority (OJK) Source: Financial Services Authority (OJK)

Risk in the insurance industry was noted to escalate The share of insurance industry funds sourced
on the year earlier, indicated by an annual increase from foreign loans is currently low, accounting for
in the gross claims to gross premiums ratio from just 0.05% (USD77 million) of the total in the form
62.4% to 68.9% despite a decline on the previous of premium debt, claim debt, reassurance debt,
period. Liquidity risk in the insurance industry retrocession debt (reinsurance) and commission
was relatively well mitigated, reflecting a ratio of debt.
current assets8 to current liabilities9 of >1 at 1.67.
Graph 4.64 Insurance Indicators

Insurance industry density and penetration 1,200 3.00%

indicators10 stood at Rp1,023,870 and 2.26% 1,000 2.50%

respectively, up from Rp963,713 and 2.17% in the 800 2.00%

previous semester. The comparatively low scores of 600 1.50%

both indicators reflect the vast growth opportunity 400 1.00%

ahead of the insurance industry as the population 200 0.50%

grows along with increased welfare and public

- 0.00%

awareness. The extensification program is currently 2009 2010 2011 2012 2013 2014 2015

seeking to intensively build the insurance customer Gross Premiums

(Trillion Rp)
Density
(Thousand Rp)
Penetration
(Thousand Rp)
base through government programs under the *) Gross premiums represent annualised premiums in December 2015.

auspices of the Social Security Management Agency **) GDP as of December 2015
Penetration = Gross Premiums/GDP

(BPJS) and through microinsurance targeting low- Density = Gross Premiums/Total Population

Source: Financial Services Authority (OJK), Bank Indonesia, processed

income earners.

8
Current Assets = Total Assets – Strata Title Buildings or Land with Buildings for Own Use – Other Fixed Assets – Other Assets.
9
Current Liabilities = Total Liabilities.
10
Penetration is the ratio of gross premiums to GDP. An increase in penetration indicates an increase in the portion of insurance in the domestic economy.

106
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Interconnectedness between the banking and 13.24% (yoy) and 10.99% (yoy).
insurance industries has tended to increase. At the
end of the reporting semester, bank placements BUKU 1 banks were shown to be the most
at insurance companies skyrocketed 75.12% (yoy), interconnected with the insurance industry. The
equivalent to Rp1.9 trillion, from 14.03% (yoy) in dependence of such banks on the insurance
semester I 2015. The increase stemmed from a Rp2.2 industry increased as deposits and holdings of
trillion increase in bank investments at insurance debt securities increased. In addition, the share
companies in the period. Meanwhile, insurance of insurance industry deposits held by BUKU 1
industry placements at banks increased 12.80% banks accounted for around 50.65% of the total.
(yoy) from 6.53% (yoy) over the same period. In Increased interconnectivity was the result of lower
terms of funding, bank deposits originating from lending rates offered to insurance companies by
insurance companies and bank debt securities BUKU 1 banks.
held by insurance companies grew respectively at

Graph 4.65 Insurance Industry External Debt

Million USD Billion USD

140 180
149.56
160
120
140
100
120
80 77.01
100
60 80
60
40
40
20 20
- -
Feb-12

Apr-12

Jun-12
Aug-12

Oct-12

Dec-12
Feb-13

Apr-13

Jun-13
Agt-13

Oct-13
Dec-13

Feb-14

Apr-14

Jun-14
Agt-14

Oct-14

Dec-14
Feb-15

Apr-15

Jun-15
Agt-15

Oct-15
Dec-15

Insurance Industry External Debt Total External Debt (RHS)

Graph 4.66 Weighted Average Rupiah Deposit Rate of BUKU 1 Banks

%
12
9.43
10

6
7.23
4

0
Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

Jun-13

Agt-13

Oct-13

Dec-13

Feb-14

Apr-14

Jun-14

Agt-14

Oct-14

Dec-14

Feb-15

Apr-15

Jun-15

Agt-15

Oct-15

Dec-15

Weighted Average Rupiah Deposit Rate for the Insurance Industry Weighted Average Rupiah Deposit Rate (Total)
Source: Bank Indonesia

107
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Table 4.22 Interconnectedness between the Banking and Insurance Industries

Component Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 ∆ yoy % yoy

Investments (Billions Rp) 114,461 135,705 141,311 144,570 159,394 18,083 0.13
Term, Demand & Savings 103,319 124,978 130,407 132,765 147,675 17,268 0.13
Deposits
Spot and Derivatives - - - - - -  
Banker’s Acceptances - - - - - -  
Securities Held by Finance 6,486 6,534 6,267 7,269 6,955 688 0.11
Companies
Disbursed Loans 21 20 514 513 513 (1) (0.00)
Loan Capital 4,635 4,172 4,124 4,023 4,251 127 0.03
Liabilities (Billions Rp) 1,870 2,670 2,661 3,044 4,661 1,999 0.75
Bank Debt 932 767 694 689 537 (157) (0.23)
Spot and Derivatives - - - - - -  
Securities Issued by Finance - - - - - -  
Companies
Banker’s Acceptances - - - - - -  
Investments from Banks 938 1,903 1,967 2,356 4,123 2,156 1.10

Source: Commercial Bank Monthly Report

Declines in the return on assets (ROA) and return
on equity (ROE) in the third quarter of 2015
indicated weaker performance of public listed
insurance companies in 2015 despite an increase
in total assets. Accordingly, ROA and ROE fell
from 5.65% and 8.72% in Q3/2014 to 2.24% and
3.34% respectively. In contrast, total asset growth
accelerated to 16.20% (ytd) from 12.54% (ytd) over
the same period to Rp38.85 trillion. The downturn
in profitability at insurance companies stemmed
primarily from lower returns on investment in the
form of shares, tradeable government securities
(SBN) and mutual funds, coupled with higher
operating costs.
The dominant portion of insurance industry
investment placements were in the form of term
deposits, accounting for 38.48% or Rp 4.94 trillion,
followed by bonds and medium-term notes (MTN)
with 26.48% or Rp3.40 trillion and then shares
with 16.00% or Rp2.05 trillion. In December 2014,
11
bonds and medium-term notes (MTN) accounted
for 22.20%, increasing thereafter in Q3/2015 to
26.48% due to a surge of corporate bond issuances
in 2015, which expanded the investment options
for insurance companies. The share of tradeable
government securities (SBN) remained relatively
low, however, at just 1.95% of total investment
assets due to lower SBN yields compared to
corporate bonds.
In terms of capital, all public listed insurance
companies have met the minimum capital
requirement of Rp100 billion. Furthermore, the
majority of public listed insurance companies have
also met the minimum risk-based capital (RBC)
requirement of 120%. The solid capital base of the
insurance industry is expected to absorb potential
risks in the sector.

Through to Q3/2015.
11

108
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Table 4.23 Performance of Public Listed Insurance Companies

 
TW I TW II TW III TW IV TW I TW III ∆ 2014- ∆ 2014-
  2012 2013 TW II 2015
2014 2014 2014 2014 2015 2015 2015 (ytd)* 2015 (yoy)**
 

A, Total Assets 21.63 27.62 29.18 30.03 31.09 33.43 32.80 35.96 38.85 16.2% 25.0%

B, Investment Assets 8.61 8.63 9.17 9.05 9.86 10.13 10.66 12.58 12.84 26.8% 30.3%

    Term Deposits 3.26 2.52 2.62 2.61 2.71 3.06 3.06 4.75 4.94 61.3% 82.3%

    Shares 1.33 1.51 1.59 1.76 1.89 1.99 2.59 2.47 2.05 3.2% 8.8%

    Bonds and MTN 1.40 1.86 2.02 1.77 1.73 2.25 2.18 2.94 3.40 51.2% 96.6%

    Government Bonds 0.05 0.07 0.07 0.12 0.14 0.19 0.21 0.08 0.25 28.8% 74.1%

    Mutual Funds 1.84 1.91 2.23 2.26 1.13 1.49 1.88 1.75 1.76 17.6% 55.4%

    Others 0.72 0.75 0.65 0.54 2.25 1.14 0.75 0.58 0.44 -61.6% -80.6%

C, Non-Investment Assets 13.03 18.99 20.00 20.98 21.23 23.31 22.13 23.38 26.01 11.6% 22.5%

D, Capital 12.97 17.92 19.62 19.40 20.13 21.03 21.81 23.07 26.01 23.7% 29.2%

  Net Profit 1.81 1.94 0.55 1.21 1.76 2.36 0.60 1.26 0.87 -63.3% -50.5%

Biaya/Beban Usaha (kumulatif) 4.89 5.95 1.74 3.52 5.09 7.81 1.56 4.15 5.89   15.7%

                     

Profitability                      

  ROA 8.4% 7.0% 1.9% 4.0% 5.65% 7.1% 1.8% 3.51% 2.2% -4.8% -3.4%

  ROE 13.9% 10.8% 2.8% 6.2% 8.72% 11.2% 2.7% 5.47% 3.3% -7.9% -5.4%

*) Year-to-date (ytd) growth from Q3/2015 to Q4/2015

**) Year-to-date (ytd) growth from Q3/2015 to Q3/2015

Graph 4.67 Asset Composition of Public Listed Insurance Table 4.24 Capital Requirements for Public Listed
Companies Insurance Companies

(%) Tw,III 2014 Tw,II 2015 Tw,III 2015

Perusahaan
(Rp M) (Rp M) (Rp M)
100
ABDA 1,174 1,131 1,149
90
80 AHAP 172 144 111
70
AMAG 1,442 1,415 923
60
50 ASBI 144 144 132
40 ASDM 232 234 211
30
20 ASJT 160 154 101
10 ASRM 269 265 208
0
LPGI 1,326 1,451 1,266
2012 2013 TW I TW II TW III TW IV TW I TW II TW III
2014 2014 2014 2014 2015 2015 2015 MREI 568 541 454
PNIN 20,151 17,413 15,361
Bonds Shares Bonds and MTN
SBN Others ASMI 215 174 212
Mutual Funds

Source: Corporate Financial Statements, processed Source: Corporate Financial Statements, processed

109
 FINANCIAL STABILITY REVIEW
No. 26, March 2016
People’s Business Credit (KUR) Scheme to drive
Box 4.1 MSME Development
The vast majority (99.9%) of productive
businesses in Indonesia are micro, small and
medium enterprises (MSMEs). Considering the
small business scale of such enterprises, the most
binding constraint is capital. Numerous MSMEs
are considered viable businesses but have limited
access to formal financing in order to overcome
the capital constraints.
One endeavour undertaken to expand MSME
access to financing began in 2007 when the
Government instituted policy to nurture MSME
development through the People’s Business Credit
(KUR) scheme. Throughout implementation, the
government regularly evaluated the program
seeking to improve the scheme. Consequently,
the government honed the guidelines for KUR
lending through Economic Minister Regulation
(Permenko) No. 6 of 2015, dated 7th August 2015,
which was subsequently amended by Economic
Minister Regulation (Permenko) No. 8 of 2015,
dated 26th October 2015, effective from August
2015.
The refined guidelines for KUR implementation
were executed through Economic Minister
Regulation (Permenko) No. 13, dated 30th
December 2015, which intended to increase
lending and extend the reach of the KUR program
by expanding the borrower base, while lowering
110
lending rates. The salient provisions of the
regulation are as follows:
a) Expand KUR borrowers to include start-up
businesses;
b) Cap the KUR lending rate at 9%; and
c) Increase the number of KUR lenders, including
banks and nonbanks that perform soundly
and are recommended by the relevant
supervisory authority.
The government targeted KUR lending totalling
Rp100-200 trillion, with the lending rate capped
at 9%, and earmarked an interest subsidy of
Rp10.6 trillion from the state budget in 2016.
Through the refined guidelines, the government
expects the new targets to be accomplished in
2016, which will expand MSME access to bank
financing.
The innovative new KUR scheme also integrates
a number of other credit programs into the KUR
program, including Food Security and Energy
Loans (KKPE), Cattle Breeding Business Loans
(KUPS) as well as Development and Revitalisation
of Bioenergy Plantation Loans ((KPEN-RP),
making the scheme more relevant to each sector.
Furthermore, the KUR program is supported by
value chain financing. Value chain finance refers
to financial products and services that flow to
or through any upstream or downstream point
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Box Figure 4.1.1 Financeable Value Chain through KUR

UPSTREAM DOWNSTREAM
Financing:
• Trade Services • Bank Financing in the form of
• Technology Investment Microfinance and Retail Loans

Services (Logistics, Trade)

Post-Production/ Marketing/Structured
Production Inputs Production
Harvest Markets

• Working capital • Production • Technology Investment • Factoring

• Agro-inputs • Warehouse Receipts
• Technology Investment

• Bank financing can utilise • Bank Financing in the form of • Applied in the planned Warehouse
Microfinance and Retail Loans Microfinance and Retail Loans. Receipt KUR System
and is applied in the planned
Sectoral KUR Scheme (Food Crops,
Horticulture, Livestock (excluding
beef cattle) Aquaculture).

of the value chain and add value to the various
business subsectors. The scheme is expected to
mitigate risk and boost efficiency by providing
market assurance for the micro, small and
medium enterprises (MSMEs).
The planned target for KUR lending in 2016 is
Rp100 trillion, which involves a net expansion
of Rp70.5 trillion or 239.0% on 2015. Based
on simulations, planned KUR disbursements
in 2016 will precipitate MSME credit growth
of 15.93% (yoy), up from 8.00% (yoy) in 2015.
Nonetheless, KUR lending could takeover MSME
loans due to the comparatively low lending rate
(9%). Assuming no further expansion of non-KUR
MSME loans, if 25% of disbursed KUR represents
takeover of MSME loans, then MSME credit is
projected to expand by 9.3% (yoy). Furthermore,
if 50% of disbursed KUR represents takeover of
MSME loans, then MSME credit is projected to
expand by 6.2% (yoy) in 2016.

111
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Box Table 4.1.1 KUR Growth Simulation

Previous KUR New KUR

Outstanding Outstanding Net Expansion in

Enterprise Growth in 2016 (yoy)
2016* (Billion Rp)
Dec - 14 Dec - 15 Dec - 15 Dec - 16
(Billion Rp) (Billion Rp) (Billion Rp) (Billion Rp)

Micro 28,023.5 232.4 14,419.1 69,777.0 55,125.5 376.2%

Small 19,944.1 4,168.2 7,642.5 27,775.0 15,964.3 135.2%

Medium 2,346.2 2,337.1 695.4 2,448.0 (584.5) -19.3%

Total 50,313.8 6,737.7 22,757.0 100,000.0 70,505.3 239.0%

*) Including loan repayments

Box Table 4.1.2 MSME Loan Growth Simulation

MSME based on Takeover of

in billions MSME Credit Growth Simulation based on Credit Expansion
MSME Loans

Total MSME Credit MSME Credit Growth in 2016

Bank MSME
KUR Target MSME Credit Expansion Additional Expansion Expansion after Additional if KUR is used to takeover and
Loans
December KUR without MSME expansion
December
2016
2015
(Billion Rp) (%) (Billion Rp) (%) (Billion Rp) (%) 25% 50%

BRI 246,398.4 67,500.0 33,129.4 13.4 34,371 13.9 67,500 27.4 20.5 13.7

Mandiri 75,777.3 13,000.0 7,031.1 9.3 5,969 7.9 13,000 17.2 12.9 8.6

BNI 49,315 11,500.0 6,216.6 12.6 5,283 10.7 11,500 23.3 17.5 11.7

Regional Banks 54,540.9 2,500.0 2,578.3 4.7 - 0.0 2,578 4.7 3.4 2.3

Other Commercial 364,435 4,000.0 31,330.2 8.6 - 0.0 31,330 8.6 0.8 0.5
Banks

Total 790,467 98,500 80,286 10.2 45,623 5.8 125,908 15.93 9.3 6.2

112
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Box Table 4.1.3 Comparison of the Previous KUR Scheme (2007-2014) and the New KUR Scheme (commencing in 2015)

Micro KUR Retail KUR

Feature
Previous Scheme New Scheme Previous Scheme New Scheme

Interest Rate Max 22% p.a. (effective) Max 9% p.a. (effective) Max 13% p.a. (effective) Max 9% p.a. (effective)

Loan Limits Max Rp20 million Max Rp25 million >Rp25 million – Rp500 >Rp25 million – Rp500 million
million

Guarantee 80% for priority sectors
(agriculture, fisheries,
small businesses and
Indonesian migrant
workers), 70% for non-
priority sectors
Agreement between the participating 80% for priority sectors Agreement between the
bank and guarantee company (agriculture, fisheries, participating bank and guarantee
small businesses and company
Indonesian migrant
workers), 70% for non-
priority sectors

Borrowers Productive and feasible
but unbanked businesses
Productive individuals/business
entities consisting of: MSMEs,
prospective Indonesian migrant
workers (TKI), prospective
international apprentices, family
members of fixed-income employees
and TKI, full-time TKI placed abroad,
dismissed employees
Productive and feasible
but unbanked businesses
Productive individuals/business
entities consisting of: MSMEs,
family members of fixed-income
employees and TKI, full-time TKI
placed abroad

Data Responsibility of relevant Credit Program Information System Responsibility of relevant Credit Program Information System
Technical Ministry Technical Ministry

Loan Maturity Investment Loans: 5 years Investment Loans: Max of 5 years Investment Loans: 5 years Investment Loans: Max of 5 years
Working Capital Loans: Working Capital Loans: Max of 3 Working Capital Loans: Working Capital Loans: Max of 4
3 years years 3 years years
Perennial crops: 10 years

Loan Extension Period Investment Loans: 10 Investment Loans: 7 years Investment Loans: 10 Investment Loans: 7 years
years Working Capital Loans: 4 years years Working Capital Loans: 5 years
Working Capital Loans: Working Capital Loans:
6 years 6 years

Linkage Program Executing Executing Executing Executing

Channelling Channelling Channelling Channelling

Basic Collateral Business Activity Business Activity Business Activity Business Activity

Additional Collateral N/A In accordance with bank assessment, N/A In accordance with bank
non-binding assessment

Online System Not regulated Lending bank and guarantee Not regulated Lending bank and guarantee
company required to develop online company required to develop online
system system

Sector All business sectors Agriculture, fisheries, Manufacturing
and trade sectors as well as related
services. Accommodation and
food provision, transportation,
warehousing and communications,
real estate, leasing, corporate,
education, community, socio-cultural,
entertainment and others
All business sectors
Agriculture, fisheries, Manufacturing
and trade sectors as well as related
services. Accommodation and
food provision, transportation,
warehousing and communications,
real estate, leasing, corporate,
education, community, socio-
cultural, entertainment and others

Executing Banks 33 commercial banks,
consisting of all state-
owned banks, regional
banks and private
national commercial
banks approved by the
government
5 commercial banks, consisting
of state-owned banks and private
national commercial banks approved
by the government as well as
additional regional banks, other
private national commercial banks
and nonbank financial institutions still
seeking government approval
33 commercial banks,
consisting of all state-
owned banks, regional
banks and private
national commercial
banks approved by the
government
5 commercial banks, consisting
of state-owned banks and private
national commercial banks
approved by the government as well
as additional regional banks, other
private national commercial banks
and nonbank financial institutions
still seeking government approval

113
In general, Islamic financial sector performance remained in positive territory
throughout the second half of 2015 despite domestic economic moderation and
external pressures. Islamic financial market pressures were reflected in slightly higher
sukuk yields, a modest slump on the Jakarta Islamic Index (JII), a decline in Islamic
interbank money market transactions and lower Mudharabah Investment Certificate
(SIMA) returns. The performance of Islamic mutual funds decreased but continued to
outperform conventional investment funds.

In terms of the financial institutions, the Islamic banking industry continued to

consolidate during the reporting period. Credit risk and liquidity risk at Islamic banks
tended to ease towards yearend. Furthermore, capital injections to a number of Islamic
banks from the corresponding parent bank demonstrated industry commitment to
maintain Islamic bank performance, thereby preserving a solid capital base. Meanwhile,
takaful, or Islamic insurance, continued to record positive but fluctuating growth.

5
THE ISLAMIC FINANCIAL
SECTOR
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Islamic Financial Institutions Maintained Performance

Despite Heightened Risks

Risk Accumulated on Islamic

Financial Markets

SIMA Yield on Islamic Interbank Islamic Stock Index

Money Market down to down to
6.19% 603,349
Transaction Volume
Volatility up to
down to
25.43%
Rp530 billion

Stock Market
Limited Sukuk Yield Gains Capitalisation up to
Rp2,556.15 trillion

Islamic Financial Institutions

Islamic Banks Takaful

The Islamic banking Capital injections to a number of

industry continued Islamic banks from the corresponding
to consolidate in the parent bank demonstrated industry Takaful continued to record
reporting period. commitment to maintain Islamic bank positive but fluctuating growth.
performance.

Liquidity
Rp
LA/NCD up to CAR up to Aset
Rp
Rp
115.78% 0.52% increased to
LA/Deposits up to Rp27 trillion
15.53%
Rp
Credit Risk
NPF of Islamic ROI fluctuated
Profitability Business Units
Rp
ROE down to up to
3.93% 4.84%
ROA up to NPF of Islamic
0.52% Banks up to
3.03%

116
 Assessment Of Assessment Of Conditions
Financial System Financial Market And Risks The Household
Stability Conditions And Risks And Corporate Sectors
5.1.Assessment of Islamic Financial
Markets
Global Islamic financial markets continued to
perform positively but growth slowed on global
economic moderation. Global Islamic financial
assets totalled USD2.4 trillion in 2015, with the
Malaysia International Islamic Financial Centre
(MIFC) predicting USD4 trillion in 2020. Of the total,
Islamic financial market assets totalled USD1.6 –
2.1 trillion and were projected to hit USD3.4 trillion
in 2018. Countries in the Middle East, including
the United Arab Emirates (UAE), Saudi Arabia,
Kuwait and Qatar, as well as Malaysia, continued
to dominate global Islamic financial markets.
Meanwhile, Indonesia, Pakistan and Bangladesh are
considered emerging Islamic market economies.
The Islamic financial markets in Indonesia continue
to expand. Sukuk remains the dominant instrument
on the Islamic capital market and money market,
with transactions on the primary and secondary
markets growing on the back of expanding
investor demand. Congruent with sukuk market
development, the Islamic stock market also offers
alternative investment options. The propitious
increase in the amount of Islamic securities traded
and sound performance of Islamic issuers have
elevated the Jakarta Islamic Index (JII), which
ultimately boosted the number of investors from
2,795 in 2014 to 4,908 in 2015. The Islamic money
market has also expanded on the anticipated
demand for short-term liquidity by Islamic banks.
Islamic mutual funds have also performed well,
reflecting continuous, albeit slower, net asset value
(NAV) growth.
Banks And Strengthening Bank Indonesia Policy
Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction
The share of the Islamic financial market to financial
markets in general remained somewhat limited but
Bank Indonesia continued to develop various Islamic
financial instruments. In 2015, Bank Indonesia
issued regulations on Islamic repo transactions and,
at the beginning of 2016, promulgated regulations
concerning Islamic hedging in order to deepen
Islamic financial markets in Indonesia.
5.1.1 Sukuk Market Risk Profile
Domestic sukuk market development is inextricably
linked to the role and initiatives of the market
players. The first sukuk issued in Indonesia were
corporate sukuk initiated by PT Indosat in 2002
to the tune of USD17.5 million using Mudharabah
contracts. Thereafter in 2005 and 2007, sukuk
based on Ijarah contracts were issued amounting
to USD28.5 million and USD40 million respectively.
Such issuances of corporate sukuk compelled the
Capital Market and Financial Institution Supervisory
Agency (Bapepam-LK) to release regulation No. IX
A.13 in 2006 concerning Islamic Securities, followed
by the SBSN Act for government Islamic securities
(SBSN).
Since that time, the sukuk market has continued to
develop, especially since the release of sovereign
sukuk (government Islamic securities (SBSN) or
sovereign sukuk) both tradeable and non-tradeable
(Graph 5.1). A number of SBSN series have been
issued, consisting of Islamic Fixed Rate (IFR) Sukuk,
Islamic Treasury Bills (SPNS), Project-Based Sukuk
(PBS), Retail Sukuk (RS) and Hajj Fund Sukuk (SDHI).
Not only denominated in rupiah, SBSN are also
issued in foreign currencies known as global sukuk
(SNI) (Graph 5.2). As with all financial instruments,
Islamic financial markets also fluctuate due to
117
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 5.1 Sovereign Sukuk by Currency Graph 5.2 Total Sovereign Sukuk Issuances (Trillion Rp)

2015
Non- Islamic Gov Securities
87.65%
Non-tradeable 14.04%
2014

Islamic Tradeable (Rp)

Gov 2013
53.51%
Securities
12.35%
2012
in trillion Rp
Tradeable (USD)
32.45% - 50.00 100.00 150.00 200.00 250.00 300.00

IFR PBS SDHI SNI SPN-S SPNST SR

Source: Government Securities Statistics, Ministry of Finance, December 2015

Graph 5.3 Sovereign Sukuk Yield

18

16

14

12

10

4
2008 2010 2012 2014 2016

Source: Indonesia Bond Pricing Agency (IBPA), December 2015

pressures, which manifested in 2015 as pressure on (SNI) accounting for 32.45% or Rp96.65 trillion.
sovereign sukuk. Nonetheless, the sovereign sukuk Consequently, the market share of SBSN was just
remained within a safe corridor (Graph 5.3) 12% of total tradeable government securities (SBN).

The first SBSN issued were in the form of Islamic Regulator support was one of the keys to successful
Fixed Rate (IFR) in 2008, followed by RS, SNI and domestic sukuk market development. OJK support
SDHI in 2009 and finally PBS and SPNS in 2011. was forthcoming in the form of legal assurance for
Furthermore, Indonesia continuously developed investors through Act No. 19 of 2008 concerning
and released more diverse series of sukuk. As of SBSN, Islamic financial market development
2015, total sovereign sukuk issuances amounted according to the master plan as well the
to Rp369.18 trillion with total outstanding sukuk development of Islamic banks. Furthermore, Bank
of Rp297.57 trillion, consisting of Rp255.79 trillion Indonesia developed an Islamic financial market
of tradeable sukuk and Rp41.78 trillion of non- framework and the Government provided sukuk
tradeable sukuk. Furthermore, in 2015, seven series as an alternative investment option for financial
of sukuk were available, dominated by global sukuk institutions. Foreign and domestic investor demand

118
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Table 5.1 Sovereign Sukuk by Type

2012 2013 2014 2015

IFR 17.14 16.59 16.59 11.24

PBS 16.71 26.03 35.48 82.72

SDHI 35.78 31.53 33.20 36.70

SNI 25.63 50.58 62.20 96.56

SPN-S 0.20 8.63 10.74 9.02

SPN SNT - - - 5.08
SR 28.99 35.92 47.91 56.26
Total 124 169 206 298

Source: Government Securities Statistics, Ministry of Finance, December 2015

for SBSN on the primary market was strong, leading Sukuk market yields and risks varied for each tenor.
to oversubscribed SBSN auctions of global and An assessment of yields and risks using the theory
sovereign sukuk. In 2015, total offerings of global of Markowitz (Box 5.1) showed that short-term
sukuk were recorded at USD6.8 billion, with USD2 sukuk and direct fund acquisition used for state
billion absorbed. Meanwhile, Rp146 trillion of financing managed by the state budget, namely
sovereign sukuk were auctioned in 2015, with Rp56 SPNS, offered relatively high yields, beyond the
trillion absorbed (Graph 5.4 and Graph 5.5). potential risks (Graph 5.7, 5.8 and 5.9)

Efforts to meet the growing demand for sharia- Since 2013, the risk of medium-long term
based financing have increased, reflecting the tenors, such as SPB, has outweighed the yields
growing diversity of sovereign sukuk based on due to investor expectations of uncertain long-
tenor. As of December 2015, sukuk of tenors from term economic performance. In addition, the
1 to 5 years were the most attractive, with a total performance of underlying projects was considered
outstanding of Rp89.69 trillion (Graph 5.6). Such more uncertain in line with domestic economic
medium-term sukuk included SPNS, RS, SDHI and moderation and widespread global uncertainty
PBS. (Graph 5.10).

Graph 5.4 Issuances of Global Sukuk Graph 5.5 Auctions of Sovereign Bonds in 2015
Million USD
Billion Rp
12,000 70,000
10,000 60,000
8,000 50,000
6,000 40,000
4,000 30,000
2,000
20,000
0 10,000
SNI-14 SNI-18 SNI-22 SNI-19 SNI-24 SNI-25
(2009)* (2011) (2012) (2013) (2014) (2015) -
SPN-S PBS006 PBS007 PBS008 PBS009 PBS011 Total
Orderbook 4,760 6,500 5,300 5,700 10,000 6,800 Incoming BID 53,064 17,963 13,527 47,009 13,980 486 146,029
Issue Size 650 1,000 1,000 1,500 1,500 2,000 Awarded 14,295 9,035 6,525 19,630 6,805 - 56,290

Source: Director General of Financing and Risk Management (DJP2R), Ministry of Source: Director General of Financing and Risk Management, Ministry of Finance
Finance

119
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 5.6 Sukuk Tenors

>10 Tahun 17 Seri Rp55 T

5-10 Tahun 16 Seri Rp41.81 T

1-5 Tahun 9 Seri Rp89.69 T

<1 Tahun 6 Seri Rp14.09 T

0 10 20 30 40 50 60 70 80 90 100

Director General of Financing and Risk Management (DJP2R), Ministry of Finance

Similarly, the market risk associated with retail affected by economic performance. A change in the
sukuk also exceeded the returns. Such conditions investment risk of sukuk occurred from February
have prevailed since 2013 but before then the 2012 – November 2015, however (Graph 5.11 to
opposite was true. Despite shorter tenors than PBS, Graph 5.14). Since 2013, risk has escalated from
retail sukuk are sensitive to market fluctuations, relatively low to comparatively high due to global
especially when the market is depressed due to economic influences, including dwindling global
economic moderation. demand and sliding commodity prices. That period
was also marred by the normalisation of monetary
Such conditions caused the yields of retail sukuk policy in the United States and the economic
to fall below market risk since 2013. In addition downswing in China, which triggered an outflow of
to different tenors, different levels of risk are also foreign capital.

Graph 5.7 SPNS Maturing in 2/2015 Graph 5.8 SPNS Maturing in 8/2015
12 7

10
6.5
8
6
6
5.5
4
5
2

0 4.5
Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Nov-14 Dec-14 Jan-15 Feb-15 Nov-15

RoR Variance RoR Variance

Graph 5.9 SPNS Maturing in 10/2015

15.4

13.4

11.4

9.4

7.4

5.4

3.4
Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15

RoR Variance

Source: Bloomberg

120
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 5.10 Project-Based Sukuk Maturing in 2022 Graph 5.11 Series 5 Retail Sukuk

12 10

10 9

8
8
7
6
6
4
5
2 4

0 3
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Nov Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec

2012 2013 2014 2015 2013 2014 2015

RoR Variance RoR Variance

Graph 5.12 Project-Based Sukuk Maturing in 2018 Graph 5.13 Project-Based Sukuk Maturing in 2043
14 12

11
12
10
10
9
8
8
6
7
4 6

2 5
Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Nov May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov
2012 2013 2014 2015 2013 2014 2015

RoR Variance RoR Variance

Graph 5.14 Series 4 Retail Sukuk Graph 5.15 Series 5 Retail Sukuk
9 10
8 9
7
8
6
5 7

4 6
3
5
2
4
1
0 3
Mar Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec
2012 2013 2014 2015 2013 2014 2015

RoR Variance RoR Variance

Source: Bloomberg

5.1.2 Islamic Stock Market Performance and Risks option when developing an investment portfolio.
In the second semester of 2015, a total of 335 sharia- Nevertheless, Islamic stock market capitalisation
compliant1 stocks2 were classified. Such diversity in the reporting period experienced a decline from
of instruments opened the door for investors to Rp2,863.82 trillion to Rp2,556.26 trillion (Graph
utilise sharia-compliant stocks as an alternative 5.17).

1
The Indonesia Stock Exchange issues the Islamic Securities List twice annually at the end of May and November. The Islamic Securities List changes over time according to the criteria
applied based on the business characteristics and financial instruments used to support the operating activities of publicly listed companies.
2
There are currently two Islamic Stock Indexes, namely the Jakarta Islamic Index (JII) and the Indonesia Sharia Stock Index (ISSI). JII represents the 30 most liquid Islamic securities with
largest market capitalisation. On the other hand, ISSI consists of all sharia-compliant securities traded on the Indonesia Stock Exchange. ISSI represents the trade performance of all Islamic
securities traded on the bourse.

