New banking landscape<\/p>\n
Indonesia's banking industry will be further consolidated
\nunder a national banking structure the central bank launched last
\nweek for implementation, beginning this year, to build a sound,
\nstrong and efficient financial system.<\/p>\n
The application of higher standards of capital and good
\ncorporate governance and the implementation of the core
\nprinciples of effective banking supervision that were launched by
\nthe Basle-based Bank for International Settlement in 1997 will
\ncreate a completely new banking landscape in Indonesia in 2014.<\/p>\n
The central bank maintains minimum capital for a new bank at
\nRp 3 trillion (US$353 million) but requires existing banks to
\nincrease their capital to a minimum of Rp 100 billion ($11.5
\nmillion) within seven years. Judging from these capital standards
\nalone, 55 commercial banks will have to close down or become
\nsecondary (rural) banks if they fail to meet the new capital
\nrequirement through fresh equity injection or mergers with larger
\nbanks.<\/p>\n
Bank Indonesia Governor Burhanuddin Abdullah foresaw that the
\nnational banking industry, which would result from the
\nimplementation of the new banking structure, would be a leaner
\none, much smaller than the current total of 138 banks.<\/p>\n
The banking crisis in 1997 to 1999 sharply reduced the number
\nof commercial banks from more than 220, but the remaining 138 are
\nconsidered still too many and their capital standards too low to
\nallow for sound, strong banks.<\/p>\n
He forecast that the national banking landscape would feature
\ntwo to three banks of international class with capital exceeding
\nRp 50 trillion ($5.8 billion) and three to five national anchor
\nbanks with Rp 10 to Rp 50 trillion in capital. These banks will
\nbe supplemented by 30 to 50 smaller, specialized banks with
\ncapital ranging from Rp 100 billion to Rp 10 trillion and
\nthousands of rural or community banks with capital of less than
\nRp 100 billion.<\/p>\n
However, higher capital standards alone are not sufficient to
\nbuild a sound, strong and efficient banking system. Hence, the
\ntwo other main pillars set for the new banking structure -- good
\ncorporate governance and effective supervision -- are equally
\nvital to the achievement of the ultimate goal.<\/p>\n
These two pillars support each other. Good corporate
\ngovernance is the foundation for developing an effective internal
\ncontrol system and reliable risk management. However extensive
\nand intensive the banking supervision system may be, this
\nmechanism cannot be effective without the establishment of good
\ncorporate governance.<\/p>\n
It is of great comfort to know that as part of the new banking
\nstructure, the central bank will phase in the application of the
\n25 Basle core principles of banking supervision because the
\nenforcement of these will further force banks to improve their
\ngovernance.<\/p>\n
These principles cover, among other things, detailed
\nprovisions for effective banking supervision, licensing and
\nstructure, prudential regulations, methods of ongoing
\nsupervision, information requirements, formal powers of
\nsupervisors and cross-border banking operations.<\/p>\n
The heavy emphasis on the development of effective banking
\nsupervision to international standards will not only help create
\na highly competitive banking industry but will also lay stronger
\nfoundations for the gradual construction of a single supervision
\nauthority in the financial services industry. That, according to
\nthe recently amended central bank law, must be completed in 2008.<\/p>\n
The new banking structure should therefore be welcomed, as it
\nprovides a clear direction for banks ten years down the road.
\nImplementation of the new structure will not likely cause a big
\nshock within the banking industry as the 10-year period allotted
\nfor the entire program is considered more than adequate to allow
\nbanks to make the necessary adjustments.<\/p>\n
The phasing out of the blanket guarantee on bank deposits and
\nclaims, beginning next year under a bill on financial safety net
\ncurrently under deliberation at the House of Representatives,
\nwill unleash market forces fully to screen out unhealthy,
\ninefficient banks. This, in turn, will help improve further the
\noverall environment within which the new banking structure is
\nbeing implemented.<\/p>\n
_____________<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/new-banking-landscape-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }