No. 29, September 2017FINANCIAL STABILITY REVIEW
FINA
NC
IAL STA
BILITY REV
IEW
MACROPRUDENTIAL POLICY DEPARTMENT
No
. 29, Septem
ber 2017
Maintaining Financial System Stabilty Stimulating the Economy
Information and Orders:
Publisher :Bank Indonesia
Jl. MH Thamrin No.2, Jakarta
Indonesia
This edition is published in September 2017 dan didasarkan pada data dan informasi per and is based on
data and information available as of Juni 2017, unless stated otherwise.
The PDF format is downloaded from
https://www.bi.go.id
Source : Bank Indonesia, unless stated otherwise.
For inquiries, comment and feedback please contact :Bank Indonesia
Departemen Kebijakan Makroprudensial
Jl. MH Thamrin No.2, Jakarta, Indonesia
Email : [email protected]
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
No. 29, September 2017FINANCIAL STABILITY REVIEW
Director Erwin Rijanto - Filianingsih Hendarta - Linda Maulidina - Farida Peranginangin
Coordinator and Editor Rozidyanti – Theresia Silitonga - Agus Fadjar Setiawan - Riza Putera – Agung Bayu Purwoko
Drafting Team Retno Ponco Windarti, M. Firdaus Muttaqin, Kurniawan Agung, Ita Rulina, Indra Gunawan, Ndari
Suryaningsih, Cicilia A. Harun, Sri Noerhidajati, Mirza Yuniar, Januar Hafidz, Viana Sari, Khairani
Syafitri, Bayu Adi Gunawan, Susana Wibisana, Heny Sulistyaningsih, Hero Wonida, Vienella
Zarmida, Lisa Rienellda, Arifatul Khorida, Zulfia Fathma, Anita, Sagita Rachmanira, Astrid Fiona
H., Annisaa Prima Astuti, Maulana Harris Muhajir, Ibrahim Adrian Nugroho, Anindhita Kemala D,
Apsari Anindita N.P, Rani Wijayanti, Harris Dwi Putra, Pita Pratita, Vergina Hapsari, Ardo Prayoga,
Kartina Eka Darmawanti, Aski Catranti, Saraswati, Prayudhi Azwar, Mario Simatupang, Noviati,
Rakhma Fatmaningrum, Tri Siwi Permadi Astuti, Fransiskus Xaverius Tyas Prasaja, Martha K. Pratiwi,
Muhammad Adrianto Eko Budhi Setiyanto, Donny Ananta, Lely Yudha Prasetyaningsih,Taufik
Saleh, I Gede Arnawa.
Translated by Matthew Burrows.
OTHER DEPARTMENT CONTRIBUTION ON SELECTED ANALYSIS Economic and Monetary Policy Department
Financial System Surveillance Department
SME Development Department
Islamic Economics and Finance Department
Statistics Department
Financial Market Development Department
Payment System Policy and Oversight Department
Payment System Management Department
East Java Representative Office Bank Indonesia
PRODUCTION AND DISSEMINATION TEAM Saprudin, Elsa Puspa Silfia, I Made Yogi
MACROPRUDENTIAL POLICY DEPARTMENT
“Maintaining Financial System StabiltyStimulating the Economy”
FINANCIAL STABILITY REVIEWNo. 29, September 2017
II BANK INDONESIA
1. Financial System Stability1.1. Risks in the Global and Regional Financial Markets
1.2. Domestic Economic Risks
1.3. Financial System Stability
1.4. Domestic Financial Imbalances
Boks 1.1. Bank Indonesia Systemic Risk Survey in the First Semester of 2017
Boks 1.2. International Recognition of Successful Financial Sector Reforms in Indonesia
according to FASP 2016/2017
Boks 1.3. Tax Amnesty Realisation
2. The Financial Markets2.1. Role of the Financial Markets as a Source of Economic Financing
2.2. Financial Market Dynamics and Risk
2.3. Islamic Financial Market Dynamics and Risks
Boks 2.1. The National Financial Market Development Strategy (SN-PPK)
Boks 2.2. Regulating Treasury Certification and Implementing a Market Code of Conduct
3. Households and Corporations3.1. Household Sector
3.2. Corporate Sector
Boks 3.1. Steel Industry Performance in East Java
4. Banks and Nonbank Financial Institutions4.1. Banking Sector Dynamics and Risks
4.2. Nonbank Financial Industry
4.3. Islamic Banking Sector Dynamics and Risks
Boks 4.1. Seasonal Liquidity Trends during Eid-ul-Fitr
Boks 4.2. Correlation Analysis of Bank Deposits with Expansion of the Government’s Expenditure
Budget in East Java
3
5
8
11
18
22
25
31
35
49
57
60
67
74
87
96
128
138
151
154
1
28
64
92
Foreword
Executive Summary
XIV
XVIII
CONTENTS
IIIBANK INDONESIA
ArticleArticle 1. The Impact of Domestic Government Financing on Deposits in the Banking Industry
Article 2. The Impact of Interconnectedness in the Interbank Money Market
on Banking Industry Efficiency in Indonesia204
218
6. Bank Indonesia’s Policy Response Backing Financial System Stability6.1. Refining the Short-Term Liquidity Loans
6.2. Maintaining the Countercyclical Capital Buffer (CCyB) at 0%
6.3. Assessment of the RR-Loan to Funding Ratio (RR-LFR)
6.4. Assessment of the Loan-to-Value (LTV) and Financing-to-Value (FTV) Ratios for Property
Loans/Financing and Downpayments on Automotive Loans
6.5. Policy Coordination between Bank Indonesia and Other Relevant Authorities
Boks 6.1. Average Reserve Requirement Ratios
Boks 6.2. Innovative Islamic Financial Instruments: Awqaf-Linked Sukuk
181
183
187
189
194
199
200
178
5. Financial System Infrastructure5.1. Payment System Performance
5.2. Payment System Transactions
5.3. Payment System Indicators
5.4. Payment System Risks and Mitigation Efforts
5.5. Financial Inclusion and Digital Financial Services
Box 5.1. Unlicensed Nonbank Money Changers
160163
165
167
168
170
176
FINANCIAL STABILITY REVIEWNo. 29, September 2017
IV BANK INDONESIA
LIST OF TABLE
1. Financial System StabilityTable 1.1 Global Economic Outlook 4
Table 1.2 National Economic Growth in Indonesia 5
Box Table 1.1.1. Respondent Recapitulation 18
2. The Financial MarketsTable 2.1. Bank and Nonbank Financing (Rp, trillions) 31
Table 2.2. Sources of Funds by Bank Total 33
Table 2.3. Sources of Bank Funds by Volume 34
Table 2.4. Comparison of Average NDF Spreads in
Neighbouring Countries
40
Table 2.5. Composition of SBN Holdings (%) 40
Table 2.6. Regional 10-Year SBN Yields 42
Table 2.7. Regional 10-Year SBN Yield Volatility 42
Table 2.8. Corporate Bond Holdings 43
Table 2.9. Sectoral Index Volatility (Semester Average) 46
Table 2.10. Distribution of the Islamic Securities List 50
3. Households and CorporationsTable 3.1. DSR Composition by Monthly Income 70
Table 3.2. Composition of Savings by Monthly Income 70
Table 3.3. Household Sector Credit by Loan Type 73
Table 3.4. Financial Performance Indicators of Non-
Financial Corporations
76
Table 3.5. Financial Performance Indicators of Major
Commodity-Based Corporations
78
Table 3.6. Corporate Loans by Economic Sector 81
Table 3.7. Credit Based on Main Export Commodities 81
Table 3.8 Restructured External Debt by Economic
Sector
85
Table 3.9. Types of Positive and Negative Tone
External Debt Restructuration
86
Box Table 3.1.1. Trend and Share of Loan Disbursements by
Sector
88
4. Banks and Nonbank Financial Institutions
Table 4.1. LA/NCD by BUKU Bank Group 97
Table 4.2. Growth of Liquid Assets 97
Table 4.3. Loan-to-Deposit Ratio (LDR) by BUKU Bank
Group
98
Table 4.4. Market Share of Deposits based on
Maturity
99
Table 4.5. Deposit Growth by BUKU Bank Group (%,
yoy)
100
Table 4.6. Receipts of Tax Amnesty Funds by BUKU
Bank Group
100
Table 4.7. Deposit Share by Island 102
Table 4.8. GDP growth by Economic Sector 103
Table 4.9. Market Share of Credit by Project Location 104
Table 4.10. Credit Growth by BUKU Bank Group (%,
yoy)
105
Table 4.11. MSME Credit Growth and Share by BUKU
Bank Group
107
Table 4.12. Gross NPL by Region 111
Table 4.13. Gross NPL Ratio by BUKU Bank Group 111
Table 4.14. Share of Restructured Loans to Total Credit 112
Table 4.15. Deposit Rates by BUKU Bank Group 115
Table 4.16. Lending Rates by BUKU Bank Group 115
Table 4.17. Value of SBN Holdings by Bank Group 118
Table 4.18. Share of SBN Holdings by Bank Group 118
Table 4.19 Banking Industry Profit/Loss (Rp, trillions) 122
Table 4.20. Breakdown of Income (Rp, trillions) 122
Table 4.21. Breakdown of Expenses (Rp, trillions) 123
Table 4.22. CAR Performance by BUKU Bank Group 125
Table 4.23. Interconnectedness between the Banking
Industry and Finance Companies
133
Table 4.24. Investment Ratio by Insurance Type 135
Table 4.25. Insurance Industry Assets and Financial
Performance
135
Table 4.26. Interconnectedness between the Banking
and Insurance Industries
137
VBANK INDONESIA
Table 4.27. Risk-Based Capital of Public Listed Insurance
Companies
138
Table 4.28. LA/NCD of Islamic Banks by BUKU Bank
Group
139
Table 4.29. Financing-to-Deposit Ratio (FDR) by BUKU
Bank Group
140
Table 4.30. Deposit Share by Island 142
Table 4.31. Disbursed Financing by BUKU Bank Group 145
Table 4.32. Gross NPF Ratio of Islamic Banks by BUKU
Bank Group147
Table 4.33. Rate of Return on Deposits 148
Table 4.34. Rate of Return on Disbursed Financing 148
Table 4.35. P&L by BUKU Group 150
Table 4.36. CAR of Islamic Banks by BUKU Group 150
Box Table 4.1.1. Liquidity Ratio by Bank Type 151
Box Table 4.2.1. Government Expenditure Budget
Realisation in East Java (Rp, billions)
156
Box Table 4.2.2. Increase (Decrease) of Bank Deposits in East
Java (Rp, billions)
157
Box Table 4.2.3 Correlation between Government
Expenditure Budget Expansion and Bank
Deposits in East Java
158
5. Financial System InfrastructureTable 5.1. BI-RTGS, BI-SSSS and SKNBI Performance 164
Table 5.2. Card-Based Payment Instruments and
Electronic Money Transactions
165
Table 5.3. Queue Transaction 168
Table 5.4. Core Banks in the BI-RTGS System 169
Table 5.5. Total Individual and Business DFS Agents
in 2017
172
6. Bank Indonesia’s Policy Response Backing Financial System Stability
Table 6.1. Housing Loan Performance by Type 192
Table 6.2. Housing Loan Performance by Bank Activity 192
Table 6.3. Housing Loans by Province 195
Article 1:Article Table 1.1. Summary of OJK Regulations concerning
Nonbank SBN Holdings
206
Article Table 1.2. Data Summary for the ECM and VECM
Methods
212
Article Table 1.3. Unit Root with an Augmented Dicky Fuller
(ADF) Test
212
Article Table 1.4. Long-Term Equation 212
Article Table 1.5. Short-Term Equation 213
Article 2:Article Table 2.1. Inefficiency Equations 224
Article Table 2.2. Data 224
Article Table 2.3. Cost Frontier Estimation Results 228
Article Table 2.4. Profit Frontier Estimation Results 229
FINANCIAL STABILITY REVIEWNo. 29, September 2017
VI BANK INDONESIA
1. The Condition of Financial System Stability
Graph 1.1. Major Export Commodity Prices 4
Graph 1.2. Brent Oil Price 4
Graph 1.3. JCI and Global Stock Indexes 4
Graph 1.4. CDS in Advanced Economies
and Regional4
Graph 1.5. Inflation and GDP Growth 7
Graph 1.6. Balance of Payments 7
Graph 1.7. Rupiah Exchange Rate 7
Graph 1.8. Appreciation and Depreciation against
the USD7
Graph 1.9. Non-Resident Capital Flows 7
Graph 1.10. Exchange Rate Volatility (ytd) in the Region 7
Graph 1.11. Financial System Stability Index (FSSI) 10
Graph 1.12. Financial Institution Stability Index (FISI) 10
Graph 1.13. Financial Market Stability Index (FMSI) 10
Graph 1.14. Banking Systemic Risk Index (BSRI) 10
Graph 1.15. Asset Composition of Financial Institutions 11
Graph 1.16. Financial Cycle 11
Graph 1.17. Banking Lending Procyclicality 11
Graph 1.18. Components of State Revenue in the First
Semester of 201712
Graph 1.19. Growth of State Revenue Components in
the First Semester of 201712
Graph 1.20. Components of State Expenditure in the
First Semester of 201713
Graph 1.21. External Debt Composition based on Loan
Type and External Debt to GDP14
Graph 1.22. Private Nonbank External Debt by Original
Maturity15
Graph 1.23. Debt Service Ratio (DSR) 15
Graph 1.24. Non-Resident Investor Holdings in SBN 16
Graph 1.25. Non-Resident Investor Holdings in Stocks 16
Graph 1.26. Foreign and Domestic Holdings in Bank
Indonesia Certificates (SBI)17
Graph 1.27. The Development of Price and Volume of
Stock Transactions17
Graph 1.28. SBN Transaction Volume and Prices 17
Box Graph 1.1.1. Sources of Shocks in Indonesia’s Financial
System19
Box Graph 1.1.2. Characteristics of Vulnerabilities in
Indonesia’s Financial System19
Box Graph 1.1.3. Confidence in National Financial System
Stability21
Box Graph 1.3.1. Tax Amnesty Fees 26
Box Graph 1.3.2. Declared Assets through the Tax Amnesty 26
Box Graph 1.3.3. Ratio of Tax to GDP (%) 26
2. Financial MarketsGraph 2.1. IPO and Right Issue Volume on the Stock
Market31
Graph 2.2. Comparison of Corporate Bond Yield Curve
and Average Interest Rates on Investment
Loans and Working Capital Loans
32
Graph 2.3. Bond Issuance Value 32
Graph 2.4. Value of Outstanding MTN and NCD 32
Graph 2.5. Outstanding MTN and NCD by Maturity 32
Graph 2.6. Nominal Value of MTN and NCD Issuances 33
Graph 2.7. Financial Markets Volatility 35
Graph 2.8. Non-Resident Capital Flows to Stocks, SBN
and SBI35
Graph 2.9. Rupiah O/N Interbank Rate 36
Graph 2.10. O/N Interbank Rate Volatility 36
Graph 2.11. Rupiah Interbank Money Market
Performance37
Graph 2.12. Rupiah Interbank Money Market
Transaction Trends37
Graph 2.13. Foreign Exchange Interbank Money Market
Performance37
Graph 2.14. Foreign Exchange O/N Interbank Rate 37
Graph 2.15. Foreign Exchange Interbank Rate Volatility 38
Graph 2.16. Foreign Exchange Interbank Money Market
Transaction Behaviour38
Graph 2.17. Interbank Repo Transactions 38
Graph 2.18. Rupiah Exchange Rate Performance 39
Graph 2.19. Rupiah Volatility 39
Graph 2.20. Foreign Exchange Market Risk Premium 39
Graph 2.21. Composition of the Domestic Foreign
Exchange Market40
Graph 2.22. Composition of SBN Holdings 41
Graph 2.23. Net Foreign Flows to SBN and IDMA 41
Graph 2.24. SBN Yield Curve 41
Graph 2.25. Rebased SBN Yield by Tenor 41
Graph 2.26. SBN Yield Volatility by Tenor 41
Graph 2.27. Transaction Turnover of SBN and Corporate
Bonds41
Graph 2.28. SBN to GDP Ratio 42
LIST OF GRAPHAND FIGURE
VIIBANK INDONESIA
Graph 2.29. Rebased 10-Year Benchmark Yields in
Emerging Markets42
Graph 2.30. Net Foreign Flows and Foreign Holdings of
Corporate Bonds43
Graph 2.31. Corporate Bond Yield Curve 44
Graph 2.32. Corporate Bond Yield Volatility by Tenor 44
Graph 2.33. Corporate Bond Issuances by Economic
Sector44
Graph 2.34. Stock Price Index Developments 45
Graph 2.35. Stock Price Volatility 45
Graph 2.36. Foreign Capital Flows to Regional Stock
Markets45
Graph 2.37. Foreign Net Buy/Sell in the Stock Market
and JCI45
Graph 2.38. Comparison of Regional Indexes 45
Graph 2.39. Stock Market Turnover 46
Graph 2.40. JCI and LQ45 Capitalisation 46
Graph 2.41. EBITDA and JCI Performance 46
Graph 2.42. The Performance of Mutual Funds 47
Graph 2.43. NAV of Mutual Funds by Fund Type 47
Graph 2.44. NAV Volatility of Mutual Funds by Fund
Type47
Graph 2.45. Growth of Mutual Funds (yoy) 47
Graph 2.46. Risk Profile of Mutual Fund Products 48
Graph 2.47. NAV of Open-Ended and Closed-End
Mutual Funds48
Graph 2.48. Accumulated Funds in the Islamic Capital
Market49
Graph 2.49. Average Growth of Islamic Capital Market 49
Graph 2.50. Islamic Capital Market Developments 49
Graph 2.51. Islamic Capital Market Share 50
Graph 2.52. Islamic Securities List 50
Graph 2.53. JCI and ISSI Comparison 51
Graph 2.54. Market Capitalisation Growth (yoy) 51
Graph 2.55. Islamic Stock Indexes 52
Graph 2.56. Stock Index Volatility 52
Graph 2.57. Net Asset Value of Islamic Mutual Funds 52
Graph 2.58. NAV Growth of Islamic Mutual Funds 52
Graph 2.59. NAV of Islamic Mutual Funds by Fund Type 53
Graph 2.60. Issuances of Government Securities 53
Graph 2.61. Sukuk Issuances by Type 53
Graph 2.62. Outstanding Government Sukuk 54
Graph 2.63. Growth of Outstanding SBN 54
Graph 2.64. Composition of Sukuk based on SBSN Series 54
Graph 2.65. Composition of Sukuk based on Maturity 54
Graph 2.66. Holdings of Tradeable Government Islamic
Securities (SBSN)55
Graph 2.67. Growth of Corporate Bonds and Sukuk 55
Graph 2.68. Market Share of Corporate Sukuk 55
Graph 2.69. Corporate Sukuk Holdings 55
Graph 2.70. Corporate Bond Holdings 55
Graph 2.71. Accumulation and Disbursement of Zakat
Funds56
Graph 2.72. Accumulation and Disbursement of Zakat
Funds by Province56
Box Figure 2.1.1. Financial Market Development Framework 59
Box Graph 2.2.1. Certified Treasury Professionals 62
3. Households and CorporationsGraph 3.1. Contribution of Household Consumption
to GDP67
Graph 3.2. Real Sales Growth 68
Graph 3.3. Consumer Confidence Index (CCI), Current
Economic Condition Index (CECI), and
Consumer Expectation Index (CEI)
68
Graph 3.4. Three-Month Price Expectations Index (PEI) 69
Graph 3.5. Six-Month Price Expectations Index (PEI) 69
Graph 3.6. Allocation of Household Spending 70
Graph 3.7.a. Composition and Growth of Deposits 71
Graph 3.7.b. Value and Total of Deposit Accounts 72
Graph 3.8. Composition and Growth of Household
Deposits72
Graph 3.9 Composition of Bank Loans 72
Graph 3.10. Household Consumer Loan Developments
by Component73
Graph 3.11. Value and NPL of Household Consumer
Loans73
Graph 3.12. Household Consumer NPL by Component 73
Graph 3.13. Household Consumer Loan Composition by
Loan Type73
Graph 3.14. Commodity Prices 74
Graph 3.15. Indonesia’s Exports and Imports 75
Graph 3.16. Predicted and Actual Business Expansion 76
Graph 3.17. Utilised Production Capacity 76
Graph 3.18. Key Performance Indicators 76
Graph 3.19. Financial Performance of Public Non-
Financial Corporations78
Graph 3.20. Non-Financial Corporate Repayment
Capacity78
FINANCIAL STABILITY REVIEWNo. 29, September 2017
VIII BANK INDONESIA
Graph 3.21. Financial Performance of Major
Commodity-Based Corporations79
Graph 3.22. Corporate Performance per the Altman
Z-Score80
Graph 3.23. Distressed Corporate Performance against
GDP80
Graph 3.24. Corporate Loans by BUKU Bank Group 80
Graph 3.25. Performance of Corporate Deposits 82
Graph 3.26. Corporate Deposits by BUKU Bank Group 83
Graph 3.27 External Debt in Indonesia 84
Graph 3.28 Private External Debt Growth and Value 84
Graph 3.29 Restructured External Debt of Non-
Financial Corporations85
Graph 3.30 Outstanding Restructured External Debt
(USD, millions)86
Graph 3.31 Share of Outstanding Restructured External
Debt to Total Restructure External Debt (%)86
Graph 3.32 Interest and Principal Payments on Positive
and Negative Tone Restructured External
Debt
86
Box Graph 3.1.1 Bank Loans in East Java 87
Box Graph 3.1.2 Trend and Share of Loan Disbursements
by Sector87
Box Graph 3.1.3 Loans Disbursed operational to the Base
Metals Industry88
Box Graph 3.1.4. Iron and Steel Exports 88
Box Graph 3.1.5. Profitability of the Steel Industry 89
Box Graph 3.1.6. Productivity of the Steel Industry 89
Box Graph 3.1.7. NPL of the Manufacturing Industry in East
Java90
4. Banking and IKNBGraph 4.1 Bank Liquidity Ratios 97
Graph 4.2 Liquid Assets of the Banking industry 97
Graph 4.3 Liquidity Growth in the Economy and Bank
Liquidity Ratios97
Graph 4.4 Government Net Expansion 97
Graph 4.5 Deposit and Credit Growth (yoy) 98
Graph 4.6 Lending Standards 99
Graph 4.7 Deposit Growth (yoy) 99
Graph 4.8 Market Share of Deposits based on Core
Depositors/Non-Core Depositors100
Graph 4.9 Deposit Growth by Type 101
Graph 4.10 Composition of Bank Deposits 101
Graph 4.11 Deposit Performance by Depositor Group 101
Graph 4.12 Bank Credit Growth (yoy) 102
Graph 4.13 Credit Growth by Loan Type 103
Graph 4.14 Credit Share by Loan Type 103
Graph 4.15 Credit Growth by Economic Sector (yoy) 104
Graph 4.16 Credit Growth by Economic Sector (Rp,
trillions)104
Graph 4.17 Rupiah Lending Rates by BUKU Bank Group 105
Graph 4.18. MSME Loan Performance 105
Graph 4.19. MSME Credit Growth in 6 Economic Sectors 107
Graph 4.20. KUR Realisation against Target, 2015-2017 108
Graph 4.21. Market Share of People’s Business Loans
(KUR) 108
Graph 4.22 NPL Ratio 109
Graph 4.23 Gross NPL Ratio by Loan Type 109
Graph 4.24 Gross NPL Ratio by Economic Sector (%) 110
Graph 4.25 Gross NPL Growth by Economic Sector (Rp,
trillions)110
Graph 4.26 Restructured Loan Developments 112
Graph 4.27 Gross NPL Ratio of MSME Loans by Year 113
Graph 4.28 Gross NPL Ratio of MSME Loans by Business
Scale113
Graph 4.29 KUR NPL and NPG 114
Graph 4.30 Lending and Deposit Rates 114
Graph 4.31 Total NOP and NOP Ratio by Bank Group 116
Graph 4.32 SBN Yield Volatility 117
Graph 4.33. External Debt in Indonesia 119
Graph 4.34. Government and Private External Debt 119
Graph 4.35. Share of Private External Debt 119
Graph 4.36. External Debt Growth in the Banking
Industry119
Graph 4.37. External Debt by Bank Type 120
Graph 4.38. External Debt Maturity 120
Graph 4.39. Ratio of Short-Term External Debt to
Capital in the Banking Industry120
Graph 4.40. Maturity Profile of Long-Term External
Debt in the Banking Industry121
Graph 4.41 Maturity Composition of Long-Term
External Debt in the Banking Industry121
Graph 4.42 ROA by BUKU Bank Group 122
Graph 4.43. NIM by BUKU Bank Group 122
Graph 4.44. BOPO Efficiency Ratio by BUKU Bank Group
(%)124
LIST OF GRAPHAND FIGURE
IXBANK INDONESIA
Graph 4.45 Cost-to-Income Ratio (CIR) by BUKU Bank
Group (%)124
Graph 4.46 Banking Industry CAR (%) 124
Graph 4.47 Tier 1 Ratio in the Banking Industry (%) 124
Graph 4.48. Credit Risk (NPL) Scenarios 125
Graph 4.49. SBN Yield Scenarios 125
Graph 4.50. Currency Depreciation Risk Scenarios 126
Graph 4.51. Currency Risk Scenarios 126
Graph 4.52. Aggregate Stress Test Results 126
Graph 4.53. Share of Capital Shortfall in the Banking
Industry (Aggregate)127
Graph 4.54. Stress Test Results by BUKU Group (Severe
Scenario)127
Graph 4.55. Stress Test Results by BUKU Group (PSG
Scenario)127
Graph 4.56. Finance Company Assets and Financing 129
Graph 4.57. Finance Company Financing by Business
Activity129
Graph 4.58. Financing by Types of Forex 130
Graph 4.59. Ratio of NPF PP (%) 130
Graph 4.60. Financing and Funding Growth 131
Graph 4.61. Sources of Funds 131
Graph 4.62. Market Share of Finance Company
Borrowings based on Lending Rates131
Graph 4.63. External Debt at Finance Companies 132
Graph 4.64. ROA, ROE and BOPO Efficiency Ratio of
Finance Companies133
Graph 4.65 Asset Share in the Insurance Industry 134
Graph 4.66. Insurance Industry Assets and Investments 134
Graph 4.67. Insurance Industry Asset and Investment
Composition136
Graph 4.68. Gross Premiums to Claims Ratio 136
Graph 4.69. Ratio of Current Assets to Current
Liabilities136
Graph 4.70. Insurance Industry Indicators 136
Graph 4.71. Insurance Industry External Debt 137
Graph 4.72 Weighted Average Deposit Rate in Rupiah
at BUKU 1 Banks138
Graph 4.73 Liquidity Ratios in the Islamic Banking
Industry139
Graph 4.74 Banking Industry Liquid Assets 139
Graph 4.75 Deposit and Financing Growth (yoy) 140
Graph 4.76 Deposit Growth (yoy) 140
Graph 4.77 Deposit Growth by Type 141
Graph 4.78 Deposit Composition in the Islamic Banking
Industry141
Graph 4.79 Rate of Return on Deposits 142
Graph 4.80 Composition of Disbursed Funds 142
Graph 4.81 Securities Holdings of the Islamic Banking
Industry142
Graph 4.82 Financing Growth (yoy) by Currency 143
Graph 4.83 Disbursed Financing Growth by Type (yoy) 143
Graph 4.84 Disbursed Financing Growth by Contract
(yoy)144
Graph 4.85 Disbursed Financing Growth by Economic
Sector144
Graph 4.86 Composition of Disbursed Financing 144
Graph 4.87 Rate of Return on Disbursed Financing 144
Graph 4.88 Non-Performing Financing 145
Graph 4.89 NPF Ratio by Financing Type 146
Graph 4.90 NPF Ratio by Contract 146
Graph 4.91 NPF Ratio by Economic Sector 147
Graph 4.92 Comparison of Returns on Disbursed
Financing at Islamic Banks, Lending Rats
and the BI 7-Day (Reverse) Repo Rate
149
Graph 4.93 ROA by BUKU Group 149
Graph 4.94 ROA Comparison between Islamic and
Conventional Banks150
Graph 4.95 NOM by BUKU Group 150
Graph 4.96 BOPO Efficiency Ratio by BUKU Group 150
Graph 4.97 BOPO Comparison between Islamic and
Conventional Banks150
Graph 4.98 CAR 150
Box Graph 4.1.1. Liquidity Ratios in the Banking Industry 151
Box Graph 4.1.2 Annual Liquidity Ratio Trends in the
Banking Industry151
Box Graph 4.1.3. Annual Liquid Asset Trends in the Banking
Industry151
Box Graph 4.1.4. Liquid Assets and Interbank Rates 152
Box Graph 4.1.5. Interbank Rate by Tenor 152
Box Graph 4.1.6. Interbank Money Market Transaction
Volume153
Box Graph 4.1.7. Net Interbank Money Market by Bank Type 153
Box Graph 4.2.1. Average Regional Expenditure Budget
Realisation 2014-2016155
Box Graph 4.2.2. Government Expenditure Budget
Realisation in East Java 2014-2016
(quarterly)
156
FINANCIAL STABILITY REVIEWNo. 29, September 2017
X BANK INDONESIA
Box Graph 4.2.3. Bank Deposits in East Java 157
Box Graph 4.2.4. Government Deposits in East Java 157
Box Graph 4.2.5. Composition of Government and Private
Deposits158
5. Financial System InfrastructureGraph 5.1. MO Placements 167
Graph 5.2. Turnover Ratio x Monetary Operations 168
Graph 5.3. Indonesia Financial Inclusion Composite
Index (IKKI)170
Figure 5.1 DFS Agents in Indonesia 171
Graph 5.4. Total DFS Agents in 2017 172
Graph 5.5. Percentage of E-Money Transactions at DFS
Agents172
Graph 5.6. E-Money Account Holders at DFS Agents
(millions)172
6. Responds of Bank Indonesia’s Policy Graph 6.1. Credit-to-GDP Gap 184
Graph 6.2. CCyB Rate per the Leading Indicator 184
Graph 6.3. Financial Cycle of Indonesia 185
Graph 6.4. Real GDP Growth 185
Graph 6.5. Inflation (yoy) 185
Graph 6.6. Exchange Rate (Rp/USD) 185
Graph 6.7. Private External Debt in Rupiah (yoy) 185
Graph 6.8. Credit Growth (yoy) 186
Graph 6.9. Deposit Growth (yoy) 186
Graph 6.10. NPL Ratio (%) 186
Graph 6.11. ROA Ratio (%) 186
Graph 6.12. Capital Adequacy Ratio (%) 186
Graph 6.13. Loan-to-Deposit Ratio (%) 186
Graph 6.14. JCI Volatility 187
Graph 6.15. Loan-to-Deposit Ratio (LDR) and Financing-
to-Deposit Ratio (FDR) Developments188
Graph 6.16. Loans, Deposits and Securities 188
Graph 6.17 The Number of Banks Fulfilling the RR-Loan
to Funding Ratio (RR-LFR)189
Graph 6.18. Housing Loans 190
Graph 6.19. Housing Loans by Type 190
Graph 6.20. Housing Loan Performance by Bank Activity 191
Graph 6.21. NPL of Housing Loans 194
Graph 6.22. NPL of Housing Loans by Type 194
Box Figure 6.2.1. Awqaf-Linked Sukuk 201
Article 1:Graph Article 1.1. SBN, Deposit and GDP Growth 205
Graph Article 1.2. SBN Holdings by Financial Institution
(December 2014 and December 2016)206
Graph Article 1.3. Holdings of SBN and Deposits by Nonbanks
(Rp, billions)207
Graph Article 1.4. SBN Yield and Deposit Rate Developments 208
Graph Article 1.5. Keynesian Liquidity Preference 210
Article 2:Article Figure 2.1. Network Types 221
Article Graph 2.1. Composition of Banks Transacting in the
Interbank Money Market225
Article Graph 2.2. Weighted Degree by Bank Type and
Average per Bank by Bank Type225
Article Graph 2.3. Weighted Indegree by Bank Type 225
Article Graph 2.4. Weighted Outdegree by Bank Type 226
Article Graph 2.5. Large and Small Bank Interaction 226
Article Graph 2.6. Interbank Rate Interaction between Large
and Small Banksl226
Article Graph 2.7. Average Closeness 227
Article Graph 2.8. Industry Betweenness 227
Article Graph 2.9. Industry Average Clustering Coefficient 227
Article Graph 2.10. Degree Distribution 227
Article Graph 2.11. Alpha Coefficient (Power Law) 227
LIST OF GRAPHAND FIGURE
XIBANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
XII BANK INDONESIA
LIST OF ABBREVIATIONS
ABIF : ASEAN Banking Integration Framework
AFS : Available for Sale
AKSI : Indonesia Islamic Financial Architecture
APMK : Card-based Payment Instruments
AS : United States of America
ASEAN : Association of Southeast Asian Nations
ATM : Automated Teller Machine
ATMR : Risk-Weighted Assets (RWA)
BBM : Fossil Fuels
BCBS : Basel Committee on Banking Supervision
BIS : Bank for International Settlements
BI-RTGS : Bank Indonesia – Real Time Gross Settlement
BI-SSSS : Bank Indonesia – Scripless Securities Settlement System
BOJ : Bank of Japan
BOPO : BOPO Efficiency Ratio
BPD : Regional Banks
BPR : Rural Banks
bps : Basis point
BUKU : Commercial Bank Classification
CAR : Capital Adequacy Ratio
CCB : Countercyclical Capital Buffer
CDS : Credit Default Swaps
CIR : Cost-to-Income Ratio
CPO : Crude Palm Oil
DER : Debt-to-Equity Ratio
DPK : Private Deposits
D-SIB : Domestic Systemically Important Banks
DSR : Debt Service Ratio
DP : Downpayment
EAPP : Expanded Asset Purchase Program
ECB : European Central Bank
EM : Emerging Market
FA : Financial Account
FDI : Foreign Direct Investment
FKSSK : Financial System Stability Coordination Forum (FSSCF)
FLI : Intraday Liquidity Facility (ILF)
FSB : Financial Stability Board
G20 : The Group of Twenty
GDP : Gross Domestic Product
GNNT : National Noncash Movement
GWM : Reserve Requirement
HTM : Hold to Maturity
IDMA : Inter-dealer Market Association
IEK : Consumer Expectation Index (CEI)
IHK : Consumer Price Index (CPI)
IHSG : Jakarta Composite Index (JCI)
IKK : Consumer Confidence Index (CCI)
IKNB : Nonbank Financial Institution
IMF : International Monetary Fund
ISIK : Financial Institution Stability Index (FISI)
ISPK : Financial Market Stability Index (FMSI)
ISSK : Financial System Stability Index (FSSI)
JIBOR : Jakarta Interbank Offered Rate
JPSK : Financial System Safety Net (FSSN)
KI : Investment Loan
KK : Consumer Loan
KMK : Working Capital Loan
KPA : Housing Loan (Apartment)
KPMM : Minimum Capital Adequacy Requirement
KPR : Housing Loan (House)
KPwDN : Domestic Bank Indonesia Representative Office
KSSK : Financial System Stability Committee
LCR : Liquidity Coverage Ratio
LDR : Loan-to-Deposit Ratio
LKD : Digital Financial Services (DFS)
LTV : Loan-to-Value Ratio
XIIIBANK INDONESIA
LPS : Deposit Insurance Corporation (DIC)
L/R : Profit/Loss (P/L)
Minerba : Mineral and Coal Mining
MTM : Marked to Market
MTN : Medium-Term Notes
NAB : Net Asset value (NAV)
NCD : Negotiable Certificate of Deposit
NFA : Net Foreign Asset
NFL : Net Foreign Liabilities
NII : Net Interest Income
NIM : Net Interest Margin
NPF : Non-Performing Financing
NPI : Indonesia Balance of Payments
NPL : Non-Performing Loan
OJK : Indonesia Financial Services Authority
OM : Monetary Operations
OTC : Over the Counter
PBOC : People’s Bank of China
PD : Probability of Default
PDB : Gross Domestic Product (GDP)
PDN : Net Open Position (NOP)
PIN : Personal Identification Number
PLN : Foreign Loan
PMK : Crisis Management Protocol (CMP)
PP : Finance Company
PUAB : Interbank Money Market
QAB : Qualified ASEAN Bank
RBB : Bank Business Plan
ROA : Return on Assets
ROE : Return on Equity
SBDK : Prime Lending Rate
SBI : Bank Indonesia Certificate
SBN : Tradeable Government Security
SBT : Weighted Net Balance (WNB)
SD : Certificate of Deposit
SIMA : Interbank Mudharabah Investment Certificate
SKDU : Bank Indonesia Business Survey
SKNBI : National Clearing System
SNRT : Household Balance Sheet Survey
SUN : Government Debt Security
TDL : Base Electricity Rate
TOR : Turnover Ratio
TPT : Textiles and Articles Thereof
ULN : External Debt
UMKM : Micro, Small and Medium Enterprises (MSME)
WEO : World Economic Outlook
FINANCIAL STABILITY REVIEWNo. 29, September 2017
xiv BANK INDONESIA
FOREWORD
xvBANK INDONESIA
All praise to God Almighty for His blessings in the
completion of the Financial Stability Review (FSR)
No. 29, September 2017 Edition. The Financial
Stability Review is compiled biannually as a form
of transparency and accountability underlying the
execution of duties and authority at Bank Indonesia,
particularly macroprudential regulation and
supervision, as well as to support financial system
stability.
As a routine publication, the FSR contains
assessments and research concerning financial
system dynamics, including sources of vulnerability
and imbalances that could trigger financial system
instability. Assessments are conducted to control
potential financial system instability as early as
possible stemming from contagion in part or all of
the financial system. Contagion may originate from
several factors, including interaction between the
size and business complexity of financial institutions,
interconnectedness between financial institutions
and financial markets as well as procyclicality.
Based on the assessments conducted, Bank Indonesia
perceived relatively stable economic conditions
during the first half of 2017, recording positive
economic and financial developments despite a
backdrop of domestic and global economic shocks
and challenges. Furthermore, the results of the
previous Financial Sector Assessment Program (FSAP)
also confirmed solid macroeconomic conditions in
Indonesia, coupled with a stable financial system
in the face of global financial system volatility and
domestic fragilities.
In addition, Bank Indonesia also acknowledged that
financial system stability improved on conditions in
the previous period, corroborated by an FSS Index
of 0.82. The FSS Index was in line with the Banking
Systemic Risk Index (BSRI), which reflected normal
conditions well below the threshold, supported by
adequate capital in the banking sector that helped
to maintain banking industry resilience and relatively
stable financial market volatility. Notwithstanding
the accomplishments, several risks continued to
demand vigilance, including non-performing loans
(NPL).
Congruent with the improving conditions in the
banking industry, Islamic banks also posted gains
in the form of increasing assets. Furthermore, the
nonbank financial industry also performed well as
profitability increased despite an accumulation of
risks at finance companies. Likewise, non-financial
public corporations improved, as reflected by the
return on assets (ROA) and return on equity (ROE)
indicators as well as a stronger repayment capacity.
Nevertheless, the recent improvements have been
unable to catalyse adequate growth of new loans
due to corporate reluctance to expand against
a backdrop of global and domestic economic
challenges and uncertainty.
Complementing the general FSS assessments of
financial system components, including Islamic
finance, Bank Indonesia has also assessed payment
system performance, as part of financial system
infrastructure, along with other factors that could
trigger financial instability and systemic risk. The
policies instituted in response formed an integral
part of Bank Indonesia’s policy mix to achieve and
maintain price (rupiah) stability.
Following the enforcement of the Financial System
Crisis Prevention and Mitigation (PPKSK) Act,
Bank Indonesia issued implementation guidelines
FINANCIAL STABILITY REVIEWNo. 29, September 2017
xvi BANK INDONESIAxvi BANK INDONESIA
Jakarta, September 2017
Governor of Bank Indonesia
Agus D. W. Martowardojo
in the first semester of 2017 as Bank Indonesia
Regulation (PBI) No. 19/3/PBI/2017 concerning
the Short-Term Liquidity Facility for Conventional
Commercial Banks and Bank Indonesia Regulation
(PBI) No. 19/4/PBI/2017 concerning the Short-Term
Liquidity Facility for Islamic Banks. Furthermore,
Bank Indonesia also monitored and evaluated the
effectiveness of several existing macroprudential
policies, including monitoring the LTV ratio and RR-
loan to funding ratio (RR-LFR), while also maintaining
the countercyclical capital buffer (CCyB) at 0%.
Considering policy synergy between financial sector
authorities can enhance policy effectiveness, the
evaluation of existing regulations formed part of the
coordination and communication strategy amongst
relevant authorities, bilaterally and through the
Financial System Stability Committee (FSSC).
In closing, I hope that this edition of the Financial
Stability Review (FSR) will help all readers to
understand the current economic dynamics and
risks as well as the policy responses taken to
maintain financial system stability. Any comments
and suggestions as well as constructive criticisms
are welcome in order to improve future policies and
analysis.
xviiBANK INDONESIA xviiBANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
xviii BANK INDONESIA
EXECUTIVE SUMMARY
xixBANK INDONESIA
Increasing bank capital and liquidity, coupled with
financial market stability, underpinned financial
system stability during the first semester of 2017.
In general, such developments were reflected
by the Financial System Stability Index (FSSI) and
Banking Systemic Risk Index (BSRI), which improved
on their previous positions despite the higher risks
attributed to non-performing loans (NPL). The
bank intermediation function experienced slower
growth but maintained a positive trend on the back
of government infrastructure projects. Additionally,
financial system stability was threatened by a build-
up of risk in the global financial markets due to the
Federal Reserve’s move to hike the Federal Funds
Rate (FFR) and unwind its balance sheet along with
other externalities that influenced regional and
domestic financial market developments.
Domestic economic stability was relatively well
maintained despite the need to monitor various risks.
Nevertheless, the domestic economic risks were
contained, supported by low and stable inflation in
the target corridor of 4.0±1%, despite inflationary
pressures stemming from administered prices (AP).
Furthermore, increasing investment, export growth
and tenacious household consumption buoyed the
economic recovery. The balance of payments (BOP)
continued to record a surplus, bolstered by the capital
and financial account, which posted a significant
surplus off the back of a surge of portfolio and
direct investment inflows as the domestic economic
outlook stoked investor interest. The balance of
payments surplus was also accompanied by rupiah
appreciation, stemming from low rupiah volatility
and a deluge of non-resident capital inflows as well
as financial market deepening.
Against a backdrop of global economic
imbalances and maintained domestic economic
expansion, several sources of instability continued
to overshadow financial system stability in the
first half of 2017, including: (i) bank lending
procyclicality and a financial cycle contraction;
(ii) limited fiscal space; (iii) comparatively high-
risk external debt at nonbank corporations; and
(iv) large non-resident holdings in the domestic
financial markets.
Congruent with the credit slowdown, the financial
cycle in Indonesia continued to contract due
to limited increases of aggregate demand, as
reflected by economic growth of 5.01% (yoy)
despite accelerating on the 4.94% (yoy) posted
in 2016. Meanwhile, bank lending procyclicality
fed through to a rising NPL ratio, with the banks
becoming more selective and cautious when
lending. Such procyclicality must be anticipated in
order to avoid a deeper economic downturn.
On the fiscal side, the absorption of government
spending combined with increasing government
revenues supplemented fiscal space. Limited
expenditure realisation led to a 1.3% deficit of GDP
as of June 2017 despite improving on conditions
in the previous year at 1.9% of GDP. Government
revenues, however, increased on the same period
one year earlier. On the other hand, tax revenue
decreased as the contribution of non-oil and gas
taxes declined. Nevertheless, broad fiscal space
alleviated risks in the financial system. Furthermore,
more limited government expansion in the reporting
period helped to maintain liquidity in the financial
system.
FINANCIAL STABILITY REVIEWNo. 29, September 2017
xx BANK INDONESIAxx BANK INDONESIA
Improving global and domestic economic
dynamics prompted an increase of external debt.
Consequently, external debt stood at USD335.29
billion in the first semester of 2017, with growth
recorded at 2.85% (yoy). The risks associated with
private nonbank external debt, most of which
was long term, were relatively well mitigated but
an increase of outstanding external debt in the
reporting period required close monitoring as a
source of potential vulnerability in the domestic
financial markets. Moreover, the risks linked to
corporate repayment capacity, as indicated by the
Tier-1 debt service ratio (DSR), remained high.
Seeking to mitigate the risks contained in corporate
external debt, Bank Indonesia applied a hedging
ratio applicable to all nonbank corporations holding
foreign debt.
Another source of vulnerability in the financial
system has been the large non-resident investor
holdings in the domestic financial markets. In the
stock market and SBN market, foreign holdings
spiked significantly in March and April 2017 due
to positive sentiment after Indonesia’s sovereign
rating was upgraded to investment grade by several
ratings agencies. Such developments demonstrated
the high level of non-resident investor confidence in
the domestic economic outlook. On the other hand,
however, this also precipitated the risk of a sudden
capital reversal and transaction volatility, triggered
by external shocks originating from economic and
global financial market dynamics, for example an
unanticipated FFR hike or geopolitical shocks in
neighbouring countries such as North Korea.
Amid bank consolidation in terms of lending,
economic financing from the financial markets
increased considerably in the first half of 2017,
primarily stemming from increasing issuances of
corporate bonds and sukuk through initial public
offerings (IPO) and rights issues. Bullish global
sentiment, the improving domestic economic
outlook and the upgraded sovereign rating further
supported the increase in economic financing from
the financial markets. In terms of prices, more
competitive corporate bonds, particularly those
rated AAA to A, compared to bank loans, especially
in the long term, compelled the corporate sector
to increase financing through corporate bonds.
In addition, several corporations used financing
through corporate bonds as an alternative to
external debt as global interest rates ticked upwards.
Congruent with vibrant stock and bond market
growth, the positive trends also affected Negotiable
Certificates of Deposit (NCD) and Medium-Term
Notes (MTN). NCD instruments appealed to bank
issuers as an alternative source of short-term
financing of less than one year. Meanwhile, most
MTN issuances were used as working capital
(business expansion) and for refinancing purposes.
The surge of funding through NCD and MTN
instruments was also driven by simpler requirements
with no mandatory rating at the time of issue.
Promulgation of Bank Indonesia Regulation (PBI)
No. 19/2/PBI/2017 on 16th March 2017 concerning
Certificate of Deposit Transactions in the Money
Market, which standardised NCD instruments,
further boosted sentiment in the NCD market and
broadened the NCD investor base.
In general, risks in the global and domestic financial
markets were relatively stable and contained in the
first half of the year, which attracted an influx of non-
resident capital to the domestic financial markets.
Volatility in the rupiah interbank money market,
foreign exchange market, stock market and bond
market – both government bonds and corporate
xxiBANK INDONESIA xxiBANK INDONESIA
bonds – eased, indicating less risk in the domestic
financial markets. Despite milder risks in the foreign
exchange market, prudential principles were still
applied. Derivative transactions, particularly swap
transactions, tracked an upward trend, which was
indicative of ongoing financial market deepening,
thus providing an alternative instrument for market
players to manage foreign exchange risk. In the SBN
market, soaring demand for tradeable government
securities (SBN), particularly from non-resident
investors, triggered downward pressures on yields
and volatility. A deluge of inflows, however,
expanded foreign SBN holdings to nearly 40%. The
benchmark 10-year yield fell by around 6-7% with
volatility at below 5%, which was consistent with
falling SBN yields in several neighbouring countries
due to positive global sentiment. In the stock
market, the Jakarta Composite Index (JCI) rallied
10% in the first semester of 2017, accompanied
by comparatively high PER compared to other
countries in the region, which demanded vigilance.
Furthermore, issuer profit performance was the
primary focus of investors, especially non-resident
investors.
In line with the generally sound performance of
the financial markets, the Islamic financial market
also tracked an upward trend, with the Islamic
stock index posting gains, the share of state sukuk
continuing to expand as a source of state budget
financing and Islamic investment funds continuing
to develop. In addition, the social financial sector
also recorded positive developments. Zakat and
waqf funds also continued to expand.
Despite stronger national economic growth in
Indonesia, the household sector failed to keep
pace, as reflected by households less inclined
to spend on consumption and a decline in the
proportion of household consumption spending to
GDP. Nevertheless, households remained upbeat
on future economic conditions, as indicated by
household consumer loan growth as well as gains in
the Real Sales Index (RSI) and Consumer Confidence
Index (CCI). Furthermore, household optimism was
expected to edge up future deposit growth and
improve loan and financing quality compared to
conditions in the first semester of 2017.
In the corporate sector, export growth accelerated
on the previous period. Nonetheless, corporate
sector performance was undermined by the
sluggish global economic recovery and persistently
low and volatile international commodity prices.
Consequently, non-financial public corporations
strived to enhance efficiency to maintain financial
positions, as reflected by stronger profitability
indicators on the back of rising net profits.
Bank lending to the corporate sector slowed in the
first semester of 2017, primarily loans extended to the
transportation, warehousing and communication
sector as well as the manufacturing industry. As an
aggregate, however, corporate loan quality tended
to improve, with the gross NPL ratio decreasing on
the previous period. Improving non-performing
loans tended to originate from the transportation,
warehousing and communication sector as well as
the manufacturing industry. Notwithstanding, the
gross NPL ratio for the mining sector failed to show
any improvement due to subdued mining industry
performance as a result of fluctuating and sliding
mining commodity prices, coupled with weaker
demand for mining products.
In general, the performance of national banking
indicators varied in the first half of 2017. Banks
and their customers tended to be cautious and wait
FINANCIAL STABILITY REVIEWNo. 29, September 2017
xxii BANK INDONESIAxxii BANK INDONESIA
and see the latest economic developments before
taking any banking decisions. The total assets of
the banking industry continued to expand, albeit
slightly more moderately compared to the previous
period, driven primarily by deposit growth.
The bank intermediation function also tended to
slow. Dwindling corporate demand for new loans
undermined credit growth, including MSME loans
because the corporate sector tended to wait and
see the latest economic developments. Slower
credit growth primarily affected BUKU 2 and 4
banks. The failure of major commodity prices to
rebound, particularly coal, coupled with a lack
of improvement in public purchasing power also
influenced customer demand for loans. Additionally,
the banks tended to become more selective when
lending, raising lending standards which further
undermined borrower interest in new loans.
Nonetheless, intense financing of government
infrastructure projects along with bank efforts to
reduce lending rates prevented further moderation
of credit growth.
Deposit growth accelerated, primarily due to
repatriated funds from the tax amnesty and financial
expansion by the government. Deposit growth was
predominantly reported by BUKU 2 and 4 banks
and affected term deposits of above Rp2 billion.
Bank dependence on core depositors and expensive
sources of funds remained relatively high despite
bank efforts to expand and divert funding sources
to current and saving accounts (CASA).
In general, the banking industry posted larger profits,
indicated by a higher return on assets (ROA) at all
BUKU bank groups. The ROA gains mainly stemmed
from bank business efficiency, including lower
operating costs to bolster reserves. Furthermore, the
banks also lowered lending rates to boost demand
for loans, which has not significantly eroded bank
profits.
The banking industry mitigated risk during the first
half of the year at a safe level. Liquidity risk was
shown to ease due mainly to the rise in deposits.
Bank customers and borrowers tended to deposit
their funds in the banking system and refrain from
expanding their businesses. The ratio of liquid assets
to non-core deposits remained high at 101.26%.
On the other hand, credit risk tended to accumulate,
primarily affecting investment loans and consumer
loans. The gross NPL ratio deteriorated from 2.93%
to 2.96%. The banks attributed rising credit risk
to the major mining products, particularly coal
prices, as well as stagnant public purchasing power.
Meanwhile, credit restructuring experienced a
relatively large bump to 5.53%, which was ascribed
to the relaxation of credit requirements through
OJK Regulation (POJK) No. 11/POJK.03/2015
concerning Prudential Regulations for Commercial
Banks to Stimulate the National Economy, issued on
24th August 2015.
Interest rate risk was also well mitigated. Bank efforts
to reduce lending rates have successfully narrowed
the intermediation spread and not significantly
eroded bank profits. The banks maintained a
relatively low net open position (2.32%), indicating
that interest rate risk was contained. Furthermore,
the national banking industry tended to favour a
long position as the rupiah appreciated. On the
other hand, the banking industry mitigated market
risk in line with lower SBN yields and volatility.
Furthermore, SBN holdings in the banking industry
increased due to inflows of repatriated funds
from the successful tax amnesty. The larger SBN
holdings were also in line with slower growth of
xxiiiBANK INDONESIA xxiiiBANK INDONESIA
bank lending, particularly affecting available for sale
(AFS) and held to maturity (HTM) portfolios as liquid
assets and long-term investments rather than for
trading purposes.
The Islamic banking industry also performed
soundly in the reporting period, with a healthy
intermediation function. Asset growth was driven
by funding growth, primarily demand deposits
and term deposits. Likewise, the Islamic banking
industry successfully mitigated the risks. Liquidity
risk was observed to decline but remained above
the threshold. Meanwhile, financing risk eased
with a lower NPF ratio reported. A high capital ratio
helped the Islamic banking industry to absorb the
risks the emerged.
Consistent with weaker credit growth in general,
MSME loans also experienced slower growth,
accompanied by a build-up of MSME credit risk.
Loans extended to micro and small enterprises
were the main contributors to slower MSME loan
growth, while People’s Business Loans (KUR) also
decelerated on the same period one year earlier. In
2017, financial institutions in the form of finance
companies and cooperatives also disbursed KUR
loans in addition to the approved banks.
Nonbank financial industry performance improved
in terms of financing and funding, driven by
finance companies and insurance companies.
Meanwhile, an increase in the non-performing
financing (NPF) ratio pointed to higher financing
risk in the nonbank financial industry. Furthermore,
the interconnectedness between banks and the
nonbank financial industry increased, as indicated
by more loans allocated by the banking industry
to finance companies as well as placements of
insurance funds in the banking sector.
The payment systems operated by Bank Indonesia
and the industry remained secure, efficient and
reliable, thereby supporting monetary and financial
system stability, while also facilitating economic
activities, as evidenced by improving leading and
supporting payment system indicators. Bank
Indonesia continued efforts and payment system
policies that focused on enhancing economic
efficiency by consistently and sustainably
strengthening and developing payment system
infrastructure, thus demonstrating Bank Indonesia’s
avowed commitment to ensure the payment system
supports financial system stability and the national
economy.
Payment system risks were well mitigated, including
settlement risk, liquidity risk, operational risk and
systemic risk. Settlement and liquidity risk were
relatively mild in the first semester of 2017, with
a low volume and value of unsettled transactions
as well as no requests recorded for the Intraday
Liquidity Facility (ILF) or Islamic Intraday Liquidity
Facility by participants of the BI non-cash payment
system. Meanwhile, operational and systemic risk
were also contained. In terms of the operational
risk, Bank Indonesia prepared a business continuity
plan that could be activated immediately when a
disruption was detected in the main system. To
control the systemic risk, Bank Indonesia conducted
regular and intensive monitoring of various payment
system indicators that could detect systemic
disruptions.
Bank Indonesia also strengthened the financial
system infrastructure, supported by expanding public
access to finance through inclusive digital financial
services. As a form of Bank Indonesia commitment
to the National Financial Inclusion Strategy and
part of the National Noncash Movement (GNNT) to
FINANCIAL STABILITY REVIEWNo. 29, September 2017
xxiv BANK INDONESIAxxiv BANK INDONESIA
encourage the public to use the non-cash payment
system and non-cash payment instruments, Bank
Indonesia has launched various non-cash programs
that aim to digitise all physical payment methods in
order to expand financial access as well as enhance
the efficiency, effectiveness and accountability
of financial management by the government,
business community and public. Some of the
non-cash programs developed by Bank Indonesia
in conjunction with the Government include the
electronification of social assistance disbursements,
village funds, toll roads, remittances and local
government transactions.
In the first semester of 2017, Bank Indonesia
instituted accommodative macroprudential policy as
a countercyclical instrument, which aimed to offset
the downturn and stimulate credit growth in order
to accelerate the domestic economic recovery while
maintaining financial system stability. Furthermore,
Bank Indonesia maintained the countercyclical
capital buffer (CCyB) at 0% in May 2017 because
excessive credit growth was not detected that
could trigger systemic risk, as indicated by the
credit-to-GDP gap as the primary CCyB indicator
along with supporting indicators in the form of
macroprudential, macroeconomic, banking and
asset price indicators.
Bank Indonesia also strengthened the lender of last
resort (LOLR) function to support the implementation
of accommodative macroprudential policy as part
of Bank Indonesia’s function to maintain financial
system stability pursuant to the Bank Indonesia Act
that was reinforced by the promulgation of the
Financial System Crisis Prevention and Mitigation
(PPKSK) Act in 2016, namely that Bank Indonesia
shall provide a short-term liquidity facility to banks
experiencing short-term liquidity difficulties. The
LOLR function is necessary to prevent and mitigate
instability in the financial system due to a liquidity
shortfall experienced by a bank that could trigger
default and spillovers, through contagion, and
adversely affect the financial system and ultimately
the economy.
In response to Bank Indonesia honing the RR-loan
to funding ratio (RR-LFR) in August 2016 by raising
the lower bound from 78% to 80%, despite a lower
LFR ratio recorded in the first semester of 2017, the
banks began to utilise securities as the main source
of bank funding, as reflected by a surge of securities
issued by the banking industry in 2017 compared to
conditions in 2016. Such developments were in line
with policy to include bank-issued securities in the
LFR calculation that aims to expand funding sources
for the banking industry, while supporting financial
market deepening. The declines observed in the LDR
and LFR were caused by deposit growth outpacing
credit growth as a result of the tax amnesty in line
with weaker economic growth.
Lacklustre property sector performance forced
Bank Indonesia to continue easing loan-to-value
(LTV) policy, which was initiated in 2015. The policy
successfully stemmed the decline of housing loans
and financing disbursed by the banking industry but
failed to stimulate credit and financing growth, thus
necessitating further policy easing to catalyse credit
growth in the property sector while maintaining
prudential principles. To that end, Bank Indonesia
further eased LTV policy through promulgation of
Bank Indonesia Regulation (PBI) No. 18/16/PBI/2016
concerning the loan-to-value (LTV) ratio for property
loans, the financing-to-value ratio (FTV) for property
financing and the downpayments on automotive
loans and financing. The LTV/FTV policy adjustment
quickly began to bear fruit, with the growth of
xxvBANK INDONESIA xxvBANK INDONESIA
housing loans accelerating from 6.21% in August
2016 to 7.51% in June 2017, despite remaining
below total bank credit growth at 7.75%.
In broader terms, Bank Indonesia’s accommodative
macroprudential policy has also been supported
by coordination amongst authorities under the
umbrella of the Financial System Stability Committee
pursuant to Act No. 9 of 2016 concerning Financial
System Crisis Prevention and Mitigation (PPKSK)
in order to maintain financial system stability.
This is crucial considering the interconnectedness
and/or various intricacies of task implementation
and authority. Additionally, to further facilitate
coordination between Bank Indonesia and the
Indonesia Financial Services Authority (OJK) and
follow-up PPKSK Act implementation, as of 15th
June 2017, eight implementation guidelines for
BI-OJK cooperation and coordination mechanisms
had been drawn up and executed, signed by
the OJK Chairman and BI Governor. In terms
of following up PPKSK implementation, Bank
Indonesia has also strengthened coordination with
the Deposit Insurance Corporation (LPS), entering
the implementation phase in the first semester of
2017 through data and information exchange, joint
research and the implementation of cooperation
agreements concerning the purchase by Bank
Indonesia of tradeable government securities (SBN)
held by LPS.
Gunungan are puppets that are shaped like a mountain. Gunungan puppets signify the start and end
of a performance, playing the roles of land, jungle, roads and so on, accompanied by dialogue from the
puppeteer. Gunungan impart philosophical lessons about wisdom. In terms of financial system stability,
gunungan can be interpreted as FSS conditions that may be influenced by sources of imbalances with risks
that could become systemic.
In general, financial system stability in Indonesia was relatively stable throughout the
first semester of 2017, supported by a solid capital base in the banking industry. Stable
financial system stability was reflected in the Financial System Stability Index (FSSI)
and Banking Systemic Risk Index (BSRI), which improved on their previous positions,
particularly in terms of bank capital and liquidity along with stable financial markets.
Nevertheless, several global and domestic risks continued to demand vigilance. At
home, a high non-performing loans (NPL) ratio and moderating bank intermediation
function as of May 2017 represented the main challenges. Globally, however, risks
continued to blight the global financial markets stemming from the Federal Funds
Rate (FFR) hike and the Federal Reserve’s plan to unwind its balance sheet, which
influenced regional financial markets.
Against a backdrop of maintained financial system stability, domestic financial
imbalances lingered with the potential to trigger vulnerabilities in the financial system,
including bank lending procyclicality during the financial cycle contraction and limited
fiscal space despite government efforts to improve fiscal performance and boost
revenues. In addition, high-risk nonbank corporate external debt, especially at indebted
corporations failing to hedge, as well as the large portion of non-resident holdings in
domestic financial markets were also a threat to domestic financial instability due to
the growing risk of a potential sudden capital reversal.
FINANCIAL SYSTEM STABILITY
01
FINANCIAL STABILITY REVIEWNo. 29, September 2017
2 BANK INDONESIA
Global Risks
• Improving global economic growth
• Stronger emerging market economies (EMEs)
• Rising coal and metal prices
• Falling global oil and crude palm oil (CPO) prices
• Increasing world trade volume (WTV)
Domestic Risks
• Controlled inflation
• Stable economic growth
• BOP surplus and stable current account deficit below
3% of GDP
• Stable and appreciating rupiah exchange rate
• Slower credit growth
• Broader fiscal space
Domestic Financial Imbalances
FINANCIAL SYSTEM STABILITY WAS SOLID IN LINE WITH GLOBAL ECONOMIC GAINS AND DOMESTIC ECONOMIC STABILITY
Improving financial system stability
Bank Lending Procyclicality
and Financial Cycle
Contraction
Limited Fiscal Space Large Non-Resident Holdings in the
Domestic Financial Markets
High-risk Nonbank Corporate
External Debt
3,00
1,50
2,00
0,50
2,50
1,00
0,00
2002
MO
1
2002
MO
7
2003
MO
1
2003
MO
7
2004
MO
1
2004
MO
7
2005
MO
1
2005
MO
7
2006
MO
1
2006
MO
7
2007
MO
1
2007
MO
7
2008
MO
1
2008
MO
7
2009
MO
1
2009
MO
7
2010
MO
1
2010
MO
7
2011
MO
1
2011
MO
7
2012
MO
1
2012
MO
7
2013
MO
1
2013
MO
7
2014
MO
1
2014
MO
7
2015
MO
1
2015
MO
7
2016
MO
1
2016
MO
7
2017
MO
1
2017
MO
6
Suspected Crisis Normal Financial System Stability Index (FSSI)
Juni 170.82
3BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
slowed and the banking industry consolidated. The
positive global economic developments edged up
world trade volume (WTV) and kept international
commodity prices high. Meanwhile, the FFR hike
was predicted to occur just once at the end of
2017, while the Federal Reserve’s plan to unwind
its balance sheet was expected to be announced in
September 2017.
International commodity prices tended to vary
in the first half of 2017. The major export
commodities from Indonesia, such as coal and
metals, increased on their positions at yearend in
2016 (Graph 1.1). Demand from China elevated
metal prices, while CPO prices tracked a downward
trend due to abundant supply, including production
from Malaysia. The global oil price also decreased
on the previous period (Graph 1.2). The price of
Brent averaged USD50.1 per barrel in the reporting
period, down from USD52.4 per barrel. The decline
was most significant in June 2017, when oil hit its
lowest price for the year at USD44.21 per barrel.
The weak oil price was attributable to abundant
global supply after the US bolstered production
and inventory, which stoked market pessimism
regarding the impact of the production cuts agreed
by OPEC.
Congruent with less uncertainty, the global stock
markets rallied in the first semester of 2017.
Consequently, bullish stock markets flourished in
advanced and developing economies around the
world (Graph 1.3).
Global financial system risks eased in the first half of
2017. The global economic recovery persisted with
the support of robust economic growth in advanced
and developing economies. Furthermore, uncertainty
in the financial markets subsided as confidence
grew concerning the timing of the Federal Funds
Rate (FFR) hike and planned normalisation of the
Federal Reserve’s balance sheet. In the commodity
markets, the prices of major export commodities
from Indonesia, such as coal and metals, remained
high, thereby buoying national export performance.
The oil price, however, continued to slide.
The global economy continued to expand on
the back of growth in advanced and developing
economies. The US economy posted gains in the
first semester of 2017 as investment and private
consumption improved in line with promising
labour market data (Table 1.1). In Europe, economic
growth also accelerated thanks to consumption
and export activities. Geopolitical and financial
risks in Europe eased towards the end of the first
semester of 2017 after the Greece debt crisis
softened, which allowed the European Central
Bank (ECB) to maintain an accommodative policy
stance. Meanwhile, economic growth in developing
countries was underpinned by faster growth in
China on solid consumption and improving exports.
India’s economy, however, moderated as exports
1.1. Risks in the Global and Regional Financial Markets
FINANCIAL STABILITY REVIEWNo. 29, September 2017
4 BANK INDONESIA
Jan-
16Ja
n-16
Ja
n-16
Ja
n-16
Ja
n-16
Ja
n-16
Fe
b-16
Feb-
16
Feb-
16
Feb-
16
Feb-
16M
ar-1
6M
ar-1
6 M
ar-1
6 M
ar-1
6 M
ar-1
6 M
ar-1
6Ap
r-16
Apr-1
6 Ap
r-16
Apr-1
6 Ap
r-16
May
-16
May
-16
May
-16
May
-16
May
-16
May
-16
Jun-
16Ju
n-16
Ju
n-16
Ju
n-16
Ju
n-16
Jul-1
6Ju
l-16
Jul-1
6 Ju
l-16
Jul-1
6 Ju
l-16
Aug-
16Au
g-16
Au
g-16
Au
g-16
Au
g-16
Sep-
16Se
p-16
Sep
-16
Sep-
16
Sep-
16
Sep-
16O
ct-1
6O
ct-1
6 O
ct-1
6 O
ct-1
6 O
ct-1
6N
ov-1
6N
ov-1
6 N
ov-1
6 N
ov-1
6 N
ov-1
6 N
ov-1
6De
c-16
Dec-
16
Dec-
16
Dec-
16
Dec-
16Ja
n-17
Jan-
17
Jan-
17
Jan-
17
Jan-
17
Jan-
17
Feb-
17Fe
b-17
Fe
b-17
Fe
b-17
Fe
b-17
Mar
-17
Mar
-17
Mar
-17
Mar
-17
Mar
-17
Mar
-17
Apr-1
7Ap
r-17
Apr-1
7 Ap
r-17
Apr-1
7M
ay-1
7M
ay-1
7 M
ay-1
7 M
ay-1
7 M
ay-1
7 M
ay-1
7Ju
n-17
30
40 49,66
50
20
60
Table 1.1. Global Economic Outlook
Source: Bloomberg
Source: Bloomberg
Source: Bloomberg
Source: Bloomberg
Global Economic Outlook
GDP
Realisation Projected for 2017
2016 2017 WEO-IMF Consensus Forecast
I II III IV I Apr-17 Jul-17 Jun-17 Jul-17
Global 3.3 3.3 3.3 3.6 3.9 3.5 3.5 3.8 3.8
Advanced Economies 1.4 1.4 1.6 1.9 2.0 2.0 2.0 2.0 2.0
United States 1.4 1.2 1.5 1.8 2.0 2.3 2.1 2.2 2.2
Europe 1.7 1.7 1.7 1.9 1.9 1.7 1.9 1.8 1.9
Japan 0.5 0.9 1.1 1.7 1.5 1.2 1.3 1.4 1.4
Emerging and Developing Economies 5.0 5.0 4.8 5.1 5.5 4.5 4.6 5.3 5.4
China 6.7 6.7 6.7 6.8 6.9 6.6 6.7 6.6 6.6
India 7.9 7.1 7.4 7.0 7.0 7.2 7.2 7.3 7.3
12,000 250
8,000150
4,000
50
10,000 200
6,000100
2,000
00
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16M
ay-1
6Se
p-16
Jan-
17M
ay-1
7
Graph 1.1. Major Export Commodity Prices
WorldEM ASIA
US (Dow Jones)Japan (Nikkei)
England (FTSE)
India (SENSEX)
Hongkong (Hang Seng)
Shanghai (SHCOMP)
Kuala Lumpur (KLCI)Strait Times (STI)
PhilippineThailand (SET)
Vietnam
0% 2% 6%4% 8% 10% 12% 14% 16% 18% 20%
Indonesia (IHSG)
8.5%
8.3%5.2%
4.2%
1.4%
17.5%16.7%
11.6%8.3%
2.5%
14.9%
15.3%
10.06%
18.9%
Thailand
Philippines
Germany
China
Malaysia
30 Jun 2017
31 Des 2016
Indonesia
Turkey
0 50 150100 200 250 300
Brazil
Source: Bloomberg
USD/Metric Ton (Copper)MYR/Metric Ton (Crude Palm Oil)
USD/barrel
USD/Metric Ton
Copper Crude Palm Oil Coal (rhs)
Graph 1.2 Brent Oil Price
Graph 1.3. JCI and Global Stock Indexes Graph 1.4. CDS in Advanced Economies and Regional
5BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
The domestic economic risks were contained during
the first semester of 2017, supported by maintained
macroeconomic stability in line with controlled
inflation and stable economic growth. Global
pressures on Indonesia’s external balance eased, as
evidenced by the balance of payments (BOP) surplus
and current account deficit consistently below
3% of GDP. On the other hand, the stable and
appreciating rupiah was sustained by favourable
domestic macroeconomic dynamics and milder
external risks.