121
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 5.16 Jakarta Islamic Index (JII) Performance Graph 5.17 Islamic Stock Market Capitalisation

Billion Rp Billion Rp
750
6,000,000 3,500,000

700 3,000,000
5,500,000

2,500,000
650 5,000,000
2,000,000
4,500,000
600 1,500,000
4,000,000
1,000,000
550
3,500,000 500,000
500 3,000,000 0

Feb-13
May-13
Aug-13
Nov-13
Feb-13
May-13
Aug-13
Nov-13
Feb-13
May-13
Aug-13
Nov-13
Feb-13
May-13
Aug-13
Nov-13
2-Jan
2-Feb

2-Apr

2-Jun

2-Aug

2-Oct

2-Dec

2-Feb

2-Apr

2-Jun

2-Aug

2-Oct

2-Dec

2-Feb

2-Apr

2-Jun

2-Aug

2-Oct

2-Dec
2013 2014 2015

Jakarta Islamic Index (JII) Jakarta Islamic Index (JII) (RHS) ISSI (RHS)
Jakarta Composite Index (JCI)
Source: Capital Market Statistics, Financial Services Authority (OJK), 2015

The Islamic stock market in Indonesia began with the the influence of global undulations, specifically the
Jakarta Islamic Index (JII) in 2000. As of December fluctuating prices of oil and other commodities on
2015, 335 sharia-compatible stocks were traded on international markets, which affected the balance of
the Islamic stock market, with 315 listed issuers, four payments (BOP) and rupiah exchange rates, ultimately
publicly listed companies, 12 unlisted companies and triggered corrections on the Islamic stock market. At
four initial public offerings (IPO). In comparison, 311 the end of 2013, issuer growth had decelerated to just
issuers were listed at the end of 2014 (Table 5.2). 4.6%, thereafter falling even further in 2014 to 0.6%
and 0.3% in 2015. (Graph 5.18).
Growth of issuers on the Islamic stock market has
ebbed and flowed over the years, with the strongest The most attractive and actively traded Islamic stocks
growth observed in 2012 on the back of stable domestic on the domestic market included PT Astra Agro Lestari
economic and business conditions that staved off the (AALI), PT Adaro Energy (ADRO), PT Astra international
impact of the global financial crisis. Nonetheless, (ASII), PT Indofood Sukses Makmur (INDF), PT

Graph 5.18 Number of Islamic Stocks

340
336 334 334 335
335
330
325
321 322
320
315
310
310
304
305
300
295
290
285
2012 2013 2014 2015

Semester I Semester II

Source: Financial Services Authority (OJK), 2015

122
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Table 5.2 Number of Sharia-Compliant Issuers

Stocks
Year Public Listed Unlisted Total Issuers Growth (%)
Issuers IPO
Companies Companies
2012 Sem I 280 5 9 10 304
2012 Sem II 302 5 10 4 321 5.59%
2013 Sem I 288 5 9 8 310 -3.43%
2013 Sem II 313 5 10 8 336 8.39%
2014 Sem I 301 4 12 5 322 -4.17%
2014 Sem II 314 4 13 3 334 3.73%
2015 Sem I 313 4 13 4 334 0.00%
2015 Sem II 315 4 12 4 335 0.30%

Source: Capital Market Statistics, Financial Services Authority (OJK), 2015

Graph 5.19 Jakarta Islamic Index Volatility

60.00

50.00

40.00

30.00

20.00

10.00

0.00
2012 2013 2014 2015

Source: Bloomberg

Matahari Putra Prima (MPPA), PT Telekomunikasi
Indonesia (TLKM), PT Unilever Indonesia (UNVR) and
PT XL Axiata Indonesia (EXCL)3.
The most salient factors that will support future Islamic
stock market development include the following:
i. Strong domestic investor interest;
ii. A growing number of
instruments (JII) as stable domestic economic
conditions allow and if returns in the real sector
continue to increase.
iii. Support from the regulator and fatwa authority to
develop diverse transactions on Islamic financial
markets in Indonesia.
iv. Increased domestic financial market openness in
the era of the ASEAN Economic Community, thus
supporting the free flow of foreign investors onto
domestic markets, including Islamic markets.
Although comparatively lower than stock price
volatility in general, such conditions were attributed to
an overall JCI decline in 2015 consistent with national
economic moderation and less rupiah exchange
sharia-compliant rate volatility. Furthermore, the outflow of foreign
capital from domestic financial markets due to the
proposed FFR hike in the United States, coupled with
rupiah depreciation, also undermined stock market
performance in general, including the Islamic stock
market. Risk was observed to accumulate on the
Islamic stock market in the second half of the year,
reflecting an increase in volatility from 16.42 to 25.43.

3
On 3rd December 2015, PT EXCL issued ijarah corporate sukuk totalling Rp1.5 trillion.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

5.1.3 Islamic Interbank Money Market
Risk on the Islamic interbank money market (PUAS)
was well mitigated in semester II 2015, reflecting
a decline in transactions on the previous period.
Meanwhile, the average return on Mudharabah
Investment Certificates (SIMA) as the dominant
instrument was relatively stable, increasing slightly
from 6.16% in semester I to 6.19% in semester II
(Graph 5.20 and Graph 5.21). The PUAS transaction
volume decline was accompanied by a minimal
increase in SIMA yields, indicating no abnormal
demand for liquidity amongst Islamic banks. In other
words, Islamic banks successfully managed their
own requirement for liquidity. Notwithstanding, a
shift was observed in liquidity instruments to the
shorter term, which was symptomatic of Islamic
bank prudence. Such prudence was considered
more profitable than longer-term investment
instruments despite existing repo facilities.
In addition to Mudharabah Investment Certificates
(SIMA), repo SBIS, SBSN and reverse repurchase
SBSN represent alternative ways of meeting the
short-term liquidity requirement on the Islamic
interbank money market. In 2015, Bank Indonesia
also issued Bank Indonesia Regulation (PBI) No.
14/4/PBI/2017, dated 27th April 2015, and Bank
Indonesia Circular Letter (SEBI) No. 17/10//DKMP,
dated 29th May 2015, concerning the Sharia-
Compliant Interbank Money Market, which contains
provisions on Islamic repo transactions, namely the
trade of Islamic securities between Islamic banks
based on sharia principles. The repo mechanism
provides an alternative means to manage liquidity
at Islamic banks, while boosting the transaction
volume on the Islamic interbank money market.
Placements in liquid SBI instruments offer another
alternative for Islamic banks to manage liquidity.
Consistent with the increase in PUAS volume,
indicating demand for short-term liquidity, SBIS
volume also tracked an upward trend in 2015
(Graph 5.20 and Graph 5.21). Robust SBIS growth
was reported in 2013 and 2014, equivalent to 34%
and 21% respectively or Rp6.7 trillion and Rp8
trillion. Furthermore, the strong growth trend was
maintained into 2015, totalling Rp6.2 trillion, albeit
down 22% on 2014.

Graph 5.20 PUAS Transaction Volume Graph 5.21 SIMA Yield

2000 8
100,000.00 80.00

80,000.00 60.00
1500 7
40.00
60,000.00
20.00
1000 6
40,000.00
-
20,000.00 (20.00) 500 5
- (40.00)
Sem I Sem II Sem I Sem II Sem I Sem II Sem I Sem II
0 4
2012 2013 2014 2015
Jan-12

Jun-12

Nov-12

Apr-13

Sep-13

Feb-14

Jul-14

Dec-14

Oct-15
May-15

Bank Indonesia Islamic Deposit SBIS Volume PUAS Volume SBIS Growth
Facility (FASBIS) Volume (ytd)
PUAS Volume SIMA Yield
Source: Bank Indonesia, December 2015

124
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 5.22 SBIS Volume and Growth

80.00 60,000.00
50,000.00
60.00
40,000.00
40.00
30,000.00
20.00 20,000.00

- 10,000.00
-
(20.00) (10,000.00)
(40.00) (20,000.00)
Sem I Sem II Sem I Sem II Sem I Sem II Sem I Sem II
2012 2013 2014 2015

SBIS Volume PUAS Volume SBIS Growth (yoy) SBIS Growth (ytd)

Source: Bank Indonesia, 2015

Graph 5.23 Islamic Mutual Funds Graph 5.24 Composition of Islamic Mutual Funds based on NAV
14,000
Total Islamic Funds (Rp Billion)
110
Total Islamic Mutual Funds and NAV Growth (%)

Money Market
8.81%
90 12,000 Exchange Trade Funds (ETF)
5.84%
10,000 Indexed
70
2.19%
8,000
50
6,000 Protected
30 12.43%
4,000 Equity
48.68%
10 2,000

-10 -
Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Discretionary
16.00%
Total Islamic Mutual Funds NAV Growth
NAV of Islamic Mutual Funds Fixed-Income
Source: Capital Market Statistics, Financial Services Authority (OJK), 2015 6.06%

5.1.4 Islamic Mutual Funds The outlook for Islamic mutual funds remains
Increased development of Islamic securities has promising. Average annual growth continues to
also affected Islamic mutual funds. At the end of outpace conventional funds. Although Islamic
2015, a total of 86 Islamic funds were registered, investment funds are sensitive to economic
accounting for 8.3% of all investment funds (1,037 developments, their resilience to an economic
funds) (Table 5.3). Furthermore, the net asset downturn or domestic financial market shock
value (NAV) of Islamic mutual funds amounted to is generally stronger than conventional funds.
Rp10.77 trillion at the end of 2015, up slightly from Accordingly, the NAV of Islamic mutual funds
Rp10.66 trillion at the end of the first semester. declined just 3.4% in 2015, compared to a sharp
On an annualised basis, however, growth of decline of 10.5% for conventional funds.
Islamic mutual funds contracted -3.4% in 2015 on
the previous year, which heightened risk on such
investment funds because the majority of Islamic
funds are placed in sharia-compliant stocks (index
linked shares) (Graph 5.24).

125
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

modestly from 4.61% to 4.83% of the total in semester

5.2 Islamic Banking Sector II 2015. The position of deposits was recorded at
Rp231 trillion at the end of the second semester, up
At the end of the second semester of 2015, the total 6.1%. Deposit growth at Islamic banks decelerated in
assets of the Islamic banking sector (Islamic banks and the middle of June 2015 but subsequently rebounded
sharia business units)4 stood at Rp296 trillion, with at the beginning of the fourth quarter (Graph 5.29).
growth up 9% on the previous period. Islamic banking Demand deposits dominated deposit growth, posting
sector performance rebounded during the second half 11.48%, while term deposits achieved 8.46% and
of 2015, after following a slower growth trend for the savings deposits bucked the trend by contracting
previous two years. Capital injections towards the end 3.41%. Expansion of the Islamic banking sector was
of the first semester, efforts to educate the public and facilitated by less stringent regulations concerning the
build awareness as well as greater convenience in terms opening of Islamic bank branches combined with an
of expanding the bank branch network facilitated asset effective public awareness program throughout 2015,
growth in the Islamic banking industry. Consequently, which stimulated deposit growth (Graph 5.27).
the share of the Islamic banking industry expanded

Graph 5.25 Islamic Banking Industry Assets Graph 5.26 Market Share of Banking Industry

Trillion Rp % yoy % yoy % yoy

400 60 400 6

300 4.83 5
50
296
300
200 4
40

100 3
200 30
-0.46
20 0 2
100
8.78 -10
10 1

0 0 -20 0
Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Total Assets Growth (yoy) Growth Delta Market Share

Source: Monthly Monetary and Financial System Stability reports, Bank Indonesia, 2015, processed

Graph 5.27 Deposits Graph 5.28 Market Share of Conventional Banking Deposits

Trillion Rp % yoy % %
30 5.4
250 50
231
5.24 5.3

200 40 20 5.2
5.1
150 30 5.0
10
4.9
100 20
4.8
-1.23
0 4.7
50 6.10 10
4.6

0 0 -10 4.5
Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15
Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Deposits Annual Growth Growth Delta Market Share

Source: Bank Indonesia, December 2015

4
The Islamic banking industry consists of 12 Islamic banks and 22 sharia business units.

126
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 5.29 Composition of Deposits at Islamic Banks

14,294.70
Dec-15 68,653.25
21,193.44

130,483.25
Jun-15 61,029.24
21,942.51

133,447.73
Dec-14 59,193.09
17,003.62

133,447.73
Jun-14 55,177.14
16,469.73

0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000

iB Term Deposits – Mudharabah iB Savings Deposits iB Demand Deposits – Wadiah

Source: Bank Indonesia, December 2015

Islamic bank financing growth accelerated from financing and working capital continued to dominate
6.66% in the first semester of 2015 to 6.86% in the with respective shares of 38.20% and 37.54%. Despite
second semester (Graph 5.30). The additional growth the increase, the share of Islamic financing fell 5.34%
stemmed from the investment sector, increasing from in semester I 2015 to 5.20% (Graph 5.31).
Rp46 trillion to Rp52 trillion (Graph 5.33). Consumer

Graph 5.30 Financing Graph 5.31 Market Share

Trillion Rp % yoy
% %
260 60
40 6.0
213 5.8
210 50
30 5.6
5.20
40 5.4
160 20 5.2
30 5.0
110 10 4.8
20
4.6
60 6.86 10 0 4.4
-4.95 4.2
10 0 -10 4.0
Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Financing Annual Growth Financing Growth Delta Financing Market Share (RHS)

Graph 5.32 Financing by Type

Trillion Rp
100
90 81
80
80
70
60
52
50
40
30
20
10
0
Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Working Capital Investment Consumption

Source: Financial Services Authority (OJK), 2015

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 5.33 Financing-to-Deposit ratio (FDR) of Islamic Banking Sector

%
110

100

88.03
90

80

70
Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15
FDR
Source: Financial Services Authority (OJK), 2015

Concerning the Islamic bank intermediation function, Returns

the financing-to-deposit ratio (FDR) dropped from In the second semester of 2015, the return on
96.51% to 88.03% in the reporting period (Graph 5.36). sharia-compliant term deposits was well below the
In semester II, however, financing realisation totalled rates available on term deposits from conventional
Rp213.99 trillion, rising by Rp6.9 trillion. The increase banks. Meanwhile, the yield of demand deposits
in realised financing was outpaced by the growth was relatively stable and savings deposits increased
of deposits, which climbed Rp17.69 trillion. Tighter slightly. Consequently, the composition of deposits at
financing realisation in the form of bank consolidation Islamic banks was short term and relatively volatile.
to improve the quality of non-performing financing Such conditions left Islamic banks uncompetitive
(NPF) was one determinant of the lower financing-to- against conventional banks and led to displacement
deposit ratio (FDR). risk.

Graph 5.34 Returns on Demand Deposits and Savings Deposits Graph 5.35 Returns on 1, 3, 6 and 12-Month Islamic Term Deposits

%
%
6
8.50
5 8.00
4 7.50
2.67
3 7.00

2 6.50
0.86
1 6.00

0 5.50
Jun-14 Dec-14 Jun-15 Dec-15
Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

1-Month 3-Months
6-Months 12-Months
iB Savings Deposits iB Demand Deposits

Source: Bank Indonesia, 2015 Source: Bank Indonesia, December 2015

128
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 5.36 Return Structure of Deposits in November 2015

10
8.89
9 8.41 8.62
7.79
8
7.02 6.92
7 6.23 6.46
6
5
4
2.67
3 2.42
2
1
Savings 1-Month 3-Months 6-Months 12-Months

Sharia-Compliant Conventional

Source: Bank Indonesia, 2015

5.2.2 Risk Assessment 5.43). Capital injections at various Islamic banks

Liquidity Risk as an industry response to unconducive economic
Liquidity risk in the Islamic banking industry was conditions contributed to the surge in liquid assets.
observed to subside during the second semester of
2015. The ratios of liquid assets to non-core deposits Credit Risk
and liquid assets to deposits increased respectively Credit risk at Islamic banks was noted to ease in the
on the previous period from 71.30% and 12.60% to second semester of 2015, indicated by declines in the
115.78% and 15.53%. Since July 2015, the LA/NCD gross NPF ratio at Islamic banks from 5.09% to 4.84%
ratio of the Islamic banking industry has exceeded the and at sharia business units from 3.76% to 3.03%.
conventional banking industry, indicating that liquidity Lower NPF ratios were the result of consolidation in
at Islamic banks was comparatively better maintained. the Islamic banking industry along with restructuring,
Nonetheless, despite following an upward trend, which successfully reversed the rate of NPF growth in
the ratio of liquid assets to deposits at Islamic banks the reporting period.
remained below that of conventional banks (Graph

Graph 5.37 Islamic Bank Liquidity

%
140 18
15.53
16
120
14

100 12
115.78
10
80 8
60 6
4
40 2

20 -
Mar-15

Jun-15

Sep-15

Dec-15
Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

iB LA/NCD LA/Deposits (RHS)

Source: Monthly Monetary and Financial System Stability reports, Bank Indonesia, processed

129
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Regionally, credit risk was also well mitigated. The in all regions, indicating an improvement in financing
highest level of non-performing financing (NPF) was quality nationwide.
recorded on the island of Sumatra (5.85%), followed
by Kalimantan (5.35% and Bali and Nusa Tenggara Solvency
(5.33%). Although the gross NPF ratios were high in Islamic bank capital remained solid, reflecting an
each of the regions, the portion of financing to the increase in the Capital Adequacy Ratio (CAR) from
total was relatively small, which helped to mitigate 14.02% in semester I 2015 to 15.02% in semester II
credit risk in the Islamic banking industry. In general, 2015. The increase stemmed partially from capital
compared to semester I 2015, gross NPF decreased injections at Bank BRI Syariah, Bank BCA Syariah and

Graph 5.38 Gross NPF Graph 5.39 Gross NPF by Financing Type

% %
6.0 80 6.0
4.84
70
5.0 5.0
60
4.84
4.0 50 4.0
40
3.0 30 3.0
2.32
11.76 20
2.0 2.0
10 1.09
1.0 0 1.0
0.94
-10
0.0 -20 0.0
Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15
Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

Gross NPF NPF Growth (RHS) Working Capital Investment Consumption Gross NPF
NPF NPF NPF

Graph 5.40 Gross NPF by Economic Sector

14.00 13.00
12.00
6.87
10.00
4.97 5.19 7.94 4.65
8.00
6.00 4.87 3.91
2.38 2.67
4.00
2.00
0.00
Agriculture

Mining

Manufacturing

Electricity

Construction

Trade

Transportation

Corporate Services

Social Services

Others

Sem-1 2014 Sem-2 2014 Sem-1 2015 Sem-2 2015

Table 5.3 Regional Gross NPF

Wilayah Sem-I 2014 Sem-II 2014 Sem-I 2015 Sem-II 2015

Java 3.38% 3.78% 4.33% 3.96%

Sumatera 5.88% 6.41% 6.20% 5.85%

Kalimantan 3.63% 5.30% 5.79% 5.35%

Sulawesi 4.28% 3.25% 3.51% 2.95%

Bali and Nusa Tenggara 2.46% 2.79% 4.12% 5.33%

Papua and the Maluku Islands 2.96% 8.52% 8.23% 3.79%

Source: Islamic Banking Statistics, Financial Services Authority (OJK)

130
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Bank Syariah Mandiri to the tune of Rp500 billion,

Graph 5.42 BOPO Efficiency Ratio
Rp300 billion and Rp500 billion respectively. The
%
capital injections were a tangible form of shareholder 105

commitment and optimism to develop the Islamic 100 97.01

95
banking industry in Indonesia. The additional capital
90
is expected to raise the level of competition at Islamic
85
banks. 80

75

Graph 5.41 Islamic Bank Capital Adequacy Ratio 70

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15
%
18
BOPO Efficiency Ratio
17

16

15 Graph 5.43 ROA and ROE

15.02
14
8.00 1.20
13
7.00 1.10
12 1.00
6.00
0.90
11
5.00 0.80
10 3.93
4.00 0.70
Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

0.52 0.60
3.00
0.50
2.00 0.40
iB CAR Jun-14 Dec-14 Jun-15 Dec-15

Source: Bank Indonesia, processed

iB ROE iB ROA (RHS)

Source: Islamic Banking Statistics, Financial Services Authority (OJK)

Efficiency and Profitability

Efficiency and profitability in the Islamic banking 5.2.3 Stress Tests
industry continued to follow a downward trend during Stress tests were conducted to measure the capital
the second semester of 2015. The BOPO efficiency resilience of each respective entity in the Islamic
ratio increased and the return on equity (ROE) banking industry. Stress tests include an assessment
declined despite slight ROA gains. The BOPO efficiency of capital resilience to credit risk using bank balance
ratio increased from 96.98% to 97.01%. ROE dropped sheet and performance data from December 2015.
from 5.97% to 3.93% and ROA increased modestly
from 0.50% to 0.52%. Less efficiency at Islamic banks Stress tests were performed using scenario-based
was the result of an increase in operating costs due to analysis, or macro stress tests, assuming deviations of
business expansion in the form of extending the office projected economic growth from current GDP (5.04%).
network. Meanwhile, the ROE decline stemmed from The scenarios include GDP growth of 4.04%, 3.04%
the increase in capital. and 2.04%. Despite pressures on Islamic banking
performance in 2015, the capital base remained solid
and even increased in the second semester of the

131
 FINANCIAL STABILITY REVIEW
No. 26, March 2016
Table 5.4. Stress Test: Capital Resilience
CAR
Existing
Scenario Baseline
Scenario Moderate
Scenario Severe
Source: Bank Indonesia
year due to the aforementioned capital injections.
The results of the stress tests showed that assuming
a decline in GDP growth to 4.04%, only one sharia
business unit would experience a CAR decline to
between 8% and 12%. Stress testing the moderate
scenario revealed that the CAR of no Islamic banks
would drop to below 8% but two Islamic banks would
experience a Capital Adequacy Ratio (CAR) in the
range of 8-12%. The worst-case scenario, assuming
severe conditions, showed that CAR at three Islamic
banks would decrease to between 8% and 12%.
5.3 Nonbank Financial Industry
The Islamic financial system also offers financial
protection services similar to insurance. known as
takaful. The protection services available include
general takaful and life takaful. Operationally.
takaful companies can apply more than one business
model. namely mudharabah and wakalah. Under
mudharabah contracts. the participant nominates
a takaful company as manager of the tabarru’ fund
and the takaful company receives profit sharing
from the fund. According to wakalah contracts.
however. the insurance company is authorised as
the representative of the participant in terms of
132
>12 8-12 5-8 <5
12 - - -
11 1 - -
10 2 - -
9 3 - -
managing the fund and the company receives a fee
from the participant.
Takaful development in Indonesia has followed
an upward trend. with assets growing from Rp24
trillion in semester I 2015 to Rp27 trillion in
semester II of the same year (Graph 5.47). The
takaful industry is. however. concentrated in the
life insurance business. accounting for 81% of total
assets. Furthermore. the increase in takaful assets
during the reporting semester stemmed from a
Rp2 trillion bump in life takaful assets. The takaful
investment portfolio was dominated by term
deposits (43.36%). Islamic stocks (25.35%) and
mutual funds (19.98%) (Graph 5.48). ROI increased
significantly in the reporting period. reversing the
previous contraction of -26.27% to record positive
growth of 17.97%. The ROI trend tended to fluctuate.
however. from semester I 2014 to semester II 2015.
Consequently. takaful management are urged to
consider portfolio management in order to stabilise
ROI.
According to the sources of funds and investments.
the takaful industry revealed varying degrees of
risk. The number of takaful claims decreased from
33.5% to 31.5% in the reporting period. Meanwhile.
takaful asset investment management recorded
significant losses in the middle of 2015 despite
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

returning to positive territory by the end of the funds. Takaful placements of investment funds
year. Consequently. the takaful industry is required accounted for 43.31% or Rp6.5 trillion in the form
to enhance risk management. especially in the face of term deposits. which is relatively small compared
of high market uncertainty. to total bank deposits. Therefore. any shock in the
takaful industry should not spur intense liquidity
Interconnectedness between the takaful and risk in the banking industry.
banking industries is primarily in the form of bank

Graph 5.44 Takaful Industry Assets Graph 5.45 Investment Composition in the Takaful Industry

Trillion Rp Strata Title Buildings

or Land and Buildings
30 27 for Investment,
Direct Investment,
25 0.11% 0.15%
22
Other
20 Pure Gold, Investments,
0.01% 0.30%
15
Reksa Dana
10
Syariah, 19.98%
4
5
1 Government
0 Islamic Securities
Mar-14

Jun-14

Sep-14

Dec-14

Mar-15

Jun-15

Sep-15

Dec-15

(SBSN), 5.93%
Term
Deposits,
Sukuk or Islamic 43.36%
Bonds,
Islamic Insurance Total Assets Islamic Reinsurance Total Assets 4.82%
Islamic Life Insurance Assets Islamic General Insurance Assets
Sharia-Compatible
Stocks, 25.35%

Graph 5.46 Takaful Assets and Investments Graph 5.47 Takaful Contributions and Claims
Trillion Rp
Trillion Rp
87.50% 30
33.50% 10.00
87.00% 9.00
25 33.00%
86.50% 8.00
86.00% 20 82.50% 7.00
85.50% 6.00
15 82.00% 5.00
85.00%
4.00
84.50% 10 81.50% 3.00
84.00% 2.00
5 81.00%
83.50% 1.00
80.50% 0.00
83.00% 0
Sem-1 2014 Sem-2 2014 Sem-1 2015 Sem-2 2015 Sem-1 2014 Sem-2 2014 Sem-1 2015 Sem-2 2015

Claims Contributions Ratio

Total Assets Total Investments Ratio

Graph 5.48 Takaful Term Deposits/Liquid Assets of Islamic Banks Graph 5.49 Investments/Gross Claims

24 100

22 21.75 50
20
-
19.05 (15.09)
18
(50)
16

14 (100)

12 (150)
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15

10

Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15

Source: Nonbank Financial Industry reports, Financial Services Authority (OJK)

133
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 5.50 Takaful Deposits/Liquid Assets of Islamic Banks

30

17.97
20

10

(10)

(20)

(30)
Jan-14 Dec-14 Jun-15 Dec-15

Takaful ROI
Notes:
iB and Conventional Liquid Assets = DAPR
NCD = 30% of demand deposits + 30% of savings deposits + 10% of term deposits
Conventional ROE: SIMP Performance Data
Islamic ROE: Islamic Banking Statistics
Source: Nonbank Financial Industry reports, Financial Services Authority (OJK), 2015

134
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Box 5.1 Islamic Hedging Instruments

Islamic finance is expected to facilitate the needs In anticipation of such developments, Bank
of customers facing uncertainty from international Indonesia has prepared Islamic hedging
transactions and the real sector. Although few regulations. The regulations on foreign exchange
Islamic banks currently facilitate international transactions (PBI No. 17/7/PBI/2015), hedging
transactions, the potential will grow as such transactions to banks (PBI No. 16/18/PBI/2014)
banks expand their business scope. International and hedging swap transactions to Bank Indonesia
transactions include foreign exchange activities, (PBI No. 16/19/PBI/2014) contain implicit
trade financing and other transactions. provisions for all banks. In their implementation,

Box Graph 5.1.1 Foreign Exchange Financing at Islamic Banks

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14

iB Foreign Exchange Financing (Rp, billions)

Source: Bank Indonesia

Islamic bank involvement in international or foreign however, hedging transactions do not yet
exchange transactions will increase exposure accommodate natural hedging at Islamic banks,
to currency risk due to a potential currency therefore natural hedging is not undertaken by
mismatch. Therefore, sharia-compliant economic Islamic banks. Consequently, on 24th February
players will need to hedge against such potential 2016, Bank Indonesia promulgated Bank Indonesia
losses. Increased participation in terms of foreign Regulation (PBI) No. 18/2/PBI/2016 concerning
exchange financing fits the role of Islamic banks to Hedging Transactions based on Sharia Principles
collect hajj funds, including foreign currency hajj (Islamic Hedging).
deposits. In addition, increased foreign exchange
financing will also be affected by Islamic hedging According to the DSN fatwa and prevailing
products. regulations, Bank Indonesia issued Bank Indonesia

135
 FINANCIAL STABILITY REVIEW
No. 26, March 2016
Table Box 5.1.1 DSN Fatwa concerning the Trade of Currency and Hedging Transactions
National Sharia Board (DSN) Fatwa No. 28/DSN-MUI/III/2002
concerning the Trade of Currency (Al-Sharf)
1. Spot Transactions: Permitted
2. Forward transactions: Forbidden except in the form of a
forward agreement under unavoidable circumstances (lil
hajah)
3. Swap Transactions: Permitted
4. Option Transactions: Permitted
Source: Bank Indonesia
Regulation (PBI) No. 18/2/PBI/2016 at the
beginning of 2016 concerning Islamic Hedging. In
general, the regulation aims to deepen the domestic
foreign exchange market through comprehensive
regulatory harmonisation concerning sharia-
compliant hedging transactions (Islamic hedging).
The regulation stipulates the definition, the
transacting parties, transaction implementation,
underlying transactions, recording and reporting,
as well as sanctions and so on.
By definition, Islamic hedging transactions are
sharia-compliant transactions to mitigate future
currency risk. The implementation of Islamic
hedging begins with a forward agreement or series
of forward agreements. A forward agreement is a
contract between two parties (muwa’adah) to buy
or to sell an asset at a specified future time at a
price already agreed upon at the time of signing the
contract. If a forward agreement is not completed,
the accountable party shall be responsible for
compensation (ta’widh).
136
National Sharia Board (DSN) Fatwa No. 96/DSN-MUI/III/2015
on Islamic Hedging (Al-Tahawwuth Al-Islami)
1. Spot Transactions: Permitted
2. Forward transactions: Forbidden except in the form of a
forward agreement under unavoidable circumstances (lil
hajah)
3. Swap Transactions: Permitted
4. Option Transactions: Permitted
Hedging transactions are available to customers,
conventional commercial banks and Islamic banks.
Islamic hedging transactions, however, may only
be requested by:
a. Customers to an Islamic bank or sharia
business unit;
b. Islamic bank or sharia business unit to
another Islamic bank or sharia business unit;
or
c. Islamic bank or sharia business unit to a
conventional commercial bank.
Islamic hedging transactions must comply with a
number of provisions as follows:
a. Islamic hedging transactions for speculative
purposes are forbidden and an underlying
transaction is required.
b. Forward agreements are not tradeable.
c. The maximum value of the Islamic hedging
transaction shall not exceed the nominal
value of the underlying transaction.
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Basic Islamic Hedging Transaction Complex Islamic Hedging Transaction

Definition:
A basic Islamic hedging transaction, using an Al-Tahawwuh al-
Basith contract, is a TNS transaction with a Forward Agreement
(Al-Muaw’dat li al-Aqd al Mustaqbal) accompanied with a spot
transaction upon maturity and settled with a transfer of currency.
Definition:
A complex Islamic hedging transaction, using an Al-Tahawwuh
Al-Murakkab is a hedging transaction with a series of Spot
Transactions and Forward Agreements (Al-Muaw’dat li al-Aqd
al Mustaqbal) accompanied by a spot transaction upon maturity
and settled with a transfer of currency.

On the transaction date:
Both parties agree
(muwa’adah) in writing to
trade a foreign currency one
or more times at a specified
future date, agreeing:
• The currency to be traded;
• The nominal total;
• The exchange rate; and
• Settlement date
On the trade date:
The parties initiate a spot
(ajab-qabul) transaction at the
agreed price, accompanied
by the transfer of currency
exchanged.
On the transaction date: On the trade date:
A. Both parties initiate a Spot The parties initiate a spot
transaction; (ajab-qabul) transaction at the
B. Both parties agree agreed price, accompanied
(muwa’adah) in writing to by the transfer of currency
trade a foreign currency exchanged.
one or more times at a
specified future date,
agreeing:
• The currency to be traded;
• The nominal total;
• The exchange rate; and
• Settlement date

d. The maturity period of the Islamic hedging
transaction shall be the same as that of the
underlying transaction as stipulated on the
underlying document.
e. Islamic hedging transaction settlement must
be made in full through a fund transfer.
f. The termination of an Islamic hedging
transaction, accompanied by a transfer of
funds, must include a full transfer of the
funds.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Box 5.2 Islamic Social Finance

Economic development programs are expected Box Graph 5.2.1 Efficient Frontiers

to be sustainable and provide a wide-reaching R(σ)

impact to all social strata. Nonetheless, economic
inequality between the rich and everyone else is
unavoidable. In a number of countries, the GINI R1
index is increasing, indicating a growing income gap.
R0
Providing financial access in an attempt to augment
the income of the poor can be achieved through
government subsidies or providing commercial σ1 σ
Source: Bank Indonesia

loans to micro enterprises. Notwithstanding, efforts

to improve financial access often face constraints Box Graph 5.2.1 shows the position of disadvantaged

in the form of limited fiscal budget as well as Indonesians in terms of efficient frontiers, where

insufficient returns for the commercial sector. the financial facilities provided are considered
unaffordable in terms of the risk-adjusted return

Forcing commercial financial institutions such as received by the commercial financial institution.

banks to extend microfinance could result in soaring Sources of waqf and zakat funds, economically, are

non-performing loans (NPL) due to uncertainty considered a potential solution to provide those

at the financial institution concerning micro considered sub-optimal, from a portfolio investment

loans. According to data from the Department of perspective, access to financial services.

Cooperatives in 2013, micro enterprises account

Box Graph 5.2.2 Credit Rationing
for 98% of all businesses and absorb 88.9% of
the workforce. The Islamic financial system offers CS(R**)

an alternative solution to overcome economic

inequality through Islamic social financial sector CS(R*)
revitalisation, consisting of waqf and zakat. The
waqf and zakat sector is considered a viable means
to mobilise cheap funds in order to meet consumer
demand and expand the production base for the R* R
Source: Bank Indonesia
Indonesian economy.

