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INDONESIAN BANKING DEVELOPMENT:Financial services liberalization, the regulatory framework,

and financial stability

By Dwityapoetra S. Besar

Workshop On Trade In Financial Services And Development

Geneva, June 2012

1

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Agenda

1

2

IndonesiasExperience

Challenges Facing Indonesias Banking/Financial Sectors

3 Conclusions

Appendix

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Indonesias Financial Sector

3

79.50%

1.10%

8.80%

3.10%

4.40% 2.70%0.40%

Asset Composition of Financial Institutions

Commercial Banks

Rural Banks

Insurance

Pension Funds

Finance Companies

Securities Companies

Pawnshops

Indonesia is a bank-based financial system (79.5% is the share of banksasset). There are 121

banks with 13.453 offices. 14 largest banks hold 70% of the banking assets. There are 47 banks

owned by foreigners with 45,8% of the share.

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Indonesian experience: liberalisation and crisis

4

7.8

4.8

8.5

7.2

-1

8.8

6.9

2.5

5.84.9

5.8

7.5 7.5

8.9

7.2 7.3 7.58.2 7.8

4.9

-13.4

0.8

4.9

3.64.5 4.8

55.7 5.5

6.3 6

4.5

6.1 6.5 6.3

-15

-10

-5

0

5

10

15

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Source: Indonesian Statistic Bureau

IDR Deva luiation

due to oil price h ike

& globa l stagflation

in 1974 and 1983

Asian Financial

Crisis in 1998-1999Global Financial

Crisis in 2008-2009

Banking deregulations in

1983,1988 (Pakto), and 1991

Ave GDP growth

before crisis is 6.5%

Liberalisation

1966-1973

Crisis after financial services liberalizations. Financial liberalization is likely to have a

positive effect on growth through financial development, even if it increases financial

fragility.

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Comparison of Banking Liberalization in ASEAN

5

0 2 4 6 8 10

Malaysia

Filipina

Thailand

Indonesia

Singapura

Level of Banking liberalization in ASEAN 5

Country License Min. Capital(USD mil)

Foreign EquityParticipation

Hosting bankfrom ASEAN

Restriction

INDONESIA Single 334 99% 7 banks NoSINGAPORE Multiple 1,200 >10% need MAS approval 9 banks Branch, ATM

MALAYSIA Multiple 600 30% 6 banks Branch, ATM,product

THAILAND Multiple 325 40% 6 banks Branch, ATM

PHILLIPINES Multiple 150 49% 4 banks Branch, ATM

Indonesia has relatively

liberalized banking markets

compared to other ASEAN

countries.

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Agenda

1

2

Overview of Indonesias Economic and Banking Development

Challenges Facing Indonesias Financial Sectors

3 Conclusions

Appendix

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Challenges facing Indonesias Financial Sectors

7

Mitigate the negative impacts from financial liberalization and globalfinancial crisis. Financial liberalization, by giving banks and other financial

intermediaries more freedom of action, can increase the opportunities to take onrisk, thereby increasing financial fragility. Indonesia as an open and relativelyliberalized economy could be affected by the crisis via trade and financialchannels. To survive, Indonesia need to develop its economy while consider itsglobal financial reform commitments that restricted the banks and intermediationprocess.

Improve financial sector (banks) competitiveness. Banks conduct inefficientoperations (domestic and regional). Banking market is characterized by oligopolytype of market. Financial/banking services and products are relatively limited.

Enhanced access to finance for all public. Indonesias financial sectors arestill relatively limited and concentrated in big cities. Meanwhile there has beenincreasing demand due to rising middle class workers.