Investment and exports have supported relatively
stable economic growth in Indonesia. The national
economy expanded at 5.01% (yoy) in the first two
quarters of 2017, up slightly from 4.94% (yoy)
in the fourth quarter of 2016 (Table 1.2). Strong
investment and improving export performance
reinforced economic growth, which offset
moderating household consumption. Investment
accelerated on building investment as the
Government ramped up infrastructure spending
and the private sector became more engaged
1.2. Domestic Economic Risks
Source: BPS-Statistics Indonesia
Table 1.2 National Economic Growth in Indonesia
Components of GDP 2015 2016
20162017
I II III IV I II
Household Consumption 4.96 4.97 5.07 5.01 4.99 5.01 4.94 4.95
Consumption of Non-profit Institutions
Serving Households
-0.62 6.40 6.71 6.64 6.72 6.62 8.05 8.49
Government Consumption 5.32 3.43 6.23 -2.95 -4.05 -0.15 2.68 -1.93
Investment 5.01 4.67 4.18 4.24 4.80 4.48 4.78 5.35
Building Investment 6.11 6.78 5.07 4.96 4.07 5.18 5.87 6.07
Non-Building Investment 1.95 -1.20 1.70 2.16 7.07 2.45 1.49 3.27
Exports -2.12 -3.29 -2.18 -5.65 4.24 -1.74 8.21 3.36
Imports -6.41 -5.14 -3.20 -3.67 2.82 -2.27 5.12 0.55
GDP 4.88 4.92 5.18 5.01 4.94 5.02 5.01 5.01
persen, yoy
in investment projects. Furthermore, exports
rebounded significantly in the first quarter of 2017
on rising prices but subsequently slowed in the
following period due to a slump of manufacturing
exports on dwindling demand from advanced
economies. Households were inclined to consume
due to controlled inflation, which maintained public
purchasing power, coupled with the seasonal spike
in demand during Eid-ul-Fitr that coincided this
year with the second quarter. Nevertheless, the
purchasing power of middle-class consumers and
low-income earners achieved more limited gains,
as evidenced by slower income growth. Income
indicators, including the real wages of builders and
farmers, declined, while the farmers’ terms of trade
(ToT) surplus narrowed. On the other hand, the
upper-middle class was less inclined to consume,
showing a greater propensity to save, with personal
term deposits exceeding Rp2 billion and personal
tradeable government securities (SBN) accelerating
as well as the portion of individuals trading on the
stock market.
Inflation was kept under control in June 2017, thus
supporting the 2017 inflation target of 4.0±1%.
The Consumer Price Index (CPI), as a measure of
FINANCIAL STABILITY REVIEWNo. 29, September 2017
6 BANK INDONESIA
headline inflation, stood at 2.38% (ytd) in June
2017 or 4.37% (yoy) annually (Graph 1.5). Low
and stable inflation was achieved thanks to the
considerable efforts of the Government and close
policy coordination with Bank Indonesia during the
approach to Eid-ul-Fitr. By component, volatile foods
(VF) were the main drag on inflation, recording a
lower rate than the seasonal average, while low
core inflation was also maintained. Inflationary
pressures on volatile foods were lower than the
seasonal average for Eid-ul-Fitr over the past three
years due to concerted efforts to maintain the
supply of foodstuffs. Low core inflation was also
maintained in June 2017, with the help of weak
domestic demand, anchored inflation expectations
and a stable exchange rate. Conversely, intense
inflationary pressures on administered prices (AP)
remained in June 2017, primarily as a result of
third-phase adjustments to electricity rates for non-
subsidised 900VA subscribers, coupled with hikes to
airfares, intercity fares and railway tickets. Moving
forward, low inflation is expected to persist, within
the inflation target, supported by a narrow output
gap, stable rupiah exchange rate, lower global
inflation and less risk of further AP hikes.
A significant capital and financial account surplus,
combined with a healthy current account deficit, has
improved the external balance. Indonesia’s balance
of payments (BOP) recorded a USD0.7 billion surplus
in the second quarter of 2017, bolstered by a capital
and financial account surplus that exceeded the
current account deficit (Graph 1.6). After affirmation
that Indonesia’s sovereign rating had been upgraded
to investment grade, strong investor confidence in
the national economic outlook boosted the capital
and financial account surplus. Larger surpluses of
direct investment and portfolio investment swelled
the capital and financial account to USD8.0 billion
and USD5.9 billion in the first and second quarters
of 2017 respectively. On the other hand, the current
account deficit was maintained at the healthy level
of below 3% of GDP in the second quarter of 2017,
despite increasing slightly to 1.96% of GDP from
0.98% in the first quarter of 2017 and 1.8% at the
end of 2016. Consequently, the position of official
reserve assets increased from USD121.9 billion at
the end of the first quarter of 2017 to USD123.1
billion at the end of the subsequent period, which
was equivalent to 8.6 months of imports and
servicing government external debt and well above
the international standard of three months.
The rupiah remained stable and tracked an
appreciating trend in the first semester of 2017,
climbing 1.08% (ytd) from Rp13,473 to Rp13,328/
USD (Graph 1.6 and Graph 1.7). The rupiah
strengthened as the corporate sector sold foreign
exchange and an influx of non-resident capital was
drawn to the domestic financial markets, while
regional markets also achieved greater efficiency
(Graph 1.8). In addition, sound macroeconomic
conditions and milder external risks also buoyed
rupiah appreciation. Positive domestic sentiment
stemmed from controlled inflation in June 2017,
within the target corridor, and affirmation that
S&P had upgraded Indonesia’s sovereign rating to
investment grade. Externally, risks to the rupiah
exchange rate were contained. The 25bps hike to
the Federal Funds Rate (FFR) in June 2017 was fully
anticipated by the markets. Furthermore, weak US
macroeconomic data stoked concerns amongst
investors whether the Federal Reserve would again
raise its reference rate in the coming months.
Rupiah volatility was low throughout the year,
below Indonesia’s peer countries (Graph 1.10).
7BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
7 % %
5
3
1
6
4
2
0
2013 2014
GDP Growth Inflation (rhs)
2015 2016 2017
Jan
May
Mar Ju
lSe
pN
ov10
8
5
2
9
6
3
7
4
1
0
Jan
May
Mar Ju
lSe
pN
ov Jan
May
Mar Ju
lSe
pN
ov Jan
Jan
May
May
Mar
MarJu
lSe
pN
ov
Graph 1.5 CPI Inflation and GDP Growth
Source: BPS-Statistics Indonesia
Source: Reuters
Source: Reuters, Bloomberg, processed
Source: Bank Indonesia
4
0
-6
-12
Services Account Trade Balance Primary Income Account
CA/GDP (%) (rhs)Secondary Income Account
Preliminary Data Projected Data
Current Account
2
-4
-10
-2
-8
6
2
-4
-10
4
-2
I I I IIII III IIIII II II IIIV IV IV
-8
0
-6
-12
-14* **
* **
Graph 1.6 Balance of Payments
3-Ja
n8-
Jan
13-Ja
n18
-Jan
23-Ja
n28
-Jan
2-Fe
b7-
Feb
12-F
eb17
-Feb
22-F
eb27
-Feb
4-M
ar9-
Mar
14-M
ar19
-Mar
24-M
ar29
-Mar
3-Ap
r13
-Apr
18-A
pr23
-Apr
28-A
pr3-
May
8-M
ay13
-May
18-M
ay23
-May
28-M
ay2-
Jun
7-Ju
n12
-Jun
17-Ju
n22
-Jun
13.500(Rp)
13.300
13.400
13.200
13.450
1336113338
13348
13345
13304
1332113309
13328
1329813.250
IDR/USD
Quarterly Average
Monthly Average
13.350
13.150
13.100
Graph 1.7 Rupiah Exchange Rate
Source: Reuters
30%
15
25
10
20
5
0TRY ZAR
2016 YTD 2017 Average YTD-2017
BRL KRW THB INR SGD MYR PHP IDR
Graph 1.8 Appreciation and Depreciation against the USD
4.000USD mn
Government Islamic Securities (SBSN)
Stocks
Government Debt Securities (SUN)
Bank Indonesia Certificates (SBI)
IDR/USD
IDR/USD (rhs)
3.000
2.000
1.000
-1.000
-2.000
-3.000
-4.000
0
14,500
14,000
13,500
13,000
12,500
12,000
Jan-
15Fe
b-15
Mar
-15
Apr-1
5M
ay-1
5Ju
n-15
Jul-1
5Au
g-15
Sep-
15O
ct-1
5N
ov-1
5De
c-15
Jan-
16Fe
b-16
Mar
-16
Apr-1
6M
ay-1
6Ju
n-16
Jul-1
6Au
g-16
Sep-
16O
ct-1
6N
ov-1
6De
c-16
Jan-
17Fe
b-17
Mar
-17
Apr-1
7M
ay-1
7Ju
n-17
data s.d 30 Jun-17
Graph 1.9 Non-Resident Capital Flows Graph 1.10 Exchange Rate Volatility (ytd) in the Region
Source: Reuters, Bloomberg, processed
-20,0 -15,0 -10,0 -5,0 0,0 5,0 10,0 15,0
%
TRY
MYR
PHP
EUR
IDR
KRW
THB
INR
BRL
ZAR
0.08
4.51
-1.72
-1.60
7.96
1.08
5.39
5.61
5.18
5.09
-16.85
-5.57
-4.88
-2.19
-0.19
1.60
1.62
2.14
9.60
11.17Data as of 30th June 2017
Point-to-Point Average
YTD 2017 vs 2016
2014 2015 2016 2017
USD, Billions
Data as of 30th June 2017
Data as of 30th June 2017
18.716.6
18.6
25.3
13.6
20.7
9.1
13.3
5.16.1
5.06.1
5.37.4
4.8
13.7
4.7
7.1
2.3
8.7
FINANCIAL STABILITY REVIEWNo. 29, September 2017
8 BANK INDONESIA
bank that could trigger systemic risk in the banking
industry and spread to the financial system. BSRI for
large banks and nonbanks was maintained within
the normal-stable zone throughout the first half of
2017 despite relatively tight liquidity during Eid-ul-Fitr
at the large banks. In June 2017, BSRI stood at 1.40
(threshold of 3.8), indicating that systemic pressures
on individual banks were contained.
In terms of the financial markets, risk indicators for the
stock and bond markets as well as the rupiah exchange
rate were observed to improve. Furthermore,
risks in the SBN market and rupiah exchange rate
were relatively stable during the first half of 2017.
Concerning the stock market, the Jakarta Composite
Index (JCI) rallied 10.06% on the previous period to
a level of 5,829.71, boosted by better-than-expected
global economic growth and higher profits recorded
by individual issuers. The domestic stock market
gains were consistent with other regional bourses,
including Thailand, Malaysia and the Philippines.
Non-resident investors booked a net buy on bullish
sentiment totalling Rp18.24 trillion in the reporting
period, dominated by trade sector stocks. The SBN
market also performed well, with the Inter-Dealer
Market Association (IDMA) index rallying 4.59% from
99.09 in the previous period to 103.64. Furthermore,
the rupiah exchange rate strengthened against the
USD from Rp13,473 at the end of December 2016 to
Rp13,368/USD at the end of June 2017. In addition to
better-than-expected global economic performance,
the upgrade of Indonesia’s credit rating to investment
grade, affirmed by S&P’s, also contributed to rupiah
appreciation.
1 FMSI consists of several financial market indicators, covering the money market, bond market, stock market, foreign exchange market, credit default swaps (CDS) and external debt. 2 FISI consists of various pressure indicators, intermediation indicators and efficiency indicators of financial institutions, in particular the banking industry.3 BSRI is a composite of the credit risk, liquidity risk, exchange rate risk, SBN risk and capital risk indexes.
Despite a moderating bank intermediation function
and escalating credit risk in the banking industry,
financial system stability was well maintained during
the first half of 2017 with the support of a solid capital
base in the banking industry and relatively stable
volatility in the financial markets. Such dynamics were
evidenced by the Financial System Stability Index
(FSSI), which remained in the normal-stable zone at
0.82 in the middle of 2017, improving from 0.88 in
the previous period and well below the threshold of 2.
Nevertheless, the FSSI was observed to spike in the first
semester of 2017 as credit risk in the banking industry
intensified but returned to normal shortly thereafter.
By component, the Financial Market Stability Index1
(FMSI) was the main contributor to FSSI gains in the
first half of the year, improving from 1.04 to 0.93 on
the back of lower bond yields, stock market volatility,
exchange rate volatility, credit default swaps (CDS)
and external debt to GDP. Conversely, the Financial
Institution Stability Index2 (FISI) deteriorated from 0.63
at the end of 2016 to 0.67 in the middle of 2017
as a result of accumulating credit risk, sluggish bank
intermediation and less liquidity due to the cyclical
effect of Eid-ul-Fitr. On the other hand, the banks
managed to enhance efficiency, while maintaining a
large and stable capital base.
The Banking Systemic Risk Index3 (BSRI) also pointed
to maintained financial system stability. BSRI is a
measure of potential risk originating from an individual
1.3 Financial System Stability
9BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Solid financial system stability at home was also
a corollary of promising global and domestic
economic developments during the reporting period.
Nevertheless, the transmission of milder risks and
favourable economic developments through the trade
channel was comparatively weak in line with soft
demand from global investors, the domestic corporate
sector and households, which translated into slower
growth of bank intermediation, particularly credit
growth, and relatively high credit risk despite the banks
successfully increasing efficiency and profitability.
The banking industry maintained performance despite
sluggish intermediation and persistently high credit risk
thanks to a solid capital base and adequate liquidity.
The Capital Adequacy Ratio (CAR), as a measure of
capital in the banking industry, was high and stable
at 22.52% in the middle of 2017, down slightly from
22.69% in 2016. Meanwhile, the cyclical dynamics of
Eid-ul-Fitr were the main drag on bank liquidity after
increasing in the first quarter of 2017 due to financial
expansion by the government. The erosion of liquidity
in the banking system was reflected in the ratio of
liquid assets to deposits, which stood at 21.15% in
the reporting period, down from 21.61% at the end
of 2016.
The banking industry confirmed a depressed
intermediation function. Credit growth in the middle
of 2017 was stifled by low demand for new loans.
The corporate sector gains and improving repayment
capacity achieved in the first half of the year failed
to stimulate credit growth. Additionally, alternative
funding sources from the capital market were
becoming more attractive, including initial public
offerings (IPO) and rights issues, bonds, medium-term
notes (MTN) and Negotiable Certificates of Deposit
(NCD). Furthermore, bond rates fell faster than
lending rates. On the supply side, the banks became
more selective when lending due to stubbornly high
credit risk, which forced the banks to apply more
stringent lending standards despite Bank Indonesia
reducing the policy rate. Consequently, credit growth
moderated from 7.86% (yoy) in the second semester
of 2016 to 7.75% (yoy) in the first semester of 2017.
Non-performing loans (NPL), as a proxy of credit risk,
deteriorated in the middle of the first semester of
2017, reaching 3.04%, but recovered towards the
end of the semester to 2.96%, compared to 2.93%
at the end of 2016. The lower NPL rate at the end
of the first semester was in line with slower nominal
NPl growth and early signs of credit expansion despite
historical credit risk remaining high.
On the other hand, bank intermediation through
deposits tended to improve. Deposit growth stood
at 10.31% at the end of the first semester of 2017,
up from 9.60% at the end of 2016, before slowing
again in June 2017 due to cyclical Eid-ul-Fitr trends.
The successful Tax Amnesty program was the main
contributor to deposit growth along with financial
expansion by the government and banks less inclined
to lend.
The banking industry enhanced efficiency compared
to conditions one year earlier. The BOPO efficiency
ratio improved from 82.85% in December 2016 to
79.48% in June 2017. Congruently, the banks also
maintained profitability, with the return on assets
(ROA) increasing from 2.17% to 2.42%. The banks
improved their ROA by maintaining a stable net
FINANCIAL STABILITY REVIEWNo. 29, September 2017
10 BANK INDONESIA
interest margin (NIM) at 5.21% at the end of the first
semester of 2017 despite moderating slightly from
5.47% at the end of 2016. The relatively high NIM
ratio was indicative of the broad spread between the
interest income generated by banks and the amount
of interest paid out.
In general, the asset composition of financial
institutions was dominated by the banking industry,
accounting for 72.06% of the total in the first
semester of 2017. Despite a declining share compared
to conditions in the previous period, banking industry
assets increased from Rp6,729 trillion to Rp6,754
trillion in the reporting period. Considering most
financial institution assets are concentrated in the
banking industry, the associated risks demand
vigilance and intensive mitigation measures, which are
also inextricably linked to the monitoring of risks and
developments in other industries contained under the
umbrella of the financial system, including the financial
markets, in order to maintain financial system stability.
Graph 1.11 Financial System Stability Index (FSSI)
3
1.5
2
0.5
2.5
1
0
2002
MO
1 20
02M
O7
2003
MO
1 20
03M
O7
2004
MO
1 20
04M
O7
2005
MO
1 20
05M
O7
2006
MO
1 20
06M
O7
2007
MO
1 20
07M
O7
2008
MO
1 20
08M
O7
2009
MO
1 20
09M
O7
2010
MO
1 20
10M
O7
2011
MO
1 20
11M
O7
2012
MO
1 20
12M
O7
2013
MO
1 20
13M
O7
2014
MO
1 20
14M
O7
2015
MO
1 20
15M
O7
2016
MO
1 20
16M
O7
2017
MO
1 20
17M
O6
Suspected Crisis Suspected CrisisNormal NormalFSSI FSSI
Source: Bank Indonesia
Graph 1.13 Financial Market Stability Index (FMSI)
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2002
MO
1 20
02M
O7
2003
MO
1 20
03M
O7
2004
MO
1 20
04M
O7
2005
MO
1 20
05M
O7
2006
MO
1 20
06M
O7
2007
MO
1 20
07M
O7
2008
MO
1 20
08M
O7
2009
MO
1 20
09M
O7
2010
MO
1 20
10M
O7
2011
MO
1 20
11M
O7
2012
MO
1 20
12M
O7
2013
MO
1 20
13M
O7
2014
MO
1 20
14M
O7
2015
MO
1 20
15M
O7
2016
MO
1 20
16M
O7
2017
MO
1 20
17M
O6
Suspected Crisis NormalFMSI
Source: Bank Indonesia
Graph 1.12 Financial Institution Stability Index (FISI)
3
1.5
2
0.5
2.5
1
0
2002
MO
1 20
02M
O7
2003
MO
1 20
03M
O7
2004
MO
1 20
04M
O7
2005
MO
1 20
05M
O7
2006
MO
1 20
06M
O7
2007
MO
1 20
07M
O7
2008
MO
1 20
08M
O7
2009
MO
1 20
09M
O7
2010
MO
1 20
10M
O7
2011
MO
1 20
11M
O7
2012
MO
1 20
12M
O7
2013
MO
1 20
13M
O7
2014
MO
1 20
14M
O7
2015
MO
1 20
15M
O7
2016
MO
1 20
16M
O7
2017
MO
1 20
17M
O6
Source: Bank Indonesia
Graph 1.14 Banking Systemic Risk Index (BSRI)
4.5
2.5
3.5
1.5
0.5
4.0
2.0
3.0
1.0
0.0
Industry Index 1% Percentile
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Bank Indonesia
11BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Source: Indonesia Financial Services Authority (OJK), processed
2.89%
1.31%
11.20%
2.71% 4.93%
0.13%
0.17% 0.51%
4.08%
72.06%
Banking Industry
Islamic Banks
Rural Banks
Insurance Companies
Pension Funds
Finance Companies
Venture Capital Firms
Guarantee Companies
Pawn Brokers
Mutual Funds NAV
Graph 1.15 Asset Composition of Financial Institutions
1.4 Domestic Financial Imbalances
1.4.1. Bank Lending Procyclicality and the
Financial Cycle Contraction
The financial cycle of Indonesia (SKI) experienced
a contractionary phase during the first semester
of 2017 (Graph 1.16), which was primarily caused
by the ongoing credit slump. Credit growth has
continued to slide since the end of 2014, reaching
7.75% (yoy) in the first semester of 2017. Credit
growth was recorded at 7.86% (yoy) in the previous
period. Sluggish credit growth has been attributed
to tepid increases in aggregate demand, as reflected
by economic growth of 5.01% (yoy), which was
nevertheless up slightly from 4.94% (yoy) at the
end of 2016.
The troubling impact of bank lending procyclicality
on economic growth has been the deteriorating NPL
ratio in the banking industry, which increased from
2.93% in the second semester of 2016 to 2.96% in
the first semester of 2017. Nonetheless, the level of
non-performing loans (NPL) in the banking sector
Graph 1.16 Financial Cycle
1994
Q1
1994
Q4
1995
Q3
1996
Q2
1997
Q1
1997
Q4
1998
Q3
1999
Q2
2000
Q1
2000
Q4
2001
Q3
2002
Q2
2003
Q1
2003
Q4
2004
Q3
2005
Q2
2006
Q1
2006
Q4
2007
Q3
2008
Q2
2009
Q1
2009
Q4
2010
Q3
2011
Q2
2012
Q1
2012
Q4
2013
Q3
2014
Q2
2015
Q1
2015
Q4
2016
Q3
2017
Q2
0
0.02
(0.02)
(0.04)
(0.06)
(0.08)
(0.10)
0.04
0.06
0.08
0.101995Q2Q
2000Q2Q
2013Q3
Financial Cycle (lhs) Peak TroughKrisis
2005Q2Q
2009Q3Q2
Graph 1.17 Banking Lending Procyclicality
40
35
30
25
20
15
10
5
0
8(%)(%)
7
6
5
4
3
2
1
0
2001
Q3
2002
Q2
2003
Q1
2003
Q4
2004
Q3
2005
Q2
2006
Q1
2006
Q4
2007
Q3
2008
Q2
2009
Q1
2009
Q4
2010
Q3
2011
Q2
2012
Q1
2012
Q4
2013
Q3
2014
Q2
2015
Q1
2015
Q4
2016
Q3
2017
Q2
Credit (yoy)GDP (rhs)
Source: Bank IndonesiaSource: Bank Indonesia
FINANCIAL STABILITY REVIEWNo. 29, September 2017
12 BANK INDONESIA
Graph 1.18 Components of State Revenue in the First Semester of 2017
60.00
47.0
43.140.6
39.4
43.2
52.2
42.8
56,8
46.044.7
40.843.0
40.00
20.00
50.00
30.00
10.00
Tax Non-Tax Revenues Total Revenue and Grants
2014 20162015 2017*
%LKPP s.d Juni 2017
Source: Ministry of Finance, processedSource: Ministry of Finance, processed
Graph 1.19 Growth of State Revenue Components in the First Semester of 201725,0
20,0
15,0
10,0
5,0
0
-5,0
-10,0
-15,0
-20,0 Jan
Feb
Mar Ap
rM
ay Jun Jul
Aug
Sep
Oct
Nov
De
cJa
nFe
bM
ar Apr
May Jun Jul
Aug
Sep
Oct
Nov
De
cJa
nFe
bM
ar Apr
May Jun Jul
Aug
Sep
Oct
Nov
De
cJa
nFe
bM
ar Apr
May Jun
2014 2015 2016 2017
Non-Oil and Gas Tax Natural Resources Non-Tax RevenueOil and Gas TaxNon-Natural Resources Non-Tax Revenue
International Trade Tax GrantsTotal
*Preliminary realisation of Draft State Budget in 2017 (%)
has remained well below the 5% threshold. The high
level of NPL has influenced the lending decisions
of the banking industry, becoming more selective
and prudent. Consequently, lending procyclicality
demands vigilance considering that upon entering
an downswing, economic players still require the
support of bank loans to avoid deeper declines.
1.4.2 Limited Fiscal Space
The Government enjoyed broader fiscal space in
the first semester of 2017 due to limited spending
absorption coupled with increasing revenues. The
realisation of financial operations as of June 2017
recorded a deficit equivalent to 1.3% of GDP,
narrowing from 1.9% of GDP in June 2016 due to
more limited expenditure realisation in June 2017.
Meanwhile, revenues were observed to increase
slightly on the same period one year earlier but with
a lower ratio of tax revenue.
State revenues increased in the first semester of
2017. As of June 2017, state revenues had reached
43% of target, compared to 40.8% in the previous
year (Graph 1.18), with Non-Tax State Revenues
(PNBP) the main contributor as a result of revenues
from natural resources. Notwithstanding the gains
on the same period one year earlier, tax revenue
was shown to decline, with non-oil and gas taxes
cited as the main drag (Graph 1.19). Furthermore,
tax revenue from the retail sector and income tax
also declined, while VAT revenue was eroded by
domestic VAT and limited imports.
Government expenditure, including central
government spending and regional stimuli,
remained limited (Graph 1.20). As of June 2017,
state expenditure had only grown by 3.2%, yoy),
down from 11.1% (yoy) in the previous year. Central
government spending on procurement and capital
was restrained by efforts to maintain absorption on
target. After spiking in 2016, procurement spending
and capital spending was reined in during the first
half of 2017 due to greater government budget
allocation to infrastructure in line with the target.
Subsidies were throttled back by gradually cutting
electricity subsidies to 900VA subscribers throughout
2017. Regional subsidies were also rolled back,
which manifested in a smaller Profit Sharing Fund
(DBH) and negative growth of the physical Special
Allocation Fund (DAK). Such developments were in
13BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
4 On 1st April 2017, the Government issued Minister of Finance Regulation No. 50/PMK.07/2017 concerning Regional Transfer and Village Fund (TKDD) Management to improve the allocation
and optimisation of TKKD utilisation.
Graph 1.20 Components of State Expenditure in the First Semester of 2017
sd Jun
2008
sd Jun
2009
sd Jun
2010
sd Jun
2011
sd Jun
2012
sd Jun
2013
sd Jun
2014
sd Jun
2015
sd Jun
2016
sd Jun
2017
500
200
400
100
600
300
Rp T
1. Personnel Expenditure 5. Subsidies2. Procurement 6. Grant Expenditure3. Capital Spending 7. Social Assistance4. Debt Obligations 8. Other Expenditure
Source: Ministry of Finance, processed
line with policy to change the transfer uptake for
infrastructure development to proposal-based4.
Broad fiscal space minimised the risks to the
financial system. Fiscal sustainability in the first half
of the year was maintained, as indicated by a fiscal
deficit of just 1.3% of GDP, down from 1.9% of
GDP in 2016. Furthermore, restrained government
expansion alleviated pressures on liquidity.
1.4.3 High-Risk Nonbank Corporate
ExternalDebt
External debt has increased in Indonesia as the
global and domestic economies have shown signs
of improvement. External debt stood at USD335.29
billion in the first semester of 2017, up 2.85% (yoy)
from USD317.78 billion at the end of 2016. In terms
of risk, the sensitivity of external debt in Indonesia
to currency risk tended to ease, as evidenced by
the lower external debt to GDP ratio, falling from
34.51% in the second semester of 2016 to 34.44%
in the reporting period.
External debt composition can be reviewed
from the perspective of loan type. Departing
from earlier conditions when the private sector
constantly dominated external debt rather than the
government or central bank, in the first semester
of 2017 it was the government that overtook
the other sectors to dominate the composition of
external debt, with a value of USD166.28 billion or
49.59% of the total. Such developments confirmed
a significant 11.40% bump on the USD154.88
billion recorded in the previous period. On the other
hand, the external debt of the central bank tracked
a fluctuating trend, falling from USD5.43 billion in
the first semester of 2016 to USD3.41 billion at the
end of 2016 and then increasing to USD4.00 billion
in the first semester of 2017.
The structure of private external debt is categorised
as bank and nonbank external debt. In the middle
of 2017, the share of private sector external debt
attributable to nonbank corporations accounted
for 82.35% of the total, while the banking industry
commanded a 17.65% share. Congruent with
FINANCIAL STABILITY REVIEWNo. 29, September 2017
14 BANK INDONESIA
35
25
20
15
10
120
100
80
60
40
20
140
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16M
ay-1
6Se
p-16
Jan-
17M
ay-1
7
160 40
30Nonbanks
Banks (rhs)
Private
140
120
100
80
60
40
20
160
Jan-
08Ap
r-08
Jul-0
8O
ct-0
8Ja
n-09
Apr-0
9Ju
l-09
Oct
-09
Jan-
10Ap
r-10
Jul-1
0O
ct-1
0Ja
n-11
Apr-1
1Ju
l-11
Oct
-11
Jan-
12Ap
r-12
Jul-1
2O
ct-1
2Ja
n-13
Apr-1
3Ju
l-13
Oct
-13
Jan-
14Ap
r-14
Jul-1
4O
ct-1
4Ja
n-15
Apr-1
5Ju
l-15
Oct
-15
Jan-
16Ap
r-16
Jul-1
6O
ct-1
6Ja
n-17
Apr-1
7
180
Government + Central Bank
Private
Government + Central Bank and Private
16
12
10
8
6
4
2
140
120
100
80
60
40
20
160
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16M
ay-1
6Se
p-16
Jan-
17M
ay-1
7
180 18
14
Pemerintah
Bank Sentral(Skala Kanan)
Government Central Bank
Graph 1.21 External Debt Composition based on Loan Type and External Debt to GDP
Source: External Debt Statistics, Bank Indonesia
Source: External Debt Statistics, Bank Indonesia Source: External Debt Statistics, Bank Indonesia
12
8
6
4
2
35
30
25
20
15
10
5
40
45 14
10
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
Mar
-16
Jun-
16
Sep-
16
Des-
16
Mar
-17
Jun-
17
34,44
4,99
External Debt to GDP
GDP Growth (%, yoy)
External Debt Growth (%, yoy)
2,85
Source: CEIC and External Debt Statistics, Bank Indonesia
USD Miliar
USD Miliar
USD Miliar
(%) (%)
improving economic dynamics and the investment
recovery, demand for funds also increased and,
therefore, private nonbank external debt expanded
4.51% from USD130.02 billion at the end of 2016
to USD135.88 billion in June 2017. On the other
hand, private sector bank external debt moderated
slightly from USD29.48 billion to USD29.13 billion
in the reporting period.
In terms of original maturity, private nonbank
external debt was dominated by long-term
obligations worth USD110.31 billion compared to
just USD25.58 billion of short-term external debt.
Concerning risk, as most private nonbank eternal
risk was long term, the risks were contained.
Nevertheless, monitoring the risks was necessary
because of the increase in outstanding external debt
during the reporting period.
The risks associated with corporate repayment
capacity accumulated, however, in line with global
and domestic economic growth as well as lacklustre
corporate performance despite posting moderate
gains. The emergent risks were confirmed by a
relatively high Tier-1 Debt Service Ratio (DSR) at
a level of 15.85% in the second quarter of 2017,
despite tracking a downward trend since the third
quarter of 2016, decreasing from 21.90% to
16.63% in the first quarter of 2017. The lower DSR
stemmed from additional new outstanding external
debt and lower principal payments. Compared to
conditions in the previous period, the private sector
was the main contributor to the declining Tier-1
DSR, falling from 13.6% to 8.99% in the reporting
period. In contrast, the public sector posted a subtle
increase in the Tier-1 DSR from 6.18% at the end of
2016 to 6.86% in June 2017.
15BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Despite a growing portion of non-financial
corporate external debt, total restructured external
debt decreased to USD30.66 billion in the reporting
period. Most restructured corporate external debt
had a negative tone due to deteriorating corporate
performance stemming from the declining
repayment capacity, weaker business outlook and
liquidity problems. Negative tone restructuring was
accomplished through reconditioning, capitalised
interest, debt-to-equity swaps, debt reductions,
rescheduling and other forms of external debt
restructuring. Such conditions demonstrated the
comparatively high risk of corporate external debt
that could spill over to the domestic banking sector.
Striving to mitigate corporate external debt risk,
Bank Indonesia has enforced a hedging ratio
applicable to all nonbank corporations indebted
with foreign loans. The hedging obligations aim to
alleviate the potential risks that could surface due to
global and domestic economic uncertainty.
Based on the Application of Prudential Principles
report (KPPK) published in the first semester of
2017 for external debt with a tenor of 0-3 months,
of the 2,418 reporting companies, 248 (10%) had
30
25
20
15
10
5
0
(%)
Q1 Q1 Q1 Q1Q2 Q2 Q2 Q2Q3 Q3 Q3Q4 Q4 Q4
2014 2015 2016 2017
15.85%
8.99%
6.86%
Total Tier DSR Public Sector Tier-1 DSR
Private Sector Tier-1 DSR
Graph 1.23 Debt Service Ratio (DSR)
50,000
150,000
250,000 70.00
30.00
50.00
10.00
(20.00)
60.00
20.00
(10.00)
40.00
-
(30.00)
100,000
200,000
(%)Miliar Dolar AS
Jun09
Jun10
Jun11
Jun12
Jun13
Jun14
Jun15
Jun16
Jun17
Dec09
Dec10
Dec11
Dec12
Dec13
Dec14
Dec15
Dec16
Graph 1.22 Private Nonbank External Debt by Original Maturity
Source: External Debt Statistics, Bank Indonesia Source: External Debt Statistics, Bank Indonesia
Short-Term Long-Term
Shoert-Term External Debt Growth (rhs)
Long-Term External Debt Growth (rhs)
failed to meet the requirements to hedge 25% of
their net foreign currency liabilities. For 3-6 months,
however, 161 reporting companies (7%) had failed
to meet the requirements.
1.4.4. Large Non-Resident Holdings in the
Domestic Financial Markets
Less volatile global economic shocks in the first half
of 2017, coupled with relatively stable domestic
economic dynamics, in particular the financial
markets, buoyed stock and SBN market growth
and improved performance. Non-resident investor
confidence in domestic assets remained high, thus
precipitating a net capital inflow drawn to the stock
and SBN markets. Increasing liquidity, financial
market deepening and domestic capital market
capitalisation bolstered non-resident investor
holdings.
The portion of non-resident investor holdings in the
stock and SBN markets spiked significantly in March
and April 2017 due to bullish sentiment after S&P’s
upgraded Indonesia’s sovereign credit rating to
Investment Grade, following other prominent rating
agencies that had previously affirmed investment
grade status, including Moody’s and Fitch Ratings.
FINANCIAL STABILITY REVIEWNo. 29, September 2017
16 BANK INDONESIA
Graph 1.24 Non-Resident Investor Holdings in SBN
271
324
461
559
666
771
1,182
671
749
903
1,107
550
Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Jun-17
2,500
2,000
1,500
1,000
5,00
Non-Residents Non-Residents Residents Residents
Source: Directorate General of Budget Financing and Risk Management (DJPPR), Ministry of Finance
Source: CEIC
Graph 1.25 Non-Resident Investor Holdings in Stocks
Jun-
13
Sep-
13
Des-
13
Mar
-14
Jun-
14
Sep-
14
Dec-
14
Mar
-15
Jun-
15
Sep-
15
Dec-
15
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0
54.64%
45.36%
The move confirmed foreign investor confidence
in the national economic outlook. Nevertheless,
greater foreign participation in the domestic
financial markets also exacerbated the potential
risk of a sudden capital reversal and transaction
volatility.
In the SBN market, non-resident holdings accounted
for 39.47% of total SBN in circulation in June
2017, up from 37.55% at the end of 2016. The
net inflow drawn to the SBN market in the first
semester of 2017 totalled Rp31.33 trillion, which
precipitated a stronger yield on the benchmark 10-
year tenor, falling to a level of 7.02%. Additionally,
such conditions persisted into the middle of the
year, with the yield strengthening further to 6.79%
and the net inflow recorded at Rp14.40 trillion in
June 2017. Sentiment improved as uncertainty
surrounding the proposed FFR hike faded, which
prompted lower yields on all tenors.
Regarding the stock market, non-resident investor
holdings accounted for 54.64% of stock market
capitalisation value in June 2017, up slightly from
54.49% at the end of 2016 when non-resident
investors released domestic stocks on the back of
negative global sentiment. Notwithstanding the net
sell booked by foreign investors totalling Rp4.32
trillion, the domestic stock index continued to rally
to 5829.71 in the reporting period and to 5296.71
at the end of the previous period.
Contrasting the structure of the SBN and stock
markets, which were dominated by non-resident
investors, the SBI market was dominated by
domestic holdings, accounting for 79.56% in
the first semester of 2017, in particular due
to enforcement of a minimum holding period.
Nevertheless, the portion of domestic holdings
had declined from 98.50% in the previous
period. The minimum holding period, currently
set at one week, has had a relatively subdued
impact on foreign ownership in the SBI market.
17BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Source: Bank Indonesia
100%(%)
90%
50%
70%
30%
80%
40%
60%
20%
10%
0%
20.5
79.5
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
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
Sep-
17
Dec-
17
Graph 1.26 Foreign and Domestic Holdings in Bank Indonesia Certificates (SBI)
Foreign Domestic
Source: Bloomberg Source: Bank Indonesia
Graph 1.27. The Development of Price and Volume of Stock Transactions
(20)
(25)
0 5000
4400(15)
5 5200
(10) 4600
4000
10 5400
(5) 4800
4200
15 5600
6000Rp T
20 5800
Foreign Net Buy/Sell of Stocks Foreign Net Buy/Sell of StocksJCI (rhs)
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
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
Graph 1.28 SBN Transaction Volume and Prices
-20
-30
20
6
-10
30
7
0
4
40
8
10
5
50Rp T (%)
9
10
10-Year Benchmark SBN Yield (rhs)
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
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
FINANCIAL STABILITY REVIEWNo. 29, September 2017
18 BANK INDONESIA
Box 1.1 Bank Indonesia Systemic Risk Survey in the First Semester of 20175
As a macroprudential authority, Bank Indonesia
constantly strives to maintain financial system
stability through various efforts to mitigate
systemic risk. Several methods are available to
prevent risk, including the Systemic Risk Survey6.
When mitigating risk, identifying the sources of
the risks is a crucial preliminary step. The Systemic
Risk Survey complements Bank Indonesia’s efforts
to identifying sources of systemic risk in the
national financial system, which are divided into
two elements, namely identifying the sources of
shocks in the financial system as well as identifying
the vulnerabilities in the financial system because
systemic risk is believed to materialise when a
shock interacts with a vulnerability.7 In addition to
identifying the sources of systemic risk, the Survey
also garners public confidence in financial system
stability in Indonesia.
The Systemic Risk Survey was first conducted in 2015
and has been constantly developed since, with the
third survey published in the first semester of 2017.
Looking forward, the Survey will be conducted
regularly each semester, with the results published
in the Financial Stability Review (FSR). Seeking
to obtain comprehensive responses, the survey
reaches competent respondents with knowledge
and experience of the latest issues affecting
the financial system. Around 189 respondents
participated in the Survey conducted in March-April
2017, representing a 71.3% response rate, which
surpassed the target of 100 respondents.
Sources of Shocks in Indonesia’s Financial
System
This part of the Survey collates respondents’
opinions on possible shocks in the financial
system, coupled with the potential fallout over the
upcoming six months. The list of shocks included in
the questionnaire are also presented at the end of
this Box.
Based on a recapitulation of responses, a total of
seven shocks were brought to the attention of the
respondents due to a high probability of occurrence
and large potential impact on Indonesia’s financial
5 The results of the survey contained in this box are based on respondents’ responses and do not represent the views of Bank Indonesia.6 A general clarification of the Bank Indonesia Systemic Risk Survey was presented in the Financial Stability Review (FSR), No. 29, March 2017.7 Bank of Canada, 2014, Financial System Review, June 2014.
Box Table 1.1.1 Respondent Recapitulation
RespondentsSample Responses
Response RateTotal Share Total Share
Financial Institutions 101 38% 85 45% 84%
Corporations 49 18% 39 21% 80%
Economists and Bank Indonesia Financial Stability Research Forum (FRSK); 40 15% 25 13% 63%
Academia 24 9% 14 7% 58%
Professional Associations 26 10% 15 8% 58%
Research Institutes 18 7% 8 4% 44%
Media 5 2% 2 1% 40%
International Organisations 2 1% 1 1% 50%
TOTAL 265 100% 189 100% 71,3%
Source: Bank Indonesia
19BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
system, namely the shocks that are contained in
the upper-right quadrant of Box Graph 1.1.1. The
shocks were global in nature, including: sluggish
global economic growth (1); global crude oil
prices (3); price volatility of major international
commodities (4); and international political and
economic issues (5); as well as domestic shocks,
such as: rising administered prices (6); rising volatile
foods prices (7); and changes to government fiscal
policy, such as the Tax Amnesty (8).
On average, nearly all shocks contained in the
questionnaire were categorised by the respondents
as shocks if they materialised and had a large impact
on the national financial system, excluding sectoral
policy changes (11) and domestic political issues
(12). The most significant impact, according to the
respondents, occurred if the shock affected a large
domestic bank (14) but with only a small chance
of materialising, the shock was considered a high
impact-low probability event.
In addition, several other types of shock were put
forward by the respondents through open questions,
including: below-target tax revenue; regional
conflict; corruption; and the impact of protracted
implementation of the National Legislation Program
(Prolegnas) in 2017 on draft bills that help shape
economic and financial activities as well as the
business community and industry.
Financial System Vulnerabilities in Indonesia
The respondents are expected to identify the
characteristics of vulnerabilities present in
Indonesia’s financial system, namely the severity and
attributes of the vulnerabilities. A list of sources of
vulnerabilities is also included in the questionnaire,
as presented at the end of this Box.
Nearly all sources of vulnerability presented in the
questionnaire were categorised by the respondents
as structural. Only vulnerabilities stemming from
lending procyclicality (7); FinTech innovation
8 The numbering in Box Graph 1.1.1 refers to the list of shocks presented at the end of Box 1.1.9 The numbering in Box Graph 1.1.2 refers to the list of vulnerabilities presented at the end of Box 1.1.
Box Graph 1.1.2 Characteristics of Vulnerabilities in Indonesia’s Financial System9
Alarming
9 118
16
312
10
2
13
14
8
15
7 4
6 5
17
11
Severity
Insignificant
Temporary Risk Characteristic Structural
Box Graph 1.1.1 Sources of Shocks in Indonesia’s Financial System8
High
57
6
1 4
3
28
9
10
11
12
13
1514
Probability of Occurrence
Low
Small Risk Impact Large
FINANCIAL STABILITY REVIEWNo. 29, September 2017
20 BANK INDONESIA
outpacing adequate regulation (8); overleveraged
corporations/non-financial companies (14); and
corporate liquidity problems (15) were assumed by
the respondents to be transient.
Based on a recapitulation of responses, a total of
eight vulnerabilities in the national financial system
were considered important by the respondents,
namely those that were structural in nature and
had an alarming level of severity, as appearing in
the upper-right quadrant of Box Graph 1.1.2. Such
vulnerabilities were sensitive to shocks and could
materialise into systemic risk with relatively rapidity
as follows: a large share and high volatility of foreign
funds in domestic investments (1); dominant private
external debt (2); loan concentration in certain
sectors or large borrowers (3); the proliferation of
shadow banking that is difficult to monitor (9); the
concentration of funding sources at large customers
(12); non-financial corporate dependence on
imported raw materials (16); shallow financial
markets (17); infrastructure loan disbursements
without adequate mitigation capacity (18). In
addition to the vulnerabilities included in the
questionnaire, the respondents also had the
opportunity to submit their own vulnerabilities
through open questions, which included: moral
hazard in the financial industry; less prudent credit
risk management; relatively broad margin spread in
the banking industry; loss loans and low investment
uptake.
Public Confidence in National Financial System
Stability
The final part of the Survey revealed that nearly all
respondents were upbeat in the short term, up to
6 months and >6 months. Only 1% of respondents
were not confident in national financial system
stability in the short term (up to six months) and
3% were not confident over the longer term (>6
months). Based on the recapitulation presented
in Box Graph 1.1.3, the respondents’ level of
confidence had declined for the period of >6
months, which was explained by the increasingly
difficult-to-predict nature of the economy over the
longer term.
21BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
1. Subdued global economic growth;2. Greater frequency of FFR hikes than expected;3. Global crude oil price trend;4. Price volatility of major international commodities;5. International political and economic issues, including: a. Policies of the new US Administration (Trumponomics); b. General elections (changes of leadership) in
influential countries, such as France, Germany, Italy and the Netherlands;
c. Brexit issues; d. Economic policy in influential global powers;6. Rising administered prices (AP), including; a. Rising electricity rates; b. Rising fuel prices; c. Higher vehicle registration renewal fees;7. Rising volatile food (VF) prices;8. Changes in government policy relating to the fiscal sector, for
example the draft state budget, tax amnesty, etc.9. Weaker-than-expected domestic economic growth;10. Changes in policy and/or regulation concerning financial
institutions;11. Sectoral government policies, for example foreign property
ownership, restrictions on maize imports;12. Domestic political issues, such as local elections;13. Problems at large international banks;14. Problems at large domestic banks;15. Force majeure that affects the operation of the financial
system, for example problems in the payment system.
1. Large share and high volatility of foreign funds in domestic investments;
2. Dominant private external debt;3. Loan concentration in certain sectors or large borrowers;4. Constraints to value chain loan disbursements;5. Interconnectedness between the financial system and
government financial cycle;6. Interbank money market segmentation;7. Bank lending procyclicality;8. FinTech innovation outpacing adequate regulation;9. Proliferation of shadow banking that is difficult to monitor
and not adequately regulated;10. A banking sector dominated by several large banks;11. Banking sector interconnectedness;12. Concentration of funding sources amongst large customers;13. Bank funding problems;14. Overleveraged corporations/non-financial companies;15. Corporate liquidity problems;16. Non-financial corporate dependence on imported raw
materials;17. Shallow financial markets;18. Infrastructure loan disbursements without adequate
mitigation capacity.
Shocks Vulnerabilities
Very Unconfident1%
Unconfident1%
Confident66%
Confident77%
Unconfident3%
Very Confident20%
Very Unconfident0%
Very Confident32%
Up to 6 Months > 6 Months
Box Graph 1.1.3 Confidence in National Financial System Stability
FINANCIAL STABILITY REVIEWNo. 29, September 2017
22 BANK INDONESIA
Box 1.2 International Recognition of Successful Financial Sector Reforms in Indonesia according to FASP 2016/2017
Congruent with commitments as a member of the
G20, Indonesia again participated in the Financial
Sector Assessment Program (FSAP) in 2016/2017.
FSAP was first implemented in Indonesia in 2010
and represents a joint program of the International
Monetary Fund (IMF) and World Bank (WB) to
comprehensively assess financial sector stability and
performance, focusing on potential systemic risk
and interconnectedness between sectors.
Indonesia is committed to regular FSAP
implementation in order to support domestic
financial system stability and development.
FSAP implementation is voluntary in Indonesia
because Indonesia does not appear on the list of
countries with systemically important financial
systems. Nevertheless, Indonesia has committed
to regularly participate in the FSAP program
every five years, considering the various benefits
of FSAP implementation, including identifying
major vulnerabilities in the financial system and
recommendations to strengthen financial system
stability with a focus on enhancing the quality
and capacity of financial services sector regulation
and supervision, financial market deepening
and financial inclusion, as well as formulating an
appropriate and effective policy response to prevent
and resolve a crisis in the financial system.
Furthermore, publication of the FSAP results also
raises public confidence in the national economy.
The results of the FSAP in 2016/2017 were published
in an IMF report on 12th June 2017 (local time).
Simultaneously, the Government of the Republic of
Indonesia (Ministry of Finance), in conjunction with
domestic authorities/institutions, consisting of Bank
Indonesia, the Financial Services Authority (OJK) and
Deposit Insurance Corporation (LPS), disseminated a
joint press release on 13th June 2017 through their
respective channels. Publication and dissemination
of the FSAP results were expected to enhance public
understanding of financial services sector dynamics
in Indonesia, raise domestic and international public
confidence to draw investment to Indonesia and
facilitate the domestic financial services industry
to transact with external parties through potential
business development abroad.
The latest FSAP results pointed to solid macroeconomic
conditions in Indonesia, as reflected by a stable
financial system in the face of global financial system
volatility and domestic vulnerabilities. Moreover,
the national financial system remained solid despite
economic moderation, declining credit growth and
a corporate sector blighted by risk. Systemic risk
in the domestic financial system was deemed low
and stress tests showed that the banking system
was resilient to severe shocks, supported by a solid
capital base and high profitability. Vulnerabilities
in the corporate sector were mitigated despite a
build-up of debt risk in several sectors and offshore
funding risk. Consequently, the authorities were
requested to continue monitoring systemic risk and
remain vigilant of disruptions to financial stability.
23BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
The achievements were supported by financial sector
reforms in Indonesia through various efforts actively
pursued by the authorities to strengthen financial
sector oversight, crisis management, financial
market deepening and financial inclusion. The
salient accomplishments in the domestic financial
sector include strengthening integrated financial
sector supervision through the establishment of
the Financial Services Authority (OJK) in 2011;
revising the crisis management and resolution
framework through promulgation of the Financial
System Crisis Prevention and Mitigation (PPKSK)
Act in 2016, which became the foundation of the
Financial System Stability Committee and provided
the Deposit Insurance Corporation (LPS) broader
jurisdiction over resolution measures; implementing
Basel III by OJK; developing analysis tools to assess
systemic risk; implementing various macroprudential
policy instruments as well as reforming the liquidity
management framework by Bank Indonesia.
Sound economic performance and solid financial
system stability in Indonesia were also inextricably
linked to Bank Indonesia’s roles of intervention on
the foreign exchange and bond markets, effective
monetary policy in response to inflationary and
BOP pressures as well as macroprudential policy to
overcome credit growth and property sector prices.
Furthermore, macroprudential policy was considered
effective in terms of various BI accomplishments,
including: (i) promulgation of macroprudential
policy guidelines; (ii) organisational restructuring;
(iii) development of analysis tools to assess systemic
risk; (iv) implementation of macroprudential policy
instruments directly under the control of Bank
Indonesia through BI regulations, such as the loan-
to-value (LTV) ratio and RR-loan to funding ratio
(RR-LFR). In addition, corporate hedging regulations
issued by Bank Indonesia effectively reduced the
rapid pace of corporate external debt growth.
To enhance financial sector resilience as well
as support financial market deepening and
financial inclusion, FSAP recommended that the
authorities continue their ongoing processes while
strengthening the mandates and legal protection
of the financial system authorities, as well as
strengthening financial sector oversight, improving
the safety net and continuing financial market
deepening and financial inclusion efforts.
• Strengthen the mandates through amendments
to the BI Act and OJK Act with a focus on
financial stability rather than development.
An amendment to the BI Act is also required
to provide a clear macroprudential policy
mandate to Bank Indonesia, with a focus on
systemic risk coupled with data access to the
nonbank sector. Furthermore, the mandate of
the Deposit Insurance Corporation (LPS) should
be refocused on maintaining financial stability,
the sustainability of critical functions, deposit
guarantees and minimising the resolution
costs. In addition, a clear division of duties and
FINANCIAL STABILITY REVIEWNo. 29, September 2017
24 BANK INDONESIA
responsibilities would help to reduce duplicity
and increase inter-authority cooperation.
• Legal protection of the financial system
authorities. Legal protection of employees and
officers from the financial system authorities in
terms of supervision and crisis management is
required in line with international standards.
• Strengthen financial sector oversight. The
Financial Services Authority (OJK) must
strengthen integrated supervision across
sectors, oversight of financial conglomerates
in terms of governance and risk management
as well as reduce the silo structure of the OJK
organisation.
• Safety nets. The recommendations included
refining the role of the Financial System Stability
Committee to focus as a coordination forum,
limit the president’s role to the use of public
funds in order to avoid diluting the roles of
the Deposit Insurance Corporation (LPS) and
Financial System Stability Committee, as well
as refine the emergency liquidity assistance
framework (the Short-Term Liquidity Facility
(PLJP) in Indonesia) to ensure effective
implementation during crisis conditions, namely
in relation to the criteria for banks to receive
PLJP as well as Government guarantees. Public
funds for resolution purposes will be used on
limited cases with consideration of systemic
stability and complemented with adequate
safeguards.
Moving forward, Bank Indonesia will continue to
strengthen cooperation with the relevant authorities
to actively monitor the progress of the various
recommendations in the areas of financial stability
financial safety nets, financial market deepening
and financial inclusion and risk-based supervision
in the area of AML/CFT, particularly the Transfer
of Nonbank Funds and supervision of Nonbank
Money Changers. In addition, Bank Indonesia will
also prepare an update of the follow-up actions to
be monitored through implementation of Article
VI Consultation annually and monitoring the peer
review conducted by the Financial Stability Board
(FSB) two years after FSAP implementation.
25BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Box 1.3 Tax Amnesty Realisation
10 Contained in Act No. 11 concerning the Tax Amnesty, dated 28th June 2016, the objects of the Tax Amnesty were taxable liabilities that were undeclared or partially declared
by the taxpayers according to the latest income tax returns. The undeclared or partially declared taxable liabilities were calculated upon request of the Tax Amnesty applicant.
The scope of the Tax Amnesty excluded asset gains attributable to revaluations. The applicant was required to pay a relatively small fee based on the calculation of undeclared or
partially declared taxable liabilities.11 The tariffs on declared assets abroad and not repatriated was set at 4% for the period from 1st July – 30th September 2016, 6% from 1st October – 31st September 2016 and 10%
from 1st January 2017 – 31st March 2017.12 The tariffs on domestic declared assets or offshore assets to be repatriated were 50% lower than the tariffs on declared assets abroad and not repatriated for each respective
period.
The Government has implemented a Tax Amnesty
program in order to optimise potential tax revenue.
The Tax Amnesty was applied from 1st July 2016
until 31st March 201710. In general, the Tax Amnesty
targeted undeclared or partially declared taxable
liabilities according to the latest income tax return.
The declared assets could be held domestically
or offshore. On the undeclared obligations, the
taxpayer would pay a relatively small fee11.The
tariffs on declared assets at home and repatriated
assets were lower than assets held offshore12.
The Tax Amnesty program was a success. The Tax
Amnesty was implemented in three phases, namely
from July – September 2016, October – December
2016 and from January – March 2017. The total
funds generated by the Tax Amnesty reached
Rp135.3 trillion (Box Graph 1.3.1), which boosted
tax revenue in 2016 and 2017, particularly non-oil
and gas income tax. Meanwhile, the value of assets
declared totalled Rp4,882 trillion, of which Rp147.7
was repatriated (Box Graph 1.3.2). Total revenue far
exceed that generated by the Sunset Policy initiated
in 2008, which supplemented tax revenue to the
tune of just Rp7.5 trillion. The funds generated and
assets declared as part of this Tax Amnesty were
the highest of any similar program implemented
anywhere in the world.
The Tax Amnesty could potentially improve tax
performance. The Tax Amnesty directly boosted
tax revenue through the fees paid. In addition, tax
revenue has also increased in the period after the
Tax Amnesty in the form of Article 29 concerning
Individual Income Tax payments from taxpayers
who submitted an income tax nil return from 2014-
2016, with the negligible value of just Rp1.0 trillion
at the end of the first semester of 2017. On the
other hand, there was also an increase recorded
in the Final Income Tax payments on Dividends
(paid to individuals), which increased 65.8% from
Rp0.79 trillion in January – April 2016 to Rp1.32
trillion in January – April 2017. The positive post-TA
developments will help the government attain its
target ratio of tax revenue to GDP in the 2017 state
budget, set at 10.8% of GDP (Box Graph 1.3.3).
The TA program also elevated other economic
variables. The Tax Amnesty successfully attracted
residents’ funds placed in offshore assets, which
increased domestic liquidity, improved Indonesia’s
International Investment Position (IIP) and supported
rupiah exchange rate stability. The largest group of
repatriated assets was cash and cash equivalents
(Rp87.9 trillion), followed by receivables and
inventory (Rp25.9 trillion) as well as investments and
securities (Rp21.3 trillion). This was also reflected in
FINANCIAL STABILITY REVIEWNo. 29, September 2017
26 BANK INDONESIA
the transfer of Overseas Current Accounts (OCA)
to Nostro accounts, sales of securities and offshore
asset divestment throughout 2016. The transfer of
OCA to Nostro accounts peaked in September –
December 2016, along with the inflow of foreign
exchange to rupiah. Inflow transactions of foreign
exchange converted to rupiah spiked in September –
December 2016, which not only bolstered domestic
liquidity but also improved Indonesia’s International
Investment Position (IIP) in the second half of
2016. In addition, the increased supply of foreign
exchange also fed through to rupiah appreciation.
Box Graph 1.3.1 Tax Amnesty Fees
135.3trillion
19.4 trillionTax Debt Payment for Tax Amnesty Participation
Cessation of Initial Evidence 1.7 trillion
Ransom Payment114.2 trillion
Box Graph 1.3.2 Declared Assets through the Tax Amnesty
4,882.2trillion
1,036.7 trillionDeclared Offshore
Repatriated146.7trillion
Declared Onshore3,698.7 trillion
Tax Revenue
Rp, T % PDB11.5
10.5
11.2
11.411.3
10.910.7
10.3
10.8
1,400.0
1,600.0
1,200.0
1,000.0
800.0
600.0
400.0
200.0
2009
Tax Ratio
2010 2011 2012 2013 2014 2015 2016
11.6
11.4
11.2
11.0
10.8
10.6
10.4
10.2
10.0
9.8
9.6
2017
APBN-P
Box Graph 1.3.3 Ratio of Tax to GDP (%)
27BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
The process of making golek puppets using detailed engraving. The process requires adept engraving
skills to produce the desired results. In terms of financial system stability, the engraving technique may be
construed as the ability to manage inflows to the financial markets, primarily foreign capital inflows, which
can significantly affect conditions in the overall financial system.
In general, the domestic financial markets remained relatively stable in the first half
of 2017, with improvements stemming from maintained macroeconomic conditions in
Indonesia against a backdrop of mixed domestic and global economic dynamics. The
favourable perception of investors concerning domestic macroeconomic conditions
became positive sentiment driving financing from the capital market, primarily boosted by
financing from the bond market, medium-term notes (MTN) and Negotiable Certificates
of Deposit (NCD), as the banks reported slower credit growth. Bullish sentiment also
drew non-resident capital inflows to the domestic financial markets. Nevertheless,
volatility in the rupiah interbank money market, foreign exchange market, stock market
as well as government and corporate bond markets eased, indicating less risk in the
domestic financial markets.
Moving forward, the risk of a sudden capital reversal demands vigilance. The direction
of the US economic recovery, policy to unwind the Federal Reserve’s balance sheet and
end of the low interest rate era, including the potential nuclear threat from North Korea,
will influence global financial market sentiment. At home, investors will tend to focus
on economic growth resilience and fiscal performance. In addition, subdued corporate
expansion in several sectors, coupled with relatively high non-performing loans (NPL),
could potentially undermine corporate repayment capacity.
The Islamic financial sector also performed solidly, with the Islamic Stock Index continuing
to rally, the share of government sukuk expanding as a source of state budget financing,
and the ongoing development of Islamic mutual funds. Furthermore, the social financial
sector also recorded gains as zakat and waqf funds continued to increase.
THE FINANCIAL MARKETS
02
FINANCIAL STABILITY REVIEWNo. 29, September 2017
30 BANK INDONESIA
Money Market
Risk was contained in the money market as interest rates and volatility declined.
Interbank rate down to4.30%
Interbank Money Market Repo Market
Interbank rate volatility down to33.68%
Average daily interbank money market transaction volume up to Rp8.11 trillion
Average daily interest rate down to 4.95% - 5.44%
Average daily transaction volume up toRp7,524 trillion
Rupiah exchange rate down to Rp13,368/USD
Volatility down to 2.39%
NDF spread down to -0.85%
Foreign Exchange Market
Risks tended to ease in the foreign exchange market, reflected by low volatility and a relatively stable risk premium.
Risk also eased in the stock market, indicated by a JCI rally and lower volatility.
Risk was observed to decline in the SBN and corporate bond markets, accompanied by lower yields and less volatility.
IDMA index up to 103.64
10-year benchmark yield down to6.80%
10-year yield (A) down to 10.49%
Volatility of 10-year benchmark tenor down to 4.90%
Volatility down to4.27%
Net foreign capital inflow increased to Rp104.74 trilion
Net foreign capital inflow up to Rp1,229 tirilion
Bond Market
Corporate BondsVolatility up to8.5%
Net foreign capital outflow up toRp18.24 trillion
JCI up to 5,829.7
Stock Market
Jakarta Islamic Index (JII) up to
749.6
Jakarta Islamic Index (JII)
volatility down to 13.05
Indonesia Sharia Stock Index (ISSI) down to
15.42%
Market share of Islamic mutual funds
to conventional investment funds up
to 4.73%
Islamic Financial Market
THE DOMESTIC FINANCIAL MARKETS WERE MAINTAINEDIN LINE WITH GLOBAL ECONOMIC GROWTHTHAT EXCEEDED PREVIOUS EXPECTATIONS
Tradeable Government
Securities (SBN)
The Islamic financial market performed well in terms of Islamic stocks, Islamic mutual funds, sukuk and ZIS funds.
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
31BANK INDONESIA
semester of 2017. Furthermore, the number of
issuers of IPOs and rights issues also increased,
climbing from 25 to 37 issuers, dominated by the
mining sector. The promising domestic economic
outlook after the upgraded sovereign credit rating
outlook was affirmed in the first semester of 2017
boosted corporate interest in IPOs, rights issues and
corporate bonds. In addition, the outlook for exports
from Indonesia was also predicted to improve in line
with faster global economic growth and, therefore,
increasing world trade volume (WTV).
The stock market gains were mirrored in the bond
market. In the first half of the year, issuances of
corporate bonds and sukuk totalled Rp82.27 trillion,
up 37.86% on the previous period (Rp59.68 trillion).
The number of issuers also increased, expanding
Against a backdrop of consolidated bank lending,
economic financing from the financial markets
increased significantly during the first semester of
2017, primarily originating from a surge in corporate
bond and sukuk issuances as well as through initial
public offerings (IPO) and rights issues. In addition,
financing from finance companies has also been
recovering since the first half of 2016, driven by the
trade sector and household consumption.
In the stock market, IPOs and rights issues increased
significantly from Rp37.92 trillion in the second
semester of 2016 to Rp57.55 trillion in the first
2.1. Role of the Financial Markets as a Source of Economic Financing
Table 2.1. Bank and Nonbank Financing (Rp, trillions)
Source: Financial Services Authority (OJK) and Indonesian Central Securities Depository (KSEI) reports
Source: Financial Services Authority (OJK), Indonesia Stock Exchange, processed
Keterangan2014 2015 2016 2017
Sem I Sem III Sem I Sem II Sem I Sem II Sem I
A. Bank Loans 175.29 206.15 153.74 230.08 110.17 208.89 114.18
B. Nonbank Financing 64.78 50.06 67.64 45.96 106.42 112.20 158.60
B1. Capital Market 51.88 44.78 63.95 52.58 97.78 97.60 139.82
- IPOs and Rights Issues in the Stock Market 26.35 21.67 18.59 34.94 41.28 37.92 57.55
- Corporate Bonds and Sukuk 25.53 23.11 45.36 17.65 56.51 59.68 82.27
B2. Finance Companies 12.90 5.27 3.69 -6.63 8.64 14.61 18.77
TOTAL 240.07 256.20 221.38 276.04 216.59 321.10 272.77
Jan
Feb
Mar Ap
rM
ay Jun Jul
Aug
Sept Oct
Nov De
cJa
nFe
bM
ar Apr
May Jun Jul
Aug
Sept Oct
Nov De
cJa
nFe
bM
ar Apr
May Jun
2015
100Rp Trillion
90
80
70
60
50
40
30
20
10
0
2016 2017
Right IssuesBondsIPO
Graph 2.1. IPO and Right Issue Volume on the Stock Market
32 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
from 41 to 54, dominated by the financial sector and
infrastructure. Competitive corporate bond pricing,
particularly for those rated AAA to A, compared to
bank lending, especially in the long term, encouraged
the corporate sector to supplement financing
through corporate bonds. Several corporations also
used bond financing as an alternative to external
debt as global interest rates began to rise.
The upward market trend of Negotiable Certificates
of Deposit (NCD) persisted in the first semester
of 2017. This instrument was most attractive to
bank issuers as an alternative source of short-term
funding of less than one year. Outstanding NCD
grew 12.01% from Rp19.90 trillion in the second
semester of 2016 to Rp22.29 trillion in the reporting
period.
14
%
13
12
11
10
9
8
71 2 3 4
Tenor
5 6 7 8 9 10
Average interest rates on Investment Loans (June 2016) = 11.47%
Rating BBB (Jun’17)Rating A (Jun’17) Rating AAA (Jun’17)
Graph 2.2.Comparison of Corporate Bond Yield Curve and Average Interest Rates on Investment Loans and
Working Capital Loans
Source: Bank Indonesia and CEIC
Source: CEIC
Source: Financial Services Authority (OJK), Bank Indonesia and Bloomberg, processed
Source: Indonesian Central Securities Depository (KSEI), processed
60
NCD NCD
Rp Trillion
MTN MTN
50
40
30
20
10
0
Jan-
15
Feb-
15
Mar
-15
Apr-1
5 M
ay-1
5 Ju
n-15
Ju
l-15
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6 M
ay-1
6 Ju
n-16
Ju
l-16
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7 M
ay-1
7 Ju
n-17
Graph 2.4 Value of Outstanding MTN and NCD
45
40
35
30
25
20
15
10
5
0
Jan-
15
Feb-
15
Mar
-15
Apr-1
5 M
ay-1
5 Ju
n-15
Ju
l-15
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6 M
ay-1
6 Ju
n-16
Ju
l-16
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7 M
ay-1
7 Ju
n-17
Graph 2.3 Bond Issuance Value
Corporate Bonds (Rp T) Lending Rate on Investment Loans (%)
Average Yield of 5-Year Corporate Bonds (%)
7
Rp Trillion
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
1
2017 2018 2019
1 23 3 45 5 67 89 9 1011 11 12
0.5
0
Graph 2.5 Outstanding MTN and NCD by Maturity
33BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Congruent with Negotiable Certificates of Deposit
(NCD), market growth of medium-term notes
(MTN) also accelerated significantly. Outstanding
MTN grew by 25.23% on the position recorded in
the second semester of 2016 to Rp32.18 trillion.
Most MTN were used as working capital (business
expansion) and for refinancing purposes.
The surge of funding through NCD and MTN
issuances stemmed from simpler requirements and
no mandatory minimum rating, which streamlined
the process of issuing both instruments. Funding
through NCD is already considered sustainable due
to the broad investor base thanks to a Bank Indonesia
regulation that standardised NCD instruments.
Sumber : KSEI
Jan
Jan
Jan
Mar
Mar
Mar
May
May
MayJu
l
Jul
Sept
Sept
Nov
Nov
0
1
2015 2016 2017
2
3
4
5
6
7RP Trillion
Graph 2.6. Nominal Value of MTN and NCD Issuances
NCDMTN
Table 2.2 Sources of Funds by Bank Total
Description2014 2015 2016 2017
Sem I Sem II Sem I Sem II Sem I Sem II Sem I
Fund Accumulation
I. Domestic
Borrowing from Rupiah Interbank Money Market
81 76 76 86 85 96 65
Borrowing from Foreign Exchange Interbank Money Market
47 39 40 33 31 38 32
Repo to Bank Indonesia/Lending Facility 1 7 19 9 12 9 9
Repo by Banks 17 16 18 20 10 22 23
Bond Markets 2 3 6 1 9 10 4
- Bonds 1 2 1 1 - 2 -
- Continuous Bonds 1 1 4 - 7 7 4
- Sukuk - - 1 - 2 1 -
Stock Market 3 3 - 4 6 7 2
- IPO 1 1 - 1 1 - -
- Rights Issues 2 2 1 3 5 7 2
II. International
Bonds (USD) - - - - - - -
Fund Distribution
I. Domestic
Lending to Rupiah Interbank Money Market
94 99 98 100 98 103 95
Lending to Foreign Exchange Interbank Money Market
45 42 39 31 37 45 43
Deposit Facility 107 134 98 114 100 98 94
Term Deposit - - - - - 31 -
Bank Indonesia Certificates of Deposit (SDBI)
50 76 79 74 81 71 85
Bank Indonesia Certificates (SBI) + SBIS 98 108 75 74 86 91 82
Reverse Repo SUN 36 59 37 17 25 41 49
Tradeable Government Securities (SBN) 91 87 84 95 101 108 108
Source: Bank Indonesia, Financial Services Authority (OJK)
34 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Against a backdrop of consolidated bank lending,
bonds issued by the banking sector also declined in
the first half of the year. During the first semester,
only four banks issued bonds, totalling Rp15.1
trillion, down from 10 banks issuing bonds worth
Rp19.3 trillion in the previous semester. The market
share of bonds issued by the banking industry
accounted for 18.4% of the total in the first
semester of 2017. In addition to the bond market,
banks also supplemented funds through initial
public offerings (IPO) and rights issues on the stock
market, amounting to Rp3.7 trillion, up slightly
on the value issued in the previous period despite
fewer issuers.
Table 2.3 Sources of Bank Funds by Volume
Description2014 2015 2016 2017
Sem I Sem II Sem I Sem II Sem I Sem II Sem I
Fund Accumulation
I, Domestic
PUAB
- Interbank Money Market 1,325 1,388 1,426 1,439 1,537 1,370 1,448
- Volume of Borrowing 11.1 11.1 11.6 11.7 12.4 11.1 12.5
- Average Daily Volume of Rupiah Borrowing
359.4 533.7 429.2 240.2 386.1 274.1 313.0
Repo to Bank Indonesia/Lending Facility
0.1 2.4 11.0 5.8 2.6 2.7 1.4
Average Daily Repo by Banks 0.5 0.6 0.7 0.6 0.4 1.1 1.2
Bond Markets 5.0 2.0 11.4 0.5 17.7 19.3 15.1
- Bonds 1.0 1.3 1.5 0.5 - 1.0 -
- Continuous Bonds 4.0 0.7 9.4 - 16.4 17.3 15.1
- Sukuk - - 0.5 - 1.3 1.0 -
Stock Market 1.5 2.1 0.6 1.0 8.0 3.5 3.7
- IPO 0.1 0.1 - 0.1 0.6 - -
- Rights Issues 1.5 2.0 0.6 0.9 7.5 3.5 3.7
II, International
Bonds (USD) - - - - - - -
Fund Distribution
I, Domestic
Interbank Money Market
- Average Daily Volume of Rupiah Lending
11.1 11.1 11.6 11.7 12.4 11.1 12.5
- Average Daily Volume of USD Lending
359.4 533.7 429.2 240.2 386.1 274.1 313.0
Deposit Facility 125.3 98.5 127.2 112.3 134.6 104.5 165.4
Term Deposit - - - - - 23.2 -
Bank Indonesia Certificates of Deposit (SDBI)
23.3 102.3 62.4 39.9 66.5 47.0 166.0
Bank Indonesia Certificates (SBI) + SBIS
98.6 87.0 72.7 31.1 78.8 103.9 46.5
Reverse Repo SUN 74.4 88.6 64.1 5.7 11.0 23.6 23.5
Tradeable Government Securities (SBN)
338.0 374.0 346.7 350.0 361.5 399.5 395.1
Rp Trillion
Source: Bank Indonesia, Financial Services Authority (OJK)
1 Bank Indonesia Regulation (PBI) No. 19/2/PBI/2017, dated 16th March 2017, concerning Negotiable Certificates of Deposit (NCD) Transactions on the Monet Market
35BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
In general, risks in the global and domestic financial
markets were stable in the first semester of 2017,
with a tendency to ease. In terms of the externalities,
the risks were contained by global economic growth
and maintained investor sentiment. The release
of economic growth data for the United States,
Europe and China exceeded previous expectations,
which edged up world trade volume (WTV). Such
developments were also supported by easing
political tensions between the US, China, Russia and
North Korea as well as the trade war between the US
and China that did not materialise. Meanwhile, the
monetary policy stance adopted in various advanced
economies, including the European Central Bank
(ECB), Bank of Japan (BOJ) and Bank of England
(BOE), was in line with expectations and relatively
accommodative to the markets, which prevented
shocks emerging from the subsequent portfolio
rebalancing. At home, however, bullish sentiment
was driven by robust national economic growth, a
surplus trade balance, controlled inflation, a stable
2.2. Financial Market Dynamics and Risk
reference rate, rupiah appreciation and affirmation
that S&P’s had upgraded Indonesia’s sovereign
credit rating to investment grade.