138
 Assessment Of Assessment Of Conditions Banks And
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector
Box Graph 5.2.2 shows the role zakat and waqf funds
can play to increase the supply of financing without
creating moral hazard considering the increased
supply occurs outside of the commercial financing
stream. Such conditions would increase available
capital to attain the economic growth targets set.
Therefore, the impact of zakat and waqf is not
merely limited to creating financial system stability
but also price stability. Price stability is achieved
by expanding the production base, which would
increasingly grow production supply and influence
inflation. In addition, the availability of adequate
supply would also reduce imports, especially of
primary goods, thus supporting the balance of
payments (BOP) and ultimately exchange rate
stability and price stability.
Strengthening Bank Indonesia Policy
Financial System Response Towards Maintaining Outlook, Challenges
Infrastructure Financial System Stability and Policy Direction
The definitions of zakat and waqf are given as
follows. Zakat is a form of compulsory alms-giving
or religious tax provided by a Muslim person or
business entity to a beneficiary in accordance
with Islamic rules (Act No. 23 of 2011 on Zakat
Management). Meanwhile, waqf is an endowment
in the form of property or land made by a Muslim to
a religious, educational or charitable cause pursuant
to Article 1 of Act No. 41 of 2004 concerning Waqf.
Waqf endowments can be immovable objects and
movable objects. The majority of waqf endowments
are in the form of land or money.
139
 FINANCIAL STABILITY REVIEW
No. 26, March 2016
The Role of Bank Indonesia in Supporting Global
Box 5.3
Islamic Financial System Stability
Before the banking supervision and regulation
function of Bank Indonesia was transferred to
the Financial Services Authority (OJK) at the end
of 2013, Bank Indonesia contributed to sharia
economic and financial development through
the Islamic banking industry. Since the transfer,
however, Bank Indonesia has remained actively
committed at international Islamic forums
to synergise with central banks and financial
regulators from countries with an Islamic
banking industry in order to substantiate BI
support for global Islamic financial system
stability.
Bank Indonesia’s participation at international
Islamic forums has a number of benefits, one
of which is contributing constructively to the
formulation of Islamic financial regulations,
which also supports Islamic financial industry
development in Indonesia. Moreover,
Bank Indonesia is still a member of several
international Islamic forums as follows:
Islamic Financial Services Board (IFSB)
The Islamic Financial Services Board (IFSB) is an
international standard setting organisation that
promotes and enhances the soundness and
stability of the Islamic financial services industry
(Islamic banks, Islamic capital market and takaful
industry) by issuing global prudential standards
and guiding principles for the industry. IFSB was
established on 3rd November 2002, with Bank
Indonesia as a founding member. There are
140
currently 189 registered members, consisting of
regulators, government institutions and Islamic
financial institutions. Thus far, IFSB has issued
16 guiding principles, five guidance notes and
one technical note encompassing capital, good
governance, market discipline, the supervisory
review process, business conduct, liquidity risk
management and stress testing.
Bank Indonesia plays a very active role in
formulating international standards through
working groups and task forces, including
Core Principles for Islamic Finance Regulation
(CPIFR), Prudential Structural Indicators for
Islamic Financial Institutions (PSIFIs), Guiding
Principles for Liquidity Risk Management,
Technical Notes for Stress Testing and so on. The
international standards released by IFSB also
take into consideration the standards released
by other international regulatory institutions
such as the Basel Committee for Banking
Supervision (BCBS), the Financial Stability Board
(FSB), International Organisation of Securities
Commission (IOSCO) and also the International
Association of Insurance Supervisors (IAIS) in
order to prepare holistic standards that follow
the latest developments and salient issues
concerning global financial system stability.
International Islamic Liquidity Management
(IILM)
International Islamic Liquidity Management
(IILM) is an international institution established
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

by central banks, monetary authorities and
multilateral organisations to
issue short-term sharia-compliant financial
instruments to facilitate effective cross-border
Islamic liquidity management.
represented by Bank Indonesia as a founding
member since 25th October 2010. Operationally,
IILM creates and issues short-term (3-6
month) sharia-compliant financial instruments
denominated in USD with a total outstanding
of USD1.85 billion. Sukuk are issued by IILM
through auctions involving primary dealers
(PD). There are currently 11 primary dealers, of
which three have an A-1 rating, originating from
Qatar, Kuwait, Malaysia, Nigeria, Turkey and the
United Arab Emirates (UAE). IILM sukuk have
the following features:
i. Short-term and tradeable denominated in
USD;
ii. Money market instruments backed by
sovereign assets; and
iii. Distributed through the PD network in
various jurisdictions.
International Islamic Liquidity Management
(IILM) receives strong global support because
IILM sukuk represent a collaboration between
various central banks and
organisations that aim to improve financial
stability and create an efficient Islamic financial
market.
International Islamic Financial Market (IIFM)
create and The International Islamic Financial Market (IIFM)
is an international standard setting organisation
focusing on the standardisation of Islamic
Indonesia is financial contracts and product templates
relating to the capital and money markets. Bank
Indonesia, as a member, is involved in assessing
and providing input on the documentation
and standardisation of the Islamic capital and
money markets. Standardisation aims to create
financial markets that are resilient to market
disruptions, transparent and efficient by issuing
global best practices. In addition, IIFM also
pursues sharia harmonisation.
IIFM collaborates closely with the International
Swap and Derivative Association (ISDA) to
develop standards and product templates.
Collaboration aims to exchange the latest
information concerning the regulatory
framework of derivative products for the
betterment of the Islamic financial markets.
IIFM has issued a number of key Standard Mast
Agreements as follows:
• Interbank Unrestricted Master Investment
Wakalah Agreement and its Operational
Guidance Memorandum.
multilateral • ISDA/IIFM Tahawwut (Hedging) Master
Agreement and Explanatory Memorandum.
• Mubadalatul Arbaah (Profit Rate Swap)
Standard Documentation (Single Sale
Structure)

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

• Mubadalatul Arbaah (Profit Rate Swap)

Standard Documentation (Two Sale
Structure)
• Master Agreements for Treasury Placements
and Structure Memorandum.

International cooperation at Islamic forums is

enthusiastically developing a solid regulatory
framework to overcome potential disruptions
to the global financial system based on the
principles of cooperation (ta’awun).

142
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

143
The payment systems operated by Bank Indonesia and the industry remained sound
throughout the second semester of 2015, thereby supporting monetary and financial
system stability and facilitating economic activities. Such auspicious conditions were
the result of Bank Indonesia policy to maintain a secure, efficient and reliable payment
system. Consequently, the Bank Indonesia hosted payment system enjoyed low
settlement and liquidity risks, while meeting the system availability target in line with
the predetermined service level for retail services and large-value transactions. For the
industry-operated payment system, Bank Indonesia consistently issued policies and
undertook surveillance in order to mitigate payment system risks.

Public access to financial services in Indonesia showed improvement, reflecting gains

in the financial inclusion index and greater uptake of digital financial services (DFS).
Accordingly, a growing number of banks and agents became actively involved with
digital financial services (DFS) and the number of e-money transactions continued
to soar. Furthermore, Bank Indonesia will continue to develop and socialise digital

6
financial services (DFS) in order to expand public access to financial services.

STRENGTHENING FINANCIAL
SYSTEM INFRASTRUCTURE
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

The Payment Systems Operated by Bank Indonesia and the

Rp

Industry Remained Sound

Rp

Payment System

Payment System operated Industry-Operated Payment System

by Bank Indonesia Payment System Indicators

Value totalled
Rp57,459.18 trillion
Transaction Volume
down to
63.85 million
Bank Indonesia – Real
Time Gross Settlement
(BI-RTGS) system
Value totalled
Rp55,759.02 trillion
Transaction Volume
down to
5.31 million
Bank Indonesia – Scripless
Securities Settlement
System (BI-SSSS)
Value totalled
Rp18,728.67 trillion
Transaction Volume
up to
0.09 million
Bank Indonesia National
Clearing System (SKNBI)
Value totalled
Rp1,700.16 trillion
Transaction Volume
up to
58.54 million
Rp
Value totalled Checking Account
Rp2,693.14 trillion Balance up to
Transaction Volume Rp308.94 trillion
up to
2,821.87 million
Turn Over Ratio
Rp
down to
Card-Based Payment 1.01
Instruments
Queue Transaction
Value totalled
Rp2,690.13 trillion Value down to
64.58%
Transaction Volume
up to Transaction Volume
down to
2,509.65 million
36.06%
Electronic Money
Value totalled
Rp3.01 trillion Risk Mitigation
Transaction Volume
up to
312.22 million Efforts to Mitigate Operational Risk
• The backup infrastructure for the
BI-RTGS, BI-SSSS and SKNBI were
honed at the DRC.
• Periodic testing in the form of
monitoring and partial trials of the
backup system were performed
along with monitoring the
preparedness of the Backup Front
Office infrastructure.

Financial Inclusion and Digital Financial Services (DFS)

Rp

Financial Inclusion Most commonly

Composite Index
Rp
Rp

up to performed transactions by
0.358 customers of DFS agents

Cash out
DFS operators up to
up to 40%
5 Bank
Top-Up transactions
up to
DFS Agents totalling
31%
69,548 agents

146
 Assessment Of Assessment Of Conditions
Financial System Financial Market And Risks The Household
Stability Conditions And Risks And Corporate Sectors
6.1 Payment System Performance
The payment system, as an integral part of financial
system infrastructure, plays a key role in supporting
uninterrupted economic activity and national
financial system stability. The payment system
was operated securely, reliably and efficiently
throughout the second half of 2015, hence buoying
financial system and economic activities. The Bank
Indonesia operated payment system contained
relatively low settlement and liquidity risks during
the reporting period. Accordingly, reliability and
availability targets were met in pursuance of the
predetermined service level. An efficient payment
system was achieved due to the implementation
of payment infrastructure for retail services (Bank
Indonesia National Clearing System (SKNBI)) as well
as large-value transactions (Bank Indonesia – Real
Time Gross Settlement (BI-RTGS) system and Bank
Indonesia – Scripless Securities Settlement System
(BI-SSSS)).
Such favourable conditions were also linked to the
various risk-mitigation efforts employed, coupled
with an increase in the operational performance
of the payment system hosted by Bank Indonesia.
Efforts were executed through various policies
and regulations, infrastructure development and
payment system supervision. Furthermore, the
second generation Bank Indonesia – Real Time
Gross Settlement (BI-RTGS) system and Bank
Indonesia – Scripless Securities Settlement System
(BI-SSSS) were installed on 16th November 2015
to strengthen payment system infrastructure
for large-value transactions, Bank
1
Bank Indonesia Circular Letter (SEBI) No. 17/35/DPSP, dated 13th November 2015, concerning the Nominal Limits on Fund Transfers through the Bank Indonesia – Real Time Gross
Settlement (BI-RTGS) system and Bank Indonesia National Clearing System (SKNBI).
Banks And Strengthening Bank Indonesia Policy
Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction
regulations were harmonised to mitigate systemic
and operational risks and the nominal limit of BI-
RTGS transactions was adjusted1. Such policies
helped the secure, smooth and efficient use of
Bank Indonesia payment system infrastructure.
No significant disruptions were reported to
the industry-operated payment system despite
increases in terms of transaction value and
volume. Transaction value and volume increased
respectively by 9.21% and 18.26% on the same
period of the previous year, which was also the result
of relentless Bank Indonesia efforts to promote the
use of noncash transactions in the national interest,
while adhering to consumer protection principles.
Such endeavours are expected to boost the levels
of financial literacy and public confidence, and,
therefore, expand the use of noncash payment
instruments. Bank Indonesia also issued payment
system policy and regulations, coordinated with
organisations and industry players as well as actively
supervised the payment system in order to mitigate
risk in the industry-hosted payment system.
The Indonesia Payment System Forum (FSPI) was
recently established to support the development
and operation of an uninterrupted, secure, efficient
and reliable payment system. The Forum has
Bank Indonesia, the Ministry of Communications
and informatics as well as the Financial Services
Authority (OJK) as members along with the
Indonesia Payment System Association. The
Indonesia Payment System Forum (FSPI) is expected
to enhance policy coordination and harmonisation,
regulations and the work programs of each member
Indonesia as well as provide an opportunity for the industry to
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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

coordinate with the relevant government ministries
and authorities.
Bank Indonesia has also issued regulations on the
implementation schedule for chip and online 6-digit
PINs in order to reinforce transaction security,
especially when using ATM/debit cards . The
regulations stipulate the implementation schedule
for national chip technology standards and online
6-digit PINs as well as cap the nominal value of
funds permitted for credit card transactions.
Consistent with the aforementioned efforts, the BI
and industry-operated payment systems recorded
2,885.72 million transactions in the second half of
2015 with a total value of Rp60,152.32 trillion.
6.1.2 Industry-Operated Payment System
Industry-operated payment system growth
accelerated in the reporting period in terms of
instruments in circulation and use of noncash
instruments. The use of card-based payment
instruments and electronic money increased as a
2
result of Bank Indonesia policy to promote the use
of noncash payment instruments. Bank Indonesia
also coordinated with payment system operators to
ensure the equitable distribution of infrastructure,
while expanding the scope of payment system
instrument services. In the second semester of
2015, the industry-operated payment system
settled 2,821.87 million transactions, up 18.26%,
with a total value of Rp2,693.14, up 9.21% on the
same period one year earlier.

6.1.1 Bank Indonesia Operated Payment System
The Bank Indonesia operated payment system
recorded a transaction volume and value of 63.85
million transactions and Rp57,459.18 trillion
respectively in the second semester of 2015, down
1.45% and 10.78% on the same period one year
earlier. The decline was due to transaction capping
in the Bank Indonesia – Real Time Gross Settlement
(BI-RTGS) system. When compared to the previous
period, however, transaction volume climbed
5.15%. In terms of settlement services, the Bank
Indonesia – Real Time Gross Settlement (BI-RTGS)
system and Bank Indonesia – Scripless Securities
Settlement System (BI-SSSS)
optimally, reflecting system reliability of 99.97%,
which is above the target of 99.95%.
Bank Indonesia also supervised licensed payment
system service providers in order to maintain
system availability. The objects of supervision
included issuers of card-based payment
instruments and electronic money. Supervision
entails off-site supervision based on the reports
submitted to Bank Indonesia as well as onsite
inspections. In general, the scope of supervision
includes compliance to prevailing regulations,
implementation of Anti-Money Laundering and
Terrorism Financing Prevention as well as Internal
Control. In 2015, Bank Indonesia also conducted
surveillance in conjunction with the Indonesian
were operated Financial Transaction Reports and Analysis Centre
(INTRAC) pursuant to the current Memorandum of
Understanding (MoU)3.

2
Bank Indonesia Circular Letter (SEBI) No. 17/51/DKSP, dated 30th December 2015, as the third amendment to Bank Indonesia Circular Letter (SEBI) No. 11/10/DASP, dated 13th April 2009,
concerning Card-Based Payment Instruments and Bank Indonesia Circular Letter (SEBI) No. 17/52/DKSP, dated 30th December 2015, on the Implementation of National Chip Technology
Standards and use of Online 6-Digit Personal Identification Numbers (PIN) for ATM Card and/or Credit Cards issued in Indonesia.
3
Memorandum of Understanding (MoU) No. NK-26/1.02/PPATK/03/2010, dated 18th March 2010 concerning cooperation for the Prevention and Eradication of Money Laundering and
Terrorism Financing and the minutes of the meeting between Bank Indonesia and INTRAC No. 16/6/DKSP/GPSP/P3PVA/Rsl, dated 31st December 2014.

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 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

from Rp62,914.06 trillion to Rp55,759.02 trillion.

6.2 Payment System Transaction The volume decline was precipitated by a 9.67%
Performance dip in transactions between customers from 4.77
million in the previous period, while the decrease
in value stemmed from monetary operations,
The volume of payment system transactions was
which contracted 26.52%, and Bank Indonesia
observed to increase 17.74% in the second half of
policy to raise the floor on RTGS transactions to
2015, contrasting the 10.04% decline in transaction
Rp500 million after implementation of the second
value. The BI-RTGS system continued to dominate
generation Bank Indonesia – Real Time Gross
financial transaction value. Meanwhile, most
Settlement (BI-RTGS) system on 16th November
transaction volume originated from ATM cards
2016.
and ATM/debit cards. BI-RTGS, BI-SSSS, National
Clearing System (SKNBI) and card-based payment
Total payment system transactions through the
instrument transactions along with electronic
Bank Indonesia – Scripless Securities Settlement
money are presented in Table 6.1.
System (BI-SSSS) increased 8.37% on the period
of the previous year to 0.09 million transactions
Payment transactions through the BI-RTGS system
in the reporting period. In terms of value, BI-SSSS
included monetary operations, government
transactions jumped 6.37% to Rp20,003.52 trillion
transactions, customer transactions, the capital
over the same period.
market, interbank money market, interbank trade
of foreign exchange in rupiah, foreign exchange
National Clearing System (SKNBI) transactions also
trade between banks and Bank Indonesia in rupiah
increased on the position in the same period one
and other transactions. BI-RTGS transaction activity
year earlier. Transaction value increased 14.31%
declined in terms of volume and value on the same
from Rp1,487.30 trillion to Rp1,700.16 trillion.
period one year earlier. RTGS transaction volume
On the other hand, transaction volume increased
fell 41.65%from 9.10 million transactions to 5.31
5.12% from 55.69 million to 58.54 million. The
million, while transaction value dropped 11.37%

Table 6.1 BI-RTGS, BI-SSSS, SKNBI, Card-Based Instruments and E-Money

NILAI VOLUME
Semester II 2014 Semester II 2015 Semester II 2014 Semester II 2015
Δ (%) Δ (%)
(Trillion Rp) (Trillion Rp) (Million Transaction) (Million Transaction)
BI-RTGS 62,914.06 55,759.02 -11.37% 9.1 5.31 -41.65%
BI-SSSS 20,003.52 18,728.67 -6.37% 0.08 0.09 8.37%
SKNBI 1,487.30 1,700.16 14.31% 55.69 58.54 5.12%
Card-Based Instruments 2,464.29 2,690.13 9.16% 2.264.90 2.509.65 10.81%
ATM & ATM/Debit Cards 2,329.73 2,546.75 9.32% 2.133.98 2.364.27 10.79%
Credit Cards 134.56 143.38 6.55% 130.92 145.38 11.04%
Electronic Money 1.74 3.01 72.99% 121.2 312.22 157.61%

Source: Payment System Statistics, January 2016, Bank Indonesia

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

increases stemmed from credit clearing, namely

credit transfers between clearing participants’ 6.3 Payment System Indicators
customers. In contrast, debit clearing transactions
tended to decrease in terms of volume and value 6.3.1 Account Balance
by 11.05% and 8.87% respectively over the same The account balance of BI-RTGS participants
period. increased 5.53% from Rp292.75 trillion at the end
of semester I 2015 to Rp308.94 trillion at the end
Regarding the industry-operated payment system, of semester II 2015. Four state-owned banks were
card-based payment instruments recorded positive the main contributors to the increase, accounting
growth in terms of volume and value by 10.81% for Rp24.03 trillion and increasing 23.14% on
to 2,509.65 million transactions and 9.16% to the previous period. The increase in the account
Rp2,690.13 trillion respectively. Electronic money balance was indicative of anticipatory measures
enjoyed significant growth of 157.61% in terms of undertaken by the banking sector to meet the
transaction volume to 312.22 million and 72.99% seasonal spike in demand for transactions towards
for transaction value to Rp3.01 trillion compared to yearend.
the same period of the previous year.
6.3.2 Turnover Ratio4
The surge in the use of card-based payment The turnover ratio (TOR) was recorded at 1.01 in the
instruments and electronic money was congruent second semester of 2015, falling 2.88% from 1.05
with public education to build awareness of in the previous period (Graph 6.1). In addition to
noncash payment instruments. Furthermore, Bank an increase in the account balance, the lower TOR
Indonesia constantly encourages payment system value was also attributed to a decline of outgoing
services providers to enhance consumer protection transactions after policy to adjust the minimum
in order to build consumer confidence in noncash transaction limit through the Bank Indonesia –
instruments. Specific to the reporting period, Real Time Gross Settlement (BI-RTGS) system was
Bank Indonesia organised the National Noncash implemented. The decline primarily affected BUKU
Movement Festival entitled “Love Noncash, Love 1 banks with a TOR value of 1.26, down 9.72%, as
the Rupiah”. The event provided an opportunity well as BUKU 3 banks with a TOR value of 1.05,
for Bank Indonesia and payment services providers down 9.37%. Conversely, the TOR values reported
to invite the public to use noncash instruments. by BUKU 2 and 4 banks increased respectively by
Meanwhile, the significant increase in electronic 1.74% and 0.85% to 1.41 and 0.80.
money transactions was the result of Bank
Indonesia policy to expand the use of e-money in
the transportation sector.

4
The turnover ratio (TOR) is a comparison between outgoing transactions and the current balance of RTGS participants. TOR is used to measure the relative ability of RTGS participants
to meet payment system transaction liabilities. A TOR value of more than 1.00 indicates that a participant cannot meet its liabilities merely from the opening balance but also relies on
incoming transactions from other RTGS participants.

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Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 6.1 Turnover Ratio

2.00
1.80
1.60
1.40
1.20
1.0
0.80
0.60
0.40
0.20
0.00
Sem I Sem II Sem I Sem II Sem I Sem II Sem I Sem II
2012 2013 2014 2015

BUKU 1 BUKU 2 BUKU 3 BUKU 4 Industry

Source: Bank Indonesia

Graph 6.2 Turnover Ratio by BUKU Bank Group

2.00

1.50

1.00

0.50

0.00
BUKU 1 BUKU 2 BUKU 3 BUKU 4 Industry

2013 Sem I 2013 Sem II 2014 Sem I 2014 Sem II 2015 Sem I 2015 Sem II

Source: Bank Indonesia

6.3.3 Transaction Queue5 of all RTGS transactions, down from 0.005% the
Industry-wide, queued transactions decreased year earlier. In terms of value, queued transactions
during the second semester of 2015 by 36.06% and accounted for just 0.007% of the total, down
64.58% in terms of volume and value respectively. 0.02% from the previous year. Notwithstanding,
During the reporting period, a total of just 172 all queued transactions were settled on the same
transactions were queued out of 5.31 million with day, demonstrating well-mitigated liquidity risk and
a value of Rp3.96 trillion. Accordingly, the volume settlement risk in the Bank Indonesia – Real Time
of queued transactions accounted for just 0.003% Gross Settlement (BI-RTGS) system.

5
Queued transactions are those queued in the Bank Indonesia – Real Time Gross Settlement (BI-RTGS) system due to insufficient funds at the respective bank to settle a transaction when it
is received. The transaction is, however, still settled on the same day.

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Graph 6.3 Queued Transactions (Value)

Trillion Rp

30.00

25.00

20.00

15.00

10.00

5.00

0.00
BUKU 1 BUKU 2 BUKU 3 BUKU 4 Industry

2013 Sem I 2013 Sem II 2014 Sem I 2014 Sem II 2015 Sem I 2015 Sem II

Source: Bank Indonesia

Graph 6.4 Queued Transactions (Volume)

Total Transaction
4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0
BUKU 1 BUKU 2 BUKU 3 BUKU 4 Industry

2013 Sem I 2013 Sem II 2014 Sem I 2014 Sem II 2015 Sem I 2015 Sem II

Source: Bank Indonesia

Gross Settlement (BI-RTGS) system. The total value

6.4 Payment System Risks and of unsettled transactions in the BI-RTGS system
Mitigation Efforts during the reporting period stood at Rp1,261.41
billion, equivalent to just 0.002% of the total.
6.4.1 Settlement Risk 6
Furthermore, only 68 transactions, or 0.001% of
Relatively low settlement risk was reported in the the 5,310.291 total, were not settled. The value
second semester of 2015, indicated by the small of unsettled transactions was down 8.64% on the
value and volume of unsettled transactions during previous semester.
the window time of the Bank Indonesia – Real Time

6
In general, settlement risk from a participant’s perspective is the risk that could emerge as a result of late and failure-to-settle payment transactions while waiting for incoming transfers
from other participants. From the operator’s standpoint, however, settlement risk is not an issue because RTGS participants apply the principle of no money no game, where settlement
transactions are only processed if sufficient funds are available.

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Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

6.4.2 Liquidity Risk7 (BCP), including the provision of a backup system

In the second semester of 2015, relatively low that is continuously on standby to replace the
liquidity risk was also reported. Minimal use of primary production system in its entirety. Hosting
the Intraday Liquidity Facility (ILF) was observed, the BI-RTGS system is one of the main focuses of
representing a funding facility provided by Bank Bank Indonesia in terms of payment system activity
Indonesia to participating banks in the form of because operational risk, if not mitigated, could
a securities repurchase agreement (repo). The indirectly exacerbate potential liquidity risk and
Intraday Liquidity Facility (ILF) is available to ultimately undermine financial system stability.
participating banks upon approval from Bank
Indonesia and is provided automatically when Bank Indonesia periodically checks the
the account balance of a participating bank is infrastructural preparedness of the Bank Indonesia
insufficient to execute its outgoing transactions. – Real Time Gross Settlement (BI-RTGS) system,
Thereafter, the Intraday Liquidity Facility (ILF) is Bank Indonesia – Scripless Securities Settlement
settled automatically upon receipt of incoming System (BI-SSSS) and National Clearing System (BI-
transactions. In the second semester of 2015, only SKN). In the second semester of 2015, adjustments
two requests for the Intraday Liquidity Facility (ILF) were made to the backup systems for BI-RTGS, BI-
were received, which were fulfilled using securities SSSS and BI-SKN at the Disaster Recovery Centre
that were repaid upon receipt of incoming transfers. (DRC). Periodic testing in the form of monitoring and
partial trials of the backup systems were conducted
6.4.3 Operational Risk8 five times, while the Backup Front Office (BFO) was
Bank Indonesia constantly strives to minimise monitored once to ensure the infrastructure was
operational risk through a Business Continuity Plan ready.

Table 6.2 Ten Large banks with Most Counterparties

2013 2014 2015

Sem I Sem II Sem I Sem II Sem I Sem II
Ranking
Counterparty Counterparty Counterparty Counterparty Counterparty Counterparty
Bank Bank Bank Bank Bank Bank
in-out in-out in-out in-out in-out in-out
1 BUKU 4 293 BUKU 4 290 BUKU 4 288 BUKU 4 290 BUKU 4 284 BUKU 4 272
2 BUKU 4 292 BUKU 4 289 BUKU 4 288 BUKU 4 289 BUKU 4 283 BUKU 4 265
3 BUKU 4 292 BUKU 4 289 BUKU 4 288 BUKU 4 289 BUKU 4 281 BUKU 4 262
4 BUKU 4 292 Syariah 287 BUKU 4 286 Syariah 287 BUKU 4 281 BUKU 4 256
5 BUKU 3 286 BUKU 4 286 BUKU 3 284 BUKU 4 286 BUKU 3 272 BUKU 3 243
6 Syariah 286 BUKU 3 283 BUKU 3 280 BUKU 3 283 BUKU 3 272 BUKU 3 242
7 BUKU 3 283 BUKU 3 280 Syariah 280 BUKU 3 280 BUKU 3 271 BUKU 3 239
8 BUKU 3 282 BUKU 3 280 BUKU 3 279 BUKU 3 280 BUKU 2 269 BUKU 3 239
9 Syariah 282 BUKU 2 276 BUKU 3 278 BUKU 2 276 BUKU 3 266 BUKU 3 236
10 BUKU 3 281 BUKU 3 275 BUKU 3 276 BUKU 3 275 BUKU 3 266 BUKU 3 224

7
Liquidity risk occurs in the payment system when an RTGS participant has insufficient funds to meet the liabilities on time despite the possibility of fulling the liabilities during the
subsequent window time.
8
Operational risk appears due to operating factors, such as system or network issues.

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6.4.4 Systemic Risk9
Systemic risk causes failure at one or more
financial institutions due to a systemic event. In
the financial system, systemic risk originates from
interconnectedness in the BI-RTGS system, which
is observed from the number of counterparties
associated with each participant.
number of counterparties implies more risk at
RTGS participants. The ten banks with the most
counterparties in semester II 2015 are presented in
Table 6.2. The ten banks with the most counterparties
were placed under special monitoring because the
large contagion effect failure to settle could have
on the other participants and ultimately on the
financial system.
6.5 Digital Financial Services and
Financial Inclusion
6.5.1 Indonesia Financial Inclusion Composite Index
(IKKI)
One benchmark of financial inclusion in a country
is the Financial Inclusion Index, which is calculated
using a number of methods that vary by country
and organisation, including the Alliance for Financial
Inclusion (AFI), International Monetary Fund (IMF)
and different economists such as Sarma (2008, 2010,
2012), Crisil and Chi-Winds. Bank Indonesia adopted
the method proposed by Sarma (2012) to calculate
the Indonesia Financial Inclusion Composite Index
(IKKI) along with the technique developed by AFI.
9
Systemic risk is the risk of default at one or more financial institutions due to systemic events in the form of shocks that impact one or more institutions and then spread through
contagion, or shocks that simultaneously affect a number of large institutions (De Bandt and Hartman, 2000, and Zebua, 2010, in the Monetary and Banking Economic Bulletin, October
2013).
154
When calculating the Indonesia Financial Inclusion
Composite Index (IKKI), Bank Indonesia uses three
indicators for two dimensions of financial inclusion,
namely (i) the access dimension that looks at the
availability of banking services (BS), such as branch
offices, ATMs and so on; (ii) the banking penetration
A larger (BP) dimension; as well as (i) the usage of the banking
system (BU). In the second semester of 2015, the
number of electronic money accounts was added to
the BP indicator to calculate the Indonesia Financial
Inclusion Composite Index (IKKI). At the same time,
the number of digital financial services (DFS) agents
was also added to the BS indicator.
Sarma’s method (2012) uses an index value of
between 0 and 1, where a higher financial inclusion
index is indicative of more complete financial inclusion
in a country. Conversely, an index value approaching 0
indicates complete financial exclusion.
The determinants of financial inclusion in Indonesia
certainly differ from other countries due to the
geographic conditions, public awareness and
infrastructure availability in rural areas. Using Sarma’s
method (2012) to calculate the Indonesia Financial
Inclusion Composite Index (IKKI) in December 2015
produced a medium score of 0.358 or 35.8% (Graph
6.5). The score shows that public access to and uptake
of financial services has historically tended to increase
but remains at the medium level.
As a member of the Alliance for Financial Inclusion
(AFI), Indonesia is also required to calculate financial
inclusion based on the AFI Core Set, which is a
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 6.5 Indonesia Financial Inclusion Composite Index

0.380
Dec 15 : 0.358
0.360

0.340
Nov 13 : 0.318
0.320

0.300 Feb 15 : 0.313

0.280

0.260

0.240

0.220

0.200
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Source: Bank Indonesia, processed

comparatively simpler method considering the limited while CIMB Niaga favours business agents. The
scope of each respective country’s database. Only growing number of DFS operators precipitated the
two dimensions of the financial inclusion indicator increase in DFS agents in Indonesia. In addition, the
are recorded, namely access and usage. Furthermore, banking industry in Indonesia still perceives the vast
AFI also determined the magnitude of each respective potential for further market development. In terms
dimension and used 2015 data to obtain a financial of coverage, the agents associated with BRI are
inclusion index for Indonesia of 0.36 or 36%. Similar to the most extensive, covering 438 regencies/cities,
Sarma’s method (2012), the AFI Core Set also produces followed by Bank Mandiri that has a presence in
a value of between 0 and 1, where a value approaching 315 regencies/cities. DFS agents from CIMB Niaga
1 indicates more complete financial inclusion in the are distributed in three cities, while BCA agents are
financial system. concentrated in Jakarta.

6.5.2 Development of Digital Financial Services (DFS) ii. DFS Agents

The development of digital financial services (DFS) The number of DFS agents exploded during the
progressed favourably in 2015 as more banks signed second semester of 2015, jumping from 37,008 in
up as DFS operators and more DFS agents joined June 2015 to 69,548 agents in December of the
the program, coupled with an increase in electronic same year. Of the total in December, 60,270 were
money transactions at such agents. individual agents and 9,279 were business agents.
i. DFS Operators Individual agents consist of grocery stores, small
There are currently five banks registered as DFS shops/stalls, telephone credit sellers and Payment
operators, of which four (BRI, Bank Mandiri, BCA Point Online Bank (PPOB). Meanwhile, business
and BNI) utilise individual and business DFS agents, agents include retailers and cooperatives.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Figure 6.1. DFS Agents in Indonesia

3 DFS Agents in 1 City

14 DFS Agents in 3 Cities

388 DFS Agents in 38 Cities

11

54,635 DFS Agents in 438 Cities

14,896 DFS Agents in 315 Cities

Source: Bank Indonesia, December 2015, processed

iii. Transactions at DFS Agents
The most popular customer transactions at DFS
agents in the second semester of 2015 were cash out
(40%) and top up (31%) as well as person to account
e-money transactions (14%). Public awareness of
the various other transactions and services offered
through DFS agents needs to be improved through
education and socialisation activities.
The total value of e-money transactions at DFS
agents in December 2015 was recorded at Rp5.38
billion, with most transaction value originating in
the regencies of South Lampung and Jember as well
as the cities of North Jakarta and Makassar. The
value of e-money transactions soared in January,
April and May due to government assistance
disbursements. The number of e-money account

Graph 6.6 Total DFS Agents

Total Agents

80,000
69,548
70,000
DFS Agents 59,413
60,000

46,797 50,000
43,525
40,373
37,008 38,302
33,672 40,000
30,278
26,952
30,000
21,973 23,169
20,000

10,000

-
January February March April May June July August September October November December

Source: Bank Indonesia, December 2015, processed

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Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Table 6.1 Individual and Business DFS Agents Graph 6.7 Respective Shares of E-Money Transactions at DFS
Agents in Semester II 2015
Period of 2015 Individual Agents Business Agents

January 21,273 701

Person to Initial
February 22,435 735 Account 6%
transfers 14%
March 26,137 816
Top Up
April 29,401 878 31%
Person
May 32,735 938 Transfers 5%
Payment
June 36,039 970 4%
Government to
July 37,802 977
Person Transfers
August 39,798 1,052 Person 0%

Cash Out
September 42,435 1,091
40%
October 45,660 1,138

November 50,320 9,094

December 60,270 9,279

Source: Bank Indonesia, December 2015, processed Source: Bank Indonesia, December 2015, processed

holders increased throughout 2015, as presented
in Graph 6.9. Accordingly, the number of e-money
account holders increased from 1,033,684 in June
2015 to 1,145,486 in December 2015.
iv. Additional Information
Bank Indonesia also initiated a number of pilot
projects at Islamic boarding schools in conjunction
with telecommunications companies in Indonesia
in order to accelerate national DFS development.
The Islamic boarding schools selected for the
pilot projects were Daarut Tauhiid in Bandung,
putri Al-Mawaddah in East Java and As-Salam in
Solo. Through the pilot projects, Bank Indonesia
expanded financial services through prospective
telecommunications companies,
Telekomunikasi Indonesia, PT XL Axiata and PT
Indosat Ooredoo. The following impression was
obtained from preliminary monitoring of pilot
project implementation:
a. The business model of
Islamic boarding schools consists of welfare
disbursements and food allowances from the
schools to the working students as well as
shopping at the cooperative supermarket and
for the school canteen.
b. The working students are highly motivated to
use e-money. Previously, handouts were given in
the form of vouchers, which were inflexible and
required small denominations for the change.
c. Low transaction and SMS costs (toll free with
sms costs borne by the carrier) are a distinct
advantage of e-money and a necessity for low-
income earners.
v. Monitoring
As a follow-up activity, Bank Indonesia conducted
surveys of DFS agents and local residents in Jakarta
including PT and Semarang through face-to-face interviews and
Focus Group Discussions (FGD) in order to improve
the financial services available to the public and
also to formulate a strategy to overcome the
constraints, while simultaneously building public
transactions at awareness of digital financial services (DFS). The
results of the DFS surveys are as follows:

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 FINANCIAL STABILITY REVIEW
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Graph 6.8 E-Money Transaction Value at DFS Agents Graph 6.9 E-Money Account Holders at DFS Agents

January 705.02 December 1,145,486

February 79.79 November 1,130,315

March 1.60 October 1,104,893

April 1.091.32 September 1,078,408

May 108.19 August 1,040,319

June 2.91 July 1,040,319

July 4.26 June 1,033,684

August 1.85 May 1,029,980

September 2.46 April 1,028,647

October 2.76 March 1,027,555

November 3.58 February 1,026,633

December 5.38 January 1,025,452

Source: Bank Indonesia, December 2015, processed Source: Bank Indonesia, December 2015, processed

a. Limited information on digital financial services d. Some carriers charge a premium rate for short
(DFS) and e-money through agents remains message services (SMS), which is unaffordable
a constraint, thus requiring more concerted for low-income earners, especially for financial
socialisation efforts to build public awareness. services at a DFS agent with a bank operator.
b. The public still does not fully trust e-money e. The number of agents is still limited, thus making
due to the lack of physical evidence (such as a it difficult to access funds.
bank book) and still prefers printed transaction f.
Greater convenience is required when
receipts. operationalising the transaction media for both
c. The public are concerned about losing their customers and agents, including more reliable
mobile phone as the transaction medium, and quicker network services.
believing that a lost phone would result in lost
e-money savings.

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 Assessment Of Assessment Of Conditions
Financial System Financial Market And Risks The Household
Stability Conditions And Risks And Corporate Sectors
Implementation of Chip and Six-Digit Online PIN
Box 6.1 Technology for ATM/Debit Cards
Underpinning public confidence in noncash payment
instruments, Bank Indonesia constantly applies
policies and regulations to reinforce the security of
such instruments. Hitherto, policies have included
the application of national standards for chip and
six-digit online PIN technology on ATM/debit cards
as international best practices and to mitigate fraud
risk through skimming and counterfeit cards. In
addition, the implementation of national standards
will also support interoperability and national
independence.
Bank Indonesia has now pushed back the
implementation schedule for chip technology
from no later than 31st December 2015 until 31st
December 2021. Meanwhile, the implementation
of six-digit online PIN technology on magnetic stripe
ATM/debit cards has been extended until 30th
June 2017. All ATM/debit cards issued in Indonesia
along with supporting infrastructure must adopt
the national chip technology standards agreed by
the industry and Bank Indonesia no later than 31st
December 2021. Previously, all issuers of ATM/
debit cards in Indonesia were required to migrate
from magnetic stripe to chip technology. Now,
however, pursuant to prevailing regulations, issuers
are permitted to continue using magnetic stripe
technology for ATM/debit cards linked to a deposit
account with a maximum balance of Rp5 million.
Issuers must ensure that the deposit account does
not exceed the maximum Rp5 million threshold
through a written agreement between the issuer
and the customer. The regulation was amended in
Banks And Strengthening Bank Indonesia Policy
Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction
order to accommodate Bank Indonesia policy to
foster the uptake of low-cost, or affordable, noncash
payment instruments in the wider community.
The implementation schedule was extended
considering the protracted time required to
implement the national standards for chip and six-
digit online PIN technology. The majority of ATM/
debit cards issuers are not yet fully prepared for
implementation of the standards. Consequently,
Bank Indonesia also issued incentives for card
holders using chip technology in order to motivate
other users to migrate from magnetic stripe to chip
technology. The incentives include higher limits on
cash withdrawals and cash transfers for users of
cards with chip technology. The limit on interbank
transfers is now Rp50 million per account per day
and for cash withdrawals from an ATM, the limit
was raised to Rp15 million.
The amendment was regulated in accordance with
Bank Indonesia Circular Letter (SEBI) No. 17/51/
DKSP, dated 30th December 2015, as the third
amendment to Bank Indonesia Circular Letter (SEBI)
No. 11/10/DASP, dated 13th April 2009, concerning
Issuers of Card-Based Payment Instruments and
Bank Indonesia Circular Letter (SEBI) No. 17/52/
DKSP, dated 30th December 2015, regarding the
Implementation of National Standards for Chip
and Six-Digit Online PIN Technology on ATM/debit
cards Issued in Indonesia. The amendments are
summarised as follows:
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 FINANCIAL STABILITY REVIEW
No. 26, March 2016
SEBI No/17/51/DKSP
Cash Withdrawal Limit through
ATM Machines
Interbank Transfer Limit through
ATM Machines
Technology used to enhance
security
SEBI No.17/52/DKSP
Technology
Implementation Schedule
Implementation Stages
Transaction Processing
160
Previous Regulation
Rp10 million per account per day (for all
ATM cards )
Rp25 million per account per day (for all
ATM cards )
Chip Technology Standards
Previous Regulation
National Chip and Six-Digit PIN
Technology Standards
Implementation of Chip and
Six-Digit PIN Technology: 31st
December 2015
No later than 31st December
2015
As from 1st January 2016:
all ATM/debit cards must be
processed using
New Regulation
Rp10 million per account per day for magnetic stripe ATM cards.
Rp15 million per account per day for chip technology ATM cards.
Rp25 million per account per day for magnetic stripe ATM cards.
Rp50 million per account per day for chip technology ATM cards.
National Chip Technology Standards.
Magnetic Stripe Technology for certain ATM/debit cards.
New Regulation
National Chip Technology Standards or magnetic stripe technology for ATM/debit cards linked to a
deposit account balance of no more than Rp5 million.
Six-Digit Online PIN Technology
Implementation of national chip technology standards: no later than 31st December 2021.
Implementation of Six-Digit PIN Technology:
For cards with national chip technology standards: no later than 31st December 2021.
For magnetic stripe cards: no later than 30th June 2017.
Host and back-end systems: no later than 30th June 2017.
New ATM/EDC terminals: commencing 1st July 2017.
Issuances of new ATM/debit cards shall be phased as follows: 30% by 1st January 2019, 50% by 1st
January 2020, 80% by 1st January 2021 and 100% by 1st January 2022.
For Indonesian magnetic stripe ATM/debit cards:
Until 30th June 2017: processed using PIN or signature.
Commencing 1st July 2017: processed domestically using six-digit online PIN; processed as per
Principal preparedness.
Commencing 1st January 2022: processed domestically using six-digit online PIN
For Indonesian ATM/debit cards using National Chip and Six-Digit PIN Technology Standards:
Until 31st December 2021: processed using national chip and six-digit PIN technology standards if the
card and terminal are ready; or processed as per Principal preparedness.
Commencing 1st January 2022: processed domestically using national chip and six-digit PIN
technology standards.
ATM/debit cards not issued in Indonesia may be processed using chip/magnetic stripe and PIN/
signature
 Assessment Of Assessment Of Conditions
Financial System Financial Market And Risks The Household
Stability Conditions And Risks And Corporate Sectors
Financial Services Digitalisation at Islamic
Box 6.2 Boarding Schools
The digitalisation of financial services is taking
place at Islamic boarding schools through
electronic mechanisms. The transformation
of payment services into noncash at Islamic
boarding schools began through a pilot scheme
for digital financial services (DFS) at two
Islamic boarding schools in order to develop
an electronic payment ecosystem (e-payment).
Community based ecosystem development is
considered an effective strategy to increase the
adoption of noncash payment services amongst
the public. Efforts to introduce digital financial
services (DFS) at Islamic boarding schools are
based on the following considerations.
• The digital financial services
introduced by Bank Indonesia in 2014 are a
gateway to the unbanked, especially in rural
areas, to access financial services. Through
digital financial services (DFS), electronic
money, which is accessed through mobile
phones or cards and facilitated by DFS
agents, can be used by the public for
various payment transactions. Pursuant
to the regulations issued, Bank Indonesia
has created the opportunity for e-money
issuers, either banks or nonbanks, to spread
the use of electronic money through digital
financial services (DFS).
• DFS implementation not only broadens
public access to financial services in remote
areas and enhances transaction efficiency,
digital financial services (DFS) also create
opportunities for businesses and individuals
Banks And Strengthening Bank Indonesia Policy
Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction
to become DFS agents. For Bank Indonesia,
DFS has a favourable impact on financial
system stability and the effectiveness of
monetary policy transmission. Meanwhile,
for the country, all transactions amongst
the public are recorded, which reduces the
risk of money laundering and terrorism
financing.
Indonesia is the most populous Muslim country
in the world, with a Muslim population of 207
million, accounting for 88.1% of the total. Such
a large Muslim population has ensured the
rapid development of Islamic boarding schools
(DFS) as centres of learning for Muslims throughout
the country. The network of students and
alumni reaches all corners of the Indonesian
archipelago. As the oldest Islamic educational
institution in Indonesia, Islamic boarding
schools (pesantren) function as centres of
communication and development amongst
Indonesian Muslims. Based on Islamic teachings,
pesantren have strong roots in the community
and charismatic leaders or influencers who
provide inspiration to local communities.
Observing the large potential of the Muslim
population and presence of Islamic boarding
schools as influencers of local communities,
Bank Indonesia saw the opportunity to develop
financial access for Muslim communities
through a sharia-compliant approach, known
as Islamic Financial Inclusion. The strategy
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 FINANCIAL STABILITY REVIEW
No. 26, March 2016
was adopted considering that Islamic banking
penetration to facilitate financial transactions
amongst Muslim communities in Indonesia still
remains low.
In terms of Islamic Financial Inclusion, one
BI endeavour is to synergise Islamic boarding
schools with issuers of e-money (u-nik) to host
digital financial services (DFS). To that end,
Bank Indonesia has nurtured synergy between
telecommunications companies and Islamic
boarding schools. The synergy is based on the
comparative advantages of each respective
party. Telecommunications companies are
used to serving mass markets in rural areas,
providing technology and communications
as well as owning the u-nik application that
is linked to the phone number of the Islamic
boarding school as the influencer of the local
community, the driver of e-payment ecosystem
growth and linked to numerous business units
with potential to become DFS partners.
Synergy began with DFS trials some time ago
involving Islamic boarding schools in Bandung
(Daarut Tauhiid) and East Java (Putri Al-
Mawaddah) as well as three telecommunications
companies, namely XL Axiata, Indosat and
Telkomsel. The trials used the synergic business
model of the telecommunications companies, as
hosts of the digital financial services (DFS), with
the Islamic boarding schools as DFS partners.
Through the partnership, each party was
162
expected to contribute it respective expertise.
Consequently, the operational preparedness
of both parties was critical. During the trials,
in pursuance of the main requirements of the
Islamic boarding schools, school fee payment
transactions from the students’ parents
and salary payments for teachers and other
employees using e-money were prioritised
along with other transactions in other business
units, including the canteen, accommodation,
supermarket and cooperative. In that context,
the other business units functioned as DFS
agents and merchants. In future, zakat
payments using e-money will be developed as
well as closed-loop payment transactions for
the students.
Through electronification, more effective and
secure transaction activity at Islamic boarding
schools is expected, which will also benefit
the pesantren. The benefits include detecting
student remittances, expediting money transfers
and mitigating risk of counterfeit money.
Payment data concerning student transactions
at the business units of the Islamic boarding
schools, such as the canteen and supermarket,
could be used to analyse transaction behaviour
and better determine the needs of the students.
In addition, having the business units function
as DFS agents and merchants, transaction
reporting should be more orderly and provide
information for further business development.
Habitual use of noncash transactions through
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

e-money at Islamic boarding schools is expected

to spill over into the local community, thus
spreading the uptake of digital financial services
(DFS). Ultimately, greater financial access in the
community is expected to expand economic
capacity at Islamic boarding schools and in the
local economy.

To ensure the trials continue long after they are

due to stop, telecommunications companies
are urged to complete the requirements as
DFS operators and request a license from Bank
Indonesia. in addition, telco-hosted digital
financial services (DFS) in the community could
be expanded beyond the scope of Islamic
boarding schools.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016
Implementation of the Second Generation BI-
Box 6.3 RTGS system and BI-SSSS
Constantly seeking to improve the reliability and
security of financial market infrastructures (FMI)
in Indonesia, Bank Indonesia developed the
second generation BI-RTGS system and BI-SSSS.
Development was motivated by the growing
number of BI-RTGS payment transactions and BI-
SSSS securities transactions, thus necessitating
greater system capacity. In addition, development
was needed to meet the growing requirement
for more complete business features and to
accommodate innovative Systemically Important
Payment Systems (SIPS) and Central Securities
Depositories (CSD). Innovation intends to boost the
efficiency and risk mitigation of financial market
infrastructures (FMI). Furthermore, development
of the second generation BI-RTGS system and BI-
SSSS also aims to improve FMI interoperability
at Bank Indonesia with other cross-border and
domestic financial market infrastructures.
Therefore, on 16th November 2015, Bank Indonesia
implemented the second generation iterations
of three primary systems, namely BI-RTGS as the
large-value interbank payment system; BI-SSSS
as the settlement and administration system for
securities, specifically tradeable government
securities (SBN) and Bank Indonesia Securities
(SBBI); as well as the Bank Indonesia-Electronic
Trading Platform (BI-ETP) as the trading platform
for SBN and SBBI auctions as well as the money
market.
164
Potential operational risk could originate from the
possible malfunction of the second generation
systems, which would disrupt payment system
activities at Bank Indonesia. Therefore, transitional
regulations were introduced to minimise the risks
that might arise by limiting the value of interbank
customer transfers for single credit and multiple
credit transactions. Consequently, multiple credit
transactions through the RTGS system were limited
to more than Rp500 million from 16th November
2015 until 30th June 2016. Thereafter, on 1st July
2016, the limit will return to Rp100 million.
Furthermore, the Rp500 million upper limit on
transactions through the Bank Indonesia National
Clearing System (SKNBI) is not effective from 16th
November 2015 until 30th June 2016. The limit will
be reinstated, however, on 1st July 2016. As an
anticipatory measure to mitigate future operational
risk in the second generation BI-RTGS system and
BI-SSSS, Bank Indonesia requires participating
banks to provide a data communications network
(DCN) of the backup site at the banks’ expense to
Bank Indonesia no later than 30th June 2016.
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
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Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

165
Macroprudential policy implementation by Bank Indonesia in 2015 aimed to stimulate
economic growth while strengthening financial system stability. To stimulate growth,
an accommodative macroprudential policy stance was adopted that could catalyse
bank credit growth. On the other hand, financial system stability was bolstered
through policy to protect banks from excessive risk-taking behaviour.

Macroprudential policy in 2015 encompassed the loan (financing) to value ratio (LTV/
FTV), RR-loan to funding ratio (RR-LFR), regulations on the countercyclical buffer,
surveillance and inspections targeting large banks, as well as stronger coordination
with the Government and other relevant institutions.

BANK INDONESIA POLICY RESPONSE

TOWARDS MAINTAINING FINANCIAL
SYSTEM STABILITY
7
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Macroprudential Policy Aims to Strengthen FSS and

Catalyse Economic Growth Through Accomodative
Policy Measures

Stronger Coordination with the

Government and other relevant Institutions

Rp

Rp

Bank Indonesia Circular Letter (SEBI)

concerning LTV for housing loans and

downpayments on motor vehicle loans

Ketentuan LFR – GWM UMKM

Surveillance and Inspections, primarily

CCB set at 0%
targeting large banks

POLICY RESPONSE

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Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Throughout 2015, Bank Indonesia issued

accommodative and
macroprudential policy to stimulate economic
growth through bank credit growth and maintained
financial system stability. Macroprudential policy
was implemented through various regulations,
surveillance and thematic inspections of the
banking industry. A combination of those three
policies successfully upended the credit slump
and controlled the risks contained in the financial
system.
The salient policies issued in 2015 included loosening
the loan-to-value ratio (LTV) and financing-to-value
ratio (FTV) for housing loans and downpayments on
motor vehicle loans as well as releasing regulations
to stimulate the bank intermediation function,
to accelerate financial market deepening and
encourage lending to productive sectors (RR-loan
to funding ratio (RR-LFR)). Bank Indonesia also
promulgated regulations on the countercyclical
capital buffer (CCB) in order to prevent a build-up
of systemic risk from excessive credit growth and to
absorb losses.
Bank Indonesia also conducted surveillance and
inspections of the banking sector, particularly
large banks, in order to identify potential fragilities
and volatility, thereby capturing possible systemic
pressures in the financial system. In addition to
compliance audits, thematic inspections were
also performed on a number of large banks during
the reporting period with respect to liquidity and
foreign exchange exposure.
countercyclical 7.1 Implementation and Evaluation
of Looser Loan-to-Value Ratio
(LTV) and Financing-to-Value
Ratio (FTV) for Housing Loans and
Downpayments on Motor Vehicle
Loans
Policy to ease the LTV/FTV of housing loans/
financing and downpayments on motor vehicle
loans1 aims to maintain national growth momentum
through increased bank intermediation. Such
macroprudential policy was implemented by
reducing the LTV/FTV ratios for several types of
houses along with downpayments on motor vehicle
loans (Table 7.1).
Measured policy to loosen the LTV/FTV ratios
was instituted proportionally and in adherence to
prudential principles. The policy was realised by
stipulating a gross NPL/NPF ratio of less than 5%
for total credit as well as (Islamic) housing loans/
financing. Banks meeting the stipulations qualified
for a higher LTV/FTV ratio in the 60-90% range as
presented in Table 7.1.
Prudential principles were followed by stipulating
a threshold for gross non-performing loans (NPL)
and non-performing financing (NPF) of less than
5% of total credit and of (Islamic) motor vehicle
loans/financing. A detailed breakdown of the
downpayments pursuant to the new regulation is
presented in Table 7.2.

1
Bank Indonesia Regulation (PBI) No. 17/10/PBI/2015, dated 18th June 2015, concerning the Loan-to-Value Ratio (LTV) or Financing-to-Value Ratio (FTV) for Housing Loans or Financing
and Downpayments of Motor Vehicle Loans. The regulation superseded Bank Indonesia Circular Letter (SEBI) No. 15/40/DKMP/2013 on the Application of Risk Management for Banks
Extending Housing Loans or Financing, Property-Backed Consumer Loans or Financing and Motor Vehicle Loans or Financing.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Table 7.1 LTV/FTV Ratio for Banks Meeting the Prevailing Requirements

HOUSE HOUSE
Type > 70 80% 70% 60% Type > 70 85% 75% 65%
Type 22-70 - 80% 70% Type 22-70 - 80% 70%
Type ≤ 21 - - - Type ≤ 21 - - -
APARTMENT APARTMENT
Type > 70 80% 70% 60% Type > 70 85% 75% 65%
Type 22-70 90% 80% 70% Type 22-70 90% 80% 70%
Type ≤ 21 - 80% 70% Type ≤ 21 - 80% 70%
HOME STORE/ HOME STORE/
- 80% 70% - 80% 70%
HOME OFFICE HOME OFFICE

Table 7.2 Downpayments on Motor Vehicle Loans

Loan/Financing
Type of Vehicle
Motor Vehicle Loans Islamic Motor Vehicle Financing
2 Wheels 20% 20%
3 Wheels or More – Non-Commercial 25% 25%
3 Wheels or More – Commercial 20% 20%

Source: Bank Indonesia. December 2015. Processed

Implementation of the new policy over the past reporting period. Meanwhile, robust credit growth
six months prevented a deeper credit slump, with for loans on medium houses was also reported,
housing loans recording growth of 6.96% (yoy) accelerating from 9.78% (yoy) to 13.80% (yoy) over
in the second semester of 2015, up from 6.46% the same period.
(yoy). Nonetheless, the policy has thus far failed
to stimulate further credit growth in line with Rising residential property prices slowed in
domestic economic moderation. the second semester of 2015 from 5.95% (yoy)
previously to 4.62% (yoy). Similarly, rising medium-
The positive impact of looser LTV/FTV policy also sized house prices also decelerated from 5.49%
manifested in lower credit risk on housing loans (yoy) to 3.96% (yoy) over the corresponding
and greater demand for property loans on medium period due to developers holding prices in order to
houses (22-70m2). Furthermore, the gross NPL ratio maintain sales.
of housing loans fell from 2.59% to 2.34% in the

Graph 7.1 Performance of Housing Loans Table 7.3 Credit Growth and NPL by Loan Type
yoy (%) Annual Growth (yoy) NPL (%)
LTV LTV LTV
50.0 Housing Loan
2012 2013 2015 Jun’15 Dec’15 Jun’15 Dec’15
45.0
40.0 Total Credit House
35.0 Real Estate
Type >70 m2 4.62 3.78 2.04 2.20
30.0
25.0 21.14% Type 21-70 m2 9.78 13.80 2.92 2.40
20.0 Type < 21 m2 2.61 -6.18 3.02 2.29
15.0 19.51%
10.0 10.45% Apartment
5.0 Construction Housing Loans Type >70 m2 -4.42 -5.35 1.12 0.86
6.96%
0,0
Type 21-70 m2 3.49 1.92 1.72 1.64
Dec-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Dec-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Dec-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Dec-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Dec-15

Type < 21 m2 0.77 -1.46 3.39 2.56

Home Store/Home Office 3.91 2.35 3.11 3.11
Source: Bank Indonesia, December 2015, processed Total Housing Loan 6.46 6.96 2.59 2.34

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Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 7.2 Residential Property Price Growth Graph 7.3 Medium-Sized Residential Property Price
Price Growth (%)
Growth
Price Growth (%)
16
14 14
12 12
10 10
8 8
6 4.62
6 3.96
4
4
2 0.73
0 2 0.76
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
0
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
2010 2011 2012 2013 2014 2015
2010 2011 2012 2013 2014 2015
yoy (%) qtq (%)
yoy (%) qtq (%)

Source: Residential Property Price Survey, Bank Indonesia, Q4/2015

maintaining a gross NPL ratio for MSME loans and

7.2 Adjustment to the RR-loan to
funding ratio (RR-LFR) and
Checking Account Services to
Meet MSME Loan Requirements2
Efforts to stimulate the bank intermediation function
also entailed adjusting the RR-loan to funding ratio (RR-
LFR), effective from 1st August 2015. The refinement
included adding a component of securities issued by
banks when calculating the loan-to-deposit ratio (LDR)
for the LDR-RR. Applicable securities include medium-
term notes (MTN), floating rate notes (FRN) and bonds
other than subordinated bonds. Consequently, LDR
was changed to LFR . 3
The adjustment was also realised by loosening the
LFR from 92% to 94% for banks meeting the following
requirements: (i) attaining the target ratio of MSME
loans to total credit ahead of schedule ; and (ii)
total loans of below 5%. Nevertheless, for banks
failing to meet the prevailing target MSME credit ratio,
checking account services will be restricted, effective
from 1st February 2016. Foreign bank branches and
joint venture banks, however, are permitted to meet
the target ratio through non-oil and gas export credits.
Credit growth slowed from 11.58% (yoy) at the
end of 2014 to 10.38% (yoy) at the end of semester
I 2015 and then stabilised at 10.45% (yoy) in the
following semester, indicating that the looser RR-
loan to funding ratio (RR-LFR) has not yet catalysed
bank credit growth, merely stemmed the decline
against a backdrop of domestic economic moderation
in 2015. Nevertheless, declining deposit growth,
from 12.29% (yoy) to 12.65% (yoy) and then to just
7.26% (yoy) over the same period raised the RR-loan
to funding ratio (RR-LFR) at yearend in the banking
sector. Furthermore, weaker deposit growth was also
4

2
Bank Indonesia Regulation (PBI) No. 17/11/PBI/2015, dated 25th June 2015, as an amendment to Bank Indonesia Regulation (PBI) No. 15/15/PBI/2013 concerning the Statutory Reserve
Requirement in Rupiah and a Foreign Currency for Conventional Commercial Banks
3
LFR = Credit/(Deposits + Bank-Issued Securities)
4
The target ratio and schedule for the MSME credit ratio pursuant to Bank Indonesia Regulation (PBI) No. 17/12/PBI/2015, as an amendment to Bank Indonesia Regulation (PBI) No. 14/22/
PBI/2012 concerning the Provision of Credit or Financing by a Commercial Bank and Technical Assistance towards MSME Development is 5% at the end of 2015, 10% by the end of 2016,
15% by the end of 2017 and 20% by the end of 2018.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Graph 7.4 Bank Intermediation Function

80
90.5% 4,200
Enforcement of RR - LFR
90.0% Enforcement of RR - LFR 4,100 70

Deposits
89.5% 4,000 60

89.0% 3,900
50
LDR
88.5% 3,800
SSB issued (RHS)
40
88.0% 3,700
Loan
LFR 30
87.5% 3,600

87.0% 3,500 20
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
Juy August September October November December July August September October November December

Source: Bank Indonesia, December 2015, processed

the result of a change to more contractive financial of banks meeting the requirements increased towards
operations by the government at yearend as well as the end of 2015, especially BUKU 2 and 3 banks.
prefunding for the 2016 state budget. However, the LFR incentive of 94% for banks meeting
the MSME credit target has thus far failed to elicit the
The impact of policy to include bank-issued securities in desired response due to weak public demand for loans
the calculation of the RR-loan to funding ratio (RR-LFR) in line with domestic economic moderation.
encouraged banks to issue securities. Looking ahead,
this policy is expected to boost issuances of securities The regulations have also encouraged foreign bank
as an alternative source of bank financing. In turn, branches and joint venture banks to meet the MSME
such conditions will expand the bank intermediation credit target through non-oil and gas export loans.
function. Consequently, such loans soared significantly by
116.24% (yoy) at the end of 2015 from 29.35% (yoy) in
The MSME credit target ratio, accompanied by semester I 2015 compared to a contraction of -6.04%
restrictions on checking account services for failure (yoy) for the same type of loans at other commercial
to comply, should urge banks to comply with the banks.
requirements and maintain credit quality. The number

Table 7.4 MSME Credit Achievements

Jun-15 Sep-15 Dec-15 Jun-15 Sep-15 Dec-15

MSMEs Credit ≥ 5% 100 98 102 MSMEs Credit ≥ 5% with NPL <5% 61 61 64

Total NPL and MSMEs Credit ≥ 5% 61 61 64 BUKU

Total NPL and MSMEs Credit ≥ 5% 39 37 38 BUKU 1 29 28 27
MSMEs Credit <5% 18 20 16 BUKU 2 18 19 20

Total NPL and MSMEs Credit < 5% 11 11 7 BUKU 3 11 11 13

Total NPL and MSMEs Credit ≥ 5% 7 9 9 BUKU 4 3 3 4
TOTAL BANK 118 118 118 OWNERSHIP
State-Owned 2 2 3
National Private Commercial 46 44 46
Regional Bank 5 6 5
Joint Venture 4 5 5
Foreign Bank 4 4 5

Source: Bank Indonesia, December 2015, processed

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Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Graph 7.5 Non-Oil and Gas Export Loans

120% 116.54%

100%

80%

60%
38.12%
40%

20%
-6.04%
0%
Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
-20%

Foreign and Joint Venture Banks Other Commercial Banks Growth at Foreign and Joint Venture Banks
Growth at Other Commercial Banks Total Growth

Source: Bank Indonesia, December 2015, processed

is released during a contractionary period to

7.3 Mandatory Countercyclical Capital stimulate bank lending and absorb potential losses.
Buffer (CCB)5 The CCB rate ranges from 0%-2.5% of risk-weighted
assets (RWA) in various countries.

Bank Indonesia also issued policy to overcome
excessive (procyclical) credit growth in the form
of a countercyclical capital buffer (CCB) on 28th
December 20156. Procyclicality
excessive lending during an expansionary (boom)
economic period and, oppositely, insufficient
lending during a contractionary (bust) period with
potentially adverse effects on the economy. The
policy requires banks to maintain a countercyclical
capital buffer (CCB) during expansionary periods,
which cools credit growth. Conversely, the CCB
During the initial phase and congruous with currently
sluggish economic growth, Bank Indonesia set the
CCB rate at 0%, effective from 1st January 20167.
manifests as The regulation is aligned with OJK regulations to
strengthen bank resilience. Moving forward, Bank
Indonesia will regularly evaluate the CCB rate at
least once every six months. If Bank Indonesia
raises the CCB rate, the banks will have between 6
and 12 months to meet the new requirement. In
contrast, if Bank Indonesia lowers the CCB rate, the
banks can opt to release the capital immediately.

5
Bank Indonesia Regulation (PBI) No. 17/22/PBI/2015, dated 23rd December 2015, concerning Mandatory Formation of Countercyclical Capital Buffer (CCB).
6
For more detail refer to Box 7.2.
7
Discussed in Box 7.3.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016
7.4 Macroprudential Policy
Surveillance and Inspections
Bank Indonesia regularly conducts surveillance of
the financial system, including macroprudential
policy inspections in the form of compliance audits
and thematic inspections to maintain financial
system stability. The goal of surveillance activity is
to identify sources of systemic risk and imbalances,
particularly at large banks.
Thematic inspections aim to garner greater
understanding and collect information about
activities at large banks that could trigger potential
systemic risk. Thematic inspections are based on
information specific to inherent bank risks, which,
if allowed to accumulate, would trigger a contagion
effect in the banking industry. On the other hand,
compliance audits are performed to ensure banks
comply to prevailing macroprudential regulations
and other regulations issued by Bank Indonesia.
In 2015, Bank Indonesia conducted thematic
inspections in response to rupiah exchange rate
volatility and its impact on the banking sector, in
particular big banks. In addition to the thematic
inspections, stress tests were also performed on
liquidity resilience as well as the preparedness
of human capital and bank infrastructure. In its
implementation, the thematic inspections were
coordinated with the Financial Services Authority
(OJK) as the microprudential supervision and
regulation authority. Bank Indonesia and the
Financial Services Authority (OJK) coordinate
routinely through the Macro and Micro Coordination
174
Forum (MMCF) to facilitate information exchange
between the two authorities, including coordinated
supervisory actions on banks with potential
systemic risk.
7.5 Coordination with the Government
and other Authorities
Bank Indonesia constantly enhances policy coordination
with the relevant authorities in response to the
economic challenges that could undermine financial
system stability in Indonesia. Thus far, coordination
has effectively bolstered macroeconomic and financial
system stability, reflecting low inflation, a narrower
and sustainable current account deficit as well as
maintained financial system stability. Nonetheless,
existing coordination has thus far failed to stimulate
stronger short-term economic growth.
Bank Indonesia, as the macroprudential authority,
issues policy with a focus on systemic risk management,
including credit risk, liquidity risk and market risk, as
well as strengthening the capital structure through
surveillance and macroprudential supervision. To
support the implementation of macroprudential
policy, Bank Indonesia acknowledges the importance
of efforts to bolster macroprudential-microprudential
coordination between Bank Indonesia and the
Financial Services Authority (OJK). Such coordination
between the two authorities is based on collaborative
principles to boost efficiency and effectiveness, avoid
duplication, complement financial sector regulation
and ensure the uninterrupted execution of BI and OJK
 Assessment Of Assessment Of Conditions
Financial System Financial Market And Risks The Household
Stability Conditions And Risks And Corporate Sectors
tasks, which are implementation in order to create and
maintain a stable and sustainable financial system.
Bank Indonesia also seeks coordination
collaboration with other authorities to support financial
system stability. BI coordination with the Deposit
Insurance Corporation (LPS), which began in 2009 ,
has expanded to cover the following: (i) resolution of
bank default through operating license revocation;
(ii) data and/or information exchange; (iii) employee
competence development; (iv) joint research, studies
and surveys; (v) joint socialisation and education; (vi)
employee assignments; and/or (vii) implementation
of other tasks pursuant to prevailing regulations,
including support of the National Noncash Movement
(GNNT), financial market deepening and expansion of
financial access.
Under a broader scope, Bank Indonesia, the Financial
Services Authority (OJK) and Deposit Insurance
Corporation (LPS) as well as the Ministry of Finance
established the Financial System Stability Coordination
Forum (FSSCF) for crisis prevention and resolution to
maintain financial system stability. The forum clarifies
and regulates coordination and the respective role each
institution must play under normal and crisis conditions
to prevent and resolve a crisis. Such efforts to maintain
financial system stability cover coordination and the
duties of each member, Crisis Management Protocol
(CMP) as well as data and information exchange
between FSSCF members. Each member institution is
responsible for surveillance and assessments of sub-
protocols in accordance with the tasks and authority of
each respective institution.
8
Joint Decree of the Governor of Bank Indonesia and Chairman of the Board of Commissioners of the Deposit Insurance Corporation (LPS) (No. 11/55/KEP.GBI/2009)/(No. KEP.026/
DK/X/2009), dated 22nd October 2009 concerning Coordination as well as Data and Information Exchange to Support Effective Task Implementation at Bank Indonesia and the Deposit
Insurance Corporation (LPS).
Banks And Strengthening Bank Indonesia Policy
Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction
Under normal conditions, FSSCF members, namely
the Minister of Finance, Governor of Bank Indonesia,
Chairman of the OJK Board of Commissioners and
and Chairman of the Deposit Insurance Corporation (LPS),
convene FSSCF meetings at least quarterly, proceeded
by a Deputies Meeting. Under crisis conditions,
8
however, FSSCF members can request ad hoc meetings
to discuss the issues and financial system stability.
In addition, FSSCF members also partake in annual
crisis resolution simulations to test the preparedness
of FSSCF members in terms of the decision-making
processes and mechanisms to resolve a national crisis,
including the policy options taken.
In addition, to strengthen the national crisis prevention
and resolution function, the Government and other
FSSCF members proposed a draft bill on Crisis
Prevention and Resolution, which is currently being
finalised by the People’s Representative Council (DPR)
of the Republic of Indonesia.
Internally, Bank Indonesia has also developed a Crisis
Management Protocol (CMP) as systematic and
integrated guidelines for the work processes at Bank
Indonesia to prevent and resolve a crisis under crisis
conditions. Furthermore, Bank Indonesia annually
simulates crisis conditions internally at Bank Indonesia in
order to strengthen the crisis management mechanism.
The simulations aim to test the preparedness of the
various procedures and decision-making process as a
function of BI CMP under certain conditions, including
testing the Crisis Binder and liquidity facilities as lender
of last resort.
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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Furthermore, for the regional CMP, Bank Indonesia

coordinates with, but not limited to, the Crisis
Management and Resolution Framework (CMRF)
of the Executives’ Meeting of East Asia Pacific
Central Banks (EMEAP) and the Chiang Mai Initiative
Multilateralization (CMIM).