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Banking Challenges: Regional Comparison

54.78 51.71

69.03

50.97 47.71

83.31

2.362.62

4.03

2.622.35

5.71

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00 BOPO NIM

BOPO NIM

NIM & CTI ratio (Dec 2011)

2,096

1,708

1,457

1,091

590

532

496435

481*

418*

393*

273*

- 500 1,000 1,500 2,000 2,500

DBS Bank

OCBC

UOB

Maybank

CIMB

Bangkok Bank

Krung Thai BankKasikorn Bank

Mandiri

BRI

BCA

BNI

Total Asset (Rp T) (Dec 2011)

217

166

152

80

52

69

3743

53*

47*

39*

35*

0 50 100 150 200 250

DBS Bank Ltd

OCBC

UOB

Maybank

CIMB

Bangkok Bank

Krung Thai BankKasikornBank

Mandiri

BRI

BCA

BNI

Tier -1 Cap (Rp T) (Dec 2011)

8

29.62%36.33%

92.81%

105.37%117.06%

0%

20%

40%

60%

80%

100%

120%

140%

Indonesia Philippines Thailand Singapore Malaysia

Loan to GDP ratio (December 2011)

Source: Central banks, IMF and Bankscope

*) Feb 2012

*) Feb 2012

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Banking Indicators and Challenges

9

Indicators Dec-08 Dec-09 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12

Total Asset (T Rp) 2,310.6 2,534.1 3,008.9 2,990.7 2,993.1 3,065.8 3,069.1 3,136.4 3,195.1 3,216.8 3,252.6 3,371.5 3,407.5 3,569.9 3,651.8 3,598.7 3,628.1 3,708.7

Deposits (T Rp) 1,753.3 1,973.0 2,338.8 2,302.1 2,287.8 2,351.4 2,340.2 2,397.2 2,438.0 2,464.1 2,459.9 2,544.9 2,587.3 2 ,644.7 2,784.1 2,742.3 2,763.9 2,826.0

- Demand Deposits 430.0 465.9 535.9 530.6 529.8 540.8 528.3 561.2 577.0 567.3 524.2 580.6 596.5 616.5 652.6 645.7 624.2 656.0

- Savings Accounts 498.6 605.4 733.2 715.8 713.2 722.7 734.5 740.8 753.7 763.5 785.7 797.0 802.7 827.7 897.9 865.9 883.9 888.0

- Time Deposit 824.7 901.7 1,069.8 1,055.6 1,044.9 1,087.8 1,077.4 1,095.2 1,107.3 1,133.3 1,150.0 1,167.3 1,188.1 1,200.6 1,233.6 1,230.8 1,255.8 1,281.0

- Loans (T Rp) 1,307.7 1,437.9 1,796.0 1,776.1 1,803.9 1,844.2 1,872.6 1,918.6 1,979.6 2,002.3 2,060.8 2,108.6 2,135.5 2 ,180.5 2,228.5 2,189.2 2,231.7 2,294.9

Capital Adequacy Ratio (%) 16.8 17.4 17.0 17.0 18.0 17.6 17.8 17.4 17.0 17.2 17.3 16.7 17.1 16.6 16.1 18.4 18.5 18.3

NPL Gross (without channeling)(%)

- - 2.6 2.8 2.8 2.8 2.8 2.9 2.7 2.8 2.8 2.7 2.7 2.5 2.2 2.4 2.3 2.3

Return on Assets (%) 2.3 2.6 2.7 3.0 2.8 3.1 3.0 3.0 3.1 3.0 3.0 3 .1 3.1 3 .1 3.0 3.7 3.4 3.1

Net Interest Margin (%) 5.7 5.6 5.7 5.6 5.5 5.9 5.8 5.8 5.8 5.8 5.9 6 .0 6.0 5 .9 5.9 6.1 5.4 5.2

Ops. Expense/Ops. Income (%) 88.6 86.6 80.0 83.5 80.5 77.8 78.5 78.2 80.0 81.6 80.8 79 .4 79.1 79.0 81.5 91.8 77.5

Loan to Deposit Ratio (%)* 74.6 72.9 75.5 75.8 77.5 77.2 78.8 78.8 80.0 80.1 82.6 81.7 81.4 81.3 79.0 78.8 79.7 80.2

No. of Banks 124 121 122 121 121 121 121 121 121 120 120 120 120 120 120 120 120 120

Banking System is sound with stable CAR, continuous credit expansion and low NPL.