The positive sentiment attracted foreign capital
inflows to the domestic financial markets. During
the reporting period, inflow stood at Rp122.98
trillion, drawn to stock market instruments and
tradeable government securities (SBN), the highest
level on record since the first semester of 2014.
The composition of capital inflow to the stock
and SBN markets stood at Rp18.24 trillion and
Rp104.74 trillion respectively, which prompted
rupiah appreciation against the USD from Rp13,473
at the end of December 2016 to Rp13,348/USD at
the end of June 2017. Furthermore, volatility in the
rupiah interbank money market, foreign exchange
market, stock market as well as government and
corporate bond markets also decreased, which was
indicative of less risk in domestic financial markets.
Moving forward, the risk of a sudden capital
reversal still demands vigilance. The direction of the
US economic recovery, policy to unwind the Fed’s
balance sheet and the end of the low interest rate
Rupiah Interbank Money Market
Exchange Rate
Mutual Funds
SBN Market
CorporateBond Market
*) Further from the centre indicates higher risk
Sem I 2017Sem II 2016Sem I 2016Sem II 2015
Stock Market
Graph 2.7. Financial Markets Volatility Graph 2.8 Non-Resident Capital Flows to Stocks, SBN and SBI
150
50
-50
100
0
SBI
2011 2013
Sem I Sem I Sem I Sem ISem II Sem II Sem II
2015 20162012 2014 2017
SBN Stocks
-100
RP Trillion
Source: Bloomberg, processed Source: Bloomberg, Bank Indonesia and Ministry of Finance
36 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
era by the Federal Reserve, Bank of England, Bank
of Canada and Reserve Bank of Australia along
with the potential escalation of the nuclear issue
in North Korea will influence global sentiment. In
addition, restrained corporate expansion in several
sectors, coupled with the relatively high level of non-
performing loans (NPL), could undermine corporate
repayment capacity.
2.2.1. Money Market
Risk in the uncollateralised and collateralised money
markets was contained in the first semester of 2017.
Interbank rate volatility declined, while transaction
volume in the interbank money and repo markets
increased. Congruent with the lower interbank
rate, repo rates were also observed to fall.
2.2.1.1. Interbank Money Market (PUAB)
Risk in the rupiah interbank money market tended
to ease during the first semester of 2017, indicated
by lower interest rates and volatility. The weighted
average O/N rupiah interbank rate reduced from
4.54% in the second semester of 2016 to 4.30% in
the reporting period. Consistent with the lower O/N
interbank rate, the weighted average interest rate
of all tenors also decreased, falling from 4.87% to
4.53%. Likewise, compared to the same period one
year earlier, the weighted average O/N interbank
rate in the first semester of 2016 stood at 5.08%
and 5.30% for all tenors.
Interbank money market transaction volume has
increased, especially overnight transactions. The
average daily O/N rupiah interbank money market
transaction volume increased from Rp6.66 trillion in
the second semester of 2016 to Rp8.11 trillion in the
first semester of 2017. Similarly, the average daily
non-overnight interbank money market transaction
volume also increased, rising from Rp4.34 trillion to
Rp4.42 trillion in the same period. The gains were
consistent with cyclical trends for Eid-ul-Fitr and
the start of the new academic year, which trigger a
seasonal and transient spike in demand for liquidity,
which the banks meet through the interbank money
market.
The transaction trends in the interbank money
market did not change during the reporting
10
% %
5
4.5
4
3.5
3
2
2.5
1
0.5
0
2.5
9
8
7
6
5
4
3
2
Jun-
11
Oct
-11
Feb-
12
Feb-
13
Feb-
14
Feb-
15
Feb-
16
Feb-
17
Jun-
12
Jun-
13
Jun-
14
Jun-
15
Jun-
16
Jun-
17
Oct
-12
Oct
-13
Oct
-14
Oct
-15
Oct
-16
Min-Max Spread (rhs) Highest Borrowing Interest Rate (%)Lowest Borrowing Interest Rate (%)
PUAB ON
Graph 2.9 Rupiah O/N Interbank Rate
Weighted Average Interest Rate (%)
140%
Rupiah Interbank Money Market Volatility
Weighted Average Borrowing Rate (%)
120%
100%
80%
60%
40%
20%
0%
Jul-1
5
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7
May
-17
Jun-
17
7.5
6.0
7.0
5.5
6.5
5.0
4.5
3.5
3.0
4.0
Graph 2.10 O/N Interbank Rate Volatility
Source: Bank IndonesiaSource: Bank Indonesia
37BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
semester, with BUKU 3 banks remaining dominant.
Nevertheless, BUKU 2 banks became more active on
the interbank money market as suppliers to satiate
demand from BUKU 3 banks. The growth of BUKU
4 banks did not spur any change in behaviour as an
aggregate. In terms of market share, BUKU 3 banks
continued to dominate interbank money market
transactions, accounting for 50.73% of the total
transactions and 45.59% of the total frequency.
Developments in the rupiah interbank money market
during the first semester of 2017 were not mirrored
in the foreign exchange interbank money market.
The weighted average daily foreign exchange
O/N interbank rate and the average daily foreign
exchange interbank rate for all tenors increased
in the first half of the year by 0.84% and 0.86%
respectively, accelerating from 0.37% and 0.39%
in the second semester of 2016. The rising foreign
exchange interbank rate was, however, influenced
more by Bank Indonesia raising the interest rate on
foreign exchange monetary operations in response
to the Federal Reserve hiking its policy rate and not
due to inadequate liquidity. This was substantiated
2 One bank changed status from a BUKU 3 bank to a BUKU 4 bank.
Source: Bank Indonesia
Source: Bank Indonesia
Source: Bank Indonesia
Apr
Jun
Aug
Oct
Dec
Feb
Apr
Jun
Aug
Oct
Dec
Feb
Apr
Jun
Aug
Oct
Dec
Feb
Apr
Jun
Aug
Oct
Dec
Feb
Apr
Jun
2014 2015 2016 2017
100
200
300
400
500
600USD Million%
1.20
Average Daily Non-O/N Transaction Volume (rhs)
Average Daily O/N Transaction Volume (rhs)
Weighted Average O/N Interbank Rate
Weighted Average of All Interest Rates
1.00
0.80
0.60
0.40
0.20
Graph 2.13 Foreign Exchange Interbank Money Market Performance
-150
50
-100
100
-50
150RP Trillion
0
20152014
BUKU 4 BUKU 3 BUKU 2 BUKU 1
2016 2017
Jul
Jul
Jul
Jun
Jun
Jun
May
May
MayAp
r
Apr
Apr
Mar
Mar
Mar
Feb
Feb
Feb
Jan
Jan
Jan
Aug
Aug
Aug
Sep
Sep
Sep
Oct
Oct
Oct
Nov
Nov
NovDe
c
Dec
Dec
Graph 2.12 Rupiah Interbank Money Market Transaction Trends
0.81.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Jul-1
1
Sep-
11
Dec-
11
Mar
-12
Jul-1
2
Sep-
12
Dec-
12
Mar
-13
Jul-1
3
Sep-
13
Dec-
13
Mar
-14
Jul-1
4
Sep-
14
Dec-
14
Mar
-15
Jul-1
5
Sep-
15
Dec-
15
Mar
-16
Jul-1
6
Sep-
16
Dec-
16
Mar
-17
Jul-1
7
Min-Max Spread (rhs) Weighted Average Interbank Rate
Highest Borrowing Interest Rate (%)
Graph 2.14 Foreign Exchange O/N Interbank Rate
Source: Bank Indonesia
Graph 2.11 Rupiah Interbank Money Market Performance
6.012
7.0 14
8.0 18
5.010
4.08
3.0
42.0
2
-
1.0
-
%RP Trillion
Average Daily Non-O/N Volume (rhs)Weighted Average O/N RateWeighted Average Interest Rate
Average Daily O/N Volume (rhs)
Jan
Jan
Jan
Jan
Feb
Feb
Feb
Feb
Mar
Mar
Mar
MarAp
r
Apr
Apr
Apr
Apr
May
May
May
May
MayJun
Jun
Jun
Jun
JunJul
Jul
Jul
Jul
Aug
Aug
Aug
Aug
Sep
Sep
Sep
Sep
Oct
Oct
Oct
Oct
Nov
Nov
Nov
NovDe
c
Dec
Dec
Dec
20142013 2015 2016 2017
38 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
by a narrower max-min spread, lower volatility and
higher transaction volume. In the first semester of
2017, average spread narrowed considerably from
16.57bps to 4.39bps and volatility halved from
207.77% to 110.27%.
Foreign exchange interbank money market
transaction volume, O/N and non-O/N, increased.
In the first semester of 2017, the average daily
O/N transaction volume in the foreign exchange
interbank money market climbed from USD245.70
million to USD264.84 million. Meanwhile, the
average daily non-O/N transaction volume in the
foreign exchange interbank money market soared
from USD29.61 million to USD51.76 million. Based
on historical trends, no changes in bank behaviour
were observed. BUKU 4 banks have remained
borrowers since 2015, while BUKU 3 banks have
remained lenders.
2.2.1.2. Interbank Repo Market3
Risk in the interbank repo market tended to ease
during the first half of 2017, as reflected by a
declining average daily interbank repo rate for all
tenors, decreasing from 5.30-5.87% to 4.95%-
5.44%, emulating Bank Indonesia’s reference
rate. In addition, interest rate spread on the repo
market also narrowed, indicating less risk and
greater efficiency. Moreover, the spread was also
lower than the interest rate spread in the interbank
9%
8%
7%
6%
5%
4%
3%
2.0
1.2
1.8
1.0
1.6
0.8
1.4
0.6
0.4
0.2
Volume Interest Rate (rhs)
0.0
Jun-
15
Jul-1
5
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7
May
-17
Jun-
17
Rp Trillion
Graph 2.17. Interbank Repo Transactions
Source: Bank Indonesia
700% 1.20
500%0.80
300%
0.40
100%
0.00
800% 1.40
600%1.00
400%0.60
200%
0.20
0%
Jun-
15
Jul-1
5
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7
May
-17
Jun-
17
Graph 2.16 Foreign Exchange Interbank Money Market Transaction Behaviour
Graph 2.15 Foreign Exchange Interbank Rate Volatility
0
-3
3
-2
4
-1
5
-5
1
-4
2
USD Billion
USD Interbank Money Market Volatility
Weighted Average Lending Rate (rhs)
Jan
Jan
Jan
Feb
Feb
Feb
Mar
Mar
MarAp
r
Apr
Apr
May
May
MayJun
Jun
JunJul
Jul
Jul
Aug
Aug
Aug
Sep
Sep
Sep
Oct
Oct
Oct
Nov
Nov
NovDe
c
Dec
Dec
2014 20172015 2016
BUKU 3 BUKU 2 BUKU 1BUKU 4
Source: Bank Indonesia Source: Bank Indonesia
39BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
3 A repurchase agreement (Repo) is a contract sell and then repurchase the security on a determined date at a determined price. In general, the Repo market consists of the interbank repo
market and repo to Bank Indonesia through the Lending Facility (LF).
money market (all tenors). Meanwhile, the average
daily transaction volume of all tenors increased from
Rp6,262 billion in the second semester of 2016 to
Rp7,524 billion in the reporting period.
2.2.2. Foreign Exchange Market
Congruent with the influx of non-resident capital
during the first half of the year, risk in the foreign
exchange market tended to moderate. Average
rupiah exchange rate volatility against the USD fell
from 6.81% in the second semester of 2016 to just
2.39% in the first semester of 2017. Additionally,
the rupiah strengthened against the USD from
Rp13,473 at the end of the second semester of 2016
to Rp13,348/USD at the end of the first semester
of 2017. Rupiah appreciation was predicated on
90 16,000
Volatility Exchange Rate (rhs)
15,000
14,000
13,000
12,000
11,000
10,000
9,000
8,000
7,000
70
50
30
10
80
60
40
20
-
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
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17Graph 2.18 Rupiah Exchange Rate Performance
Source: Blomberg, processed
Source: Bloomberg, processedSource: Bloomberg, processed
700
500
300
100
600
400
200
0
-100
-200
-300
-400
15,500
14,500
13,500
12,500
11,500
15,000
14,000
13,000
12,000
11,000
NDF-FWD 18 Spread Average Daily 20D Spread
NDF 1B (rhs)
Jun-
15
Jul-1
5
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7
May
-17
Jun-
17
Graph 2.19 Rupiah Volatility
30 10 % 2017
5
-
25
15
5
-
20
10
Dec-
08M
ar-0
9 Ju
n-09
Se
p-09
De
c-09
M
ar-1
0 Ju
n-10
Se
p-10
Dec-
10
Mar
-11
Jun-
11
Sep-
11
Dec-
11M
ar-1
2Ju
n-12
Se
p-12
Dec-
12M
ar-1
3 Ju
n-13
Se
p-13
De
c-13
Mar
-14
Jun-
14
Sep-
14
Dec-
14M
ar-1
5 Ju
n-15
Sep-
15
Dec-
15
Mar
-16
Jun-
16Se
p-16
Dec-
16M
ar-1
7Ju
n-17
4-Ju
l 29
-Jul
23-A
ug
17-S
ep
12-O
ct
6-N
ov
1-De
c 26
-Dec
20
-Jan
14-F
eb
11-M
ar
5-Ap
r 30
-Apr
25
-Ma
19-Ju
n
Graph 2.20 Foreign Exchange Market Risk Premium
external and internal factors, including better-
than-expected global economic performance and
affirmation of S&P’s upgrading Indonesia’s credit
rating to investment grade.
Less risk on the foreign exchange market was also
evident from the risk perception of non-resident
investors concerning the rupiah exchange rate,
as reflected in the NDF-FWD spread. In the first
semester of 2017, the spread of NDF transactions to
1-month domestic forwards declined from 0.14%
to -0.85% in line with broad depreciation of most
regional currencies.
Derivative transactions increased and the choice of
instruments to mitigate currency risk also increased.
40 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
The share of non-spot transactions, including swaps,
forwards and options, expanded from 34.82% to
40.41%. Swap transactions were the main driver
of the increase despite spot transactions remaining
dominant with a 59.59% share, declining from
65.18% in the previous period. The surge of derivative
transactions was symptomatic of financial market
deepening and also provided alternative instruments
for market players to manage currency risk.
2.2.3. Bond Market
2.2.3.1. SBN Market
The positive perception of investors, coupled with
foreign capital inflows, was the main impetus of
the SBN market. A deluge of non-resident capital
inflow expanded foreign investor SBN holdings to
Rp770.5 trillion, accounting for 39.47% of total
tradeable government securities (SBN) in circulation.
The increase of non-resident holdings eroded
domestic investor holdings, particularly of the
banking sector, insurance companies and pension
funds. At the end of the first semester of 2017,
the banking industry commanded a 20.45% share
of total SBN in circulation, down from 22.53% in
the previous semester. Likewise, the share of SBN
held by institutional investors from the nonbank
financial industry, including insurance companies
and pension funds, shrank to 13.02% and 4.56%
respectively of the total. Despite smaller holdings as
a percentage, the value of SBN held by insurance
companies and pension funds increased. Such
developments were explained by an OJK Regulation
(POJK) that required the nonbank financial industry
to fulfil a certain percentage of total investment
Source: Bloomberg
Source: Ministry of Finance
Source: Bank Indonesia
Table 2.4 A Comparison of Average NDF Spreads in Neighbouring Countries
Yield (%)
Negara2015 2016 2017
Sem I Sem II Sem I Sem II Sem I
Thailand (0.77) (2.03) (3.17) (3.23) (2.83)
Malaysia 0.18 (1.26) (1.82) (0.07) (0.01)
Philippines (0.09) 1.30 0.97 2.43 1.14
India (0.84) (0.68) (0.46) (0.71) (0.92)
Indonesia 2.36 2.91 (0.33) 0.14 (0.85)
80
Jul
Sep
Sep
Sep
Sep
Nov
Nov
Nov
NovJan
Jan
Jan
Jan
Mar
Mar
Mar
Mar
May
May
May JunJul
Jul
Jul
USD Billion
OPTIONFORWARDSWAPSPOT
50
70
40
20
60
30
10
20142013 2015 2016 2017
0
Graph 2.21 Composition of the Domestic Foreign Exchange Market
Table 2.5. Composition of SBN Holdings (%)
Holder
2016 2017 ∆ Sem I-II
Sem - I Sem - II Sem - I
Nominal (Rp T) ShareTotal(Rp, trillions) Share Total
(Rp, trillions) Share Total(Rp, trillions) Share
Banks 361.54 21.95% 399.46 22.53% 399.19 20.45% (0.27) -0.07%
Central Bank 150.13 9.12% 134.25 7.57% 175.89 9.01% 41.64 31.02%
Mutual Funds 76.44 4.64% 85.66 4.83% 91.56 4.69% 5.91 6.89%
Insurance Companies
214.47 13.02% 238.24 13.44% 254.21 13.02% 15.97 6.70%
Foreign 643.99 39.10% 665.81 37.55% 770.55 39.47% 104.74 15.73%
Pension Funds 64.67 3.93% 87.28 4.92% 89.11 4.56% 1.83 2.10%
Individuals 48.90 2.97% 57.75 3.26% 60.49 3.10% 2.74 4.75%
Others 86.72 5.27% 104.80 5.91% 111.23 5.70% 6.43 6.13%
41BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
2000RP Trillion RP Trillion
1500
1000
500
0
Dec-
12
Jun-
13
Dec-
13
Jun-
14
Dec-
14
Jun-
15
Dec-
15
Jun-
16
Dec-
16
Jun-
17
Central BankForeignBank
Pension FundsMutual FundsSecurities Companies
Insurance CompaniesOthers
Graph 2.22. Composition of SBN Holdings
120
SBN IDMA (rhs)
80
40
Sem I Sem I Sem I Sem I Sem II Sem II Sem II
100
60
20
2014 20162015 2017
0
106
100
104
98
102
96
94
92
90
88
Graph 2.23 Net Foreign Flows to SBN and IDMA
Source: Bank IndonesiaSource: Ministry of Finance
Source: Bloomberg, processed
9.0
%
8.0
7.0
6.0
8.5
7.5
6.5
Jun-16 Jun-17 Dec-16
5.5
5.01 3 5 7 9 11 13 16 202 4 6 8 10 12 15 18 30
Graph 2.24 SBN Yield Curve Graph 2.25. Rebased SBN Yield by Tenor
Source: Bloomberg
50
%
Long Term Medium Term Short Term
30
40
20
5
45
25
10
35
15
0
Aug-
13
Oct
-13
Dec-
13
Feb-
14
Feb-
15
Feb-
16
Feb-
17
Apr-1
4
Apr-1
5
Apr-1
6
Apr-1
7
Jun-
14
Jun-
15
Jun-
16
Jun-
17
Aug-
14
Aug-
15
Aug-
16
Oct
-14
Oct
-15
Oct
-16
Dec-
14
Dec-
15
Dec-
16
Graph 2.26. SBN Yield Volatility by Tenor
Source: CEIC
35%
SBN TurnoverCorporate Bond Turnover
25%
15%
5%
30%
20%
10%
0%
Feb-
10M
ay-1
0Au
g-10
Nov
-10
Feb-
11M
ay-1
1Au
g-11
Nov
-11
Feb-
12M
ay-1
2Au
g-12
Nov
-12
Feb-
13M
ay-1
3Au
g-13
Nov
-13
Feb-
14M
ay-1
4Au
g-14
Nov
-14
Feb-
15M
ay-1
5Au
g-15
Nov
-15
Feb-
16M
ay-1
6Au
g-16
Nov
-16
Feb-
17M
ay-1
7Graph 2.27 Transaction Turnover of SBN and Corporate Bonds
Tenor
Source: Bloomberg, processed
Aug-
13
Oct
-13
Dec-
13
Feb-
14
Feb-
15
Feb-
16
Feb-
17
Apr-1
4
Apr-1
5
Apr-1
6
Apr-1
7
Jun-
14
Jun-
15
Jun-
16
Jun-
17
Aug-
14
Aug-
15
Aug-
16
Oct
-14
Oct
-15
Oct
-16
Dec-
14
Dec-
15
Dec-
16
220
8,54%
8,27%
7,85%180
140
Long Term: 11-30 years
Medium Term: 6-10 years
Short Term: 1-5 years100
200
160
120
80
60
rebased 1/1/2013
Long Term Medium TermShort Term
42 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Source: CEIC, processed
in SBN in order to expand the investor base and
stimulate trade in the secondary market.
Strong demand for SBN, particularly from non-
resident investors, significantly pushed up prices. In
the first semester of 2017, the IDMA index, as a proxy
of SBN prices, jumped 4.59% from 99.09 to 103.64.
The benchmark 10-year SBN yield fell 111.7bps to
6.80%. The lower yields were accompanied by
less average volatility, decreasing from 10.38% in
the second semester of 2016 to 4.90% in the first
semester of 2017. In general, yields for all tenors
experienced declines, in particular the medium-term
tenors (6-10 years). Lower yields and volatility in the
SBN market during the first semester of 2017 were
echoed in other neighbouring countries. Although
investment risk in SBN eased, the future potential
risk of a sudden capital reversal demands vigilance.
The SBN to GDP ratio has continued to rise but
remains below other neighbouring countries. The
current SBN to GDP ratio is comparatively low
35%
15%
25%
5%
30%
10%
20%
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
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Graph 2.28. SBN to GDP Ratio
Indonesia ThailandMalaysia Philippines
Graph 2.29 Rebased 10-Year Benchmark Yields in Emerging Markets
Table 2.6 Regional 10-Year SBN Yields
Source: Bloomberg, processed
INDO INDI THAI MALY FILIP
Dec-15 8.75 7.86 2.25 3.89 4.27
Jan-16 8.18 7.74 1.99 3.62 3.96
Feb-16 7.91 7.85 1.75 3.63 3.84
Mar-16 7.37 7.76 1.46 3.56 3.70
Apr-16 7.37 7.57 1.59 3.65 3.54
May-16 7.51 7.58 2.08 3.66 3.48
Jun-16 7.26 7.49 1.74 3.43 3.33
Jul-16 6.72 7.15 1.73 3.26 2.87
Aug-16 6.77 7.06 1.83 3.20 3.01
Sep-16 6.79 6.88 1.79 3.28 3.16
Oct-16 6.93 6.77 1.87 3.37 3.56
Nov-16 7.92 6.24 2.02 4.33 4.22
Dec-16 7.50 6.62 2.14 3.72 4.27
Jan-17 7.32 6.53 2.15 3.63 3.91
Feb-17 7.26 6.86 2.07 3.72 4.04
Mar-17 6.84 6.78 2.05 3.85 4.30
Apr-17 6.70 6.95 2.00 3.72 4.28
May-17 6.69 6.85 1.99 3.64 4.06
Jun-17 6.65 6.69 1.84 3.72 4.06
Table 2.7 Regional 10-Year SBN Yield Volatility
Source: Bloomberg, processed
INDO INDI THAI MALY FILIP
Dec-15 15.45 3.47 8.57 13.14 44.29
Jan-16 12.20 2.57 24.13 12.62 20.61
Feb-16 7.56 5.66 41.71 11.86 31.95
Mar-16 14.42 4.57 21.01 8.37 26.02
Apr-16 6.76 6.62 31.36 10.86 20.09
May-16 8.13 1.81 45.47 28.62 11.25
Jun-16 9.79 2.69 46.81 7.38 22.05
Jul-16 12.50 6.49 21.88 25.72 65.48
Aug-16 10.21 3.20 16.27 10.27 32.05
Sep-16 9.24 6.43 23.47 11.97 13.50
Oct-16 9.00 2.54 23.89 14.82 17.27
Nov-16 29.95 14.95 22.90 46.69 18.69
Dec-16 21.04 14.98 20.98 33.67 21.26
Jan-17 8.84 5.07 17.12 13.29 95.10
Feb-17 4.60 14.51 10.46 10.23 29.65
Mar-17 8.49 10.85 11.59 11.71 16.43
Apr-17 7.57 7.46 11.23 5.66 6.78
May-17 8.75 4.59 9.75 10.10 9.97
Jun-17 2.54 8.94 20.38 9.20 3.50
Source: Bloomberg
150
70
110
30
Indonesia ThailandIndia Malaysia Philippines
130
50
90
Feb-
15
Feb-
16
Feb-
17
Aprl-
15
Aprl-
16
Aprl-
17
Jun-
15
Jun-
16
Jun-
17
Aug-
15
Aug-
16
Oct
-15
Oct
-16
Dec-
15
Dec-
16
rebased yield 1/1/2014
28%27%
14.9%17%
43BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
5
3
4
2
1
0
Sem I
2014 2015 2016 2017
Net Flow Foreign Holdings of Outstanding Corporate Bonds (rhs)
2013
Sem I Sem I Sem ISem II Sem II Sem II
(1)
(2)
(3)
(4)
(5)
25RP Trillion
15
20
10
5
0
Graph 2.30. Net Foreign Flows and Foreign Holdings of Corporate Bonds
Source: Financial Services Authority (OJK) reports, processed Source: CEIC, processed
Table 2.8 Corporate Bond Holdings
Holder
2016 2017
Sem I Sem II Sem I
Total % Total % Total %
Corporations 9.39 3.60% 7.89 2.60% 8.19 2.51%
Individuals 6.54 2.51% 8.96 2.96% 9.96 3.05%
Mutual Funds 63.82 24.45% 78.72 25.99% 94.06 28.80%
Securities 0.84 0.32% 0.42 0.14% 0.83 0.26%
Insurance 41.58 15.93% 55.22 18.23% 58.85 18.02%
Pension Funds 68.80 26.36% 71.16 23.49% 72.89 22.31%
Financial Corporations 56.68 21.72% 65.38 21.58% 66.02 20.21%
Foundations 3.55 1.36% 3.76 1.24% 3.77 1.15%
Others 9.80 3.76% 11.42 3.77% 12.06 3.69%
TOTAL 261.00 302.92 326.64
RP Trillion
despite a surge of government financing through
SBN instruments. In March 2017, the SBN to GDP
ratio in Indonesia had reached 14.9%, up from
14.3% in the second semester of 2016. In the
region, the Philippines posted the highest SBN to
GDP ratio, followed by Thailand and Malaysia.
2.2.3.2. Corporate Bond Market
Congruent with less risk in the SBN market, risk in
the corporate bond market was also contained, with
lower yields and volatility. In the first semester of
2017, corporate bond yields of all ratings declined
on the previous period. In addition to rising prices,
stronger domestic corporate sector performance
also edged down yields. Consequently, corporate
bond volatility for all tenors averaged 4.27%, down
from 7.89%.
Departing from SBN trends, non-resident holdings
of corporate bonds actually declined. Outstanding
corporate bonds at the end of the first semester of 2017
increased by Rp23.72 trillion to a total of Rp326.64
trillion. Nevertheless, foreign holdings increased by
just Rp1.23 trillion, therefore the share dropped from
6.68% to 6.30% in the reporting period.
Domestic investors continued to dominate
corporate bond holdings. Three big institutional
groups, namely mutual funds, pension funds and
financial corporations, dominated corporate bond
holdings, increasing by 19.49%, 2.43% and 0.98%
respectively on the second semester of 2016. In terms
of accumulating funds, Indonesia’s upgraded credit
rating along with stable interest rates and exchange
rates prompted the financial sector to issue bonds
on a large scale in the pursuit of relatively cheap
funds. The surge of corporate bond issuances in the
first semester of 2017 was dominated by issuers
from the financial and infrastructure sectors.
2.2.4. Stock Market
Imitating bond market developments, milder risk
pressures were observed in the stock market, as
demonstrated by a rally on the Jakarta Composite
Index (JCI) and lower volatility compared to
conditions in the second semester of 2016 as an
aggregate and by sector. At the end of the first
semester of 2017, the JCI had rallied 10.06% to
5,829.7 on the position at the end of the previous
period. Various other countries in the region also
enjoyed stronger stock prices, including Thailand,
Malaysia and the Philippines. In addition to global
growth that surpassed previous expectations, the
rising profits of individual issuers also pushed up
stock prices. Furthermore, the resultant positive
sentiment lowered volatility in the reporting period.
44 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
15%
14
13
12
11
10
9
8
7
6
25
Short Term Long TermMedium Term
%
15
5
20
10
-
1 53 72 64 8 9 10
AAA Jun’16 AAA Jun’17 A Jun’16A Jun’17 BBB Jun’16 BBB Jun’17
Graph 2.31. Corporate Bond Yield Curve
Dec-
15
Feb-
16
Feb-
17
Apr-1
6
Apr-1
7
Jun-
16
Jun-
17
Aug-
16
Oct
-16
Dec-
16
Graph 2.32. Corporate Bond Yield Volatility by Tenor
Source: CEIC Source: Bloomberg, processed
180
Property
Rp Trillion
ConsumptionMiscellaneous IndustryMiningTrade
InfrastructureFinancialBasic IndustryAgriculture
60
140
20
100
160
40
120
0
Sem
II
2009 20132011 20152010 20142012 2016 2017
Sem
II
Sem
II
Sem
II
Sem
II
Sem
II
Sem
II
Sem
II
Sem
II
Sem
I
Sem
I
Sem
I
Sem
I
Sem
I
Sem
I
Sem
I
Sem
I
Sem
I
80
Graph 2.33 Corporate Bond Issuances by Economic Sector
Source: Financial Services Authority (OJK) reports, processed
By sector, stock price volatility was higher in the
miscellaneous industry and mining sectors than the
other sectors during the first half of the year. High stock
price volatility in the miscellaneous industry sector was
attributed to the volatility of Astra International stock
prices that accounted for 83% of total capitalisation
in the sector. Meanwhile, volatility in the mining
sector was caused by coal issuers as commodity prices
declined.
Daily transaction volume in the stock market was
relatively stable. The average daily transaction volume
stood at Rp7.74 trillion in the first semester of 2017,
down slightly on the Rp7.81 trillion registered in the
second semester of 2016. On the other hand, the
turnover ratio increased at the end of the first semester
of 2017, indicating that trade liquidity in the stock
market was maintained in the period.
Blue chip stocks were the backbone of the JCI rally in
the first half of 2017, with the LQ45 index climbing
10.51% from 884.62 in the second semester of 2016
to 974.08 in the first semester of 2017. By sector,
miscellaneous industry, consumption, the banking
sector and infrastructure were the main drivers of
the LQ45 index, consisting of Astra International,
HM Sampoerna, Unilever, BRI and Telkom, which
command a 49.57% share of LQ45 capitalisation.
45BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Source: Bloomberg, processed
Source: Bloomberg, processed Source: Bloomberg
Source: Bloomberg, processed
150rebased
130
110
140
120
100
90
80
Indonesia MalaysiaThailand Philippines
Jun-
14
Jun-
15
Jun-
16
Jun-
17
Mar
-14
Mar
-15
Mar
-16
Mar
-17
May
-14
May
-15
May
-16
Jun-
17
Jul-1
4
Sep-
14
Sep-
15
Sep-
16
Nov
-14
Nov
-15
Nov
-16
Jul-1
5
Jul-1
6
Graph 2.34 Stock Price Index Developments
Source: Bloomberg, processed
Indonesia Dow JonesMSCI Euro MSCI Asia
45
35
25
15
5
40
30
20
10
0
Jan-
14
Jan-
15
Jan-
16
Jan-
17
Mar
-14
Mar
-15
Mar
-16
Mar
-17
May
-14
May
-15
May
-16
May
-17
Jun-
17
Jul-1
4
Jul-1
5
Jul-1
6
Sep-
14
Sep-
15
Sep-
16
Nov
-15
Nov
-15
Nov
-16
Graph 2.35 Stock Price Volatility
113
108
103
98
93
88
Aug-
11
Nov
-11
Feb-
12
Feb-
13
Feb-
14
Feb-
15
Feb-
16
Feb-
17
May
-12
May
-13
May
-14
May
-15
May
-16
Jun-
17
Aug-
12
Aug-
13
Aug-
14
Aug-
15
Aug-
16
Nov
-12
Nov
-13
Nov
-14
Nov
-15
Nov
-16
IndiaIndonesia PhilippinesThailand
Graph 2.36 Foreign Capital Flows to Regional Stock Markets
50 6,500
5,500
4,500
3,500
2,500
6,000
5,000
4,000
3,000
2,000Sem I
2017201620152014201320122011
Stocks
Rp (T)
%
JCI (rhs)
Sem ISem ISem I Sem IISem IISem II
30
10
40
20
0
-10
-20
-30
Graph 2.37 Foreign Net Buy/Sell in the Stock Market and JCI
35
25
15
30
20
10
5
Indonesia Thailand Malaysia Philippines Singapura
0
Jun-
15
Jul-1
5
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7
May
-17
Jun-
17
Graph 2.38 Comparison of Regional Indexes
46 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Source: Financial Services Authority (OJK)
Source: Bloomberg, processed
Source: Bloomberg, processed Source: Bloomberg, processed
Table 2.9 Sectoral Index Volatility (Semester Average)
Sector2014 2015 2016 2017
Sem I Sem II Sem I Sem II Sem I Sem II Sem II
JCI 14.56 10.79 11.41 19.53 11.84 13.84 8.84
Financial 19.51 13.52 14.00 25.38 15.76 15.16 11.85
Agriculture 18.50 16.38 21.78 24.57 19.82 14.42 13.09
Basic Industry 21.21 16.17 16.22 31.85 16.79 17.65 12.60
Consumption 15.13 11.82 17.76 22.71 18.33 20.26 12.38
Property 21.55 17.75 17.13 21.71 13.66 16.23 12.59
Mining 15.95 15.49 13.25 18.09 18.95 21.92 15.62
Infrastructure 16.72 12.33 12.20 19.55 16.60 18.19 13.65
Trade 11.94 11.90 12.51 16.01 11.28 12.87 11.82
Miscellaneous Industry 24.02 19.42 22.73 36.11 27.93 27.64 20.46
0.25% 10
6
8
4
9
5
7
3210
0.15%
0.05%
0.20%
0.10%
0.00%Transaction Turnover
Turnover = daily transaction value/stock market capitalisation
Daily Transaction Volume (rhs)
Nov
-10
Feb-
11M
ay-1
1Au
g-11
Nov
-11
Feb-
12M
ay-1
2Au
g-12
Nov
-12
Feb-
13M
ay-1
3Au
g-13
Nov
-13
Feb-
14M
ay-1
4Au
g-14
Nov
-14
Feb-
15M
ay-1
5Au
g-15
Nov
-15
Feb-
16M
ay-1
6Au
g-16
Nov
-16
Feb-
17M
ay-1
7Ju
n-17
Rp T
Graph 2.39 Stock Market Turnover
7.000 80%
60%
70%
50%
75%
55%
65%
45%
40%
5.000
3.000
250 rebased 100: Jan’10
Spread (rhs) EBITDA (rebased) IHSG (rebased)
150
200
100
50
0
6.000
4.000
2.000
1.000
0
2005
2009
2013
2007
2011
2015
2006
2010
2014
2008
2012
2016
2017
Rp T
JCI Cap LQ45 Cap LQ45 Share (rhs)
Graph 2.40 JCI and LQ45 Capitalisation
80
60
40
20
0
70
50
30
10
-10
Feb-
10
Jun-
10
Oct
-10
Feb-
11
Jun-
11
Oct
-11
Feb-
12
Jun-
12
Oct
-12
Feb-
13
Jun-
13
Oct
-13
Feb-
14
Jun-
14
Oct
-14
Feb-
15
Jun-
15
Oct
-15
Feb-
16
Jun-
16
Oct
-16
Feb-
17
Jun-
17
Graph 2.41 EBITDA and JCI Performance
4 Mutual funds are an investment vehicle and management style made up of a pool of moneys collected from a group of investors for the purpose of investing in a mutual fund unit.
Those five issuers alone enjoyed gains averaging
19.71% in the first half of 2017, accompanied by
stronger performance at other issuers, as indicated
by increases in EBITDA.
2.2.5. Mutual Funds4
The performance of mutual funds has continued to
improve on the back of stronger underlying asset
prices in the stock and SBN markets. In the first
semester of 2017, the net asset value (NAV) grew
15.7%, up from 7.0% in the previous period. In
terms of value and share, fixed-income and protected
funds were the main drivers of net asset value in the
reporting period. Fixed-income and protected funds
posted growth of 20.87% and 12.26% respectively
in the first half of the year, accounting for 47.42%
of total mutual funds. Furthermore, NAV volatility
in the three main markets was also observed to
47BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Source: Financial Services Authority (OJK) reports
Source: Financial Services Authority (OJK) reports
Source: Financial Services Authority (OJK) reports
Source: Financial Services Authority (OJK) reports
450
Total Mutual Funds (rhs) NAV(Rp, trillions)
Units in Circulation (millions)
350
250
150
50
400
300
200
100
0
1800
1000
1400
600
1600
800
1200
400
200
0
Jun
Jun
Jun
Jun
Aug
Aug
Aug
Oct
Oct
Oct
Dec
Dec
Dec
Feb
Feb
Feb
Apr
Apr
2015 2016 2017
Apr
Graph 2.42. The Performance of Mutual Funds
450Rp T
250
350
150
50
400
200
300
100
0
Juli
Juli
Juli
Juli
Sept
Sept
Sept
Sept
Nov
Nov
Nov
NovJan
Jan
Jan
Jan
Mar
Mar
2014
Equity Money Market Mixed Fixed Protected Other Funds
20162015 2017
Mar
Mar
May
May
May
Juni
Graph 2.43 NAV of Mutual Funds by Fund Type
45
Fixed Income Funds Mixed Funds Equity Funds
25
35
15
5
40
20
30
10
0
Jun-
15
Jul-1
5
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7
May
-17
Jun-
17
Graph 2.44 NAV Volatility of Mutual Funds by Fund Type
40%
NAVUnits in Circulation Total Mutual Funds JCIIDMA
20%
30%
0%
20%
-10%
-20%
-30%
Jan
Jan
Jan
Jan
Jan
Mar
Mar
Mar
Mar
Mar
May
May
May
May
MayJuly
July
July
July
Sept
Sept
Sept
Sept
Nov
Nov
Nov
Nov
2013 2014 2015 2016 2017
Graph 2.45 Growth of Mutual Funds (yoy)
decline. The most volatile funds were mixed funds
and equity funds.
All fund types experienced stronger returns in
the reporting period, which is presented in the
risk profile quadrant, where most funds were in a
position of excess return in June 2017 (red dots)
compared to the respective positions in December
2016 (green dots). In terms of risk, mutual fund
volatility for stocks and bonds also declined in the
first semester of 2017 in line with less risk in the
underlying assets.
The growth of closed-end and open-ended funds
reached 12.26% and 16.80% respectively, up from
20.60% and 5.45%. Robust growth stemmed from
keen investor interest due to low risk because the
risks of the underlying assets were contained.
48 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
30
20
10
0
-10
-20
-30
-40-1.5
Dec’16
Dec’16
Jun’16
Jun’16
Jun’17
Jun’17
-1.0 0.0 1.0-0.5 0.5 1.5 2.0
Excess
Return
Equity Funds Fixed Income Funds
Mixed Funds Money Market Funds
-0.5 -0.3 -0.1 0.1 0.3 0.5
Excess
Return
Dec’16
Jun’16
Jun’17
10
5
0
-5
-10
-15
-2.5 -1.5 -0.5 0.5 1.5 2.5
Excess
Return
Dec’16
Jun’16
Jun’17
25
15
5
-
(5)
(10)
(15)
(20)
(25)-3 -2 -1 0 1 2 3
20
10
Excess
Return
Jan
Jan
Jan
May
May
MaySep
Sep
Mar
Mar
MarJu
l
Jul
Nov
Nov
300Rp T
Rp T
220
140
260
180
100
Open Ended Closed End (rhs)
280
200
120
240
160
140
20
180
60
100
200
80
120
-
160
40
Graph 2.47 NAV of Open-Ended and Closed-End Mutual Funds
Source: Financial Services Authority (OJK) reports
Source: Bloomberg, processed
Graph 2.46 Risk Profile of Mutual Fund Products
49BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
2.3.1. Islamic Capital Market
Congruous with capital market conditions in
general, the Islamic capital market also performed
well in the first half of the year. According to the
market capitalisation value of the Indonesia Sharia
Stock Index (ISSI), outstanding government and
corporate sukuk as well as Islamic mutual funds
achieved positive growth. Vibrant Islamic capital
market instruments reflected the expanding role
of the Islamic financial sector as an alternative
national source of financing to the conventional
financial sector. As of June 2017, the capitalisation
2.3. Islamic Financial Market Dynamics and Risks
Source: Bloomberg and OJK Stock Statistics
Source: Bloomberg and OJK Stock Statistics
3,500% %
Rp T
rillio
n
3,497
503
16 18
15
32
42
79
2,500
1,500
0
2,500
1,500
500
Indonesia Sharia Stock Index (ISSI)
Capitalisation
Indonesia Sharia Stock Index (ISSI)
Capitalisation
Outstanding Government Sukuk
Outstanding Government Sukuk
Outstanding Corporate Sukuk
Outstanding Corporate Sukuk
NAV of Islamic Mutual Funds
NAV of Islamic Mutual Funds
-
90
Jun-17 (%yoy)Jun-17 Dec-16 (%yoy)Dec-16
50
70
30
80
40
60
20
10
-
Graph 2.48 Accumulated Funds in the Islamic Capital Market
Graph 2.49 Average Growth of Islamic Capital Market
3,500
Rp T
rillio
n
Rp T
rillio
n
4,000 20
12
16
8
2
18
10
4
14
6
0
2017
503
16
18
3,491
20162015
2,500
1,500
0
3,000
2,000
1,000
Outstanding Sukuk NegaraOutstanding Government Sukuk NAV of Islamic Mutual Funds (rhs)Indonesia Sharia Stock Index (ISSI) Capitalisation
Graph 2.50 Islamic Capital Market Developments
Jul
Aug
Sep
Oct
Nov De
c
Jan
Feb
Mar Ap
r
Mei
Jun Jul
Aug
Sep
Oct
Nov De
c
Jan
Feb
Mar Ap
r
Mei
Jun
value of Islamic stocks had reached Rp3,497 trillion.
Moreover, outstanding government and corporate
sukuk were recorded at Rp503 trillion and Rp15.8
trillion respectively. Meanwhile, the NAV of
outstanding Islamic mutual funds also increased,
amounting to Rp17.7 trillion in the reporting period.
Of the Islamic financial market instruments available,
Islamic mutual funds posted the strongest gains in
the first half of 2017, namely 78.9%, which was
consistent with the growth of government and
corporate sukuk, exceeding 30%, thereby creating
more Islamic mutual fund portfolio choices in
accordance with the risk appetite of the respective
investors. As of June 2017, outstanding corporate
sukuk growth had accelerated from 23.7% (yoy)
50 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
60% 54.68%
16.86%
4.82% 4.73%
20%
40%
0%
50%
10%
30%
Jun-17 Dec-16
Graph 2.51 Islamic Capital Market Share
Source: Bloomberg
350
400
250
150
0
300
200
100
2010 20132011 2014 20162012 2015 2017
Sem I Sem ISem I Sem I Sem ISem I Sem I Sem ISem II Sem IISem II Sem II Sem IISem II Sem II
Graph 2.52 Islamic Securities List Table 2.10 Distribution of the Islamic Securities List
Source: Bloomberg
Period
SecuritiesTotal
SecuritiesListed Public Not Listed IPO
2014 Sem I 301 4 12 5 322
Sem II 314 4 13 3 334
2015 Sem I 313 4 13 4 334
Sem II 315 4 12 4 335
2016 Sem I 307 4 10 0 321
Sem II 332 4 9 0 345
2017 Sem I 335 4 12 0 351
Source: Islamic Securities List, Financial Services Authority (OJK)
to 42.07% (yoy), with the total increasing from
Rp12.25 trillion in December 2016 to Rp15.79
trillion.
In terms of the instruments, the share of the Islamic
capital market has been leading other Islamic financial
market instruments. The contribution of Islamic stock
market capitalisation to the national total has reached
54.68%. Meanwhile, the market share of government
sukuk to new government debt securities accounted
for 16.86% and is continuing to expand. On the other
hand, the share of corporate sukuk to new corporate
bonds has reached 4.82% and the NAV contribution
of Islamic mutual funds to new national mutual funds
accounted for 4.73%. The main challenge now faced
in terms of sukuk expansion is limited underlying.
2.3.2. Islamic Stock Market Performance
The performance of Islamic stock issuers in the
first half of 2017 improved in line with the robust
market capitalisation growth of the Indonesia
Sharia Stock Index (ISSI) at 54.68% (yoy), which has
remained stable since the first semester of 2016
at 56.17% (yoy) and then at 55.11% (yoy) in the
second semester of 2016. ISSI market capitalisation
increased to Rp3,491 trillion at the end of the
first semester of 2017, up from Rp3,170 trillion
in the previous period. Solid Islamic stock issuer
Indonesia Sharia Stock Index (ISSI)
Capitalisation
Outstanding Government Sukuk
Outstanding Corporate Sukuk
NAV of Islamic Mutual Funds
51BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Source: Bloomberg, processed
Source: Bloomberg, processed
201720162015
3,500
5,500
6,500
4,000
6,000
7,000 6
4
1
5
2
3
0
2,500
4,500
3,000
5,000
2,000
Rp T
rillio
n
Thou
sand
JCI Capitalisation
ISSI Index (rhs) JCI Index (rhs)
ISSI Capitalisation
Graph 2.53. JCI and ISSI Comparison
20
40
0
10
-10
-20
30
ISSI JCI
201720162015
Graph 2.54 Market Capitalisation Growth (yoy)
Indeksi ISSI Indeks IHSG
22
12
17
7
-3
2
-8
-13 Dec-15 Dec-16Jun-16 Jun-17
Jul
Aug
Sep
Oct
Nov De
c
Jan
Feb
Mar Ap
r
May Jun Jul
Aug
Sep
Oct
Nov De
c
Jan
Feb
Mar Ap
r
May Jun
Jul
Aug
Sep
Oct
Nov De
c
Jan
Feb
Mar Ap
r
May Jun Jul
Aug
Sep
Oct
Nov De
c
Jan
Feb
Mar Ap
r
May Jun
%%
performance has contributed favourably towards
total JCI issuer performance, with Islamic stocks
now accounting for 54.68% of the total.
The number of corporate issuers registered on the
Islamic Securities List as of June 2017 totalled 351.
Of the total, three were bona fide Islamic entities
and 348 did not state whether their businesses
were managed based on sharia principles but they
did meet the criteria to issue Islamic stocks pursuant
to Regulation Number II.K.1 concerning the Criteria
and Publication of the Islamic Securities List.
The large portion of ISSI issuers in the JCI
precipitated co-movement between the two. At
the end of the first semester of 2017, ISSI stood at
185.22 points, climbing 13.1 points on the position
at the end of 2016. Meanwhile, ISSI volatility was
recorded at 10.35 points, down from 16.44 points
and, therefore, more stable. On the other hand,
the Jakarta Islamic Index (JII), as a composite of 30
highly liquid Islamic stocks, was more volatile than
the ISSI and JCI.
2.3.3. Islamic Mutual Funds
Net asset value (NAV) growth of Islamic mutual funds
outstripped conventional mutual funds throughout
the first semester of 2017. Nevertheless, the market
share (contribution) of Islamic mutual funds to the
national total remained relatively small at 4.73% but
expanding from 4.31% in the second semester of
2016.
52 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
1,20
ISSI JII
LQ45 JCI (rhs)
7
3
5
1
6
2
4
-
0,80
0,80
1,00
Thou
sand
Thou
sand
0,60
0,40
-
2017 20172016 20162015 2015
Jan
Feb
M
ar A
pr M
ay Ju
n Jul
Aug
Sep
Oct
Nov De
c
Jan
Feb
Mar
Apr
May
Jun Jul
Aug
Sep
Oct
Nov De
c
Jul
Aug
Sep
Oct
Nov De
c Jul
Aug
Sep
Oct
Nov De
c
Jan
Feb
Mar Ap
rM
ay Jun Jan
Feb
Mar
Apr
May
Jun
Graph 2.55 Islamic Stock Indexes
35
45
40
50
25
15
JCI Volatility ISSI Volatility JII Volatility
5
0
30
20
10
Graph 2.56. Stock Index Volatility
19,000
NAV of Islamic Mutual Funds NAV Share of Islamic Mutual Funds
6.00%
4.00%
1.00%
5.00%
2.00%
3.00%
0.00%
15,000
11,000
7,000
17,000
13,000
9,000
5,000
201720162015
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Graph 2.57 Net Asset Value of Islamic Mutual Funds
120
Islamic Mutual Funds Conventional Mutual Funds
80
80
20
-40
100
60
40
-20
0
201720162015
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Graph 2.58 NAV Growth of Islamic Mutual Funds
Source: Bloomberg, processedSource: Bloomberg, processed
Source: OJK Capital Market Statistics, processed
%
At the end of the first semester of 2017, the NAV of
Islamic equity funds continued to dominate Islamic
mutual funds with a net asset value of Rp9.7 trillion
or 54.74% of the total, followed by Islamic fixed
income and protected funds, accounting for 14.0%
and 11.68% respectively. Meanwhile, Islamic
indexed funds were least dominant, with a net
asset value of Rp170 billion and accounting for just
0.96% of total NAV.
2.3.4. Government Sukuk
The share of government sukuk to state budget
financing has continued to grow. Nevertheless,
issuances of government sukuk declined in
the reporting period in line with the dwindling
requirement to finance the 2017 state budget.
Consequently, issuances of government sukuk in
the first half of 2017 stood at Rp121.87 trillion,
down from Rp138.74 trillion in the same period
one year earlier. Notwithstanding the decline, the
share of government sukuk to government bonds
has increased year on year. At the first semester of
2017, the share of government sukuk had reached
30.85% of total government bonds, increasing from
27.60% in 2016, reflecting growing government
support for Islamic financial market deepening
as well as growing public awareness of sukuk
instruments.
53BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
54.74%
7.28%
10.44%
14.90%
11.68%
0.96%
Equity
Mixed
Money Market
Fixed Income
Protected
Indexed
Graph 2.59 NAV of Islamic Mutual Funds by Fund Type
Rp B
illio
n
1,600
1,346
934
PBS SDNI SNI SPNS SPNSNT SR ST
144
Jun-2017Jun-2016Jun-2015
1,200
800
400
1,400
1,000
600
200
-
Graph 2.61 Sukuk Issuances by Type
5,000
4,000
3,000
2,000
1,500
4,500
3,500
2,500
2,500
500
2014
Sukuk SUN
2015 2016 Jun-17
1,91
4
3,40
1
1,90
1
4,55
0
991
878
145 137
0
Rp T
rillio
n
Graph 2.60 Issuances of Government Securities
Source: OJK Capital Market Statistics, processed
Source: Directorate General of Budget Financing and Risk Management (DJPPR), Ministry of Finance, processed
Source: Directorate General of Budget Financing and Risk Management (DJPPR), Ministry of Finance, processed
In terms of sukuk issued by the government,
Project-Based Sukuk (PBS) were dominant in the
first semester of 2017, totalling Rp40.82 trillion,
followed by Global Sukuk (SNI), totalling Rp39.97
trillion. SNI are issued in the international market
denominated in USD with tenors of 5-10 years
and underlying assets in the form of State-Owned
Assets (BMN). Project-Based Sukuk (PBS) were
dominant, with underlying projects funded by the
state budget. Outstanding PBS reached Rp194
trillion, growing 55.05% (yoy).
In terms of maturity, long-term sukuk continued
to dominate outstanding government sukuk but
the short-term tenors began to increase. The value
of outstanding government sukuk with a tenor
of more than 10 years reached Rp193.3 trillion in
the first semester of 2017, rising from Rp159.7
trillion in the second semester of 2016. Meanwhile,
Islamic Treasury Bills (SPNS) also posted solid gains,
increasing from Rp9.28 trillion in the first semester
of 2016 to Rp25.05 trillion in the reporting period.
Based on ownership, the share of the banking
industry in terms of tradeable sukuk continued to
lead but had begun to decline. At the end of the
first semester of 2017, banking industry holdings
of government sukuk accounted for 46.38%,
54 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Jan-
15Fe
b-15
Mar
-15
Apr-1
5M
ay-1
5Ju
n-15
Jul-1
5Au
g-15
Sept
-15
Oct
-15
Nov
-15
Dec-
15Ja
n-16
Feb-
16M
ar-1
6Ap
r-16
May
-16
Jun-
16Ju
l-16
Aug-
16Se
pt-1
6O
ct-1
6N
ov-1
6De
c-16
Jan-
17Fe
b-17
Mar
-17
Apr-1
7M
ay-1
7Ju
n-17
600 18%
10%
14%
6%
2%
16%
8%
12%
4%
0%
400
200
500
300
100
0
Value of Outstanding Islamic Government Securities
Share of Outstanding Value of Islamic Government Securities
RP T
rillio
n
Graph 2.62 Outstanding Government Sukuk
70.00%
30.00%
50.00%
10.00%
60.00%
20.00%
40.00%
0.0%
Jan-
15Fe
b-15
Mar
-15
Apr-1
5M
ay-1
5Ju
n-15
Jul-1
5Au
g-15
Sept
-15
Oct
-15
Nov
-15
Dec-
15Ja
n-16
Feb-
16M
ar-1
6Ap
r-16
May
-16
Jun-
16Ju
l-16
Aug-
16Se
pt-1
6O
ct-1
6N
ov-1
6De
c-16
Jan-
17Fe
b-17
Mar
-17
Apr-1
7M
ay-1
7Ju
n-17
Government Islamic Securities (SBSN) SUN
Graph 2.63 Growth of Outstanding SBN
Jan-
15Fe
b-15
Mar
-15
Apr-1
5M
ay-1
5Ju
n-15
Jul-1
5Au
g-15
Sept
-15
Oct
-15
Nov
-15
Dec-
15Ja
n-16
Feb-
16M
ar-1
6Ap
r-16
May
-16
Jun-
16Ju
l-16
Aug-
16Se
pt-1
6O
ct-1
6N
ov-1
6De
c-16
Jan-
17Fe
b-17
Mar
-17
Apr-1
7M
ay-1
7Ju
n-17
Jan-
15Fe
b-15
Mar
-15
Apr-1
5M
ay-1
5Ju
n-15
Jul-1
5Au
g-15
Sept
-15
Oct
-15
Nov
-15
Dec-
15Ja
n-16
Feb-
16M
ar-1
6Ap
r-16
May
-16
Jun-
16Ju
l-16
Aug-
16Se
pt-1
6O
ct-1
6N
ov-1
6De
c-16
Jan-
17Fe
b-17
Mar
-17
Apr-1
7M
ay-1
7Ju
n-17
100
80
60
40
20
0
IFR
%
PBS SDHI SNI
SPNS SPNSNT SR ST
Graph 2.64 Composition of Sukuk based on SBSN Series
<1 Year >10 Years
1-5 Years 5-10 Years
100
80
60
40
20
0
%
Graph 2.65 Composition of Sukuk based on Maturity
Source: Directorate General of Budget Financing and Risk Management (DJPPR), Ministry of Finance, processed
Source: Directorate General of Budget Financing and Risk Management (DJPPR), Ministry of Finance, processed
Source: Directorate General of Budget Financing and Risk Management (DJPPR), Ministry of Finance, processed
Source: Directorate General of Budget Financing and Risk Management (DJPPR), Ministry of Finance, processed
down from 50.28% in the second semester of
2016. Conventional banking industry holdings
of government sukuk stood at 36%, while the
insurance and Islamic banking industries accounted
for 18.9% and 9.6% respectively. Individual
holdings of government sukuk also increased as
issuances of retail sukuk flourished, reaching Rp24.4
trillion or representing 8.19% of the total tradeable
government sukuk.
2.3.5. Corporate Sukuk and Bonds
In the first semester of 2017, the total and value
of outstanding corporate sukuk increased. There
was a total of 69 corporate sukuk available with
an outstanding value of Rp15.17 trillion, as growth
accelerated from 23.74% (yoy) to 41.09% (yoy).
The market share of corporate sukuk increased
slightly to 4.3% from 3.8% in the previous period.
Mutual funds tended to dominate corporate sukuk
holdings, accounting for 39.97% of the total,
while individual holdings remained relatively stable
at Rp104.75 billion, accounting for 0.66% of
corporate sukuk in the reporting period.
2.3.6. Socioeconomic Sector
The annual accumulation and disbursement of
zakat, infak and sedekah (ZIS) funds experienced
gains but more so on the accumulation side, which
undermined the efficiency of ZIS funds by zakat fund
management organisations in the first semester of
2017. On one hand, greater accumulation of ZIS
funds was linked to improving management and
fund disbursement governance and transparency at
Amil Zakat Institutions and Nazhir Institutions.
The accumulation of ZIS funds grew 5.60% (ytd) in
the first semester of 2017, compared to 3.67% (ytd)
for disbursements. Such developments confirm that
55BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Jan-
15Fe
b-15
Mar
-15
Apr-1
5M
ay-1
5Ju
n-15
Jul-1
5Au
g-15
Sept
-15
Oct
-15
Nov
-15
Dec-
15Ja
n-16
Feb-
16M
ar-1
6Ap
r-16
May
-16
Jun-
16Ju
l-16
Aug-
16Se
pt-1
6O
ct-1
6N
ov-1
6De
c-16
Jan-
17Fe
b-17
Mar
-17
Apr-1
7M
ay-1
7Ju
n-17
Conventional Banks
%
Islamic Banks Insurance Pension FundsIndividual Mutual Funds Foreign Others
100
90
80
70
60
50
40
30
20
10
0
Graph 2.66 Holdings of Tradeable Government Islamic Securities (SBSN)
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
Sept
-16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7
May
-17
Jun-
17
80.00
60.00
40.00
20.00
10.00
%
Outstanding Corporate Sukuk Outstanding Corporate Bonds
Graph 2.67. Growth of Corporate Bonds and Sukuk
17.00
15.00
13.00
11.00
9.00
7.00
5.00
5.0%4.5%4.0%3.5%3.0%2.5%2.0%1.5%1.0%0.5%0.0%
Rp Trillion
Market Share of Outstanding Sukuk (rhs) Outstanding Corporate Sukuk
Jan-
15Fe
b-15
Mar
-15
Apr-1
5M
ay-1
5Ju
n-15
Jul-1
5Au
g-15
Sept
-15
Oct
-15
Nov
-15
Dec-
15Ja
n-16
Feb-
16M
ar-1
6Ap
r-16
May
-16
Jun-
16Ju
l-16
Aug-
16Se
pt-1
6O
ct-1
6N
ov-1
6De
c-16
Jan-
17Fe
b-17
Mar
-17
Apr-1
7M
ay-1
7Ju
n-17
Graph 2.68 Market Share of Corporate Sukuk
6,309.72
2,354.92
2,544.26
3,391.00
2.00
355.50 697.85104.75
25.00
Graph 2.69 Corporate Sukuk Holdings
3,767.59
12,064.008,216.01 9,974.40
834.97
58,867.58
94,337.80
72,885.91
66,586.47
Graph 2.70 Corporate Bond Holdings
Mutual Funds
Pension Funds
Securities
Financial Institutions
Insurance
Foundations
Others
Corporate
Individual
Source: OJK Capital Market Statistics, processed
Source: Directorate General of Budget Financing and Risk Management (DJPPR), Ministry of Finance, processed
Source: OJK Capital Market Statistics, processed Source: OJK Capital Market Statistics, processed
public commitment to zakat and infak funds remains
high, but the gains are unbalanced by the inabilities
of zakat management organisations when disbursing
ZIS funds. The Allocation to Collection Ratio (ACR),
as a measure of ZIS fund management efficiency,
deteriorated slightly on the previous period, falling
from 60.6% to 59.5%. Nonetheless, the high ACR
also shows that ZIS fund management is still efficient.
Regionally, provinces in Western Indonesia continued
to dominate the accumulation and disbursement of
zakat funds in the first half of 2017, with more than
40% originating from West Java, Riau, East Java and
West Sumatra. On the other hand, disbursements
of zakat funds were dominated by the provinces of
West Java, Riau, West Sumatra, East Java and the
Riau Islands.
56 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
3,30
0
2,03
4
3,65
3
2,25
2
4,06
6
2,46
6
4,25
9
2,52
7
4,500
3,500
2,500
1,500
500
4,000
3,000
2,000
1,000
0
62%
61%
60%
59%
58%
57%
56%
55%Sem I 2017201620152014
Rp B
illio
n
Total Accumulation Total Disbursements ACR (rhs)
Graph 2.71 Accumulation and Disbursement of Zakat Funds
Accumulation Disbursement
Graph 2.72 Accumulation and Disbursement of Zakat Funds by Province
14.98%
16.54%
9.59%
8.28%
6.71%
43.90%48.49%
16.51%
10.29%
8.99%
8.60%
7.12%
East Java
Other Provinces
East Kalimantan
West Sumatra
West Java
Riau
West Sumatra
Other Provinces
East Java
Riau Islands
West Java
Riau
Source: National Amil Zakat Board (Baznas) Mustahik Information System (SIMBA), processed
Source: National Amil Zakat Board (Baznas) Mustahik Information System (SIMBA), processed
60.65%
59.34%
Moving forward, the social financial sector has a
bright outlook as zakat management institutions
continue to consolidate and integrate in pursuance
of Islamic principles, amanah, wellbeing, fairness,
legal assurance and accountability in order to
improve the effectiveness and efficiency of zakat
management services in accordance with Act No.
23 of 2011 concerning Zakat Management.
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
57BANK INDONESIA
Box 2.1. The National Financial Market Development Strategy (SN-PPK)
Indonesia’s financial markets have evolved through
several historical phases, including banking
deregulation in 1988, the Asian Financial Crisis in
1997, the Global Financial Crisis in 2007 as well as
the quantitative easing policy adopted by central
banks in advanced economies in 2008 that persists
to this day. Transitioning those phases has involved
several changes of direction and appetite for
financial market development, mirroring prevailing
economic dynamics and financial market risks.
Actual financial market development is inextricably
linked to economic growth. The existing literature
on economic growth discusses the premise of the
finance-led growth hypothesis, where financial
market development accelerates economic growth.
This argument is justified considering that the
financial markets function as the blood flow of the
economy, so efforts to stimulate financial market
development would surely precipitate stronger
economic growth. In this regard, the financial
markets function as a source of economic financing
and tools to regulate the efficient allocation of
resources.
In addition to the function of stimulating economic
growth, developing financial markets also play
a role in the effective transmission of the central
bank’s monetary policy. This role manifests through
the short-term interest rate structure (yield curve)
and exchange rates. A liquid and efficient money
market will create a responsive short-term interest
rate structure to the central bank’s monetary policy
stance and provide a feedback loop concerning
liquidity conditions in the money market. Meanwhile,
healthy supply-demand dynamics in the foreign
exchange market support exchange rate stability
and attainment of the inflation target.
Evolving financial markets also support financial
system stability, exhibited through a solid financial
market structure that can absorb the shocks
that emerge. A solid financial market structure
is achieved through a high transaction volume,
a broad investor base, diverse instruments and
reliable infrastructure.
Financial market evolution in Indonesia has been
characterised by rapid banking industry development,
followed by the capital market, insurance industry,
pension funds and other financial institutions. The
advantage of bank financing is the ability to better
mitigate the risks associated with asymmetric
information, considering that the banking industry
has the capacity to analyse and select quality
borrowers, thereby ensuring a more prudent credit
intermediation process. Nevertheless, problems can
arise when economic funding is too concentrated in
the banking industry. One problem is limited access
to funding for the borrowers and limited investment
alternatives for the lenders/investors. On the other
hand, bank capacity to lend is becoming restrained,
as evidenced by the rising loan-to-deposit ratio.
There is also the potential for certain high-risk sectors to
not receive funding due to a lack of alternative lenders
outside of the banking industry. In terms of the cost of
funds, the absence of alternative instruments outside
of the banking industry leads to a dearth of adequate
competition, which prompts a suboptimal cost of
FINANCIAL STABILITY REVIEWNo. 29, September 2017
58 BANK INDONESIA
funds. Such conditions imply constraints in Indonesia’s
financial markets in terms of funding sources, thus
necessitating alternative funding sources outside of
the banking sector, both short and long term.
Financial market development in Indonesia over the
past 10 years has been relatively stagnant. One problem
that has been identified is a lack of integrated financial
market development initiatives due to the cross-cutting
nature of the relevant authorities. In that context,
Bank Indonesia is responsible for the development
and supervision of the money market and foreign
exchange market, including the development of
instruments and all supporting elements. On the other
hand, the Indonesia Financial Services Authority (OJK)
has jurisdiction over the development and supervision
of all financial services institutions. Furthermore, the
Ministry of Finance is authorised to issue government
bonds and set tax policy, which also pertains to financial
institutions and services.
To overcome the cross-cutting, Bank Indonesia, the
Financial Services Authority (OJK) and Ministry of
Finance established the Financial Market Development
and Deepening Coordination Forum (FK-PPPK) in 2016,
which was an important first step in accelerating the
financial sector revitalisation process as one of financial
markets in the region with the most potential. The
Forum was also established in response to government
policy focused of infrastructure financing, which would
definitely require new sources of funding.
The Financial Market Development and Deepening
Coordination Forum advocated preparation of
a National Financial Market Development and
Deepening Strategy as a joint endeavour between
Bank Indonesia, the Financial Services Authority (OJK)
and Ministry of Finance. Through the national strategy,
the relevant authorities and stakeholders would
seek breakthroughs to accelerate financial market
deepening and development in terms of boosting
transaction volume and value, strengthening the
investor base and other market players, developing
diverse financial products, strengthening infrastructure
commensurate with technological advances, as well
as regulate and standardise optimal industries in line
with best practices.
Financial market deepening is hoped to be achieved
within eight years. According to the National Strategy,
the main targets will be accomplished through three
phases applied to the six respective financial markets
as follows:
1. Strengthening the Foundations – Phase 1 (207-
2019)
2. Acceleration – Phase 2 (2020-2022)
3. Deepening – Phase 3 (2023-2024)
The phases were designed to map the various
initiatives based on priority, while promoting initiative
continuity in each respective phase, thereby achieving
the main objectives. The National Financial Market
Development and Deepening Strategy is targeted
for completion in the first half of 2018, containing
a detailed work plan and strategic action plan for
each market. The uniform vision and united platform
contained in the comprehensive national strategy,
coupled with a measured work program, is expected
to establish deep, liquid and efficient financial markets
that support the national economy.
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
59BANK INDONESIA
7 Financial Market Ecosystem Elements
TARGETS
Sources ofEconomic Financing
and Risk Management
Fund Availability and Utilisation
Instruments
Intermediaries
Benchmark Rate and Standardisation Coordination and Education
KEY PERFORMANCE INDICATORS
Market Infrastructure Development
Market Infrastructure
Policy Coordination -Regulatory Harmonisation
Regulatory Framework
Money Market Foreign Exchange Market Bond Market Stock Market Islamic Financial
MarketStructured Product
Market
VISION :Create Deep, Liquid, Efficient,
Inclusive and Secure Financial Markets
MISSION : Financial Markets as Sources of National Development Financing
1 2 33 Pillars
6 Markets
Box Figure 2.1.1.Financial Market Development Framework
STRATEGIC ACTION PLAN
FINANCIAL STABILITY REVIEWNo. 29, September 2017
60 BANK INDONESIA
Box 2.2. Regulating Treasury Certification and Implementing a Market Code of Conduct
The Importance of Enhancing Integrity and the
Raising the Competence Standards of Financial
Market Professionals
Strengthening financial market credibility is a
crucial component of creating effective, efficient
and healthy financial markets. A credible financial
market creates trust through assurance and good
governance in every transactional aspect. Therefore,
strengthening credibility is one of the agenda items
of financial market development by Bank Indonesia.
One of Bank Indonesia’s programs in this area is to
enhance the competence and integrity of market
professionals through an initiative to create integrity
and competence standards for financial market
professionals, particularly in the money market,
foreign exchange market and derivatives market.
The domestic financial markets currently face a
suboptimal level of integrity. A BI survey of market
professionals conducted in 2016 revealed several
weaknesses, including the lack of a code of conduct
and internal guidelines at financial institutions
to implement a code of conduct as well as broad
competence gaps and few certified dealers.
The Association of Market Professionals responded
by publishing a Code of Conduct. The Indonesian
Foreign Exchange Market Committee (IFEMC)
and Associate Cambiste Internationale-Financial
Market Association Indonesia (ACI-FMA Indonesia)
published the first edition of the IFEMC Code of
Conduct (known as the Brown Book) in May 2014.
Facilitated by Bank Indonesia, the Brown Book was
refined through the adoption and inclusion of an
international code of conduct, namely the Model
Code of ACI FMA International, leading to the
second edition of the Brown Book published in
August 2016. The new standards were expected to
become a reference for the market professionals,
especially those in the money market, foreign
exchange market and derivatives market.
Several financial market professions are accredited
through certification, including the capital market
and banking industry, to support financial market
competence. In terms of the capital market industry,
the Financial Services Authority (OJK) currently
requires professionals to obtain four types of
certification, namely broker-dealer representatives,
underwriter representatives, investment manager
representatives and investment fund selling agent
representatives. On the other hand, there are
currently nine certificates in the banking industry,
including internal audit, wealth management,
treasury dealer, general banking, risk management,
compliance, credit, operations as well as funding
& services. Prevailing regulations only require bank
employees to obtain a risk management certificate
in accordance with their respective position at the
bank.