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Stability Conditions And Risks And Corporate Sectors
Bank Indonesia Circular Letter (SEBI) No. 17/25/DKMP, dated
Box 7.1 12th October 2015, concerning the Loan-to-Value Ratio (LTV) or
Financing-to-Value Ratio (FTV) for Motor Vehicle Loans or Financing
On 12th October 2015, Bank Indonesia released
implementation guidelines for Bank Indonesia
Regulation (PBI) No. 17/25/PBI/2015 concerning
the Loan-to-Value Ratio (LTV) or Financing-to-
Value Ratio (FTV) for Property Loans or Financing
as well as Downpayments on Motor Vehicle Loans
or Financing (PBI LTV/FTV). The implementation
guidelines are contained within Bank Indonesia
Circular Letter (SEBI) No. 17/25/DKMP, dated 12th
October 2015, concerning the Loan-to-Value Ratio
(LTV) or Financing-to-Value Ratio (FTV) for Property
Loans or Financing as well as Downpayments on
Motor Vehicle Loans or Financing (SE LTV/FTV). SE
LTV/FTV clarifies the follow aspects:
• Understanding of ‘same project’ in terms
of assessing collateral and the progress of
property development;
• Clarification of guarantees;
• Confirmation of the moratorium on financing
downpayments;
• Procedure for submitting offline reports;
• Example calculations and stipulations of the
loan-to-value ratio (LTV) and financing-to-
value ratio (FTV). The calculation of LTV/FTV
is presented for take over loans, top up loans,
take over and top up loans, loans for unfinished
property, loans for spousal co-borrowers as
well as joint property ownership. Examples are
also provided for financing activities.
SE LTV/FTV is expected to clarify the provisions
of PBI LTV/FTV, which contains the possibility of
Banks And Strengthening Bank Indonesia Policy
Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction
using a higher LTV/FTV ratio. The regulation is
also expected to turnaround the current trend of
sluggish bank lending due to domestic economic
moderation. Furthermore, the frequently asked
questions of stakeholders are also addressed in
the circular letter, for instance the procedures to
assess collateral and guarantees by developers for
loans or financing on unfinished homes.
One salient issue is the understanding of ‘same
project’, which is required in order to determine
the value of collateral and progress of property
development. The value of collateral will determine
whether or not an assessment by the Office of
Public Appraisal Services (KJPP) is necessary.
Pursuant to the regulation, ‘same project’ includes
properties that are located in the same area and
built by the same developer, calculated on a per
unit basis.
Collateral to the bank for loans on unfinished
properties may originate from the developer or a
third party. The collateral may be used to guarantee
the settlement of a developer’s liabilities if the
development is not completed or handed over
pursuant to the contract. Developer collateral
a may include fixed assets, movable assets, a
bank guarantee, standby letter of credit (SLOC)
and/or funds deposited in an escrow account.
Third-party collateral may include a corporate
guarantee, standby letter of credit (SLOC) or bank
guarantee. The collateral is a form of consumer
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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

protection to ensure the consumer receives the

property purchased from the developer as per the
agreement.

Funds deposited in an escrow account are held

by a bank in the name of the developer and used
to complete the property development. The bank
must ensure that the guarantee is executed in the
event that the developer fails to settle its liabilities.
The SE LTV/FTV also confirms the moratorium on
financing the downpayment on a housing loan
for an affiliated customer or borrower, such as an
employee of the participating bank.

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 Assessment Of Assessment Of Conditions
Financial System Financial Market And Risks The Household
Stability Conditions And Risks And Corporate Sectors
Box 7.2 Countercyclical Capital Buffer (CCB) Policy
Bank Indonesia implemented countercyclical
capital buffer (CCB) policy in Indonesia through
promulgation of Bank Indonesia Regulation (PBI)
No. 17/22/PBI/2015, dated 28th December 2015,
concerning the Countercyclical Capital Buffer
(CCB). The policy aims to reduce bank lending
procyclicality. Besides, the policy was also issued
to enhance bank resilience through additional
capital as a buffer. All commercial and Islamic
banks are required to maintain a countercyclical
capital buffer (CCB), including foreign banks.
Bank Indonesia initially set the CCB rate at 0%,
effective from 1st January 2016, considering
ongoing domestic economic moderation, including
the dramatic decline experienced in terms of credit
growth9.
The countercyclical capital buffer (CCB) is a
macroprudential policy instrument introduced
by the Basel Committee on Banking Supervision
(BCBS). CCB is a time-varying policy based
on macroeconomic and financial
developments. The magnitude of the CCB rate
ranges from 0%-2.5% of risk-weighted assets
(RWA). Under certain conditions,
the CCB rate can exceed that range. When
determining the CCB rate for foreign bank branches
operating in Indonesia as well as domestic banks
operating internationally, Bank Indonesia refers
9
A further explanation on the 0% rate is presented in Box 7.3.
Banks And Strengthening Bank Indonesia Policy
Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction
to international standards or seeks consensus
between authorities.
Determining the CCB rate or whether to release the
capital is based on the economic cycle and financial
system conditions. During an expansionary phase
of the economic cycle and when potential systemic
risk is detected due to excessive credit growth,
Bank Indonesia would opt to raise the CCB rate.
Conversely, the CCB rate would be reduced or
released during a contractionary economic phase
in order to stimulate credit growth and absorb
potential losses.
CCB policy works hand-in-hand with bank capital
requirements issued by the Financial Services
Authority (OJK), which are expected to strengthen
bank capital resilience. All banks are required to
provision for the CCB in addition to other existing
capital buffers, namely the Capital Conservation
Buffer and Capital Surcharge for domestic
systemically important banks (D-SIB) in order to
system help banks absorb losses. The CCB can be met
using Common Equity Tier 1 (CET 1). CET 1 may
be used to meet the CCB as well as other capital
however, buffers after allocation to satisfy other capital
reserve requirements pursuant to the risk profile.
Bank Indonesia will review the CCB rate at least
once every six months, upon which the magnitude
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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

and timing of the CCB rate will be based. Banks are

required to respond to an increase in the CCB rate
within six to 12 months. If the CCB rate is lowered,
however, the banks are permitted to release the
capital immediately.

CCB policy implementation is expected to dampen

excessive credit growth that could trigger systemic
risks. Such expectations were corroborated by
research conducted by Bank Indonesia, which
found a negative correlation between credit
growth and bank capital after application of
the countercyclical capital buffer (CCB)10. The
negative correlation indicates that when a bank is
required to add capital to the CCB, credit growth
decelerates, which is transmitted through less
credit supply as the banks reallocate capital from
lending to form the countercyclical capital buffer.
Consequently, banks will raise lending rates and
ultimately supress demand for credit, which tends
to be high during an expansionary phase of the
economic cycle.

The additional magnitude of the CCB was estimated internally using a single indicator, namely the credit-GDP gap. The estimations in the study used panel data and the System-
10

GMM approach. Credit was used as the dependent variable along with other independent variables, including additional capital to meet the CCB, macroeconomic indicators
(economic growth and BI rate) and banking indicators (assets and return on assets).

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 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Box 7.3 Policy to Determine the 0% CCB Rate

When determining the magnitude and timing information of the main indicator, a number
of the CCB rate, Bank Indonesia considers three of supporting indicators are used, including
aspects, namely the main indicator, supporting macroeconomic indicators, banking indicators
indicators and professional judgement (Box and asset price indicators (such as the Jakarta
Figure 7.3.1). The main indicator is a buffer Composite Index – JCI and Residential Property
guide used to determine the CCB rate. Referring Price Index - RPPI). Furthermore, professional
to the guidelines issued by the Basel Committee judgement is also used, which considers other
on Banking Supervision (BCBS)11, adjusted to aspects to ensure a more comprehensive
conditions and data availability in Indonesia, and less mechanistic final decision is taken
Bank Indonesia selected the credit-to-GDP concerning the magnitude and timing of the
gap, with the upper threshold (H) = 6 and the CCB rate.
lower threshold (L) = 312. Complementing the

Box Figure 7.3.1 Implementation Framework of CCB Policy in Indonesia

Single Indicator and

Upper-Lower Thresholds
Buffer Guide
Credit to GDP gap

Supporting Indicators:
• Financial Cycle and Financial
System Stability Index (FSSI)
• Macro Indicators CCB Implementation Decision
(GDP, Inflation, Exchange Rate) • CCB Rate
• Banking Indicators • Activation Period
(Credit, NPL, Deposits, CAR, ROA)
• Asset Prices
(JCI, Residential Property Price Index)

Professional Judgement

Source: Bank Indonesia

11
Contained in the document entitled “Guidelines for National Authorities Operating the Countercyclical Capital Buffer”, BCBS, 2010.
12
The credit-to-GDP gap is defined as the difference between the credit-to-GDP ratio and its long-term trend. The CCB rate is calculated using a linear formula based on the main
indicator, the upper threshold and the lower threshold. The CCB rate will be 0% when the main indicator is below the lower threshold, 0%-2.5% when the main indicator is
between the lower and upper thresholds and 2.5% when the main indicator is above the upper threshold.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Box Graph 7.3.1 Credit-to-GDP Gap Indicator Box Graph 7.3.2 CCB Rate per the Single Indicator

10 2.50
9
8 2.00
7
Risk of extremely excessive lending
6
5 1.50
4 Risk of excessive lending
3 1.00
2
1 Stable lending
0.50
0
2004q2
2004q4
2005q2
2005q4
2006q2
2006q4
2007q2
2007q4
2008q2
2008q4
2009q2
2009q4
2010q2
2010q4
2011q2
2011q4
2012q2
2012q4
2013q2
2013q4
2014q2
2014q4
2015q2
2015q4
0.00

2004q2
2004q4
2005q2
2005q4
2006q2
2006q4
2007q2
2007q4
2008q2
2008q4
2009q2
2009q4
2010q2
2010q4
2011q2
2011q4
2012q2
2012q4
2013q2
2013q4
2014q2
2014q4
2015q2
2015q4
Credit-to-GDP Gap Lower Threshold (L) Upper Threshold (H)
Crisis
Source: Bank Indonesia
Source: Bank Indonesia

Main Indicators by the main indicator. Therefore, the countercyclical

• Credit-to-GDP Gap capital buffer (CCB) has not been activated and the
As the single indicator, the credit-to-GDP gap has banks are not required to allocate additional capital to
tracked a downward trend since Q3/2013. In fact, the CCB. Hopefully, the 0% CCB rate will therefore help
from Q3/2014 until the end of 2015, the credit-to- the banks improve the intermediation function and
GDP gap has remained below the lower threshold. bolster economic growth. The following supporting
Consequently, the CCB rate has been set at 0% (Box indicators are used:
Graph 7.3.1 and Box Graph 7.3.2). Such conditions are • Macroprudential Indicators
due to ongoing domestic economic moderation and a Box Graph 7.3.3 shows that in Q4/2015, Indonesia’s
credit slump. financial cycle13 was still in a contractionary phase
due to sluggish credit growth as a key component
In general, the information provided by the supporting of the financial cycle. The slowdown was indicative
indicators shows that the Indonesian economy of potential systemic risk due to excessive credit
is currently in a contractionary phase, thereby growth.
supporting the stipulated 0% CCB rate recommended

Box Graph 7.3.3 Financial Cycle and Business Cycle

1999Q2 2009Q3
1998Q2 2007Q2
0.08 1995Q2 0.02
0.06 0.02
0.04 2013Q3 0.01
0.02
0.01
0.00
(0.02)
2009Q3 (0.01)
(0.04)
(0.06) (0.01)
2000Q2
(0.08) (0.02)
(0.10) (0.02)
1993Q2
1993Q4
1994Q2
1994Q4
1995Q2
1995Q4
1996Q2
1996Q4
1997Q2
1997Q4
1998Q2
1998Q4
1999Q2
1999Q4
2000Q2
2000Q4
2001Q2
2001Q4
2002Q2
2002Q4
2003Q2
2003Q4
2004Q2
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4
2015Q2
2015Q4

Financial Cycle (BPF/RHS) Business Cycle (BPF/LHS) FC Trough (TP) FC Peak (TP) Crisis
Source: Bank Indonesia

For an explanation of the Financial Cycle, refer to FSR No. 23, September 2014.
13

182
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

• Macroeconomic Indicators does not affect bank lending because capital

Macroeconomic
towards the end of 2015 tended to decline
despite an increase in GDP growth from 4.74%
(yoy) in Q3/2015 to 5.04% (yoy) in Q4/2015
(Box Graph 7.3.4). Furthermore, inflation was
also observed to decrease (Box Graph 7.3.5).
Both supporting indicators corroborated the
main indicator, namely that the economy
was experiencing a contractionary phase,
thus requiring policy to stimulate growth.
Consequently, the appropriate CCB rate under
such conditions would be 0%. A 0% CCB rate
conditions in Indonesia is not required to be allocated to buffers,
therefore the banks can use that capital to
increase lending and stimulate economic
growth.
Other indicators revealed that the exchange
rate is depreciating and private external debt
growth is decelerating. In addition to rupiah
depreciation, slower growth of external debt is
also indicative of less demand for funds sourced
from abroad to support business activities in
line with domestic economic moderation.

Box Graph 7.3.4 Real GDP Growth Box Graph 7.3.5 Inflation (yoy)

7.5
7.0 16
6.5 14
6.0 12
5.5 10
5.0 8
4.5 6
4.0 4
3.5 2
3.0 0
2003Q1
2003Q4
2004Q3
2005Q2
2006Q1
2006Q4
2007Q3
2008Q2
2009Q1
2009Q4
2010Q3
2011Q2
2012Q1
2012Q4
2013Q3
2014Q2
2015Q1
2015Q4

2003Q1
2003Q4
2004Q3
2005Q2
2006Q1
2006Q4
2007Q3
2008Q2
2009Q1
2009Q4
2010Q3
2011Q2
2012Q1
2012Q4
2013Q3
2014Q2
2015Q1
Real GDP Growth (yoy) Crisis CPI (%yoy) Crisis 2015Q4

Box Graph 7.3.6 Exchange Rate (Rp/USD) Box Graph 7.3.7 Private External Debt in Rupiah (yoy)

14500 50
14500 40
30
14500
20
14500 10
14500 0

14500 -10
-20
14500
-30
14500 -40
2001Q2
2001Q4
2002Q2
2002Q4
2003Q2
2003Q4
2004Q2
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4
2015Q2
2015Q4

2001Q1
2001Q3
2002Q1
2002Q3
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
2013Q3
2014Q1
2014Q3
2015Q1
2015Q3

Exchange Rate (Rp/USD) Crisis Private External Debt (yoy) Crisis

Source: Bank Indonesia

183
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

• Banking Indicators of households and the corporate sector to

Domestic economic moderation
undermined banking sector performance,
reflecting a downtick in several banking
indicators, such as credit growth and deposit
growth, rising NPL and a lower return on assets
(ROA) (Box Graphs 7.3.8, 7.3.9, 7.3.10 and
7.3.11). Slower credit growth demonstrated the
absence of systemic risk due to excessive credit
growth. Therefore, a CCB rate of 0% would
avoid further eroding banking performance
and exacerbating bank expenses. Meanwhile,
slower deposit growth was attributed to
economic moderation that curbed the ability
also deposit funds at banks.
Economic moderation also undermined the
ability of borrowers to repay their loans,
triggering a rise in the gross NPL ratio of the
banking sector. In terms of profitability, slower
credit growth reduced bank income because
credit is the primary source of bank revenue,
thereby lowering the return on assets (ROA).
Consequently, a 0% CCB rate would have
no effect on bank lending and is therefore
congruent with both aforementioned
indicators.

Box Graph 7.3.8 Credit Growth (yoy) Box Graph 7.3.9 Deposit Growth
40 25

35
20
30
25 15
20
10
15
10
5
5
0 0
2002Q2
2002Q4
2003Q2
2003Q4
2004Q2
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4
2015Q2
2015Q4
2001Q2
2001Q4
2002Q2
2002Q4
2003Q2
2003Q4
2004Q2
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4
2015Q2
2015Q4

Credit (%, yoy) Crisis Deposits (%, yoy) Crisis

Box Graph 7.3.10 NPL Ratio (%) Box Graph 7.3.11 Return on Assets (%)
20 4
18
16
14 3
12
10
8
6 2
4
2
0 1
2001Q2
2001Q4
2002Q2
2002Q4
2003Q2
2003Q4
2004Q2
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4
2015Q2
2015Q4

2003Q1
2003Q4
2004Q3
2005Q2
2006Q1
2006Q4
2007Q3
2008Q2
2009Q1
2009Q4
2010Q3
2011Q2
2012Q1
2012Q4
2013Q3
2014Q2
2015Q1
2015Q4

NPL (%) Crisis ROA (%) Crisis

Source Bank Indonesia

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 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

The Capital Adequacy Ratio (CAR) has remained In terms of asset prices, consistent with
high and stable (Box Graph 7.3.12), primarily economic moderation and slower credit
due to weaker credit growth that influences the growth, the Residential Property Price Index
calculation of bank risk-weighted assets (RWA) (RPPI) continued to decline (Box Graph
as a component of capital. Such conditions also 7.3.13), namely to 5.46% (yoy). Meanwhile, JCI
represent an anticipatory measure undertaken volatility has also been relatively well mitigated
by the banks to overcome potential risk, while (Box Graph 7.3.14), indicating only moderate
simultaneously supporting lending. pressures on the capital market.

• Asset Price Indicators

Box Graph 7.3.12 CAR Ratio (%)

30

25

20

15

10
2003Q1
2003Q4
2004Q3
2005Q2
2006Q1
2006Q4
2007Q3
2008Q2
2009Q1
2009Q4
2010Q3
2011Q2
2012Q1
2012Q4
2013Q3
2014Q2
2015Q1
2015Q4

CAR (%) Crisis

Box Graph 7.3.13 RPPI Growth (yoy) Box Graph 7.3.14 JCI Volatility

16 0.25
14
0.20
12
10 0.15
8
6 0.10
4
0.05
2
0 -
2003Q1
2003Q4
2004Q3
2005Q2
2006Q1
2006Q4
2007Q3
2008Q2
2009Q1
2009Q4
2010Q3
2011Q2
2012Q1
2012Q4
2013Q3
2014Q2
2015Q1
2015Q4

2003Q1
2003Q4
2004Q3
2005Q2
2006Q1
2006Q4
2007Q3
2008Q2
2009Q1
2009Q4
2010Q3
2011Q2
2012Q1
2012Q4
2013Q3
2014Q2
2015Q1
2015Q4

RPPI (yoy) Crisis JCI Volatility Crisis

Source: Bank Indonesia

185
 FINANCIAL STABILITY REVIEW
No. 26, March 2016
Provisions of the Regulation concerning the
Box 7.4 Prevention and Resolution of Financial System Crisis
To strengthen the role and function of the financial
system along with interagency coordination,
particularly in terms of crisis prevention and
resolution, the Government and People’s
Representative Council (DPR) of the Republic of
Indonesia, in conjunction with Bank Indonesia,
the Financial Services Authority (OJK) and Deposit
Insurance Corporation (LPS), formulated and
agreed the Financial System Crisis Prevention
and Resolution Act (UU PPKSK). The scope of
the law encompasses: (i) coordination in terms
of monitoring and maintaining financial system
stability; (ii) financial system crisis management/
resolution; and (iii) the resolution of troubled
systemically important banks (SIBs) under normal
and crisis conditions.
The PPKSK Act mandates the establishment of the
Financial System Stability Committee (FSSC) under
the auspices of the Financial System Stability
Coordination Forum (FSSCF), with the Minister of
Finance, Governor of Bank Indonesia, Chairman
of the Financial Services Authority (OJK) and
Chairman of the Deposit Insurance Corporation
(LPS) as members. The committee is charged
with monitoring and maintaining financial system
stability in Indonesia as well as resolving troubled
systemically important banks (SIB). Decision-
making is based on deliberation and consensus.
If agreement cannot be reached, however, it is
put to the majority vote between the Minister
of Finance, Governor of Bank Indonesia and
186
Chairman of the Financial Services Authority (OJK).
The Deposit Insurance Corporation (LPS) is a non-
voting member of the Financial System Stability
Committee.
The salient provisions of the PPKSK Act are as
follows:
1. To strengthen the banking regulatory and
supervisory function conducted by OJK in
coordination with BI, particularly in terms
of systemically important banks (SIB). SIBs
are predetermined and updated once per six
months.
2. To strengthen the resolution of troubled
systemically important banks (SIB), prioritising
bail-in principles, namely by optimising bank
resources and contributions from the industry
to minimise the use of public money. Once a
bank has been designated as a systemically
important bank, it is required to: (i) meet
specific regulations concerning the Capital
Adequacy Ratio (CAR) and liquidity ratio; (ii)
prepare a recovery and resolution action plan
approved by OJK, containing the responsibilities
of the shareholders or other parties to inject
capital and convert certain debts into equity;
and (iii) meet prevailing regulations concerning
additional capital capacity at systemic banks to
absorb potential losses, as stipulated by OJK.
3. To resolve bank liquidity issues by providing
short-term liquidity facilities/sharia-compliant
short-term financing facilities from Bank
 Assessment Of Assessment Of Conditions
Financial System Financial Market And Risks The Household
Stability Conditions And Risks And Corporate Sectors
Indonesia to a bank experiencing a temporary
liquidity shortfall that is still solvent and with
adequate collateral.
4. The resolution of solvency issues at systemically
important banks (SIB) falls
jurisdiction of the Financial Services Authority
(OJK), including approving the recovery and
resolution action plan and early intervention
preparations by the Deposit
Corporation (LPS). If solvency conditions at the
systemic bank deteriorate further, LPS shall
resolve the issues, based on a decision of the
Financial System Stability Committee, through
(i) the purchase and assumption of SIB assets
and liabilities to another bank or third party;
(ii) the purchase and assumption of SIB assets
and liabilities to a bridge banks; or (iii) open
bank assistance.
5. The role of the President of the Republic
of Indonesia is to declare normal or crisis
financial system conditions based on the
recommendation of the Financial System
Stability Committee. In addition, the PPKSK
Act also stipulates that the President has full
authority to activate the Bank Restructuring
Program (BRP) if crisis conditions in the
Banks And Strengthening Bank Indonesia Policy
Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction
financial system and problems in the banking
sector threaten the national economy. In this
case, the BRP is implemented by the Deposit
Insurance Corporation (LPS) and not only
under the targets systemically important banks (SIB) but
other banks as well.
6. Immunity and legal protection for FSSC
members, the FSSC secretary, members of the
Insurance FSSC secretariat as well as officials or employees
of the Ministry of Finance, Bank Indonesia, OJK
and LPS who: (i) are not liable to civil or criminal
prosecution based on the function, task and
authority pursuant to the PPKSK Act; and (ii)
are eligible for legal assistance from their
respective institution when facing prosecution
related to FSSC task implementation.
The PPKSK Act is expected to strengthen the
coordination mechanism when creating and
maintaining financial system stability. Nonetheless,
several follow-up actions are required in terms
of the implementation guidelines as well as
regulatory harmonisation with the Banking Act,
Bank Indonesia Act, LPS Act and OJK Act.
187
Against the backdrop of an unconducive global economic outlook, economic growth
in Indonesia is projected to accelerate on growing domestic demand supported by
increased investment, particularly infrastructure development. Greater financial
system stability is also expected in line with the favourable domestic economic outlook.
Banking industry resilience and sound financial market performance achieved in 2015
are considered valuable capital to enhance performance in 2016. Moreover, bank
credit and deposit growth are predicted to accelerate, buoyed by the high Capital
Adequacy Ratio (CAR) coupled with maintained bank liquidity and mitigated non-
performing loans (NPL). The money, stock and bond markets are also forecasted to
perform positively.

Bank Indonesia will constantly strive to strengthen its macroprudential, monetary and
payment system policy mix, while managing the circulation of rupiah. Macroprudential
policy will still be directed towards creating, strengthening and maintaining financial
system stability through close coordination between Bank Indonesia, the Government,

8
Financial Services Authority (OJK) and other relevant authorities to boost bank capital
resilience, maintain adequate liquidity and deepen the financial markets as well as
foster lending to productive sectors, MSMEs and Islamic economic development.

OUTLOOK, CHALLENGES
AND POLICY DIRECTION
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Bank Indonesia Predicts Increasing Financial System Stability

in 2016, Underpinned by Stronger Economic Growth in Line
with Solid Domestic Demand and Investment, Particularly
Infrastructure Development.

Challenges in 2016

External Internal
• Global economic uncertainty • Growing economic inequality
• Downward commodity price trend • Smaller export contribution to economic growth
• Normalisation of US monetary policy • Shallow financial markets

Prospects for 2016

Economic Credit Growth Deposit Growth

Inflation 2016
Growth 2016 2016 2016
4.0 ± 1%
5.2 – 5.6% 12 – 14% 13 – 15%
(yoy)
(yoy) (yoy) (yoy)

Downside Risk
Upside Risk • Lower international commodity prices,
• Economic recovery in trading partner countries particularly oi
• Government infrastructure development • Further FFR hikes;
• High domestic consumption • Growing economic inequality

Financial System Stability Policy Direction

1 4
Bolster the FSS function and authority of Bank Strengthen the economic role and capacity of
Indonesia through stronger macroprudential MSMEs.
policy.

2 Enhance the bank intermediation function,
nationally and regionally, in order to stimulate
credit and deposit growth.
5 Strengthen coordination with the Ministry of
Finance, Financial Services Authority (OJK) and
Deposit Insurance Corporation (LPS) in order to
increase capital resilience, maintain adequate
liquidity and deepen the financial markets.

3
Develop the Islamic economy and financial
system

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 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Table 8.1 Projected Global Economic Growth

8.1 Financial System Stability
Challenges Variable 2015 2016 2017
Global GDP 3.1 3.4 3.6

World Trade Volume 2.6 3.4 4.1

WTI Crude Oil 48.67 37.59 50.0
Financial system stability will continue to face a number Brent Crude Oil 52.32 37.52 50.0

of onerous internal and external challenges in 2016, Source: IMF and US Energy Information Administration (2016)

which could trigger financial system instability and will

thus require unrelenting efforts to detect and prevent
potential problems.
8.1.1 External Opportunities and Challenges
Externally, relatively stagnant global economic growth,
sliding international commodity prices and economic
moderation in China as a major trading partner of
Indonesia could influence domestic financial system
stability. Meanwhile, uncertainty surrounding the US
policy rate, which pressured financial system stability
in 2015, is expected to ease in 2016 after the Federal
Reserve decided to raise the Federal Funds Rate (FFR)
in December 2015. Nonetheless, the potential risk from
further proposed FFR hikes demands vigilance.
Global economic growth in 2016 is predicted at 3.4% (yoy),
up from 3.1% (yoy) the year earlier but revised down from
the previous projection of 3.5% (yoy). The correction to
the global growth forecast stemmed from economic
moderation in China as one of the main locomotives of
regional economic growth. China is a valuable trading
partner of Indonesia with strong trade linkages to national
export performance, particularly unrefined commodities.
Further economic decline in China would undermine
corporate performance, especially of exporters, which
could curb lending and exacerbate credit risk in the
affected sectors. Notwithstanding the downside risks,
on the upside, economic recovery in other major trading
partners such as the US and India should help drive
Indonesian exports and contribute to stronger credit
growth in 2016.

Table 8.2 Export Elasticity in Indonesia to GDP in other Countries

Variable Global Us Eu Japan China India

Total 5.8 4.8 1.0 1.0 10.2 10.3
Export Other Commodities 6.7 3.3 0.6 0.8 18.9 17.9
10 Leading Commodities 5.1 5.9 1.2 1.1 4.9 8.6
1 Chemicals 3.6 2.4 0.1 1.1 0.5 13.5
2 Coal 10.7 5.2 3.9 0.8 9.7 20.2
3 Lead 4.1 0.0 0.4 4.1 8.7 6.9
4 Crude Palm Oil 3.5 3.7 0.9 22.6 3.5 0.0
5 Electronics 4.7 0.2 2.5 5.1 15.0 1.6
6 Processed Foods 7.0 2.8 2.5 4.6 18.8 5.8
7 Metal Articles 6.4 1.1 3.2 1.2 23.7 7.9
8 Paper and Derivatives 2.8 3.3 2.9 0.0 12.1 -1.2
9 Processed Rubber 7.1 1.5 5.4 11.9 10.0 6.6
10 Textiles 3.5 0.7 0.8 3.4 2.8 0.1
Total Commodities 100.0 10.1 8.7 10.8 14.2 8.7
Portion Other Commodities 32.9 3.5 3.2 3.4 5.2 0.6
10 Leading Commodities (%) 67.1 6.6 5.4 7.3 9.1 8.1
Source: Bank Indonesia, diolah.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Other external risks include
international commodity price slide, which is
increasingly depressing producers of primary goods
in Indonesia and will ultimately undermine credit
growth for production and investment activities.
Soft commodity prices are expected to endure into
2016 due to various factors, including the global
economic outlook, supply and demand factors
as well as geopolitical influences. In general,
commodity prices will tend to mirror stagnant
global economic performance. Meanwhile, the
oil price is expected to continue falling on high
downside risks. High supply and low demand will
continue to overshadow the international oil price
in 2016. Sluggish international demand for oil
will remain in line with the weak global economic
outlook, particularly demand from the EU and
China. In contrast, oil supply will remain abundant
as a result of supply policy in the Middle East to
maintain market share.
the ongoing On the other hand, the decision of the Federal
Reserve to hike the Federal Funds Rate (FFR) 25bps
in December 2015, for the first time since 2006,
eased global financial market uncertainty, including
in Indonesia, at the beginning of 2016. Indonesia
was one of the countries to record financial market
gains after the Federal Reserve decided to hike its
policy rate. Moving forward, the risk of US policy
normalisation will continue to overshadow the
global economy but will depend exclusively on the
US economic outlook, particularly US labour market
conditions, achievement of the 2% inflation target
in the medium term and the economic response to
the higher policy rate. FFR policy uncertainty could
increase the perception of risk among investors,
thus influencing capital flows and exchange rates.
Besides, excessive exchange rate volatility would
affect corporate and bank balance sheets, while
triggering currency mismatch risk on financial
system stability.