But some problems remains and need to be resolved.

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Financial stability challenges

10

The case for macroprudential policyFills a clear gap.

The macroprudential approach provides targeted and effective policy action.But, need to study the impact and continue develop theory and policy

Macroprudential policy in IndonesiaAn emerging framework.

It helps to manage large capital inflow to Indonesia but important challenges

remain: Difficulties to identify risks early

Data and understanding of systemic risk and how to fight it

Coordination between authorities in crisis management and resolution.

Need a clear mandate in crisis prevention and management/resolution

Improving financial systemNecessary condition

Indonesia banking sector is still developing and has incompetitive market.

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ASEAN Banking Integration Framework 2020

Key Performance Indicators

ASEAN Banks

Non ASEANBanks

IntegrasiSektor

Keuangan

ASEAN 2020

Harmonisasi

Regulasi

Qualified

ASEAN

Banks

CapacityBuilding

Infrastruktur

SSK

ASEAN Banking Integration Framework (ABIF)

Good performance

Mampu bersaing

dgn bank ASEANdi dalam negeri

Mampu melakukanekspansi ke negara

ASEAN

Optimal competition

Presence of QAB inASEAN

Strong and competitive banking sector

11

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Challenges to improve financial access

12

Belowpoverty line

Living invillages

13.33% 64.25%

unbankable

60%

SME sector

99.91%

Of 51.3 millSME

that areunbankable

60-70%

Sumber : Biro Pusat Statistik dan Worldbank

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Agenda

1

2

Overview of Indonesias Economic and Banking Development

Challenges Facing Indonesias Financial Sectors

3 Conclusions

Appendix

14

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Summary

14

Indonesia and other countries have experienced the cycle of financialliberalization, development and crisis. The successful financial liberalization

should be supported by a sound financial stability infrastructure, goodgovernance, and access to finance based on national characteristics. Stronginstitutions cannot be created overnight, more research effort should be focusedon the design and implementation of prudential regulations and supervisionespecially in developing countries.

This global financial crisis adds more aspects to be considered. There aredynamic interactions between financial liberalization, financial prudentialregulation/policy, economic policy and politics. But, the most important issue isreally on how we could do it gradually by considering economic development andincrease international trade.

Next challenges are to deal with global stagnation, systemic risk/crisis andcontagion effects (trade and financial). Would implementing globalcommitments, macroprudential policy and strengthening financial sector besufficient? It will need stronger commitments, discipline, sacrifice and real workto ensure that the problems are effectively solved.

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Thank Youdwityapoetra@bi.go.id

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Appendixes

17

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Map of Indonesia

17

This figure shows the map of Indonesia. There are 33 provinces separated in five big islands: Java, Sumatra,

Kalimantan, Sulawesi (Celebes), and Irian Jaya. The capital city is Jakarta located in Java. Source: Central

Intelligence Agency (2009). Available at : https://www.cia.gov/library/publications/the-world-

factbook/geos/id.html.

18

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Macroeconomic indicators shows good condition

18

GDP Growth Inflation

Balance of Payments Foreign Exchange Reserves

BillionUSD

* Bank Indonesia projection

Source: Bank Indonesia

5.7%

5.5%

6.3%6.0%

4.6%

6.1%6.5% 6.3% 6.4%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2005 2006 2007 2008 2009 2010 2011 Q12012

Q22012* -10.00

-5.00

0.00

5.00

10.00

15.00

20.00

Jan

Mar

May

Jul

Sep

Nov

Jan

Mar

May

Jul

Sep

Nov

Jan

Mar

May

Jul

Sep

Nov

Jan

Mar

2009 2010 2011 2012

%

CPI (%, yoy) Core (%, yoy)