Bank Indonesia has already introduced competence
standards for the Treasury. Dealers in work units at
the Bank Indonesia Treasury are required to obtain
Treasury Certification pursuant to Bank Indonesia
Regulation (PBI) No. 19/5/PBI/2017, issued in April
2017. Enhanced competence through treasury
certification is vital because the competences
gained are not merely restricted to technical
activities but also encompass the code of conduct
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
61BANK INDONESIA
and understanding financial market regulations.
In practice, the requirement to hold a treasury
certificate is not just limited to treasury dealers in the
banking industry, but brokers in the money market
and foreign exchange market as well as securities
companies are also required to hold a treasury
certificate because such businesses also undertake
treasury activities, especially in the money market
and foreign exchange market.
Quality standards at certified institutions must be
maintained in line with the prevailing requirements.
The practices and curriculum of treasury certification
must be in accordance with the needs of the domestic
market professionals and refer to international
best practices. To that end, certified professional
institutions must be recognised and routinely
coordinate with the relevant authorities in order
to develop and refine the future curriculum and
practices in line with guidance from the authorities.
Emulating implementation in other countries, the
requirement for certified treasury professionals is
regulated either by the financial market authority or
the related financial market association. In addition,
professionals are also required to become a member
of a financial market or treasury association to enable
monitoring and enforcement of the code of conduct.
In practice, many uncertified professionals remain
working in treasury units. Based on a report
received by Bank Indonesia in 2017, a total of 671
treasury dealers were not certified professionals,
compared to 707 certified treasury professionals,
with 87 inactive certified treasury professionals. This
demonstrates the importance of Bank Indonesia
requiring treasury dealers to become certified
professionals and for Bank Indonesia to enhance
competence on an ongoing basis. In addition,
financial institutions engaged in treasury activities
are also required to implement internal guidelines
that apply the code of conduct to treasury activities.
Promulgation of Regulations concerning
Treasury Certification and the Market Code of
Conduct
In 2016, Bank Indonesia issued Bank Indonesia
Regulation (PBI) No. 18/11/2016 concerning the
Money Market, which required money market
professionals to apply prudential principles,
encompassing a minimum of transaction ethics and
the market code of conduct (MCOC), and required
treasury dealers to be certified by an institution
approved by Bank Indonesia. Then in 2017, Bank
Indonesia issued Bank Indonesia Regulation (PBI)
No. 19/5/PBI/2017 concerning Treasury Certification
and Market Code of Conduct Implementation, as
well as Board of Governors Regulation No. 19/5/
PADG/2017 concerning the Implementation of
Treasury Certification and the Market Code of
Conduct.
The salient provisions of the regulations are as
follows:
1. Ruang lingkup dari sertifikasi tresuri dan
penerapan kode etik pasar, yaitu berlaku bagi
direksi dan pegawai dari pelaku pasar yang
menjalankan kegiatan usaha:
a. Bank,
b. Brokerage,
c. Securities companies and parent companies,
FINANCIAL STABILITY REVIEWNo. 29, September 2017
62 BANK INDONESIA
d. Other institutions stipulated by Bank
Indonesia engaged in treasury activities
in the money market, foreign exchange
market and derivatives market.
2. Implementation of the market code of conduct
for treasury activities, which refers to the code
of conduct published by the corresponding
professional association/financial services
industry association/industry committee
and regulated through mandatory internal
procedures.
3. The directors and professionals of market
entities engaged in banking activities and
brokerages are required to become a member
of a treasury professional association.
4. Directors and professionals are required to
become certified treasury professionals in
accordance with the appropriate classification
of Treasury Certification, namely Treasury
Professional Competence Certificates as well
as Regulation and Market Code of Conduct
Competence Certificates.
5. The effective period of treasury certificates may
be extended through additional competence
training.
6. Professional Certification Institutions are
recognised by Bank Indonesia as a Treasury
Certification Institution that administrate data
concerning treasury certificate holders.
7. Mandatory reporting of market entities and
certification institutions to Bank Indonesia.
8. Indirect supervision and inspections by Bank
Indonesia of market entities and professional
certification institutions in relation to the
market code of conduct and certification
implementation.
The requirements for treasury certification will
become effective in 2019 for traders and in 2020
for sales professionals and sharia-compliant treasury
professionals. The regulations are expected to
increase the credibility and enhance the competence
of financial market professionals in Indonesia in line
with technological innovation and rapid instrument
development.
707
87
671
Uncertified Treasury Professionals
Active Certified Treasury Professionals
Box Graph 2.2.1 Certified Treasury Professionals
Non-Active Certified Treasury Professionals
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
63BANK INDONESIA
The head of the engraved golek puppet is fixed with sampeurt (a rod affixed to the head) and tuding (sticks
connected to the hands) operated by the puppeteer. Concerning financial system stability, the rod and sticks
signify the household and corporate sectors. Stable household and corporate sectors are like the stable rod
and sticks, thus maintaining financial system stability and improving the economy.
05
INFRASTRUKTURSISTEM KEUANGAN
05
In the first semester of 2017, the household sector was relatively stable and the risks
contained in line with improving economic conditions. Despite the national economy
building momentum, households were still less inclined to consume, thereby reducing
the household consumption to GDP ratio. Nevertheless, households remained upbeat
concerning the economic outlook and growth of household consumer loans accelerated,
while the Real Sales Index (RSI) and Consumer Confidence Index (CCI) increased
respectively. Consequently, the banking industry expected growing household optimism
to drive deposit and credit growth, while simultaneously maintaining loan quality in the
household sector.
Corporate sector performance has shown early indications of improvement but remains
constrained by externalities and internal developments. The tepid global economic
recovery has failed to stimulate demand but the prices of export commodities from
Indonesia have improved, which elevated the value of exports. Meanwhile, lacklustre
domestic economic performance was evidenced by slower growth of real consumption
despite seasonal momentum due to the holy fasting month of Ramadan and Eid-ul-
Fitr. Non-financial public corporations have posted gains in terms of profitability as net
profits soared on the back of efficiency improvements. Of concern, however, is the
growing share of external debt in the corporate sector, which has undermined corporate
repayment capacity. Fortunately, the dent in corporate repayment capacity has had no
significant impact on corporate credit risk, which remains below the threshold.
HOUSEHOLDS AND CORPORATIONS
03
66 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Household performance was relatively stable and the corresponding risks contained
Non-Financial Corporate Sector posted Limited Gains
HOUSEHOLDS REMAIN STABLE,WHILE THE CORPORATE SECTOR POSTED LIMITED GAINS
Share of household consumption down to64.73%
ROA down to5.18%
ROE up to 10.65%
8.61%
14.63%
Share of household consumption up to 84.97%
Current Ratio down to1.38
TA/TL down to1.94
1.81%
5.91%
7.11%
DSR up to72.49%
DER up to106%
3.48%
Robust Household Consumption
Profitability
Growth of Household Loans up to
Deposit Growth down to
Household Ability to Save Declined
Liquidity and Profitability
Household NPL up to
Credit Growth down to
Growth of Household Deposits down to
Repayment Capacity
Gross NPL downto
67BANK INDONESIA
3.1.1. Sources of Vulnerability and Household
Sector Dynamics
National economic growth in Indonesia accelerated
from 4.94% in the second semester of 2016 to
5.01% in the first semester of 2017. Nevertheless,
households have not increased their consumption
commensurately. Growth of household
consumption stood at 4.95% in the reporting
period, which was below economic growth and
household consumption in the previous period at
4.99%. Consequently, the portion of household
consumption to GDP declined from 54.80% to
53.64% (Graph 3.1).
Despite less propensity to consume, households
were more upbeat on economic conditions, with
both the Real Sales Index (RSI) and Consumer
Confidence Index (CCI) increasing respectively. The
Retail Sales Survey conducted by Bank Indonesia at
the end of the second semester of 2016 confirmed
an RSI of 218.0, which increased in the subsequent
3.1. Household Sector
period to 232.4. In terms of growth, however, the
index decelerated from 10.5% to 6.3% over the
same period (Graph 3.2).
The Consumer Confidence Index (CCI) , which
describes consumers’ confidence in economic
conditions, increased from 115.4 in the second
semester of 2016 to 122.4 in the first semester of
2017. The CCI was edged up by both component
indexes, namely the Current Economic Condition
Index (CECI) and the Consumer Expectation Index
(CEI). The CECI describes consumer perception of
prevailing economic dynamics, which increased
from 102.9 to 113.7 (Graph 3.3), driven by current
incomes, job availability and conditions for buying
durable goods. Likewise, the CEI, which measures
consumer expectations of economic dynamics in
the next six months, also posted gains on expected
job availability and expected business conditions in
the next six months.
Concerning the upcoming three months,
households expected milder inflationary pressures,
primarily due to clothing and foodstuffs (Graph 3.4).
Proportion of Household Consumption to GDP
105%
45%
75%
15%
90%
30%
60%
0%I I III
2013 2017
II IIIII IV
6.0%
5.6%
5.2%
4.8%
4.4%
4.0%
Proportion of Non-Household Consumption to GDP
GDP Growth (rhs)Household Consumption Growth (rhs)
I I
20152014 2016
II IIIII III IIIIV IV IV
Graph 3.1 Contribution of Household Consumption to GDP
Source: BPS-Statistics Indonesia, 2017
1 The Real Sales Index (RSI) is used to gauge sources of demand-side inflationary pressures and reveal general retail sales and household consumption trends. The Survey is available from the
official Bank Indonesia website.2 The Consumer Confidence Index (CCI) is a simple average of the Current Economic Condition Index (CECI) and Consumer Expectation Index (CEI). The Survey is available from the official Bank
Indonesia website.
(yoy)Share (%)
5.01%
4.95%
Financial Markets Households and Corporations
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68 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
For the next six months, however, Consumer Survey
respondents predicted a build-up of inflationary
pressures in line with the seasonal spike in demand
for goods and services during the Christmas and
New Year holidays (Graph 3.5).
3.1.2. Household Financial Conditions
The domestic economic improvements achieved
in the first half of 2017 have not significantly fed
through to the household sector, as corroborated
by the June 2017 edition of the Consumer Survey.
Household propensity to consume declined on
conditions in December 2016, falling from 70.44%
to 64.73% and from 70.63% in June 2016 (Graph
3.6). Meanwhile, households were more inclined
to repay loans and save, with the respective index
increasing from 15.47% and 19.81% in June 2016
to 12.33% and 19.81% in December 2016 (Graph
3.6). Less household consumption, coupled with
more loan repayments, exacerbated vulnerabilities
in the household sector.
Greater household spending on loan repayments
was reflected, amongst others, by an increase in
the number of households with a debt service ratio
(DSR) in the 20-30% range, namely from 12.62%
of total respondents in the second semester of
2016 to 20.01% in the first semester of 2017.
40
(%)
0
2020.6
4.0
1.5 -0.7
3.76.5
3.8
8.5
-9.4
22.3
8.5
13.616.3
6.34.3
6.3
-3.0
-20
Notes: *) Preliminary data
Monthly RSI Growth (mtm) Annual RSI Growth (yoy) Holy Fasting Month
30
-10
1 1 15 5 59 93 3 37 7 7*2 2 26 6 610 10
2015 2016 2017
11 1112 124 4 48 8
10
Graph 3.2 Real Sales Growth
Source: Retail Sales Survey, Bank Indonesia, June 2017
Graph 3.3 Consumer Confidence Index (CCI), Current Economic Condition Index (CECI), and Consumer Expectation Index (CEI)
Consumer Confidence Index (CCI)Current Economic Condition Index (CECI)
Consumer Expectation Index (CEI)
140.0
130.0
120.0
110.0
100.0
90.0
80.0
70.0
Quarterly Consumer Confidence Index (CCI)
Lower fuel prices
Lower prices of fuels, gasand electricity
110.8 111.6
4 5
(Index)
6 7 8 9 10 11 12 1 12 23 34 45 56 67 8 9 10 11 12
2015 2016 2017
Opti
misti
cO
ptim
istic
118.0124.0
125.9
122.4
Source: Consumer Survey (18 Cities), Bank Indonesia, June 2017
69BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
The increase affected nearly all household groups,
except the middle-income earners and higher (Table
3.1).
On the other hand, the percentage of households
able to save more than 30% of their income
increased from 13.29% to 16.42%, while the
portion of households unable to save declined from
21.08% to 15.03% (Table 3.2).
3.1.3. Household Deposits in the Banking
Industry3
Household deposit growth moderated at the beginning
of 2017, declining to 7.11% (yoy) by the end of the first
semester from 7.18% (yoy) in the first semester of 2016
and from 8.92% (yoy) in the second semester of 2016.
Furthermore, household deposit growth was lower than
total deposit growth as reported by the banking industry
at 10.30% as well as non-household deposit growth
at 14.13% (Graph 3.7a). Slower growth of household
deposits was in line with the nominal growth of deposits
valued at ≤ Rp2 billion, which decelerated from 10.47%
in June 2016 to 6.59% in December 2016 and 6.01%
in June 2017 despite an increase recorded in the total
number of accounts (Graph 3.7b). Notwithstanding
the decline, household deposits continued to dominate
banking industry deposits, accounting for 53.07%,
down from 55.81% in the second semester of 2016.
By component, slower household deposit growth
primarily stemmed from demand deposits and
savings deposits, moderating from 23.10% and
10.79% to 10.62% and 7.56% respectively in the
first semester of 2017. Bucking the downward
(Index, weighted average of 18 cities)
3-Month Price Expectations Index (PEI) (rhs)Eid-ul-FitrQuarterly Inflation – BPS (rhs)
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0140
150
160
170
180
190
200%
163.9
177.0
1 1 12 2 23 3 34 4 45 5 5 56 6 6 67 7 7 78 8 8 89 9 9 910 10 1011 11 1112 12 12
2014
2014
2015
2015
2016
2016
2017
2017
Graph 3.4 Three-Month Price Expectations Index (PEI)
Graph 3.5 Six-Month Price Expectations Index (PEI)
6-Month Price Expectations Index (PEI) (rhs)Eid-ul-FitrSemesterly Inflation – BPS (rhs)
167.5
166.5
150
160
170
180
190
200
(Index, weighted average of 18 cities)
12 12 12 1211 11 11 111 12 23 34 45 5 56 6 67 7 7 78 8 8 89 9 9 910 10 10 101 2 3 4 5 6
(%)
8.0
6.0
4.0
2.0
0.0
Source: Consumer Survey (18 Cities), Bank Indonesia, June 2017
3 Household deposits are calculated as a proxy of individual deposits.
70 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Table 3.1 DSR Composition by Monthly Income
Semester II 2016
Income TotalDSR
0-10% 10%-20% 20%-30% >30%
Rp 1.40 - 2.79 million 8.78% 4.51% 1.71% 1.33% 1.23%
Rp 2.88 - 4.11 million 25.45% 16.25% 4.27% 2.89% 2.04%
Rp 4.50- 5.80 million 34.14% 21.57% 6.02% 3.90% 2.64%
Rp 6.20 - 7.61 million 21.57% 12.11% 4.51% 2.95% 2.01%
> Rp 7.61 million 10.06% 5.34% 2.11% 1.56% 1.05%
Total 100.00% 59.78% 18.63% 12.62% 8.97%
Semester I 2017
Income TotalDSR
0-10% 10%-20% 20%-30% >30%
Rp 1.50 - 3.00 million 25.42% 14.59% 4.27% 4.89% 1.66%
Rp 3.20 - 4.53 million 30.55% 16.45% 5.91% 5.62% 2.56%
Rp 4.77 - 6.15 million 21.33% 10.84% 4.42% 4.36% 1.69%
Rp 6.42 - 7.82 million 9.18% 3.94% 2.52% 1.87% 0.84%
> Rp 8.10 million 13.53% 5.80% 3.04% 3.25% 1.42%
Total 100.00% 51.63% 20.17% 20.01% 8.19%
Source: Consumer Survey (30 Cities), Bank Indonesia, December 2016 and June 2017, processed
Source: Consumer Survey (30 Cities), Bank Indonesia, June 2017, processed
Table 3.2 Composition of Savings by Monthly Income
Semester II 2016
Income TotalSaving
0-10% 10%-20% 20%-30% >30% Unable to Save
Rp 1.40 - 2.79 million 8.78% 3.01% 1.84% 1.17% 1.50% 1.27%
Rp 2.88 - 4.11 million 25.45% 6.36% 5.71% 3.49% 3.47% 6.42%
Rp 4.50- 5.80 million 34.14% 9.55% 8.41% 4.43% 3.78% 7.96%
Rp 6.20 - 7.61 million 21.57% 5.63% 5.74% 3.13% 2.98% 4.09%
> Rp 7.61 million 10.06% 2.85% 2.64% 1.67% 1.56% 1.34%
Total 100.00% 27.41% 24.34% 13.89% 13.29% 21.08%
Source: Consumer Survey (30 Cities), Bank Indonesia, December 2016 and June 2017, processed
Semester I 2017
Income TotalSaving
0-10% 10%-20% 20%-30% >30% Unable to Save
Rp 1.50 - 3.00 million 25.42% 5.67% 5.70% 5.07% 4.66% 4.32%
Rp 3.20 - 4.53 million 30.55% 7.00% 7.63% 5.98% 4.74% 5.19%
Rp 4.77- 6.15 million 21.33% 5.58% 5.47% 4.08% 3.40% 2.79%
Rp 6.42 - 7.82 million 9.18% 2.77% 2.46% 1.42% 1.32% 1.20%
> Rp 8.10 million 13.53% 3.99% 3.58% 2.13% 2.29% 1.53%
Total 100.00% 25.01% 24.85% 18.69% 16.42% 15.03%
June 2016
11,61%
17.76%
70.63%
11.61%
December 2016
Consumption Loan Repayments Savings
17.23%
70.44%
12.33%
June 2017
19.81%
64.73%
15.47%
Graph 3.6 Allocation of Household Spending
71BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
trend, however, growth of term deposits accelerated
in the reporting period from 4.63% to 6.10% (yoy).
Nonetheless, the share of savings deposits to total
deposits remained dominant despite reducing
slightly from 53.17% to 53.14% (Graph 3.8).
3.1.4. Bank Loans Disbursed to the
Household Sector4
After moderating, the banking industry was more
inclined to lend to the household sector in the first
half of 2017, with growth accelerating from 8.32%
(yoy) in the second semester of 2016 to 8.61%
(yoy), thus exceeding total credit growth at 7.75%
(yoy). The share of household loans to total bank
credit was recorded at 44.84% in the first semester
of 2017, up slightly from 44.18% in the previous
semester (Graph 3.9). Most loans disbursed by the
100%Share (%)
HouseholdHousehold
Non-HouseholdNon-Household
80%
30%
50%
0%sem I 2014 sem I 2015 sem I 2016 sem I 2017sem II 2014 sem II 2015 sem II 2016
90%
60%
10%54.53 56.64 54.00 56.16 54.65 55.81 53.07
45.47 43.36 46.00 43.84 45.35 44.19 46.9370%
20%
40%
Graph 3.7a Composition and Growth of Deposits
20yoy (%)
15 14.51 13.06
11.56
6.357.18
8.927.11
13.6312.29 12.65
7.265.90
9.60 10.3012.61
11.3113.97
8.45
4.40
10.4714.13
5
10
-sem I
2014
Total
20162015 2017
sem I sem I sem Isem II sem II sem II
100%Share (%)
80%
50%
10%
90%
60%
20%
70%
30%40%
Savings Term Deposits Demand Deposits
sem I 2014 sem I 2016sem I 2015 sem I 2017sem II 2014 sem II 2016sem II 2015
RT RT RTRT RTRT RTNon-RT Non-RT Non-RTNon-RT Non-RTNon-RT Non-RT
52.55
3.91
41.24
6.21
44.86
5.94
42.10
6.27
45.82
41.94
52.27
5.78
43.6441.77
52.92
5.32
45.28
6.54
44.35
5.49
41.37
53.14
44.16
50.28
5.56
40.29
50.21
53.1750.09
4.63 5.45
51.17
5.19
50.28
3.90
44.76
48.9753.15
4.74
42.57
51.4851.23
banking industry to the household sector were used
for consumptive purposes (62.11%), followed by
working capital (27.36%) and investment (10.53%)
(Table 3.3).
Household loans used for consumptive purposes
(hereinafter referred to as household consumer loans)
accelerated from 6.99% in the second semester of
2016 to 9.56% (yoy) in the first semester of 2017,
driven predominantly by automotive loans, which
reversed the previous contraction of -2.01% posted
in the second semester of 2016 to record positive
growth of 4.32% in the first semester of 2017, as
well as multipurpose loans, increasing from 8.24%
to 10.23%. Despite the gains posted by automotive
loans and multipurpose loans, housing loans slowed
from 7.67% to 7.51% in the reporting period.
Source: Commercial Bank Reports, Bank Indonesia, June 2017, processed
4 In this section, household sector loans refer to individual productive and consumptive loans
72 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
100
Share(%)
90
60
30
80
50
20
70
40
10
sem I sem Isem I sem I sem Isem II
2013 2014 2015 2016 2017
sem IIsem II sem II0
6.79 6.43 6.21 5.94 6.27 5.78 5.32 6.54 5.49
38.46 38.62 41.24 42.57 44.76 41.94 41.77 40.29 41.37
54.75 54.95 52.55 51.48 48.97 52.27 52.92 53.17 53.14
Savings Term Deposits Demand Deposits
30 yoy (%)
20
10
0
25
15
5
-5
-10 sem I13
Savings Term Deposits Demand Deposits Total
sem I 15
sem I 14
sem I 16
sem II 13
sem II 15
sem II 14
sem II 16
sem I 17
10.627.567.116.10
Graph 3.8 Composition and Growth of Household Deposits
Graph 3.7b Value and Total of Deposit Accounts
100%Share (%) yoy (%)
80%
30%
50%
0%
sem I 2014 sem I 2015 sem I 2016 sem I 2017sem II 2014 sem II 2015 sem II 2016
90%
60%
10%
55.06% 55.02%
55.12%
56.00%
44.94% 44.98% 44.88% 44.00%
55.51% 55.82% 55.16%
44.18% 44.84%44.49%
7.92% 8.32% 8.61%
70%
20%
40%
14%
6%
10%
2%
12%
4%
8%
0%
Households Non-Households Household Sector Credit Growth (rhs)
Graph 3.9 Composition of Bank Loans
16
14
8
2
12
6
0
10
4
Juni’16 Juni’16
Rp≤2 billion Rp≤2 billionRp≥2 billion Rp≥2 billionTotal Total
Des’16 Des’16Juni’17 Juni’17
Nominal Growth (%) Growth of Deposit Accounts (%)
16
20(%)
(%)
14
18
8
2
12
6
0
10
4
Source: Commercial Bank Reports, Bank Indonesia, June 2017, processed
Source: Distribution of Commercial Bank Deposits, Deposit Insurance Corporation (LPS), June 2017
Source: Commercial Bank Reports, Bank Indonesia, June 2017, processed
73BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Table 3.3 Household Sector Credit by Loan Type
Source: Commercial Bank Reports, Bank Indonesia, June 2017, processed
Source: Commercial Bank Reports, Bank Indonesia, June 2017, processed
Source: Consumer Survey, Bank Indonesia, June 2017, processed
Loan
Jun-16 Des-16 Jun-17
Credit (Rp. T)
Share (%)
NPL (%)
Credit (Rp. T)
Share (%)
NPL (%)
Credit (Rp. T)
Share (%)
NPL (%)
1. Working Capital 512.87 27.66 4.21 526.43 27.22 3.54 551.01 27.36 4.06
2. Investment 211.13 11.39 5.01 217.24 11.23 4.21 212.15 10.53 4.33
3. Consumption 1,130.28 60.95 1.68 1,190.27 61.55 1.53 1,250.76 62.11 1.73
TOTAL 1,854.28 100.00 2.76 1,933.93 100.00 2.38 2,013.92 100.00 2.64
40
yoy (%)
20
0
30
10
-10
35
15
-5
25
5
-15
AutomotiveHousing TotalMultipurpose
Sep-
12
Sep-
13
Sep-
14
Sep-
15
Sep-
16
Dec-
12
Dec-
13
Dec-
14
Dec-
15
Dec-
16
Mar
-13
Mar
-14
Mar
-15
Mar
-16
Mar
-17
Jun-
13
Jun-
14
Jun-
15
Jun-
16
Jun-
17
10.239.567.514.32
Graph 3.10 Household Consumer Loan Developments by Component
1200
800
400
Household Loans Household NPL (rhs)
NPL (%)Rp (T)
1000
600
200
0
Sep-
13
Sep-
14
Sep-
15
Sep-
16
Dec-
13
Dec-
14
Dec-
15
Dec-
16
Mar
-13
Mar
-14
Mar
-15
Mar
-16
Mar
-17
Jun-
13
Jun-
14
Jun-
15
Jun-
16
Jun-
17
4.00
2.001,81
1.0053.00
1.00
3.50
1.50
2.50
0.500.00
Graph 3.11 Value and NPL of Household Consumer Loans
3.5NPL (%)
2.94
1.811.370.98
2.5
1.5
3.0
2.0
1.00.5
-
Sep-
13
Sep-
12
Sep-
14
Sep-
15
Sep-
16
Dec-
13
Dec-
12
Dec-
14
Dec-
15
Dec-
16
Mar
-13
Mar
-12
Mar
-14
Mar
-15
Mar
-16
Mar
-17
Jun-
13
Jun-
12
Jun-
14
Jun-
15
Jun-
16
Jun-
17
AutomotiveHousing TotalMultipurpose
Graph 3.12 Household Consumer NPL by Component
Graph 3.13 Household Consumer Loan Composition by Loan Type
Jun2017
Housing
Automotive
Household Equipment
Multipurpose
Other Loans
Jun2016
5.75%
4.74%
40.22%42.21%
42.47%
0.37%
12.46%
0.45% 11.87%
39.47%
74 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
3.2.1. Sources of Vulnerability in the
Corporate Sector
Internal and external developments influenced
corporate sector performance during the first half of
2017. Internally, corporate sector performance was
affected by suboptimal national economic growth in
the second quarter of 2017, subdued by slower growth
of real consumption as corporations were less inclined
to spend despite the momentum garnered from
Ramadan and Eid-ul-Fitr. The main external factors,
however, included global economic uncertainty, which
undermined the capacity of promising domestic
macroeconomic conditions to stimulate the real
sector, although the economies of the United States
and China, as major trading partners of Indonesia,
3.2. Corporate Sector
160
80
120
40
Coal Crude Oil Gas (rhs)
140
60
100
20
52.41 USD/short ton
44.30USD/bbl
7.94USD/
mmbtu
USD USD25
15
5
20
10
0
Jan-
07Ju
n-07
Nov
-07
Apr-0
8
Sep-
08
Feb-
09Ju
l-09
Dec-
09M
ay-1
0O
ct-1
0M
ar-1
1
Aug-
11
Jan-
12Ju
n-12
Nov
-12
Apr-1
3
Sep-
13Fe
b-14
Jul-1
4De
c-14
May
-15
Oct
-15
Mar
-16
Aug-
16
Jan-
17
Jun-
17
Graph 3.14 Commodity Prices
7.0
3.0
5.0
1.0
USD/kg
6.0
2.0
4.0
0.0
Rubber
2.00 USD/kg
625.93USD/metric ton
Crude Palm Oil (rhs)
1,400
600
1,000
200
1,200
400
800
0
Jan-
07Ju
n-07
Nov
-07
Apr-0
8
Sep-
08
Feb-
09Ju
l-09
Dec-
09M
ay-1
0O
ct-1
0M
ar-1
1
Aug-
11
Jan-
12Ju
n-12
Nov
-12
Apr-1
3
Sep-
13Fe
b-14
Jul-1
4De
c-14
May
-15
Oct
-15
Mar
-16
Aug-
16
Jan-
17
Jun-
17
USD/metric ton
12,000USD/metric ton
8,000
10,000
6,000
4,000
2,000
0
USD/metric ton35,000
25,000
30,000
20,000
10,000
0
15,000
5,000
19521.50USD/metric ton
5,740.52 USD/metric ton
1,624.33 USD/metric ton
Jan-
07
Jun-
07N
ov-0
7
Apr-0
8
Sep-
08
Feb-
09
Jul-0
9
Dec-
09
May
-10
Oct
-10
Mar
-11
Aug-
11
Jan-
12
Jun-
12
Nov
-12
Apr-1
3
Sep-
13
Feb-
14
Jul-1
4
Dec-
14
May
-15
Oct
-15
Mar
-16
Aug-
16
Jan-
17
Jun-
17
Copper Alumunium Lead (rhs)
tended to beat economic expectations. Furthermore,
lower commodity prices in the first semester of 2017
also eroded corporate performance.
The prices of several leading international
commodities, including oil and gas as well as non-oil
and gas commodities, tended to slide in the first half
of the year (Graph 3.14). Lower prices affected crude
oil, crude palm oil (CPO), rubber and gas as well as
metals such as nickel and lead. The global price of
crude oil continued to tumble despite OPEC’s pact
to cut production. Meanwhile, an abundant supply
of natural rubber, especially from China , prompted
lower rubber prices. In contrast, the prices of coal,
copper and aluminium increased on their respective
positions in December 2016. The coal price
strengthened on rising demand from China and the
United States as winter approached.
5 Tempo daily newspaper, 8th June 2017 (https://bisnis.tempo.co/read/882685/harga-karet-alami-penurunan-terpanjang-sejak-1975#xwoJMZda3kIH10iW.99)
Source: Bloomberg, IMF, processed
75BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
6 Bisnis Indonesia, 17th July 2017, (http://market.bisnis.com/read/20170717/94/672217/semester-i2017-produksi-batu-bara-china-naik-5)
Accumulatively, exports increased on the previous
period and the same period one year earlier (Graph
3.15). Furthermore, the value of exports outstripped
the value of imports in the reporting period, with
the non-oil and gas sector cited as the main driver
of export value, especially the manufacturing
industry.
3.2.2. Corporate Performance
Corporate performance was influenced by business
sustainability and the scale of business activities.
According to the Business Survey conducted by Bank
Indonesia at the end of the first semester of 2017,
business activity expanded on conditions in the
second semester of 2016, with the corresponding
weighted net balance (WNB) increasing significantly
from 3.13% to 17.36% (Graph 3.16).
Businesses in nearly all economic sectors expanded
in the first half of 2017, particularly the trade,
hotels and restaurants (THR) sector as well as the
manufacturing industry, due to seasonal factors
that raised demand in the domestic market.
Nevertheless, the survey respondents predicted
business activity to moderate in the third quarter
of 2017, with the WNB dropping to 14.93%.
Corporate moderation was expected to originate
from the mining and quarrying sector, with a WNB
contraction of -3.15% reported. Furthermore, most
other sectors were also expected to experience a
downturn as the cyclical factors of Ramadan and
Eid-ul-Fitr faded, including the transportation and
communication sector as well as the hotels and
restaurants sector.
In relation to robust business growth, utilised
production capacity averaged 77.06% in the first
semester of 2017, up from 76.28% in the second
semester of 2016. Average utilised production
capacity in the first half of 2017 also exceeded that
recorded in the same period in 2013, at 72.62%,
and 2014, at 76.97%. The utilities sector (electricity,
gas and water supply) posted the highest level of
utilised production capacity in the reporting period
at 80.53%, contrasting the lowest of 75.04%
recorded in the mining and quarrying sector.
Graph 3.15 Indonesia’s Exports and Imports
45
13
55 15
40
12
5014
35
11
30
10
9
8
Exports ImportsRupiah Exchange Rate (rhs)
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
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
Source: Bank Indonesia, processed
USD billion Rp Thousand
13,35
39,16
34,37
76 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 3.16 Predicted and Actual Business Expansion
5.0(%qtq) (%SBT)
1.0
3.0
-1.0
4.0
0.0
2.0
-2.0
-3.0
25.0
15.0
5.0
20.0
14.93
4.803.13
-0.34
-1.77
17.36
10.0
0.0I I I III II II IIIII III III III*
2015
GDP Growth (lhs)*Forecast
WNB Value (rhs)
2014 2016 2017
IV IV IV
Graph 3.17 Utilised Production Capacity
85(%)
75
65
80
70
60I I III II IIIII
2015
Total
Mining and Quarrying
Electricity, Gas and Water Supply (Utilities Sector)
Agriculture, Livestock, Forestry and Fisheries
Manufacturing Industry
2016 2017IIIIV IV
80.53
75.65
77.0
6
76.9
2
75.04
77.01
Table 3.4 Financial Performance Indicators of Non-Financial Corporations
Source: Corporate Financial Reports from the Indonesia Stock Exchange, Bloomberg, processedNote: Data as of Q2/217 and Q2/2017 (sample size of 325 non-financial corporations).
No, SectorROA ROE DER Current Ratio TA/TL Asset TO Inventory TO
2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017
1 Agriculture 2.73% 4.61% 5.71% 9.29% 1.06 0.97 1.18 1.22 1.94 2.03 0.58 0.63 7.34 7.58
2 Basic Industry and Chemicals 3.65% 3.20% 7.67% 6.49% 1.03 1.02 1.41 1.49 1.97 1.98 0.67 0.64 4.74 4.57
3 Consumer Goods 13.11% 12.31% 24.53% 21.91% 0.79 0.77 1.84 1.78 2.27 2.30 1.31 1.29 4.91 5.07
4 Infrastructure, Utilities and Transportation 4.96% 4.19% 13.04% 10.25% 1.45 1.45 0.96 0.96 1.69 1.69 0.51 0.52 77.58 62.74
5 Miscellaneous Industries 4.07% 4.75% 8.93% 10.35% 1.16 1.20 1.22 1.06 1.86 1.83 0.75 0.73 7.96 8.03
6 Mining 0.95% 4.97% 1.81% 9.20% 0.86 0.84 1.63 1.83 2.16 2.19 0.47 0.51 12.01 14.05
7 Property and Real Estate 5.49% 5.10% 10.90% 10.09% 0.95 1.00 1.68 1.62 2.05 2.00 0.34 0.33 2.15 2.12
8 Trade, Services and Investment 2.98% 4.02% 5.78% 7.95% 0.97 0.99 1.52 1.48 2.03 2.01 0.98 0.97 6.88 7.10
Agregat 4.77% 5.18% 10.08% 10.65% 1.05 1.06 1.41 1.38 1.95 1.94 0.70 0.69 6.47 6.46
Graph 3.18 Key Performance Indicators
12.0
Current Ratio
Inventory Turnover RAO
ROE
2016Q2
2016Q4
2017Q2
TA/TL
10.0
8.0
6.0
4.0
2.0
0.0
Source: Business Survey, Bank Indonesia, Semester-I 2017
Source: Corporate Financial Reports from the Indonesia Stock Exchange, Bloomberg, processedNote: A larger ratio, implying a larger area, indicates comparatively better performance.
77BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Congruent with business expansion, the aggregate
performance of public non-financial corporations
began to see limited improvements in the second
quarter of 2017, with corporate profitability
increasing but so too the share of debt, while
productivity declined. ROA and ROE increased in
the second quarter of 2017 compared to conditions
one year earlier, climbing from 4.77% and 10.08%
to 5.18% and 10.65% respectively. The profitability
gains stemmed primarily from higher net profits as
the corporate sector sought to enhance efficiency. In
contrast, corporate productivity declined slightly, as
evidenced by the moderate dip in inventory turnover
from 6.47 in June 2016 to 6.46 in June 2017 and the
decrease in asset turnover to a level of 0.69 (Table
3.4). The lower inventory turnover indicator was
due to corporations operating in the infrastructure,
utilities and transportation sectors, while five other
major sectors posted gains. Furthermore, nearly
all corporate sectors experienced a decline in asset
turnover.
On the other hand, the debt-to-equity ratio (DER)
increased slightly from 1.05 (Q2/2016) to 1.06
(Q1/2017), implying a decline in short-term and
long-term corporate repayment capacity. The
current ratio fell from 1.41 to 1.38, while total assets
to total liabilities narrowed from 1.95 (Q2/2016)
to 1.94 (Q2/2017). The property and real estate
sector posted the largest increase in the debt-to-
equity ratio (DER), consistent with the proliferation
of private sector construction developments and
government infrastructure projects.
Corporate repayment capacity was somewhat
restrained in first semester of 2017, confirmed by
the debt service ratio (DSR). The latest public data
pointed to a short-term debt service ratio (DSR) in
June 2017 of 72.49% (median), up from 71.45%
in June 2016. Despite the rising DSR, the share
of corporations with a DSR > 100% and negative
DSR decreased, namely from 57.39% to 55.99%.
Corporate interest repayment capacity improved,
with the interest coverage ratio (ICR) increasing
from 2.50 in the second quarter of 2016 to 2.84 in
the second quarter of 2017, in line with the share
of corporations with an ICR value < 1.5, indicating a
smaller proportion of corporations with debt at risk.
In general, the performance of firms operating in the
major commodity sectors, such as coal, crude palm
oil (CPO), rubber and metals, also improved through
corporate efforts to enhance efficiency coupled with
growing demand for such goods, as confirmed by
increases of profitability, productivity and repayment
capacity in the second quarter of 2017. Only firms
operating in the oil and gas sectors experienced
declines of ROA and ROE, triggered by global oil
price fluctuations despite OPEC’s efforts to reduce
production and global supply. In addition, the share
of corporate debt (DER) in the oil and gas sectors
increased, thus undermining repayment capacity,
which exacerbated vulnerabilities in the affected
sectors. Rising levels of debt demand vigilance
because declining profitability and productivity will
erode corporate repayment capacity (Table 3.5).
The potential risk of default in the corporate
sector eased on the same period one year earlier,
as reflected by the corresponding Altman Z-Score
using a data sample of the 308 largest non-financial
public companies covering all economic sectors. The
results showed that the percentage of distressed
corporations declined from 42.91% in the second
quarter of 2016 to 37.66% in the second quarter
of 2017 (Graph 3.22), following a trend that has
7 Debt at risk: Total corporate debt with an ICR < 1.5 / Total corporate debt.
78 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 3.19 Financial Performance of Public Non-Financial Corporations
12%
8%
10%
6%
4%
2%
0%
25%ROA ROE (rhs)
15%
5%
20%
10%
0%
Mar
-11
Mar
-14
Mar
-17
Sep-
13
Sep-
16
Sep-
12
Sep-
15
Mar
-12
Mar
-15
Dec-
11
Dec-
14
Jun-
11
Jun-
14
Jun-
17
Jun-
13
Jun-
16
Dec-
12
Dec-
15
1.0 Asset Turnover Inventory Turnover (rhs)
0.7
0.9
0.6
0.8
0.5
1.0
0.7
0.9
0.6
0.8
9.0
7.0
8.0
6.0
8.5
6.5
7.5
5.5
5.0
Mar
-11
Mar
-14
Mar
-17
Sep-
13
Sep-
16
Sep-
12
Sep-
15
Mar
-12
Mar
-15
Dec-
11
Dec-
14
Jun-
11
Jun-
14
Jun-
17
Jun-
13
Jun-
16
Dec-
12
Dec-
15
DER Current Ratio TA/TL (rhs)1.8
1.4
1.0
1.6
1.2
0.8
Mar
-11
Mar
-11
Mar
-11
Mar
-12
Mar
-12
Mar
-12
Mar
-13
Mar
-13
Mar
-13
Mar
-14
Mar
-14
Mar
-14
Mar
-15
Mar
-15
Mar
-15
Mar
-16
Mar
-16
Mar
-16
Mar
-17
Mar
-17
Mar
-17
Jun-
17
Sep-
11
Sep-
11
Sep-
11
Sep-
12
Sep-
12
Sep-
12
Sep-
13
Sep-
13
Sep-
13
Sep-
14
Sep-
14
Sep-
14
Sep-
15
Sep-
15
Sep-
15
Sep-
16
Sep-
16
Sep-
16
2.2
2.0
2.1
1.9
1.8
1.7
Graph 3.20 Non-Financial Corporate Repayment Capacity
10.0100%%
6.060
8.080
4.040
2.020
9.090
5.050
7.070
3.030
1.010
0.00,020112011 20132013 20122012 20142014 20152015 Mar-16Mar-16 Jun-16Jun-16 Sep-16Sep-16 Dec-16Dec-16 Mar-17Mar-17 Jun-17Jun-17
45
ICR (median)DSR (median) Debt at Risk (rhs)% of Corporations with ICR < 1.5 (rhs)
% of Corporations with DSR > 100 and Negative DSR (rhs)
25
50
35
70
15
30
40
20
40
30
60
1020
510
00
25.8138.68
23.58
5.1254.89 47.32 57.4567.52 68.24 67.77 71.45 73.49 67.40 71.58 72.49 5.73
3.90 3.482.69 2.47 2.50 2.60 2.60 2.86 2.84
24.08
42.86 31.81
24.52
45.34
39.6831.20
29.47
46.82
37.05
55.56
38.21
55.76
30.75
37.3857.39
32.9731.06
35.6856.1433.0256.29
25.57 24.87
33.7955.7533.18
55.59
23.90
33.51
Table 3.5 Financial Performance Indicators of Major Commodity-Based Corporations
Source: Corporate Financial Reports from the Indonesia Stock Exchange, Bloomberg, processedNote: Data as of Q2/217 and Q2/2017 (sample size of 325 non-financial corporations).
SectorROA ROE DER Current Ratio TA/TL Asset TO Inventory TO
2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017
Coal 2.48% 9.79% 4.73% 17.72% 0.87 0.76 1.99 2.16 2.15 2.32 0.63 0.71 18.21 23.95
Crude Palm Oil (CPO) 2.05% 3.57% 4.60% 7.76% 1.21 1.14 0.89 0.89 1.82 1.88 0.52 0.58 7.61 7.91
Rubber 0.48% 1.86% 1.02% 4.03% 1.14 1.20 0.57 0.61 1.88 1.84 0.33 0.39 7.46 9.09
Oil and Gas -4.80% -8.27% -16.18% -33.39% 2.66 3.55 0.58 0.65 1.38 1.28 0.26 0.21 12.08 10.58
Metals -3.75% -1.61% -7.04% -2.92% 0.78 0.84 1.32 1.21 2.28 2.19 0.43 0.39 3.95 3.69
Source: Corporate Financial Reports from the Indonesia Stock Exchange, Bloomberg, processedNote: Data as of Q2/217 and Q2/2017 (sample size of 325 non-financial corporations).
Source: Corporate Financial Reports from the Indonesia Stock Exchange, Bloomberg, processedNote: Data as of Q2/217 and Q2/2017 (sample size of 325 non-financial corporations).
79BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
2.5
1.5
0.5
2.0
1.0
0.0I II III IV
2012 2014 20162013 2015 2017
I II III IV I II III IV I II III IV I II III IV I II
Current Ratio40
20
30
10
35
15
25
5
0
I II III IV
2012 2014 20162013 2015 2017
I II III IV I II III IV I II III IV I II III IV I II
Inventory Turnover
Graph 3.21 Financial Performance of Major Commodity-Based Corporations
20(%)
(%) (%)
(%)
10
15
5
0
-5
-10
-15I II III IV
2012 2014 20162013 2015 2017
ROA
I II III IV I II III IV I II III IV I II III IV I II
4.5
2.5
3.5
1.5
0.5
4.0
2.0
3.0
1.0
0.0I II III IV
2012 2014 20162013 2015 2017
I II III IV I II III IV I II III IV I II III IV I II
DER
Coal Crude Palm Oil (CPO) Rubber Oil and GasMetals
Source: Corporate Financial Reports from the Indonesia Stock Exchange, Bloomberg, processed
persisted since the first quarter of 2016. Furthermore,
the portion of distressed corporations was much
lower than during the 2008-2009 crisis period.
Meanwhile, the results of plotting the Altman
Z-Score against GDP showed that previous global
and domestic economic moderation has significantly
undermined corporate financial performance.
Notwithstanding the declines, corporate financial
performance began to rebound in the first half of
2017 in line with stronger economic growth, thus
reducing the share of distressed firms in Indonesia
(Graph 3.23) compared to conditions previously.
3.2.3. Bank Exposure to the Corporate Sector
Bank exposure to the corporate sector remained
dominant but eased as firms postponed business
expansion against the backdrop of an unstable
global economic recovery, particularly in Indonesia’s
leading trading partners, which spilled over to
influence the pace of domestic economic growth.
Less corporate expansion reduced demand for
new loans from the banking industry. In the first
semester of 2017, therefore, the portion of bank
loans extended to the corporate sector moderated
slightly from 48.43% to 47.57%. Most commercial
loans were disbursed by the dominant BUKU 4 and
BUKU 3 banks, accounting respectively for 50.85%
and 32.40% of the total, further corroborating
the orientation of such banks towards corporate
financing, while BUKU 2 and BUKU 1 banks tended
to focus on retail loans (Graph 3.24).
Growth of bank loans allocated to the corporate
sector slowed in the first semester of 2017, namely
80 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 3.24 Corporate Loans by BUKU Bank Group
100%Share % %
90%
60%
30%
80%
50%
20%
70%
40%
10%
0%
Mar
Mar
Mar
Mar
Mar
Mar
MarJun
2011
BUKU 1 BUKU 3 BUKU 4
Gross NPL (rhs)Credit Growth (yoy – rhs)
BUKU 2
2013 20152012 2014 2016 2017
Jun
Jun
Jun
Jun
Jun
Jun
Sep
Sep
Sep
Sep
Sep
Sep
Dec
Dec
Dec
Dec
Dec
Dec
35.0
35.0
35.0
35.05.93
3.48
30.0
30.0
30.0
30.0
Graph 3.22 Corporate Performance per the Altman Z-Score
55
Share % Share % PDB% (yoy)
35
43.8239.36 37.66
37.99
24.35
45
25
15
50
30
40
20
10
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
Dec-
15
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
Safe Zone Distress Zone Moderate Zone
Graph 3.23 Distressed Corporate Performance against GDP
35 5.5
5.01
37.66
45 6.5
25 4.5
50 7.0
30 5.0
40 6.0
20 4.0
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
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
GDP (rhs) Share of Distressed Corporations
Source: Bloomberg, CEIC, June 2017, processed
from 9.40% (yoy) in the second semester of 2016
to 5.91% (yoy). The corporate credit slump was
more pronounced than the slowdown experienced
by loans extended to the manufacturing industry,
which decelerated from 7.86% to 7.75% over the
same period. The downswing was driven by the
transportation, warehousing and communication
sector, coupled with several other sectors (Table 3.6).
In addition, loans disbursed to the manufacturing
industry, as the dominant sector, accounting for
31.72% of the total, also declined. Conversely, the
mining sector and other sectors, which had posted
negative credit growth just last year, began to
show improvements in the first semester of 2017.
Considering that the dominant share of corporate
credit originates from the banking industry, slower
corporate credit growth will also affect the overall
achievement of the national credit growth target
for the banking industry in 2017.
As an aggregate, the quality of corporate loans has
tended to improve, as reflected by a decrease in the
gross NPL ratio from 3.62% in the second semester
of 2016 to 3.48% in the first semester of 2017.
The stronger NPL was primarily attributed to the
transportation, warehousing and communication
sector as well as the manufacturing industry.
Nevertheless, deteriorating NPL performance in
Source: Commercial Bank Reports, June 2017, processed
81BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Table 3.6 Corporate Loans by Economic Sector
Source: Commercial Bank Reports, June 2017, processed
No Economic Sector
Juni-16 Des-16 Jun-17
Outstanding Credit (Rp,
trillions)
Share (%)
Credit Growth yoy (%)
Gross NPL (%)
Outstanding Credit (Rp,
trillions)
Share (%)
Credit Growth yoy (%)
Gross NPL (%)
Outstanding Credit (Rp,
trillions)
Share (%)
Credit Growth yoy (%)
Gross NPL (%)
1 Manufacturing Industry 655.16 32.48 9.46 3.78 680.71 32.11 4.29 3.60 677.60 31.72 3.43 3.32
2 Trade, Hotels and Restaurants 430.01 21.32 13.14 3.61 447.05 21.09 8.53 4.47 448.50 20.99 4.30 4.30
3 Corporate Services 190.20 9.43 24.52 2.15 204.43 9.64 17.80 2.20 212.82 9.96 11.90 2.55
4 Agriculture 179.82 8.91 23.68 1.01 193.65 9.14 22.65 1.68 200.02 9.36 11.23 1.34
5 Construction 157.59 7.81 21.17 4.63 165.68 7.82 21.33 3.63 181.79 8.51 15.36 3.46
6 Transportation, Warehousing and Communications
151.52 7.51 1.52 5.60 143.69 6.78 (5.84) 5.07 146.52 6.86 (3.30) 4.38
7 Utilities (Electricity, Gas and Water Supply)
104.87 5.20 27.78 1.73 128.06 6.04 38.01 1.65 119.01 5.57 13.48 1.57
8 Mining 109.85 5.45 (14.92) 6.13 116.44 5.49 (5.29) 7.13 111.10 5.20 1.13 7.77
9 Social/Public Services 31.66 1.57 32.87 3.17 33.33 1.57 14.77 1.92 32.30 1.51 2.01 3.37
10 Other Sectors 6.52 0.32 (14.28) 4.99 6.63 0.31 (13.13) 0.61 6.75 0.32 3.47 1.20
Total 2,017.20 100.00 12.15 3.56 2,119.68 100.00 9.40 3.62 2,136.41 100.00 5.91 3.48
several other sectors requires close monitoring,
mainly the mining sector, which increased from
7.13% to 7.77% in the first semester of 2017 due
to lower and fluctuating mining commodity prices,
coupled with low demand for mining products,
which undermined performance in the sector.
Bank credit risk exposure to firms operating in
the five major export commodity sectors has
not improved, reflected by a deterioration in the
gross NPL ratio in line with subdued financial
performance in the affected sectors (Table 3.7).
Several commodities, particularly coal as well as
oil and gas, have a gross NPL ratio that is above
the 5% threshold, which has been accompanied
by declining credit growth. Nonetheless, credit
growth to the crude palm oil (CPO) and rubber
sectors has remained positive but the gross NPL
ratios of both sectors have failed to improve. The
rising NPL trend, as a proxy of credit risk, has
made the banks more selective when disbursing
loans to commodity-based sectors as part of the
ongoing consolidation process and also to avoid
spiralling NPL against a backdrop of price and
demand uncertainty surrounding international
commodities.
Table 3.7. Credit Based on Main Export Commodities
Source: Commercial Bank Reports, June 2017, processed
No Commodity
Outstanding Loans as of
June 2017 (Rp, trillions)
Share of Total Credit (%) Credit Growth yoy (%) Gross NPL Ratio (%)
Jun'16 Dec'16 Jun'17 Jun'16 Dec'16 Jun'17 Jun'16 Dec'16 Jun'17
1 Crude Palm Oil 275.53 5.84 6.12 6.13 20.82 13.11 13.23 1.10 1.40 1.42
2 Metal Products 105.71 2.20 2.34 2.35 10.14 15.21 15.13 2.38 2.58 3.69
3 Oil and Gas 85.83 2.25 2.25 1.91 (6.71) (8.05) (8.66) 5.93 6.04 7.59
4 Coal 36.71 1.00 0.91 0.82 (17.18) (14.38) (11.78) 8.31 10.30 11.63
5 Rubber 22.06 0.46 0.46 0.49 (2.10) 11.89 16.07 4.24 4.13 3.61
Total 525.83 11.75 12.08 11.71 7.60 6.31 7.37 3.00 3.27 3.69
82 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 3.25 Performance of Corporate Deposits
1,600
Corporate Third Party Funds (Rp T)
Corporate Deposits Corporate Deposit Growth (rhs)
yoy (%)
1,200
800
400
1,400
1,000
600
200
0
35
1,376
14.6315
25
5
30
10
20
-
Source: Commercial Bank Reports, June 2017, processed
Congruent with slower credit growth, bank deposits
originating from the corporate sector also moderated
in the first half of 2017, decelerating from 16.60%
(yoy) to 14.63% (yoy). A growing requirement in
the corporate sector to meet short-term obligations
has eroded corporate liquidity, as reflected by the
lower current ratio and higher debt service ratio (DSR)
compared to conditions in the previous period (Graph
3.19 and Graph 3.20).
At the end of the first semester of 2017, BUKU 4 and
BUKU 3 banks were the preferred destinations for
the corporate sector to place funds, commanding
shares of 44.37% and 37.71% of the total
respectively due to several factors, including the
transaction simplicity, security and convenience
offered by such large banks (Graph 3.26).
3.2.4. Private External Debt
External debt in Indonesia stood at USD335.29 billion
in June 2017, with a relatively balanced composition
between the public and private sectors (Graph 3.27).
Nevertheless, the growth of private external debt,
particularly in the financial sector, has tended to slow
since the end of 2014 due to economic moderation
and rupiah exchange rates. Rupiah volatility has the
potential to increase exposure to currency risk for
prospective borrowers, thus making the private sector
more reluctant to expand its external debt position.
Based on the components of private external debt,
as of June 2017, the external debt of nonbank
financial institutions contracted by -4.70% (yoy),
followed by banks (-2.28%, yoy) and non-financial
state-owned enterprises (-1.71%, yoy). Only non-
financial corporations had the appetite to increase
external debt, growing at 0.09% (Graph 3.28).
Declining external debt in the financial sector (banks
and the nonbank financial industry) was linked to
weak demand for loans/financing, primarily in a
foreign currency, therefore the financial institutions
(banks and nonbank financial industry) reduced
their offshore borrowings as a source of funds to
extend loans/financing. Meanwhile, the increase in
external debt at non-financial corporations was in
line with growing investment. The value of non-
financial corporate external debt in June 2017 had
reached USD126 billion (Graph 3.28). Despite the
increase, the total restructured value declined.
Restructured (restru) non-financial corporate
external debt can be grouped into two
83BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Graph 3.26 Corporate Deposits by BUKU Bank Group
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
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
100%
Share (%)
90%
60%
30%
80%
50%
20%
70%
40%
10%
0%
BUKU 1 BUKU 2 BUKU 3 BUKU 4
44.37%
37.71%
15.56%
2.36%
Source: Commercial Bank Reports, June 2017, processed
characteristics, namely a positive tone or a negative
tone. Positive tone restructuring aims to improve
corporate business and performance, including: (i)
raising the ceiling; (ii) refinancing; (iii) rollover; and
(iv) creditor diversification. In contrast, negative
tone restructuring is undertaken due to declining
corporate performance, including repayment
constraints, a deteriorating business outlook or
inadequate liquidity. Negative tone restructuring
can be achieved through: (i) reconditioning; (ii)
capitalised interest; (iii) debt to equity swaps; (iv) debt
reduction; (v) rescheduling; and (vi) other external
debt restructuring. A negative tone restructuring
action could indicate a deterioration of corporate
performance that may affect repayment capacity on
the obligations to domestic or foreign banks.
The value of restructured external debt was
largest in the manufacturing industry at USD12.9
billion as of June 2017 (Table 3.8) due to the high
import content of raw materials that is typically
paid in USD, while the products are normally sold
on the domestic market in rupiah, thus creating
high currency mismatch risk.
Restructured external debt at non-financial
corporations has declined since January 2015
to USD30.66 billion as of June 2017 (869
corporations restructured external debt with a
negative tone). Consequently, restructuring has
become the rational choice to make principal
and interest payments on external debt more
efficient in line with domestic and global
economic moderation.
External debt restructuring by non-financial
corporations has tended to decline on the
position recorded in June 2016 for both negative
and positive tones. In terms of share, however,
as of June 2017 the share of negative tone
had increased and positive tone had decreased
compared to conditions in June 2016.
84 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 3.27 External Debt in Indonesia
100%Share (%)
90%
60%
30%
80%
50%
20%
70%
40%
10%
0%
3.47 1.97 2.19 2.45 1.95 3.64 3.48 5.45 5.86 7.82 8.53 7.95 7.22 7.17
37.57 38.42 40.65 40.45 42.21 38.93 37.91 41.91 44.16 45.75 47.24 46.16 42.84 42.04
58.96 59.61 57.17 57.10 55.84 57.42 58.60 52.64 49.97 46.43 44.23 45.89 49.94 50.79
2004 2009 20152006
Non-Financial State-Owned EnterpriseOther PrivateGovernment and Monetary Authority
2011 20172005 2010 20162007 20122008 20142013
Graph 3.28 Private External Debt Growth and Value
Dec-
05
Jun-
06
Dec-
06Ju
n-07
De
c-07
Jun-
08
Dec-
08Ju
n-09
De
c-09
Jun-
10De
c-10
Jun-
11
Dec-
11Ju
n-12
De
c-12
Jun-
13
Dec-
13Ju
n-14
Dec-
14Ju
n-15
De
c-15
Jun-
16De
c-16
Jun-
17
120% GrowthYoY (%)
40%
80%
0%
100%
20%
60%
-20%
-40%
-60%
Total Private External Debt
Nonbank Financial Institution
Nonbank Financial Institution
Non-Financial State-Owned Enterprise
Bank
Non-Financial Corporation
0.09%
-1.37%-1.71%-2.28%
-4.70%
BankNon-Financial State-Owned Enterprise
Total Private External Debt Non-Financial Corporation
35USD Billion USD Billion
15
25
5
30
10
20
-
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
20
Bank Nonbank Financial Institution Non-Financial State-Owned EnterprisePrivate (rhs)Corporate
-
80
40
100
120
140
160
180165
29
12624
10 60
Source: Commercial Bank Reports, June 2017, processed
Source: External Debt Statistics, Bank Indonesia, position as of June 2017, processed
8 Penentuan ULN restru dengan tone positif dan negatif merupakan hasil Focus Group Discussion (FGD) dengan korporasi yang memiliki ULN yang di resrukturisasi
Based on outstanding external debt at non-financial
corporations, negative tone restructuring was
dominated by reconditioning, with 476 facilities as
of June 2017. Reconditioning was achieved through
changes to the terms and conditions of the external
debt, including adjusting the total of the debt or
interest rate or through creditor diversification. In
several cases, reconditioning was undertaken if
new debt was offered with more attractive terms
and conditions, for instance a lower interest rate
or longer maturity period. Meanwhile, positive
tone restructuring was dominated by creditor
diversification, accounting for 118 facilities as of
June 2017 (Table 3.9).
As of June 2017, interest payments on positive and
negative tone restructured external debt declined
compared to conditions in the same period one
year earlier, falling to USD10.3 million and USD73.6
million respectively, which is consistent with the
decreasing principal payments on restructured
external debt, with positive tone declining to
USD0.92 billion and positive tone to USD0.04
billion (Graph 3.32).
To mitigate the risks, Bank Indonesia has issued
a regulation concerning the Application of
Prudential Principles in the Management of
Nonbank Corporate External Debt (PBI No.
16/21/PBI/2014). The regulation was issued to
encourage prudence at nonbank corporations
when managing the various risks associated
with external debt. Consequently, nonbank
corporations are required to satisfy a minimum
hedging ratio of 25% based on the negative
difference between foreign currency assets and
foreign currency liabilities that will mature within
three months as well as between three and six
85BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Graph 3.29 Restructured External Debt of Non-Financial Corporations
Jan-
14Fe
b-14
Mar
-14
Apr-1
4M
ay-1
4Ju
n-14
Jul-1
4Au
g-14
Sep-
14O
ct-1
4N
ov-1
4De
c-14
Jan-
15Fe
b-15
Mar
-15
Apr-1
5M
ay-1
5Ju
n-15
Jul-1
5Au
g-15
Sep-
15O
ct-1
5N
ov-1
5De
c-15
Jan-
16Fe
b-16
Mar
-16
Apr-1
6M
ay-1
6Ju
n-16
Jul-1
6Au
g-16
Sep-
16O
ct-1
6N
ov-1
6De
c-16
Jan-
17Fe
b-17
Mar
-17
Apr-1
7M
ay-1
7Ju
n-17
45.0
34,77
30,66
25.0
35.0
15.0
40.0
20.0
30.0
10.0
5.0
0.0
USD Billion
Source: External Debt Statistics, Bank Indonesia, position as of June 2017, processed
Table 3.8 Restructured External Debt by Economic Sector
No. Economic Sector
Non-Financial Corporate External Debt (USD, millions) *)
Non-Restructured
Restructured Total External
DebtPositive
ToneNegative
ToneTotal
Restructured
1. Manufacturing Industry 15,956 1,877 11,067 12,944 28,900
2. Utilities (Electricity, Gas and Water Supply) 18,809 104 2,578 2,682 21,491
3. Mining and Quarrying 16,991 212 4,131 4,344 21,335
4. Transportation and Communication 10,718 108 2,035 2,143 12,861
5. Trade, Hotels and Restaurants 5,196 623 1,316 1,939 7,135
6. Financial, Leasing and Corporate Services 4,535 514 1,874 2,388 6,923
7. Agriculture, Livestock, Forestry and Fisheries 3,366 559 2,138 2,697 6,063
8. Others Sector 998 13 672 684 1,683
9. Construction 740 206 170 376 1,115
10. Services 592 416 46 462 1,054
Total 77,901 4,632 26,027 30,659 108,559
Source: External Debt Statistics, Bank Indonesia, position as of June 2017, processed
months. In addition, nonbank corporations are
also required to fulfil a minimum foreign currency
liquidity ratio of 70%. Based on the Compliance
Report for Prudential Principles (KPPK), Bank
Indonesia calculates the foreign exchange liquidity
of all nonbank corporations holding external debt.
From the KPPK report, Bank Indonesia found that
of the 2,518 indebted nonbank corporations
reporting their foreign currency liquidity positions,
9.45% had failed to meet the liquidity or hedging
requirements for the upcoming three months and
6.67% had failed to meet the requirements for the
next 3-6 months. The data, therefore, indicates that
most indebted nonbank corporations have already
met the prudential principles to contain the risks
associated with external debt.
86 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 3.30 Outstanding Restructured External Debt (USD, millions)
Negative Tone
Positive Tone
40.0
USD Billion
30.0
20.0
26.85
7.92
10.0
10.0
6.0
2.0
8.0
4.0
0.0
Jan-
14
Feb-
14
Mar
-14
Apr-1
4
May
-14
Jun-
14
Jul-1
4
Aug-
14
Sep-
14
Oct
-14
Nov
-14
Dec-
14
Jan-
15
Feb-
15
Mar
-15
Apr-1
5
May
-15
Jun-
15
Jul-1
5
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7
May
-17
Jun-
17
26.03
4.63
Graph 3.31 Share of Outstanding Restructured External Debt to Total Restructure External Debt (%)
Jun-17May-17Apr-17
Mar-17Feb-17Jan-17 Dec-16Nov-16Oct-16Sep-16Aug-16
Jul-16Jun-16
May-16Apr-16
Mar-16Feb-16Jan-16 Dec-15Nov-15Oct-15Sep-15Aug-15
Jul-15Jun-15
May-15Apr-15
Mar-15Feb-15Jan-15
15.11
Positive Tone Negative Tone
84.89
0% 20% 40% 60% 80% 100%
Source: External Debt Statistics, Bank Indonesia, position as of June 2017, processed
Source: External Debt Statistics, Bank Indonesia, position as of June 2017, processed
Table 3.9 Types of Positive and Negative Tone External Debt Restructuration
Restructuration Tone Type of Restructuration
External Debt Position, Non-Financial (USD,
millions)
Number of Facilities
Negative Tone
Reconditioning 10,812 476
Rescheduling 6,479 771
Other Restructuring 5,596 279
Capitalised Interest 3,593 66
Debt to Equity Swap 102 16
Debt Reduction 98 6
Positive Tone
Creditor Diversification 1,976 118
Refinancing 1,408 33
Raised Ceiling 630 33
Rollover 628 63
Total 31,323 1,861
Graph 3.32 Interest and Principal Payments on Positive and Negative Tone Restructured External Debt
35250Interest Payments(USD, millions)
Principal Payments(USD, billions)
150
200
100
50
0
15
25
5
30
10
20
-
Jan-
15Fe
b-15
Mar
-15
Apr-1
5M
ay-1
5Ju
n-15
Jul-1
5Au
g-15
Sep-
15O
ct-1
5N
ov-1
5De
c-15
Jan-
16Fe
b-16
Mar
-16
Apr-1
6M
ay-1
6Ju
n-16
Jul-1
6Au
g-16
Sep-
16O
ct-1
6N
ov-1
6De
c-16
Jan-
17Fe
b-17
Mar
-17
Apr-1
7M
ay-1
7Ju
n-17
73.61
10.3
Positive Tone (rhs) Negative Tone
Jan-
15
Mar
-15
May
-15
Jul-1
5
Sep-
15
Nov
-15
Dec-
15
Jan-
16
Mar
-16
Mei
-16
Jul-1
6
Sep-
16
Nov
-16
Jan-
17
Mar
-17
Mei
-17
0.92
0.04
3.50 3.50
1.501.50
2.50 2.50
0.5
0.5
3.00 3.00
1.001.00
2.002.00
0.0
0.0
-0.5
Source: External Debt Statistics, Bank Indonesia, position as of June 2017, processed
(USD miliar)
87BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Box 3.1. Steel Industry Performance in East Java9
Corporate performance in East Java deteriorated
slightly in the first half of 2017 due to externalities
and domestic developments, namely the uncertain
global geopolitical situation, which heightened the
risks associated with the leading export commodities
from East Java. In addition, public consumption has
remained relatively stagnant, while industry in the
region relies on imported goods, thereby restraining
the pace of economic growth in the province of
East Java.
The slowdown in East Java has been reflected by
declining productivity and profitability. Nevertheless,
corporate liquidity, solvency and repayment capacity
have continued to improve. Corporate performance
in East Java is favourable compared to the national
average in terms of profitability, productivity,
liquidity and long-term repayment capacity but
short-term repayment capacity remains behind the
national average.
By sector, the performance of the miscellaneous
industries as well as the basic industries and
chemical industry was suboptimal, reflected by
declining productivity and profitability, which
undermined repayment capacity. Furthermore,
weak performance was further corroborated by
slower credit growth in East Java, particularly
affecting loans to the base metals industry, plastics
industry, trade of construction materials sector
as well as multipurpose loans, housing loans and
automotive loans. Based on loan type, working
capital loans were the main drag on credit growth
along with consumer loans. Working capital loans
dominated, accounting for 53.6%, disbursed to
corporations (66.2%) as working capital loans
and consumer loans, with the majority (28.2%)
extended to individuals (99.2%).
The credit slump in the base metals industry of East
Java has persisted since 2014, as demonstrated
9 Source: Regional Financial Stability Report (KSKD) of East Java Province, 2017 (processed).
Consumer Loans
Working Capital Loans
Investment Loans
Total Credit
% [yoy]
I II III IV I II III IV I II III IV I II III IV I III III IV
2012 2013 2014 2015 2016 2017
0
5
10
15
20
25
30
35
40
21.14
7.89
11.19
2.50
Box Graph 3.1.1 Bank Loans in East Java Box Graph 3.1.2 Trend and Share of Loan Disbursements by Sector
Kredit Korporasi (Share)
Manufacturing Industry
Trade30
40
50
60 0.99;58.86
0.99;23.89
70
20
10
-1.0 -0.5 0.0 0.5 1.0 1.5
0
Source: Commercial Bank Reports (processed)
(correlation with credit trend)
88 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Source: BPS-Statistics Indonesia (processed)
Box Table 3.1.1 Trend and Share of Loan Disbursements by Sector
Type Borrower Sector Subsector Correlation Share
Working Capital Loans Corporate
Manufacturing Industry
Base Metals Iron and Steel 0.952 7.1
Articles of Plastic 0.973 5.1
Trade Trade of Construction Materials 0.970 9.0
Investment Loans Individual
Multipurpose 0.964 43.8
HousingHousing Loans for 22 – 70m2 0.990 15.0
Housing Loans for > 70m2 0.993 13.2
Automotive Cars 0.905 11.5
by declining exports. Nevertheless, exports began
to rebound in the third quarter of 2016, especially
consignments to India, United States, the Philippines,
Japan and Europe.
The performance of public non-financial
corporations operating in the iron and steel industry
is also representative of the base metals industry
in East Java, with PT Jaya Pari Steel Tbk (JPRS),
PT Steel Pipe Industry of Indonesia Tbk (ISSP),
PT Gunawan Dianjaya Steel Tbk (GDST) and PT
Betonjaya Manunggal Tbk (BTON) operating as the
main players. The performance of those four firms
has deteriorated since 2014, particularly in terms
of productivity and profitability. In the first quarter
of 2017, however, performance began to rebound
in line with the proliferation of government and
private infrastructure projects in Indonesia.
I II III IV I II III IV I I III IIIII IIIIV IV
2013
yoy (%)
yoy (%)
2014 2015 2016 2017
Credit Growth Industry Growth
7.9
(10.9)
35
30
25
20
15
10
5
0
-5
-10
-15
Box Graph 3.1.4 Iron and Steel ExportsBox Graph 3.1.3 Loans Disbursed operational to the Base Metals Industry
2014
-15.0
-83.7 -80.2-91.1 -93.0
-34.3
-1.6
-17.22.3 -6.4
10.624.7
-36.9
63.7
-2.5
-23.4-9.5
-14.4
-19.7-11.4
-2.3-13.1
-12.5
-18.4-28.7
-18.1
I I I III II IIIII III IIIIV IV IV
2015 20162014 2015 20162014 2015 20162014 2015 2016 2017
80
60
40
20
-
(20)
(40)
(60)
(80)
(100)
(120)
Export
Iron & Steel Growth Articles of Iron & Steel Growth
Source: Commercial Bank Reports (processed)
89BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Corporate performance in East Java moderated
slightly in the first quarter of 2017 due to external
and internal developments, namely the uncertain
global geopolitical situation, which heightened the
risks associated with the leading export commodities
from East Java. In addition, public consumption has
remained relatively stagnant, while industry in the
region relies on imported goods, thereby restraining
the pace of economic growth in the province of East
Java.
The slowdown in East Java has been reflected by
declining productivity and profitability. Nevertheless,
corporate liquidity, solvency and repayment capacity
have continued to improve. Corporate performance
in East Java is favourable compared to the national
average in terms of profitability, productivity,
liquidity and long-term repayment capacity but
short-term repayment capacity remains behind the
national average.
The metal industry in Indonesia continues to face
various constraints in the form of stiff competition
from cheaper imported products from China, non-SNI
(Indonesia National Standard) products and products
sold without VAT as well as the effect of lower global
steel prices and delayed high-rise building projects.