Graph 8.1 Stock Market Indexes after FOMC in December 2015 Graph 8.2 10-Year Yields after FOMC in December 2015

World 0.5
Brazil 41.7
Euro 2.0
South Africa 12.6
ASIA PASIFIC 1.7
Philippines 3.9
EM ASIA 0.5
Greece 2.4
Japan -0.1
India 1.3
AS -0.8
Spain 1.1
Vietnam 0.0
Malaysia 3.6
US -0.2
Indonesia 2.4
Singapore -2.1
Philippines 2.1
Thailand -8.7
India 1.8
Turki -9.0
China 1.6
Malaysia -11.5
Singapore 1.6
Korea -13.0
Vietnam 1.2
Indonesia -17.2 bps
Taiwan 1.2
Hongkong 0.8 40.00 20.00 0.00 20.00 40.00 60.00
Korea -0.4
Thailand -0.9
(15.00) (10.00) (5.00) - 5.00 30 Des-15 vs 16 Des-15 11 Jan-16 vs 16 Des-15

30 Des-15 vs 16 Des-15 11 Jan-16 vs 16 Des-15

Source: processed data, Bank Indonesia

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 Assessment Of Assessment Of Conditions
Financial System Financial Market And Risks The Household
Stability Conditions And Risks And Corporate Sectors
8.1.2 Internal Challenges and Opportunities
Domestic factors in the form of stronger economic
performance are expected to drive credit and
deposit growth in 2016. The implementation of
government infrastructure development programs
will remain a key driver of national credit growth
due to the strong multiplier effect on other sectors.
Meanwhile, robust domestic consumption will also
drive credit growth nationally. Solid household
consumption growth in Indonesia is also supported
by the demographic advantage of a large and
growing working-age population to swell the
workforce, while maintaining consumption and
deposit growth. Looser macroprudential policy,
manifested through the loan-to-value ratio (LTV)
and financing-to-value ratio (FTV), as well as
monetary policy easing in the form of a 50bps
reduction to the primary reserve requirement at
the end of 2015 and a further 100bps reduction at
the beginning of 2016, coupled with a 75bps cut to
the BI Rate in the first quarter of 2016 are expected
to optimally stimulate the bank intermediation
function.
Graph 8.3 Indonesia Dependency Ratio
90
80
70
60
50
40
30
1980 1990 2000 2010
Brasil India Russia
Source: processed data, Bank Indonesia
Banks And Strengthening Bank Indonesia Policy
Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction
Efforts to foster sustainable economic growth
faced a number of structural challenges, including
growing economic inequality, dominant household
consumption accompanied by a declining export
contribution to economic growth, low food and
energy security as well as a shallow financial market
structure. Credit growth was identified at a major
determinant of bank credit growth and risk. In
terms of bank liquidity, decreasing rupiah liquidity
expansion and capital outflow are expected to
influence bank deposit growth and, ultimately,
bank liquidity.
8.2 Banking Sector Resilience and
Financial System Stability
Against a backdrop of global economic conditions
unconducive to growth, positive domestic
economic growth should be maintained. The future
pace of growth in Indonesia will be dictated by
the implementation of structural reforms by Bank
Indonesia and the Government. Bank Indonesia
projects economic growth at 5.2-5.6% (yoy)
for 2016, with inflation controlled around the
midpoint of the 4±1% inflation target. Meanwhile,
the current account deficit is predicted to expand
moderately on the position in 2015 but remain
sustainable at below 3% of GDP, as the Government
ramps up infrastructure projects. Momentum will
2020 2030 2040 2050
be supported by domestic demand, considering the
China Indonesia
insignificant gains in the external sector.
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 FINANCIAL STABILITY REVIEW
No. 26, March 2016
Congruent with the promising domestic economic
outlook, financial system stability is predicted
to build on that achieved in 2015. Solid banking
resilience and financial market performance in
2015 are considered capital to boost performance
in 2016. Bank credit/financing growth is projected
in the 12-14% range for 2016, consistent with Bank
Indonesia efforts to maintain domestic economic
stability. Meanwhile, deposit growth is expected
to accelerate to 13-15% as credit growth increases
and government financial operations become more
expansive.
Graph 8.4 Projected Credit Growth
24.0%
21.5%
19.5%
16.5%
14%
14.0%
11.5%
12%
9.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2013 2014 2015 2016
Investment loans, in particular loans
infrastructure and infrastructure support, are
expected to pick up on the previous year as
the government steps up infrastructure project
implementation to support economic growth.
Investment loans in other sectors are also expected
to surge in line with high domestic demand and
growing external demand for exported products
from Indonesia.
The expanding working-age population will swell the
workforce and support efforts to reduce poverty as
the nascent middle class flourishes. Consequently,
household consumption growth is predicted to
194
increase. Accelerated structural reforms through
infrastructure development should also enlarge
the workforce. Moreover, higher wages will further
drive consumption and, thus, household demand
for consumer loans.
A persistently high Capital Adequacy Ratio (CAR)
will bolster the bank intermediation function in
2016, along with maintained liquidity and mitigated
credit risk in the form of low non-performing loans
(NPL). Meanwhile, the stock and bond markets are
predicted to perform soundly in line with growing
Graph 8.5 Projected Deposit Growth
17.0%
15%
15.0%
13.0%
13%
11.0%
9.0%
7.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2013 2014 2015 2016
for optimism surrounding economic fundamentals and
the economic outlook of Indonesia.
In 2016, the economic challenges will be
compounded by widespread uncertainty blighting
the global and regional economies, including the
more pessimistic global economic outlook, sliding
international commodity prices, the global impact
of policy normalisation in the United States as
well as the emergence of the ASEAN Economic
Community. As a driver of global growth, economic
developments in China demand constant vigilance
because China is a major trading partner of
Indonesia. Consequently, economic moderation
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Figure 8.1 Policy to Convert Restructured Funds into SBN (PMK 235)

CENTRAL GOVERNMENT

Restructured Funds (General Allocation Policy to Convert DAU/DBH 3-Month SPN

Fund (DAU) and Profit Sharing Fund (DBH)) into 3-month SPN
Q1 Q2
Q1 Q2 (No. 235/PMK 07/2015)
12,23 T 9,97 T
43,19 T 39,26 T

LOW
LOCAL BUDGET Idle Local Government Funds
Held at Banks Increases
GOVERNMENT UPTAKE

Source: Ministry of Finance

in China could easily spill over to the Indonesian portion of tradeable government securities (SBN)
economy. Such uncertainty could also influence in their investment portfolios; (ii) a potential
optimism concerning financial system resilience shift in third-party deposits to retail SBN; and (iii)
due to its effect on credit risk, liquidity risk as expected budget prefunding for the 2017 State
well as financial market risk, which must also be Budget similar to that which occurred at the end of
monitored. 2015. Such conditions could undermine additional
bank lending capacity.
The intermediation process could also confront
challenges in 2016, especially in terms of deposit The external and domestic challenges demand
accumulation, which affects bank liquidity. In the sustainable, consistent and synergic policy
first semester of 2016, bank deposits are expected delivered through a macroprudential, monetary
to decline in line with seasonal trends during the and fiscal policy mix, while accelerating structural
approach to Ramadan and Eid-ul-Fitr, peaking at reforms.
the end of June 2016. In addition, the transfer of
restructured funds to local governments in the
form of treasury bills will also reduce additional
deposits at regional banks in the first semester. 8.3 Policy Direction in 2016
Policy to convert some of the restructured funds
into treasury bills (SPN) will ensure more effective Bank Indonesia will continue to strengthen its
local government budget management, while macroprudential, monetary and payment system
the central government can exploit idle local policy mix along with rupiah currency management
government funds to prefund the state budget. in order to maintain macroeconomic stability and,
Deposit growth will rebound at the beginning of the ultimately bolster financial system stability. In
second semester of 2016 but several constraints will terms of macroprudential policy, Bank Indonesia
resurface at the end of the year, including (i) larger will continue to direct policy towards creating,
nonbank SBN holdings to meet the requirements strengthening and maintaining financial system
for the nonbank financial industry to increase the stability.

195
 FINANCIAL STABILITY REVIEW
No. 26, March 2016
Efforts to strengthen Bank Indonesia jurisdiction
are required to underscore Bank Indonesia’s role
in financial system stability through an amendment
to the core tasks contained in the Bank Indonesia
Act. The move would guarantee effective
implementation of macroprudential regulation and
supervision in the financial sector.
Bank Indonesia and the Financial Services Authority
(OJK) continuously coordinate to increase bank
capital resilience, maintain adequate liquidity
and deepen the financial markets. Coordination
also deals with the implementation of the
countercyclical capital buffer (CCB) and the Liquidity
Coverage Ratio (LCR) as well as the promulgation
of regulations to accelerate financial market
deepening. Included in the regulatory framework
is the Regulatory Consistency Assessment Program
(RCAP) and Financial System Assessment Program
(FSAP) to ensure harmonisation between the
standards applied in the domestic financial system
and international standards.
In order to foster equitable economic growth and
bridge economic inequality, Bank Indonesia will
stimulate credit and deposit growth in rural areas
through increased regional and national bank
intermediation to facilitate lending to productive
sectors as government priority sectors with high
added value to the national economy. Efforts
to facilitate lending will be achieved through
coordination between Bank Indonesia, the Financial
Services Authority (OJK) and Government, while
monitoring financial system risks and imbalances in
order to maintain financial system stability.
196
Collaboration between Bank Indonesia, the
Financial Services Authority (OJK) and Government
will be improved in order to develop the Islamic
economy and finance. Policy will be realised
through the development of sharia-compliant
monetary instruments for investment and liquidity
management purposes. To that end, the sukuk
market will be deepened, potential zakat and waqf
funds will be explored and conducive regulations
formulated, including the finalisation of the Zakat
Core Principles global initiative. Zakat and waqf
management initiatives have been formalised
through establishment of the Islamic Inclusive
Financial Services Board (IIFSB), which is expected
to play a significant role in developing sharia-
compliant social funds for all Islamic countries,
including Indonesia. The increased role of Indonesia
in terms of developing a global Islamic economy and
finance will support and hone measures to confirm
Indonesia’s place as a centre of international
Islamic financial and economic development.
Bank Indonesia will also strengthen the role and
capacity of micro, small and medium enterprises
(MSMEs) in the economy in order to maintain
financial system stability. MSME policy is consistent
with efforts to reinforce economic resilience and
is congruent with the principles of expanding
economic participation through all social strata.
The MSME development strategy of Bank Indonesia
is implemented through two main approaches,
namely expanding and deepening financial
infrastructure as well as increasing MSME capacity.
The strategy also includes fostering the development
of supporting financial infrastructure, increasing
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

the financial feasibility of MSMEs and expanding

MSME capacity to access formal financial services.
Another initiative encompasses coordination
with the Government to establish an SME rating
agency as a form of supporting infrastructure for
the financial industry. In addition, micro and small
enterprises (MSE) will also be encouraged to record
financial transactions and basic bookkeeping
through simple standardised financial statements
issued by Bank Indonesia in conjunction with the
Institute of Indonesian Chartered Accountants (IAI).

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Policy to Convert DAU and/or DBH Funds into Noncash

Box 8.1 Disbursements and its Impact on Regional Bank
Liquidity

Seeking to achieve the 5.3% target for economic Box Table 8.1.1 Budget Posture in 2016
growth in 2016, the Government is pursuing a Billion Rp
A STATE REVENUES 1,822.50

more expansive state budget, while maintaining 1. Domestic Revenues 1,820.50

Tax Revenues 1,546.70
the deficit at 2.15%. In addition, to accelerate the Non-Tax Revenues 273.80
2. Grants 2.00
equitable distribution of growth in rural areas, B. STATE EXPENSES 2,095.70

the Government also increased the allocation of 1. Central Government Expenditure 1,325.60
Ministerial Spending 784.10

equalisation funds from Rp521.7 trillion (2015) to Non- Ministerial Spending 541.40
2 Regional Transfers and Rural Funds 770.20
Rp700.4 trillion (2016). Such funds consist of the Regional Transfers 723.20
Rural Funds 47.00
General Allocation Fund (DAU), Profit Sharing Fund C. PRIMARY BALANCE (88.20)

(DBH) and the Special Allocation Fund (DAK). D. BUDGET (DEFICIT) SURPLUS (273.20)
Surplus (Deficit) Percentage to GDP (2.15)
E. BUDGET DISBURSEMENTS 273.20
Domestic Expenses 272.80
International Expenses (Net) 0.40

Source: Ministry of Finance

Box Table 8.1.2 Regional Transfers

STATE BUDGET STATE REGIONAL STATE

POSTURE IN 2016 POSTURE IN 2016 DIFFERENCE
2015 BUDGET 2016 BUDGET 2015 BUDGET 2016
Regional Transfer 637.9 643.8 Transfer ke daerah 735.2 723.2 (12.0)
Equalisation Funds 516.4 52.17 Equalisation Funds 710.7 700.4 (10.3)
General Transfer Fund 495.5 491.5 (4.0)
Profit Sharing Fund (DBH) 127.6 110.0 Profit Sharing Fund 107.2 106.1 (1.1)

Tax 50.5 54.2 Tax 51.7 51.5 (0.205)

Natural Resources 77.1 55.8 Natural Resources 55.5 54.6 (0.915)
B. General Allocation Fund (DAU) 352.8 352.8 2 . Special Transfer Fund 388.2 385.4 (2.8)
B. Special Transfer Fund 215.2 208.9 (6.3)
C. Special Allocation Fund (DAK) 35.8 58.8 Physical Special Allocation Fund 91.7 85.4 (6.3)
Other Transfers 104.4 104.4 Non-Physical Special Allocation Fund 123.4 123.5 -
II. Regional Incentive Fund 5.0 5.0 -
III. Special Autonomy Fund and DIY 19.4 17.7 (1.6)
Special Fund
III. Special Autonomy Fund (DOK) 16.6 17.1 Special Autonomy Fund 189 17.2 (1.6)
IV. DIY Special Fund 0.547 0.547 DIY Special Fund 0.547 0.547 -
Rural Funds 9.0 20.7 Rural Funds 46.9 46.9 -
Jumlah 647.0 664.6 Jumlah 782.2 770.1 (12.0)

Source: Ministry of Finance

Over recent years, the absorption of budget funds On the other hand, however, funds deposited by
allocated by the Central Government to Local local governments at regional banks has increased
Governments has tracked a downward trend. significantly.

198
 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Box Graph 8.1.1 State Budget Realisation (2012-2015)

150 190
140 170
130
150
120
110 130
100 110
90
90
80
70 70

60 50
2012 2013 2014 2015

Income Spending Net Outlay

Source: Ministry of Finance

Box Graph 8.1.2 Local Government Funds Deposited at Regional Banks

Trillion Rp
300

250

200

150

100

50

0
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11

2010 2011 2012 2013 2014 2015

Source: Bank Indonesia, processed

The suboptimal absorption of budget funds by local
governments prompted the Ministry of Finance of
the Republic of Indonesia to issue Regulation No.
235/PMK.07/2015, dated 22nd December 2015,
concerning Conversion of the Profit Sharing Fund
(DBH) and/or General Allocation Fund (DAU) into
Noncash Disbursements. The regulation aims to: (i)
foster sounder as well as more efficient and effective
budget management; (ii) nurture the optimal and
timely absorption of state budget funds; and (iii)
reduce the excessive accumulation of government
cash and/or deposits in the banking industry.
The Ministry of Finance regulation contains provisions
concerning the conversion mechanism for the Profit
Sharing Fund (DBH) and/or General Allocation
Fund (DAU) into noncash disbursements for local
governments holding cash and/or deposits in the
banking sector. If the position of local government cash
and/or deposits exceeds the projected requirement
for operational expenses and capital spending for the
upcoming three months and surpasses the national
average, the excess funds must be converted into
government securities (SBN). Eligible SBN consist
of non-tradeable treasury bills (SPN) and Islamic

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

treasury bills (SPNS) with a tenor of three months government funds can be observed from the ratio of
and a return set at 50% of the interest rate on Central local government funds to total deposits at regional
Government cash placements held at Bank Indonesia banks, accounting for an average of 46.9% over the
or equivalent to 65% of the BI Rate. Under certain past five years.
conditions, however, the Government may redeem
the SPN/SPNS before maturity. In addition to placements in components of bank
liquid assets, regional bank liquidity has also been
Conversion will take place during two periods when maintained in the form of interbank placements.
the DBH and DAU funds are disbursed, namely in the The majority of regional banks are net lenders on
first quarter (March/April) and the second quarter the interbank money market with national private
(June/July). The policy is expected to influence commercial banks as the dominant counterparties in
liquidity management at regional banks. Thus far, terms of transaction volume. From the perspective of
regional banks have remained strategic partners transaction value, however, state-owned banks are
of local government in terms of managing state the dominant counterparties of regional banks on the
budget funds. Regional bank dependence on local interbank money market.

Box Graph 8.1.3 Share of Local Government Funds to Total Regional Bank Deposits
Trillion Rp
600 60%

500 50%

400 40%

300 30%

200 20%

100 10%

- 0%
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11
2012 2013 2014 2015

Local Government Deposits held at Regional Banks Non-Local Government Deposits Ratio (RHS)
Source: Bank Indonesia, processed

Box Graph 8.1.4 Regional Bank Position on Interbank Money Market

2.5 Trillion Rp

2.0

1.5
1.0
NPAV Value

0.5
0.0
-0.5

-1.0
-1.5

-2.0

0 10 20 30 40 50 60 70 80

Total Counterparties
Source: Bank Indonesia, processed

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 Assessment Of Assessment Of Conditions Banks And Strengthening Bank Indonesia Policy
Financial System Financial Market And Risks The Household Nonbank Financial The Islamic Financial System Response Towards Maintaining Outlook, Challenges
Stability Conditions And Risks And Corporate Sectors Institutions Financial Sector Infrastructure Financial System Stability and Policy Direction

Box Graph 8.1.5 BPD Counterparties on the Interbank Money Box Graph 8.1.6. BPD Counterparties on the Interbank
Market (Transaction Frequency) Money Market (Nominal)
0% 2%
2%
2% 2%
2% 4% 1%
3%

Foreign Banks Foreign Banks

8% Joint-Venture Banks Joint-Venture Banks
Banks Operating Internationally Banks Operating Internationally
18%
20% State-Owned Banks State-Owned Banks
National Private Banks National Private Banks
31% Regional Banks Regional Banks
Rural Banks 53% Rural Banks
Islamic Rural Banks 20% Islamic Rural Banks

32%

Source: Bank Indonesia, processed

Noting the significant role local government funds
play in the composition of deposits at regional
banks and the net lender position of regional
banks on the interbank money market, the change
in liquidity flows due to enforcement of MOF
Regulation No. 235 will affect future regional bank
liquidity. The impact of PMK 235 will shift the
liquidity cycle of regional banks that previously
peaked in the second quarter and then decreased
in the third. PMK implementation will change the
cycle so that liquidity will accumulate until the third
quarter and subsequently decline dramatically in
the fourth. The reduction to additional liquidity
from the state budget will also limit the role of
regional banks as net lenders on the interbank
money market, which will also affect the various
counterparties.
Despite the shift in the liquidity cycle of regional
banks, in general the impact of PMK 235 on regional
bank liquidity should be relatively contained.
Based on simulations of converting the Profit
Sharing Fund (DBH) and/or General Allocation
Fund (DAU) in the first quarter of 2016, only the
liquid assets of regional banks were affected and
the aggregate liquidity ratio, measured as a ratio of
liquid assets to deposits, remained above the 8.5%
threshold. Similarly, in terms of BPD placements
on the interbank money market, the liquidity
ratio at regional banks remained well above the
threshold. Simulations for the second quarter
of 2016, however, showed a slight decline in the
liquidity ratio.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

ARTICLE 1
Selection of Early Warning Indicators to
Identify Corporate Sector Distress: Efforts to
Strengthen Crisis Prevention

202

ARTICLE 1
Selection of Early Warning Indicators to Identify Corporate
Sector Distress: Efforts to Strengthen Crisis Prevention
Arlyana Abubakar1, Rieska Indah Astuti2, Rini Oktapiani3
This research aims to develop Early Warning Indicators
(EWI) of financial distress in the non-financial corporate
sector, hereinafter referred to as the corporate sector.
Initially, candidate indicators were grouped into four
categories, namely liquidity, solvency, profitability
and activity indicators. Those selected as Early
Warning Indicators (EWI) could predict occurrences
of corporate distress events in Q1/2009 with minimal
statistical error. A statistical assessment showed
that as an aggregate, the debt-to-equity ratio (DER),
current ratio (CR), quick ratio (QR), debt-to-asset ratio
(DAR), solvency ratio (SR) and debt service ratio (DSR)
provided signals one year in advance of a distress
event in Q1/2009. Consequently, such indicators could
be utilised as leading Early Warning Indicators (EWI) of
corporate financial distress.
1. Introduction
The importance of measuring systemic risk in the
financial system is an invaluable lesson that has
been taught by several episodes of economic and
financial crises. Increased
among economic agents has been accompanied by
heightened interconnectivity risk through common
exposure. Such conditions were confirmed by the
analysis of the National Financial Account and
Balance Sheet (Abubakar, et. al, 2015), where strong
interconnectedness between the corporate sector
1
Senior Economic Researcher, Macroprudential Policy Department, Bank Indonesia. Email: arlyana@bi.go.id.
2
Economic Researcher, Macroprudential Policy Department, Bank Indonesia. Email: rieska_ia@bi.go.id
3
Research Fellow, Macroprudential Policy Department, Bank Indonesia. Email: rini.oktapiani@bi.go.id.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy of position of Bank Indonesia.
Article 1
Selection of Early Warning Indicators to Identify Corporate
Sector Distress: Efforts to Strengthen Crisis Prevention
and financial sector, particularly the banking industry,
was evidenced. Meanwhile, the corporate sector is
also highly interconnected with the external sector,
exposing businesses to external risk as a result of rapidly
growing external debt in the sector. Consequently,
Early Warning Indicators (EWI) are required to prevent
a build-up of systemic risk originating from the
corporate sector.
EWI are useful to identify potential risks early,
providing the relevant authorities enough time to
implement preventative measures to dampen the
increase of systemic risk. EWI must fulfil a number
of requirements, including the ability to forecast
statistically and issue signals of an impending crisis
as early as possible, thereby providing sufficient time
for the relevant authorities to prepare the policy
measures required (Drehmann, 2013).
Financial distress is a condition where a corporation is
unable to pay its financial obligations to a third party
interconnectedness (Andrade and Kaplan, 1998). Pranowo et. al (2010)
stated that indications of national financial distress
are a phenomenon where a number of public firms
are delisted from the Indonesia Stock Exchange due
to liquidity shortfalls, as occurred during the Asian
Financial Crisis of 1998/99 and the Global Financial
Crisis in 2008/09.
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 FINANCIAL STABILITY REVIEW
No. 26, March 2016
2. Literature Review
Vulnerabilities in the corporate sector can be
interpreted as risk, where corporate financial
conditions will deteriorate to a threshold and
subsequently trigger systemic risk (Gray, 2009). A
corporation is said to experience financial distress if
the company cannot meet or has difficulty paying off
its financial obligations to its creditors (Andrade and
Kaplan, 1998).
A body of previous research has been conducted to
predict incidences of corporate financial distress.
Altman (2000) developed a new model to predict
corporate distress, building on previous models,
namely the Z-Score model (1968) and the Zeta (1977)
credit risk model.
Platt and Platt (2002) explained that the most
dominant financial ratios to predict incidences of
financial distress were EBITDA/sales, current assets/
current liabilities and cash flow growth rate that
correlate inversely to possible corporate financial
distress. Therefore, larger ratios are indicative of a
smaller probability of corporate financial distress. In
addition, other financial indicators, including net fixed
assets/total assets, long-term debt/equity and notes
payable/total assets have a positive correlation with
corporate financial distress. Accordingly, larger ratios
are indicative of a larger probability of corporate
financial distress.
Fitzpatrick (2004) used three main variables to predict
financial distress, namely total assets, leverage and
standard deviation of assets. Meanwhile, Asquith et.
al (1994) used the interest coverage ratio to define
financial distress.
204
Research conducted by the Bank of Japan (BOJ), in
Ito et. al (2014), identified 10 leading indicators that
could signal financial sector imbalances in Japan, two
of which were corporate sector indicators, namely the
fixed investment/GDP ratio and the corporate credit/
GDP ratio.
In Indonesia, Luciana (2006) found that financial ratios
originating from the corporate income statement,
balance sheet and cash flow statement were significant
variables for determining corporate financial distress.
A study was conducted using a sample of corporations
listed on the Indonesia Stock Exchange in 2000-2001,
consisting of 43 corporations with a positive net
income and equity book value, 14 corporations with a
negative net income but still listed and 24 corporations
with a negative net income and equity book value but
still listed. A multinomial logistic regression approach
was used to study the significance of financial ratios
originating from the three aforementioned financial
statements to financial distress.
Pranowo, et. al (2010) conducted research into
financial distress using a sample of 220 corporations
listed on the Indonesia Stock Exchange and found that
four indicators were most significant in determining
financial distress, namely the current ratio (current
assets to current liabilities), efficiency (EBITDA to total
assets), leverage (due date accounts payable to fund
availability) and equity (paid in capital). In addition,
the research showed that the mining sector was
most severely affected by the global financial crisis,
contrasting the agricultural sector that was shown to
be the most resilient and quickest to overcome crisis-
related problems.

Article Graph 1.1 Determining Stress Events based on the Altman Z-Score
Peak Distress Event
50%
45%
40%
35%
30%
25%
20%
15%
10%
Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14
Safe Zone
Source: Bank Indonesia (2014)
3. Research Methodology
3.1 Data and Determining a Distress Event
Determining a stress event refers to the work
of Pranowo, et. al (2010), who stipulated that
a period of distress is marked by an increase of
non-performing loans (NPL) in the banking sector,
coupled with a significant bump in the number of
delisted corporations. The research of Pranowo, et.
al (2010) also revealed that corporations in Indonesia
experienced financial distress in Q1/2009, which was
backed up by a significant increase in the Altman
Z-Score that peaked in the same period. Another
phenomenon that can indicate financial distress is a
growing number of corporations that are unable to
pay their obligations to the banking industry, which is
reflected by an increase in non-performing loans (NPL),
as occurred in 2005 and 2009. Historical data shows
that bank NPL jumped 11.5% in 2006 from Rp61 trillion
to Rp68 trillion the year earlier. Furthermore, bank
NPL shot up 9.4% from Rp55.4 trillion in September
2008 to Rp60.6 trillion in March 2009. Based on the
aforementioned phenomena, corporate financial
distress in Indonesia is assumed to have occurred at
the beginning of 2009. Data for individual corporations
listed on the Indonesia Stock Exchange for the period
from Q4/2004 through to Q1/2015 (Article Graph 1.1)
shows that the share of corporations experiencing
Article 1
Selection of Early Warning Indicators to Identify Corporate
Sector Distress: Efforts to Strengthen Crisis Prevention
Altman Z-Score of Publicly Listed
Non-Financial Corporations
46.0%
31.0%
23.0%
Distness Zone Grey Zone
financial distress was most significant during Q1/2009,
accounting for 49.5% of all listed corporations. Rupiah
exchange rate depreciation and economic moderation
were disclosed as the reasons for the financial distress.
Economic moderation stemmed from an export slump
due to the 2008 global financial crisis, when demand
for Indonesian exports from importing countries
evaporated, thereby eroding corporate incomes,
especially of export-oriented firms. In addition,
rupiah depreciation during the period from Q4/2008
to Q2/2009 raised production costs, which further
undermined corporate performance. In general,
higher production costs, dwindling demand for exports
and weaker public purchasing power due to economic
moderation combined with rupiah depreciation stifled
corporate performance, reflecting a dip in the return
on assets (ROA) and return on equity (ROE) of 0.71%
and 1.86% respectively on the previous period. Article
Graph 1.2 shows the exchange rate along with ROA
and ROE as a proxy of corporate performance.
Another phenomenon that points to Q1/2009 as a
period of corporate financial distress in Indonesia
was the increase in banking industry NPL as well as
the number of delisted corporations as presented in
Article Graph 1.3.
205
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Article Graph 1.2 Rupiah Exchange Rate and Corporate Performance

30.00 14.000
11.631
25.00 12.000
10.000
20.00
8.000
15.00
7.39 6.000
10.00
4.000
5.00 3.31
2.000
- -
2004Q1

2004Q3

2005Q1
2005Q3

2006Q1
2006Q3

2007Q1
2007Q3

2008Q1
2008Q3

2009Q1
2009Q3

2010Q1
2010Q3

2011Q1
2011Q3

2012Q1
2012Q3
2013Q1
2013Q3

2014Q1
2014Q3

2015Q1
ROA (%) ROE (%) Exchange Rate
Source: Bloomberg

Article Graph 1.3 NPL Ratio (%) and Delisted Corporations

NPL Ratio (%) Event Analysis of Delisted Corporations

Quarterly
10.00 9.36
Delisting
9.00 20 corporations 12 corporations
8.00 12 delisted in 1999 delisted in 2009
7.00
10
6.00
5.00 4.51 8
Asian Financial Subprime
4.00 Crisis
6 Mortgage Crisis
3.00
2.00 4
1.00
- 2
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
2013Q3
2014Q1
2014Q3
2015Q1

1999 2004 2009

0
1990 - 2000 2000 - 2005 2005 - 2014

Source: Monthly Commercial Bank reports, Bank Indonesia

Declining corporate performance in Q1/2009 number of delisted corporations was also observed to
increased NPL by 0.76% on the previous period as increase significantly on the previous period, totalling
a proxy of heightened credit risk. In addition, the 12 corporations delisted in 2009.

Article Figure 1.1 Early Warning Indicators

CRISIS

Time Period
T-..

T-4

T-3

T-2

T-1

Pre-Crisis Near-Crisis
Leading Near Term
Indicator Indicator

Early Warning
Indicator (EWI)

Source: Blancher, et. al (2013)

206
 Article 1
Selection of Early Warning Indicators to Identify Corporate
Sector Distress: Efforts to Strengthen Crisis Prevention

3.2 Determining EWI to detect Corporate Financial
Distress
To determine whether a given indicator could be
used as an Early Warning Indicator (EWI), it must
meet certain requirements. According to Blancher,
et. al (2013), an indicator could be used as an EWI if
the indicator issues a signal prior to a crisis period.
Furthermore, EWI can be differentiated as leading
indicators or near-term indicators based on when
the indicator begins to issue crisis signals. A leading
indicator will issue a signal more than one year before
a crisis event, while a near-term indicator will provide
a signal less than one year before a crisis.
3.2.1 Determining the Candidate EWI of Corporate
Financial Distress
The preliminary stage to determine early warning
indicators of corporate financial distress is to stipulate
candidate indicators that can exemplify corporate
financial conditions. Candidate indicators typically
originate from corporate financial statements,
including the balance sheet, income statement and
cash flow. The candidate indicators selected in this
research are liquidity, solvency, profitability, activity
and cash flow indicators. A summary of the candidate
indicators used is as follows (Wiehle, et. al (2005) and
Jakubik & Teply (2011)):

Several criteria must be met by an indicator in order to a. Liquidity Indicator

be selected as an early warning indicator of corporate
financial distress, including: (1) the indicator must be
able to detect corporate imbalances at least one year
before the peak period of distress in Q1/2009; and (2)
the indicator must minimise various statistical errors
when predicting corporate distress events in Q1/2009.
Article Figure 1.2 illustrates the various stages used to
identify early warning indicators of corporate financial
distress:
These indicators represent corporate ability to meet
short-term and long-term liabilities using short-
term assets. Higher corporate liquidity reduces the
probability of distress. The indicators include:
1. The current ratio (CR) as a measure of short-
term liquidity that illustrates the ratio of short-
term assets to short-term liabilities. In general,
corporations that are performing well have a
larger CR value equivalent to 1. A CR value of less
than 1 indicates negative net working capital and
potential financial distress.

Article Figure 1.2 Framework to Determine EWI of Corporate Financial Distress

Select candidate indicators

Observe candidate indicator trends using 1-Sided HP Filter π = 1.600 & Moving Average (MA)

Calculate candidate indicator gaps (difference between actual and trend)

Calculate standard deviation of the gaps (ó) -> RMS

Calculate the lower and upper thresholds

Select indicators as EWI of Corporate Financial Distress:

Evaluation

1. Indicator provides a stress signal exceeding the upper or lower threshold at least one year before the period of
Statistical

corporate distress in Q1/2009;

2. Condition 1 persists for a minimum of two quarters within one year prior to Q1/2009 or has a predictive power of
at least 67%;
3. Selected EWI are those that minimise the loss function: L

Source : Bank Indonesia

207
 FINANCIAL STABILITY REVIEW
No. 26, March 2016
2. The quick ratio (QR) as a measure of short-run
liquidity that shows the liquidity status of a
corporation. The main focus of the ratio is the
value of liquid assets. A low value of liquid assets
would indicate that the affected corporation is
experiencing short-term liquidity problems. In
addition, a low liquid asset value also represents
a large inventory value, where nearly 50% of
the inventory is financed by the liquid assets.
Furthermore, a large inventory value is indicative
of a large liquid asset value, which can be a source
of corporate vulnerability due to exposure to
liquidity risk.
b. Solvency Indicator
Solvency indicators explain corporate ability to meet
long-term liabilities. A high debt ratio and long debt
repayment period will exacerbate potential corporate
distress. The main indicators include:
1. The debt-to-equity ratio (DER) as a measure of the
proportion of corporate financing originating from
debt and equity in the capital structure. The ratio
is also a measure of corporate financial leverage,
where a high value of financial leverage without
a corresponding sustainable increase in profit will
trigger financial distress.
2. The debt-to-asset ratio (DAR) is also an indicator
of corporate financial leverage. This ratio measures
the extent to which corporate assets can cover
financing originating from short and long-term
debt. A higher DAR value implies that the assets
are insufficient to cover the liabilities and, hence,
the corporation will face solvency issues.
3. The interest coverage ratio (ICR) illustrates long-
term corporate solvency and is a measure of
corporate efficiency in terms of covering interest
expenses originating from long and short-term
liabilities. In general, a low ICR value indicates that
208
a corporation is experiencing solvency problems
due to insufficient revenue to cover interest
expenses.
4. The solvency ratio (SR) is a measure of corporate
ability to meet short and long-term debt and other
obligations using primarily liquid assets. A low SR
reflects corporate solvency problems because the
assets are insufficient to meet all liabilities.
5. The debt service ratio (DSR) measures a
corporations’ ability to meet at-risk obligations,
namely loan repayment instalments and interest
payments, based on earnings before interest,
taxes, depreciation and amortisation (EBITDA).
A higher DSR value indicates that an enterprise
does not have sufficient gross earnings to meet
at-risk debt, including short-term liabilities, debt
repayments or interest payments. Suh conditions
spur solvency problems.
c. Profitability Indicator
These indicators explain how a corporation maximises
profit using existing inputs. A higher level of corporate
profitability indicates less chance of financial distress.
The indicators include:
1. Gross profit margin (GPM) measures gross profit
generated by sales in a given period. A lower
ratio implies a relatively high cost of goods sold
compared to total sales, indicating a decline in
profit or performance.
2. The return on assets (ROA) is a measure of
corporate performance as a ratio of net income
to total assets. A higher ROA reflects a high value
of net income generated by efficiently maximising
the fixed assets.
3. The return on equity (ROE) is also used to measure
corporate performance. ROE is a measure of net
income to shareholders’ equity. A Higher ROE
value implies a higher return for the shareholders.

d. Activity Indicator
Activity indicators measure corporate efficiency in
terms of utilising various inputs. A corporation is
considered ideal if it utilises inputs effectively to
generate maximum profit. A lower level of corporate
efficiency would lead to greater potential corporate
distress. The indicators include:
1. Inventory turnover (I_Turn) to measure the
correlation between sales and inventory. This
ratio is also a measure of corporate efficiency in
terms of inventory sales. A higher ratio implies
greater corporate efficiency in terms of inventory
management. Conversely, a lower ratio indicates
unsold inventory, which erodes cash to purchase
more inventory and, therefore, the firm could
potentially face cash flow issues.
2. Asset turnover (A_Turn) explains how efficiently a
corporation utilises its assets to generate revenue.
A higher ratio implies that a corporation uses its
assets efficiently. An extreme asset turner value,
however, is indicative of insufficient assets for
production, which prevents maximising profits.
In addition to the aforementioned indicators, another
candidate EWI that represents corporate cash flow
includes the Capital Expenditure to Depreciation
and Amortisation Ratio, which compares fixed asset
investment or capital expenditure to the value of
depreciation and amortisation in the current period. A
higher ratio indicates corporate expansion, where cash
is prioritised for new investment rather than to offset
depreciation and amortisation.
Furthermore, EWI will be stipulated as an aggregate as
well as for specific sectors. The sectors are based on
those classified by the Indonesia Stock Exchange (BEI),
namely the Agricultural Sector (JAKAGRI); Base Metals
and Chemicals (JAKBIND); Consumer Goods Sector
Article 1
Selection of Early Warning Indicators to Identify Corporate
Sector Distress: Efforts to Strengthen Crisis Prevention
(JAKCONS); Infrastructure, Utilities and Transportation
(JAKINFR); Miscellaneous Industries (JAKMIND); Mining
Sector (JAKMINE); Property and Real Estate (JAKPROP);
as well as Trade, Services and Investment (JAKTRAD).
3.2.2 Determining the Trends and Thresholds
The trend of each respective indicator was analysed
in order to determine whether a candidate indicator
would meet the criteria to become an early warning
indicator. Trend analysis involved observing the
magnitude of the gap with its long-term trend as well
as identifying whether the gap exceeded the threshold.
If the gap exceeded the lower or upper threshold, the
corresponding indicator was said to successfully detect
potential corporate distress events in Indonesia. The
various stages of trend analysis and determining the
thresholds can be explained as follows:
a. a. Calculate the long-term trend. The long-term
trend of a candidate indicator was calculated using
two different methods, namely the one-side HP
filter approach with a smoothing parameter (y) of
1600 as the data is quarterly data (Drehman, 2011)
and backward moving average (MA) for 1, 2 and 3
years. The MA focuses on the 3-year backward MA
because it is more effective in terms of capturing
short-term fluctuations (Ito, et. al, 2014 in
Surjaningsih, et. al, 2014). The method used for the
trend analysis was determined based on a number
of factors, including the time series characteristics
of each respective indicator as well as the statistical
evaluation to minimise statistical errors.
b. Calculate the Indicator Gap. After the trend analysis
is complete, the next stage was to calculate the
gap of each candidate indicator from its long-term
trend. The gap value is the difference between the
actual value (x) and the long-term trend(xti).
gap = (xi - xit)
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 FINANCIAL STABILITY REVIEW
No. 26, March 2016
c. Calculate the Standard Deviation (Root Mean Square).
When identifying whether an indicator issues a signal
of distress, it is important to analyse the historical
trend and compare it to certain thresholds. The
optimal threshold was determined by creating several
threshold levels. Each threshold level was determined
by the value of standard deviation (root mean square
– RMS) of each respective indicator using the following
equation:
1 N 2
σ (RMS) = N-1 ∑ i=1 (xi - xit)
d. Calculate the Thresholds (Upper and Lower). The
threshold levels (upper and lower) are formed from
the value of standard deviation (Ó). The upper and
lower thresholds were calculated using the following
equations:
Upper Threshold: xti + k σ
Lower Threshold: xti - k σ
Where xi represents the actual value of the indicator
t
and xi is the long-term trend using the one-sided HP
Filter (lambda = 1600) or the 3-year backward MA.
Meanwhile, k is a multiplier of the standard deviation
used to simulate the best threshold to detect distress
signals. The value of k varies from 1, 1.25, 1.5, 1.75
and 2. An indicator is said to provide a distress signal if
the actual value exceeds the upper threshold or lower
threshold before a distress event.
Actual value above the Upper Threshold: xi > (xti + k σ)
Actual value below the Lower Threshold: xi < (xit - k σ)
3.2.2 Statistical Evaluation
Fundamentally, the indicators selected as Early Warning
Indicators (EWI) are only supposed to issue a signal prior
to the distress event and not outside the given period.
Accordingly, the following correct conditions are plausible:
the indicator issues a signal and a distress event occurs
210
(correct signal A) or an indicator does not issue any signal
and a distress event does not occur (correct signal D).
According to the research, an indicator that issues an
erroneous signal can be either an indicator that issues a
signal but no distress event transpires (Type 2 Error/risk
of issuing false signal [B]) or an indicator that does not
produce a signal but a distress event still happens (Type I
Error/risk of missing a crisis [C]).
Article Table 1.1 Statistical Errors
Actual
Table of Statistical
Errors
Stress Event No Stress Event
Signal Issued Correct Signal (A) Type II Error (B)
Predicted
No Signal Issued Type I Error (C) Correct Signal (D)
Source: Ito, et. al (2014)
A statistical evaluation of several EWI was conducted
applying a modified version of the statistical method used
by Ito, et. al (2014) to assess the financial activity index
(FAIX) of Japan. Using the method, a threshold level was
determined to minimise the loss, namely the weighted
average of the probability of type II and type II errors, as
per the following equation:
L (µ,τ) µPT1(τ) + (1-µ) (1-P)T2(τ)
A+C , T1(τ) C , T2(τ) B
P
A+B+C+D A+C B+D
Where A, B, C and D represent the total number of periods
when a signal was issued and a distress event occurred
(A), a signal was issued but no distress event occurred
(B), no signal was issued but a distress event occurred (C),
no signal was issued and no distress event occurred (D).
L(μ,τ) represents the loss by the regulator based on the
regulator preference parameter (μ) and threshold (τ) .
The value of the regulator preference parameter (μ)
varies from 0 and 1. A μ=0,5 value of 0.5 implies that the
regulator has minimised the incidences of type I and type
II errors, while a value of μ>0,5 indicates that the regulator
 Article 1
Selection of Early Warning Indicators to Identify Corporate
Sector Distress: Efforts to Strengthen Crisis Prevention

favours minimising type I errors rather than type II errors.
The P value is the ratio of periods when a signal was issued
against the total number of observation periods. T1(τ) and
T2(τ) respectively represent the probability of type I errors
and type II errors. In addition to minimising the loss value,
the selected EWI must have a predictive power (1-type
I errors) of more than 67%, implying that the indicator
issues a correct signal for a minimum of 2/3 of the periods
when a distress event occurs.
3.2.3 Robustness Test
Referring to Ishikawa, et. al (2012), EWI robustness can
be tested by observing the historical data and analysing
the degree of real-time estimation problems during the
periods when a distress event was known to happen.
Furthermore, EWI robustness is also tested using the
standard deviation or root mean square (RMS) during
the periods when a distress event was known to occur
in order to produce the best threshold. An Early Warning
Indicator is said to be robust if the statistical evaluation
of the historical behaviour minimises the loss, similar to
EWI selection analysis using the entire sample. Significant
differences in the statistical values between the out of
sample test (robustness check) and EWI selection analysis
(all sample) imply that the model contains real-time
estimation problems and therefore not robust.
4. Results
4.1 Statistical Evaluation
To produce Early Warning Indicators (EWI) using the
aforementioned methodology, a summary of indications
of stress conditions is required for each candidate indicator
as presented in Article Table 1.2. EWI candidates are
financial ratios taken from corporate financial statements,
including the balance sheet, income statement and cash
flow report (Pranowo, et. al, 2010). The indicators were
subsequently grouped into four categories (Jakubik and
Teply, 2011), namely liquidity, solvency, profitability and
activity indicators.
Analysis of the selected indicators is subsequently
displayed in tabulated and graphical form. According
to Article Table 1.3, the noise to signal ratio (NSR)
showed that the long-term trends calculated using the
one-sided HP filter were better at issuing signals of
distress than the Moving Average. This was applicable

Article Table 1.2 Summary of Candidate EWI of Corporate Financial Distress

Indicator Definition Stress Condition Indicator

Liquidity Indicators 
Current Ratio (CR) (Current Asset / Current Liabilities) CR < Lower Threshold
Quick Ratio (QR) ((Cash + Acc. Receivable) / Current Liabilities) QR < Lower Threshold
Solvency Indicators
Debt to Equity Ratio (DER) (Total Debt / Total Equity) DER > Upper Threshold
Debt to Asset Ratio (DAR) (Total Debt / Total Asset) DAR > Upper Threshold
Interest Coverage Ratio (ICR) (EBIT / Interest Expense) ICR < Lower Threshold
Solvability Ratio (SR) (Total Asset / Total Liabilities) SR < Lower Threshold
Debt Service Ratio (DSR) ((Current Liabilities + Interest Expense) / EBITDA) DSR > Upper Threshold
Profitability Indicators
Gross Profit Margin (GPM) (Operating Profit/ Sales) GPM < Lower Threshold
Return on Asset (ROA) (Net Income / Total Asset) ROA < Lower Threshold
Return on Equity (ROE) (Net Income / Total Equity) ROE < Lower Threshold
Activity Indicators
Inventory Turnover (I_Turn) (Sales / Inventory) I_Turn < Lower Threshold
Asset Turnover (A_Turn) (Sales / Total Asset) A_Turn < Lower Threshold
Cash Flow Indicators
CapEx to Dep_Amor Ratio (C_DA) (Capital Expenditure / Depreciation and Amortization) C_DA < Lower Threshold

Source: Jakubik and Teply, 2011

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

to all indicators with a predictive power of more than
67% and lowest statistical error among the other
indicators.
The statistical evaluation (Table 1.3) showed that the
best aggregate indicators of distress in the corporate
sector were the debt-to-equity ratio (DER) as the
leading indicator, along with CR, QR, DAR, SR and
DSR as near-term indicators. Historically, DER was
proven to consistently issue accurate signals to detect
distress events in Q1/2009 one year in advance,
with a predictive power of more than 67% (leading).
Meanwhile, the other indicators issued near-term
signals up to one year prior to a distress event.
By sector, four leading indicators were obtained,
namely DER (agricultural sector, miscellaneous
industries as well as property and real estate), DSR
(basic industry and chemicals), DAR (miscellaneous
industries) and Asset Turnover (trade, services and
investment). In addition, several sectors were also
found to have robust near-term indicators, including
the agricultural sector (capital expenditure to
depreciation and amortisation); infrastructure, utilities
and transportation (interest coverage ratio, inventory
turnover and asset turnover); miscellaneous industries
(SR); the mining sector (ROA and ROE); trade, services
and investment (QR).

Article Table 1.3 Statistical Evaluation of Candidate EWI of Corporate Financial Distress
Predictive First Signal
Indicator Category Model Trend Threshold Loss
Power (Distress : 2009Q1)
λ = 1600
AGGREGATE
CR Liquidity Indicator μ = 0.5 one-sided HP Filter 1σ(Lower) 80% 0.131 2008Q2
QR Liquidity Indicator μ = 0.5 one-sided HP Filter 1σ (Lower) 80% 0.048 2008Q2
DER Solvency Indicator μ = 0.5 one-sided HP Filter 1σ (Upper) 80% 0.095 2007Q4
DAR Solvency Indicator μ = 0.5 one-sided HP Filter 1σ (Upper) 80% 0.107 2008Q2
SR Solvency Indicator μ = 0.5 one-sided HP Filter 1σ (Lower) 80% 0.131 2008Q2
DSR Solvency Indicator μ = 0.5 one-sided HP Filter 1σ (Upper) 80% 0.095 2008Q1
JAKAGRI
DER Solvency Indicator μ = 0.5 one-sided HP Filter 1σ (Upper) 80% 0.095 2006Q2
C_DA Cash Flow Indicator μ = 0.5 one-sided HP Filter 1σ (Lower) 80% 0.071 2008Q1
JAKBIND
DSR Solvency Indicator μ = 0.5 one-sided HP Filter 1σ (Upper) 100% 0.048 2007Q4
JAKINFR
ICR Solvency Indicator μ = 0.5 one-sided HP Filter 1σ (Lower) 80% 0.060 2008Q2
I_TURN Activity Indicator μ = 0.5 one-sided HP Filter 1.5σ (Lower) 100% 0.000 2008Q1
A_TURN Activity Indicator μ = 0.5 one-sided HP Filter 1.25σ (Lower) 80% 0.048 2008Q2
JAKMIND
DER Solvency Indicator μ = 0.5 one-sided HP Filter 1σ (Upper) 100% 0.095 2006Q2
DAR Solvency Indicator μ = 0.5 one-sided HP Filter 1.25σ (Upper) 80% 0.060 2007Q3
SR Solvency Indicator μ = 0.5 one-sided HP Filter 1.25σ (Lower) 80% 0.048 2008Q2
JAKMINE
ROA Profitability Indicator μ = 0.5 one-sided HP Filter 1σ (Lower) 80% 0.060 2008Q2
ROE Profitability Indicator μ = 0.5 one-sided HP Filter 1.25σ (Lower) 80% 0.048 2008Q2
JAKPROP
DER Solvency Indicator μ = 0.5 one-sided HP Filter 1σ (Upper) 100% 0.107 2006Q4
JAKTRAD
QR Liquidity Indicator μ = 0.5 one-sided HP Filter 1.25σ (Lower) 80% 0.012 2008Q2
A_TURN Activity Indicator μ = 0.5 one-sided HP Filter 1σ (Lower) 100% 0.119 2006Q3

Source: Authors’ calculations

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Selection of Early Warning Indicators to Identify Corporate
Sector Distress: Efforts to Strengthen Crisis Prevention

4.2 Selected Early Warning Indicators (EWI) Article Graph 1.4 shows that, as an aggregate, CR, QR,
Visually, the following graphs illustrate the ability of DER, DAR, SR AND DSR issue early signals of potential
each indicator to issue a signal before a distress event distress with a predictive power of more than 80%. Of
occurred. The vertical red line represents an early the six indicators, only DER issues a signal more than
warning of distress, while the shaded area represents one year prior to a distress event, namely in Q4/2007.
the period identified by each indicator as a period of Data for the beginning of 2015 shows that corporate
distress because the value exceeded the threshold financial conditions are sound, therefore, no corporate
stipulated by the statistical evaluation. financial distress is predicted for the upcoming year.

Article Graph 1.4 Selected EWI

Current Ratio (CR) Quick Ratio (QR)

0.9
1.7
1.6 0.8
1.5 0.7
1.4
1.3 0.6
1.2
1.1 0.5
1.0 0.4
0.9
0.8 0.3
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4

Current Ratio Trend HP Filter 1.6 k Threshold ± 1 STD Quick Ratio Trend HP Filter 1.6 k Threshold ± 1 STD

Debt to Equity Ratio (DER) Debt to Asset Ratio (DAR)

2.0 0.70
1.8 0.65
1.6 0.60
1.4
1.2 0.55
1.0 0.50
0.8
0.6 0.45
0.4 0.40
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4

DER Trend HP Filter 1.6 k Threshold ± 1 STD DAR Trend HP Filter 1.6 k Threshold ± 1 STD

Solvability Ratio (SR) Debt Service Ratio (DSR)

2.2 1.4
1.2
2.0
1.0
1.8
0.8
1.6 0.6
1.4 0.4
1.2 0.2
1.0 0.0
2010Q4
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2

2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4

2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2
2010Q4
2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4

Solvability Trend HP Filter 1.6 k Threshold ± 1 STD DSR Trend HP Filter 1.6 k Threshold ± 1 STD

Source: Authors’ calculations

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Consequently, the banking industry is encouraged In general, DER was a robust EWI of corporate
to lend to the real sector to drive the economy and financial conditions as an aggregate and by sector.
therefore accelerate economic growth. Notwithstanding, monitoring and assessment of other
indicators is still required, especially for sectors with
In addition, each corporate subsector has different Early large exposure to the banking industry.
Warning Indicators (EWI). An indicator that is selected
as an EWI for one subsector may not necessarily issue 4.3. Results of Robustness Testing
a distress signal for another subsector due to the To ensure robust results, the degree of real-time
different business characteristics between sectors. estimation problems during periods of distress based
Solvency indicators, such as DER, DAR, DSR and SR were on historical trends was tested (Ishikawa, et. al,
dominant EWI for various sectors, however, including 2012). An EWI was said to be robust if the statistical
the agricultural sector, basic industry and chemicals, evaluation of historical behaviour could minimise loss,
miscellaneous industries, as well as property and real similar to the EWI selection analysis using the entire
estate. For the mining sector, profitability indicators, sample. Significant differences in the statistical values
such as ROE and ROE, tended to dominate the EWI. between the out of sample test (robustness check)
For the trade, services and investment sector, activity and EWI selection analysis (all sample) imply that the
indicators (inventory turnover and asset turnover) model contains real-time estimation problems and
and liquidity indicators (quick ratio) were dominant. therefore not robust.

Article Graph 1.5 Comparison of EWI Performance: All Sample Vs Real-Time Estimation Problem

Assessment for all period Robustness to real time estimation problem

- The end of 2009Q1 -
Current Ratio (CR) Current Ratio (CR)

1.7
1.6 1.6
1.5 1.5
1.4 1.4
1.3 1.3
1.2 1.2
1.1 1.1
1.0 1.0
0.9 0.9
0.8 0.8
2007Q4
2004Q4
2005Q1
2005Q2
2005Q3
2005Q4
2006Q1
2006Q2
2006Q3
2006Q4
2007Q1
2007Q2
2007Q3

2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2010Q4
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2

2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4

Current Ratio Trend HP Filter 1.6 k Threshold ± 1 STD Current Ratio Trend HP Filter 1.6 k Threshold ± 1 STD

Quick Ratio (QR) Quick Ratio (QR)

0.90 0.80
0.75
0.80 0.70
0.65
0.70 0.60
0.60 0.55
0.50
0.50 0.45
0.40
0.40 0.35
0.30 0.30
2007Q4
2004Q4
2005Q1
2005Q2
2005Q3
2005Q4
2006Q1
2006Q2
2006Q3
2006Q4
2007Q1
2007Q2
2007Q3

2008Q1
2008Q2
2008Q3
2008Q4
2009Q1
2010Q4
2004Q4
2005Q2
2005Q4
2006Q2
2006Q4
2007Q2
2007Q4
2008Q2
2008Q4
2009Q2
2009Q4
2010Q2

2011Q2
2011Q4
2012Q2
2012Q4
2013Q2
2013Q4
2014Q2
2014Q4

Quick Ratio Trend HP Filter 1.6 k Threshold ± 1 STD Quick Ratio Trend HP Filter 1.6 k Threshold ± 1 STD

214
 1.2
1.3
1.4
1.5
1.6
1.7
1.8
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0

0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
0.40
0.45
0.50
0.55
0.60
0.65
0.70
2004Q4 2004Q4 2004Q4 2004Q4
2005Q2 2005Q2 2005Q2 2005Q2
2005Q4 2005Q4 2005Q4 2005Q4

DER

DSR
DAR

Solvability
2006Q2 2006Q2 2006Q2 2006Q2
2006Q4 2006Q4 2006Q4 2006Q4
2007Q2 2007Q2 2007Q2 2007Q2

Source: Authors’ calculations

2007Q4 2007Q4 2007Q4 2007Q4
2008Q2 2008Q2 2008Q2 2008Q2
2008Q4 2008Q4 2008Q4 2008Q4
2009Q2 2009Q2 2009Q2 2009Q2
2009Q4 2009Q4 2009Q4 2009Q4

Trend HP Filter 1.6 k

Trend HP Filter 1.6 k
Trend HP Filter 1.6 k

Trend HP Filter 1.6 k

2010Q2 2010Q2 2010Q2 2010Q2
2010Q4 2010Q4 2010Q4 2010Q4

Solvability Ratio (SR)

Debt Service Ratio (DSR)

2011Q2 2011Q2 2011Q2 2011Q2
Debt to Equity Ratio (DER)

Debt to Asset Ratio (DAR)

2011Q4 2011Q4 2011Q4 2011Q4
2012Q2 2012Q2 2012Q2 2012Q2
2012Q4 2012Q4 2012Q4 2012Q4
2013Q2 2013Q2 2013Q2 2013Q2
2013Q4 2013Q4 2013Q4 2013Q4

Threshold ± 1 STD
Threshold ± 1 STD
Threshold ± 1 STD

Threshold ± 1 STD
2014Q2 2014Q2 2014Q2 2014Q2
2014Q4 2014Q4 2014Q4 2014Q4

0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
0.0
1.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0

0.40
0.45
0.50
0.55
0.60
0.65
0.70

2004Q4 2004Q4 2004Q4

2004Q4
2005Q1 2005Q1 2005Q1
2005Q1
2005Q2 2005Q2 2005Q2
2005Q2
DER

DSR
DAR
2005Q3

Solvability
2005Q3 2005Q3 2005Q3
2005Q4 2005Q4 2005Q4
2005Q4
2006Q1 2006Q1 2006Q1 2006Q1
2006Q2 2006Q2 2006Q2 2006Q2
2006Q3 2006Q3 2006Q3 2006Q3
2006Q4 2006Q4 2006Q4 2006Q4
2007Q1 2007Q1 2007Q1 2007Q1

Trend HP Filter 1.6 k

Trend HP Filter 1.6 k
Trend HP Filter 1.6 k

Trend HP Filter 1.6 k

2007Q2 2007Q2 2007Q2 2007Q2
Solvability Ratio (SR)

2007Q3
Debt to Equity Ratio (DER)

2007Q3 2007Q3

Debt Service Ratio (DSR)

2007Q3
Debt to Asset Ratio (DAR)

2007Q4 2007Q4 2007Q4 2007Q4

2008Q1 2008Q1 2008Q1 2008Q1
2008Q2 2008Q2 2008Q2 2008Q2
2008Q3 2008Q3 2008Q3 2008Q3
2008Q4 2008Q4 2008Q4 2008Q4
Threshold ± 1 STD
Threshold ± 1 STD
Threshold ± 1 STD

Threshold ± 1 STD
2009Q1 2009Q1 2009Q1 2009Q1
Sector Distress: Efforts to Strengthen Crisis Prevention
Selection of Early Warning Indicators to Identify Corporate
Article 1

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No. 26, March 2016

Article Table 1.4 Comparison of Statistical Evaluation: All Sample Vs Real-Time Estimation Problem

First Signal
Indicator Category Model Trend Threshold Predictive Power Loss (Distress : Predictive Power Loss
2009Q1)
Robustness to real time
λ = 1600 Assessment for all period estimation problem
- The end of 2009Q1-
AGGREGATE
CR Liquidity μ = 0.5 one-sided 1σ (Lower) 80% 0.131 2008Q2 80% 0.111
Indicator HP Filter
QR Liquidity μ = 0.5 one-sided 1σ (Lower) 80% 0.083 2008Q2 80% 0.056
Indicator HP Filter
DER Solvency μ = 0.5 one-sided 1σ (Upper) 80% 0.095 2007Q4 80% 0.028
Indicator HP Filter
DAR Solvency μ = 0.5 one-sided 1σ (Upper) 80% 0.107 2008Q2 80% 0.028
Indicator HP Filter
SR Solvency μ = 0.5 one-sided 1σ (Lower) 80% 0.131 2008Q2 80% 0.028
Indicator HP Filter
DSR Solvency μ = 0.5 one-sided 1σ (Upper) 80% 0.095 2008Q1 60% 0.083
Indicator HP Filter

Leading Indicator Near-Term Indicator

Source: Authors’ calculations

In general, robustness testing showed that the c. By sector, four leading indicators were obtained,
indicators were sufficiently robust in terms of namely (a) DER for the agricultural sector,
issuing a signal prior to a distress event. According miscellaneous industries as well as property
to Article Table 1.3, the loss produced out of sample and real estate; (b) DSR for basic industry and
tended to be smaller compared to the analysis of chemicals; (c) DAR for miscellaneous industries;
predictive power for the entire sample, which was and (d) Asset Turnover for trade, services and
relatively the same. investment.
d. In addition, several sectors were also found
5. Conclusion to have robust near-term indicators, including
5.1 Conclusion (a) the agricultural sector (capital expenditure
The following conclusions were drawn based on an to depreciation and amortisation); (b)
analysis of the results: infrastructure, utilities and transportation
a. The noise to signal (NSR) ratio showed that (interest coverage ratio, inventory turnover and
the long-term trends calculated using the one- asset turnover); (c) miscellaneous industries
sided HP filter were better at issuing signals of (SR); (d) the mining sector (ROA and ROE); as
distress compared to the moving average. well as (e) trade, services and investment (QR).
b. The statistical evaluation of candidate Early e. Considering that the signalling ability of EWI is
Warning Indicators (EWI) of corporate financial based on historical data and thus cannot be used
distress revealed that a number of indicators to detect future changes in economic behaviour,
issued signals of distress in the non-financial the use of EWI requires complementary
corporate sector as an aggregate, including DER supporting indicators.
as a leading indicator, as well as CR, QR, DAR, SR
and DSR as near-term indicators.

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Selection of Early Warning Indicators to Identify Corporate
Sector Distress: Efforts to Strengthen Crisis Prevention

5.2. Areas of Future Development

a. The use of other methodologies to formulate
EWI should be reviewed, including Area Under
Receiver Operating Characteristics (AUROC)
Curves, in order to hone the results of this
research.
b. This methodology could subsequently be
applied to other economic sectors in order
to develop financial activity indicators and a
comprehensive heat map that would bolster
efforts to maintain financial system stability.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Daftar Pustaka
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Son, Inc., New York.
Andrade, G. dan Kaplan, S. N. , 1998, “How Costly Is Financial (Not Economic) Distress? Evidence from Highly
Leveraged Transactions That Became Distressed”, The Journal of Finance, Vol. 53, No. 5. (Oct., 1998), pp. 1443-
1493.
Asquith P., Gertner, R. dan Scharfstein, D., 1994, “Anatomy of Financial Distress: An Examination of Junk-Bond
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WP/13/168.
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Drehmann, M., Borio, C. dan Tsatsaronis, K., 2011, “Anchoring countercyclical capital buffers: the role of credit
aggregates”, BIS Working Papers, No 355.
Fitzpatrick, 2004, “An Empirical Investigation of Dynamics of Financial Distress”, A Dissertation Doctor of
Philosophy, Faculty of the Graduate School of the State University of New York at Buffalo, USA.
Gapen, M. T., et. al., 2004, “The Contingent Claims Approach to Corporate Vulnerability Analysis: Estimating
Default Risk and Economy-Wide Risk Transfer”, IMF Working Paper, WP/04/121.
Gray, D dan Malone, S.W., 2009, “Macrofinancial Risk Analysis”, John Wiley & Sons, Inc., England.
Ishikawa, A., et. al., 2012, “The Financial Activity Index”, Bank of Japan Working Paper Series, No.12-E-4.
Ito, Y., et. al., 2014, “New Financial Activity Indexes: Early Warning System for Financial Imbalances in Japan”,
Bank of Japan Working Paper Series, No.14-E-7.
Jakubík, P. dan Teplý, P., 2011, “The JT Index as an Indicator of Financial Stability
of Corporate Sector”, Prague Economic Papers, 2, 2011.
Kajian Stabilitas Keuangan, 2009, Bank Indonesia, No. 12 Maret 2009.
Luciana Spica Almilia, 2004, “Analisis Faktor-faktor yang Mempengaruhi Kondisi Financial Distress suatu
Perusahaan yang Terdaftar di Bursa Efek Jakarta”, Jurnal Riset Akuntansi Indonesia, Vol. 7. No. 1: 1-22.
Platt, H., dan Platt, M. B., 2002, “Predicting Financial Distress”, Journal of Financial Service Professionals, 56:
12-15.
Pranowo, K., et. al., 2010, “Determinant of Corporate Financial Distress in an Emerging Market Economy:
Empirical Evidence from the Indonesian Stock Exchange 2004-2008”, International Research Journal of Finance
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Selection of Early Warning Indicators to Identify Corporate
Sector Distress: Efforts to Strengthen Crisis Prevention

219
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

ARTICLE 2
Bank Industry Rating and Risk Register:
Bank Indonesia’s Macroprudential
Supervisory Tools

220
 Article 2
Bank Industry Rating and Risk Register: Bank Indonesia’s
Macroprudential Supervisory Tools

ARTICLE 2
Bank Industry Rating and Risk Register: Bank Indonesia’s
Macroprudential Supervisory Tools
Diana Yalesperdani1, Arif Waluyo Birowo2, Irman Robinson3, Fitriany4, IG.N. Yudia Sinartha5, Eka Putra6

A. Introduction In general, the concept of supervision consists of several

Consistent with the separation of the banking
regulation and supervision function into two main
areas in 2013, namely microprudential to the Financial
Services Authority (OJK) and macroprudential to Bank
Indonesia, a macroprudential regulation and supervision
framework was required to support implementation of
Bank Indonesia’s mandate and duties. The overarching
goal of macroprudential regulation and supervision
itself is contained in Bank Indonesia Regulation (PBI)
No. 16/11/PBI/2014, dated 1st July 2014, concerning
Macroprudential Regulation and Supervision, namely
to (i) prevent and reduce systemic risk; (ii) nurture a
balanced and quality intermediation function, and (iii)
enhance financial system efficiency and expand access
to finance. Those three targets are the foundation of
macroprudential supervision development at Bank
Indonesia.
Article Figure 2.1 Macroprudential Supervision Cycle
salient elements, namely the object of the supervision,
the goal of the supervision, follow-up actions, as well as
the supervisory framework, methodology and tools to
ensure that supervision is implemented well. Similarly,
the microprudential supervision cycle consists of
understanding the object of the supervision, monitoring,
identification as well as assessment/evaluation of the
supervision object. One of the current tools to assess
systemic risk in the macroprudential supervision space at
Bank Indonesia is the Banking Industry Rating (BankIR),
which is a methodology to assess the significance of
financial risk identified previously through surveillance by
monitoring or identifying the financial risks.
The BankIR assessment system is analogous to
the systems used to assess bank soundness in the

Macro Economy
• Coordination with other Department/Institution
• Data/Information Gathering
• Recommendation for New Policy/Regulation Economic condition, Financial Cycle,
1 Surveillance • KYFS Offshore Loan, BoP, Inflation, GDP, etc
• Supervisory Letter to Financial Institution
• Penalty/Sanction Financial Institution
(D-SiB & Conglomeration)
Size, Interconnectedness, Complexity
Macroprudential Monitoring
3 Action Plan Financial Market
Surveillance
Framework Identification Liquidity, Maturity, Curency mixmatch
Corporation
Sources of Systemic Risk Assets, Liabilities (leverage), Liquidity,
2 On-Site Examination Asset Turn Over
Forex, Global Economy, etc
Household
Assessment Risk Transformation Consumer Index, DIR, etc
Thematic and • Financial Sector
Early Warning Indicators
Compliance • Household
Macroprudential • Corporation
Thematic Review &
Surveillance Reports Granular Stress Test Systemic Risk
• Regular/Periodic (e.g. FSR)
• Thematic • Financial Imbalances linc. Procyclicalty
Banking Industry Rating
• Banking Industry Rating • Risk taking behavior
• Risk Register • Contagion of idiosyncronic risk of
Risk Register OSIBs/interconnectedness
Source : Bank Indonesia

1
Team Leader in Financial Sector Group 2, Department of Financial System Surveillance (DSSK), Bank Indonesia. email: dyalesperdani@bi.go.id
2
Team Leader in Financial Sector Group 1, Department of Financial System Surveillance (DSSK), Bank Indonesia. email: arif_waluyo@bi.go.id
3
Team Leader in Financial Sector Group 3, Department of Financial System Surveillance (DSSK), Bank Indonesia. email: irman_r@bi.go.id
4
Team Leader in Financial Sector Group 2, Department of Financial System Surveillance (DSSK), Bank Indonesia. email: fitriany@bi.go.id
5
Team Leader in Financial Sector Group 1, Department of Financial System Surveillance (DSSK), Bank Indonesia. email: ign_yudia@bi.go.id
6
Team Leader in Financial Sector Group 3, Department of Financial System Surveillance (DSSK), Bank Indonesia. email: eka_pbn@bi.go.id
221
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

microprudential supervision
the CAMELS ratings system (Capital, Asset Quality,
Management, Earnings, Liquidity and Sensitivity
to Market Risk) as well as Risk-Based Bank Rating
(RBBR). The main difference between BankIR and
the aforementioned microprudential tools is the
object and scope of assessment. The scope of the
BankIR process includes the banking industry in its
entirety as an aggregate with a focus on systemic
financial risks. Considering that banking industry risk
is also influenced by the risks at several large banks
(or domestic systemically important banks (D-SIB)),
the BankIR process also assesses the idiosyncratic
contribution to risk at large banks, accompanied by
analysis of potential contagion.
The results of BankIR assessments, corroborated by
stress tests and other thematic analyses, form the
basis for the macroprudential supervisory actions
included in the Risk Register.
B. Several References of Financial System Assessment
Tools
A number of institutions and financial authorities in
other countries assess financial system stability using
ratings.
process, including assesses the broader interaction between the banking
industry and financial system, including the nonbank
financial industry.
The BICRA rating represents banking system conditions
with time horizon looking forward three to five years,
which is the same horizon as the investment ratings
released by Standard & Poor’s.
The BICRA methodology is divided into two
components, namely: (i) Economic Risk and (ii)
Industry Risk. The analysis is then further divided into
six ‘factors’, three for each risk component.
Economic risk contains the factors of Economic
Resilience, Economic Imbalances and Credit Risk in
the Economy. Economic resilience covers several sub-
factors, namely economic structure, macroeconomic
stability, GDP per capita and political stability.
Economic imbalances include analyses of private
(corporate) sector credit growth, residential and
commercial property price developments, balance of
payments and position of external debt. Meanwhile,
Credit Risk in the Economy looks at private sector
leverage, underwriting standards, price volatility and
domestic exchange rates as well as sovereign risk.