Volatile Food (%, yoy) Administered (%, yoy)

-

2.00

4.00

6.00

8.00

10.00

12.00

-

20.00

40.00

60.00

80.00100.00

120.00

140.00

Jan

Feb

Mar

Apr

May

JunJul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

JuneJul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

2010 2011 2012

foreign exchange reserves (LHS)

month of import & government debt service (RHS)

0

30

60

90

120

150

-10

-5

0

5

10

15

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1**

2008 2009 2010 2011* 2012

Current Acc.

Cap & Fin Account

Overall Balance

Reserve A ssets (RHS)

Billion USD Billion USD

19

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Market view on Indonesias condition-rating

19

Ratinghistory

Market view on Indonesia development. After liberalization, Indonesian rating slightly

improved but dropped during the financial crisis. Now, it is an investment grade.

20

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Balance of Payments

20

Balance of Payments

Indonesias Balance of Payments in Q1/2012 strengthened by recording a lower deficit of US$1.0 billion deficitcompared to US$3.7 billion deficit in Q4/2012.

0

30

60

90

120

150

-10

-5

0

5

10

15

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1**

2008 2009 2010 2011* 2012

Current Acc.

Cap & Fin Account

Overall Balance

Reserve Assets (RHS)

Billion USD Billion USD

21

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Foreign Direct Investment

21

Realized foreign direct investment (USD billion) Realized domestic direct investment (IDR trillion)

The investment realization on Quarter 1 (January - March) of 2012 is Rp 71.2 trillion

consisted of Rp 19.7 trillion of Domestic Direct Investment (PMDN) and Rp 51.5 trillion ofForeign Direct Investment (FDI). It increases 32% compared to the same period in 2011.

Although there are some uncertainties in United States of America and European

economy, the investment activities in Indonesia are doing well.

Source: BKPM

* US$ / Rp. exchange rate of 9,180, the BI middle exchange rate as of March 30, 2012.

6.0

10.3

14.9

10.8

16.2

19.5

5.7

2006 2007 2008 2009 2010 2011 Q1 2012

20.8

34.9

20.4

37.8

60.6

76.0

19.7

2006 2007 2008 2009 2010 2011 Q1 2012

22

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Financial Account

22

In Q1/2012, the financial account shifted to a surplus

at US$2.2 billion from a deficit of US$1.0 billion in the

Q4/2011. This surplus was mainly supported by

purchases of foreign currency-denominated government

securities, followed by purchases of stocks and private

sector debt securities in line with positive marketperceptions of the domestic economy.

Financial Account: Total

-15

-10

-5

0

5

10

15

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1**

2008 2009 2010 2011* 2012

Financial Account: Total

Other Inv. Portfol io Inv. Direct Inv. Financial Account

Billion USD

-8

-6

-4

-2

0

2

4

6

8

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1**

2008 2009 2010 2011* 2012

Portfolio Investment

Debt Securities Equity Total

Billion USD

Foreign portfolio investment recorded a surplus ofUS$3.2 billion in Q1/2012 after experienced netoutflows in the last two quarters. Such a significant

jumped up was especially due to large inflows in foreigncurrency-denominated government and corporate debtsecurities and domestic stocks.

23

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Indonesian banksForeign and domestic banks

23

No Type of banks Des-00 Des-06 Des-11 Mar-12

% change bw

2000 and

2008

1 State owned banks:

a. Government of Republic of Indonesia 5 5 4 4 -25,0

b. Local (provincial) governments 26 26 26 26 0,0

2 Private domestic owned banks 78 55 56 56 -39,3

3 Foreign owned banks:

a. Subsidiary (Joint Venture) 29 29 13 13 -123,1

b. Branch office 10 11 10 10 0,0

4 Sharia banks 3 4 11 11 72,7

Total 151 130 120 120 -25,8

This table shows number of banks based on different types of banks operating in Indonesia from Dec 2000 to March 2012.