Ineffective controls on imports by the government
have led to an oversupply of steel that has depressed
base metal prices, including iron and steel.
Additionally, export sales are not optimal due to
the protectionist barriers erected in other countries
through import duties on steel and anti-dumping
regulations in China, United States, India, Thailand
and Australia. Such inauspicious circumstances have
been exacerbated further by weak demand from
Europe, Canada, United States, Australia, Malaysia
and Thailand as well as the economic embargo on
exports to Iran. The market share of steel exports
has also been eroded by additional competition
Box Graph 3.1.6 Productivity of the Steel Industry Box Graph 3.1.5 Profitability of the Steel Industry
I II III IV
I II III IV
I II III IV
I II III IV
I
I
I
I
II
II
III
III
IV
IV
2014
2014
15
1.2
101.0
5 0.8
0
0.4
0.6
-50.2
-10
-15
0.0
ROA (%)
(Asset Turnover)
2015
2015
2016
2016
2017
2017
ISSP ISSPBTON BTONIndustry (rhs) Industry (rhs)JPRS JPRSGOST GOST
7
6
5
3.98
0.73
1.400.57
(-2.32)
0.390.660.37
1.62
0.584
3
2
1
0
Source: Bloomberg (processed)
10 Liaisons and Focus Group Discussions (FGD) held at Bank Indonesia.
90 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Source: Commercial Bank Reports (processed)
Box Graph 3.1.7 NPL of the Manufacturing Industry in East Java
I II III IV I II III IV I I III IIIII IIIIV IV
2013 2014 2015 2016 2017
7
6
5
4
3
2
1
0
-1
NPL (%)
Metals Fish Cigarettes Fertiliser Plastics
(%)
6.00
2.79
2.35
0.41
from other countries, including South Korea and
Japan, which has culminated in reduced production
capacity and inventory of the base metals industry
located in East Java.
Investment in the iron and steel base metals
industry has tracked a downward trend since 2014.
The investment projects have merely been for the
development of power substations to save electricity
costs, construction of new power substations to
reduce logistics costs and automation for greater
cost efficiency. In addition, higher operating costs
due to more expensive labour and energy (electricity)
costs as well as imported raw materials as a result
of the weak rupiah in 2014 have burdened the base
metals industry. Lower selling prices, combined with
higher operating costs have squeezed margins,
while less demand and automation have decimated
the labour force.
Credit risk in the iron and steel base metals industry
has also increased, with the NPL deteriorating from
3.32% in the fourth quarter of 2016 to 2.79%
in the first quarter of 2017. Such conditions have
forced the banks to become more prudent when
lending to the sector, as reflected by slower credit
growth in the industry, contracting from 0.4% in
the fourth quarter of 2016 to -10.9% in the first
quarter of 2017. Nevertheless, improving export
performance and the proliferation of government
infrastructure projects have increased the supply
and demand of credit in the base metals industry.
91BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
92 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Pandawa Lima are the five brothers as the protagonists of the Mahabharata narrative, namely
Yudhishthira, Bhima, Nakula, Sahadeva and Arjuna. Bhima was strong, unlike his four brothers. Pandawa
Lima may be interpreted as financial institutions. Bhima, representing strength, is the banking industry,
dominating the total assets of the financial system. Consequently, the banking industry contains the most
risk and can influence the other institutions. A strong banking industry is resilient, however, to the risks
originating from the global and domestic economies.
93BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
05
INFRASTRUKTURSISTEM KEUANGAN
05
In general, banking indicators were mixed in the first half of 2017. The banks responded
to milder pressures in the financial system as well as global and domestic economic
gains with prudence due to the looming threat of credit risk. Borrowers and prospective
borrowers were also cautious and tended to wait and see when addressing the latest
economic developments.
Total assets of the banking industry stood at Rp7,026.3 trillion, with growth accelerating
from 9.73% to 10.43% in the first semester of 2017. The additional assets stemmed
primarily from an increase in deposits, most of which were subsequently placed in
loans or securities. The banks expanded their securities portfolios due to a sluggish
intermediation function, which moderated as deposit growth slumped to 10.30% (yoy)
and credit growth to just 7.75% (yoy). The banking industry maintained adequate
liquidity, in part, due to the inflow of repatriated funds from the Tax Amnesty (as of
March 2017), expansion of the government accounts and slow credit growth. In general,
the banks also contained the risks in the banking system despite escalating credit risk,
which was amplified by investment loans and consumer loans. Consequently, the gross
NPL ratio deteriorated from 2.93% to 2.96%.
The Islamic banking industry continued to grow, driven by private deposits, especially
demand deposits and term deposits. The intermediation function accelerated and the
NPF ratio improved. Meanwhile, congruent with the overall credit slump, growth of
MSME loans also tended to slow, particularly affecting loans allocated to micro and
small enterprises. Furthermore, the downswing of MSME loans was accompanied by an
increase in the corresponding MSME credit risk.
The nonbank financial industry performed well in terms of financing and funding
on the back of finance companies and insurance companies. Nevertheless, the
interconnectedness between the banking and nonbank financial industries increased as
the banks lent more to finance companies and insurance firms placed more funds in the
banking industry.
BANKS AND NONBANK FINANCIAL INSTITUTIONS
04
FINANCIAL STABILITY REVIEWNo. 29, September 2017
94 BANK INDONESIA94 BANK INDONESIA
Capital Adequacy and Liquidity Indicators: BANKS
Banking Industry PerformanceRemained Solid
CONVENTIONAL BANKING PERFORMANCE WAS OBSERVED TO MODERATE, WHILE THE ISLAMIC BANKING INDUSTRY AND FINANCE COMPANIES IMPROVED
22.56%
5.90%
S I-20168.89%
S I-20163.24%
S I-201697.40%
S I-201682.80%
S I-20162.26%
S I-201620.35%
8.89% 2.93% 8.3%
97.40% 4.58%22.69%
9.60%
S II-20167.86%
S II-20162.93%
S II-201699.36%
S II-201682.85%
S II-20162.17%
S II-201620,93%
7.86% 1.24% 2.96% 8.4%
99.36% 4.15%22.52%
10.30%
S I-20177.37%
S I-20172.96%
S I-2017101.26%
S I-201779.48%
S I-20172.42%
S I-201721.15%
7.37% 1.41% 7.4%
101.26% 4.59%
CAR
Interest rate risk was contained, accompanied by a narrower intermediation spread. The banking industry maintained a long position on foreign exchange totalling Rp6.34 trillion. The risk of SBN price fluctuations was also mitigated as SBN yield and volatility declined.
Growth of bank loans moderated from 7.86% to 7.37% on low demand for new loans from the corporate sector.
Deposit growth in the banking industry accelerated from 9.60% to 10.30% in the reporting period, edged up by expansion of the government accounts and the inflow of funds from the Tax Amnesty.
The gross NPL ratio deteriorated from 2.93% to 2.96% in the reporting period. Likewise, the net NPL ratio deteriorated from 1.24% to 1.41%, with investment loans and consumer loans intensifying credit risk.
Growth of MSME loans slowed to 7.4% (yoy) in the reporting period due to muted demand for financing and escalating credit risk.
MSME NPL
S I-2016
S I-2016
5.9%
S I-2016 S II-2016 S I-2016
S I-2016 S I-2016S II-2016
S I-2016
9.60%
S I-2016 S II-2016
S II-2016 S II-2016S I-2017
S I-2017
10.30%
S I-2017 S I-2017 S I-2017
S I-2017 S I-2017
NCDAL
Deposits LoansMSME Loans
Non-Performing Loans
LIQUIDITY
EFFICIENCY PROFITABILITY
INTERMEDIATION
CREDIT RISK
Loans
NPL
AL/NCD
BOPO ROA
AL/Deposits
CIR NIM
Deposits
56.20 5.44%55.53 5.47%57.85 5.21%
S I-201622.29%
S II-201622.69%
S I-201722.52%CAR
CAPITAL
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
95BANK INDONESIA
Capital Adequacy and Intermediation Indicators: Sound
Nonbank financial industry performance improved during the first semester of 2017 but Financing Risk remained high
Islamic Banking Industry remained soliddespite the high Financing Risks
14.72%
13.05%
89.68%
4.96% 5.68%
872.0 T
105.9%
18.84%
12.19%
424.4 T
1.17% 0.81% 3.26%
82.71%
12.22%
0.73%
5.67%
155.74%
3.69%
1.69%
13.42%
3.59%
11.04%
15.95%
20.83%
86.26%
15.22% 4.42%
944.5 T
121.3%
22.04%
17.53%
442.7 T
4.29% 6.67% 3.47%
82.77%
11.02%
0.63%
4.59%
157.99%
3.21%
1.66%
21.70%
3.87%
12.01%
16.42%
25.14%
83.00%
17.31% 4.47%
1012 T
120.1%
21.82%
16.09%
462.3 T
6.11% 8.95%
82.24%
12.48%
1.10%
9.50%
147.31%
3.61%
1.67%
20.51%
3.83%
11.49%
CAR FDR
Financing from finance companies increased, primarily as multipurpose financing (accounting for 58.38% of the total) and investment financing (27.38% share)
Business risks in the insurance industry, specifically the gross claims to premiums ratio, decreased for all insurance types, with General Insurance and Reinsurance as the only exceptions.
Funding sources primarily originated from domestic loans, growing by 15.67% on lower lending rates in the banking industry. Meanwhile, finance companies reduced their reliance on external debt, which contracted by -11.22% (yoy)
Total assets of the insurance industry were dominated by life insurance. accounting for a 42.95% share of the total.
Financing risk at finance companies increased, mainly due to the Transportation sector in line with sluggish mining sector performance.
Asset Value
AL/Deposits
AL/NCD
Asset Value
Assets
BOPO EfficiencyRatio
Profitability - ROE
Profitability - ROA
Profitability - ROE
Profitability - ROE
Profitability - ROA
Liquidity - CR
Investment Volume
Profitability - ROA
Profitability - ROE
S I-2016
S I-2016
S I-2016
S I-2016 S I-2016
S I-2016
S I-2016
S I-2016
S I-2016
S I-2016
S I-2016 S I-2016 S II-2016
S I-2016
S I-2016
S I-2016
S I-2016
S I-2016
S I-2016
S I-2016
S I-2016
S I-2016
S I-2016
S II-2016
S II-2016
S II-2016
S II-2016 S II-2016
S II-2016
S II-2016
S II-2016
S II-2016
S II-2016
S II-2016 S II-2016 S I-2017
S II-2016
S II-2016
S II-2016
S II-2016
S II-2016
S II-2016
S II-2016
S II-2016
S II-2016
S II-2016
S I-2017
S I-2017
S I-2017
S I-2017 S I-2017
S I-2017
S I-2017
S I-2017
S I-2017
S I-2017
S I-2017 S I-2017
S I-2017
S I-2017
S I-2017
S I-2017
S I-2017
S I-2017
S I-2017
S I-2017
S I-2017
S I-2017
Funding
Deposits Financing NPF
Finance Companies
INSURANCE
Assets
Financing
Risks
Non-Performing Financing
96 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
4.1.1. Liquidity Risk
Liquidity in the banking industry increased on
the previous period. Nevertheless, bank liquidity
experienced a transient tightening towards the end
of the first semester of 2017 as currency flowed
out of the banking system to meet the seasonal
spike in demand during Eid-ul-Fitr. The banking
industry maintained liquidity above the threshold
through sound liquidity management during
periods of distress (April and June 2017). The
inflow of repatriated funds in the first quarter of
2018 from the successful Tax Amnesty helped the
banks to maintain liquidity along with expanding
government accounts and persistently sluggish
credit growth.
The resilience of bank liquidity was demonstrated by
the high ratio of liquid assets to non-core deposits
(NCD). The LA/NCD ratio reflects a bank’s ability to
meet its obligations in the form of potential deposit
withdrawals and also to support credit expansion.
In the first semester of 2017, the LA/NCD ratio
increased from 99.36% to 101.26%, well above
the 50% threshold. Furthermore, the high LA/NCD
ratio was consistent with the LA/deposits ratio,
which reached 21.15% in the second semester of
2017.
Based on the BUKU bank groups, the LA/NCD ratio
was reported to rise by BUKU 1, 2 and 3 banks,
contrasting the decline observed at BUKU 4 banks,
primarily affecting state-owned banks adhering to
4.1. Banking Sector Dynamics and Risks
the cyclical intermediation trend at the beginning
of each year, when credit growth tends to outstrip
deposit growth, which requires the affected banks
to dip into their liquidity buffers to bridge the
resultant gap.
M2 growth, as a measure of liquidity in the
economy, accelerated from 10.02% to 10.60% in
the reporting period in line with deposit growth and
expanding financial operations by the government.
On the other hand, narrow money (M1) growth
decelerated from 17.27% to 13.29% as currency
flowed out of the banking system to satiate seasonal
demand during Eid-ul-Fitr.
4.1.2. Intermediation Risk
In the first semester of 2017, the bank
intermediation function moderated slightly,
as evidenced by slower credit growth despite
stronger deposit growth. Weaker credit growth
was congruous with the holy fasting month of
Ramadan and Eid-ul-Fitr, which this year coincided
with the first semester. Nonetheless, slower credit
growth was merely an extension of the ongoing
trend since the previous year, driven by dwindling
demand for new loans from the corporate sector.
On the other hand, growing demand for financing
from the government to fund infrastructure
projects offset further declines in credit growth.
Such developments were also corroborated by a
survey of the lending standards1 index, which was
observed to increase, thus making borrowers more
reluctant to seek loans. Credit growth is expected
to rebound as economic activity ramps back up
after Eid-ul-Fitr and the banking industry opts to
ease its lending standards.
1 Lending standards are general policy guidelines for the disbursement of loans to prospective borrowers at a financial institution. Lending standards may differ between financial institutions
and regions. The Lending Standards Index measures how tight or loose the guidelines are in the banking industry.
97BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Graph 4.1 Bank Liquidity Ratios
90%
80%
100%
110%
75%
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
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
95%
85%
105%
115%101.26%
21.15%
19%
17%
21%
23%
16%
20%
18%
22%
24%
LA/NCDLA/Deposits (rhs)
Graph 4.2 Liquid Assets of the Banking industry
50Dec’12 Dec’14Dec’13 Dec’15 Dec’16Jun’13 Jun’15Jun’14 Jun’16 Jun’17
200
0
70600
90 1,000
% Rp T
60400
80800
100 1,200
110 1,400
120 1,600
LA/NCD Liquid Assets (rhs)LA = Cash + Placements at Bank Indonesia + Excess Reserve – RRNCD = 30% of Demand Deposits + 30% of Savings Deposits + 10% of Term Deposits
Source: Bank Indonesia
Deposit Growth
Deposit growth in the banking industry accelerated
from 9.60% (yoy) to 10.30% (yoy) in the reporting
semester. The surge of deposits originated from the
Tax Amnesty through to March 2017, expansion of
the government accounts and the base effect from
the previous year2.
Based on currency, the growth of rupiah deposits
decelerated from 11.62% to 10.48%, while foreign
Table 4.1 LA/NCD by BUKU Bank Group Table 4.2 Growth of Liquid Assets
AL/NCD Ratio (%)
2014 2015 2016 2017
Dec Jun Dec Jun Dec Jun
BUKU 1 109.79 88.33 84.38 106.56 100.95 120.68
BUKU 2 92.81 89.64 92.95 101.61 110.34 124.41
BUKU 3 96.18 101.81 102.66 107.06 105.20 112.64
BUKU 4 103.23 88.11 88.89 90.94 93.28 89.31
Industry 99.83 92.50 93.44 97.40 99.36 101.26
Year
Penambahan AL (Rp T)Semester I 2017
LA Growth (Rp, trillions) yoy
2014 (0.94) 33.30
2015 (24.04) 126.12
2016 73.05 110.11
2017 54.84 136.40
Source: Bank Indonesia
Graph 4.3 Liquidity Growth in the Economy and Bank Liquidity Ratios
Graph 4.4 Government Net Expansion
250
Rp, trillions (ytd)
200
150
50
100
0
(50)
2013 2014 2015 2016 2017
135
69
157171194
Jan May SepMar Jul NovFeb Jun OctApr Aug Dec
25%
20%
15%
5%
10%
0% 0%
40%
80%
20%
60%
100%
120%
140%
99.36%
97.82%
10.02%
2012 2013
M2 (%yoy) M1 (%yoy) - (rhs) LA/NCD (%) – (rhs)
20152014 2016Mar Mar Mar Mar MarSep Sep Sep Sep SepJun Jun Jun Jun JunDec Dec Dec Dec Dec
2 The base effect implies higher annual growth (yoy) due to lower annual growth than normal in the same period one year earlier.
98 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
currency deposits, which have contracted since
March 2016, began to post positive growth in
January 2017, achieving 9.26% in the first semester
of 2017.
The structure of bank deposits was still dominated
by short-term deposits, creating mismatch risk
to bank financing, most of which is long term.
Furthermore, the dependence on core deposits and
expensive sources of funds remained despite bank
efforts to diversify the sources of funds and CASA.3
Nominally, most deposit growth was realised at BUKU
2 and 4 banks due to the impact of the Tax Amnesty
and expansion of government accounts. Total receipts
of repatriated funds from the Tax Amnesty in the first
semester of 2017 amounted to Rp17,887 billion,
most of which (72.83%) flowed through BUKU 4
banks. As a percentage, BUKU 1 banks reported
the strongest deposit growth, primarily because of
the base effect, namely negative deposit growth at
BUKU 1 banks last year.
In the first half of 2017, term deposits posted 10.32%
(yoy) growth, up from 6.46% in the previous period
and primarily affecting term deposits of over Rp2
billion, which accelerated from 8.53% to 14.18%.
Growth of term deposits valued at ≤ Rp2 billion also
sped up, increasing from 2.35% to 2.57% (yoy).
In contrast, both demand deposits and savings
deposits experienced slower growth, declining from
12.33% (yoy) to 11.23% (yoy) and from 11.16%
(yoy) to 9.56% (yoy) respectively.
Based on market share, term deposits and demand
deposits posted gains, while savings deposits
declined. The expanding share of term deposits
was primarily driven by those above Rp2 billion.
Furthermore, the latest data points to repatriated
fund placements in term deposits at 43.9%.
Based on depositor, the value of Local Government
deposits was the main contributor to deposit growth
in the first semester of 2017 because of dropped
funds from the Central Government. In addition to
Source: Indonesia Banking Statistics, OJK, processed
Graph 4.5 Deposit and Credit Growth (yoy)
15%
9.60% 10.30%
7.37%7.86%
5%
10%
0%
Sem II 2015 Sem II 2016Sem I 2016 Sem I 2017
Table 4.3 Loan-to-Deposit Ratio (LDR) by BUKU Bank Group
Description Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1Credit (Rp, trillions) 68.59 72.52 76.63 83.89Deposits (Rp, trillions) 74.58 88.85 81.04 106.65 LDR (%) 91.98 81.61 94.55 78.65
BUKU 2Credit (Rp, trillions) 601.41 621.14 646.73 666.30Deposits (Rp, trillions) 629.51 696.24 679.39 781.55LDR (%) 95.54 89.21 95.19 85.25
BUKU 3Credit (Rp, trillions) 1,436.51 1,453.55 1,476.83 1,492.68Deposits (Rp, trillions) 1,449.59 1,468.38 1,541.65 1,557.62LDR (%) 99.10 98.99 95.80 95.83
BUKU 4Credit (Rp, trillions) 1,951.38 2,021.09 2,177.01 2,248.51 Deposits (Rp, trillions) 2,259.57 2,321.20 2,534.68 2,599.83LDR (%) 86.36 87.07 85.89 86.49
IndustriCredit (Rp, trillions) 4,057.90 4,168.31 4,377.19 4,491.37Deposits (Rp, trillions) 4,413.24 4,574.67 4,836.76 5,045.65 LDR (%) 91.95 91.12 90.50 89.01
3 CASA stands for current account and saving account (demand deposits and savings deposits).
Deposits Credit
*) Banks are classified based on OJK BUKU groups as of June 2017
99BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
the regional administrations, the deposits of private
non-financial institutions and private nonbank
financial institutions also edged up deposit growth.
Conversely, individual deposits and other private
deposits experienced declines.
Spatially, deposits posted growth in nearly all
regions of the Indonesian archipelago, except
in Papua and the Maluku Islands. In the first
semester of 2017, deposit accumulation was still
concentrated on the island of Java in line with
business activity and the circulation of money
that is centred on Java, especially in Jakarta as
the primary economic hub. The share of deposits
in Jakarta accounted for 49.69% of total bank
deposits.
40
MoreRigid
MoreLoose
Unchanged
20
30
10
0Investment
CreditWork Capital
CreditConsumption
CreditTotal
35
15
25
5
Survey in Q4/2016 Survey in Q1/2017 Survey in Q2/2017 Expectations in Q2/2017
Graph 4.6 Lending Standards
Source: Bank Indonesia
Graph 4.7 Deposit Growth (yoy)
Sem I
2014
Deposit Growth (yoy) Rupiah Deposit Growth (yoy)
Foreign Currency Deposit Growth (yoy)
2015 2016 2017
Sem I Sem ISem II Sem II
Aug
Sep
Oct
Nov De
cJa
nFe
bM
arAp
rM
ayJu
nJu
lAu
gSe
pO
ctN
ov Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov De
cJa
nFe
bM
arAp
rM
ayJu
nJu
lAu
gSe
pO
ctN
ov Dec
Jan
Feb
Mar
Apr
May
Jun
Sem I
40%
20%
30%
10%
-10%
0%
-20%
Sem II
10.48%10.30%
9.26%
Table 4.4 Market Share of Deposits based on Maturity
Maturity Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
JW <= 1 Month 74.1% 72.6% 73.7% 73.3%
JW > 12 Month 2.1% 2.1% 2.1% 2.3%
JW 1-3 Month 14.6% 15.4% 14.6% 14.7%
JW 3-6 Month 5.4% 6.1% 5.5% 5.9%
JW 6-12 Month 3.8% 3.8% 4.1% 3.7%
Total 100% 100% 100% 100%
*) Banks are classified based on OJK BUKU groups as of June 2017
100 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 4.8 Market Share of Deposits based on Core Depositors/Non-Core Depositors
%
90.0%
100.0%
50.0%
70.0%
30.0%
80.0%
40.0%
60.0%75.6% 73.4% 75.7% 73.5%
24.4% 26.6% 24.3% 26.5%20.0%
10.0%
Sem II 2015 Sem I 2016 Sem II 2016 Sem I 20170.0%
Core Depositors Non-Core Depositors
Table 4.5 Deposit Growth by BUKU Bank Group (%, yoy)
BUKU Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017 Market Share as of Semester I 2017 (%)
BUKU 1 6.90 0.05 8.67 20.03 2.11
BUKU 2 6.31 3.91 7.92 12.25 15.49
BUKU 3 7.08 1.90 6.35 6.08 30.87
BUKU 4 7.66 9.50 12.18 12.00 51.53
Industry 7.26 5.90 9.60 10.30 100.00
Source: Indonesia Banking Statistics, OJK, processed
*) Banks are classified based on OJK BUKU groups as of June 2017
Source: Bank Indonesia
Table 4.6 Receipts of Tax Amnesty Funds by BUKU Bank Group
BUKU
As of December 2016 As of December 2017 Additional in 2017
Tax Amnesty Funds (Rp, billions) Tax Amnesty Funds (Rp, billions) Tax Amnesty Funds (Rp, billions)
Redemption Payments
Repatriated Funds Total Redemption
PaymentsRepatriated
Funds Total Redemption Payments
Repatriated Funds Total
BUKU 1 - - - - - - - - -
BUKU 2 4,521 7,985 12,506 4,556 8,030 12,586 34 45 80
BUKU 3 22,675 40,321 62,996 22,867 44,909 67,776 192 4,588 4,780
BUKU 4 68,154 50,181 118,335 69,340 62,022 131,362 1,186 11,841 13,027
Industri 95,350 98,487 193,836 96,762 114,962 211,724 1,412 16,475 17,887
Source: OJK
Credit Growth
Credit growth has continued to moderate. In the
reporting semester, bank loans expanded at 7.75%
(yoy), down from 7.87% (yoy) in the second semester
of 2016 in line with corporate reluctance to expand
in favour of efforts to enhance internal efficiency by
reducing new loan disbursements and investments.
Consequently, growth of investment loans also
slowed in the reporting period. On the supply side,
the banking industry was focused on consolidation of
non-performing loans (NPL) and was more selective
when disbursing new loans.
By currency, rupiah loans were responsible for the
weaker credit growth, decelerating from 9.15% (yoy)
in the second semester of 2016 to 7.59% (yoy) in the
reporting period. In contrast, foreign currency loans
enjoyed robust growth, increasing from just 0.59%
(yoy) to 8.74% (yoy), driven by loans extended to
leasing companies and crude palm oil (CPO) firms.
Based on loan type, the credit slump was blamed on
investment loans, primarily allocated to the electricity
sector and transportation industry in line with soft
commodity prices as well as the wait-and-see attitude
of business players to rising prices of coal and crude
palm oil (CPO). Conversely, consumer loans and
working capital loans enjoyed stronger growth.
Bank loan disbursements were still dominated by
productive loans, namely working capital loans,
accounting for 46.80% in the second semester of
2016 and first semester of 2017. Meanwhile, the
share of investment loans declined in the first semester
of 2017 to 25.10% as the share of consumer loans
increased to 28.08%.
By economic sector, weaker credit growth originated
primarily from the trade sector in line with a shift in
public consumption patterns, as consumers tended
101BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Graph 4.9 Deposit Growth by Type
40%
30%
50%
20%
10%
0%
-10%
-20%
Jan
Feb
Mar Ap
rM
ay Jun Jul
Aug
Sep
Oct
Nov De
cJa
nFe
bM
ar Apr
May Jun Jul
Aug
Sep
Oct
Nov De
cJa
nFe
bM
ar Apr
May Jun Jul
Aug
Sep
Oct
Nov De
cJa
nFe
bM
ar Apr
May Jun Jul
Aug
Sep
Oct
Nov De
cJa
nFe
bM
ar Apr
May Jun
Sem ISem I20142013 2015 2016 2017
Sem I Sem I
14.18%11.23%9.56%2.57%
Sem IISem II Sem II Sem I Sem II
Demand Deposits Savings Deposits
Term Deposits ≤ Rp2 billion Term Deposits > Rp2 billion
Graph 4.10 Composition of Bank Deposits
22.38% 23.44% 23.24% 23.64%
31.63% 31.02% 32.08% 30.81%
15.45% 15.16% 14.42% 14.10%
30.54% 30.38% 30.25% 31.45%
Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
Demand Deposits Savings Deposits
Term Deposits ≤ Rp2 billion Term Deposits > Rp2 billion
Source: Bank Indonesia
to delay spending and substitute goods for more
affordable items. The decline in trade business
volume subsequently triggered weaker demand for
new loans. Furthermore, the shifting consumption
patterns could ultimately undermine credit growth
in the manufacturing industry. Growth of new loans
disbursed to the manufacturing industry continued to
expand in the first half of the year but the risk remains
of a future slowdown.
Regionally, the deepest declines of credit growth in
the first half of 2017 were reported in Papua and the
Maluku Islands as well as Bali and Nusa Tenggara.
The slowdown persisted due to lacklustre recoveries
in regions dependent on mining commodities. In
contrast, credit growth accelerated on the islands
of Java and Kalimantan. Java dominated loan
disbursements and credit growth in the region,
originating from infrastructure-construction loans,
which, in turn, accelerated the growth of automotive
loans and consumer loans. Furthermore, the island of
Java commands a 69.90% share of total bank credit,
followed by Sumatra (14.66%) and Kalimantan
(5.91%).
In the first semester of 2017, credit growth at
BUKU 2, 3 and 4 banks decelerated compared
to conditions in the previous period, decreasing
from 7.53%, 2.81% and 11.56% (yoy) to 7.27%,
2.69% and 11.25% (yoy) respectively. Slower credit
growth at BUKU 2 and 3 banks was consistent
with limited competitiveness in terms of lending
Graph 4.11 Deposit Performance by Depositor Group
250
50
150
-50
-150
200
0
100
-100
-200
Sem I 2016 Sem II 2016 Sem I 2017
Central Government
Local Government
Private Individual
Private Nonbank Financial Institutions
Private Non-Financial Institutions
Other Private Deposits
Non-Residents
Rp T
Source: Bank Indonesia
102 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Table 4.7 Deposit Share by Island
Source: Bank Indonesia
IslandDeposit Growth (%, yoy)
Deposit Share (%)Semester I 2017
Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
Java 7.48 6.27 10.70 10.82 77.28
Sumatra 4.79 3.05 7.81 10.88 11.35
Kalimantan 0.81 0.58 4.06 5.38 4.11
Sulawesi 17.87 14.07 3.32 4.42 3.03
Bali and Nusa Tenggara 10.09 7.87 5.02 13.32 2.76
Papua and Maluku Islands 8.38 6.13 3.32 2.20 1.46
to large corporations/conglomerates due to the
comparatively higher cost of funds. Meanwhile,
BUKU 4 banks were less inclined to lend because
of a focus on internal consolidation and the
management of existing loans.
Seeking to stimulate credit growth, banks from all
BUKU groups lowered lending rates in line with lower
deposit rates.
MSME Loans
In the first half of 2017, the value of MSME loans
stood at Rp888.5 trillion, with growth decelerating
to 7.4% (yoy) from 8.4% (yoy) in the second
semester of 2016 and 8.3% (yoy) in the same
period one year earlier. Slower MSME loan growth
was caused by weaker-than-expected economic
growth, limited demand for financing form the
banks’ customers and escalating credit risk. Despite
moderating MSME loan growth, the share of such
loans to total credit expanded from 19.4% in the
second semester of 2016 to 19.6% in the first
semester of 2017.
Loans disbursed to micro and small enterprises were
the main drag on MSME credit growth, decelerating
respectively from 10.9% (yoy) and 11.1% (yoy) to
6.7% (yoy) and 7.9% (yoy) in the reporting period.
Sluggish investment loan growth was the main
contributor to weaker MSME loan growth in the
reporting period, decreasing to 1.5% (yoy) from
6.3% (yoy) in the second semester of 2016 and
from 9.6% (yoy) in the first semester of 2016. In
Graph 4.12 Bank Credit Growth (yoy)
40%
20%
30%
10%
-10%
0%
-20%
Sem I20142013 2015 2016
Sem ISem IISem II Sem II
Jul
Aug
Sep
Oct
Nov De
cJa
nFe
bM
ar Apr
May Jun Jul
Aug
Sep
Oct
Nov De
cJa
nFe
bM
ar Apr
May Jun Jul
Aug
Sep
Oct
Nov De
cJa
nFe
bM
ar Apr
May Jun Jul
Aug
Sep
Oct
Nov De
cJa
nFe
bM
ar Apr
May Jun
Sem I Sem II
Deposit Growth (yoy) Rupiah Deposit Growth (yoy) Foreign Currency Deposit Growth (yoy)
Source: Bank Indonesia
2017Sem I
8.74%7.75%7.59%
103BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Source: Bank Indonesia
Graph 4.13 Credit Growth by Loan Type Graph 4.14 Credit Share by Loan Type
Working Capital Loans
Working Capital Loans
Investment Loans
Investment Loans
Consumer Loans
Consumer Loans
Sem I 2016 Sem I 2017Sem II 2016
7.30%
8.84%
12.03%
6.93%
8.76%8.64%
7.19%
9.87%
6.50%
Sem I 2017
contrast, working capital loans disbursed to micro,
small and medium enterprises accelerated in the
reporting period to 9.7% (yoy) from 9.2% (yoy) in
the second semester of 2016 and 7.8% (yoy) in the
first semester of 2016.
By sector, the wholesale and retail sector absorbed
most MSME loan growth in the reporting period,
accounting for 52.1% of total MSME credit.
Consequently, slower MSME loan growth was
primarily influenced by weaker MSME loan growth
in the wholesale and retail sector, decelerating to
5.7% (yoy) in the first semester of 2017 from 9.4%
(yoy) in the second semester of 2016 and 12.5%
(yoy) in the first semester of 2016, stemming from
other commodities, including non-foods, beverages
or tobacco, due to weaker public purchasing
power. In addition to tepid MSME loan growth
in the wholesale and retail sector, several other
sectors experienced negative growth, including
real estate. MSME loan growth to the real estate
sector contracted by -5.1% (yoy) in the first
semester of 2017, sliding from 5.7% (yoy) in the
second semester of 2016, primarily due to office
buildings as property developers opted to wait
and see if the government would ease restrictions,
thus repositioning themselves in line with current
demand.
Table 4.8 GDP growth by Economic Sector
Sector2014 2015 2016 2017Dec Jun Dec Jun Dec Jun
Agriculture 5.02 5.20 2.34 2.50 4.03 5.11
Mining (0.25) (1.53) (5.23) 1.18 0.95 0.78
Manufacturing Industry 4.66 4.14 4.52 4.65 3.94 3.88
Electricity Supply 4.89 1.24 0.58 6.86 3.99 (0.50)
Water Supply 4.81 6.20 7.92 4.75 2.51 4.03
Construction 6.83 5.68 6.98 5.93 4.57 6.46
Trade 5.57 2.64 2.53 4.12 3.75 4.36
Transportation and Warehousing 7.28 5.85 7.47 7.40 8.06 8.20
Hotels and Restaurants 6.40 3.51 5.09 5.32 4.57 4.88
Information and Communications 10.31 9.45 9.92 8.47 9.26 10.02
Financial Services 4.54 5.54 11.58 11.44 6.56 5.97
Real Estate 4.80 4.43 3.80 4.81 3.81 3.76
Corporate Services 10.13 7.50 7.88 7.85 6.89 7.47
Government Administration 0.03 5.50 3.84 4.53 1.95 0.09
Education Services 4.46 8.26 6.50 5.24 2.56 2.45
Health Services 8.20 8.43 5.09 5.76 4.29 6.75
Other Services 8.92 8.02 8.13 7.89 7.70 8.32
46.81%
25.10%
28.08%
46.81%
27.47%
25.71%
Sem II 2016
104 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 4.15 Credit Growth by Economic Sector (yoy)
Graph 4.16 Credit Growth by Economic Sector (Rp, trillions)
TradeOthers
Corporate Services
Electricity Supply TotalMining
40
30
20
10
-10
0
-20
3.43% 5.29%
-2.03%
21.58%
11.42% 12.05%14.86%
2.07%
14.36%7.75%9.01%
Social ServicesAgriculture
Construction
Transportation
Manufacturing Industry
TradeOthers
Corporate Services
Electricity SupplyMining
120
Rp. T
100
80
60
40
20
-20
0
-40
31.339.4
-3.6%
41.631.5
45.5
14.52.5
16.0
104.5
Sem I 2016 Sem II 2016 Sem I 2017
Sem I 2016 Sem II 2016 Sem I 2017
Social ServicesAgriculture
Construction
Transportation
Manufacturing Industry
Table 4.9 Market Share of Credit by Project Location
Source: Bank Indonesia
IslandCredit Growth (%, yoy) Credit Share
(%) Semester I 2017Credit Share
(%) Semester II 2016Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
Java 10.54 10.76 8.66 8.16 8.22 69.73 69.90
Sumatra 8.54 9.72 8.13 6.32 5.90 14.62 14.66
Kalimantan 7.44 3.16 5.19 4.48 7.93 6.04 5.91
Sulawesi 12.54 14.55 15.05 8.95 6.75 5.07 4.98
Bali and Nusa Tenggara 14.96 10.72 10.88 10.96 8.33 3.26 3.26
Papua and Maluku Islands 13.02 11.77 12.74 14.99 8.84 1.28 1.29
Against a backdrop of MSME loan moderation,
several sectors achieved solid MSME credit
growth, including the Agricultural Sector and the
Manufacturing Industry, to which MSME loans
expanded from 9.6% (yoy) and 10.7% (yoy) in the
second semester of 2016 to 14.3% (yoy) respectively
in the first semester of 2017. In the agricultural
sector, palm oil plantations were the main driver
of growth in line with a surge of crude palm oil
(CPO) exports. In the manufacturing industry,
however, the main driver of growth was business
expansion, as reflected by the expansionary Bank
Indonesia Business Survey – PMI (PMI-BIBS), which
increased from 50.91% in the second semester
of 2016 to 51.68% in the reporting period.
By region, the islands of Java and Sumatra continued
to dominate MSME disbursements, accounting for
%
105BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
58.3% and 19.4% respectively. Such conditions
were supported by the availability of bank office
networks on both islands. Conversely, the MSME
credit share allocated to Kalimantan, Sulawesi, Bali
and Nusa Tenggara as well as Papua and Maluku
remained comparatively small.
People’s Business Loans (KUR)
The government has targeted People’s Business
Loan (KUR) disbursements in 2017 to reach Rp110
trillion through an interest rate subsidy earmarked
for Rp9 trillion in the 2017 State Budget. In the
first semester of 2017, KUR disbursements had
reached Rp45.1 trillion, or 41.03% of the target,
with a total of 2 million borrowers. KUR realisation
in the second quarter of 2017 was down on the
same period one year earlier at Rp54.8 trillion or
54.8% of the target in 2016. In addition to the
effect of weaker economic growth, lower KUR
realisation was also due to (i) fewer disbursements
of new KUR loans in February 2017; as well as (ii)
fewer KUR borrowers and the need to refine the
KUR scheme in line with the target of 40% of KUR
loans allocated to productive sectors (agriculture,
fisheries, industry and construction). In addition
to the approved banks, other financial institutions
began to disburse KUR loans in 2017, including
finance companies and cooperatives.
Table 4.10 Credit Growth by BUKU Bank Group (%, yoy)
BUKU Sem II 2015
Sem I 2016
Sem II 2016
Sem I 2017
Market Share as of Semester
I 2017 (%)
BUKU 1 10.03 11.07 11.72 15.68 1.87
BUKU 2 11.79 8.82 7.53 7.27 15.43
BUKU 3 6.13 3.20 2.81 2.69 32.64
BUKU 4 13.42 13.32 11.56 11.25 50.06
Industri 10.44 8.89 7.87 7.75 100.00
*) Banks are classified based on OJK BUKU groups as of June 2017*) Banks are classified based on OJK BUKU groups as of June 2017
Source: Source: Indonesia Banking Statistics, OJK, processed Source: Bank Indonesia
Graph 4.17Rupiah Lending Rates by BUKU Bank Group
17
16
15
14
13
12
10
11
Sem II Sem IISem II Sem IISem II
20132012 20152014 2016 2017
Sem I Sem ISem I Sem I Sem I
BUKU 4BUKU 2 BUKU 3BUKU 1
Source: Bank Indonesia, 2017
Graph 4.18 MSME Loan Performance
0
400
200
600
Trill
ion
Rp
10%
800
20%
100
500
5%
0%
300
700
15%
19.6%
7.4%
900 25%
Micro Enterprises Small EnterprisesMedium Enterprises MSME Credit Growth (rhs)MSME Credit Share (rhs)
Dec-
13
Feb-
14
Apr-1
4
Jun-
14
Aug-
14
Oct
-14
Dec-
14
Feb-
15
Apr-1
5
Jun-
15
Aug-
15
Oct
-15
Dec-
15
Feb-
16
Apr-1
6
Jun-
16
Aug-
16
Oct
-16
Dec-
16
Feb-
17
Apr-1
7
Jun-
17
415.2
266.3
207.0
106 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
By economic sector, the Trade and Agricultural sectors
on the island of Java absorbed most of the People’s
Business Loans (KUR). Compared to conditions
in the first quarter of 2017, the portion of KUR
disbursements to the Trade sector declined in the
second quarter of 2017, while the portion allocated
to the Agricultural, Fisheries and Construction sectors
as well as the Manufacturing Industry increased from
29.2% to 31.1% because the Government set a target
of 40% of KUR loans extended to productive sectors
(agriculture, fisheries, industry and construction).
Credit Risk
Credit risk in the banking industry increased slightly.
The gross NPL ratio, as a proxy of credit risk,
deteriorated from 2.93% to 2.96%. Nevertheless,
the gross NPL ratio had improved from 3.05% in
the same period one year earlier, which proves that
ongoing consolidation in the banking industry has
been a success.
By loan type, investment loans and consumer loans
were than main contributors to increasing credit risk,
with the respective gross NPL ratios deteriorating
from 3.21% and 1.53% to 3.37% and 1.72%.
Conversely, the gross NPL ratio of working capital
loans improved from 3.59% to 3.49%. The higher
gross NPL ratio associated with investment loans
was in line with slower credit growth, decreasing
from 8.64% (yoy) to 6.50% (yoy). Meanwhile, the
deteriorating gross NPL ratio of consumer loans was
induced by housing loans, with the gross NPL ratio
increasing from 2.54% to 2.94%. In contrast, the
gross NPL ratio of working capital loans improved in
line with stronger credit growth, accelerating from
6.93% (yoy) to 7.19% (yoy) in the reporting period.
By economic sector, the main contributors to the
deteriorating NPL ratios in the banking industry
during the first half of 2017 were the trade and
construction sectors, with the value of gross non-
performing loans (NPL) recorded at Rp2.66 trillion
and Rp0.90 trillion respectively. Besides, the mining
sector recorded the highest level of gross NPL in the
reporting semester at 7.84%.
The increasing level of non-performing loans (NPL)
in the trade sector primarily originated from the
trade of construction materials as well as food,
beverages and tobacco in line with weaker-than-
expected gains in public purchasing power.
Consistent with cyclical trends over the past few
years, the coal subsector was the main contributor
to high non-performing loans (NPL) in the mining
sector during the first semester of 2017 as a result
of soft demand and prices. Furthermore, oil and gas
mining services also contributed to the high gross
NPL ratio in the mining sector due to low oil process.
Accordingly, the gross NPL ratios of the coal mining
subsector as well as the oil and gas mining services
subsector deteriorated respectively from 11.09%
and 14.78% to 12.92% and 19.08% in the first
semester of 2017.
Spatially, banks in all regions of Indonesia reported
an increase in their gross NPL ratios, with the
island of Java as the only exception. Regions reliant
on mining commodities as a source of income
experienced the largest increases in the gross NPL
ratio, most significantly in Kalimantan. In contrast,
the gross NPL ratio for Java improved as credit
growth accelerated on the island.
107BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Graph 4.19 MSME Credit Growth in 6 Economic Sectors
10%
-10%
30%
yoy
50%
-20%
20%
0
40%
60%
Dec-
13
Mar
-14
Jun-
14
Sep-
14
Dec-
14
Mar
-15
Jun-
15
Sep-
15
Dec-
15
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
Agriculture Manufacturing Industry Construction Social ServicesTrade Real Estate
14.3%14.3%9.9%6.4%5.7%-5.1%
Source: Commercial Bank Reports, 2017, processed
On a semesterly basis, all BUKU bank groups
reported deteriorating NPL ratios in the reporting
period, except BUKU 3 banks. BUKU 2 banks
confirmed the largest increase in the gross NPL ratio
and, consequently, the highest gross NPL ratio of
all BUKU bank groups, which is consistent with the
lack of competitiveness of BUKU 2 banks to extend
loans to large prosperous corporations due to
relatively high lending rates.
Restructured Loans
In the first semester of 2017, restructured loans
totalled Rp248.36 trillion, up Rp3.83 trillion on
the previous period. Consequently, the share of
restructured loans to total credit nearly doubled
from 2.54% to 5.53%. Meanwhile, the share of
special mention (level 2) restructured loans to total
credit increased from 1.65% to 1.83% in the first
semester of 2017.
A significant spike in restructured loans occurred at
the end of 2015 through to the end of 2016, which
was associated with promulgation of OJK Regulation
(POJK) No. 11/POJK.03/2015 concerning Prudential
Principles for Commercial Banks to Stimulate the
National Economy on 24th August 2015. After
that period, the pace of restructured loans began
to ease. Prior to enforcement of the OJK regulation
there were three assessment pillars for the quality of
restructured loans valued at more than Rp1 billion,
Table 4.11 MSME Credit Growth and Share by BUKU Bank Group
Source: Bank Indonesia, Monthly Commercial Bank Reports, 2017, processed
BUKUMSME Loan Growth (yoy) MSME Credit Share (yoy)0
Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 10.85 -0.60 -1.94 -44.36 -49.02 5.68 5.14 5.15 2.64 2.44
BUKU 2 -3.78 -11.09 -10.40 12.25 11.13 15.87 13.70 13.13 14.18 13.59
BUKU 3 -2.29 6.40 3.73 2.69 -1.92 27.57 28.26 26.42 26.77 24.12
BUKU 4 16.12 16.41 17.71 15.60 16.23 50.87 52.89 55.30 56.40 59.85
108 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
namely repayment capacity, borrower performance
and business outlook. With the introduction of the
new OJK regulation, however, the assessment of
restructured loan quality was merely based on the
principal/interest repayments for loans valued at
up to Rp5 billion or a maximum of Rp20 billion for
MSME loans disbursed by banks satisfying specific
criteria. The OJK regulation was effective for two
years, ending on 24th August 2017.
In the first semester of 2017, the growth of
restructured loans decelerated in line with slower
rising non-performing loans (NPL). Weaker growth
of restructured loans also stemmed from the banks
resolving most of their non-performing loans (NPL)
and becoming more selective when disbursing new
loans. The end of the effective period of the OJK
regulation is not expected to significantly influence
the quality of bank loans because the banking
industry has been prudent by only restructuring
recoverable loans.
MSME and KUR Credit Risk
A build-up of MSME credit risk was reported in the
first semester of 2017, as indicated by the increase
in the gross NPL ratio from 4.15% in the second
semester of 2016 to 4.59%, which is relatively
high compared to the previous semester and same
period one year earlier because the performance
of MSME borrowers has not seen any significant
improvements despite early signs of lower NPL in
the first half of 2017.
Source: KUR Committee, Coordinating Ministry for Economic Affairs, 2017, processed
Graph 4.20 KUR Realisation against Target, 2015-2017
0
40%
20%
60%
80%
10%
2015 2016 2017
50%
54.8%
41.0%
75.9%
30%
70%
90%
100%
% Capalan thd target
Jan May SepMar Jul NovFeb Jun OctApr Aug Dec
Graph 4.21. Market Share of People’s Business Loans (KUR)
Agriculture, Hunting and Forestry
Fisheries
Manufacturing Industry
Trade
Construction
Services
Source: KUR Committee, Coordinating Ministry for Economic Affairs, 2017, processed
58.6%
66.3%
0.0%
0.0%
12.2%
11.0%17.4%
22.3%
1.2%1.9%
5.0%
4.1%
Semester II 2016
Semester I 2017
109BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
The banking industry confirmed that the highest
gross NPL ratio affected outstanding MSME loans
extended to medium enterprises (5.46%), followed
by small enterprises (4.79%) and micro enterprises
(2.59%). Based on bank group, however, the highest
gross NPL ratios on MSME loans were reported by
BUKU 2 banks (7.56%), followed by BUKU 3 banks
(5.19%), BUKU 1 banks (4.64%) and BUKU 4 banks
(3.67%).
The deteriorating quality of MSME loans in the
first half of 2017 affected nearly all economic
sectors, including the Mining and Quarrying sector
(14.42%) and the Accommodation sector (5.95%).
Conversely, the gross NPL ratio for loans allocated
to the Agricultural sector improved to 3.85% in the
reporting period.
Based on the latest data from the commercial bank
reports, the NPL ratio on People’s Business Loans (KUR)
improved to 2.01% in the first semester of 2017 from
2.60% in the second semester of 2016, while NPG
deteriorated from 3.32% to 3.51%. Nevertheless, the
NPG ratio has begun to improve gradually since March
2017. In general, the higher NPG ratio was caused by
an increase of KUR claims after reaching half maturity
with an average tenor of 2-3 years. Consequently,
KUR claims approved in 2015 and 2016 began to
increase in the first semester of 2017.
4.1.3. Market Risk
Market risks originate from the impact of changes
to market interest rates on: (i) deposit and lending
rates; (ii) SBN portfolio prices in the banking
industry; and (iii) currency risk.
4.0%
5.0%
2.0%
3.0% 2.96%
1.41%
1.0%
0.0%
Gross NPL Net NPL
Sem
II
Sem
II
Sem
II
Sem
II
Sem
II
Sem
II
Sem
II
Sem
II
Sem
II
Sem
I
Sem
I
Sem
I
Sem
I
Sem
I
Sem
I
Sem
I
Sem
I
Sem
I
Sem
I
2008 20122010 2014 20162009 20132011 2015 2017
Graph 4.22 NPL Ratio
Graph 4.23 Gross NPL Ratio by Loan Type
Source: Bank Indonesia
Source: Bank Indonesia
3.74%
3.26%
1.67% 1.53%1.72%
3.59%
3.21%3.49% 3.37%
4.0%
2.0%
3.0%
1.0%
0.0%Working Capital Loans
Sem I 2016 Sem II 2016 Sem I 2017
Investment Loans Consumer Loans
110 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Interest Rate Risk
The banks continued to lower lending rates in the
first half of 2017 in line with bank targets and efforts
to stimulate credit growth. Meanwhile, deposit rates
were also reduced but to a lesser degree. Deeper
cuts to lending rates compared to deposit rates
narrowed the intermediation spread. Nonetheless,
the narrower spread has not significantly eroded
bank profitability, with the net interest margin (NIM)
maintained at a level of 5% and ROA increasing on
the previous period.
During the first semester of 2017, Bank Indonesia
maintained the BI 7-Day (Reverse) Repo Rate
at 4.75%, down from 5% in September 2016.
The historical data showed that reductions to
the BI 7-Day (Reverse) Repo Rate or BI Rate are
followed by corresponding reductions to deposit
rates, including term deposits, demand deposits
and savings deposits. At the end of the reporting
semester, the interest rate on rupiah 1-month
term deposits was lowered to 6.46%, while the
rate on rupiah demand deposits was reduced from
2.18% to 2.13% and rupiah savings deposits
from 1.59% to 1.53%. All bank groups lowered
deposit rates in the reporting period, excluding
interest rates on rupiah demand deposits at BUKU
1 and 2 banks.
The banks lowered lending rates on all loan types.
Interest rates on rupiah working capital loans fell
from 11.38% to 11.14%, rupiah investment loans
Graph 4.24 Gross NPL Ratio by Economic Sector (%)
0.0%
4.0%
20%
6.0%
8.0%
1.0%
5.0%4.35%
3.23%
4.25%3.92%
1.97%1.85%
2.58%
7.84%
1.56%
2.96%
1.73%
3.0%
7.0%
9.0%
Trade TransportationOthers
Sem I 2016 Sem I 2017Sem II 2016
Construction Agriculture Agriculture Corporate Services
Social Services
Mining Electricity Supply
TOTAL
Graph 4.25 Gross NPL Growth by Economic Sector (Rp, trillions)
120
100
80
60
40
202.66
3.38
(1.59)(0.91)
0.90
(0.49) (0.07) (0.23)
0.75 0.56
-20
Trill
ion
Rp
0
-40
Trade
Transp
ortation
Others
Constructi
on
Agricu
lture
Corporate Se
rvice
s
Socia
l Servi
ces
Manufac
turing I
ndustry
Mining
Electricit
y Supply
Sem I 2016 Sem I 2017Sem II 2016
111BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
from 11.21% to 11.00% and rupiah consumer
loans from 13.59% to 13.21%. In addition to
intermediation costs, the banks lowered lending
rates in order to stimulate credit growth against a
backdrop of weak demand for new loans.
Currency Risk
In general, currency risk in the banking industry
was relatively well contained, evidenced by a
comparatively low net open position (NOP). Sharp
exchange rate depreciation in the second semester
of 2016 after Donald Trump won the US election
was transient. In the first semester of 2017, the
banks recorded a long position on foreign exchange
totalling Rp6.34 trillion, reversing the previous short
position of Rp5.09 trillion. Meanwhile, the NOP ratio
increased from 2.18% in the second semester of
2016 to 2.32% in the first semester of 2017, which
was still well below the 20% threshold of bank
capital. BUKU 4 banks maintained the highest NOP
ratio at 3.31%, followed by BUKU 2 banks (1.87%),
BUKU 3 banks (1.21%) and BUKU 4 banks (0.95%).
Risk of Lower SBN Prices
Market risk in the banking industry originating from
changes in SBN prices was mitigated in line with
lower SBN volatility and yields. The IDMA index, as
a measure of SBN prices, rallied from 99.0 in the
second semester of 2016 to 103.64 in the first
semester of 2017.
Table 4.12 Gross NPL by Region
Table 4.13 Gross NPL Ratio by BUKU Bank Group
Source: Bank Indonesia
Island Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017 Credit Share inSemester I 2017 (%)
Credit Share inSemester II 2016 (%)
Java 2.27 2.91 2.92 2.85 69.73 69.90
Sumatra 2.82 3.14 2.68 2.79 14.62 14.66
Kalimantan 3.86 4.76 4.40 4.73 6.04 5.91
Sulawesi 2.98 2.99 2.58 2.97 5.07 4.98
Bali and Nusa Tenggara 2.15 2.69 2.47 3.11 3.26 3.26
Papua and Maluku Islands 3.72 3.79 3.12 3.54 1.28 1.29
Source: Financial Services Authority (OJK), processed
BUKU Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 2.74 2.35 3.21 2.99 3.03
BUKU 2 3.32 3.03 3.81 3.35 3.70
BUKU 3 2.72 2.85 3.17 3.13 2.98
BUKU 4 2.18 2.06 2.73 2.66 2.73
Industry 2.56 2.49 3.05 2.93 2.96
112 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Continuing the trend from the previous period, the
banking industry sought to bolster SBN holdings
congruent with the inflow of Tax Amnesty funds.
Furthermore, larger SBN holdings in the banking
industry were also in line with slower credit growth.
The banks increased placements in available for sale
(AFS) and held to maturity (HTM) SBN portfolios,
indicating the propensity of banks to use SBN as
a liquid asset and for long-term investment rather
than trading.
The banks’ SBN portfolio expanded 1.56% from
Rp541.27 trillion in the second semester of 2016
to Rp458.31 trillion in the first semester of 2017.
Based on bank group, BUKU 1, 2 and 4 banks
expanded their SBN portfolios, contrasting BUKU 3
banks that tended to release some of their tradeable
government securities (SBN). SBN portfolios at
BUKU 3 and 4 banks were maintained for liquidity
purposes through AFS, which can be liquidated at
any time. On the other hand, BUKU 1 and 2 banks
preferred HTM SBN for long-term investment.
BUKU 4 banks dominated SBN holdings, followed
by BUKU 3 and 2 banks.
4.1.4. External Debt in the Banking Industry
Banks used various sources of funds to meet the
requirement for liquidity and financing, including
external debt. In general, banks used the external
debt to extend as loans, improve the funding
maturity structure and as a liquidity buffer to
manage liquidity. Several banks also used external
debt in the form of subordinated loans to bolster
the capital base.
Table 4.14 Share of Restructured Loans to Total Credit
Source: Bank Indonesia
Quality Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
Level 1 1.14% 1.95% 2.42% 2.88% 2.62%
Level 2 0.90% 1.22% 1.56% 1.65% 1.83%
Level 3 0.13% 0.14% 0.25% 0.39% 0.34%
Level 4 0.05% 0.05% 0.13% 0.13% 0.17%
Level 5 0.35% 0.34% 0.48% 0.53% 0.57%
Total 2.54% 3.71% 4.84% 5.59% 5.53%
Graph 4.26 Restructured Loan Developments
Sem I Sem I Sem I Sem I Sem I Sem I Sem ISem II
2011
0
50
150
250
100
200
300 120
%,yoy
100
80
60
40
20
0
Rp T
2012 2013
Value Growth
2014 2015 2016 2017
Sem II Sem II Sem II Sem II Sem II
Source: Financial Services Authority (OJK), processed
113BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Graph 4.27 Gross NPL Ratio of MSME Loans by Year
3%
Jan May SepMar Jul NovFeb Jun OctApr Aug Dec
4%
4.65%5%
2014 2015 2016 2017
4.59%4.58%
4.10%
Source: Monthly Commercial Bank Reports, 2017, processed
Based on the source, banks sought external debt
from affiliated parties (parent company or within the
same business group) and unaffiliated parties. Based
on maturity, external debt in the banking industry
consisted of short-term debt (≤ 1 year) and long-term
debt (≥ 1 year). Pursuant to prevailing regulations,
banks are only permitted to hold short-term external
debt amounting to 30% of the respective bank’s
capital. Bank regulatory compliance is monitored
daily by Bank Indonesia through the Daily Commercial
Bank Reports.
In the first semester of 2017, total outstanding
external debt in the banking industry stood at
USD29.13 billion, falling 2.03% on the previous
period and accounting for just 17.65% of total
private external debt or 8.69% of total outstanding
external debt in Indonesia. External debt has
contracted in the banking industry since the first
semester of 2015 in line with weak demand for
new loans and adequate liquidity maintained in the
industry.
The largest holders of outstanding external debt
are national private banks with USD16.41 billion
(56.35%), followed by joint venture banks with
USD7.06 billion (24.23%), state-owned banks
with USD4.09 billion (14.06%) and foreign bank
branches with USD1.56 billion (5.36%).
Based on maturity, most external debt in the
banking industry is short term, accounting for
Graph 4.28 Gross NPL Ratio of MSME Loans by Business Scale
4%
2%
6%
1%
5%
3%
7%
Dec-
13
Feb-
14
Apr-1
4
Jun-
14
Aug-
14
Oct
-14
Dec-
14
Feb-
15
Apr-1
5
Jun-
15
Aug-
15
Oct
-15
Dec-
15
Feb-
16
Apr-1
6
Jun-
16
Aug-
16
Oct
-16
Dec-
16
Feb-
17
Apr-1
7
Jun-
17
5.46%
4.79%4.59%
2.94%2.59%
NPL of Micro Enterprises NPL of Small EnterprisesNPL of Medium Enterprises NPL of MSME LoansNPL of Total Credit
Source: Monthly Commercial Bank Reports, 2017, processed
114 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
57.04% and worth USD16.61 billion, primarily in
the form of currency and deposits. Nevertheless,
the ratio of short-term external debt to bank capital
is still below the 30% threshold.
In the first semester of 2017, long-term external debt
totalled USD12.51 billion (42.96%), with growth
recorded at 0.03% (yoy). Currency pressures from
maturing external debt were relatively mild, with
most long-term external debt due to mature in 2025,
amounting to USD3.35 billion (28.68%). Meanwhile,
long-term external debt that matured in 2017 stood at
USD2.02 billion (17.3%).
Based on the Bank Business Plan (BBP) submitted
to Bank Indonesia, Indonesia’s banking industry
applied for USD9.88 billion in long-term external
debt in 2017. Of that total, as much as USD3.8
billion had been realised in the first half of the
year. Bank Indonesia has increased its monitoring
of external debt, particularly in the banking sector,
in order to mitigate the associated risks and
encourage the optimal use of external debt to
support development financing.
4.1.5. Bank Profitability, Efficiency and
Capital Profitability
In the first semester of 2017, an increase in ROA
from 2.17% to 2.42% was indicative of improving
bank profitability in general. Against a backdrop of
sluggish credit growth, as the main source of bank
income, the rising ROA stemmed more from efficiency
gains in terms of business activity management, as
reflected by the successful consolidation of non-
performing loans (NPL). All BUKU bank groups
confirmed increases in ROA.
The net interest margin (NIM) fell from 5.47% to
5.21% in the first semester of 2017 due to lower
lending rates, reduced to stimulate credit growth,
Graph 4.29 KUR NPL and NPG
Dec-
14
Mar
-15
Jun-
15
Sep-
15
Dec-
15
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
9%
5%
7%
3%
8%
4%
6%
2%
1%
0%
3.51%
2.01%
NPG NPL
Graph 4.30 Lending and Deposit Rates
9.0
8.5
8.0
7.5
7.0
6.5
6.0
(%) (%)14
12
10
8
6
4
2
Jan-
10
Jan-
12
Jan-
11
Jan-
13
Jan-
14
Jan-
15
Jan-
16
Apr-1
0
Apr-1
2
Apr-1
1
Apr-1
3
Apr-1
4
Apr-1
5
Apr-1
6
Jul-1
0
Jul-1
2
Jul-1
1
Jul-1
3
Jul-1
4
Jul-1
5
Jul-1
6
Oct
-10
Oct
-12
Oct
-11
Oct
-13
Oct
-14
Oct
-15
Oct
-16
Jan-
16
Apr-1
6
Jun-
16
Spread (rhs)Lending Rates Deposit Rates
Source: Bank Indonesia, Commercial Bank Reports, processed
115BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Table 4.15 Deposit Rates by BUKU Bank Group
Source: Bank Indonesia, Commercial Bank Reports, processed
Rupiah 1-Month Term Deposit Rate (%) Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 8.82 9.03 8.63 8.44 7.63 7.49 7.21
BUKU 2 8.64 8.93 8.37 8.25 7.40 7.23 6.86
BUKU 3 8.48 9.00 8.13 8.00 7.01 6.63 6.27
BUKU 4 7.87 8.06 7.12 6.93 6.26 5.96 5.96
Industry 8.27 85.8 7.78 7.60 6.82 6.46 6.28
Rupiah Demand Deposit Rate (%) Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 2.68 2.30 2.75 3.04 3.14 2.47 2.61
BUKU 2 2.79 2.58 2.73 2.57 2.73 2.46 2.58
BUKU 3 2.48 2.43 2.45 2.35 2.30 2.34 2.31
BUKU 4 1.99 2.00 1.88 1.84 1.83 2.03 1.87
Industry 2.32 2.22 2.25 2.10 2.17 2.18 2.13
Rupiah Savings Deposit Rate (%) Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 3.13 3.07 3.20 3.03 2.86 2.69 2.58
BUKU 2 3.24 3.16 3.05 2.82 2.59 2.15 2.08
BUKU 3 2.55 2.66 3.00 3.04 2.74 2.64 2.46
BUKU 4 1.47 1.41 1.33 1.37 1.22 1.20 1.19
Industry 1.88 1.87 1.85 1.86 1.67 1.59 1.53
*) Banks are classified based on OJK BUKU groups as of June 2017
*) Banks are classified based on OJK BUKU groups as of June 2017
Table 4.16 Lending Rates by BUKU Bank Group
Source: Bank Indonesia, Commercial Bank Reports, processed
Lending Rate on Working Capital Loans (%) Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 17.98 17.96 16.89 16.39 15.43 16.59 13.56
BUKU 2 13.20 14.14 13.77 13.57 13.18 13.27 13.04
BUKU 3 13.05 12.95 12.72 12.62 11.90 11.44 11.07
BUKU 4 12.08 12.21 12.27 11.98 11.31 10.67 10.58
Industry 12.64 12.81 12.71 12.48 11.84 11.38 11.14
Lending Rate on Investment Loans (%) Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 19.72 18.06 17.16 16.63 14.96 14.94 13.78
BUKU 2 13.06 13.52 13.41 13.03 12.76 12.65 12.56
BUKU 3 13.42 13.42 13.35 13.19 12.73 12.22 11.62
BUKU 4 11.17 11.37 11.35 11.27 10.57 10.38 10.33
Industry 12.25 12.36 1.230 12.12 11.49 11.21 11.00
Lending Rate on Consumer Loans (%) Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 13.41 13.31 13.36 13.34 13.86 14.07 13.57
BUKU 2 12.98 13.30 13.34 13.37 13.02 12.92 12.85
BUKU 3 15.24 15.39 15.68 15.53 15.24 14.83 14.18
BUKU 4 11.51 11.95 12.24 12.57 12.84 12.68 12.45
Industry 13.30 13.58 13.82 13.88 13.83 13.59 13.21
116 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
which outpaced the reductions to deposit rates.
BUKU 2, 3 and 4 banks reported declines in the NIM
ratio, contrasting BUKU 1 banks.
Net profit after tax in the banking industry soared
from Rp51.92 trillion in the second semester of 2016
to Rp65.66 trillion in the first semester of 2017, with
increases recorded at all BUKU bank groups. Rising
profits stemmed from lower non-interest operating
expenses, primarily in the form of lower provisions for
impairment losses compared to the previous period.
In terms of income, interest operating income
expanded by 4.42% on the previous semester,
originating from placements in securities and
disbursed loans, accounting for 75.3% of total
interest operating income. Interest income from
placements at Bank Indonesia, securities and loans
increased respectively by 16.19%, 7.10% and
0.77% on the previous period. Meanwhile, non-
interest operating income climbed 0.30%, with
spot and derivative transactions confirmed as the
main contributors (rising 53.91%) along with sales
of securities (up 36.38%). The share of both sources
of income accounted for 53.6% of total non-
interest operating income in the reporting period.
Interest operating expenses in the banking industry also
increased, rising 9.20% on the previous period, in line
with faster deposit growth. The share of interest expenses
on deposits dominated the structure of interest operating
expenses, accounting for 48.1%. Meanwhile, the non-
interest operating expenses declined by 6.47% thanks to
bank efforts to reduce overheads, particularly in the form
of provisions for impairment losses. The share of non-
interest operating expenses was dominated by spot and
derivative transactions (25.2%) as well as payroll expenses
(24.4%), while the share of provisions for impairment
losses reduced from a dominant 31.5% to 23.1%.
Efficiency
Banking industry efficiency has improved. The
BOPO efficiency ratio improved from 82.85% to
79.48% in the reporting period, affecting all BUKU
groups as the banks successfully reduced overheads
through lower provisions for impairment losses.
Another efficiency indicator, namely the cost-to-
income ratio (CIR), which is calculated as the ratio
of non-interest operating expenses (excluding
provisions for impairment losses) to income ticked
upwards from 55.53% to 57.85% in the first
semester of 2017. The improvement stemmed from
Graph 4.31 Total NOP and NOP Ratio by Bank Group
8
4
6
2
0
7
3
5
1
-1 BUKU 4BUKU 2 BUKU 3BUKU 1
NOP RatioTotal NOP by Bank Group in Semester I 2017
BUKU 4 Industry
BUKU 2 BUKU 3BUKU 1
5%
3%
4%
2%
1%
4%
2%
3%
1%
0%
Dec-
11
Dec-
12
Dec-
14
Dec-
16
Dec-
13
Dec-
15
Jun-
12
Jun-
14
Jun-
16
Jun-
13
Jun-
15
Jun-
17
Source: Bank Indonesia, Commercial Bank Reports, 2017, processed
Rp T
117BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
relatively larger increases in interest and non-interest
operating expenses compared to non-operating
income, in addition to the declines reported in terms
of net interest income and non-interest operating
income.
The disparate trends of the cost-to-income ratio (CIR)
and BOPO efficiency ratio demonstrated the strong
influence provisions for impairment losses have on
bank efficiency. The efficiency gains achieved in the
reporting period were caused by bank propensity
to form large provisions for impairment losses in
the previous semester, leading to comparatively
lower provisions for impairment losses in the first
semester of 2017.
Capital
The banking industry maintained adequate capital.
The Capital Adequacy Ratio (CAR) was recorded
well above the 8% threshold at 22.52% in the first
semester of 2017, down slightly from 22.69% on
increasing lending, particularly to the corporate
services and construction sectors as well as through
consumer loans, which raised the level of risk-
weighted assets (RWA) in the banking industry.
The current level of CAR denotes that the banking
industry in Indonesia has already fulfilled its Basel III
commitments in the form of the capital conservation
buffer, countercyclical buffer and capital surcharge
for systemically important banks (SIB), which have
been effective since the beginning of 2016. The
composition of bank capital was dominated in the
reporting period by core capital (Tier 1), accounting
for 92.12%, down slightly from 92.16% in the
previous semester.
4.1.6. Banking Stress Tests
Stress tests were conducted to gauge the resilience
of bank capital (CAR) as an industry and by BUKU
bank group using macroeconomic scenarios
transmitted through credit risk and market risk
(interest rates, exchange rates and SBN prices) to
balance sheet data and bank performance as of
June 2017. Departing from previous stress tests,
the scenarios applied in the first semester of
2017 consisted of: 1) baseline (BL); 2) severe; and
3) prolonged slow growth (PSG). Based on those
three scenarios, banking industry dynamics through
to 2019 were shown to be adequately resilient
in response to the various economic shocks and
distress that could occur.
Graph 4.32 SBN Yield Volatility
10
6
8
4
9
5
7
Sem II 2014 Sem I 2016Sem I 2015 Sem I 2017Sem II 2015 Sem II 2016
Source: Bank Indonesia, Commercial Bank Reports, processed
1 6 11 16 21 26 31 4136 46 51 56 61 66 71 76 81 86 91 96 101 106 111 116 121 126
118 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Table 4.17 Value of SBN Holdings by Bank Group
Source: Bank Indonesia
Trading SBN (Rp, trillions) Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 0.10 0.03 0.23 0.26 0.02 0.04 0.20
BUKU 2 9.68 12.16 7.84 13.51 12.01 4.66 6.89
BUKU 3 17.18 11.32 15.93 17.31 21.74 24.05 20.26
BUKU 4 1.97 2.39 3.61 2.62 2.47 2.57 12.21
Industry 28.93 25.90 27.62 33.70 36.23 31.33 39.57
AFS SBN (Rp, trillions Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 1.01 1.13 1.17 1.21 0.88 0.57 0.42
BUKU 2 18.60 19.09 25.44 27.92 27.51 17.44 20.93
BUKU 3 51.11 56.35 67.67 79.62 84.36 115.61 93.64
BUKU 4 123.26 123.14 96.44 110.74 126.21 138.78 156.07
Industry 193.98 199.71 190.73 219.50 238.96 272.40 271.07
HTM SBN (Rp, trillions) Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 1.99 2.35 2.58 2.67 2.64 1.07 1.09
BUKU 2 14.06 15.49 18.79 23.61 29.29 18.54 21.41
BUKU 3 14.24 18.25 21.47 30.97 28.55 44.96 45.66
BUKU 4 55.00 59.56 54.32 66.79 73.88 82.97 79.52
Industry 85.28 95.65 97.16 124.05 134.37 147.54 147.67
Table 4.18 Share of SBN Holdings by Bank Group
Source: Bank Indonesia
BUKU 4 Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
Trading 1.09 1.29 2.34 1.46 1.22 1.15 4.93
AFS 68.39 66.53 62.47 61.47 62.31 61.87 62.98
HTM 30.51 32.18 35.19 37.07 36.47 36.99 32.09
BUKU 3 Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
Trading 20.82 13.17 15.16 13.53 16.14 13.03 12.70
AFS 61.93 65.59 64.40 62.25 62.65 62.62 58.69
HTM 17.25 21.24 20.44 24.22 21.21 24.35 28.61
BUKU 2 Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
Trading 22.87 26.02 15.06 20.77 17.45 11.48 14.00
AFS 43.93 40.84 48.86 42.93 39.98 42.91 42.51
HTM 33.20 33.14 36.08 36.30 42.57 45.61 43.49
BUKU 1 Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
Trading 3.09 0.83 5.87 6.34 0.58 2.48 11.80
AFS 32.56 32.16 29.44 29.28 24.95 33.85 24.53
HTM 64.35 67.01 64.69 64.38 74.46 63.66 63.67
Industry Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
Trading 9.39 8.06 8.75 8.93 8.85 6.94 8.63
AFS 62.94 62.16 60.45 58.18 58.35 60.36 59.15
HTM 27.67 29.77 30.80 32.88 32.81 32.69 32.22
119BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Macroeconomic Scenarios
Calculating the stress tests begins with setting the
scenarios. When preparing the stress scenarios,
the sources of risk must be known, including
domestic sources, such as rising fuel prices and
deteriorating corporate performance, as well as the
external sources, including lower commodity prices
and economic moderation in China that could
threaten the banking system. The sources of risk
will influence macroeconomic and financial system
stability and would ultimately be transmitted to the
banking system though the banks’ balance sheets
in the form of credit and currency risks as well as
SBN prices. After considering all forms of domestic
and external risk that could undermine banking
system performance, three types of stress scenarios
were formulated as mentioned previously.
350
USD, billions
12.0
% yoy
4.0
8.0
0.0
10.0
2.0
6.0
250
150
50
300
200
100
-Sem I Sem I Sem I* Sem I**Sem II Sem II Sem II**
2014
Total External Debt External debt Growth (rhs)
2015 2016 2017
Graph 4.33 External Debt in Indonesia Graph 4.34 Government and Private External Debt
Sem I
Government and Central Bank Growth of Government and Central Bank (rhs)
Private Growth of Private (rhs)
Sem I Sem I* Sem I**Sem II Sem II Sem II**
2014 2015 2016 2017
200 20.0
10.0
0.0
-20.0
-10.0
100
150
50
-
USD, billions
Source: Statistics Department, Bank Indonesia
Graph 4.35 Share of Private External Debt
Graph 4.36 External Debt Growth in the Banking Industry
100%
81.9 80.6 81.6 81.0 82.2 81.5 82.3
18.1 19.4 18.4 19.0 17.8 18.5 17.45
80%
40%
60%
20%
0%
Bank Nonbanks
Sem I Sem I Sem I* Sem I**Sem II Sem II Sem II**
2014 2015 2016 2017
* Preliminary Data ** Projected Data
* Preliminary Data ** Projected Data
35,000
USD, billions %, yoy
25,000
15,000
5,000
30,000
20,000
10,000
-
35.0
25.0
15.0
5.0
0.0
-5.0
-10.0
30.0
20.0
10.0
Sem I Sem I Sem I* Sem I**Sem II Sem II Sem II**
2014
Bank Growth (rhs)
2015 2016 2017
Source: Statistics Department, Bank Indonesia
120 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 4.37 External Debt by Bank Type Graph 4.38 External Debt Maturity
Smt I Smt I Smt I* Smt I*Smt II Smt II Smt II*2014 2015 2016 2017
18,000
USD, billions
14,000
10,000
6,000
16,000
12,000
8,000
4,000
2,000-
State-owned Bank Private Foreign Private Joint Venture Private National
Smt I Smt I Smt I* Smt I*Smt II Smt II Smt II*2014 2015 2016 2017
100%
80%
40%
60%
20%
0%
34% 37% 37% 43% 42% 41% 43%
66% 63% 63% 57% 58% 59% 57%
Short Term Long Term
The baseline (BL) scenario is the preliminary
projection assuming no distress in the economy and
financial system. Therefore, this scenario assumes
economic growth, prices and the exchange rate are
stable. The BL scenario is used as a benchmark of
banking system dynamics for the other stress tests.
According to the severe scenario, a deep economic
contraction is assumed, including a financial crisis
occurring in one of Indonesia’s major trading
partners, the end of rising commodity prices and
a significant Federal Funds Rate (FFR) hike that
triggers a sudden capital reversal. Such inauspicious
pressures would depress GDP growth in Indonesia
significantly. On the other hand, an FFR hike in
the United States would also create substantial
market disruptions that would manifest as rupiah
depreciation and falling securities prices.
The prolonged slow growth (PSG) scenario assumes
a gradual but moderate global economic downturn,
precipitated by weaker-than-expected economic
growth in Indonesia’s major trading partners,
coupled with an FFR hike beyond expectations.
Graph 4.39 Ratio of Short-Term External Debt to Capi-tal in the Banking Industry
Source: Daily Commercial Bank Reports
Sem I
6,42
30
%
25
20
15
10
5
0
7,35 6,36 6,66 6,40 6,155,26
Sem I Sem I Sem ISem II Sem II Sem II
2014 2015 2016 2017
Ratio of Short-Term External Debt to Capital Threshold
Source: Statistics Department, Bank Indonesia
* Preliminary Data ** Projected Data
121BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Graph 4.40 Maturity Profile of Long-Term External Debt in the Banking Industry
2026
Year
25.0
15.2
467.1
80.0
535.3
1,644.4
933.6
2,601.2
2,021.9
2,000- 4,000
3,346.7
2024
2020
2022
2018
2025
2023
2019
2021
2017
Graph 4.41 Maturity Composition of Long-Term External Debt in the Banking Industry
Source: External Debt Information System (SIUL), June 2017
Position as of June 2017 Position as of June 2017
28.7%
2018
2017
2020
2019
2021
2023
2022
2026
2024
2025
14.1%
17.3%
22.3%
8.0%
4.6%4.0%
0.7%
0.2%0.1%
Such distress would destabilise domestic growth
and trigger shocks in the foreign exchange and
securities markets due to capital outflows.
The scenarios were calculated using structural models
that can detect the interactions between domestic
and external sources of distress. Such models
generated projections of various macroeconomic
variables, including GDP growth, inflation and
exchange rates up to three years into the future.
The variables represent the main components of the
transmission of distress to the banking system.
Transmission of Credit Risk
Using NPL as a proxy of credit risk, the stress tests
aimed to measure CAR resilience in the banking
industry against a spike in the gross NPL ratio, which
would increase provisions for impairment losses and
ultimately erode bank profitability and, thus, capital
growth, leading to a lower Capital Adequacy Ratio
(CAR).
Based on the simulations, the BL scenario
demonstrated that the gross NPL ratio of the banking
industry would remain stable and well below the 5%
threshold through to the end of 2019 consistent with
stable economic dynamics. According to the sever
scenario, however, the gross NPL ratio of the banking
industry could potentially increase to 8.05% at the
end of 2019 in line with the severe distress in the
economy. Furthermore, the higher NPL ratio would
increase the provisions for impairment losses and
impair profits that could ultimately slow the rising
Capital Adequacy Ratio (CAR). Meanwhile, based
on the PSG scenario, the NPL ratio of the banking
industry would increase to 2.68% at the end of 2018
and then to 4.62% at the end of 2019 in line with
gradual economic moderation.
Transmission of SBN Price Risk
SBN price risk is transmitted through the SBN portfolio
channel on the asset side of the bank balance sheet.
The available for sale (AFS) and trading SBN portfolios
faced the most pressure because of mark-to-market
(M2M) pricing. Lower SBN prices in both categories
were calculated based on yield, which increased or
decreased according to the scenario. SBN prices that
have already experienced distress were calculated
USD, billions
122 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
1.5
0.5
2.5
3.5
0.0
Sem I - 14 Sem I - 14 Sem I - 16 Sem I - 16 Sem I - 15 Sem I - 15 Sem I - 17 Sem I - 17Sem II - 14 Sem II - 14 Sem II - 16 Sem II - 16 Sem II - 15 Sem II - 15
2.172.42
2.0%
1.0
3.0
4.0
Graph 4.42 ROA by BUKU Bank Group Graph 4.43 NIM by BUKU Bank Group
2
0
4
65.21
3
1
5
%
*) Banks are classified based on OJK BUKU groups as of June 2017Source: Bank Indonesia, Commercial Bank Reports, processed
Table 4.19 Banking Industry Profit/Loss (Rp, trillions)
BUKU
Pre-Tax Profit Post-Tax Profit
2014 2015 2016 2017 2014 2015 2016 2017
I II I II I II I I II I II I II I
BUKU 1 0.87 0.46 0.77 0.72 0.75 0.22 1.24 0.68 0.08 0.63 0.45 0.50 (0.11) 0.92
BUKU 2 7.38 6.15 5.99 6.84 7.95 6.36 8.06 6.01 4.13 4.71 5.17 6.20 4.60 6.44
BUKU 3 21.07 16.97 17.21 11.86 19.12 12.67 23.79 16.72 12.90 12.96 8.77 14.71 9.29 18.15
BUKU 4 44.15 46.52 40.42 49.62 42.06 48.33 49.76 35.02 36.62 32.55 39.45 33.22 38.15 40.14
Industry 73.47 70.11 64.39 69.04 69.89 67.58 82.85 58.43 53.72 50.84 53.83 54.62 51.92 65.66
using the discounted cash flows (DCF) approach.
More intense pressures, based on the macroeconomic
scenario, would lead to higher yields of greater
magnitude and, therefore, lower SBN prices, which
incur a cost to correct asset prices in the banks’ profit
& loss report that would impede additional capital
growth and lower the Capital Adequacy Ratio (CAR).
Transmission of Currency Risk
Bank exposure to rupiah exchange rates occurs
through the net open position (NOP), on-balance
sheet and off-balance sheet. According to the BL
scenario, the exchange rate is stable in line with
solid macroeconomic fundamentals. Based on the
severe scenario, the exchange rate would depreciate
Source: Bank Indonesia, Commercial Bank Reports, processed
Table 4.20 Breakdown of Income (Rp, trillions)
Income Position2014 2015 2016 2017 Increase
/Decrease ShareI II I II I II I
Interest Operating Income 268.96 299.03 316.32 329.82 339.06 342.40 357.52 4.42% 100%
Placements at Bank Indonesia 3.27 4.55 3.99 3.63 2.97 3.02 3.51 16.19% 1.0%
Securities 17.32 19.89 22.06 20.68 25.58 26.82 28.73 7.10% 8.0%
Loans 193.30 210.60 219.53 231.10 235.89 238.81 240.65 0.77% 67.3%
Non-Interest Operating Income 80.22 68.21 93.94 116.90 129.11 119.74 120.11 0.30% 100%
Sales of Securities 3.24 3.07 3.40 2.19 4.75 4.13 5.63 36.38% 4.7%
Trading (Spot and Derivatives) 30.94 19.81 39.72 67.96 63.15 38.17 58.74 53.91% 48.9%
Dividends, Commissions/Provisions/Fees 26.67 27.54 28.77 29.09 30.66 32.32 33.35 3.16% 27.8%
Correction to Provisions for Impairment Losses 13.38 9.61 15.79 8.13 23.05 22.45 12.99 -42.14% 10.8%
Non-Operating Income 12.82 12.41 12.15 11.93 7.86 12.86 17.38 35.23% 100%
*) Banks are classified based on OJK BUKU groups as of June 2017
Source: Financial Services Authority (OJK), processed
BUKU 4BUKU 4 IndustryIndustry BUKU 2BUKU 2 BUKU 3BUKU 3 BUKU 1BUKU 1
*) Banks are classified based on OJK BUKU groups as of June 2017
Source: Financial Services Authority (OJK), processed
123BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Source: Bank Indonesia, Commercial Bank Reports, processed
Table 4.21 Breakdown of Expenses (Rp, trillions)
Expense Positions2014 2015 2016 2017 Increase
/Decrease ShareI II I II I II I
Interest Operating Expenses 136.06 157.78 168.99 169.02 172.46 166.17 181.45 9.20% 100%
To Other Banks 2.24 2.37 2.96 3.52 3.57 3.36 3.80 13.25% 2.1%
To a Third Party (nonbank) 79.56 93.37 94.76 92.31 89.31 85.67 87.34 1.96% 48.1%
Securities 3.51 3.49 3.92 4.04 3.83 4.39 4.69 6.66% 2.6%
Loans Received 1.76 1.75 1.91 2.43 3.44 2.89 3.47 20.06% 1.9%
Non-Interest Operating Expenses 138.92 139.92 177.46 208.41 226.98 229.24 214.40 -6.47% 100%
Losses on Securities 1.66 0.92 1.39 1.46 0.75 1.73 0.75 -56.58% 0.3%
Spot and Derivatives 27.18 16.70 35.92 62.19 57.46 44.33 53.95 21.70% 25.2%
Insurance Premiums 4.76 5.13 5.82 6.11 6.50 6.19 6.54 5.72% 3.1%
Provisions for Impairment Losses 27.38 27.70 44.44 42.22 63.08 72.18 49.50 -31.42% 23.1%
Payroll 39.62 41.13 45.20 44.08 50.05 48.19 52.21 8.36% 24.4%
Non-Operating Expenses 13.56 11.83 11.57 12.18 6.70 12.86 16.75 30.27% 100%
sharply in 2018 by 49.3% (yoy), reaching its nadir
in 2019. Meanwhile, the PSG scenario assumed
gradual depreciation until the end of 2019. In
the case of deep rupiah depreciation, the banks
maintaining a net-long position would benefit from
the difference in rates. Conversely, the banks with a
net-short position would incur corresponding losses
that could influence CAR.
Transmission of Interest Rate Risk
Bank exposure to the risk of higher interest rates is
measured by the exposure to short-term (< 1 year)
rupiah liabilities and net claims, which are considered
more sensitive to interest rate fluctuations. The
baseline scenario assumed stable interest rates with
no detriment to the balance sheet. According to the
severe scenario, interest rates would rise 800bps in
2018 and by 340bps in 2019, totalling 1140bps over
two years. Based on the PSG scenario, interest rates
would increase 415bps in the first year and by 505bps
in the second, totalling 920bps over two years. Banks
with a positive gap (claims larger than liabilities) in
the balance sheet would benefit from higher interest
rates. In contrast, banks with a negative gap (claims
smaller than liabilities) would incur losses from higher
interest rates that could undermine CAR.
Aggregated Stress Test Results
The magnitudes of each shock and respective
types of risk were aggregated in order to produce
integrated stress test results. Through dynamic
stress test scenarios, the impact of each shock on
the banking system could be calculated periodically
through to the end of 2019. In general, the stress
tests indicated that the banking industry would
maintain a solid capital base, as reflected by a Capital
Adequacy Ratio (CAR) above the 8% threshold at
the end of the second semester of 2019 for each
scenario.
Credit risk dominated each scenario, explaining
an average of 87.3% of the capital shortfall based
on the severe scenario and 80.59% according to
the PSG scenario. At the end of 2019, the capital
shortfall of the severe scenario was predicted to
reach Rp198.75 trillion.
Stress Test Results by BUKU Bank Group
Based on the severe scenario, all BUKU bank groups
maintained a Capital Adequacy Ratio (CAR) above
the 8% threshold at the end of 2019. The most
affected, however, were the BUKU 2 banks, with
the respective CAR declining by 12.13% to 10.05%,
124 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 4.45 Cost-to-Income Ratio (CIR) by BUKU Bank Group (%)
Graph 4.44 BOPO Efficiency Ratio by BUKU Bank Group (%)
10
50
30
70
90
20
60
40
80
100
%
*) Banks are classified based on OJK BUKU groups as of June 2017
Source: Financial Services Authority (OJK), processed
*) Banks are classified based on OJK BUKU groups as of June 2017
Source: Financial Services Authority (OJK), processed
57.85
10
50
30
70
90
20
60
40
80
100
%
and BUKU 3 banks, decreasing 10.49% to 13.16%.
Furthermore, BUKU 2 banks recorded the lowest CAR
after experiencing the shocks. In general, though,
solid bank resilience was maintained. Individually,
several small banks required a capital injection,
especially if the economic slowdown persisted.
Based on the PSG scenario, the stress tests showed
that all BUKU bank groups would maintain a
Capital Adequacy Ratio (CAR) in excess of the
8% threshold in the face of significant economic
distress. At the peak of the distress, at the end of
2019, BUKU 2 banks would experience the largest
decline in CAR, falling 8.09% to 14.09%, along
with BUKU 3 banks, decreasing 7.03% to 16.62%.
Furthermore, BUKU 2 banks recorded the lowest
CAR after the shocks. Nevertheless, stress testing
the PSG scenario showed that all BUKU groups
would maintain a solid capital base in the face of
significant economic distress.
6,000 22.52
4,000
5,000
Rp (T
)
3,000
2,000
1,000
23
21
22
20 %
19
18
17
Capital Risk-Weighted Assets CAR
Graph 4.46 Banking Industry CAR (%) Graph 4.47 Tier 1 Ratio in the Banking Industry (%)
Source: Banking Information System (SIP), processed Source: Banking Information System (SIP), processed
25
21
23
19
%
17
15
22.52
20.75
CAR Tier 1
79.48
Sem I - 14 Sem I - 14 Sem I - 16 Sem I - 16 Sem I - 15 Sem I - 15 Sem I - 17 Sem I - 17Sem II - 14 Sem II - 14 Sem II - 16 Sem II - 16 Sem II - 15 Sem II - 15
Sem I - 14 Sem I - 16 Sem I - 15 Sem I - 17Sem II - 14 Sem II - 16 Sem II - 15 Sem I - 14 Sem I - 16 Sem I - 15 Sem I - 17Sem II - 14 Sem II - 16 Sem II - 15
BUKU 4BUKU 4 IndustryIndustry BUKU 2BUKU 2 BUKU 3BUKU 3 BUKU 1BUKU 1
125BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Notes: Semester I 2017 data is based on BUKU bank groups as of June 2017
Table 4.22 CAR Performance by BUKU Bank Group
Source: Banking Information System (SIP), processed
%
Highest CAR Lowest CAR Average CAR CAR
2015 2016 2017 2015 2016 2017 2015 2016 2017 2015 2016 2017
I II I II I* I II I II I* I II I II I* I II I II I*
BUKU 1 145.53 142.94 116.85 123.45 94.33 10.02 8.98 11.29 13.05 11.33 25.28 29.42 24.70 27.58 29.60 19.86 23.24 20.87 21.86 22.85
BUKU 2 61.48 121.23 138.42 119.80 107.42 12.11 14.67 11.65 11.76 12.37 22.53 26.23 28.22 26.97 25.92 19.96 22.40 22.35 22.83 22.27
BUKU 3 77.04 80.56 84.09 85.16 77.84 13.56 14.20 11.98 12.54 14.36 21.56 22.76 23.79 24.66 24.37 22.35 23.50 24.58 24.49 25.13
BUKU 4 20.16 20.16 21.79 22.64 22.52 17.23 18.61 19.26 18.12 18.23 18.66 19.29 20.89 21.02 20.68 18.78 19.26 21.06 21.24 20.88
Industry 20.28 21.39 22.56 22.69 22.52
Credit risk continued to dominate nearly all BUKU
groups based on the severe and PSG scenarios,
demonstrating that credit risk remains the primary
source of risk in the banking system. Therefore,
prudent credit risk mitigation would enhance bank
resilience under stress conditions.
Graph 4.48 Credit Risk (NPL) Scenarios
9
2.60 2.60 2.60 2.562.81 2.68
2.53
8.05
4.62
%
2017
Baseline Severe PSG
2018 2019
5
7
3
0
8
4
6
2
1
Source: Bank Indonesia
Graph 4.49 SBN Yield Scenarios
9
10
5
7
3
87.00 7.00 7.00 7.00 7.00
8.00 8.00
9.00 9.00
4
6
2
1
02017 2018 2019
Baseline Severe PSG
Source: Bank Indonesia
126 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
2017 2018 2019
60% yoy
20
40
0
50
10
30
-10
2.25 2.25 2.25 -0.07
49.29
21.16
0.00
6.72
22.13
Graph 4.50 Currency Depreciation Risk Scenarios
Baseline Severe PSG
Source: Bank Indonesia
Sem II 2017 Sem II 2018 Sem II 2019
20%
12
16
8
4
18
10
14
6 6 6 6 6
14
10
17
15
6
2
0
Graph 4.51 Currency Risk Scenarios
Baseline Severe PSG
Graph 4.52 Aggregate Stress Test Results
2017 2018 2019
25.0 22.82 22.79 22.6922.6
19.2
13.0
22.620.5
16.415.0
5.0
20.0
10.0
0.0
Capital Adequacy Ratio (CAR) – All Scenarios
CAR
(%)
Baseline Severe PSG
Source: Bank Indonesia
Source: Bank Indonesia
127BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Graph 4.53 Share of Capital Shortfall in the Banking Industry (Aggregate)
%
90100
50
70
30
80
40
60
2010
Severe
Credit Risk Securities Holding Risk
PSG0
87.23 80.59
12.77 19.41
Graph 4.54 Stress Test Results by BUKU Group (Severe Scenario)
2017
BUKU 4 BUKU 2BUKU 3 BUKU 1
2018 2019
25.0
15.0
5.0
20.0
10.0
0.0
Capital Adequacy Ratio (CAR) – All Scenarios
21.90
19.35
13.88
23.65
19.78
13.16
22.18
17.84
10.05
21.90
17.95
13.75
CAR
(%)
Source: Bank Indonesia
Source: Bank Indonesia
Graph 4.55 Stress Test Results by BUKU Group (PSG Scenario)
2017 2018 2019
25.0
15.0
5.0
20.0
10.0
0.0
Capital Adequacy Ratio (CAR) – All Scenarios
21.9020.36
17.00
23.65
21.20
16.62
22.18
19.26
14.09
21.90
19.45
15.60
CAR
(%)
Source: Bank Indonesia
BUKU 4 BUKU 2BUKU 3 BUKU 1
128 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
4.2. Nonbank Financial Industry
In the first semester of 2017, the nonbank financial
industry4, specifically finance companies and
insurance companies, performed soundly.
The performance gains by finance companies
were observed in terms of financing and funding.
Funding was bolstered by foreign loans and
financing increased to the trade sector as well as
leasing services, labour and travel. Nevertheless,
non-performing financing (NPF) also increased
slightly, which eroded profitability in terms of a
lower ROA compared to conditions in the previous
period. A smaller portion of external debt in the
funding structure of finance companies reduced
exposure to currency risk.
Asset and investment growth were indicative of
stronger performance in the insurance industry. All
types of insurance achieved asset and investment
growth, particularly social insurance and life
insurance. Meanwhile, the ratio of premiums to
claims moderated slightly on the previous period.
Nonetheless, liquidity risk was contained, as
reflected by a ratio of current assets5 to current
liabilities6 of >1. Profitability was also maintained,
indicated by modest increases in the ROA and
ROE.
The first semester of 2017 saw interconnectedness
between the banking industry and finance
companies increase, primarily due to a surge
of bank loans disbursed to finance companies.
Furthermore, bank interconnectedness with the
insurance industry also increased as insurance
companies were more inclined to place their funds
and securities in the banking system.
4.2.1. Finance Companies
In the first semester of 2017, the assets of finance
companies expanded by 6.45% (yoy), up from
3.99% (yoy) in the second semester of 2016.
Financing also experienced growth, accelerating
from 6.89% (yoy) to 8.85% (yoy) over the same
period. On a semesterly basis, financing growth
stood at 4.64%. The main driver of growth was
financing extended to the trade sector (63.49%,
ytd), followed by leasing services, labour and travel
(57.72%, ytd) as well as the manufacturing industry
(17.38%, ytd). By business sector, the trade sector
dominated the financing disbursed by finance
companies, accounting for 15.59%, followed by
the household sector (13.92%) and the others
sector (10.99%), primarily in the form of automotive
financing.
Based on business activity7, finance company
financing was dominated by multipurpose
financing, accounting for 58.38% of total
financing, followed by investment financing
(27.38%), sharia-compliant financing (8.38%)
and working capital financing (5.82%).
By currency, rupiah-denominated financing
continued to dominate, with growth accelerating
to 16.42% (yoy) and totalling Rp378 trillion in
the reporting period, up from 13.75% (yoy) in
the second semester of 2016 and 3.15% (yoy)
in the same period one year earlier. In contrast,
foreign currency financing continued to track
a declining trend, totalling Rp42 trillion and
contracting by -12.84% (yoy). The contraction
has endured since the second semester of
4 The nonbank financial institutions discussed are finance and insurance companies.5 Current assets = Total Assets – Strata Title Buildings and Land in Use – Other Fixed Assets – Other Assets.6 Current Liabilities = Total Liabilities.
129BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Graph 4.56 Finance Company Assets and Financing
50
Dec-14 Dec-15 Dec-16Jun-15 Jun-16 Jun-17
-
250
150
350
450
100
300
200
400
420 430 426 434 443462
366 370 363 373 388406
500
(Rp T)
Assets Financing
Graph 4.57 Finance Company Financing by Business Activity
Corporate Leasing FactoringConsumer FinancingWorking Capital FinancingOther OJK-Approved Financing
Investment FinancingCredit Cards
Multipurpose FinancingSharia-Compliant Financing
500
(Rp.T)
400
300 246 249 247 261 230 237
3134
111 111 105 100 105 111
9 10 11 11 21 24
100
200
Dec-14 Dec-15 Dec-16Jun-15 Jun-16 Jun-17
Source: Financial Services Authority (OJK) Source: Financial Services Authority (OJK)
2014 due to dwindling demand from the heavy
equipment subsector in line with sluggish mining
sector performance.
Congruent with subdued economic growth, credit
risk at finance companies tended to escalate, as
reflected by a deterioration in the non-performing
financing (NPF) ratio from 3.26% to 3.47%. The NPF
ratio was most severe in the transportation sector
in line with weak mining sector performance. Most
financing objects in the transportation sector were
used to finance ships and trucks for transporting
mining commodities.8
In general, simulations9 conducted by Bank
Indonesia showed that finance company profits
could absorb an increase in NPF to a level of 4.73%.
Therefore, any potential deterioration of non-
performing financing (NPF) at finance companies
demands increased vigilance, especially if the
national economy remains sluggish.
In the first semester of 2017, the total funding of
finance companies stood at Rp337 trillion, with
growth accelerating from 4.29% (yoy) to 6.11%
(yoy). The main source of funds was still domestic
loans, typically from the banking industry, amounting
to Rp169.9 trillion or 45.06% of the total. The use
of domestic loans expanded by 15.67% (yoy) in the
reporting period as the banks continued to lower
lending rates. In the first semester of 2017, 47.52%
of bank loans were disbursed to finance companies
with a lending rate of below 10%, increasing
markedly from 27.38% in the previous period.
Consistent with the surge in funding from domestic
loans, funding from external debt declined. In the
first semester of 2017, funding from external debt
decreased by 11.22% (yoy), not therefore as deep
as the 22.82% posted in the second semester of
2016. Notwithstanding the decline, the portion of
funding from external debt remained relatively high
at 22.45%, totalling Rp84.7 trillion.
7 Pursuant to OJK Regulation (POJK) No. 29/POJK.05/2014 concerning the Business Activities of Finance Companies, the business activities of finance companies consist of investment financing,
working capital financing, multipurpose financing, sharia-compliant financing and other financing based on OJK approval. Previously, the types of financing were limited to corporate leasing,
factoring, credit cards and consumer financing.8 The increase in NPF was also attributable to the reclassification of financing collectability through the implementation of OJK Regulation (POJK) No. 29/POJK.05/2014 concerning the Business
Activities of Finance Companies, which expanded the collectability classifications from three (current, doubtful and loss) to five (current, special mention, substandard, doubtful and loss).9 The simulations used P&L data as of December 2016 with the following assumptions:
- All loans with a collectability classification of 2 (special mention) were downgraded to 3 (substandard); and
- If the profit was not zero, loans with a collectability classification of 3 were downgraded to 4 (doubtful) and loans with a collectability classification of 4 were downgraded to 5 (loss).
130 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
10 ???
Seeking to mitigate currency risk, finance companies
indebted with foreign loans and with most financing
disbursed in rupiah hedged their external debt. That
strategy reduced potential currency risk and foreign
loan defaults. For finance companies partially owned
by a bank with a ≥25% stake, hedging was used to
mitigate the contagion effect on the parent bank.
In the reporting period, 42 finance companies
held outstanding external debt valued at Rp84.66
trillion. Of the total, eight finance companies were
partially owned by a bank with a ≥25% stake
and the total outstanding external debt stood at
Rp25.79 trillion, which exposed the parent bank
Graph 4.58. Financing by Types of Forex
50
-
250
150
350
450
(Rp.T)
Rupiah Current Exchange
100
300
200
400
55 55 52 4947
42
311 314 311 324 354378
Dec-14 Dec-15 Dec-16Jun-15 Jun-16 Jun-17
Sumber : Otoritas Jasa Keuangan
Graph 4.59. Ratio of NPF PP (%)
1.5
0.5
NPF (%)
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
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
0
2.5
3.5
2
1
2.20
3.26
3.47
3
4
%
Sumber: Sumber : Otoritas Jasa Keuangan
to currency risk considering that most financing
was disbursed in rupiah, totalling Rp91.4 trillion,
while foreign currency financing only amounted to
Rp1.82 trillion.
Of the finance companies indebted with foreign
loans and highly exposed to currency risk, a total of
36 firms also recorded net foreign liabilities (NFL)10.
Stress testing currency depreciation against the
capital of those 36 finance companies, assuming
the rupiah slumped to Rp20,000/USD, showed that
capital resilience was maintained at all 36 finance
companies, while 12 finance companies would
experience negative equity.
131BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
The efficiency of finance companies has improved
slightly, as indicated by a dip in the BOPO efficiency
ratio to 82.24% in the first semester of 2017 from
82.77% in the previous period and from 82.71% in
the same period one year earlier. The efficiency gains
have not been reflected in the profitability ratios,
however, which decreased on the previous period due
to high non-operating costs. Accordingly, the ROA fell
from 3.87% to 3.83% and the ROE from 12.01% to
11.49% in the reporting period.
The interconnectedness between finance
companies and the banking industry has increased
due to a surge of loans disbursed by the banks to
finance companies, accelerating from 20.31% (yoy)
to 20.42% (yoy) in the reporting period. On the
other hand, finance companies were less inclined to
place their funds in the banking industry (demand
deposits, savings deposits and term deposits),
with growth contracting by 10.98% after posting
positive 9.93% in the second semester of 2016.
Graph 4.60 Financing and Funding Growth
20
%
15
10
-
(5)
Total Funding Total Financing
5
Jun-
14
Sep-
14
Dec-
14
Mar
-15
Jun-
15
Sep-
15
Dec-
15
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
8.95
6.11
Graph 4.61 Sources of Funds
400345 351 346 355 361
377
(Rp.T)
300
100
-
200
Domestic Loans
Total FundingIssued Securities
Foreign Loans Capital
Dec-14 Jun-15 Jun-16 Jun-17Dec-15 Dec-16
37 39 40 47 4851
53 56 61 67 7072
114 121 107 95 8385
141 136 138 147 160170
Source: Financial Services Authority (OJK)
Graph 4.62 Market Share of Finance Company Borrowings based on Lending Rates
0%-10% > 12%10.01%-12%
60
%
50
40
20
47.52
33.66
18.81
10
30
Jun-
13
Sep-
13
Dec-
13
Mar
-14
Jun-
14
Sep-
14
Dec-
14
Mar
-15
Jun-
15
Sep-
15
Dec-
15
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
132 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
4.2.2. Insurance Companies
The insurance industry achieved slower gains in
the first semester of 2017 compared to conditions
in the previous period. Nonetheless, the insurance
industry posted stronger assets and investment.
The total assets of the insurance industry reached
Rp1,012 trillion, with growth decelerating from
17.53% in the second semester of 2016 to 16.09%
(yoy) in the reporting period. The controlling
shareholders of most insurance companies are
private nationals, with 146 companies offering
the gamut of life insurance, general insurance
and reinsurance, social insurance and compulsory
insurance. The total assets were dominated in the
first semester of 2017 by life insurance, accounting
for 42.95%, followed by social insurance (30.91%),
general insurance and reinsurance (13.86%) as
well as compulsory insurance (12.28%).
Investment grew at 20.51% (yoy) in the first
semester of 2017, down from 21.70% (yoy) in
the previous period. Consequently, the ratio of
investment to assets increased from 82.62% to
83.97%.
The insurance industry placed most assets in
financial instruments, dominated by tradeable
government securities (SBN) totalling Rp240.03
trillion (28.24%), followed by stocks totalling
Rp181.30 trillion (21.33%) and mutual funds
totalling Rp150.54 trillion (17.71%). The insurance
industry bolstered SBN holdings during the first half
of the year to meet prevailing OJK regulations11.
Although asset and investment growth slowed
compared to conditions in the previous period, the
profitability of the insurance industry increased. The
developments were explained by increases in the
ROA and ROE from 3.21% and 11.02% to 3.61%
and 12.48% respectively.
Business risk in the insurance industry increased in the
reporting period, with a decline in the ratio of premiums
to claims from 157.99% in the second semester of
2016 to 147.31% in the first semester of 2017. The
build-up of risk affected all types of insurance, except
General Insurance and Reinsurance due to a decrease
of claims that exceeded the decline of income from
premiums. Meanwhile, liquidity risk in the insurance
Graph 4.63 External Debt at Finance Companies
15
1023.86
(11.22)
5
(10)
0
(20)
(30)
25
30
35
20
20
10
-
30
40
% %
Dec-
14
Mar
-15
Jun-
15
Sep-
15
Dec-
15
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
Share of External Debt to total Liabilities (%) External Debt Growth (yoy) (rhs)
11 OJK Regulation (POJK) No. 1/POJK.05/2016, dated 11th January 2016, concerning SBN Investments.
133BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Source: Financial Services Authority (OJK)
Graph 4.64 ROA, ROE and BOPO Efficiency Ratio of Finance Companies
6 78
2 74
- 72
10 82
14 86
8 80
4 76
12 84
16 88
ROA ROE BOPO (rhs)
%%
Dec-
14
Mar
-15
Jun-
15
Sep-
15
Dec-
15
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
Table 4.23 Interconnectedness between the Banking Industry and Finance Companies
Source: Monthly Commercial Bank Reports
Component Dec-15 Jun-16 Dec-16 Jun-17 ∆ Term Deposits % Demand Deposits
Investment (Rp, billions) 25,827 25,411 22,518 21,719 (3,692) (14.53)
Savings Accounts 15,785 19,537 17,352 17,391 (2,146) (10.98)
Claims, Spot and Derivatives 7,405 3,409 2,327 710 (2,699) (79.17)
Banker’s Acceptances - - - - - -
Securities Held by Finance Companies 447 156 - 59 (97) (62.09)
Disbursed Loans 2 ,136 2,279 2,758 3 ,368 1,089 47.80
Loan Capital 41 20 70 180 160 803.55
Repo Liabilities - - - - - -
Guarantees 13 11 12 11 (1) (5.07)
Liabilities (Rp, billions) 125,089 136,536 154,488 167,204 30,667 22.46
Bank Debt 100,070 109,778 120,399 132,200 22,421 20.42
Spot and Derivative Liabilities 1,896 1,420 1,161 1,933 514 36.18
Securities Issued by Finance Companies 14,370 16,391 19,781 19,181 2,791 17.03
Banker’s Acceptances 2 - - - - -
Investments from Banks 8,750 8,948 13,148 13,848 4,900 54.77
Repo - - - - - -
Reverse Repo - - - - - -
Miscellaneous Assets 0 - - 41 41 -
industry was relatively stable, as evidenced by the ratio
of current assets to current liabilities12, which increased
slightly on the previous period from 1.66% to 1.67%.
The indicators of insurance density and product
penetration performed well. The density indicator
soared from Rp1,272,493 to Rp1,319,116, while
product penetration remained relatively stable,
moderating slightly from 2.65% to 2.62%.
Notwithstanding the gains, insurance density
and penetration in Indonesia remained below the
global trends13 of USD621 and 6.2% respectively.
Low insurance density and penetration indicators
in Indonesia reveal the vast potential and
11.49%
82.24%
3.83%
12 Current Assets = Total Assets – Strata Title Land and Buildings in Use – Other Fixed Assets – Other Assets.13 Based on the Global Insurance Trends Analysis, 2016 – EY.
134 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 4.65 Asset Share in the Insurance Industry
13.86%
30.91%
12.28%
42.95%
Life Insurance General Insurance and Reinsurance
Social Insurance Compulsory Insurance
Source: Financial Services Authority (OJK)
Graph 4.66 Insurance Industry Assets and Investments
800
400
200
-
1,200
(Rp T) %
1,000
600
78.22
692
542
804
641
755
610
872
705
777
622
945
780
1,012
850
80.7780.01 79.79
80.8982.62
83.97
65
55
50
75
85
70
60
80
90
Assets Investments Ratio (rhs)
Dec-14 Jun-15Jun-14 Jun-16 Jun-17Dec-15 Dec-16
opportunity for growth in line with the growing
population and increasing prosperity. The current
extensification program to increase the customer
base of the insurance industry is being intensified
by the government through the Social Security
Management Agency (BPJS) as well as the insurance
industry by offering products tailored to low-
income earners through the development of micro-
insurance.
Insurance industry dependence on external debt
was relatively low but tracking an upward trend.
Total external debt reached USD176 million in
the reporting period, up from USD145 million.
Therefore, the external debt of the insurance
industry (USD176 million) represented just 0.12%
of total corporate external debt (USD148,875
million). External debt in the insurance industry was
primarily in the form of premium debt, claim debt,
reinsurance debt, retrocession debt (reinsurance
companies) and commission debt.
Interconnectedness between the insurance and
banking industries increased in the first half of 2017,
reversing the previous contraction of -32.69% recorded
in the second semester of 2016 to increase by 4.91%
(yoy). Furthermore, insurance industry placements
in bank-issued securities has also continued to rise.
In the reporting semester, for instance, the growth
of insurance industry placements in securities issued
by the banking sector accelerated from 56.88% to
92.73% (yoy). At the same time, insurance industry
obligations to the banking industry also increased,
rising 36.78% (yoy) or Rp2.04 trillion, albeit down
from 51.69% (yoy) in the previous period.
BUKU 1 banks were the most interconnected with
the insurance industry but the dependence of BUKU
1 banks on insurance industry funds has tended to
decline due to lower average interest rates than the
average deposit rates offered by BUKU 1 banks. The
proportion of insurance industry funds placed in BUKU
1 deposits reached 5.77% in the reporting period,
135BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Table 4.24 Investment Ratio by Insurance Type
Source: Financial Services Authority (OJK), Bank Indonesia, processed
Life Insurance (Rp, trillions) Jun-16 Dec-16 Jun-17 ∆ yoy (%)
Assets 363.16 395.11 434.76 19.71
Investments 313.02 343.27 378.89 21.05
Investment/Asset Ratio 86.19 86.88 87.15 0.96
General Insurance and Reinsurance (Rp, trillions) Jun-16 Dec-16 Jun-17 ∆ yoy (%)
Assets 139.41 139.47 140.34 0.66
Investments 68.16 69.71 71.97 5.58
Investment/Asset Ratio 48.89 49.98 51.28 2.39
Social Insurance (Rp, trillions) Jun-16 Dec-16 Jun-17 ∆ yoy (%)
Assets 253.52 289.98 312.89 23.42
Investments 235.83 273.16 295.65 25.37
Investment/Asset Ratio 93.02 94.20 94.49 1.47
Compulsory Insurance (Rp, trillions) Jun-16 Dec-16 Jun-17 ∆ yoy (%)
Assets 115.93 120.01 124.36 7.28
Investments 88.36 94.28 103.52 17.16
Investment/Asset Ratio 76.22 78.56 83.24 7.02
Table 4.25 Insurance Industry Assets and Financial Performance
* Profitability applicable to Life Insurance as well as General Insurance and Reinsurance
Indicator (Rp, trillions) Jun-16 Dec-16 Jun-17 Growth yoy
Total Assets 872.02 944.58 1,012.34 16.09%
Total Investment 705.36 780.42 850.03 20.51%
Term Deposits 121.87 120.07 141.35 15.98%
Stocks 152.45 177.29 181.30 18.93%
Sukuk or Bonds 89.04 98.61 105.10 18.05%
SBN 188.95 220.67 240.03 27.03%
Securities 1.00 0.83 0.86 -14.39%
Mutual Funds 122.49 132.87 150.54 22.91%
Other Investments 29.57 30.08 30.84 4.31%
Total Non-Investment 50.14 51.84 55.86 11.40%
Total Equity 369.86 401.44 432.68 16.98%
Total Expenses 67.64 150.60 80.20 18.57%
Profitability Jun-16 Dec-16 Jun-17 ∆ yoy
ROA 3.69 3.29 3.61 (0.08)
ROE 12.22 12.16 12.48 0.26
136 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
-
400
200
600
800
100
Jun-16
Term Deposits Stocks SBNSecurities Mutual Funds Other Investments
Sukuk or Bonds
Dec-16 Jun-17
500
300
700
900(Rp T)
Graph 4.67 Insurance Industry Asset and Investment Composition
Source: Financial Services Authority (OJK), processed
equivalent to 39.92% of total nonbank financial
industry deposits held at BUKU 1 banks.
Dari 146 perusahaan asuransi terdapat 12 perusahaan
yang sudah go public. Dari sisi permodalan, seluruh
perusahaan asuransi go public telah memenuhi
kewajiban permodalan minimum sebesar Rp100
miliar dan sudah memenuhi target minimum Risk
Based Capital (RBC) sebesar 120%. Pemenuhan
kecukupan permodalan sesuai ketentuan tersebut
diharapkan mampu meningkatkan ketahanan
perusahaan asuransi terhadap risiko yang muncul
dari aktivitas perekonomian.
Graph 4.68 Gross Premiums to Claims Ratio Graph 4.69 Ratio of Current Assets to Current Liabilities
800
1.60400
200
-
1,2001.80
1.67
(Rp T)
1,0001.70
600
1.50
Jun-
16
Jul-1
6
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7
May
-17
Jun-
17
Current Assets Current Liabilities CA/CL (rhs)
Source: Financial Services Authority (OJK), Bank Indonesia, processed
350
(Rp T) %
165
145
155
135
160
140
150
130
125
250
150
300 155.78160.25
137.74140.17 145.14
155.74
157.99
147.31
200
100
50
-
Dec-
13
Dec-
14
Dec-
15
Dec-
16
Jun-
14
Jun-
15
Jun-
16
Jun-
17
Gross Premiums Gross Claims Gross Premiums to Claims (rhs)
Graph 4.70 Insurance Industry Indicators
Gross Premiums (Rp, trillions) Density (Rp, thousands) Penetration (rhs)
800
3
4001
200
-
%
-
1,200
1,400
1,000
600
2
Dec-11 Dec-13 Dec-15Dec-12 Dec-14 Dec-16
Source: Financial Services Authority (OJK), Bank Indonesia, processed
137BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Graph 4.71 Insurance Industry External Debt
200 155,000
USD, millions USD, millions
150 150,000
50
Insurance Industry External Debt Total External Debt (rhs)
140,000
- 135,000
100 145,000
148,875
176
Sep-
14
Nov
-14
Jan-
15
Mar
-15
May
-15
Jul-1
5
Sep-
15
Nov
-15
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep-
16
Nov
-16
Jan-
17
Mar
-17
Juni
-17
Source: Financial Services Authority (OJK), Bank Indonesia, processed
Table 4.26 Interconnectedness between the Banking and Insurance Industries
Source: Monthly Commercial Bank Reports
Component Dec-15 Jun-16 Dec-16 Jun-17 ∆ yoy % yoy
Investment (Rp, billions) 164,205 121,088 117,736 130,374 9,286 7.67
Term Deposits 152,452 108,729 102,612 114,072 5,343 4.91
Demand Deposits and Savings Deposits - - - - - -
Spot and Derivatives - - - - - -
Banker’s Acceptances 6,955 6,467 10,912 12,464 5,997 92.73
Securities Held by Insurance Companies 5 13 512 5 78 4 94 (18) (3.45)
Disbursed Loans 4,268 5,362 3,596 3,312 (2,051) (38.24)
Loan Capital - - - - - -
Guarantees 17 17 38 31 15 89.64
Liabilities (Rp, billions) 4,897 5,534 7,429 7,569 2,035 36.78
Bank Debt 537 1,176 1,333 1,854 678 57.67
Spot and Derivatives - - - - - -
Securities Issued by Insurance Companies - - - - - -
Banker’s Acceptances - - - 1 4 14 -
Investments from Banks 4,123 4,125 6,078 5,683 1,558 37.78
Repo - - - - - -
Reverse Repo - - - - - -
Miscellaneous Assets 237 233 18 18 (215) (92.10)
138 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 4.72 Weighted Average Deposit Rate in Rupiah at BUKU 1 Banks
6
%
4
4.51
4.17
3
5
Dec-
13
Mar
-14
Jun-
14
Sep-
14
Dec-
14
Mar
-15
Jun-
15
Sep-
15
Dec-
15
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Source: Bank Indonesia
Table 4.27 Risk-Based Capital of Public Listed Insurance Companies
Source: Financial Statements of Public Listed Insurance Companies, processed
Period ABDA AHAP AMAG ASBI ASDM ASJT ASRM LPGI MREI PNIN ASMI VINS
2017 Tw II 357 201 247 131 189 171 145 237 266 - 441 779
2016 Tw IV 332 206 261 136 255 233 142 217 242 - 287 794
2016 Tw I 306 242 531 149 213 160 139 182 253 - 209 878
4.3. Islamic Banking Sector Dynamics and Risks
Against a backdrop of consolidation in the
conventional banking industry, financing and
deposit performance at Islamic banks improved
during the first half of 2017. Islamic bank financing
expanded by nearly 20%, with funding growth
reaching 25% (yoy). Furthermore, Islamic bank
assets posted 24% (yoy) growth, backed by a solid
capital base and a 22% Capital Adequacy Ratio
(CAR). Despite the high level of non-performing
financing (NPF), recorded at 3.9%, conditions had
improved on the previous semester.
A. Islamic Banking Industry Performance and
Risks
1. Liquidity Risk
The Islamic banking industry maintained
liquidity on expansive financing, as reflected
by the slight decline in the liquid assets to
non-core deposits ratio from 121.27% in
the previous semester to 120.14%. The
decline was triggered by NCD growth of
8.63%, which outpaced that of liquid
assets at 7.61% to total Rp48.96 trillion.
Consistent with the decline in the LA/NCD
ratio, the liquid assets to deposits ratio also
decreased, falling from 22.04% to 21.82%.
The liquidity declines primarily affected
Weighted Average Deposit Rate Rupiah Deposit Rate for the Insurance Industry
Weighted Average Rupiah Deposit Rate (Total)
139BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
BUKU 1 banks. As an industry, the position
of liquid assets to NCD at Islamic banks
was sound and remained well above the
threshold.
2. Intermediation Risk
The influx of deposits to the Islamic banking
industry was accompanied by expansive
financing performance. Deposit growth
stood at 25.14% (yoy) in the first semester
of 2017 with financing growth recorded
at 25.14% (yoy), well above the 9.47%
(yoy) achieved in the conventional banking
industry. Consequently, the financing-to-
deposit ratio (FDR) was 83% in the reporting
period. Economic consolidation in the first
half of 2017 prompted prudent lending in
the Islamic banking industry.
a. Deposits
Demand deposits and savings deposits
were the main drivers of deposit
growth in the Islamic banking industry,
10 90.00
0 50.00
20 130.00
15 110.00
5
LA/DepositsLA/MCD (rhs)
70.00
25(%) (%)
150.00
Mar
-14
Jun-
14
Sep-
14
Dec-
14
Mar
-15
Jun-
15
Sep-
15
Dec-
15
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
22.04
21.82121.27
120.14
Graph 4.73 Liquidity Ratios in the Islamic Banking Industry
120.0050.00
140.0060.00%Rp T
100.0040.00
80.00
30.0060.00
20.00 40.00
10.00 20.00
0.00Jun 14 Jun 15 Jun 16 Jun 17Dec 14 Dec 15 Dec 16
0.00
Liquid AssetsLA/NCD (rhs)
45.50
48.96
Graph 4.74 Banking Industry Liquid Assets
Table 4.28 LA/NCD of Islamic Banks by BUKU Bank Group
Source: Bank Indonesia
BUKU Jun-14 Des-14 Jun-15 Des-15 Jun-16 Des-16 Jun-17
BUKU 1 137.00% 139.92% 114.64% 132.40% 121.17% 165.34% 135.21%
BUKU 2 80.06% 115.11% 89.97% 123.07% 109.31% 126.84% 130.64%
BUKU 3 - - - 103.65% 98.71% 106.66% 100.74%
Islamic Banks 85.97% 117.45% 92.48% 115.78% 105.89% 121.27% 120.14%
Source: Bank Indonesia
Source: Bank Indonesia
140 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 4.75 Deposit and Financing Growth (yoy)
25.1420.83
16.4019.39
Okt 15 Dec 15 Apr 16 Okt 16 Apr 17Feb 16 Ags 16 Feb 17Jun 16 Dec 16 Jun 17
10.00
0.00
20.00
30.00%
15.00
5.00
25.00
Source: Bank Indonesia
expanding respectively at 50.88% (yoy)
and 23.63% (yoy). Demand deposits
were edged upwards by government
placements at Islamic banks and sharia
business units, which posted growth
of 47.07% and 40.28%. Furthermore,
the growth of corporate and individual
deposits topped 20%. By currency,
rupiah deposits achieved 26.09% (yoy)
and foreign currency deposits just
10.88% (yoy).
Expensive funds continued to dominate
funding sources in the Islamic banking
industry despite the significant bump in
government demand deposits. The share
Table 4.29 Financing-to-Deposit Ratio (FDR) by BUKU Bank Group
Source: Bank Indonesia
Description Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU I
Deposits (Rp, trillions) 39.37 20.62 21.70 11.09 16.62 12.82 13.65
Disbursed Financing (Rp, trillions) 43.95 19.36 21.42 11.17 16.10 12.39 12.27
Financing-to-Deposit Ratio (%) 111.66 93.88 98.75 100.70 96.83 96.69 89.90
BUKU II
Deposits (Rp, trillions) 261.69 150.10 141.12 101.75 96.64 123.63 138.47
Disbursed Financing (Rp, trillions) 243.68 129.06 129.86 92.49 90.18 110.26 116.14
Financing-to-Deposit Ratio (%) 93.12 85.99 92.02 90.90 93.32 89.19 83.87
BUKU III
Deposits (Rp, trillions) - - - 62.06 63.79 69.96 72.30
Disbursed Financing (Rp, trillions) - - - 50.86 52.51 55.39 57.85
Financing-to-Deposit Ratio (%) - - - 81.96 82.31 79.17 80.02
BUS
Deposits (Rp, trillions) 301 171 163 175 177 206 224
Disbursed Financing (Rp, trillions) 288 148 151 155 159 178 186
Financing-to-Deposit Ratio (%) 95.54 86.94 92.92 88.35 89.68 86.26 83.00
Graph 4.76 Deposit Growth (yoy)
Rupiah Deposits (yoy) Foreign Currency Deposits (yoy) Total Deposits (yoy)
Oct 15
21.8426.09
25.1420.83
5.3910.88
Dec 15 Apr 16 Oct 16 Apr 17Feb 16 Aug 16 Feb 17Jun 16 Dec 16 Jun 17
-10.00
-15.00
10.00
0.00
20.00
30.00%
-5.00
15.00
5.00
25.00
Source: Bank Indonesia
Deposits (%, yoy) Disbursed Financing (%, yoy)
141BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
of demand deposits increased from
10.01% to just 11.91% in the reporting
period, with stable term deposits,
decreasing slightly from 59.49% to
59.30%, and a decline in the market
share of savings deposits from 30.50%
to 28.79%.
The rate of return on deposits in the
Islamic banking industry was relatively
stable at 5.55%, with a moderate
decline on savings deposits from
1.86% to 1.70% and a slight increase
reported for demand deposits from
1.09% to 1.16%. In general, the
returns enjoyed by the Islamic banking
industry remained below the levels in
the conventional banking industry.
Geographically, all regions of the
Indonesian archipelago reported faster
deposit growth. The island of Java
dominated the market share of deposits,
however, accounting for 75.65% of the
total, followed by the islands of Sumatra
and Kalimantan.
Congruent with robust deposit growth, Islamic
banking industry assets also posted significant gains
compared to the second semester of 2016, primarily
at state-owned banks in line with the proliferation
of short-term securities, predominantly Islamic
Treasury Bills (SPNS) issued by the Government with
a tenor of up to 12 months.
Financing
Despite the build-up of credit risk, the Islamic
banking industry maintained expansive growth of
disbursed financing, accelerating from 16.40%
(yoy) in the previous period to 19.39% (yoy). Total
financing in the Islamic banking industry stood at
Rp266.60 trillion, accounting for 5.94% of the
national banking industry total. Rupiah financing
posted strong gains, increasing from 17.61% (yoy)
to 20.77% (yoy), while the contraction of foreign
currency financing deepened from -1.41% (yoy) in
the second semester of 2016 to -3.18% (yoy) in the
first quarter of 2017.
Corporate consolidation forced the Islamic banks to focus
on consumer financing. Disbursed consumer financing
achieved solid growth at 28.17% (yoy), compared to
13.79% (yoy) for working capital financing. In contrast,
Source: Bank Indonesia
Graph 4.77 Deposit Growth by Type
Okt 15
31.9950.88
24.08 23.77
17.58 21.63
Des 15
Apr 16
Okt 16
Apr 17
Feb 16
Ags 16
Feb 17
Jun 16
Des 16
Jun 17
20.00
(20,00)
60.00
100.00
40.00
-
80.00
%
Demand Deposits Savings Deposits Term Deposits
75%
100%
50%
25%
0%
Sem I 2014 Sem I 2015 Sem I 2016 Sem I 2017Sem II 2014 Sem II 2015 Sem II 2016
9.01 8.56 10.28 9.17 9.88 10.01 11.91
28.7930.5029.1129.7028.5929.1828.83
62.16 62.26 61.13 61.13 61.02 59.49 59.30
Graph 4.78 Deposit Composition in the Islamic Banking Industry
Tabungan DepositoDemand Deposits
142 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
10.00%
5.55%
1.80% 1.70%
5.55%
8.00%
6.00%
4.00%
2.00%
0.00%
Jan-
15
Feb-
15
Mar
-15
Apr-1
5
May
-15
Jun-
15
Jul-1
5
Aug-
15
Sep-
15
Oct
-15
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7
May
-17
Jun-
17
Demand Deposits Savings Deposits Deposito
1.09% 1.16%
Graph 4.79 Rate of Return on Deposits
Source: Bank Indonesia
Table 4.30 Deposit Share by Island
Source: Bank Indonesia
IslandAnnual Deposit Growth (yoy) Deposit Share
(%) Sem I 2017Sem I 2016 Sem II 2016 Sem I 2017
Java 13.73 16.67 18.17 75.65
Sumatra 13.18 58.92 77.72 16.83
Kalimantan 11.84 8.87 25.38 4.11
Sulawesi 10.88 1.75 6.67 1.99
Bali and Nusa Tenggara 12.48 11.32 25.41 0.87
Papua and Maluku Islands 11.97 6.94 10.29 0.56
100%
80%
60%
40%
20%
0%
Cash Placements at Other BanksPlacements at Bank IndonesiaSecurities Held InvestmentsFinancingOther Funds
11.74
5.787.24 7.55 8.55
9.55
12.4513.98 12.82 12.82
76.34 72.87 73.50 69.87 70.49
Sem I 2015 Sem I 2016 Sem I 2017Sem II 2015 Sem II 2016
Graph 4.80 Composition of Disbursed Funds
100%
80%
60%
40%
20%
0%
Islamic Treasury Bills (SPNS) Government Islamic Securities (SBSN)Other Securities
Sem I 2015 Sem I 2016 Sem I 2017Sem II 2015 Sem II 20161.40
10.753.67 7.09
14.77
75.3771.73 75.59 66.51 63.23
23.2417.52 20.74 26.40 22.00
Graph 4.81 Securities Holdings of the Islamic Banking Industry
Source: Bank Indonesia
growth of investment financing slowed from 16.15%
(yoy) in the second semester of 2016 to 14.29% (yoy).
Despite the focus of Islamic banks on consumer
financing, financing allocated to the construction
sector posted the strongest growth. By economic
sector, the construction sector was the main
contributor to financing growth in the first half of
the year, reaching 82.80% (yoy). Conversely, the
electricity, gas and water supply (utilities) sector as
well as the corporate services sector experienced
slower growth, while all other sectors achieved
gains. In addition to the construction sector,
the agricultural sector and social services sector
%
143BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Source: Bank Indonesia
Source: Bank Indonesia
10.00
-10.00
Oct
-15
Dec-
15
Feb-
16
Feb-
17
Apr-1
6
Apr-1
7
Jun-
16
Jun-
17
Aug-
16
Oct
-16
Dec-
16
0.00
20.00
Rupiah Financing Foreign Currency Financing Total Financing
-20.00
30.00
17.61
20.77
16.4019.39
(1.41)
(3.18)
Graph 4.82 Financing Growth (yoy) by Currency
also posted solid financing growth compared to
conditions in the previous semester.
The Islamic banking industry has begun to favour
musyarakah contracts. Accordingly, musyarakah
contracts grew by 35.22% (yoy) in the reporting
period, while istishna contracts expanded by 26.73%
(yoy). Nevertheless, murabahah contracts remained
dominant, accounting for more than 50%.
The rate of return on financing has decreased. In the
first semester of 2017, the average rate of return on
financing declined on the previous period. In general,
the return on murabahah contracts still exceeded
all other types of contract, while the returns on
istishna, qardh and profit sharing (mudharabah
and musyarakah) contracts moderated slightly.
Conversely, the returns on murabahah and ijarah
contracts increased on the previous semester.
The financing disbursed by BUKU 1 banks
contracted. By BUKU bank group, BUKU 2 banks
reported the strongest financing growth at 28.79%
(yoy), contrasting the -23.79% (yoy) contraction
reported by BUKU 1 banks.
3. Financing Risk
Financing risk in the Islamic banking industry
eased towards the end of the first semester
of 2017 after accumulating throughout the
period. Consequently, the non-performing
financing (NPF) ratio at the end of the first
10.00
0.00
20.00
30.00
%
15.00
5.00 2.711.34
9.27
13.79
23.94
21.70
16.15
14.29
2.11
6.52
23.65
28.17
25.00
Sem I 2016 Sem I 2017Sem II 2015
Working Capital Investment Consumer
Sem II 2016
Graph 4.83 Disbursed Financing Growth by Type (yoy)
%
144 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
0.00
%
20.00
40.00
10.00
-10.00
-20.00
-30.00
-40.00
14.2914.97
26.7319.74
3.46 3.77
29.0935.22
(13.95)(8.92)
25.2830.00
Murabahah Mudharabah Musyarakah IjarahIstishna Qardh
Graph 4.84 Disbursed Financing Growth by Contract (yoy)
20.00
%
60.00
100.00
40.00
0.00
Agriculture Mining Manufacturing ConstructionUtilities
-20.00
80.00
8.6021.54 7.46
12.459.80
12.34
26.31
9.05
28.99
82.80
Graph 4.85 Disbursed Financing Growth by Economic Sector
Sem I 2016 Sem I 2016
Sem I 2016
Sem I 2017 Sem I 2017
Sem I 2017
Sem II 2015 Sem II 2015
Sem II 2015
Sem II 2016 Sem II 2016
Sem II 2016
18.75
8.6911.12
3.998.19
15.83
21.3926.76
(2.34)
0.00
20.00
10.00
-10.00
-20.00
30.00
%
Trade Transportation Corporate Services Social Services Others
MiningManufacturing
ConstructionListrik, Gas, Air
40.87
35.22
33.70
3.26
54,42
0.381.91
4.20 2.667.71
2.95
7.42
12.73
4.14
12.104.94
41.15
6.33
23.91
Consumer
Working Capital
Musyarakah
Ijarah
Murabahah
Istishna
Agriculture
Qardh
Mudharabah
Investment
TradeTransportationCorporate ServicesSocial ServicesOthers
Graph 4.86 Composition of Disbursed Financing
10.00
14.00 14.1413.04
11.8511.14
18.00
%
12.00
80.00
60.00
40.00
20.00
0.00
16.00
Mar
-14
Jun-
14
Sep-
14
Dec-
14
Mar
-15
Jun-
15
Sep-
15
Dec-
15
Mar
-16
Jun-
16
Sep-
16
Dec-
16
Mar
-17
Jun-
17
IjarahMurabahah Istishna Qardh Profit Sharing
Graph 4.87 Rate of Return on Disbursed Financing
Source: Bank Indonesia
Source: Bank Indonesia
Source: Bank Indonesia
Source: Bank Indonesia
145BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
semester of 2017 was lower than that
recorded in the second semester of 2016.
The NPF ratio peaked in February and April
2017 at 4.41%, before improving to 3.97%
in June 2017.
Based on financing type, the NPF ratios of
working capital and investment financing
improved slightly on the previous semester,
contrasting the deterioration recorded in the
NPF of consumer financing. Working capital
financing posted the largest improvement,
with the corresponding NPF falling from
6.60% in the second semester of 2016 to
5.25% in the first semester of 2017, while
the NPF of investment financing improved
from 5.91% to 5.42%. By contract, the
NPF of murabahah contracts deteriorated
but the NPF of all other contracts improved
on conditions reported in the previous
period.
By economic sector, the dominant influencers
of non-performing financing (NPF) in the
first half of the year were corporate services,
the trade sector and transportation. The
NPF ratio for the transportation as well as
corporate services sectors increased, while
the ratio for the trade sector improved
in the reporting period. The highest NPF
ratio affected the utilities sector (electricity,
gas and water supply) despite early signs
of improvement. Nevertheless, the mining
sector still demands vigilance because
despite only accounting for 6.4% of total
financing from Islamic banks, the NPF ratio
In Trillion Rupiah
Source: Bank Indonesia
BUKU Sem I 2014 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 43.95 19.36 21.42 11.17 16.10 12.39 12.27
BUKU 2 243.68 129.06 129.86 92.49 90.18 110.26 116.14
BUKU 3 - - - 50.86 52.51 55.39 57.85
Islamic Banks 287.64 148.42 151.28 154.53 158.79 178.04 186.27
Table 4.31 Disbursed Financing by BUKU Bank Group
6.00
12.00
14.00
Rp T%
5.00
NPF Value (rhs) NPF Ratio
10.004.00
8.00
3.006.00
2.004.00
1.00 2.00
0.00 0.00
4.13 3.97
Oct
-15
Oct
-14
Dec-
15
Dec-
14
Feb-
16
Feb-
15
Feb-
17
Apr-1
6
Apr-1
5
Apr-1
7
Jun-
16
Jun-
15
Jun-
17
Aug-
16
Aug-
15
Oct
-16
Dec-
16
Graph 4.88 Non-Performing Financing
146 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Working Capital Investment Consumer
%6.60
5.665.25
5.915.60 5.42
2.93
1.93 2.02
Sem I 2016 Sem I 2017Sem II 2016
Graph 4.89 NPF Ratio by Financing Type
stood at 10.48% and credit growth to
the sector accelerated to 13.49% in the
reporting period.
The sharp increase of NPF in the
transportation sector must also be
monitored further after a two-fold hike
on the previous period from 5.37% to
10.06%. The deteriorating quality of
financing extended to the transportation
sector, which accounted for 5.01% of
total financing allocated by Islamic banks,
was consistent with the declining quality
of financing from finance companies
and the banking industry allocated to
the transportation sector in Indonesia.
Consequently, financing growth in the
transportation sector experienced a deeper
contraction, decreasing from -0.02% in
the second semester of 2016 to -3.36% in
the first semester of 2017.
BUKU 1 banks confirmed an improvement
in their NPF ratio. Moreover, the NPF ratio
of Islamic banks categorised as BUKU 1
posted NPF gains despite remaining above
the 5% threshold, improving markedly from
12.91% to 8.96% in the reporting period
and also gaining on conditions reported in
the first semester of 2016.
Source: Bank Indonesia
7.00
8.00
%
6.00 5.54
4.484.79
2.301.85
1.48
2.73
1.911.88
1.85
2.472.38
5.21
3.663.09
3.56
7.23
4.015.00
4.00
3.00
2.00
1.00
0.00Musyarakah IjarahMurabahah Istishna Qardh Mudharabah
Graph 4.90 NPF Ratio by Contract
Sem I 2016 Sem I 2017Sem II 2016
Source: Bank Indonesia
147BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
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4. Market Risk
The rate of return on deposits has remained
stable but returns on disbursed financing
have decreased. In the first half of 2017,
the rate of return on deposits was relatively
stable compared to conditions in the previous
semester, with the return on demand deposits
increasing slightly from 1.09% to 1.16%,
the return on savings deposits decreasing to
1.70% and stable returns reported on term
deposits at a level of 5.55%. On the other
hand, the average rate of return on financing
declined. The returns on murabahah and
ijarah contracts increased modestly in the
reporting period to 14.14% and 13.04%,
while the returns on all other contracts
tracked downward trends.
5. Profitability, Efficiency and Capital
The profitability of Islamic banks has begun to
improve. The ROA increased from 0.63% in
the second semester of 2016 to 1.10% in the
first half of 2017 in line with greater efficiency
as the BOPO efficiency ratio improved from
96.23% to 90.98% over the same period
and the NOM ratio increased from 0.68%
to 1.24%. Furthermore, the Islamic banking
industry also reported lower operating costs,
exceeding the corresponding decline in
operating income due to lower provisions
for impairment losses. Nonetheless, the
lower position of provisions for impairment
losses was not due to improvements in the
non-performing financing (NPF) ratio but the
result of expropriating productive assets.
Mining
Manufac
turing
Constructi
on
Utilities
Agricu
lture
Trade
Transp
ortation
Corporate Se
rvice
s
Socia
l Servi
ces
Others
10.00
14.00
%
12.00
80.00
60.00
3.16
8.62
4.34
10.30
3.634.84
9.82
5.62
2.452.14
40.00
20.00
0.00
Graph 4.91 NPF Ratio by Economic Sector
Table 4.32 Gross NPF Ratio of Islamic Banks by BUKU Bank Group
Source: Bank Indonesia
BUKU Sem II-2014 Sem I-2015 Sem II-2015 Sem I-2016 Sem II-2016 Sem I-2017
BUKU 1 3.29 4.74 8.30 10.07 12.91 8.96
BUKU 2 5.24 5.15 3.74 4.95 3.20 3.80
BUKU 3 - - 6.08 5.60 4.94 4.87
TOTAL 4.99 5.09 4.84 5.68 4.42 4.47
Sem I 2016 Sem I 2017Sem II 2016
Source: Bank Indonesia
148 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Table 4.34 Rate of Return on Disbursed Financing
PYD2015 2016 2017
Sem I Sem II Sem I Sem II Sem I
Murabahah 15.44% 15.00% 13.34% 13.89% 14.14%
Istishna 12.37% 13.12% 13.00% 13.49% 13.05%
Qardh 12.57% 12.61% 7.13% 11.60% 11.14%
Profit Sharing 12.92% 12.45% 10.48% 12.90% 11.85%
Ijarah 10.32% 11.40% 10.07% 12.76% 13.04%
Source: Bank Indonesia
Table 4.33 Rate of Return on Deposits
DPK2015 2016 2017
Sem I Sem II Sem I Sem II Sem I
Demand Deposits 0.73% 0.74% 0.86% 1.09% 1.16%
Savings Deposits 3.27% 2.93% 2.48% 1.86% 1.70%
Term Deposits 6.95% 6.71% 6.31% 5.55% 5.55%
The returns at Islamic banks tended to
increase despite lower interest rates. The
rising NOM at Islamic banks was caused by
an increase in the rate of return on financing,
contrasting the decline in the rate of return
on deposits. The higher rate of return in the
Islamic banking industry was contrary to
the lower rate reported by the conventional
banking industry in Indonesia.
a. Profitability
Islamic bank profitability remained below
that of conventional banks despite rising.
In terms of ROA, the profitability of
Islamic banks stood at 1.10% compared
to 2.47% for conventional banks. By
BUKU bank group, the ROA increase
was driven by BUKU 2 banks (ROA,
1.39%). Meanwhile, the ROA at BUKU
1 and 3 banks were recorded at 0.65%
and 0.59% respectively. The post-tax net
profit of Islamic banks was Rp2.25 trillion
in the first semester of 2017, up from
Rp952 billion in the previous period. All
BUKU groups reported profit gains.
b. Efficiency
The BOPO efficiency ratio declined,
indicating greater efficiency. In the
first semester of 2017, the BOPO
efficiency ratio decreased from 96.23%
to 90.98%, with all BUKU groups
reporting efficiency gains. Compared
to conventional banks, the lower BOPO
efficiency ratio at conventional banks
was indicative of greater efficiency.
Therefore, efficiency must be improved
in the Islamic banking industry in order
to increase competitiveness against their
conventional counterparts.
c. Capital
Islamic banks reported a relatively solid
Capital Adequacy Ratio (CAR). The
Islamic banking industry maintained
CAR well above the threshold,
increasing from 15.95% in the second
semester of 2016 to 16.42% in the
first semester of 2017. CAR was
reported to increase at BUKU 1 and
3 banks, while moderating slightly at
BUKU 2 banks.
149BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Source: Bank Indonesia
5.25% 15.00%
14.00%
12.00%
10.00%
5.00%13.00%
4.75%
11.00%
4.50%
BI 7-Day (Reverse) Repo Rate Industry Rate of Return
Jun-
16
Jul-1
6
Aug-
16
Sep-
16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7
Mei
-17
Jun-
17
Graph 4.92 Comparison of Returns on Disbursed Financing at Islamic Banks, Lending Rats and the BI 7-Day (Reverse) Repo Rate
2.00
%
1.00
0.00
-1.00
-2.00
-3.00
-4.00
-5.00
0.63 0.651.39
1.100.59
Sem I 2016Sem I 2015
Source: Bank Indonesia
BUKU 1 BUKU 2 BUKU 3 Total
Sem II 2014 Sem I 2017Sem II 2015 Sem II 2016
Graph 4.93 ROA by BUKU Group
FINANCIAL STABILITY REVIEWNo. 29, September 2017
150 BANK INDONESIA
3.00
%
2.50
2.00
2.47
1.101.50
1.00
0.50
0.00Sem I 2016Sem I 2015Sem II 2014 Sem I 2017Sem II 2015
Conventional Islamic
Sem II 2016
Graph 4.94 ROA Comparison between Islamic and Conventional Banks
Source: Bank IndonesiaSource: Bank Indonesia
2.00
-1.00
1.00
-2.00
-4.00
0.00
-3.00
-5.00 Sem I 2016Sem I 2015Sem II 2014 Sem I 2017Sem II 2015 Sem II 2016
BUKU 1
BUKU 1
BUKU 2
BUKU 2
BUKU 3
BUKU 3
Total
Total
Graph 4.95 NOM by BUKU Group
Table 4.35 P&L by BUKU Group
Source: Bank Indonesia
BUKUPre-Tax P&L Post-Tax P&L
Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017 Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 0.17 (0.15) (0.33) (0.15) (0.65) 0.11 0.14 (0.20) (0.33) (0.16) (0.66) 0.21
BUKU 2 0.66 1.14 0.96 1.25 1.63 2.26 0.56 0.95 0.72 0.95 1.28 1.67
BUKU 3 - - 0.35 0.44 0.43 0.48 - - 0.25 0.34 0.33 0.36
TOTAL 0.82 0.99 0.98 1.55 1.42 2.85 0.70 0.74 0.63 1.13 0.95 2.25
Graph 4.96 BOPO Efficiency Ratio by BUKU Group Graph 4.97 BOPO Comparison between Islamic and Conventional Banks
Source: Bank Indonesia
140.00
%
100.00
40.00
120.00
80.00
20.00
60.00
0.00
96.23 90.98
Sem I 2016Sem I 2015Sem II 2014 Sem I 2017Sem II 2015 Sem II 2016
Source: Bank Indonesia
79.0090.98
Conventional Islamic
120.00
%
100.00
80.00
60.00
40.00
20.00
0.00Sem I 2016Sem I 2015 Sem I 2017Sem II 2015 Sem II 2016Sem II 2014
180.00
210.00 16.42
15.95
120.00
150.00
Rp (T)
%
90.00
60.00
30.00
0.00Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
Capital Risk-Weighted Assets (RWA) CAR (rhs)
Graph 4.98 CAR
17.00
16.50
16.00
15.30
15.00
14.50
14.00
13.50
13.00
12.50
Table 4.36 CAR of Islamic Banks by BUKU Group
Source: Bank Indonesia Source: Bank Indonesia
BUKU Sem II 2014 Sem I 2015 Sem II 2015 Sem I 2016 Sem II 2016 Sem I 2017
BUKU 1 17.56 20.89 20.58 21.28 20.86 20.88
BUKU 2 15.39 12.82 15.36 15.26 17.26 16.90
BUKU 3 - - 13.02 11.98 12.54 14.36
TOTAL 15.74 14.02 15.02 14.72 15.95 16.42
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
151BANK INDONESIA
Box 4.1. Seasonal Liquidity Trends during Eid-ul-Fitr
The banking industry maintained ample liquidity,
tracking an upward trend in the first half of 2017
compared to conditions in the previous year. Resilient
liquidity was bolstered by financial expansion by
the government, sluggish credit growth and faster
deposit growth. In general, the liquidity ratio in the
banking industry improved on the previous year,
increasing from 20.9% to 21.2%.
Notwithstanding, there is a cyclical tightening of
liquidity each year during Eid-ul-Fitr. In 2017, the
transient tightening of liquidity occurred at the end
of the first semester, as Eid-ul-Fitr coincided with
Source : Bank Indonesia
Box Table 4.1.1 Liquidity Ratio by Bank Type
LA/Deposits Ratio (%)
2015 2016 2017 2015(ytd)
2016(ytd)Des Juni Des Jun
State-Owned Banks 20.5 19.8 21.5 18.8 (0.7) (2.7)
Private National Commercial Banks 16.6 18.3 18.0 19.7 1.7 1.7
Regional Banks 12.9 17.8 18.6 24.3 4.9 5.7
Foreign Banks 53.2 53.3 53.4 64.2 0.1 10.8
Industry 19.4 20.3 20.9 21.2 0.9 0.3
Box Graph 4.1.1 Liquidity Ratios in the Banking Industry
2012
-TW
I
2014
-TW
I
2013
-TW
I
2015
-TW
I
2016
-TW
I
2017
-TW
I
2012
-TW
II
2014
-TW
II
2013
-TW
II
2015
-TW
II
2016
-TW
II
2017
-TW
II
2012
-TW
III
2014
-TW
III
2013
-TW
III
2015
-TW
III
2016
-TW
III
2012
-TW
IV
2014
-TW
IV
2013
-TW
IV
2015
-TW
IV
2016
-TW
IV
60
20
40
0
80
5
100
15
10
12025
20
140 30
101.26%
50%
21.15%
8.5%
%%
LA/Deposits LA/NCD (rhs)
Box Graph 4.1.2 Annual Liquidity Ratio Trends in the Banking Industry
Box Graph 4.1.3 Annual Liquid Asset Trends in the Banking Industry
1 2
24
23
20
22
19
21%
183 4 5 6 7 8 9 10 11 12
LA/Deposits Ratio in 2015
LA/Deposits Ratio in 2016
LA/Deposits Ratio in 2017
1 2
1,100
1,150
1,050
900
1,000
850
%950
8003 4 5 6 7 8 9 10 11 12
LA in 2015 LA in 2016 LA in 2017
June. Such dynamics were also reported in 2015
and 2016. The temporary tightening of liquidity
was evidenced by declines in the liquidity ratio and
liquid assets of the banking industry.
Furthermore, the interbank borrowing rate also
increased as an indication of tighter liquidity in the
banking system. Declining liquid assets coupled
with the rising interbank rate were the result of
the banks scrambling to bridge the funding gap
that arose from a large outflow of funds from
the banking system during Eid-ul-Fitr, which
undermined deposit growth. The banks overcame
Source: Bank IndonesiaSource: Bank Indonesia
152 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Box Graph 4.1.4 Liquid Assets and Interbank Rates
H-31
H-30
H-29
H-28
H-27
H-26
H-25
H-24
H-23
H-22
H-21
H-20
H-19
H-18
H-17
H-16
H-15
H-14
H-13
H-12
H-11
H-10 H-
9
H-8
H-7
H-6
H-6
H-5
H-4 H-3
H-2
H -1
H+1
H+2
H+3
H+4
BUKU 1 Regional Banks (2016)
BUKU 4 State-Owned Banks (2016)
BUKU 3 State-Owned Banks (2016)
LA (rhs) BUKU 2 Regional Banks (2016)
BUKU 3 Private National Commercial Banks (2016)
BUKU 4 Private National Commercial Banks (2016)
BUKU 2 Foreign Banks (2016)
BUKU 3 Foreign Banks (2016)
BUKU 1 Private National Commercial Banks (2016)
BUKU 2 Private National Commercial Banks (2016)
BUKU 3 Regional Banks (2016)
6.2
4.7
4.7
4.7
5.7
5.7
5.7
4.2 4.2
4.2
5.2
5.2
5.2
%
Rp T
Downward Daily Trend of Liquid Assets Interbank
Rate
Weighted Interbank Rate in 2017
Weighted Average Interbank Rate in 2016
June JuliMei Juli
Eid-ul-Fitr
8.5
8
7.5
7
6.5
6
5.5
5
4.5
4
Overnight
Medium-Tenor Interbank Rates experienced Largest Increases
1 Month
2-4 Days
2 Months 3 Months >3 Months Weighted Average
H-31
H-30
H-29
H-28
H-27
H-26
H-25
H-24
H-23
H-22
H-21
H-20
H-19
H-18
H-17
H-16
H-15
H-14
H-13
H-12
H-11
H-10 H-
9
H-8
H-7
H-6
H-5
H-4 H-3
H-2
H -1
H+1
1 Week 2 Weeks
Eid-ul-Fitr
3 Weeks
Box Graph 4.1.5 Interbank Rate by Tenor
the funding gap by liquidating assets and through
interbank loans, while several banks turned to the
lending facility and term repo. In 2017, however,
the increase observed in the interbank rate was not
as severe nor as prolonged.
The interbank rate began to spike three days before
Eid-ul-Fitr (H-3) and peaked on H-1, affecting all
tenors, in particular medium tenors in line with
increasing demand. Furthermore, the higher
interbank rate impacted all bank groups, but
especially regional banks. The transient tightening
of liquidity at regional banks was exacerbated by
the postponement of salary dropping and General
Allocation Fund (DAU) payments for July until after
Eid-ul-Fitr. Banks successfully anticipated the delay
by stocking additional cash prior to Eid-ul-Fitr and
using the interbank money market to meet any
further cash shortfalls. The interbank rate quickly
returned to normal after Eid-ul-Fitr.
Source: Bank Indonesia
Source: Bank Indonesia
153BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
25
10
20
5
15
0
H-31
H-30
H-29
H-28
H-27
H-26
H-25
H-24
H-23
H-22
H-21
H-20
H-19
H-18
H-17
H-16
H-15
H-14
H-13
H-12
H-11
H-10 H-
9H-
8H-
7H-
6H-
5H-
4H-
3H-
2H-
1H+
1
Rp T
Overnight
1 Month
2-4 Days
2 Months 3 Months >3 Months
1 Week 2 Weeks 3 Weeks
Eid-ul-Fitr
Box Graph 4.1.6 Interbank Money Market Transaction Volume
35
25
-5
15
-15
5
Rp T
-25
H-31
H-30
H-29
H-28
H-27
H-26
H-25
H-24
H-23
H-22
H-21
H-20
H-19
H-18
H-17
H-16
H-15
H-14
H-13
H-12
H-11
H-10 H-
9H-
8H-
7H-
6H-
5H-
4H-
3H-
2H-
1H+
1
BUKU 1 Regional Banks
BPD-BUKU 1 BPD-BUKU 2
BUKU 2 Regional Banks
BPD-BUKU 3
BUKU 3 Regional Banks
BUMN-BUKU 3
BUKU 3 State-Owned Banks
BUMN-BUKU 4
BUKU 3 Private National Commercial Banks
BUSN-BUKU 3 BUSN-BUKU 4 KCBA-BUKU 2
BUKU 1 Private National Commercial Banks
KCBA-BUKU 3
BUSN-BUKU 1
Eid-ul-Fitr
Box Graph 4.1.7 Net Interbank Money Market by Bank Type
BUKU 4 State-Owned Banks
BUKU 4 Private National Commercial Banks
BUKU 2 Foreign Banks BUKU 3 Foreign Banks
In addition to the interbank rate spike, interbank
money market transaction volume also experienced
a shift. Volume shifted to the medium tenors,
primarily 2-week tenors. In contrast, O/N volume
tended to decline, commencing three days before
Eid-ul-Fitr. Regional and small private national
commercial banks, which had been net placing
banks prior to Eid-ul-Fitr, become net taking banks.
Relatively more resilient liquidity dynamics in the
banking industry in 2017, despite seasonally tighter
liquidity during Eid-ul-Fitr, was due to the high
level of liquid assets maintained by the banking
sector compared to previous periods (in pursuance
of the 80% Liquidity Coverage Ratio enforced by
the Financial Services Authority (OJK) in the second
semester of 2017) combined with Bank Indonesia’s
response to tighter conditions in the money markets
by offering term repo.
Source: Bank Indonesia
Source: Bank Indonesia
154 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Box 4.2. Correlation Analysis of Bank Deposits with Expansion of the Government’s Expenditure Budget in East Java
A priori, a relationship is often suggested between
deposits accumulated in the banking industry and
financial expansion by the government because the
banks play a role in the transmission of government
budget receipts and expenses. The position of
deposits, as demand deposits, term deposits
and savings deposits, correlates with trends of
government receipts and expenditures. When the
government spends money from the state coffers, it
is expected to influence the composition of demand,
term and savings deposits in the banking industry
due to the associated interactions with project
executors and the beneficiaries of government fund
disbursements.
Theoretically, the correlation is inextricably linked to
the macroeconomic concept that national savings
represent part of the Gross Domestic Product (GDP),
which is calculated using an expenditure approach.
In this regard, national savings are the total economic
income of a country after government consumption
and expenditure are deducted. Furthermore,
national savings consist of government deposits and
private deposits. Government savings constitute the
difference between state revenues and expenditure,
while private savings include corporate profits not
paid as dividends to the shareholders and household
savings as unspent household income.
Various studies have reviewed the correlation
and influence of government spending on
macroeconomic variables, including Barro (1987),
who revealed how government spending, interest
rates, inflation and budget deficits are correlated.14
14 Barro, Robert, J, Government Spending, Interest Rates, Prices and Budget Deficits in the United Kingdom, 1701-1918, Journal of Monetary Economics No. 20 (1978), 221-247, North-Holland.
Government spending influences the economy
through various channels, including the impact on
interest rates, output, consumption and investment.
Furthermore, government spending also has a
direct impact on prices and an indirect impact
through changes in monetary aggregates, while
also influencing the current account and budget
deficit.
This brief article does not intend to review the
impact of expansive local government spending
on the economy but attempts to observe the
correlation between changes in bank deposit
composition and local government spending. A
simple correlation method was used for the case
of East Java. Expansive government spending in
East Java (the province, all regencies and cities,
as well as the regional administration of East
Java) was shown to correlate with bank deposits.
Nominally, the local government budget in East
Java is not considered large in comparison to the
corresponding Regional Gross Domestic Product
(RGDP), accounting for around 8-9%. Therefore,
the local government of East Java is required to
allocate part of its expenditure budget to projects
and activities that stimulate value added in the
region, as reflected by changes in bank deposits,
particularly savings deposits.
Government Expenditure Budget Realisation
in East Java
Expansion of the government expenditure budget
in East Java, which originates from the provincial
budget, the budgets of the 38 regencies/cities
155BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Rp 22.50 T17%
East Java Provincial Budget
Box Graph 4.2.1 Average Regional Expenditure Budget Realisation 2014-2016
Regencies/Cities Budget
Budget in East Java
Rp 76.62 T56%
Rp 36.95 T27%
Source: Regional Asset and Finance Management Agency (BPKAD) and Regional Office of the Directorate General of the Treasury, East Java
and state budget disbursements for local projects,
has increased annually. Total realisation of the
expenditure budget in 2014 stood at Rp114.76
trillion, increasing in 2015 to Rp135.55 trillion and
Rp157.88 trillion in 2016, equivalent to growth of
18.12% (yoy) and 16.47% (yoy) respectively.
Based on the totals, expenditure budget realisation
for the 38 regencies/cities in East Java has remained
dominant, averaging Rp76.62 trillion per annum
(56%) for the period from 2014-2016, followed
by the provincial budget totalling Rp36.95 trillion
(27%) and state budget disbursements at Rp22.50
trillion (17%).
In terms of disbursement, all budgets follow the
same trend, increasing each quarter starting in
the first quarter and peaking in the fourth quarter.
During 2014-2016, average budget realisation in
the first quarter was 10.11%, with 19.31% in the
second, 26.98% in the third and 43.60% in the
fourth quarter of the total expenditure budget for
the current year.
Total government expenditure budget realisation
from 2014 to the first quarter of 2017 reached
Rp424.98 trillion, consisting of Rp71.52 trillion
from the provincial budget, Rp236.92 trillion
156 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Box Graph 4.2.2 Government Expenditure Budget Realisation in East Java 2014-2016 (quarterly)
50
45
40
35
30
25
20
15
10
5
0TW I2014
Provincial Budget Provincial BudgetLocal Government Deposits Local Government Deposits
TW I2015
TW I2016
TW II2014
TW II2015
TW II2016
TW III2014
TW III2015
TW III2016
TW IV2014
TW IV2015
TW IV2016
Box Table 4.2.1 Government Expenditure Budget Realisation in East Java (Rp, billions)
Source: Regional Asset and Finance Management Agency (BPKAD) and Regional Office of the Directorate General of the Treasury, East Java
Source: Regional Asset and Finance Management Agency (BPKAD) and Regional Office of the Directorate General of the Treasury, East Java
QuarterGOVERNMENT EXPENDITURE BUDGET REALISATION IN EAST JAVA
Provincial Budget Regency/City Budgets State Budget Total
Tw I 2014 3,325 5,726 3,605 12,566
Tw II 2014 3,452 10,779 6,875 21,106
Tw III 2014 4,241 18,344 8,882 31,467
Tw IV 2014 9,100 26,849 13,674 49,623
Tw I 2015 2,639 6,928 3,974 13,541
Tw II 2015 6,455 14,777 6,459 27,691
Tw III 2015 5,356 19,918 10,328 35,602
Tw IV 2015 8,503 33,175 17,041 58,720
Tw I 2016 2,879 7,983 3,974 14,836
Tw II 2016 3,330 20,401 6,459 30,190
Tw III 2016 8,746 20,877 13,400 43,023
Tw IV 2016 9,562 44,088 16,186 69,836
Tw I 2017 4,020 7,075 5,682 16,777
Total 71,517 236,920 116,539 424,976
from the budgets of 38 regencies/cities in East
Java and Rp116.54 trillion from the state budget.
The following table presents the realisation of the
provincial budget, budgets for the 38 regencies/
cities and state budget disbursements from the first
quarter of 2014 until the first quarter of 2017.
Bank Deposit Developments in East Java
Total bank deposits in East Java increased by an
average of Rp40.85 trillion per annum from 2014
– 2016, with a decelerating growth trend. The
deposits accumulated by the banking industry in
East Java at the end of 2014 totalled Rp389.53
trillion, increasing 14.31% on the position recorded
at the end of 2013. The total increased to Rp429.66
trillion at the end of 2015 and Rp463.29 trillion at
the end of 2016, with growth slowing from 10.30%
(yoy) to 7.83% (yoy) respectively.
From 2014 to the first quarter of 2017, the deposits
recorded in the banking industry of East Java
increased by Rp128.69 trillion. Term deposits were
the main contributor to the gains, rising Rp62.71
trillion, followed by savings deposits at Rp38.24
157BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Box Table 4.2.2 Increase (Decrease) of Bank Deposits in East Java (Rp, billions)
Source: Regional Asset and Finance Management Agency (BPKAD) and Regional Office of the Directorate General of the Treasury, East Java
Year Quarter Demand Deposits Savings Deposits Term Deposits Total
2014
I (1,114) (7,055) 5,479 (2,690)
II 8,218 2,883 7,322 18,422
III 1,714 5,866 13,352 20,931
IV (705) 9,506 3,313 12,114
2015
I 6,650 (9,199) 10,192 7,642
II 4,786 1,218 1,656 7,660
III 1,309 9,963 2,245 13,518
IV (5,126) 14,237 2,195 11,305
2016
I 5,412 (7,614) 3,487 1,286
II (1,885) 9,454 1,785 9,355
III 2,939 2,192 1,356 6,487
IV (2,446) 16,730 2,229 16,514
2017 I 7,989 (9,943) 8,097 6,143
Total 27,741 38,238 62,708 128,687
Box Graph 4.2.3 Bank Deposits in East Java
500,000450,000400,000350,000300,000
25,00020,00015,00010,000
5,000-
(5,000)(10,000)(15,000)
2014
I I I III II IIIII III IIIIV IV IV
2015 2016 2017
billion Rp
Demand Deposits Term DepositsSavings Deposits Total
Box Graph 4.2.4 Government Deposits in East Java
500,000
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
-TW I2014
TW IV2013
Total Deposits
billion Rp
Local Government DepositsGrowth of Total Deposits (yoy) Growth of Local Government Deposits (yoy)
TW I2015
TW I2016
TW II2014
TW II2015
TW II2016
TW III2014
TW III2015
TW III2016
TW IV2014
TW IV2015
TW IV2016
TW I2017
Source: Commercial Bank Reports, processed
trillion and demand deposits at Rp27.74 trillion.
Nevertheless, the upward trends of each respective
component differed by quarter, namely that savings
deposits were inversely correlated with demand
deposits, while term deposits were more stable and
fluctuated less in general.
A correlation analysis of deposits government
expenditure budget realisation and shifts in bank
deposits in East Java showed that budget realisation
tracked the same trend as savings deposits, namely
increasing from the first to fourth quarter each year,
as well as demand deposits, which decreased from
158 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Box Table 4.2.3 Correlation between Government Expenditure Budget Expansion and Bank Deposits in East Java
Source: Pearson Correlation Testing
APBN + APBD APBD APBD PROV APBD KAB KOTA
DepositsCorrelation 0.49 0.48 0.28 0.51
P Value 0.09 0.10 0.36 0.07
Demand DepositsCorrelation (1.) (1.) (1.) (1.)
P Value 0.01 0.01 0.06 0.01
Savings DepositsCorrelation 0.88 0.89 0.68 0.91
P Value 0.00 0.00 0.01 -
Term DepositsCorrelation (0.) (0.)
P Value 0.10 0.09 0.06 0.12
Box Graph 4.2.5 Composition of Government and Private Deposits
500,000450,000400,000350,000300,000250,000200,000150,000100,000
50,000-
Rp T
rillio
n
Composition of Government and Private Deposits
2011 2012 2013 2014 2015 2016
% of Private Deposits 68.48% 66.68% 72.38% 70.51% 75.96% 81.32%
Private Deposits 174.372 198.126 246.636 274.658 326.379 376.757
% of Government Deposits 31.52% 33.32% 27.62% 29.49% 24.04% 18.68%
Government Deposits 80.279 98.990 94.117 114.873 103.276 86.539
Source: Commercial Bank Reports, processed
the first to fourth quarter each year. The following
graph maps the rising and falling trends of each
component of deposits in East Java from the first
quarter of 2014 to the fourth quarter of 2017.
Local Government Deposits in the Banking
Industry of East Java
Local government deposits in the banking industry
of East Java have expanded by an average of 2.83%
(yoy) over the past five years, following a decelerating
trend. At the end of 2016, total local government
deposits stood at Rp86.54 trillion, consisting of
savings deposits (2.64%), term deposits (31.65%)
and demand deposits (65.71%). The total had
increased 7.80% on the Rp80.28 trillion position
recorded at the end of 2011, or by an average of
Rp1.25 trillion per annum.
Statistical Testing
The results of statistical testing showed that the
correlation between government expenditure
budget expansion and growth of total deposits in
East Java was not statistically significant. Spatially,
however, government expenditure budget
expansion correlated positively with savings deposits
and was inversely correlated with demand deposits.
159BANK INDONESIA
Financial Markets Households and Corporations
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Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Box Table 4.2.3 presents the results of Pearson
Correlation testing between government
expenditure budget expansion and the growth of
bank deposits in East Java from the first quarter
of 2014 to the first quarter of 2017. Based on
the testing, the following statistically significant
correlations were found:
1. The realisation of the local government
expenditure budget in East Java (provincial
budget, budgets of 38 regencies/cities and
state budget disbursements in East Java) with
increasing savings deposits and decreasing
demand deposits in the banking industry of East
Java.
2. The realisation of the local government
expenditure budget in East Java (provincial
budget and budgets of 38 regencies/cities)
with increasing savings deposits and decreasing
demand deposits in the banking industry of East
Java.
3. The realisation of the local government
expenditure budget in East Java with increasing
savings deposits in the banking industry of East
Java.
4. The realisation of the expenditure budgets of 38
regencies/cities with increasing savings deposits
and decreasing demand deposits in the banking
industry of East Java.
The results show empirical evidence of a significant
correlation between government expenditure
budget expansion and two components of bank
deposits, namely demand deposits and savings
deposits. A positive correlation was shown for
savings deposits and an inverse correlation for
demand deposits. In other words, government
expenditure budget expansion was consistent with
increasing savings deposits and decreasing demand
deposits in the banking industry of East Java.
Such dynamics are a result of the dominant
composition of government deposit in the banking
industry ranging from 18.68% to 33.22% in 2014-
2016. On the other hand, the results showed that
bank mindedness in East Java is already high, with
the government, entrepreneurs and public using
banking services, thus a shift in one component
would alter the composition of the other
components. In terms of deposits, the changes
sometimes only occur due to mutual offsetting,
primarily between demand deposits and savings
deposits.
Various apparatus is required during a puppet performance, including a banana stem and the puppets,
which are accompanied by a gamelan orchestra to create synergy and enhance the aesthetic value. In terms
of financial system stability, this signifies the financial system infrastructure. A stable financial system must
be underpinned by reliable infrastructure.
05
INFRASTRUKTURSISTEM KEUANGAN
05
During the first semester of 2017, the payment systems operated by Bank Indonesia
and the industry remained secure, efficient, available and reliable, thereby helping to
maintain monetary and financial system stability, while facilitating economic activities.
Such developments were corroborated by the positive performance of the main and
supporting indicators. Bank Indonesia continued to focus payment system policy
and efforts towards consistently enhancing economic efficiency as well as sustainably
strengthening and developing payment system infrastructure, thereby demonstrating
Bank Indonesia’s avowed commitment to support financial system and national economic
stability.
FINANCIAL SYSTEM INFRASTRUCTURE
05
FINANCIAL STABILITY REVIEWNo. 29, September 2017
162 BANK INDONESIA
THE PAYMENT SYSTEM, AS A COMPONENT OF FINANCIAL SYSTEM INFRASTRUCTURE,PLAYS A STRATEGIC ROLE IN SUPPORTING DOMESTIC ECONOMIC ACTIVITIES ANDFINANCIAL SYSTEM STABILITY.
Transaction value: upRp3,152.19 trillion
Transaction volume: up3,263.14 million transactions
Transaction value: upRp3,147.43 trillion
Transaction value: upRp 4.76 trillion
Transaction volume: up2,914.92 million transactions
Transaction volume: up348.22 million transactions
Card-Based Payment
Instruments (APMK)
E-Money
MO Placements down toRp12,094.26 trillion
Turnover Ratio down to1.04
Operational Risk Mitigation: • Business Continuity Plan (BCP) procedures, including the availability of backup systems, namely
infrastructure that is on continuous standby to fully replace the primary production system as required.
• Various measures were undertaken on the operator and participant sides, including antivirus updates and security patches as well as testing environment development and simulating transactions.
Bank Indonesia’s financial inclusion policy in 2017 focuses on expanding financial access through integration of the noncash ecosystemwith government services and programs, including: • Noncash Social Assistance disbursements • Digital Village Fund – Utilisation of the Noncash Village Fund• Toll Road Electronification
Transaction Queue: Low33 transactions worth Rp3,210.60 billion.0.0006% of total RTGS transaction value 0.0007% of total RTGS transaction volume
Risk Mitigation
Development of Digital Financial Services (DFS)
The payment systems operated by Bank Indonesia and the industry remained secure, available and efficient.
Payment System Indicators
Industry-Operated Payment System
The BI-Operated Payment System
Public access and adoption of financial services tended to increase nationally.
Transaction volume: up61.71 million transactions
Transaction value: upRp 84,391.70 trillion
BI-RTGS
BI-SSSS
National Clearing System (SKNBI)
Transaction value: upRp56,317.47 trillion
Transaction volume: down4.77 million transactions
Transaction value: upRp26,395.25 trillion
Transaction volume: down0.14 million transactions
Transaction value: downRp1,679.99 trillion
Transaction volume: up61.71 million transactions
Sem II 2016 Sem II 2016 Sem II 2016 Sem II 2016
Composite Financial Inclusion Index of Indonesia Transaction Value DFS Providers Agen LKD
Sem I 2017 Sem I 2017 Sem I 2017 Sem I 2017
0.41 13.49 billion 5 banks 133,811 agents 0.45 3.50 billion5 banks and 1
nonbank financial institution
160,524 agents
• Remittances• Electronification of Local Government Transactions
163BANK INDONESIA
The payment system is a component of financial
system infrastructure that plays a strategic role
in supporting domestic economic activities and
national financial system stability. Therefore,
Bank Indonesia is committed to issuing policy
that maintains a secure, efficient, available and
reliable payment system. Such conditions were
successfully met in the first semester of 2017, as
confirmed by payment system indicators. The
BI-operated payment system remained secure,
with the settlement risk contained and adequate
liquidity maintained during the reporting period.
Meanwhile, payment system reliability was
determined by system availability, which satisfied
the service level required. Furthermore, payment
system efficiency was enhanced through the
implementation of payment system infrastructure
that accelerated settlement for retail services
(National Clearing System - SKNBI) as well as the
introduction of liquidity-saving mechanisms for
high-value services (Bank Indonesia – Real Time
Gross Settlement (BI-RTGS) system and Bank
Indonesia – Scripless Securities Settlement System -
BI-SSSS). Such measures were bolstered by various
efforts to improve the operating performance of the
payment system, accompanied by risk mitigation.
This was achieved through policies and regulations,
infrastructure development as well as payment
system oversight. On par with the performance of
the payment system operated by Bank Indonesia,
the industry-operated payment system also
performed solidly, with no significant disruptions
reported in the settlement process combined with
an increase in transaction volume and value on the
previous period. Such developments were explained
5.1. Payment System Performance
by Bank Indonesia’s efforts to encourage and
promote the use of noncash payment instruments
in the national interest and to advance consumer
protection. Seeking to mitigate risk in the industry-
operated payment system, Bank Indonesia has
instituted payment system policies and regulations,
coordinated with institutions and the industry as
well as actively supervised the payment system.
As the payment system authority, Bank Indonesia
has promulgated regulations for the payment
systems operated by Bank Indonesia and the
industry. In the reporting period, Bank Indonesia
issued Bank Indonesia Circular Letter (SEBI) No.
18/42/DKSP concerning Nonbank Money Changers
as regulatory guidelines for Bank Indonesia
Regulation (PBI) No. 18/20/PBI/2016 on Nonbank
Money Changers, which was released to ensure
healthy and efficient nonbank money changers that
apply good governance principles.
In total, the payment system and securities
transaction systems operated by Bank Indonesia,
including the BI-RTGS system, BI-SSSS, National
Clearing System (SKNBI), and the industry-operated
retail payment system (card-based payment
instruments and e-money) accounted for 3,330,16
million transactions worth Rp87,466.17 trillion in
the first semester of 2017.
5.1.1. Payment System Operated by Bank
Indonesia
In the first semester of 2017, the payment system
operated by Bank Indonesia (high-value and retail
transactions) served 66.62 million transactions, up
2.88% on the 64.75 million in the previous semester.
Meanwhile, transaction value in the reporting
period totalled Rp84,391.70 trillion, increasing
Financial Markets Households and Corporations
The Financial System Stability Condition
Responds of Bank Indonesia’s Policy
Financial System InfrastructureBanking and IKNB
164 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
4.34% on the Rp80,877.87 trillion registered in the
same period one year prior. Solid payment system
performance was backed up by reliability and
availability in line with the service levels set, thereby
accommodating an increase in transaction volume
in terms of the high-value payment system (BI-
RTGS), securities settlement (BI-SSSS) and the retail-
value payment system (SKNBI). Service availability
achieved 100% of the 99.97% target in the
reporting period, denoting the availability, security
and reliability of the payment system, without any
significant disruptions or incidences in the critical
applications.
5.1.2. Industry Operated Payment System
In terms of the industry-operated payment system,
the number of instruments available as well as
the use of noncash payment instruments have
flourished, as indicated by the growing use of
card-based payment instruments and e-money on
the back of Bank Indonesia’s policies to stimulate
the use of noncash instruments. In addition, Bank
Indonesia has also coordinated with other payment
system providers to balance the infrastructure and
expand the instruments available. In the first half
of 2017, the industry-operated payment system
settled 3,263.14 million transactions with a value of
Rp3,152.19 trillion, representing a 9.45% increase
on the previous year.
In order to regulate and maintain payment system
availability, Bank Indonesia is also authorised to
supervise all licensed and approved payment
system operators as issuers of card-based payment
instruments and e-money. Oversight is conducted
through offsite supervision and onsite inspections. In
general, the scope of inspections includes regulatory
compliance, the implementation of specific
procedures, including Anti-Money Laundering and
Counter-Terrorism Financing (AML/CTF) as well as
internal control.
Table 5.1 BI-RTGS, BI-SSSS and SKNBI Performance
Bank Indonesia Noncash Payment System
Value Volume
Sem I 2016 Sem I 2017Δ (%)
Sem I 2016 Sem I 2017Δ (%)
(Rp, trillions) (Rp, trillions) (Transactions, millions) (Transactions, millions)
BI-RTGS 53,857.29 56,317.47 4.57% 2.96 4.77 61.26%
BI-SSSS 24,710.88 26,395.25 6.82% 0.15 0.14 -6.75%
SKNBI 2,309.69 1,678.99 -27.31% 61.64 61.71 0.10%
TOTAL 80,877.87 84,391.70 4.34% 64.75 66.62 2.88%
Source: Bank Indonesia
165BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Table 5.2 Card-Based Payment Instruments and Electronic Money Transactions
Value Volume
Sem I 2016 Sem I 2017Δ (%)yoy
Sem I 2016 Sem I 2017Δ (%)yoy
(Rp, trillions) (Rp, trillions) (Transactions, millions) (Transactions, millions)
Card-based Payment Instruments 2,876.75 3,147.43 9.41% 2,682.23 2,914.92 8.67%
ATM/debit cards 2,737.06 3,001.68 9.67% 2,533.02 2,752.56 8.67%
Credit Cards 139.70 145.75 4.33% 149.22 162.35 8.80%
Electronic Money 3.18 4.76 49.68% 308.10 348.22 -13.02%
TOTAL 2,879.92 3,152.19 9.45 2,990.33 3,263.14 11.36%
Financial transactions settled through the payment
system operated by Bank Indonesia increased in
the first half of 2017 in terms of value and volume.
Transactional developments through the BI-RTGS,
BI-SSSS and SKNBI are presented in Table 5.1.
Payment transaction settlement through the
Bank Indonesia – Real Time Gross Settlement (BI-
RTGS) system encompass monetary operations,
government transactions, transactions on behalf
of a customer, capital market and interbank money
market transactions, as well as interbank foreign
exchange transactions in rupiah, foreign exchange
transactions in rupiah between a bank and Bank
Indonesia and other transactions.
In the first semester of 2017, BI-RTGS transaction
value and volume increased on the same period
in the previous year (yoy). Nominally, transaction
value climbed 4.57% from Rp53,857.29 trillion to
5.2. Payment System Transactions
Rp56,317.47 trillion. On the other hand, transaction
volume soared 61.26% from 2.96 million to 4.77
million transactions.
Transactions between bank customers were the
main driver of the increase in transaction value and
volume settled through the RTGS system, with the
value increasing 16.60% or Rp1,633.07 trillion on
the Rp9,835.42 trillion recorded in same period one
year earlier and the volume soaring 91.98% or 1.87
million transactions on the 2.03 million registered in
the prior year1.
Payment system transactions through the Bank
Indonesia – Scripless Securities Settlement System
(BI-SSSS) also tracked an upward trend on the same
period one year earlier in terms of value despite
a decline in volume. BI-SSSS transaction volume
increased 6.82% from Rp24,710.88 trillion to
Rp26,395.25 trillion in the reporting period. On the
other hand, BI-SSSS transaction volume decreased
6.75% from 149.37 thousand transactions to
139.28 thousand over the same period.
Source: Bank Indonesia
1 The significant bump in BI-RTGS transaction volume, in terms of the total and between customers, compared to the same period one year earlier was the result of policy to lower the floor of RTGS
transactions from Rp500 million per transaction (since November 2015) to Rp100 million (since July 2016) in line with policies enforced post-implementation of the Second-Generation BI-RTGS
system. Compared to conditions in the second semester of 2016 (same flooring), with a total transaction volume of 4.70 million and transactions between customers standing at 3.78 million,
RTGS transaction volume increased in the first semester of 2017 by 1.49% and 2.98% respectively.
166 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
In terms of retail transaction services, transaction
activity through the National Clearing System (SKNBI)
in the first half of the year decreased in value but
increased in volume compared to conditions in the
same period one year earlier. Clearing transaction
value declined 27.31% from Rp2,309.69 trillion
to Rp1,678.99 trillion despite a 0.10% bump in
transaction volume, increasing from 61.64 million
to 61.71 million transactions, which was driven
primarily by credit clearing transactions between
clearing participants on behalf of their customers.
In contrast, debit clearing transactions experienced
declines in terms of value and volume, decreasing
by 24.65% and 22.58% respectively on the same
period in 2016.
Concerning the industry-operated payment system,
card-based payment instruments, namely ATM/
debit cards and credit cards, performed well on
stronger public consumption in the reporting period.
Nominally, card-based payment transactions posted
9.41% (yoy) gains to total Rp3,147.43 trillion,
while the volume grew 8.67% (yoy) to 2,914.92
million transactions in the first semester of 2017.
ATM/debit cards were the main contributor to
card-based payment growth, with the transaction
value and volume increasing by 9.67% (yoy) and
8.67% (yoy) respectively, while credit cards achieved
corresponding growth of 4.33% (yoy) and 8.80%
(yoy).
The growth of card-based payment instruments
was further bolstered by e-money, amounting to
Rp4.76 trillion in the first semester of 2017, with
transaction value and volume growing by 49.68%
(yoy) and 13.02% (yoy) respectively.
The uptake of card-based payment instruments
and e-money has remained in line with various
strategic payment system initiates, including the
electronification of noncash Social Assistance
disbursements, on-target energy subsidy
disbursements, noncash Village Fund disbursements,
as well as the electronification of public transport
systems in Jabodetabek along with vast sections of
toll road, in order to enhance economic efficiency.
Payment system policy is oriented towards
supporting the smooth and effective transmission
of monetary policy through efforts to ensure system
availability, while maintaining a high service level in
the Bank Indonesia Payment System (BIPS).
Striving towards greater national economic efficiency,
Bank Indonesia has issued policies to accelerate the
uptake of noncash transactions for public transportation
and toll roads in the Jabodetabek area in conjunction
with the Ministry of Public Works and Housing (PUPR).
A Memorandum of Understanding (MoU) concerning
coordination in the execution of duties at Bank Indonesia
and the Ministry of Public Works and Housing was
signed by Governor of Bank Indonesia, Agus D.W.
Martowardojo, and Minister of Public Works and
Housing, Basuki Hadimuljono, on Wednesday, 31st May
2017 to accommodate the coordinated electronification
of toll roads and implementation of the Multi-Lane
Free Flow (MLFF). The agreement represents a follow-
up measure to the Minimum Service Standards for
Indonesian toll roads pursuant to Ministerial Decree No.
16/PRT/M/2014, issued by the Minister of Public Works,
and was also signed to accelerate the uptake of e-money
towards the realisation of MLFF toll roads. Furthermore,
the electronification program is also expected to enhance
the toll road experience through greater transaction
convenience, shorter transaction times and reductions to
queueing times.
167BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
5.3.1. MO Placements
MO placements are rupiah placements in the deposit
facility provided by Bank Indonesia under the
auspices of monetary operations. MO placements
are indicative of excess rupiah funds in the banking
system. Total MO placements by the banking
industry monitored through the BI-RTGS system
in the first half of 2017 fell 6% from Rp12,855.91
trillion to Rp12,094.26 trillion, reflecting tighter (but
normal) liquidity conditions in the banking industry.
5.3.2. Turnover Ratio – Excluding MO
Placements (TOR x MO)2
In the first semester of 2017, the value of TOR x MO
stood at 1.04, down 5% on the 1.10 recorded in
the second semester of 2016. The decline stemmed
5.3. Payment System Indicators
Graph 5.1 MO Placements
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
Trill
ion
Rp
Jan
Mar
May Ju
l
Sep
Nov Jan
Mar
May Ju
l
Sep
Nov Jan
Mar
May Ju
l
Sep
Nov Jan
Mar
May Ju
l
Sep
Nov Jan
Mar
May Ju
l
Sep
Nov Jan
Mar
May Ju
l
Sep
Nov Jan
Mar
May Ju
l
Sep
Nov Jan
Mar
May
2010 2011 2012 2013 2014 2015 2016 2017
Source: Bank Indonesia
from a decrease in banking industry transactions
after posting an increase in the prior period due to
the successful Tax Amnesty.
5.3.3. Queue Transaction3
In the first semester of 2017, a total of 33 transactions
were queued worth Rp3,210.60 billion. In terms of
volume, the queued transactions were equivalent to
0.0007% of total RTGS transactions or accounting
for just 0.0006% in terms of total RTGS transaction
value. Most queued transactions originated from
foreign banks, with a 63.23% share. The low
level of queued transactions demonstrates how
successfully liquidity risk was mitigated in the BI-
RTGS system. Additionally, all queued transactions
were subsequently settled on the same day. A
summary of queued transactions is presented in
Table 5.3.
2 TOR x MO is a comparison between outgoing transactions (excluding outgoing MO transactions) and the respective BI-RTGS participant’s opening balance. TOR x MO is used as a measure of
the participant’s relative ability to meet its payment system obligations. A value of > 1.00 indicates that the respective participant cannot meet its obligations using the opening balance alone
but would also require incoming transfers from another participant.3 Queued transactions are those that are 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.
168 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Table 5.3 Queue Transaction
Month Frequency of Queued Transactions
Average Queue Time (minutes) Total Queued Funds (Rp)
Jan-17 2 20 menit 550,037,260,274
Feb-17 1 11 menit 93,231,637,066
Mar-17 6 17 menit 564,369,080,000
Apr-17 11 18 menit 496,039,499,946
May-17 5 32 menit 543,406,728,574
Jun-17 8 56 menit 963,519,220,735
Source: Bank Indonesia
Graph 5.2 Turnover Ratio x Monetary Operations
5.00
4.00
3.00
2.00
1.00
0.00
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
5.4.1. Settlement Risk4
Settlement risk was relatively well contained in the
first semester of 2017, as conveyed by the small
value and volume of unsettled transactions during
the window time of the BI-RTGS system.
In the reporting period, the total value of unsettled
transactions in the BI-RTGS system stood at
Rp4,180.22 billion, representing just 0.0074%
of the total. Likewise, only 65 RTGS transactions
were not settled, accounting for 0.0013% of the
7,657,448 total.
5.4. Payment System Risks and Mitigation Efforts
5.4.2. Liquidity Risk5
Liquidity risk in the payment system was also
well mitigated during the first semester of 2017.
Accordingly, Bank Indonesia received no requests
for the Intraday Liquidity Facility (ILF) or the Sharia
Intraday Liquidity Facility (SILF), which are funding
facilities provided by Bank Indonesia to participating
banks in the form of a securities repurchase
agreement. The Intraday Liquidity Facility is
available to participating banks upon approval
from Bank Indonesia and is provided automatically
when the account balance of a participating bank
is insufficient to execute its outgoing transactions.
The ILF is subsequently settled automatically upon
receipt of incoming transactions.
4 From a participant’s perspective, settlement risk could emerge due to late and failure-to-settle payment transactions while waiting for incoming transfers from other participants. From
the operator’s perspective, however, settlement risk is not considered possible because RTGS participants apply the no money-no game principles, where settlement transactions are only
processed if sufficient funds are available.5 Liquidity risk occurs in the payment system when an RTGS participant has insufficient funds to meet its obligations on time despite potentially fulfilling those liabilities in the subsequent
window time.
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Indonesia’s Policy
6 Operational risks originate from operating factors, including system and network issues.7 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 propagate through
contagion or shocks that simultaneously affect several large institutions (De Bandt and Hartmann, 2000, and Zebua, 2010, in the Monetary and Economic Bulletin, October 2013).
The lack of ILF/SILF requests from noncash
payment system participants received by Bank
Indonesia demonstrated that no participating
banks experienced a short-term funding shortfall in
the first semester of 2017 caused by a mismatch
between the incoming and outgoing transactions.
5.4.3. Operational Risk6
Under the auspices of operational risk management,
Bank Indonesia periodically checks the preparedness
of BI-RTGS, BI-SSSS and SKNBI infrastructure.
Furthermore, Bank Indonesia has a Business
Continuity Plan (BCP) in place to mitigate the
operational risk, which includes providing a backup
system that is on continuous standby to fully replace
the primary production system as required.
In the first semester of 2017, adjustments were
made to the backup systems of BI-RTGS, BI-SSSS
and SKNBI at the Disaster Recovery Centre (DRC).
Congruent with second-generation BI-RTGS, BI-
SSSS and SKNBI implementation, testing and partial
trials of the backup systems were conducted twice
in the reporting period, in March and May 2017.
Moreover, the infrastructural preparedness of the
Backup Front Office (BFO) was also tested in May
2017, while the Information Technology Recovery
Plan (ITRP) underwent testing in March, April and
August 2017.
Anticipating and mitigating the threat of malicious
software (malware), particularly ransomware, in
the BI-RTGS, BI-SSSS, BI-ETP and SKNBI systems,
a number of measures were taken during the
reporting period on the operator and participant
sides, including updating to the latest versions of
the antivirus software along with installing Windows
Table 5.4 Core Banks in the BI-RTGS System
Bank # of Counterparties Value (Rp)
Private National Commercial Bank
40 182,851,844,486,495
Regional Bank 47 83,549,500,000,000
State-Owned Bank 49 73,182,956,733,333
Regional Bank 42 61,607,000,000,000
Foreign Bank 22 49,684,000,000,000
Regional Bank 39 47,613,000,000,000
State-Owned Bank 49 45,477,839,355,723
Private National Commercial Bank
36 42,408,000,000,000
Regional Bank 24 42,005,000,000,000
Private National Commercial Bank
41 41,629,000,000,000
security patches, while also testing the environment
development and simulating transactions, which
began in May 2017.
5.4.4. Systemic Risk7
Systemic risk is the risk of default at one or more
banks due to systemic events. In the financial
system, systemic risk can be measured by the
interconnectedness of RTGS participants and
observed from the number of counterparties to
each respective participating bank. A larger number
of counterparties implies greater risk. During the
first half of 2017, a total of 10 core banks of the
interbank money market were monitored in the BI-
RTGS system as presented in Table 5.4.
If a systemically important bank (SIB) were to default
on settlement, the impact could affect settlement
at other interconnected banks and, thus, potentially
disrupt financial system stability. Addressing that
issue, Bank Indonesia constantly monitors any
entities with a high level of interconnectedness
as part of the central bank’s efforts to maintain
financial system stability.
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FINANCIAL STABILITY REVIEWNo. 29, September 2017
8 The Sarma method uses three dimensions of financial inclusion as follows:
i. Availability, which is represented by two variables, namely total bank branches as well as total ATMs that are combined with the total number of DFS agents. The two variables are divided
per 100,000 adults and 1,000km2 (based on a review considering the area of Indonesia, the area was adjusted from 1 to 100km2, thus becoming 1,000m2);
ii. Penetration, which is measured using total number of accounts per 1,000 residents. The total is represented by total credit value and total deposit value;
iii. Utilisation, which is measured using the ratio of total credit value to total Gross Domestic Product (GDP) at prevailing prices and the ratio of total deposit value to total Gross Domestic
Product (GDP) at prevailing prices.
The Sarma (2012) method uses an index value of between 0 and 1. The index is divided into three categories, namely 0-0.3 (low), 0.3-0.6 (medium) and 0.6-1 (high). Therefore, a higher
financial inclusion index (approaching 1) indicates a higher level of financial inclusion (complete financial inclusion) in the corresponding country.
5.5.1. Indonesia Financial Inclusion
Composite Index (IKKI)
One benchmark of financial inclusion is the
Financial Inclusion Index, which is calculated using
several methods that vary from country to country
and influenced by geographical factors, public
awareness and regional infrastructure availability.
When calculating the Financial Inclusion Index,
Bank Indonesia applies the Sarma method8.
Using the Sarma (2012) method, the Financial
Inclusion Index for Indonesia in June 2017 was
considered medium, namely 0.45 or 45% (Graph
5.3), rising 9.78% on the position recorded in
5.5. Financial Inclusion and Digital Financial Services
0.500
0.450
0.400
0.350
0.300
0.250
0.200
Jan
Feb
Mar Ap
r
May Jun Jul
Aug
Sep
Oct
Nov De
c
Jan
Feb
Mar Ap
r
May Jun Jul
Aug
Sep
Oct
Nov De
c
Jan
Feb
Mar Ap
r
May Jun Jul
Aug
Sep
Oct
Nov De
c
Jan
Feb
Mar Ap
r
May Jun
2014
(Index Value)
2015 2016 2017
Graph 5.3 Indonesia Financial Inclusion Composite Index (IKKI)
Source: Financial Inclusion and Electronification Data, Semester II – 2016
December 2016, indicating that public access
and uptake of financial services in Indonesia
has historically tracked an upward trend despite
remaining in the medium bracket.
The index gains have stemmed from greater
financial access afforded by financial institutions,
by expanding the range of financial services
available to the public that facilitate financial
transactions. This has primarily been achieved
by increasing the number and distribution of
DFS agents that provide public access to formal
financial services. In addition, the increase has
also been facilitated by ongoing socialisation and
education activities provided by Bank Indonesia
in conjunction with the banking industry as
well as the relevant government ministries and
institutions.
171BANK INDONESIA
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5.5.2. Digital Financial Services (DFS)
The spread of digital financial services (DFS) in Indonesia
has accelerated on the back of an increasing number
of DFS bank providers, DFS agents, DFS customers
and e-money transactions at DFS agents.
i. DFS Providers. Bank Indonesia has licensed
five DFS bank providers, namely BRI, Bank
Mandiri, BNI, CIMB NIAGA and BCA as well as
one nonbank institution, namely PT Telkomsel.
Based on coverage area, BRI enjoys the greatest
distribution of DFS agents, covering 469
regencies/cities, followed by Bank Mandiri
that provides DFS agents in 451 regencies/
cities. In contrast, CIMB Niaga has DFS agents
in three regencies/cities and BCA is currently
concentrating on Jakarta.
ii. DFS Agents. The number of DFS agents soared
19.96% at the end of the first semester of 2017,
increasing from 133,811 in December 2016 to
160,524 in June 2017. The total in June 2017
Figure 5.1 DFS Agents in Indonesia
14 Digital Finance Service Agents in 3 Regencies/ Cities
2 Agents of Digital Finance Service in 1 Regencies/ Cities
53,325 Digital Finance Service Agents in 451 Regencies/ Cities
Source: Bank Indonesia, June 2017, processed
107,183 Digital Finance Service Agents in 469 Regencies/ Cities
consisted of 145,927 Individual Agents and
14,597 business agents. Individual agents include,
small grocery shops/stalls, telephone credit sellers,
pharmacies, restaurants and payment point online
bank (PPOB), while business agents are comprised of
retailers, businesses, pawn brokers and cooperatives.
iii. Transactions at DFS Agents. In the first semester
of 2017, person-to-account transfers from e-money
accounts to non-e-money accounts dominated
customer transactions at DFS agents, accounting
for 36%, followed closely by cash withdrawals at
35%. The number of e-money accounts opened by
the public at DFS agents has followed an upward
trend, reaching 1,242,145 account holders with a
total value of Rp30 billion and 286,077 e-money
transactions in the first half of 2017. To further
promote the uptake of e-money and expand the
other transactions processed through DFS agents,
various public socialisation and education efforts
have continued.
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FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 5.5 Percentage of E-Money Transactions at DFS Agents
Person-to-Account Transfer
Initial
Top Up
Cash Withdrawal
Payment
Person-to-Person Transfer
Jun-17 1,242,145
May-17 1,242,308
Apr-17 1,242,494
Mar-17 1,242,811
Feb-17 1,243,565
Jun-17 1,241,571
Dec-16 1,244,102
Nov-16 1,240,849
Oct-16 1,238,128
Sep-16 1,235,169
Aug-16 1,231,729
Jul-16 1,227,684
Jun-16 1,226,126
Graph 5.6 E-Money Account Holders at DFS Agents (millions)
Graph 5.4 Total DFS Agents in 2017
165,000(Agents)
160,000
155,000
150,000
145,000
140,000
135,000
130,000
Jan Feb Mar Apr May Jun
Period 2017 Individual Agents Business Agents
Jan 125,679 15,064
Feb 131,117 14,933
Mar 135,377 14,491
Apr 139,452 14,302
May 142,339 14,312
Jun 145,927 14,597
Table 5.5 Total Individual and Business DFS Agents in 2017
Source: Bank Indonesia, June 2017, processed
Source: Bank Indonesia, June 2017, processed
5.5.3. Financial Inclusion and Electronification
As part of Bank Indonesia’s commitment to support
the National Financial Inclusion Strategy and the
National Noncash Movement (GNNT) to promote
greater use of noncash payment instruments
towards a less cash society, Bank Indonesia has
designed and rolled out various non-cash programs
and initiatives. The noncash movement aims to
upgrade all payment methods from physical to
digital, which is expected to precipitate numerous
benefits as follows: (i) more practical transactions;
(ii) broader public access; (iii) more transparent
transactions; (iv) reducing the costs of rupiah
currency management and cash handling; (v)
creating less economic friction, namely to reduce
spikes in the circulation of currency that increase
36%
35%3%
5%
5%
16%
money supply and, therefore, edge up inflation; (vi)
more accurate economic planning through more
complete and comprehensive transaction record
keeping; and (vii) enhancing good governance
because all data is recorded and stored.
Bank Indonesia always promotes and participates
in efforts to increase noncash transactions in order
to expand financial access as well as enhance
the efficiency, effectiveness and accountability of
financial management by the government, business
community and public in general. Various noncash
movement programs have been implemented
or are under development by Bank Indonesia in
conjunction with the relevant government ministries
or institutions as follows:
15.47%
173BANK INDONESIA
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Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
a. Electronification of social assistance
disbursements, namely to change the
disbursement method for social assistance
payments from cash to noncash (electronic)
means through the bank agent system, thereby
expanding financial access. Bank Indonesia
constantly seeks to increase noncash social
assistance disbursements through the Family
Hope Program and Noncash Food Assistance
Program by the Ministry of Social Affairs
through the Association of State-Owned
Banks (Himbara). The noncash social assistance
programs use family welfare cards, currently
available in 44 regencies/cities for the Noncash
Food Assistance Program and 68 regencies/cities
for the Family Hope Program. Furthermore,
noncash social assistance disbursements are
accompanied by financial education and
monitoring activities involving 28 regional Bank
Indonesia representative offices. The Noncash
Food Assistance Program was transformed from
the erstwhile Rice for The Poor program, which
previously offered assistance in the form of rice
but now provides money for groceries. The
program was launched by the President of the
Republic of Indonesia on 23rd February 2017.
Although not perfect, efforts to transform
social assistance disbursements have borne
significant successes. In the second semester of
2016, social assistance disbursements through
the Family Hope Program reached 1.2 million
families, which then increased significantly to
around 6 million families in the first semester
of 2017, representing nearly 100% of all
program beneficiaries. Regarding the Noncash
Food Assistance Program, 1.2 million low-
income families received disbursements at the
beginning of 2017, accounting for 7.7% of all
Rastra beneficiaries. Both programs, however,
shall be extended to 10 million families.
Meanwhile, social assistance in the form of the
Smart Indonesia Program has been disbursed
since 2016 to 100% of students. Furthermore,
Bank Indonesia, along with the Ministry of
Education and Culture, has disbursed School
Operational Assistance (BOS) in eight pilot
regions, namely Palembang, Bogor, Bandung,
Surabaya, Semarang, Samarinda, Makassar and
Mataram.
b. Various programs to expand the electronification
of payment and receipt transactions have also
been rolled out in conjunction with relevant
government ministries and institutions,
including the following:
1) Village Fund Electronification
Electronification of the Village Fund was
pioneered by Bank Indonesia through trials
and pilot projects in Sindangjawa village,
Cirebon, commencing in May 2016. The
pilot project applied the Cash Management
System (CMS), which is an internet banking-
based application for account-to-account
transfers. The CMS application was used
during the trials to support noncash
payments related to village development and
public empowerment, including the purchase
of materials, teacher honoraria, training,
foreman wages and operational spending
(office stationary, food and beverages for
meetings).
Monitoring of the pilot project showed
that electronification increased village fund
budget management transparency at the
local government level. Considering the
174 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
overwhelmingly positive response from the
Village Administration and lack of significant
constraints using the CMS application, Bank
Indonesia plans to expand the noncash village
fund pilot project to other areas. In addition,
Bank Indonesia has also developed various
business models for villagers in conjunction
with the Ministry of Villages, Underdeveloped
Regions and Transmigration, which will
stimulate expansion of the noncash
ecosystem in rural areas. To that end, Bank
Indonesia is coordinating with the relevant
government ministries and institutions,
including the Ministry of Home Affairs,
Ministry of Finance as well as the Ministry
of Villages, Underdeveloped Regions and
Transmigration.
2) Toll Road Electronification
In April 2016, the President of the Republic
of Indonesia insisted that queues at toll gates
must become a thing of the past through more
efficient toll road payment transactions. All
transactions must, therefore, be processed using
sensory technology that is connected directly
to a respective bank account. Acting upon
this directive, Bank Indonesia, as the payment
system authority, in conjunction with the
Ministry of Public Works and Housing (PUPR),
as the toll road authority, agreed to the gradual
electronification of the toll roads pursuant
to a Memorandum of Understanding (MoU)
signed on 31st May 2017. The implementation
phases are as follows: (i) electronification of
the toll roads, namely the use of e-money
on 100% of the toll roads by October 2017;
(ii) integrated tariffs and toll gates, namely by
eliminating superfluous toll gates under the
management of different operators, thereby
only tapping once upon exit of the toll road;
(iii) toll road integration with the Electronic
Toll Collection (ETC) consortium, which would
integrate a multi-issuer payment system; and
(iv) implementation of the multi-lane free flow
system, namely contactless payments with or
without barrier gates by the end of 2018.
To achieve the target of 100% toll road
electronification by October 2017, various
relevant parties, including Bank Indonesia,
the Toll Road Regulatory Agency (BPJT),
Toll Road Operators (BUJT) and the banking
industry, initiated a noncash socialisation and
education campaign in May 2017 through
different communication media and along
the existing toll roads. The strategic measures
successfully spurred a significant increase in
the share of noncash transactions recorded
on the toll roads, increasing from 16.4% in
January 2016 to 28% in June 2017 and 30%
in July 2018.
During Eid-ul-Fitr, Bank Indonesia, the Toll
Road Regulatory Agency (BPJT), Toll Road
Operators (BUJT) and the banking industry
integrated the socialisation campaign locally
and nationally, which further boosted the
penetration of noncash transactions on toll
roads in Jabodetabek to 33% in June 2017,
indicating growing public awareness of the
benefits of noncash transactions on the toll
roads, in particular using e-money.
175BANK INDONESIA
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Indonesia’s Policy
3) Remittances
Seeking to improve the welfare of
Indonesian migrant workers (TKI) and
their families, primarily through efforts to
enhance the efficiency and effectiveness
of the remittance mechanism, Bank
Indonesia has simultaneously developed
remittance business models and a digital
financial services (DFS) ecosystem for the
community of beneficiaries of remittance
payments. Bank Indonesia is trying to
change the previous remittance system
from Indonesian migrant workers, who
sent as cash to cash, towards a cash-to-
account system. Thus far, Bank Indonesia
has developed five business models as
follows: (i) mobile phone to mobile phone;
(ii) agent to agent; (iii) ATM deposits; (iv)
host to host; and (v) post office to post
office. Meanwhile, for the beneficiaries of
remittance payments, namely the families
of Indonesian migrant workers (TKI),
Bank Indonesia has developed remittance
receipts in the form of e-money through
DFS agents. To test the newly developed
business models and understand the
constraints in the field that might be faced,
pilot projects are currently underway in
conjunction with several operators.
4) Electronification of Local Government
Transactions
Striving to improve regional financial
management accountability and transparency,
the Ministry of Home Affairs issued Circular
Letter No. 910/1866/SJ and No. 910/1867/SJ
concerning the implementation of Noncash
Transactions in Provincial Governments and
Regional Administrations, dated 17th April
2017. The circulars were a follow-up measure
to Presidential Instruction No. 10 of 2016 on
Corruption Prevention and Eradication Measures
in 2016 and 2017, one of which included
the Acceleration of Noncash Transaction
Implementation at all Government Ministries/
Institutions and Local Governments.
Acting on the initiative, Bank Indonesia
coordinated with the Ministry of Home
Affairs and Ministry of Finance to expedite
the Implementation of Noncash Transactions
at Provincial Governments and Regional
Administrations. Consequently, local
governments were compelled to introduce
noncash payments and receipts by 1st January
2018. Furthermore, as the payment system
regulator, Bank Indonesia shall ensure the
availability of secure, efficient and reliable
payment system infrastructure services to
support the realisation of noncash transactions
at Provincial Governments and Regional
Administrations.
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176 BANK INDONESIA
As an open economy, Indonesian residents demand
money changing services, not only large corporations
but also individuals and small businesses. Money
changing services are offered by banks as well as
nonbanks as money changers.
Additionally, money changing services are also very
much required by the influx of overseas travellers
visiting the Indonesian archipelago in order to spend
money in rupiah currency pursuant to Act No. 7
of 2011 concerning Mandatory Rupiah Use in the
Territory of the Republic of Indonesia, the violation
of which would incur a fine of up to Rp200 million
and a maximum custodial sentence of one year.
Furthermore, money changers are also sought by
local travellers wishing to visit overseas for tourism,
business or worship.
Against that backdrop, the business opportunity for
money changers is vast. Unfortunately, however,
many pursued shortcuts by establishing money
changing businesses without acquiring the requisite
license from Bank Indonesia. Based on the evidence
in the field, a lot of unlicensed money changers were
abusing their authority. Media reports emerged
of money changers being used to launder money
linked to narcotics, terrorism and corruption, which
had an adverse impact on the public, economy and
national image.
Pursuant to Bank Indonesia Regulation (PBI)
No. 18/20/PBI/2016, dated 3rd October 2016,
concerning Nonbank Money Changers, Bank
Indonesia afforded all money changers the
opportunity to apply for a license before 7th April
2017. From October 2017 2016 – April 2017, Bank
Indonesia also undertook widespread socialisation
activities, advising money changers to cease trading
and apply for the appropriate license. Furthermore,
Bank Indonesia also disseminated information in
conjunction with the Criminal Investigation Agency
(Bareskrim), National Narcotics Agency (BNN) and
Indonesian Financial Transaction Reports and
Analysis Centre (INTRAC) through various print and
online media. Bank Indonesia also coordinated with
various other institutions, including the judiciary,
Ministry of Trade, Ministry of Law and Human
Rights as well as several associations, such as the
Indonesian Notary Association, Indonesia Shopping
Centre Association (APPBI), Indonesian Hotel and
Restaurant Association (PHRI), Indonesia Travel
Agent Association (ASITA), Association of Foreign
Exchange Traders (APVA) and PD Pasar Jaya.
Based on mapping by Bank Indonesia, a total of 783
unlicensed money changers were identified on the
islands of Java, Sumatra, Bali and Nusa Tenggara,
Kalimantan as well as Sulawesi, Maluku and Papua
(Sulampua). After 7th April 2017, Bank Indonesia
required the unlicensed money changers to sign a
cease and desist order as well as affix a sticker on
their premises indicating that the business had been
closed by Bank Indonesia. The crackdown on illegal
money changers was implemented in two stages as
follows:
a. Policing began in 10 areas. Bank Indonesia
cooperated with the Criminal Investigation
Agency (Bareskrim) to control unlicensed money
Box 5.1. Unlicensed Nonbank Money Changers
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
177BANK INDONESIA
changers still in operation. The first stage of the
policing ran from 9th April – 5th May 2017, with
262 money changers facing forced closures in
areas with a Bank Indonesia presence, namely
Jabodetabek, West Sumatra, Pematang Siantar,
North Sumatra, Yogyakarta, Central Java, Solo,
Jember, Bali and West Nusa Tenggara.
b. The second phase began on 15th May
2017, executed by 20 supervisors from Bank
Indonesia representative offices with local
police assistance. As of August 2017, a total
of 698 money changers had faced forced
closures, representing around 80% of the initial
mapping. Therefore, around 162 illegal money
changers will continue to be pursued through
to the end of 2017.
In general, the unlicensed money changers were
primarily in the form of pure money changers, gold
merchants, grocery stores, electronic goods stores,
tour and travel businesses, restaurants, hotels and
other businesses. Furthermore, the crackdown
revealed a counterfeiter of money changer licenses,
licensed money changers selling branch office
licenses, unlicensed branch offices as well as money
changers failing to display their identities and the
official logo.
To identify a licensed money changer, one only
needs to look at the signage, license certificate
issued by Bank Indonesia and logo. To mitigate
the falsification of the official logo, Bank Indonesia
applied a number of security features, including a
license number to check the legality of the head
office or branch offices, the statement “supervised
by Bank Indonesia”, contact information for
consumer protection services along with a QR Code
that allows the user to check the status of the
money changer using a smartphone.
178 BANK INDONESIA
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The puppeteer is the leader, the writer, producer, narrator and puppet master. When operating the
puppets, the puppeteer must direct the other performers, thus the success of the performance depends
on the puppeteer. Like the puppeteer, as the macroprudential policy authority, Bank Indonesia must play
a significant role in financial system stability, from preparing assessments and promulgating policies to
evaluating the policies issued. The macroprudential policies of Bank Indonesia are expected to maintain
financial system stability.
179BANK INDONESIA
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Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
0505
With a macroprudential mandate, Bank Indonesia constantly strives to identify financial
sector behaviour in order to strengthen the policy framework and maintain financial
system stability. Bank Indonesia’s macroprudential policy in the first semester of 2017
remained accommodative and countercyclical in response to prevailing financial system
developments, while remaining vigilant of the global and domestic economic risks.
During the first half of 2017, Bank Indonesia made regulatory refinements to the short-
term liquidity loan, set the countercyclical capital buffer (CCyB) and evaluated the RR-
loan to funding ratio (RR-LFR). Such macroprudential policies became an integral part of
Bank Indonesia’s overall policy mix, combined with monetary and payment system policy
as well as rupiah currency management. In addition to the policy response, financial
system stability was also maintained through efforts to strengthen coordination synergy
between Bank Indonesia and other relevant authorities in order to bolster the existing
bilateral coordination and cooperation framework instituted by Bank Indonesia in the
execution of its tasks, duties and jurisdiction in terms of monetary, macroprudential and
payment system policy as well as rupiah currency management.
BANK INDONESIA’S POLICY RESPONSE BACKING FINANCIAL SYSTEM STABILITY
06
FINANCIAL STABILITY REVIEWNo. 29, September 2017
180 BANK INDONESIA
ACCOMMODATIVE AND COUNTERCYCLICAL MACROPRUDENTIAL POLICY WAS MAINTAINED IN RESPONSE TO FINANCIAL SYSTEM DYNAMICS AND RISKS
Policy Response
The short-term liquidity loan was improved through promulgation of a Bank Indonesia Regulation (PBI) and Board of Governors Regulation issued to optimise the lender of last resort (LOLR) function, which is part of Bank Indonesia’s role to support financial system stability.
Concerning the evaluation of the loan-to-value (LTV) ratio and financing-to-value ratio (FTV), Bank Indonesia made no adjustments to the existing LTV/FTV requirements.
Bank Indonesia will publish a Financing Funding Ratio to replace the Loan-to-Funding Ratio (LFR). The policy aims to encourage the banking industry to purchase corporate bonds as an alternative when disbursing financing and to stimulate the real sector, thus catalysing national economic growth while adhering to prudential principles.
Regulatory Refinements to the Short-Term Liquidity
Loan
Evaluation of LTV/FTV Requirements
Evaluation of the RR-Loan to Funding Ratio (RR-LFR)
The Financial System Crisis Prevention and Mitigation (PPKSK) Act provides a solid foundation for the four institutional members of the Financial System Stability Committee to maintain financial system stability. Furthermore, Bank Indonesia also maintains bilateral coordination with the Financial Services Authority (OJK) and Deposit Insurance Corporation (LPS) to coordinate within the Financial System Stability Committee framework.
Policy Coordination between Bank Indonesia and other
Relevant Authorities
After an evaluation, Bank Indonesia decided to maintain the countercyclical capital buffer (CCyB) at 0%, unchanged from the evaluation in May 2017.
Maintaining the Countercyclical Capital
Buffer (CCyB) at 0%
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
181BANK INDONESIA
The lender of last resort (LOLR) function is an
integral part of Bank Indonesia’s role to support
financial system stability, which translates into the
provision of a short-term liquidity loan available to
banks experiencing a short-term liquidity shortfall
in accordance with the Bank Indonesia Act and
emphasised in the Financial System Crisis Prevention
and Mitigation (PPKSK) Act issued in 2016.
The LOLR function is required to prevent and
mitigate instability in the financial system triggered
by a liquidity shortfall experienced by a bank that
could spill over through the contagion effect and
adversely impact the financial system and, ultimately,
the economy. Under normal conditions, banks
typically meet the liquidity requirements through
access to available sources of funds, including the
interbank money market and monetary operations
by Bank Indonesia. In the event that such sources
are unavailable or fail to meet the respective bank’s
requirements, the bank in question may request a
short-term liquidity loan at Bank Indonesia as lender
of last resort (LOLR).
Bank Indonesia always adheres to prudential
principles when providing the short-term liquidity
loan, which represents a loan or financing. Based
on the provisions of the Bank Indonesia Act and
Financial System Crisis Prevention and Mitigation
(PPKSK) Act, the main principle that Bank Indonesia
must adhere to is that the recipient bank must be
illiquid but solvent. Furthermore, given the inherent
credit risk of the short-term liquidity loan, the Bank
Indonesia Act and Financial System Crisis Prevention
and Mitigation (PPKSK) Act also stipulate high quality
6.1. Refining the Short-Term Liquidity Loans
collateral in the form of liquid and highly rated
securities as well as current loan assets. In addition,
coordination with the Indonesian Financial Services
Authority (OJK) is also essential when disbursing the
short-term liquidity loan in relation to: (1) assessing
whether the requirements of the short-term liquidity
loan have been met; and (2) supervising the recipient
bank to ensure the utilisation and repayment of the
liquidity loan are consistent with the agreement.
Underlying implementation of the short-term
liquidity loan, the provisions contained in the Bank
Indonesia Act and Financial System Crisis Prevention
and Mitigation (PPKSK) Act are also regulated in
more detail in corresponding regulations issued by
Bank Indonesia.