Standard & Poor’s (S&P) introduced the Banking

Banking industry risk complements the analysis of
Industry Country Risk Assessment (BICRA) rating in
credit risk, which is the focus of BICRA. The first factor
20067. BICRA analysis aims to assess and compare
of industry risk is the institutional framework that
banking systems across countries. BICRA is scored
includes assessing the quality of banking regulation
on a scale of 1 to 10, ranging from the lowest-risk
and supervision, which is the object of supervision,
banking systems (group 1) to the highest-risk banking
as well as banking industry governance. The second
systems (group 10). BICRA analysis covers all financial
factor is competitive dynamics, with the sub-factors
institutions, including those with a credit (investment)
including risk appetite, industry stability and market
risk rating and those without, taking deposits or
distortion in the banking sector. The last factor of
lending or both. Comprehensively, BICRA analysis also

7
Standard & Poor’s (S&P), Banking Industry Country Risk Assessment Methodology and Assumptions, November 2011

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 Article 2
Bank Industry Rating and Risk Register: Bank Indonesia’s
Macroprudential Supervisory Tools

industry risk is system-wide funding, including the by individual banks. In Indonesia, bank soundness is
stability of core customer deposits, external funding, determined by Risk-Based Bank Ratings (RBBR) with
the domestic capital market and non-loan assets. four salient pillars, namely governance, risk profile (8
bank risk categories), earnings and capital.
Analysis of the six factors will determine the rating of
C. The Relationship between the Financial System
economic risk and industry risk, which are combined
Stability Index (FSSI) and Bank Industry Rating
into the composite BICRA rating. (BankIR)
Bank Indonesia, as the macroprudential authority,
Financial authorities in other countries also assess the currently applies the Financial System Stability
financial system. For example, the Australian Prudential Index (FSSI) to monitor developments and identify
Regulation Authority (APRA), as the financial authority factors the influence financial system stability
in Australia, routinely assesses financial risk in the in the economy. The FSSI assists the financial
banking system of Australia . The analysis is regulated
8
authorities obtain a clearer picture of financial
pursuant to the Industry Risk Management Framework system performance in its entirety by amalgamating
that aims to identify macroprudential risks or thematic a number of indicators into a single composite that
risks that emerge in the financial industry as well as to represents overall financial system performance9.
stipulate the supervisory actions required to mitigate
those risks. Each financial risk is then assessed in The Financial System Stability Index (FSSI)
terms of probability and impact as high, medium or also plays a role as an Early Warning Indicator
low. A summary of financial risks that require special (EWI) in terms of monitoring financial system
attention, namely those rated high or moderate, stability. On the other hand, BankIR is more of a
are subsequently placed on the Risk Register, which macroprudential supervision tool used to identify
reflects all near and medium-term risks in the banking and assess financial risks as well as help determine
system. the necessary supervisory actions to mitigate such
risks. Therefore, considering the BankIR framework
At a more micro level, the assessment of bank tends to emphasise its function as a supervisory
soundness is a tool commonly found in the bank tool, its formulation contains numerous forward-
supervision framework of nearly all countries. looking parameters and provides more leeway for
Although the methods and approaches may differ, supervisors to exercise professional judgement.
fundamentally each method refers to several pillars Furthermore, to assess systemic risk in the banking
to group risk and ensure more directed, systematic system, BankIR also takes into consideration the
and efficient analysis or assessment. For instance, risk contribution of each bank, specifically large
the pillars of the CAMELS rating method are Capital, banks, at the macro level, thereby identifying
Asset Quality, Management, Earnings, Liquidity and potential pressures and distress at each big bank as
Sensitivity to Market Risk, which cover all risks faced well as the supervisory actions required.

8
Reserve Bank of Australia and Australian Prudential Regulation Authority, Macroprudential Analysis and Policy in the Australian Financial Stability Framework, September 2012.
9
Bank Indonesia, Financial Stability Review (FSR), March 2015 edition.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016
As BankIR is more in line with the macroprudential
supervision process, BankIR analysis is conducted
at a lower frequency, namely semesterly or just
twice per annum.
Both macroprudential tool, FSSI and BankIR, are
important and therefore mutually beneficial as well
as complementary.
D. BankIR Analysis Principles
With the rigid separation of macro and
microprudential jurisdiction and mandates
between two different authorities, namely Bank
Indonesia (macroprudential) and the Financial
Services Authority (microprudential), a framework
is required to stipulate the specific focus of
macroprudential supervision.
In general, macroprudential supervision is focused
on identifying and assessing financial risks at
the macro level, particularly systemic risk in the
financial system, with the overarching goal of crisis
prevention as well as maintaining financial system
stability. In contrast, microprudential supervision
is focused on identifying risks at individual
financial institutions (banks) with the ultimate
goal of maintaining the soundness or resilience
of each individual bank. Essentially, both forms
of supervision simultaneously influence financial
system stability in an economy.
Based on the aforementioned considerations, the
ultimate goal of macroprudential supervision,
namely to mitigate systemic risk, was translated
further into three intermediate targets, namely:
1. Identification of financial imbalances, including
the credit-to-GDP gap (procyclicality) and
224
concentration risk on both the funding and credit
sides.
2. Identification of risk-taking behaviour, including
identifying bank business activity trends, such
as bank proclivity for certain transactions, thus
creating procyclicality risk in the financial system.
3. Analysis of contagion from issues at one large
bank to the rest of the financial system, including
the identification of interconnectedness in the
financial system as well as various other financial
risks originating from pressures on the soundness
of one or several large banks that could trigger
systemic risk.
In addition, in pursuance of the financial
system stability framework of Bank Indonesia,
macroprudential policy and supervision is required
to create a financial system that: (i) is resilient to
internal and external shocks; (ii) ensures balanced
and sustainable financial intermediation that is
effective and efficient.
Considering the ultimate goal and intermediate
targets of macroprudential supervision as well
as the three elements of the BI financial system
stability framework, BankIR analysis is based on
three FSS pillars as follows: (i) financial system
resilience; (ii) balanced financial intermediation;
and (iii) financial system efficiency.
The BankIR assessment process stresses quantitative
and qualitative factors backed up by reliable and
consistent professional judgement. BankIR reflects
certain ratings that help assess banking industry
conditions, while including the risk contribution
of each big bank as a macroprudential supervision
tool.

The results of identifying the salient risks in
the banking industry from BankIR analysis are
subsequently placed on the Risk Register that
contains risk issues, supervisory actions as well as
monitoring and/or follow-up actions.
E. Elements of BankIR
According to BankIR analysis, the variables
exogenous to the banking system are categorised
as risk drivers, namely a variable, event or scenario
that triggers risk in the business or operating
activities of a bank. Examples of risk drivers include
domestic and global economic developments,
political change as well as regulatory and external
factors such as natural disasters. The risk drivers
themselves are not actually the financial risks
targeted by the analysis, however, but the
triggers of financial risk. Therefore, the triggers,
or risk drivers, are not the objects being assessed
according to BankIR analysis.
To facilitate and ensure the BankIR analysis is
conducted systematically and comprehensively, each
pillar is complemented with parameters and indicators.
Indicators are determined dynamically in accordance
Article Figure 2.2 Bank Industry Rating Framework
Industry Environment Financial Risk Analysis
Global and Domestic Data, Indicator and Stress Test
Macroeconomy
RESILIENCE
Changes to Political and
Regulatory Conditions
Banking
Industry
Financial System
BALANCED
Infrastructure
Natural Disaster,
Other External Factors EFFICIENCY
Source : Bank Indonesia
Article 2
Bank Industry Rating and Risk Register: Bank Indonesia’s
Macroprudential Supervisory Tools
with financial system conditions and considering the
following criteria:
1) Capturing objective. The selected indicators
must be able to detect the presence of financial
imbalances, including procyclicality, changes
in risk-taking behaviour and banking industry
efficiency.
2) Relevance. The state-contingent indicators must
illustrate the latest developments in the financial
system and measure the imbalances or events
that are likely to occur with significant impact on
the financial system.
3) Forward looking. The selected indicators must
provide early information on procyclicality in
the financial cycle and changes in risk-taking
behaviour. To that end, therefore, each parameter
must contain one or more high frequency
indicators to ensure adequate sensitivity to
changes in financial risks.
4) Collectable. Data for the selected indicators must
be available, easily accessible and sustainable.
5) Risk sensitive. The selected indicators must be
sensitive to changes in financial risks, especially
systemic risks, in the financial system.
Banking Industry Stability
Analysis
• Liquidity and Funding
• Capital
• Asset Quality
BankIR
• Currency Risk
• Earning Capacity Rating
• Financial Imbalances (Credit to GDP)
• Asset Concentration
• Interest Rate Banking Book
• Leverage
• Bank Operating Efficiency
• Market Competence
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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Based on those principles, parameter and indicator
selection for each BankIR pillar is as follows:
1) Resilience
Resilience reflects the capital and liquidity
resilience of the banking industry overall to
external and internal shocks. Referring to Basel
III, it is imperative for each bank to maintain solid
capital of adequate quality and quantity through
an additional Capital Conservation Buffer and
Countercyclical Capital Buffer. Furthermore,
Basel II also requires sound liquidity management
through long-term sources of funds to build
banking industry resilience. Both factors, namely
capital and liquidity, are bottom-line factors of
resilience. Other factors include asset quality and
currency risk, which ultimately dovetail into the
two previously mentioned factors.
The resilience pillar was translated further into
five parameters, namely: (i) liquidity and funding;
(ii) capital; (iii) asset quality; (iv) currency risk; and
(v) earning capacity with the following indicators:
In terms of the liquidity parameter, the main concern
in the assessment process is how far banking industry
liquidity and funding go towards meeting the
short-term liabilities and supporting bank business
activities. This parameter also covers the funding
structure in order to observe system-wide funding
stability. The interbank interest rate spread is a proxy
of money market pressures and also reflects bank
access to funds. CDS spread, however, is a proxy of
access to external sources of funds.
Meanwhile, the capital parameter assesses banking
system resilience, reflected by capital and the various
determinants of capital, such as earning capacity,
productive asset quality and currency risk.
2) Balance
The balance pillar represents prudential and
balanced implementation of the intermediation
function to not only contribute to economic and/or
real sector growth but also to create and maintain
financial system stability. The pillar monitors balance

Parameter Indicator
between sources of funding and financing and
Liquidity and Funding • Liquidity Coverage Ratio (LCR)* measures potential financial risks that fall outside
• LA/NCD*
• Interbank interest rate spread* the scope of measuring banking industry capital and
• Credit Default Swap (CDS) spread
• LA/Deposits liquidity resilience. The parameters and indicators
• Funding Concentration that benchmark the balance pillar are as follows:
• Loan-to-Deposit Ratio (LDR)
Capital • Capital Adequacy Ratio (CAR)*
• Tier 1 Capital Ratio* Parameter Indicator

• Risk-Weighted Assets (RWA) Growth Excessive Lending • Credit to GDP ratio*

Asset Quality • Gross NPL* Growth • Credit Growth
• Gross NPL and Write Offs • Sectoral Credit Growth
• NPL by Economic Sector Concentration Risk • Core Debtors to Total Credit Ratio*
• Credit and Deposit Quality • Core Debtors to Capital Ratio
Currency Risk • Net Open Position (NOP)* • Sectoral Proportion of Credit
• Significant Foreign Exchange NOP Ratio Interest Rate • Ratio of Fixed-Rate Long-Term Liabilities to Fixed-
• Ratio of External Debt to GDP Mismatch Profile Rate Long-Term Financial Assets*

Earning Capacity • Return on Assets (ROA)* • Ratio of Fixed-Rate Long-Term Liabilities to Total
• Core Earnings Ratio Assets

*) Leading Indicator
Leverage • Leverage Ratio*
• Debt-to-Equity Ratio (DER)
• Debt-to-Income Ratio (DTI)
• Transactions to Total Assets
*) Leading Indicator

226

3) Efficiency
Efficiency reflects lost resources in the banking
industry due to market structure or banking practices
that are not ideal. The pillar encompasses the effect
of banking industry efficiency on economic efficiency
and the operating efficiency of each individual bank
in terms of minimising costs to maximise profits.
In the near term, efficiency can be counterproductive
to resilience. For example, banks that publish high
lending rates will generate relatively larger profits.
From the perspective of resilience, such bank
behaviour would be considered positive but from the
standpoint of financial system efficiency, however,
such banking practices would not be considered
efficient for the economy. In another example, banks
that streamline IT infrastructure costs would enjoy a
healthier efficiency ratio in the near term but would
suffer a negative impact on bank resilience in terms
of infrastructure resilience in the long term.
Bank efficiency depends heavily on management
capacity and structure as well as the level of
competition in the banking industry. In addition, the
banks’ market segment and business model also
influence financial system efficiency. Efficient banks
enjoy a comparatively stronger bargaining position in
terms of access to lower lending rates and are, thus,
more competitive. In the BankIR analysis, efficiency
is measured using two main parameters as follows:
Parameter Indicator
Operational • BOPO efficiency ratio*
Efficiency • Cost-to-Income Ratio (CIR)
• Net Interest Margin (NIM)
Market Competition • Market Share of Big Bank Loans to National Bank
Loans* **
• Market Share of Big Bank Deposits to National
Bank Deposits
*) Leading Indicator
**) Large Banks are a proxy of Domestic Systemically Important Banks (D-SIB) as
stipulated by the relevant authority
Article 2
Bank Industry Rating and Risk Register: Bank Indonesia’s
Macroprudential Supervisory Tools
F. Determining the BankIR Indicator Thresholds
BankIR analysis of each respective indicator is achieved
by observing whether the individual indicator remains
within certain thresholds considered normal based
on historical trends and/or subsequent trends. In
the process, supervisors’ judgement is used as a
justification for stipulating heightened risk than
the indicator indicates, while more relevant and/or
accurate data or information is available to support
the judgement.
Thresholds based on four levels are used in order
to determine whether certain indicators move
within a normal or unusual trend. Furthermore, the
waterfall method is used to determine the threshold
values, where the uppermost methods take priority.
Meanwhile, the lower methods are used only after the
higher methods cannot be used.
1. Regulatory
This approach stipulates the threshold by
prioritising existing standards or regulations
issued by the relevant authority, such as Bank
Indonesia, OJK or international best practices
from Basel.
2. Benchmarking
In the absence of existing regulations, the
threshold refers to benchmarks or research
conducted by the central bank and/or financial
authorities in other countries and/or international
organisation (IMF, World bank) despite not yet
being applied as an international best practice.
3. Deviation Method
The deviation method is used to observe deviation
from the long-term trend (mean) as a preliminary
indicator of financial imbalances. The percentile
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 FINANCIAL STABILITY REVIEW
No. 26, March 2016
method is used with a data period of 5-10 years
and a confidence level of 95%.
4. Professional Judgement
If none of the previous methods are available,
the threshold could be determined through
professional judgement, complemented by
the data, information and/or analysis used by
the supervisor (OJK) as well as current affairs
pertaining to what has occurred in the industry.
G. BankIR Analysis Process
The BankIR rating provides information about banking
industry conditions and the outlook based on various
quantitative and qualitative parameters and indicators
to identify potential systemic risk. In addition, the
rating also facilitates the end users of information to
understand and interpret the BankIR analysis.
1. Banking Industry and Individual Bank Analysis
BankIR analysis is a comprehensive process
involving the analysis of leading and confirming
indicators, parameters, pillars and industry
composites.
All indicators are analysed simultaneously on
two levels, namely the industry level and the
individual bank level. Simultaneous analysis is
conducted on two levels because although the
financial system could be considered sound at the
macro level, one or more large banks could be
experiencing difficulties that are yet to influence
industry-wide financial variables. In addition, the
two-level analysis allows supervisors to include
an element of interconnectedness into the
228
BankIR analysis, considering that the designation
of a big bank takes into account aspects of
interconnectedness. The BankIR composite rating
also considers the contribution of each respective
large bank to financial industry risk using a weight
score of one DSIB to the total score of all DSIBs.
Therefore, interconnectedness is also covered
when stipulating the composite rating.
All components of the BankIR analysis are
subsequently verified using stress tests, thereby
confirming that the BankIR rating is up-to-date
and consistent with current conditions in the
banking industry.
In more depth, the BankIR rating mechanism is as
follows:
According to that mechanism, BankIR analysis
encompasses the following stages:
1) Indicator Analysis
The analysis begins by stipulating the
threshold to decide normal and unusual
conditions for each respective indicator.
2) Parameter Analysis
Under normal conditions, the parameters are
assessed based on the leading indicator using
other indicators as confirming indicators. If
the macroprudential supervisor considers
another variable more exemplary of financial
system conditions than the leading indicator,
however, that indicator may be submitted
provided concrete supporting data and
arguments are presented.
 Article 2
Bank Industry Rating and Risk Register: Bank Indonesia’s
Macroprudential Supervisory Tools

Article Figure 2.3 BankIR Analysis Stages

Industry
RATING Stress Test Result
COMPOSITE

Industry PILLAR COMPOSITE

Large Banks

Resilience Balance Efficiency

Industry PARAMETER COMPOSITE

Large Banks

Resilience Balance Efficiency

• Capital • Excessive Lending • Operational Efficiency
• Liquidity • Concentration Risk • Market Competition
• Asset Quality • Mismatch Profile
• Foreign Exchange • Leverage
• Exposure
• Earning Capacity

The analysis/assessment process uses professional judgement to avoid overly mechanical analysis.
Indicators and stress tests are the preliminary reference of professional judgement.

Source : Bank Indonesia

Differing from the quantitative assessment of
each respective indicator using a threshold,
a qualitative assessment is also conducted
based on professional judgement. Adequate
understanding of the leading and confirming
indicators is required for professional
judgment in order to determine the level of
significance or materiality of each indicator
when assessing each parameter.
3) Pillar Analysis
The BankIR pillars, consisting of resilience,
balance and efficiency, are assessed using
a rating system. Similar to the parameter
analysis, the pillars are also assessed using
broader professional judgement. The rating
is scored from 1 to 5 for each pillar, ranging
from excellent (1) to poor (5).
According to BankIR analysis, the score of
D-SIBs is taken into consideration when
assessing the pillar rating. A higher DSIB
score will increase the corresponding bank’s
risk contribution to financial system risk.
4) Composite Analysis
BankIR composite analysis represents the
final conclusion of the three pillars. The
composite rating is based on a rigorous,
comprehensive and structured analysis of the
rating for each respective pillar, paying due
attention to the significance or materiality of
each pillar. In addition, the BankIR composite
analysis takes into consideration the results
of the stress tests for each bank.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016
Currently, the level of significance of the
three pillars is determined as follows: the
resilience and balance pillars have the same
level of significance, which is higher than the
significance of the efficiency pillar. This is
because the BankIR analysis is more focused
on banking industry stability in the near and
medium term, which more closely relates to
the resilience and balance pillars. In contrast,
the efficiency pillar influences financial
system stability over a comparatively longer
time horizon.
Similar to the pillar ratings, the composite
rating is scored from 1 to 5, ranging from solid
financial system stability with no significant
systemic risks (1) and vice versa (5).
230
H. Risk Register
The Risk Register is another macroprudential
supervision tool that follows on from the BankIR
analysis. The Risk Register documents the financial
risks in the banking industry.
The Risk Register is a matrix listing the major risks that
emerge from bank business activities in the short to
medium term. Such risks must be managed following
the required prevention and/or mitigation measures
in order to avoid financial system instability.
Preparing a Risk Register involves identifying the risk
issues, compiling a supervisory plan, consultation
and communication with other relevant parties and
authorities as well as monitoring and evaluating the
risk issues. The Risk Register is dynamic considering
financial system risk assessment depends upon the
individual conditions of large banks, the outcome of
supervisory actions as well as the latest developments
in the financial industry.
 Article 2
Bank Industry Rating and Risk Register: Bank Indonesia’s
Macroprudential Supervisory Tools

231
 GLOSSARY

Administered Prices :
A component of inflation in the form of prices of goods and services
dictated by the Government, for instance fuel prices and electricity
rates.
BI Rate :
The published policy rate that reflects the monetary policy stance of
Bank Indonesia
Bank Indonesia - Real Time :
Bank Indonesia – Real Time Gross Settlement (BI-RTGS) is a system for
Gross Settlement (BI-RTGS) interbank electronic fund transfers denominated in rupiah in real time
system on an individual transaction basis.
Bank Indonesia – Scripless :
The Bank Indonesia – Scripless Securities Settlement System (BI-SSSS)
Securities Settlement is a means of transacting with Bank Indonesia, including the electronic
System (BI-SSSS) administration of securities, with a direct connection between
participants, administrators and the Bank Indonesia - Real Time Gross
Settlement system (BI-RTGS system).
Capital Adequacy Ratio :
The Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital to its
(CAR) risks.
Countercyclical Capital :
Additional capital that functions to anticipate losses in the event of
Buffer (CCB) excessive credit growth, which could trigger potential financial system
instability.
Deposits :
Funds entrusted to a bank by the public based on a deposit agreement
in the form of demand deposits, term deposits, certificates of deposit,
savings deposits and other equivalent deposits.
Current Account Deficit :
Prevailing conditions when a country imports more goods and services
than it exports, or the difference between the trade deficit/surplus and
the services account deficit/surplus.
Deposit Facility (DF) :
A facility for banks to place their excess liquidity at Bank Indonesia
under the auspices of monetary operations.
Emerging Markets :
A group of countries with rapidly developing economies, reflected by
financial market development and industrialisation.
Financial Inclusion :
Financial inclusion is the delivery of financial services at affordable
costs to sections of disadvantaged and low-income segments of society.
Financial System Stability :
A forum that aims to strengthen inter-institution coordination in order
Coordination Forum to support financial system stability and sustainable economic growth,
(FSSCF) as well as bolster resilience to economic shocks. The members of the
FSSCF are the Ministry of Finance, Bank Indonesia, Deposit Insurance
Corporation (LPS) and Financial Services Authority (OJK).
Statutory Reserve :
The amount of capital that must be maintained by banks, stipulated by
Requirement Bank Indonesia as a percentage of deposits.
Gross Domestic Product :
A measure of the total value of goods produced and services provided
(GDP) by all economic units in a country during one year.
Hedging :
Using derivatives and other financial instruments to offset the adverse
risk of fair value movements in terms of assets or liabilities.

232
Financial System Stability :
A composite indicator of financial system stability in Indonesia that
Index (FSSI) encompasses indicators of banking, the stock market and bond market,
and helps to identify potential distress in the financial system.
Inflation :
Economic conditions marked by rapidly rising prices that erode public
purchasing power. There are two sources of inflation, namely cost-
push and demand-pull.
Consumer Price Index (CPI) :
The Consumer Price Index (CPI) measures changes in the prices of a
basket of consumer goods and services purchased by households.
Core Inflation :
Core inflation represents the long-term, or persistent, component of
inflation, influenced by fundamental factors such as supply-demand
interaction, exchange rates, international commodity prices, inflation
in trading partner countries and inflation expectations. Core inflation
is calculated based on headline inflation minus volatile foods (VF) and
administered prices (AP).
Inflation Targeting :
A forward-looking monetary policy framework that is transparently
Framework (ITF) and consistently directed towards achieving the explicit inflation target
in the medium term as published by Bank Indonesia.
Investment Grade :
A level of credit rating affirmed by a rating agency.
Clearing :
Centralised activities under one roof amongst clearing participants
through the mutual submission and settlement of securities and
trading securities.
Digital Financial Services :
Financial and payment system services offered through cooperation
(DFS) with third parties (agents) facilitated by mobile and web-based
technologies under a framework of financial inclusion.
Lender of Last Resort :
A key function of the central bank to maintain financial system stability
(LoLR) by offering loans or financing to banks that are experiencing short-term
financial difficulty due to a mismatch in terms of fund management.
Lending Facility :
A facility that provides financial institutions with access to funds
denominated in rupiah from Bank Indonesia under monetary
operations.
Loan-to-Deposit Ratio :
The ratio of loans to deposits at commercial banks.
(LDR)
Liquidity :
The ability to quickly meet all obligations. A firm is considered liquid if
current assets exceed total liabilities.
M1 :
A measure of narrow money (Currency Outside Banks (COB) as well as
cheques, debit cards and wire transfers or electronic money (demand
deposits)).
M2 :
A measure of broad money (Currency Outside Banks (COB), cheques,
debit cards and wire transfers or electronic money (demand deposits)
as well as term deposits).

233
 Macroprudential
Microprudential
Indonesia Balance of
Payments
Current Account
Non-Performing Loans
(NPL)
Non-Performing Financing
(NPF)
Monetary Operations
Interbank Money Market
Repurchase Agreement
Bank Indonesia Certificates
(SBI)
Stress Test
Government Bonds (SUN)
Government Securities
(SBN)
Sukuk
Ijarah Sukuk
234
:
A financial regulatory approach that aims to mitigate systemic risk in
the financial system.
:
A financial regulatory approach relating to the management of
individual financial institutions to ensure business continuity.
:
A record of all economic transactions between the residents of the
country and the rest of the world in a particular period (usually one
year). The balance of payments (BOP) includes purchases and sales of
goods and services, grants from foreign individuals and governments
as well as financial transactions. In general, the balance of payments
is divided into the current account, the capital and financial account as
well as financial items.
:
A part of the balance of payments (BOP) that records the flow of goods
and services into and out of a country.
:
Non-performing loans (NPL) consist of substandard (SS), doubtful (D)
and loss (L).
:
Non-performing financing (NPF) at Islamic banks consists of substandard
(SS), doubtful (D) and loss (L).
:
The implementation of monetary policy by Bank Indonesia through
open market operations and the interest rate corridor (standing
facilities).
:
Overnight borrowing and lending in rupiah and/or a foreign currency
between conventional banks.
:
A contract in which the vendor of a security agrees to repurchase it
from the buyer at an agreed price on an agreed date.
:
Rupiah denominated securities released by Bank Indonesia as a short-
term debt instrument.
:
Estimations of potential losses due to credit and liquidity exposures
against several scenarios of changing prices and volatility.
:
Securities denominated in rupiah or a foreign currency with the
interest payments and principal guaranteed by the Government of the
Republic of Indonesia until maturity pursuant to prevailing regulations.
:
Securities consisting of rupiah SUN and rupiah sharia SBN issued by the
Government of the Republic of Indonesia.
:
Islamic bonds in the form of a financial certificate or undivided proof of
ownership of the underlying asset.
:
Sukuk based on an Ijarah contract are certificates of equal value that
are issued by the owner of an existing property or asset either on his
own or through a financial intermediary for the purpose of leasing it
against a rental from the subscription proceeds. After subscription, the
underlying becomes owned by the sukuk holders.
Mudharabah Sukuk :
The investors subscribe to the certificates issued by a mudharib and
share the profits and bear the losses arising from the mudharabah
operations. The returns to the holders are dependent on the revenue
by the underlying investment.
Swap :
A swap is a simultaneous purchase and sale (spot) of identical amounts
of one currency for another with two different value dates, with the
premium or discount and exchange rate agreed at the time of the
transaction.
Systemically Important :
A bank whose operational or financial failure could trigger a financial
Banks (SIB) crisis due to its asset size, capital, liabilities and network scope or
transaction complexity of banking services as well as interconnectedness
with other financial sectors.
Reverse Repo Transactions :
Reverse repo transactions are the purchase of securities by participants
of open market operations from Bank Indonesia with an agreement to
sell them back at an agreed price on a specific future date.
Currency :
Banknotes and coins issued and circulated by Bank Indonesia and used
as legal tender in the territory of the Republic of Indonesia.
Yield :
The return on a security.

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 FINANCIAL STABILITY REVIEW
No. 26, March 2016

Director
Publisher : Erwin Rijanto Filianingsih Hendarta Yati Kurniati Dwityapoetra S. Besar

Bank Indonesia
Jl. MH Thamrin No.2, Jakarta Coordinator and Editor
Indonesia Retno Ponco Windarti – Kurniawan Agung – Sri Noerhidajati - Diana Yumanita – Januar Hafidz – Rozidyanti

The preparation of the Financial Stability Review is one of the avenues through
which Bank Indoensia achieves its mission ”to safeguard the stability of the Indonesian Rupiah by
maintaining monetary and financial system stability for sustainable national economic development”.
FSR is published biannually with the objectives :
• To improve public insight in terms of understanding financial system stability
• To evaluate protential risks to financial system stability
• To analyze the developments of and issues within the financial system
• To offer policy recommendations to promote and maintain financial system stabilty
Drafting Team
M. Firdaus Muttaqin, Ita Rulina, Arlyana Abubakar, Ndari Suryaningsih, Dadang Muljawan, Indra Gunawan,
Cecep Ridwan, Danny Hermawan, Shanty Noviantie, Herriman Budi Subangun, Reska Prasetya, Rita Harahap,
Bayu Adi Gunawan, Heny Sulistyaningsih, Ardhi Santoso H.M., Hero Wonida, Arifatul Khorida, Mega
Ramadhanty Chalid, Justina Adamanti, Maulana Harris Muhajir, Marluga Sidabutar, Syaista Nur, Zulfia Fathma,
Afaf Munawwarah, Teguh Afriyanto, Dhanita Fauziah Ulfa, Arisyi Fariza Raz, Anindhita Kemala D., Apsari
Anindita N.P, Rieska Indah Astuti, Amalia Insan Kamil, Randy Cavendish, Harris Dwi Putra, Pita Pratita, Diana
Yalesperdani, Arif Waluyo Birowo, Irman Robinson, Fitriany, IG.N. Yudia Sinartha, Eka Putra, Indra Gunawan
Sutarto, Yansen Lokanata, Rifki Ismail, RR. Diva Amelia Putri, Dahnila Dahlan, Illinia Ayudhia Riyadi, Ebrinda
Daisy Gustiani, Nadya Astrid Puspitaningrum, I Made Satria Yudistira, Fransiskus Xaverius Tyas Prasa, Santi
Permatasari, Willy Togi, Kartina Eka Darmawanti, Meliana Rizka, Fiona Rebecca Hutagaol

Information and Orders : OTHER DEPARTMENT CONTRIBUTION ON SELECTED ANALYSIS

This edition is published in March 2016 and is based on data and information available as of Dec 2015, unless
Economic and Monetary Policy Department
stated otherwise.
Financial System Surveillance Department
SME Development Department
The PDF format is downloaded from https://www.bi.go.id
Statistics Department
Source : Bank Indonesia, unless stated otherwise
Payment System Policy and Oversight Department
For inquiries, comment and feedback please contact : Payment System Management Department
Financial Market Development Department
Bank Indonesia
Macroprudential Policy Department (DKMP)
PRODUCTION AND DISSEMINATION TEAM
Jl. MH Thamrin No.2, Jakarta, Indonesia
Saprudin, Rio Akbar, Vergina Hapsari, I Made Yogi
Email : BI-DKMP@bi.go.id
 FINANCIAL STABILITY REVIEW
No. 26, March 2016

FINANCIAL STABILITY REVIEW

No. 26, March 2016

Mitigating Systemic Risk to Maintain Financial

System Stability and Stimulate Intermediate
Amidst Global and Domestic Challenges
MACROPRUDENTIAL POLICY DEPARTMENT