Various years. Source: Indonesian Banking Statistics. Bank Indonesia

24

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Foreign and domestic banks activities

24

Dec-00 Mar-12 Dec-00 Mar-12 Dec-00 Mar-12 Dec-00 Mar-12 Dec-00 Mar-12

State owned banks 522,4 1328,2 108,1 776,8 59,3 242,9 68,5 395,4 184,7 401,0

50,2 36,4 38,2 35,3 37,2 37,2 44,6 44,0 48,1 32,5

Private domestic owned banks 358,3 1454,2 86,3 908,0 52,7 218,9 76,9 371,8 146,5 570,834,4 39,8 30,5 41,3 33,1 33,5 50,1 41,4 38,2 46,3

Provincial government banks 26,1 304,0 10,1 175,7 10,8 88,4 4,8 67,3 4,2 79,5

2,5 8,3 3,6 8,0 6,8 13,5 3,1 7,5 1,1 6,4

Subsidiary (JV) banks 50,2 181,1 30,4 120,4 9,8 25,2 0,4 18,4 12,5 67,3

4,8 5,0 10,7 5,5 6,1 3,9 0,3 2,0 3,3 5,5

Foreign branch offices 82,3 268,5 46,9 136,5 26,7 67,2 2,7 18,7 35,4 55,6

7,9 7,3 16,6 6,2 16,7 10,3 1,8 2,1 9,2 4,5

Sharia banks 1,9 116,9 1,3 82,7 0,2 10,1 0,3 26,6 0,5 59,8

0,2 4,0 0,5 3,8 0,1 1,6 0,2 3,0 0,1 4,8

Total 1041,2 3652,8 283,1 2200,1 159,5 652,6 153,6 898,3 383,8 1234,0

This table presents market share of Indonesian banks in December 2000 and March 2012. Source: Bank Indonesia. December 2000 and March 2012. Indonesian Banking Statistics.

(unit IDR T)

Demand Deposits (%

of Total)

Savings Accounts (%

of Total)

Time Deposits (% of

Totals)Bank Type

Assets (% of Total) Loans (% of Total)

25

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Banking market competition

25

Metropolitan Area

VariablesCoefficient P-value Coefficient P-value Coefficient P-value Coefficient P-value

Lagged total revenue -0.022 0.000 -0.319 0.000 0.012 0.000 -0.006 0.848

Fixed asset cost 0.050 0.000 0.107 0.002 0.100 0.000 0.030 0.000

Labor cost 0.304 0.000 0.184 0.007 0.180 0.000 0.218 0.000

Wholesale funding cost 0.102 0.000 0.113 0.120 0.336 0.003 0.274 0.042

Total Deposit 0.695 0.000 0.429 0.000 0.706 0.000 0.892 0.000

Time 0.124 0.000 -0.213 0.000 0.155 0.000 -0.019 0.719

Number of obs 4,366 323 1,111 1,172

Number of banks 132 54 55 41

H-stat 0.45 0.31 0.62 0.52

F-statistics for H=0 7379.6 0.000 11.91 0.000 31.02 0.000 10.15 0.000

F-statistics for H=1 11430.3 0.000 61.09 0.000 11.27 0.000 8.75 0.000

AR(2)p-value 0.655 0.664 0.753 0.542

Sargan -Hansen,p-value 1.0 1.0 1.0 1.0

This table shows the result of Panzar-Rosse (1987) using Two steps Generalized Method of Moment (Arellano Bond, 1991) with

robust s tandard errors. The dependen t variable is total revenue. The s et of explanatory variables are fixed as set cost, labor cos t,wholesale funding cost, bank's deposit market. All variables are in logarithmic value. AR(2) is the p-value for the test for 2nd-

order autocorrelation in the residuals. Sargan is the p -value for the Sargan test for the validity of th e over-identifying

restrictions. Hansen J the p-value for the Hans en tes t for the v alidity of the o ver-identifying res trictions. Metropolitan area is

Jakarta, Banten and West Java that is most populated and active banking market. Java and Sumatra is provinces in Java and

Sumatra islands excluding Jakarta, Banten and Wes t Java. The Periphery is o ther provinces that are less pop ulated and less

active banking markets (See section 3.2 for further details).

All Java & Sumatra The Periphery

Dependent Variable: Total revenue

(1) (2) (3) (4)

26

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Banking performance is also positive

1,272

2,311

3,089

3,652 3,682

Des

2004

Des

2008

Des

2010

Des

2011

Feb

2012

Total Asset ( T Rp)

19.3616.2 17 16.1

18.4

Des2004

Des2008

Des2010

Des2011

Feb2012

CAR (%)

76.69

84.1

8081.5

85.9

Des2004

Des2008

Des2010

Des2011

Feb2012

Eff Ratio (%)

133

124121 120 120

Des

2004

Des

2008

Des

2010

Des

2011

Feb

2012

No of banks

61.8

77.2 76.8 80 79.4

Des2004

Des2008

Des2010

Des2011

Feb2012

LDR (%)

7,939

10,936

13,971

14,797

14,839

Des2004

Des2008

Des2010

Des2011

Feb2012

No of bank offices

0.25 0.43 0.540.65 0.620.42

0.821.07

1.23 1.26

0.30

0.50

0.730.90 0.88

Des2004

Des2008

Des2010

Des2011

Feb2012

Deposits (T Rp )

Giro Deposito Tabungan

0.290.68 0.88

1.07 1.060.12

0.260.35

0.46 0.48

0.15

0.37

0.54

0.67 0.67

Des2004

Des2008

Des2010

Des2011

Feb2012

Loan ( T Rp)

Modal Kerja Investasi Konsumsi

27

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Sound Financial Sector

Stability in the banking system remains firm alongside steady improvement in

credit growth

Sufficient CAR (%) Sound level of NPLs (%)

17 17

18

17.617.8

17.4

1717.2

17.3

16.7

17.1

16.6

16.1

18.418.5

18.3

14.5

15

15.5

16

16.5

17

17.5

18

18.5

19

2.6

2.8 2.8 2.8 2.82.9

2.72.8 2.8

2.7 2.7

2.5

2.2

2.42.3 2.3

0

0.5

1

1.5

2

2.5

3

3.5

28

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1. Improving bank capital and

liquidity standards

2. Addressing systemically importantfinancial institutions (SIFIs)

3. Expanding and refining the

regulatory perimeter

4. Improving the OTC and

Commodity Derivatives Markets

5. Developing macro-prudential

frameworks and tools

6. Strengthening and converging

accounting standards

7. Strengthening adherence to

international supervisory and

regulatory standards

8. Other issues

Implementation of Basel III and strenghtened bank risk

management

Methodology to supervise SIFIs

Shadow banking, hedge funds, securitization

OTC derivatives standard contract, CCP, etc

Regulatory system revision, macro prudential policy

frameworks, Early Warning Exercise (EWE)

Accounting standard convergence under the IASB andFASB in many fronts

FSAP, international standard, peer review, etc

EMDEs, consumer finance protection, credit rating

agencies, etc

Global Financial Sector Reform- G20s Committments

29

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29

Global financial sector reform: Basel III

2012 2013 2014 2015 2016 2017 2018 2019

BASEL II

(Pillar 1, Pillar 2, Pillar 3)

Issue regulations

BASEL III CAPITALMinimum Total Capital 8,0 8,0 8,0 8,0 8,0 8,0 8,0

Minimum Total Capital +

Conservation Buffer

8,0 8,0 8,0 8,625 9,25 9,875 10,5

Capital Instruments excl from

Tier 1 and Tier 2

Phased Out gradually 10 years from 2013 to 2023 or early redemption date

before 2023

Countercyclical Cap Buffer Maximum 2,5

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Financial Stability Policy-

Macroprudential policy in Indonesia

Bank Indonesia has the mandate to conduct macroprudential policy. (IndonesiaFSA Act, article 40). This mandate will also be stated in Bank Indonesia Act.

In a crisis management, there is Financial Stability Coordination Committee

(FSCC) (Indonesia FSA Act. Article 44)

Members of the FSCC: Minister of Finance

Governor of Bank Indonesia Head of Board of Commisioner of Financial Services Authority Head of Board of Commisioner of Indonesia Deposit Insurance Agency

Financial safety nets arrangement will be regulated in the Indonesian FinancialSafety Nets Act

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Financial stability issues-

Macroprudential Policies for Managing Capital Flows

The Measures Objectives

Minimum Holding Period on BI bills,1 month holding period (June 2010)and 6 month holding (May 2011)

To put sand in the wheels onshort-term andspeculative capital inflows, and mitigate risks ofsudden reversals.

Reinstate limits on short-term

offshore borrowing of the banks Maximum of 30% of capital Effective end January 2011

To limit the short-term and volatile capital inflows.

To limit FX exposure of the banking systemstemming from capital inflows.

Increase FX reserve requirements ofthe banks from 1% of FX deposits to: 5% effective March 2011

8% effective June 2011

To strengthen FX liquidity management, therebythe resilience, of the banking system in facingincreasing FX exposure stemming from capital

inflows Helps absorb domestic liquidity.

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Financial Stability Policy-Macroprudential Policies for Managing Domestic Liquidity & Credit

Overheat

The Measures Objectives

Lengthen (from weekly to monthly)auction and offer longer maturity (3, 6,9 months) of BI bills since June 2010.

To enhance the effectiveness of domestic liquiditymanagement, including from capital inflows, bylocking up to longer term and helsp developdomestic financial markets.

Increase Rupiah reserverequirement from 5% to 8%, effectiveNov 2010.

To absorb domestic liquidity and enhance liquidity

management of the banks, without exertingnegative impact on lendings that are needed tostimulate growth.

The Measures Objectives

Implement Loan to Value Ratio (LTV)for mortgage and Down Payment forAutomotive loans since June 2012.

To reduce excessive growth of specificconsumptions loans (housing and automotive) andmitigate increasing credit risk in banking sector.

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Financial Stability Condition

Overall Indonesian Financial System has been relatively stable since global crisis in 2007-08

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

1996M02

1996M08

1997M02

1997M08

1998M02

1998M08

1999M02

1999M08

2000M02

2000M08

2001M02

2001M08

2002M02

2002M08

2003M02

2003M08

2004M02

2004M08

2005M02

2005M08

2006M02

2006M08

2007M02

2007M08

2008M02

2008M08

2009M02

2009M08

2010M02

2010M08

2011M02

2011M08

2012M02

FSI 1996 - 2012Asia Financial Crisis1997/1998: 3.23

Mini Crisis 2005: 2.33 Global Crisis (Nov 2008): 2.43

Mei 2012: 1.69

April 2012: 1.63

34Isu Strategis No. 3: Financial Inclusion

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Indonesia Financial Inclusion Strategy

Access Wider Public to

Financial Products and Institutions

Financial

Education

Mapping

Financial

Information

Intermediation

FacilitationDistribution

Channel

Supportive

Regulation

Regime

Infrastruktur

Curriculum(Elementary-Junior HighSchool)

Education forIndonesian

workers towork inabroad

Financialidentificationnumber

HouseholdSurvey Bazaar

intermediation Workshop on

entrepreneurship

My savingprogram

Branchlessbanking

Mobilebanking

KYC Agent

Researchbenchmarkingconsultancyseminarfocus group discussion

Isu Strategis No. 3: Financial Inclusion