Bank Indonesia refined the prevailing short-term
liquidity loan regulations in 2017 by promulgating a
new Bank Indonesia Regulation (PBI) and Board of
Governors Regulation that superseded the existing
provisions released in 2012 and 2013. The main
differences between the old and new regulations are
as follows:
1. Regulatory harmonisation and alignment with
the Financial System Crisis Prevention and
Mitigation (PPKSK) Act:
a. The term “short-term funding facility” or
“sharia short-term funding facility” were
replaced by “short-term liquidity loan” or
sharia short-term liquidity financing”;
b. The requirements for eligible recipient
banks were adjusted to: (i) solvent banks;
(ii) with a composite soundness rating of no
less than 2 (two); (iii) access to high-quality
collateral as a guarantee for the short-term
liquidity loan that meets the requirements
stipulated in the corresponding Bank
Indonesia Regulation (PBI); and (iv) deemed
to have sufficient repayment capacity;
182 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
c. Contains coordination between Bank
Indonesia and the Financial Services
Authority (OJK) when disbursing the
short-term liquidity loan as follows: (i)
an evaluation of whether the short-term
liquidity loan requirements have been met;
(ii) supervision of the recipient bank to
monitor and ensure loan utilisation is as
agreed, the loan is repaid in accordance with
the agreed repayment plan and the specific
requirements have been met throughout
the loan period; and (iii) collateral execution;
2. Refinements to the collateral requirements,
with the inclusion of Bank Indonesia Certificates
of Deposit (SDBI) as an acceptable form of
collateral, as well as refinements to the criteria
of securities and credit/financing assets;
3. Refinements to the application and disbursement
mechanisms along with maturity extension,
raising or lowering the credit ceiling, reporting
responsibilities, repayment and collateral
execution.
4. Adjustments to the pricing of the short-term
liquidity loan. The previous margin of 100bps
on top of the lending facility rate applicable to
a commercial bank was raised to 400bps. For
Islamic banks, the nisbah on profit sharing was
lowered from 90% to 80%.
5. Refined the limitations and restrictions on
business activities during the short-term liquidity
loan period or the period until the loan has been
repaid; and refining the penalties and sanctions.
Meanwhile, the Board of Governors Regulation on
the short-term liquidity loan further regulated the
provisions necessary according to the Bank Indonesia
Regulation (PBI), emphasising the technical aspects
of the principles contained in the PBI. A list of Bank
Indonesia Regulations (PBI) and Board of Governors
Regulations concerning the short-term liquidity
loan issued by Bank Indonesia in 2017 is as follows:
1. Bank Indonesia Regulation (PBI) No. 19/3/
PBI/2017 concerning the Short-Term Liquidity
Loan for Commercial Banks (PBI PLJP);
2. Bank Indonesia Regulation (PBI) No. 19/4/
PBI/2017 concerning the Short-Term Liquidity
Loan for Islamic Banks (PBI PLJPS);
3. Board of Governors Regulation No. 19/6/
PADG/2017 concerning the Short-Term Liquidity
Loan for Commercial Banks (PADG PLJP); and
4. Board of Governors Regulation No. 19/8/
PADG/2017 concerning the Short-Term Liquidity
Loan for Islamic Banks (PADG PLJPS);
Bank Indonesia continuously reviews the new
regulations in light of the latest developments
regarding the short-term liquidity loans to ensure
that the content of the regulations remains up to
date and relevant with prevailing conditions, while
also adhering to prudential principles and good
governance.
183BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Maintaining accommodative macroprudential policy
against a backdrop of sluggish economic dynamics
and bank intermediation, Bank Indonesia upheld
the countercyclical capital buffer (CCyB) at 0% in
May 2017 based on first quarter data. The CCyB
was held at 0% because no signs of excessive credit
growth were identified that could trigger systemic
risk, as confirmed by the leading indicator, namely
the credit-to-GDP gap. In addition, the supporting
indicators further corroborated such economic
dynamics, consisting of macroprudential indicators,
macroeconomic indicators, banking indicators and
asset prices.
CCyB policy was introduced in January 2016 to
reduce procyclicality in the banking industry as
a source of economic vulnerability, where banks
tended to pursue expansive policies during an
economic upswing and contractive policies during
a downturn or recession. Bank Indonesia regularly
reviews and evaluates the magnitude and activation
period of the CCyB, no less than once every six
months, paying due consideration to the leading
indicator, supporting indicators and professional
judgement.
Leading Indicator
The leading indicator used when evaluating CCyB
policy is the credit-to-GDP gap, showing the disparity
between the credit-to-GDP ratio and its long-term
trend, which indicated that credit supply is still
required to stimulate economic growth. Congruent
with economic growth that reached 5.01% (yoy) in
6.2. Maintaining the Countercyclical Capital Buffer (CCyB) at 0%
the first semester of 2017, credit growth increased
by 1.38% to 9.24% (yoy) from 7.86% (yoy) in
the previous period. Such conditions were not
consistent with excessive credit growth that could
spur systemic risk, as evidenced by the credit-to-
GDP gap which indicated low risk of excessive credit
growth. Determining the magnitude of the CCyB as
well as when to activate refers to an upper (H) and
lower (L) threshold, namely 6 and 3 respectively1.
Consequently, a CCyB of 0% was recommended in
the reporting period based on the leading indicator.
Supporting Indicators
After reviewing the data from the leading indicator,
Bank Indonesia assessed the supporting indictors to
backup and complement the existing information.
(i). Macroprudential Indictors
The financial cycle of Indonesia (SKI) remained in
a contractionary phase during the first semester
of 2017 (Graph 6.3), attributable to sluggish
credit growth as the dominant component of
the financial cycle. The slowdown, however, is
also indicative of the low risk of excessive credit
growth that could potentially trigger systemic risk.
(ii). Macroeconomic Indicators
In general, the macroeconomic indicators
showed that more support is required to
stimulate credit growth in the banking
industry for the economy to post further
gains. For example, GDP growth, as one of
the macroeconomic indicators used, increased
slightly in the first quarter of 2017 to 5.01%
(yoy) from 4.94% (yoy) in the fourth quarter of
2016. Inflation also tracked an upward trend
over the same period, rising from 3.02% to
3.61% as a result of hikes to administered prices
(AP), such as vehicle registration renewals, fuel
1 For a detailed explanation of the upper and lower thresholds, refer to FSR No. 24, March 2015.
184 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
prices and electricity rates. Notwithstanding
the pressures, inflation remained under control
and within the inflation target of 4.0±1%. On
average, the rupiah depreciated early in the first
quarter of 2017 compared to conditions at the
end of 2016 but steadily rebounded in February
and March 2017 on the back off an influx of
foreign capital flows after Indonesia’s sovereign
Graph 6.1 Credit-to-GDP Gap
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
2010
Q3
2011
Q1
2011
Q3
2012
Q1
2012
Q3
2013
Q1
2013
Q3
2014
Q1
2014
Q3
2015
Q1
2015
Q3
2016
Q1
2016
Q3
2017
Q1
10
8
6
4
2
0
-2
Risk of Excessive Credit Growth
Low Risk of Excessive Credit Growth
High Risk of Excessive Credit Growth
Credit-to-GDP Gap L Threshold H Threshold Crisis
credit rating outlook was upgraded. Meanwhile,
the position of private external debt at the end
of the first quarter of 2017 also moderated
on the previous period. Consequently, the
macroeconomic indicators generally pointed to
the need for further support to stimulate bank
lending in order to catalyse stronger economic
growth.
Graph 6.2 CCyB Rate per the Leading Indicator
2.50
2.00
1.50
1.00
0.50
0.00
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
2010
Q3
2011
Q1
2011
Q3
2012
Q1
2012
Q3
2013
Q1
2013
Q3
2014
Q1
2014
Q3
2015
Q1
2015
Q3
2016
Q1
2016
Q3
2017
Q1
Source: Bank Indonesia, processed
Source: Bank Indonesia, processed
185BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Graph 6.3 Financial Cycle of Indonesia
1994
Q1
1994
Q4
1995
Q3
1996
Q2
1997
Q1
1997
Q4
1998
Q3
1999
Q2
2000
Q1
2000
Q4
2001
Q3
2002
Q2
2003
Q1
2003
Q4
2004
Q3
2005
Q2
2006
Q1
2006
Q4
2007
Q3
2008
Q2
2009
Q1
2009
Q4
2010
Q3
2011
Q2
2012
Q1
2012
Q4
2013
Q3
2014
Q2
2015
Q1
2015
Q4
2016
Q3
2017
Q2
(0.10)
(0.08)
(0.06)
(0.04)
(0.02)
0.02
0.04
0.06
0.08
0.10
1995Q2Q2
2005Q2Q2
2013Q3Q2
2009Q3Q2
2000Q2Q2
Financial Cycle (rhs) Financial Cycle Peak Financial Cycle Trough Crisis
Graph 6.4 Real GDP Growth Graph 6.5 Inflation (yoy)
6.0
2.0
4.0
5.0
1.0
3.0
7.0
8.0
CrisisReal GDP Growth (yoy)
2002
Q1
2002
Q4
2003
Q3
2004
Q2
2005
Q1
2005
Q4
2006
Q3
2007
Q2
2008
Q1
2008
Q4
2009
Q3
2010
Q2
2011
Q1
2011
Q4
2012
Q3
2013
Q2
2014
Q1
2014
Q4
2015
Q3
2016
Q2
2017
Q1
10
2
6
8
0
4
12
14
1620
03Q
3
2004
Q2
2005
Q1
2005
Q4
2006
Q3
2007
Q2
2008
Q1
2008
Q4
2009
Q3
2010
Q2
2011
Q1
2011
Q4
2012
Q3
2013
Q2
2014
Q1
2014
Q4
2015
Q3
2016
Q2
2017
Q1
CrisisCPI (yoy)
Graph 6.6 Exchange Rate (Rp/USD)
12,500
8,500
10,500
11,500
7,500
9,500
13,500
14,500
15,500
2001
Q2
2002
Q1
2002
Q4
2003
Q3
2004
Q2
2005
Q1
2005
Q4
2006
Q3
2007
Q2
2008
Q1
2008
Q4
2009
Q3
2010
Q2
2011
Q1
2011
Q4
2012
Q3
2013
Q2
2014
Q1
2014
Q4
2015
Q3
2016
Q2
2017
Q1
CrisisExchange Rate (Rp/USD)
Graph 6.7 Private External Debt in Rupiah (yoy)
16
14
12
10
8
6
4
2
0
2003
Q3
2004
Q2
2005
Q1
2005
Q4
2006
Q3
2007
Q2
2008
Q1
2008
Q4
2009
Q3
2010
Q2
2011
Q1
2011
Q4
2012
Q3
2013
Q2
2014
Q1
2014
Q4
2015
Q3
2016
Q2
2017
Q1
CrisisPrivate External Debt (yoy)
Source: Bank Indonesia
186 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 6.8 Credit Growth (yoy)
15
-5
5
10
-10
0
20
25
30
35
40
2001
Q2
2002
Q1
2002
Q4
2003
Q3
2004
Q2
2005
Q1
2005
Q4
2006
Q3
2007
Q2
2008
Q1
2008
Q4
2009
Q3
2010
Q2
2011
Q1
2011
Q4
2012
Q3
2013
Q2
2014
Q1
2014
Q4
2015
Q3
2016
Q2
2017
Q1
CrisisCredit (%, yoy)
Graph 6.9 Deposit Growth (yoy)
10
0
5
15
20
25
2002
Q4
2003
Q3
2004
Q2
2005
Q1
2005
Q4
2006
Q3
2007
Q2
2008
Q1
2008
Q4
2009
Q3
2010
Q2
2011
Q1
2011
Q4
2012
Q3
2013
Q2
2014
Q1
2014
Q4
2015
Q3
2016
Q2
2017
Q1
CrisisDeposit (%, yoy)
Graph 6.10 NPL Ratio (%) Graph 6.11 ROA Ratio (%)
8
0
4
6
-2
2
10
12
14
16
18
2002
Q1
2002
Q4
2003
Q3
2004
Q2
2005
Q1
2005
Q4
2006
Q3
2007
Q2
2008
Q1
2008
Q4
2009
Q3
2010
Q2
2011
Q1
2011
Q4
2012
Q3
2013
Q2
2014
Q1
2014
Q4
2015
Q3
2016
Q2
2017
Q1
CrisisNPL (%)
2
1
3
4
2003
Q3
2004
Q2
2005
Q1
2005
Q4
2006
Q3
2007
Q2
2008
Q1
2008
Q4
2009
Q3
2010
Q2
2011
Q1
2011
Q4
2012
Q3
2013
Q2
2014
Q1
2014
Q4
2015
Q3
2016
Q2
2017
Q1
CrisisROA (%)
Graph 6.12 Capital Adequacy Ratio (%) Graph 6.13 Loan-to-Deposit Ratio (%)
20
10
15
25
30
2003
Q3
2004
Q2
2005
Q1
2005
Q4
2006
Q3
2007
Q2
2008
Q1
2008
Q4
2009
Q3
2010
Q2
2011
Q1
2011
Q4
2012
Q3
2013
Q2
2014
Q1
2014
Q4
2015
Q3
2016
Q2
2017
Q1
CrisisCAR (%) CrisisLDR (%)
100
90
80
70
60
50
40
30
2001
Q2
2002
Q1
2002
Q4
2003
Q3
2004
Q2
2005
Q1
2005
Q4
2006
Q3
2007
Q2
2008
Q1
2008
Q4
2009
Q3
2010
Q2
2011
Q1
2011
Q4
2012
Q3
2013
Q2
2014
Q1
2014
Q4
2015
Q3
2016
Q2
2017
Q1
Source: Bank Indonesia, processed
187BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Graph 6.14. JCI Volatility
0.10
-
0.05
0.15
0.20
0.25
2002
Q1
2002
Q4
2003
Q3
2004
Q2
2005
Q1
2005
Q4
2006
Q3
2007
Q2
2008
Q1
2008
Q4
2009
Q3
2010
Q2
2011
Q1
2011
Q4
2012
Q3
2013
Q2
2014
Q1
2014
Q4
2015
Q3
2016
Q2
2017
Q1
CrisisVolatilitas IHSG
(iii). Banking Indicators
Compared to conditions in the previous period,
the banking indicators began to display early
signs of improvement in the first quarter of
2017, including credit growth, deposit growth,
the Capital Adequacy Ratio (CAR) and return on
assets (ROA). In contrast, non-performing loans
(NPL) deteriorated somewhat. Consequently,
maintaining the CCyB rate at 0% was not
expected to restrain banking activities, especially
lending, thus allowing banking industry
performance to continue improving.
(iv). Asset Prices
Jakarta Composite Index (JCI) volatility tended
to decline on the previous period, reflecting
relatively low pressure on the capital market.
Consequently, maintaining the CCyB at 0% was
expected to support capital market stability.
Bank Indonesia refined the RR-loan to funding
ratio (RR-LFR) for conventional commercial banks in
August 2016 by raising the floor from 78% to 80%,
while maintaining the ceiling at 92%. The policy was
6.3. Assessment of the RR-Loan to Funding Ratio (RR-LFR)
oriented towards strengthening domestic demand
in line with the lower primary reserve requirement
and interest rates. The banking industry is
expected to stimulate the intermediation function
and national economic growth while adhering to
prudential principles. The RR-loan to funding ratio
(RR-LFR) is a macroprudential instrument that aims
to catalyse a more optimal intermediation function,
while maintaining capital resilience, adequate
liquidity and credit risk management.
The loan-to-deposit ratio (LDR) and financing-to-
deposit ratio (FDR) were lowered in the first semester
of 2017 because deposit growth was outpacing
credit growth in line with economic moderation.
Meanwhile, the banks issued more securities in
2017 than in 2016. The banking industry has
begun to utilise the securities issued as the main
source of bank funding in line with policy to include
bank-issued securities in the LDR (RR-LFR) in August
2015, which aimed to expand funding sources for
the banking industry, while simultaneously backing
financial market deepening efforts.
The reduction to the LFR in the first semester of
2017 prompted an increase in the number of banks
188 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 6.15Loan-to-Deposit Ratio (LDR) and Financing-to-Deposit Ratio (FDR) Developments
Graph 6.16 Loans, Deposits and Securities
Jun-
15
Aug-
15
Oct
-15
Dec-
15
Feb-
16
Apr-1
6
Jun-
16
Aug-
16
Oct
-16
Dec-
16
Feb-
17
Apr-1
7
Jun-
17
5,000
4,800
4,600
4,400
4,200
4,000
3,800
3,600
3,400
3,200
3,000
45
40
35
30
25
20
Securities (rhs)
Loans Deposits
Value (Rp, trillions) Value (yoy)
Loans Deposits
Jun-
15
Aug-
15
Oct
-15
Dec-
15
Feb-
16
Apr-1
6
Jun-
16
Aug-
16
Oct
-16
Dec-
16
Feb-
17
Apr-1
7
Jun-
17
16%
14%
12%
10%
8%
6%
4%
2%
0%
80%
70%
60%
50%
40%
30%
20%
10%
0%
with an LFR of below 80% compared to conditions
in the previous period. In the second semester of
2017, a total of 39 banks reported an LFR of less
than 80%, more than doubling from just 18 banks
in December 2016. On the other hand, the number
of banks with an LFR in excess of 92% decreased
from 44 to 28. The intermediation function of the
affected banks was supported by adequate capital
resilience (CAR ≥ 14%), consistent with the goal of
the RR-loan to funding ratio (RR-LFR) policy.
92%
91%
90%
89%
88%
87%
86%
85%
2015 20172016
Jun
Aug
Oct
Dec
Feb
Apr
Jun
Feb
Apr
Jun
Aug
Oct
Dec
LDR FDR
Source: Bank Indonesia, processed
Securities (rhs)
Source: Bank Indonesia, processed
189BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
32
24
18
3839
39
40 40
3635 31
36
41
28 28
0
2
3
0 0
Jun 16 Jun 16 Jun 16 Jun 16Sep 16 Sep 16 Sep 16 Sep 16Dec 16 Dec 16 Dec 16 Dec 16Mar 17 Mar 17 Mar 17 Mar 17Jun 17 Jun 17 Jun 17 Jun 17
LFR < 80% 80% ≤ LFR ≤ 92% LFR ≥ 92% & CAR ≥ 14% LFR ≥ 92% & CAR ≥ 14%
Graph 6.17The Number of Banks Fulfilling the RR-Loan to Funding Ratio (RR-LFR)
Source: Bank Indonesia, processed
A sluggish property sector compelled Bank Indonesia
to continue easing LTV policy, which began in 2015.
Weaker growth of property sales and slower rising
prices, accompanied by dwindling demand for
housing loans were indicative of a tepid property
sector. In response, Bank Indonesia began to ease
macroprudential policy in 2015 by raising the LTV/
FTV ratios on property loans/financing.
The move in 2015 successfully stifled the waning
growth of housing loans/financing disbursed by
the banking industry. Nevertheless, loosening the
LTV/FTV policy was insufficient to catalyse credit/
financing growth, thereby necessitating further
easing, which ultimately stimulated credit/financing
growth in the property sector while maintaining
prudential principles. A surge of activity in the
property sector is considered strategic because of
6.4. Assessment of the Loan-to-Value (LTV) and Financing-to-Value (FTV) Ratios for Property Loans/Financing and Downpayments on Automotive Loans
the large multiplier effect to supporting sectors,
which would help stimulate an economic recovery.
To that end, Bank Indonesia once again eased LTV/
FTV policy by issuing Bank Indonesia Regulation
(PBI) No. 18/16/PBI/2016 concerning the Loan-to-
Value (LTV) Ratio for Property Loans, the Financing-
to-Value Ratio (FTV) for Property Financing and
Downpayments on Automotive Loans/Financing.
The adjustment to the FTV/LTV policy began to bear
fruit almost immediately, with growth of housing
loans accelerating from 6.21% in August 2016 to
7.51% in June 2017, despite remaining below total
credit growth disbursed by the banking industry
at 7.75%. Meanwhile, the share of housing loans
to total bank loans reached 9.09%, dominated by
houses with a floor area of 22-70m2 and more than
70m2.
Based on bank activity, as of June 2017, the
share of housing loans at conventional banks
accounted for 85.28% of the total in the banking
industry, while the share of Islamic housing
financing accounted for the remaining 14.72%.
190 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Graph 6.18 Housing Loans
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
25.0
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
Jan-
15Fe
b-15
Mar
-15
Apr-1
5M
ay-1
5Ju
n-15
Jul-1
5Au
g-15
Sept
-15
Oct
-15
Nov
-15
Dec-
15Ja
n-16
Feb-
16M
ar-1
6Ap
r-16
May
-16
Jun-
16Ju
l-16
Aug-
16Se
pt-1
6O
ct-1
6N
ov-1
6De
c-16
Jan-
17Fe
b-17
Mar
-17
Apr-1
7M
ay-1
7Ju
n-17
yoy (%)
yoy (%) LTV 2015 LTV 2016
RT 22 - 70
RT > 70
RT ≤ 21
8.41
2.861.95
(8.44)
Ruko/Rukan
Flat/Apt 21-70
Flat/Apt > 70
14.54
2.55
(9.23)
Graph 6.19 Housing Loans by Type
Flat/Apt ≤ 21
14.0
12.0
10.0
8.0
6.0
4.0
2.0
-
9.50
9.40
9.30
9.20
9.10
9.00
8.90
8.80
Jan
Feb
Mar Ap
r
May Jun Jul
Aug
Sep
Oct
Nov De
c
Jan
Jan
Feb
Feb
Mar
MarAp
r
Apr
May
MayJun
JunJul
Aug
Sep
Oct
Nov De
c
yoy(%) LTV2015
LTV2016
(%)
7.75
7.51
9.09
Share (rhs)Housing Loan Growth
2015 2016 2017
Total Credit Growth
Source: Monthly Commercial Bank reports, June 2017
Source: Monthly Commercial Bank reports, June 2017
191BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Graph 6.20 Housing Loan Performance by Bank Activity
Jan-
15
Feb-
15
Mar
-15
Apr-1
5
May
-15
Jun-
15
Jul-1
5
Aug-
15
Sept
-15
Oct
-15
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
Sept
-16
Oct
-16
Nov
-16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-1
7
May
-17
Jun-
17
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
90
80
70
60
50
40
30
20
10
-
15.82
5.90
Conventional Share Islamic ShareConventional Growth (rhs) Islamic Growth (rhs)
Source: Monthly Commercial Bank reports, June 2017
Furthermore, housing loan growth at Islamic
banks stood at 5.90%, compared to 15.82% at
conventional banks.
Housing Credit Risk
The increase of housing loan growth was
accompanied by heightened credit risk, as reflected
by an increase in the corresponding gross NPL
ratio from 2.54% in December 2016 to 2.94%
in June 2017. Nevertheless, the level of NPL was
still considered low in comparison to the industry
average at 2.96%. The gross NPL ratio was highest
on housing loans for a flat/apartment of ≤ 21m2
at 4.88% and the lowest was 1.52% for a flat/
apartment of > 70m2. Meanwhile, the NPL on
loans for a house ranged from 2.67% to 3.13%.
Furthermore, housing credit risk was higher at
conventional banks rather than Islamic banks.
Housing Loan Disbursements by Province
Regionally, housing loans tended to concentrate
on the island of Java, accounting for 68.26% of
the total. In terms of value, housing loans were
concentrated in four provinces of Java, namely
West Java, Jakarta, Banten and East Java. Nearly all
provinces of Indonesia experienced stronger growth
of housing loans, with Jambi, North Maluku and Bali
as the only exceptions. Regarding high credit risk,
East Kalimantan, North Sulawesi and North Sumatra
recorded a gross NPL ratio above the 5% threshold.
192 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Table 6.1 Housing Loan Performance by Type
Source: Monthly Commercial Bank reports, June 2017
Property Type (m2)
Current LTV Policy (PBI No. 18/16/PBI/2016) Credit Performance
Property Loans and Islamic Property Financing with Murabahah and Istishna
Contracts
Islamic Property Financing with MMQ and IMBT Contracts Current Conditions (June 2017)
Credit Growth (%)
KP and PP FACILITY
I II III dst I II III dst Value(Rp, billions)
Share (%) NPL (%) Dec’12 Dec’13 Dec’14 Dec’15 Ags’16 Dec’16 Jan’17 Feb’17 Mar’17 Apr’17 May’17 Jun’17
House
Type>70 85% 80% 75% 90% 85% 80% 128,989 31.60 3.13 47.23 19.73 9.23 3.78 1.02 3.45 3.79 2.41 2.68 2.00 1.67 2.55
Type 22-70 - 85% 80% - 90% 85% 210,884 51.66 2.67 18.58 32.21 15.07 13.80 13.93 14.32 14.42 13.67 15.44 14.45 15.10 14.54
Type21 - - - - - - 27,188 6.66 2.82 (32.40) 34.74 15.14 (6.18) (7.62) (5.34) (5.36) (5.42) (5.69) (5.52) (9.62) (9.23)
Apartment
Type>70 85% 80% 75% 90% 85% 80% 5,751 1.41 1.52 68.08 46.33 7.67 (5.35) (3.59) (3.33) (2.79) (1.24) (0.04) 0.40 1.34 1.95
Type 22-70 90% 85% 80% 90% 85% 80% 6,718 1.65 2.64 80.44 1.15 12.38 1.92 (1.95) (0.57) 0.59 1.05 3.68 5.57 5.83 8.41
Type21 - 85% 80% - 85% 80% 972 0.24 4.88 293.26 (11.30) 11.20 (1.46) 10.21 14.75 14.92 10.80 (9.41) (9.18) (8.45) (8.44)
Home Store/Home Office
- 85% 80% - 85% 80% 27,741 6.80 4.58 31.43 24.97 3.96 2.35 3.09 3.17 2.82 3.41 2.15 (0.76) 2.99 2.86
TOTAL HOUSING LOANS 408,242 100.00 2.94 22.44 26.49 11.89 6.96 6.21 7.67 7.87 7.14 7.95 7.13 7.34 7.51
Total Credit 4,491,373 9.09 2.96 23.08 21.60 11.58 10.45 6.83 7.86 8.28 8.65 9.24 9.47 8.71 7.75
Graph 6.2 Housing Loan Performance by Bank Activity
Source: Monthly Commercial Bank reports, June 2017
TYPE
Housing Loans as of June 2017 Gross NPL Ratio of Housing Loans as of June 2017 (%) Net NPL Ratio of Housing Loans as of June 2017 (%) Share of Total Credit as of June 2017 (%) Housing Loan Growth as of June 2017 (yoy, %)
Conventional Total
Islamic Housing Financing
Conventional Total
Islamic Total
Conventional Total
Islamic Total
Conventional Total
Islamic Total
Conventional Total
Islamic Housing Financing
Islamic Total
Istishna& Murabahah
MMQ& IMBT
Other Contracts
IslamicTotal
Istishna& Murabahah
MMQ& IMBT
Other Contracts
Islamic Total
Istishna& Murabahah
MMQ& IMBT
Other Contracts
IslamicTotal
Istishna& Murabahah
MMQ& IMBT
Other Contracts
Islamic Total
Istishna& Murabahah
MMQ& IMBT
Other Contracts
House
Type > 70 108,784 20,205 9,554 9,160 1,491 3.17 2.89 3.24 2.81 1.17 1.87 2.17 2.14 2.38 1.13 26.65 4.95 2.34 2.24 0.37 0.13 17.9 11.4 26.6 13.0
Type 22-70 178,965 31,919 27,698 2,373 1,848 2.77 2.07 1.98 1.61 4.01 1.89 1.37 1.22 1.36 3.69 43.84 7.82 6.78 0.58 0.45 13.15 23.4 24.6 52.5 (11.4)
Type ≤ 21 23,948 3,240 1,835 30 1,375 2.90 2.20 1.52 - 3.16 2.21 1.95 1.16 - 3.05 5.87 0.79 0.45 0.01 0.34 (9.23) (8.8) (0.6) 638.7 (19.2)
Apartment
Type > 70 5,021 723 251 396 76 1.60 0.91 1.94 0.05 2.02 1.02 0.77 1.56 0.03 2.01 1.23 0.18 0.06 0.10 0.02 0.36 14.6 (2.0) 42.9 (22.0)
Type 22-70 5,965 753 435 230 88 2.62 2.79 1.81 0.88 2.70 1.77 2.35 3.15 0.76 2.60 1.46 0.18 0.11 0.06 0.02 8.35 9.9 (0.6) 59.9 (15.3)
Type ≤ 21 816 157 92 61 4 5.40 2.17 3.36 0.39 2.05 3.23 1.59 2.42 0.32 1.98 0.20 0.04 0.02 0.01 0.00 (14.10) 39.4 (8.3) 691.1 (15.9)
Home Store/Home Office
24,655 3,086 1,441 1,469 176 4.73 3.39 3.98 2.37 7.10 2.79 2.53 2.49 2.04 6.95 6.04 0.76 0.35 0.36 0.04 2.72 4.1 7.4 6.5 (27.2)
TOTAL 348,160 60,081 41,304 13,718 5,058 3.03 2.42 2.34 2.43 2.99 1.96 1.74 1.50 2.06 2.83 85.28 14.72 10.12 3.36 1.24 5.94 17.93 18.74 29.35 (8.96)
193BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Property Type (m2)
Current LTV Policy (PBI No. 18/16/PBI/2016) Credit Performance
Property Loans and Islamic Property Financing with Murabahah and Istishna
Contracts
Islamic Property Financing with MMQ and IMBT Contracts Current Conditions (June 2017)
Credit Growth (%)
KP and PP FACILITY
I II III dst I II III dst Value(Rp, billions)
Share (%) NPL (%) Dec’12 Dec’13 Dec’14 Dec’15 Ags’16 Dec’16 Jan’17 Feb’17 Mar’17 Apr’17 May’17 Jun’17
House
Type>70 85% 80% 75% 90% 85% 80% 128,989 31.60 3.13 47.23 19.73 9.23 3.78 1.02 3.45 3.79 2.41 2.68 2.00 1.67 2.55
Type 22-70 - 85% 80% - 90% 85% 210,884 51.66 2.67 18.58 32.21 15.07 13.80 13.93 14.32 14.42 13.67 15.44 14.45 15.10 14.54
Type21 - - - - - - 27,188 6.66 2.82 (32.40) 34.74 15.14 (6.18) (7.62) (5.34) (5.36) (5.42) (5.69) (5.52) (9.62) (9.23)
Apartment
Type>70 85% 80% 75% 90% 85% 80% 5,751 1.41 1.52 68.08 46.33 7.67 (5.35) (3.59) (3.33) (2.79) (1.24) (0.04) 0.40 1.34 1.95
Type 22-70 90% 85% 80% 90% 85% 80% 6,718 1.65 2.64 80.44 1.15 12.38 1.92 (1.95) (0.57) 0.59 1.05 3.68 5.57 5.83 8.41
Type21 - 85% 80% - 85% 80% 972 0.24 4.88 293.26 (11.30) 11.20 (1.46) 10.21 14.75 14.92 10.80 (9.41) (9.18) (8.45) (8.44)
Home Store/Home Office
- 85% 80% - 85% 80% 27,741 6.80 4.58 31.43 24.97 3.96 2.35 3.09 3.17 2.82 3.41 2.15 (0.76) 2.99 2.86
TOTAL HOUSING LOANS 408,242 100.00 2.94 22.44 26.49 11.89 6.96 6.21 7.67 7.87 7.14 7.95 7.13 7.34 7.51
Total Credit 4,491,373 9.09 2.96 23.08 21.60 11.58 10.45 6.83 7.86 8.28 8.65 9.24 9.47 8.71 7.75
TYPE
Housing Loans as of June 2017 Gross NPL Ratio of Housing Loans as of June 2017 (%) Net NPL Ratio of Housing Loans as of June 2017 (%) Share of Total Credit as of June 2017 (%) Housing Loan Growth as of June 2017 (yoy, %)
Conventional Total
Islamic Housing Financing
Conventional Total
Islamic Total
Conventional Total
Islamic Total
Conventional Total
Islamic Total
Conventional Total
Islamic Housing Financing
Islamic Total
Istishna& Murabahah
MMQ& IMBT
Other Contracts
IslamicTotal
Istishna& Murabahah
MMQ& IMBT
Other Contracts
Islamic Total
Istishna& Murabahah
MMQ& IMBT
Other Contracts
IslamicTotal
Istishna& Murabahah
MMQ& IMBT
Other Contracts
Islamic Total
Istishna& Murabahah
MMQ& IMBT
Other Contracts
House
Type > 70 108,784 20,205 9,554 9,160 1,491 3.17 2.89 3.24 2.81 1.17 1.87 2.17 2.14 2.38 1.13 26.65 4.95 2.34 2.24 0.37 0.13 17.9 11.4 26.6 13.0
Type 22-70 178,965 31,919 27,698 2,373 1,848 2.77 2.07 1.98 1.61 4.01 1.89 1.37 1.22 1.36 3.69 43.84 7.82 6.78 0.58 0.45 13.15 23.4 24.6 52.5 (11.4)
Type ≤ 21 23,948 3,240 1,835 30 1,375 2.90 2.20 1.52 - 3.16 2.21 1.95 1.16 - 3.05 5.87 0.79 0.45 0.01 0.34 (9.23) (8.8) (0.6) 638.7 (19.2)
Apartment
Type > 70 5,021 723 251 396 76 1.60 0.91 1.94 0.05 2.02 1.02 0.77 1.56 0.03 2.01 1.23 0.18 0.06 0.10 0.02 0.36 14.6 (2.0) 42.9 (22.0)
Type 22-70 5,965 753 435 230 88 2.62 2.79 1.81 0.88 2.70 1.77 2.35 3.15 0.76 2.60 1.46 0.18 0.11 0.06 0.02 8.35 9.9 (0.6) 59.9 (15.3)
Type ≤ 21 816 157 92 61 4 5.40 2.17 3.36 0.39 2.05 3.23 1.59 2.42 0.32 1.98 0.20 0.04 0.02 0.01 0.00 (14.10) 39.4 (8.3) 691.1 (15.9)
Home Store/Home Office
24,655 3,086 1,441 1,469 176 4.73 3.39 3.98 2.37 7.10 2.79 2.53 2.49 2.04 6.95 6.04 0.76 0.35 0.36 0.04 2.72 4.1 7.4 6.5 (27.2)
TOTAL 348,160 60,081 41,304 13,718 5,058 3.03 2.42 2.34 2.43 2.99 1.96 1.74 1.50 2.06 2.83 85.28 14.72 10.12 3.36 1.24 5.94 17.93 18.74 29.35 (8.96)
194 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Coordination between the institutional members
of the Financial System Stability Committee,
pursuant to the Financial System Crisis Prevention
and Mitigation (PPKSK) Act (No. 9) of 2016, plays
an important role in the efforts to maintain financial
system stability. Inter-authority coordination is
crucial considering the linkages and overlaps in the
execution of function, duties and jurisdiction of the
authorities in the financial system. The Financial
System Crisis Prevention and Mitigation (PPKSK)
Act serves as a solid foundation for coordination
and cooperation between Bank Indonesia, the
Financial Services Authority (OJK), Ministry of
Finance and Deposit Insurance Corporation (LPS),
primarily to prevent and resolve a financial system
crisis.
6.5. Policy Coordination between Bank Indonesia and Other Relevant Authorities
Graph 6.21 NPL of Housing Loans
NPL(%) LTV2015
LTV2016
4.00
3.50
3.00
2.50
2.00
1.50
Jan-
15Fe
b-15
Mar
-15
Apr-1
5M
ay-1
5Ju
n-15
Jul-1
5Au
g-15
Sept
-15
Oct
-15
Nov
-15
Dec-
15Ja
n-16
Feb-
16M
ar-1
6Ap
r-16
May
-16
Jun-
16Ju
l-16
Aug-
16Se
pt-1
6O
ct-1
6N
ov-1
6De
c-16
Jan-
17Fe
b-17
Mar
-17
Apr-1
7M
ay-1
7Ju
n-17
Conventional Housing Loans
3.03
Total Credit
Total Housing Loans
2.942.96
Islamic Housing Financing
2.45
Graph 6.22 NPL of Housing Loans by Type
Jan-
15Fe
b-15
Mar
-15
Apr-1
5M
ay-1
5Ju
n-15
Jul-1
5Au
g-15
Sept
-15
Oct
-15
Nov
-15
Dec-
15Ja
n-16
Feb-
16M
ar-1
6Ap
r-16
May
-16
Jun-
16Ju
l-16
Aug-
16Se
pt-1
6O
ct-1
6N
ov-1
6De
c-16
Jan-
17Fe
b-17
Mar
-17
Apr-1
7M
ay-1
7Ju
n-17
6.05.55.04.54.03.53.02.52.01.51.00.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
NPL(%) LTV2015
LTV2016
Flat/Apt 22 - 70
2.67
2.64
Home Store/Home Office
2.94
4.58
3.13
1.52
2.82
4.88
Flat/Apt > 70
Flat/Ap ≤ 70
RT 22 - 70
Total Housing Loans RT > 70
RT≤ 21
Source: Monthly Commercial Bank reports, June 2017
In relation to inter-authority coordination, the
Financial System Crisis Prevention and Mitigation
(PPKSK) Act mandates Bank Indonesia, in its
role as the monetary, payment system and
macroprudential authority, to coordinate with the
other authorities as follows:
i) Exchange data and/or information; ii) coordinate
with the Deposit Insurance Corporation (LPS) to
resolve bank solvency problems; iii) coordinate with
the Financial Services Authority (OJK) to provide
the short-term liquidity loan as well as update the
list of systemically important banks (SIB); and iv)
coordinate with other authorities to support the
bank restructuring program run by LPS.
Promulgation of the Financial System Crisis
Prevention and Mitigation (PPKSK) Act also
strengthened the bilateral cooperation and
coordination framework of Bank Indonesia in terms
of executing its function, duties and authority in the
monetary, payment system and macroprudential
195BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Table 6.3 Housing Loans by Province
No Province NPL (%) Share (%) Yoy (%)
1 West Java 2.89 25.79 13.14
2 Jakarta 2.38 15.75 1.45
3 Banten 1.77 10.92 12.49
4 East Java 2.11 10.76 8.29
5 Central Java 2.40 5.04 5.97
6 North Sumatra 5.44 3.68 6.65
7 South Sulawesi 4.65 3.38 4.64
8 Bali 3.01 2.42 (20.72)
9 South Kalimantan 4.64 2.07 4.88
10 East Kalimantan 7.35 2.05 3.94
11 Riau 4.46 2.02 8.74
12 South Sumatra 4.06 1.98 8.19
13 Riau Islands 2.12 1.75 3.46
14 West Kalimantan 2.69 1.27 13.94
15 North Sulawesi 6.41 1.08 9.83
16 Yogyakarta 1.98 1.03 8.77
17 Jambi 3.67 0.99 (0.72)
18 Lampung 3.26 0.93 15.27
19 West Nusa Tenggara 2.13 0.87 7.62
20 West Sumatra 3.66 0.82 5.86
21 Central Kalimantan 2.70 0.69 13.58
22 Nanggroe Aceh Darussalam 2.45 0.67 9.36
23 Central Sulawesi 3.03 0.63 4.85
24 Papua 3.11 0.61 21.42
25 Southeast Sulawesi 4.69 0.61 8.03
26 Bengkulu 2.21 0.47 13.17
27 West Irian Jaya 2.12 0.38 55.33
28 Bangka Belitung Islands 3.86 0.35 13.58
29 East Nusa Tenggara 1.64 0.33 6.21
30 Gorontalo 3.78 0.21 1.22
31 Maluku 1.24 0.19 14.44
32 West Sulawesi 2.92 0.16 24.09
33 North Maluku 1.17 0.11 (11.02)
TOTAL HOUSING LOANS 2.94 100.0 7.51
Source: Monthly Commercial Bank reports, June 2017
sectors, primarily through coordination and
cooperation with the Financial Services Authority
(OJK) and Deposit Insurance Corporation (LPS).
a. Bilateral Coordination between Bank
Indonesia and the Financial Services Authority
(OJK)
The cooperation and coordination framework in
operation between Bank Indonesia and the Financial
Services Authority (OJK) was complemented by
the promulgation of the Financial System Crisis
Prevention and Mitigation (PPKSK) Act. The Act
specifically instructs Bank Indonesia to coordinate
with the other authorities in pursuance of the PPKSK
Act, including the coordinated provision of the
short-term liquidity loan as well as determining and
updating the list of systemically important banks
(SIB) with OJK. The basis of Bank Indonesia and OJK
FINANCIAL STABILITY REVIEWNo. 29, September 2017
196 BANK INDONESIA
cooperation and coordination is also contained in
BI-OJK Joint Decree No. , dated
18th October 2013, concerning Cooperation and
Coordination in the Execution of Duties at Bank
Indonesia and the Financial Services Authority (OJK).
The joint decree details four components of BI-OJK
cooperation and coordination, namely: i) supporting
task implementation in accordance with the
respective jurisdictions; ii) exchanging information
on financial services institutions as well as managing
the bank reporting system and financing by BI and
OJK; iii) utilising Bank Indonesia’s property and
documentation by OJK; and iv) managing BI officials
and employees assigned to OJK.
Thus far, those four components of BI-OJK
cooperation and coordination have performed
well. Accordingly, Bank Indonesia and the
Financial Services Authority (OJK) have successfully
cooperated and coordinated on the following:
1. Cooperation and coordination to support
task implementation at both institutions in
pursuance of the respective jurisdictions.
BI and OJK have coordinated and cooperated
periodically or as required to support task
implementation at both institutions through
requests for inputs and responses to draft
regulations in the financial services sector.
Such inputs and recommendations are crucial
considering the interconnectedness and
overlaps of the function, duties and authority
of both institutions. Such cooperation is
expected to enhance regulatory effectiveness
and prevent duplicate rules applicable to
financial institutions operating in the financial
services sector.
PRJ-11/D.01/2013
15/1/KEP.GBI/2013
2. Exchanging Information on financial services
institutions as well as managing the bank
reporting system and financing by Bank
Indonesia and OJK.
Bank Indonesia and OJK cooperate and
coordinate to exchange data and/or
information in the execution of duties at each
respective institution. In general, BI and OJK
require data from financial services institutions,
including banks, nonbank financial institutions
and the capital market. Information and/
or data is exchanged through the Integrated
Information Exchange System (SAPIT) for
machine-to-machine data, including the
reporting application for financial services
institutions. For data that is not machine-
to-machine transferable, the Integrated
Information Exchange System – Information
Exchange Application (SAPIT IEA) is used along
with correspondence, various storage media
and e-mail.
3. Utilising Bank Indonesia’s property and
documentation by OJK.
From time to time, Bank Indonesia and OJK also
cooperate and coordinate in terms of utilising
Bank Indonesia’s property and documents by
OJK. In terms of the archives/documentation,
Bank Indonesia has gradually enhanced
archive management containing the bank
supervision and regulation documents prior
to 2013 under the control of Bank Indonesia.
Archive management has involved sorting
and documenting all the archives, which are
now available as required. Bank Indonesia
and OJK have jointly prepared procedures and
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
197BANK INDONESIA
mechanisms for borrowing archives/documents.
In terms of OJK using the assets and property
of Bank Indonesia, a mechanism has also been
developed for borrowing and extending the use
of BI property by OJK.
4. Managing BI officials and employees assigned
to OJK.
In accordance with the OJK Act, Bank Indonesia
assignments to OJK were completed on 31st
December 2016. The subsequent process of
transferring staff to permanent OJK positions
or back to Bank Indonesia has been completed
per the schedule. BI and OJK continued to
cooperate and coordinate before, during and
after the completion of the assignment process
to ensure the rights and responsibilities of those
employees wishing to transfer permanently to
OJK as well as those wishing to return to Bank
Indonesia in line with prevailing regulations.
To further facilitate coordination and cooperation
between both institutions, on 15th June 2017 Bank
Indonesia and OJK signed Joint Implementation
Guidelines containing: i) Coordination Mechanism
Protocol; and ii) Coordination Mechanism
Implementation Guidelines. The Coordination
Mechanism Implementation Guidelines consist of
eight operational guidelines as follows: i) exchanging
data and/or information on the supervision
of financial services institutions and macro-
surveillance; ii) implementing bank inspections; iii)
conducting joint reviews/research; iv) formulating
Indonesia’s stance on issues raised at international
forums; v) conducting public education and
socialisation activities; vi) the payment system; vii)
coordination between BI and OJK regional offices;
and viii) providing the short-term liquidity loan to
commercial banks and the short-term liquidity
financing to Islamic banks. In addition, after the
Financial System Crisis Prevention and Mitigation
(PPKSK) Act, BI-OJK also prepared implementation
guidelines for determining and updating the list of
systemically important banks (SIB).
Moving forward, with the rapid development
of products and services combined with the
proliferation of financial institutions operating in
the financial services sector, BI-OJK cooperation
and coordination, including with other authorities,
will have to be strengthened. Rapid development
in terms of financial market deepening, FinTech
and financial inclusion will clearly come under
the auspices of various authorities, entailing
overlaps in the function, duties and jurisdictions
of the respective authorities. Consequently,
cooperation and coordination between authorities
with jurisdiction over the financial services sector
will be required in terms of issuing regulations as
well as introducing initiatives to ensure greater
effectiveness and efficiency, while not impairing
the industry.
b. Bilateral Coordination between Bank
Indonesia and the Deposit Insurance
Corporation (LPS)
Coordination between BI and LPS is based on
Memorandum of Understanding (MoU) No.
concerning Cooperation and Coordination in the
Execution of Duties at Bank Indonesia and the
Deposit Insurance Corporation (LPS), signed on 28th
July 2016. The Memorandum of Understanding
(MoU) also contains the provisions of the Financial
System Crisis Prevention and Mitigation (PPKSK)
Act, specifically addressing the resolution of bank
18/12/NK/GBI/2016
MoU-3/DK/2016
FINANCIAL STABILITY REVIEWNo. 29, September 2017
198 BANK INDONESIA
solvency issues. The scope of coordination and
cooperation between BI and LPS consists of: i)
the resolution of bank default without systemic
impact through revocation of the business license;
ii) funding to resolve bank solvency issues; iii)
exchange of data and/or information; iv) employee
competence development; v) joint research, reviews
and/or surveys; vi) joint education and socialisation
activities; vii) employee assignments; and viii)
execution of other duties in accordance with
prevailing laws, including supporting the National
Noncash Movement (GNNT), financial market
deepening and expanding financial access.
BI-LPS cooperation and coordination in 2017 entered
the implementation phase of the Memorandum of
Understanding (MoU) with the following achieved:
1) Following up on Article 27 of the Financial
System Crisis Prevention and Mitigation (PPKSK)
Act, Bank Indonesia and the Deposit Insurance
Corporation (LPS) signed a Cooperation
Agreement concerning the Sale of Securities
by the Deposit Insurance Corporation to Bank
Indonesia on 31st October 2016. The agreement
was in the form of implementation guidelines
for BI and LPS to sell tradeable government
securities (SBN) in order to resolve solvency
issues at systemically important banks (SIB)
and other banks under financial system crisis
conditions in pursuance of the decision taken
by the Financial System Stability Committee.
2) Exchanging data and/or information was
facilitated, including Regional Balance Sheet
data from Bank Indonesia as well as Crisis
Management Protocol (CMP) indicators
currently under development at the Deposit
Insurance Corporation (LPS).
3) Bank Indonesia and LPS also cooperate and
coordinate to provide socialisation activities
regarding the function, task and authority
of both institutions to stakeholders in the
operational area of the head office and
regional offices. The socialisation activities are
expected to bolster public and stakeholder
understanding regarding the function, task
and authority of Bank Indonesia and LPS.
Furthermore, Bank Indonesia and LPS also
coordinate to formulate rules and regulations
that involve interconnectedness or overlaps
with the function, tasks and authority of a
third party, including the preparation of LPS
regulations on the Resolution of systemically
important banks (SIB) and settlement of non-
systemically important banks as required by
the Financial System Crisis Prevention and
Mitigation (PPKSK) Act.
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
199BANK INDONESIA
The reserve requirement is a monetary policy
instrument used by central banks in various
countries. Bank Indonesia controls the magnitude
of the reserve requirement for all conventional and
Islamic commercial banks in rupiah and a foreign
currency. The reserve requirement sets the minimum
amount of reserves that must be maintained by a
commercial Bank, as determined by Bank Indonesia
and expressed as a percentage of the deposits. In
general, RR funds are maintained by a commercial
bank and held at the central bank as demand
deposits. The commercial banks’ funds are used
to meet the requirement for intraday customer
withdrawals and /or noncash activities.
Bank Indonesia has refined the reserve requirement
to enhance the effectiveness of monetary policy
transmission. The most recent refinements have
consisted of follow-up measures to the reformulation
of the monetary policy operational framework
planned in the previous year. Accordingly, the
adjustments are contained in Bank Indonesia
Regulation (PBI) No. 19/6/PBI/2017 as the fifth
amendment to Bank Indonesia Regulation (PBI) No.
15/15/PBI/2013 concerning the Minimum Reserve
Requirement in Rupiah and a Foreign Currency for
Conventional Commercial Banks.
The main provisions of the regulation that were
improved include meeting the primary reserve
requirement in rupiah. Accordingly, the primary
reserve requirement in rupiah, which was previously
set at 6.5% of deposits in rupiah and met on a daily
basis, was lowered to 5% of rupiah deposits to be
met on a daily basis and an average of 1.5% of
rupiah deposits over a given period.
The central bank regulation, which is known as
the average reserve requirement, is considered a
best practice, as applied by nearly all central banks
around the world. There are three main goals of
the average reserve requirement. First, to provide
flexibility for liquidity management, thus enhancing
bank efficiency. Second, to provide an interest rate
buffer, thereby reducing interest rate volatility in
the money market. Third, to provide an alternative
outlet to place liquidity, hence supporting financial
market deepening.
The average primary reserve requirement will be
implemented prudently and gradually while paying
due consideration to the challenges faced. Current
conditions represent a challenge for implementation
of the average reserve requirement, including surplus
liquidity in the banking system that is not evenly
distributed, the minimal availability of instruments in
the money market and the unbalanced distribution
of access to interbank transactions. Through a
rigorous review, coordination with relevant parties,
adjustments prepared to an established system and
an intensive communication process with those
involved, the banks are expected to take optimal
advantage of the additional liquidity management
flexibility the new regulations afford, which become
effective on 1st July 2017 with a 1-month transition
period immediately thereafter.
Box 6.1. Average Reserve Requirement Ratios
FINANCIAL STABILITY REVIEWNo. 29, September 2017
200 BANK INDONESIA200 BANK INDONESIA
The Development of Dual-Purpose Islamic
Financial Instruments
Islamic financial and economic developments
encompass three main pillars, namely: (i) economic
sector empowerment; (ii) enhancing Islamic
financial market efficiency; and (iii) improving the
quality of research and education. The economic
sectors, production and efficiency as well as Islamic
financial market deepening are strengthened
through mutually reinforcing principles due to the
requirements between financial instruments and the
underlying assets. Increasing Islamic financial market
efficiency is, therefore, in line with the development
of Islamic financial institutions (including Islamic
banks, takaful and mutual funds) and Islamic
financial market deepening. In this case, the quality
of research is crucial in terms of accelerating Islamic
financial and economic development.
A lack of Islamic financial market deepening efforts
in terms of Islamic Social Finance (ISF) has led to
an emphasis on the development of commercial
financial instruments and financing. Meanwhile,
efforts to mobilise funds based on the ISF platform
through waqf (and zakat) remain scarce. Indeed, if
formulated carefully, the development of ISF-based
schemes would provide a dual benefit.
Box 6.2. Innovative Islamic Financial Instruments: Awqaf-Linked Sukuk
Traditionally, zakat and waqf are instruments used
by the government to accelerate the process of
levelling the playing field for all segments of society,
while simultaneously improving the inclusiveness of
development. Nevertheless, the governance of ISF
institutions is not yet at a level that instils public
confidence. To that end and to optimise the growing
potential of waqf funds, the management of waqf
(and zakat) funds must become more effective,
efficient and accurate.
Seeking to garner public confidence in ISF
management, in conjunction with the Islamic
Research and Training Institute – Islamic
Development Bank (IRTI-IDB) and national waqf and
zakat authorities (including the National Amil Zakat
Board (Baznas), Indonesia Waqf Board, etc.) as well
as international ISF authorities, Bank Indonesia
has initiated the formulation of a governance
framework in the form of zakat and waqf core
principles, which are currently being complemented
by the preparation of technical notes.
In relation to utilising social funds for economic
activity, the concept of awqaf-linked sukuk integrates
the potential of waqf funds to finance development,
thus providing dual commercial and social benefits.
Domestic and international sources of funds include
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
201BANK INDONESIA 201BANK INDONESIA 201
the cash waqf funds accumulated by several waqf
institutions in Indonesia under the auspices of the
Indonesia Waqf Board (BWI) using a fiduciary scheme.
Technically, the concept of awqaf-linked sukuk is the
utilisation of cash waqf (with a maturity of typically
more than one year) accumulated by Nadzhir for
investment in selected SBSN projects that provide a
regular return. Selected projects provide the uniqueness
of this concept, where the projects are considered in
line with waqif expectations and are generally in
accordance with the Sustainable Development Goals as
well as improving the Human Development Index (HDI).
According to the scheme, upon maturity the
principal of the disbursed fund is returned to
the waqif, while the returns are handed over by
the government to the Nadzhir to be given as
shodaqah (based on the approval of the waqif) to
the Amil Zakat Institutions (LAZ) for distribution
to social projects/activities. Consequently, the
commercial and social sectors (waqf and zakat
funds) become integrated, such as by upgrading
micro-entrepreneurs, broadening financial access
(financial inclusion) and so on that ultimately
increase productivity and expand the national
production base.
1. Waqf included interconnectedness he productive waqf forum are committed to temporary waqf funds.
2. Waqf funds are used to purchase invest in Government Islamic Securities (SBSN).
3. Commercial projects generate returns.
4. SBSN provide returns and the principal upon maturity.
5. SBSN principal is returned to the Nadzhir and then to the Waqif.
6. SBSN returns (same or shodaqoh to zakat institution below the market rate) becomes the shodaqoh to the zakat institution.
7. The zakat institution utilises the funds for social projects.
Wakif Nadzhir &17 LKS PWU SBSN
Wakif
Wakif
WCP
LAZ Social Projects *
Social Projects Commercial Projects
ZCP
Productive Waqf Forum
BI, BWI & Baznas
Deposit waqf funds Investment in SBSN
SBSN return
and principal
Project
return
SBSN Principal
Social Project financing
Shodaqoh
SBSN return
(after Nadzhir)
to LAZ
Box Figure 6.2.1 Awqaf-Linked Sukuk
1
2
6
3
4
2
7
FINANCIAL STABILITY REVIEWNo. 29, September 2017
202 BANK INDONESIA
The concept of awqaf-linked sukuk has dual
benefits from a commercial and social perspective,
including: 1) providing additional sources of
financing for government infrastructure projects,
especially social projects such as new schools,
hospitals and so on; 2) providing additional
new local and international investor segments,
particularly social (waqf) investors, thus deepening
the Islamic financial markets; 3) the investment
returns can be used to finance social projects
through zakat schemes; 4) the low cost of waqf
funds will help alleviate pressures on the cost of
funds of the respective project, thus reducing the
cost price of production and increasing efficiency.
Such benefits indicate that awqaf-linked sukuk
would provide a deflator function and, therefore,
stabilise the financial sector as a whole.
Furthermore, when the awqaf-linked sukuk are
fully integrated into the Awqaf Core Principals, the
business processes and accountability of awqaf-
linked sukuk will become more professional, on
target, transparent and accountable. Consequently,
congruent with a stronger people’s economy
and growing public confidence nationally and
internationally, the flow of waqf funds will surge.
Moreover, when the awqaf-linked sukuk can provide
tangible benefits, the confidence of national and
international waqif will soar. Currently, this scheme is
merely one instrument that is driving capital inflows,
accelerating economic growth and economic equality
as well as deepening the financial markets. In turn,
such favourable developments will be accompanied
by a stronger position of reserve assets, balance of
payments (BOP) and rupiah exchange rate.
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
203BANK INDONESIA 203BANK INDONESIA 203
THE IMPACT OF DOMESTIC GOVERNMENT FINANCING ON DEPOSITS IN THE BANKING INDUSTRY
Article 1
Ndari Surjaningsih1, Moh. Nuryazidi2, Laura G. Gabriella3
KAJIAN STABILITAS KEUANGANNo. 29, September 2017
204 BANK INDONESIA
205BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Rp1,931.22 trillion at the end of 2014 (74% share
of the total).
The surge of SBN issuances has been observed to
erode deposits in the banking industry. In addition
to slower GDP growth, sluggish deposit growth
in the banking industry has also been linked to
stronger SBN growth, primarily since 2013 (Article
Graph 1.1). There are two factors suspected of
affecting the relationship between deposits and
SBN. First, the benchmark 10-year SBN yield is more
attractive to investors than the interest rates offered
on 1-month term deposits. Second, promulgation
of OJK Regulation (POJK) No. 01/POJK.05/2016
concerning Investment in Securities for Nonbank
Financial Services Institutions, dated 11th January
2016, which requires insurance and pension fund
companies to place a minimum of 30% of their
funds in SBN (Article Table 1.1) has also increased
the SBN placements of financial institutions.
Based on the previous considerations, in addition to
economic moderation in Indonesia, sluggish deposit
growth is suspected to have stemmed from a shift
in fund placements by investors, moving away from
deposits in favour of tradeable government securities
(SBN). One mandate of Bank Indonesia is to maintain
The expansive fiscal policy of the Indonesian
Government since 2014, with a focus on
infrastructure development, has increased the
budget deficit. Seeking to reduce the deficit,
the Government’s financing strategy has been
to increase issuances of tradeable government
securities (SBN), while maintaining a sound debt-
to-GDP ratio. The Government has deepened
the availability of debt instruments by increasing
the frequency of issuances to weekly as well as
diversifying the variety of instruments in order to
boost SBN issuances. The Government released
conventional government debt securities (SUN),
consisting of Government Bonds (ON) and treasury
bills (SPN). In terms of sharia-compliant instruments,
the Government has released Government Islamic
Securities (SBSN), Project-Based Sukuk (PBS), Retail
Sukuk (SUKRI), Hajj Fund Sukuk (SDHI) and Islamic
Treasury Bills (SPNS). The fruits of government efforts
to expand SBN issuances were already evident by
the end of 2016, with the position of SBN recorded
at Rp2,733.83 trillion, accounting for a 78.90%
share of total government debt and increasing from
1.1. Background
1. INTRODUCTION
Article Graph 1.1 SBN, Deposit and GDP Growth
% (y
oy)
% (y
oy)
30
25
20
15
10
5
0
8
7.5
7
6.5
6
5.5
5
4.5
4
3.5
3
2010 2011 2012 2013 2014 2015 2016
I II III IV I II III IV I II III IVI II III IV I II III IV I II III IV I II III IV
SBN (lhs) Deposits (lhs) GDP (rhs)
1 Senior Economic Researcher, Macroprudential Policy Department, Bank Indonesia. E-mail: [email protected] Economic Researcher, Macroprudential Policy Department, Bank Indonesia. E-mail: [email protected] Research Fellow, Macroprudential Policy Department, Bank Indonesia. E-mail: [email protected]
Source: Ministry of Finance
206 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
The Government has continued to increase SBN
issuances to fund the infrastructure development
program. Accordingly, Government SBN have
increased by 41.47% from Rp1,931.22 trillion in
2014 to Rp2,732.16 trillion at the end of 2016.
Nevertheless, the share of SBN holdings attributable
1.2. Tradeable Government Securities (SBN) and Deposits
Article Table 1.1 Summary of OJK Regulations concerning Nonbank SBN Holdings
Respondent NewExisting
31 Dec ‘16 31 Dec ‘17
Life Insurance min. 30 % min. 20 % min. 30 %
General Insurance and Reinsurance min. 20 % min. 10 % min. 20 %
Guarantee Company min. 20 % min. 10 % min. 20 %
Pension Funds min. 30 % min. 10 % min. 20 %
Social Security Management Agency (BPJS) Employment
• Social Guarantee Funds• BPJS Investments
min. 50 %min. 30 %
min. 50 %min. 30 %
min. 50 %min. 30 %
Social Security Management Agency (BPJS) Health min. 30 % min. 30 % min. 30 %
financial system stability, therefore slower deposit
growth demands attention before it is given the
chance to undermine the bank intermediation
function. Furthermore, weaker deposit growth could
also compromise the liquid assets in the banking
industry, which would impair repayment capacity for
the banks’ short-term obligations. Consequently, in-
depth research is required concerning the impact of
the government deficit on deposits in the banking
industry of Indonesia.
Article Graph 1.2 SBN Holdings by Financial Institution (December 2014 and December 2016)
38%
3%
3%
12%
31%
4%
4%5%
Foreign SBN
Insurance SBN
Banking Industry SBN
Bank Indonesia SBN
Pension Funds SBN
Individual SBN
Other SBN
Mutual Funds SBN
December 2014 December 2016
43%9%
2%
12%
18%
5%
5%6%
Source: Ministry of Finance
207BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
to banks and nonbank financial institutions has not
really changed, other than a slight decline in bank
holdings coupled with a corresponding increase of
Bank Indonesia holdings in line with the change
in monetary policy instruments. In general, non-
resident investors are the dominant holders of SBN
from Indonesia, accounting for more than 43%,
followed by the banking industry with 18% and the
insurance industry with 12%.
Meanwhile, the impact of the OJK regulation issued
in 2016 is also suspected of eroding deposits.
Article Graph 1.3 shows an inverse correlation
between deposits and SBN in the nonbank financial
industry from the middle of 2015 through to
the end of 2016, especially in the insurance and
pension funds industries. At the end of 2016, SBN
holdings in the insurance industry had increased by
38.82% from Rp171.62 trillion at the end of 2015
Article Graph 1.3 Holdings of SBN and Deposits by Nonbanks (Rp, billions)
100000
80000
60000
40000
20000
0
800000
600000
400000
200000
0
Foreign Deposits and SBN
2010
M01
2010
M05
2010
M09
2011
M01
2011
M05
2011
M09
2012
M01
2012
M05
2012
M09
2013
M01
2013
M05
2013
M09
2014
M01
2014
M05
2014
M09
2015
M01
2015
M05
2015
M09
2016
M01
2016
M05
2016
M09
Foreign SBN (rhs)
Foreign Deposits (lhs)
100000
80000
60000
40000
20000
0
800000
600000
400000
200000
0
Insurance Industry Deposits and SBN
2010
M01
2010
M06
2010
M11
2011
M04
2011
M09
2012
M02
2012
M07
2013
M12
2013
M05
2013
M10
2014
M03
2014
M08
2015
M01
2015
M06
2015
M11
2016
M04
2016
M09
Insurance Industry Deposits (rhs)
Insurance Industry Deposits (lhs)
100000
80000
60000
40000
20000
0
Pension Funds Deposits and SBN
2010
M01
2010
M05
2010
M09
2011
M01
2011
M05
2011
M09
2012
M01
2012
M05
2012
M09
2013
M01
2013
M05
2013
M09
2014
M01
2014
M05
2014
M09
2015
M01
2015
M05
2015
M09
2016
M01
2016
M05
2016
M09
Pension Funds Deposits (rhs)
Pension Funds SBN (lhs)
100000
80000
60000
40000
20000
0
3000000
2500000
2000000
1500000
1000000
500000
0
Individual Deposits and SBN
2010
M01
2010
M06
2010
M11
2011
M04
2011
M09
2012
M02
2012
M07
2013
M12
2013
M05
2013
M10
2014
M03
2014
M08
2015
M01
2015
M06
2015
M11
2016
M04
2016
M09
Individual Deposits (rhs)
Individual SBN (lhs)
100000
80000
60000
40000
20000
0
Source: Ministry of Finance, Bank Indonesia
Mutual Funds Deposits and SBN
2010
M01
2010
M04
2010
M07
2010
M10
2011
M01
2011
M04
2011
M07
2011
M10
2012
M01
2012
M04
2012
M07
2012
M10
2013
M01
2013
M04
2013
M07
2013
M10
2014
M01
2014
M04
2014
M07
2014
M10
2015
M01
2015
M04
2015
M07
2015
M10
2016
M01
2016
M04
2016
M07
2016
M10
Mutual Funds Deposits (rhs)
Mutual Funds SBN (lhs)
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
40000
35000
30000
25000
20000
15000
10000
5000
0
208 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
to Rp238.24 trillion. During the same period, the
insurance industry’s deposits declined by 10.97%
from Rp61.73 trillion to Rp54.96 trillion. Following
suit, SBN holdings in the pension funds industry
increased by 75.10% from Rp49.83 trillion to
Rp87.28 trillion over the same period.
One factor thought to play an important role in the
decline of deposits has been more attractive SBN
yields than deposit rates, which has encouraged
investors to shift their portfolios from deposits to
SBN. Article Graph 1.4 shows that the yield of the
benchmark 10-year SBN, as the most popular SBN
tenor sought by investors, has remained higher than
the 1-month deposit rate (as the most popular term
deposit tenor amongst the public).
Article Graph 1.4 SBN Yield and Deposit Rate Developments
1-Month Term Deposit Rate 1-Year Term Deposit Rate
10-Year SBN Yield
2010 2011 2012 2013 2014 2015 2016
10
9
8
7
6
5
Source: CEICData
1. Investigate the impact of government domestic
financing on deposit growth; and
2. Investigate how changes in investor behaviour
due to increasing government domestic
financing affect deposit placements and SBN
purchases.
1.3. Research Objectives
2.1. Demand for Money Theories
2. LITERATURE REVIEW
This chapter explores theories to explain factors
that influence deposits and a literature review to
discuss how the impact of a government budget
deficit affects bond yields and banking indictors.
Specifically, the theory discusses the determinants
of deposits that are not straight forward. One such
approach uses demand for money theories.
a. Quantity Theory of Money
The quantity theory of money shows the amount
of wealth in the form of money an individual is
inclined to hold at a certain time. The individual
faces several choices of where to place the wealth,
for instance in savings deposits, term deposits,
securities, cash or property. The selection process is
based on the opportunity cost of holding money
because there is a return on placements in securities
that would be lost if the individual chooses to hold
cash. In addition, an individual holding cash would
be exposed to a loss of purchasing power as the
nominal value is eroded by inflation.
An important theory in terms of demand for money
is the Liquidity Preference Theory. According to
the theory, Keynes rejects the classical theory
which states that the velocity of money is constant
and interest rates do not influence the demand
for money. According to Keynes, there are three
motives for an individual holding cash, namely to
transact, rainy-day savings and speculation. Keynes
grouped demand for money into two types, namely
the transactions demand for money (including
demand for savings), L_T, and speculative demand
for money, L_S.
209BANK INDONESIA
Financial Markets Households and Corporations
The Financial System Stability Condition
Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
Transactions demand for money correlates
positively with nominal output (GDP), while
speculative demand correlates inversely with
interest rates. Therefore, higher interest rates
will be accompanied by dwindling demand for
money as economic players prefer to place their
wealth in portfolios that provide returns on
interest rates, such as savings and term deposits.
Under equilibrium, money supply (M) has the same
value as real money demand, namely M/P=L.
LT=Lt (Y)= kY , dengan ∂LT ⁄ ∂Y>0 danLS = LS (r) = R - dr, dengan ∂LS ⁄ ∂r < 0 dan (∂2 LS ⁄ ∂r2 < 0
Dimana,k = income balance coefficientY = Nominal outputR = Autonomous speculative balance,
r = representative interest rated = interest rate elasticity
(1)(2)
L = LT + Ls = kY + LS (r)
Furthermore, there is a critical market yield, r, that
makes investors indifferent to specifying their fund
choice. When the market rate is above the critical
market yield, investors will choose to place their
wealth in bonds because the interest income will be
higher than the expected capital loss. In contrast,
if the market rate is below the critical market yield,
the investor would choose to release their bonds
and hold cash.
Therefore, speculative demand is a process that
specifies whether an economic agent will hold
bonds or cash. Assuming that each individual
estimates normal yield (and critical yield) differently,
demand can be amalgamated into aggregate
speculative demand. The aggregate demand has a
negative slope because a reduction in the market
rate would cause more investors to hold bonds.
According to the liquidity preference theory, demand
for bonds will be the same as money supply, thus
Bd = Ms, which shows the presence of speculative
demand.
Dimana,BP = Bond market price,n = nominal coupon dari obligasi,
r = effective yield di pasar obligasi. NV = nominal value dari obligasi.
BP = – . NVnr
An increase in the number of bonds available would
shift the liquidity preference curve upwards, until
the same level of money supply would raise interest
rates (a change in the position r_0 to r_1. Therefore,
if the central bank undertook monetary operations
that changed money supply, it would also influence
the equilibrium of the liquidity preference function.
LS=LS (r,W), = > 0∂LS
∂LS
Consistent with the quantity theory of money,
transaction balances emphasise the importance of
money as a payment instrument, thus demand is
predicated on current public income. Meanwhile,
the store of value function proves the speculation
motive of demand for money. According to Keynes
theory (1973), the choice of portfolio by an agent is
based on expectations of future bond prices (bond
yields for instance). The public will continue to hold
bonds if the expected total return remains positive.
The function in the bond market can be expressed
as follows:
210 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Article Graph 1.5 Keynesian Liquidity Preference
r
r1
BD=Ms
100b0.Pb
BS1=Ls1
BS0=Ls0
r0
Theories on the relationship between government
bond yields and the fiscal deficit remain a point of
contention. Gale and Orzag (2002) concluded that
from 60 research papers regarding the impact of
a fiscal deficit on interest rates the results were
contradictory. Half of the research found a positive
correlation, while the other half found a negative
correlation or mixed impact. The paper concluded
that a narrower government surplus would erode
national savings and reduce national income
irrespective of whether interest rates increased
or not. Specifically, the research stated that if a
larger fiscal deficit was not offset by an increase
in domestic savings, the budget deficit would
undermine domestic investment and exacerbate
the current account deficit.
Research by Ardagna (2009) analysed the behaviour
of government bond yields during a change of fiscal
stance in several OECD countries from 1960-2002.
2.2. Impact of a Government Deficit on Bond Yields and Banking Indicators
Ardagna found that 10-year government bond
yields experienced a hike of more than 180bps in
the current year when the fiscal deficit increased
by more than 1.5% of GDP in one year or by 1%
of GDP per annum for two consecutive years.
Consequently, the research recommended using
the 10-year SBN yield as a reference in response to
an increase in the fiscal deficit.
Research by Baldacci and Kumar (2010) found
a nonlinear relationship between a government
deficit and bond yields. The research looked at the
impact of a fiscal deficit and government debt on
interest rates from 1980-2008 using panel data
from 31 advanced and developing economies. The
results showed that increases in the fiscal deficit
and government debt would significantly influence
long-term interest rates, the magnitude of which
was determined by several factors, including
initial fiscal conditions, institutional conditions and
other structural factors, as well as global financial
dynamics. If the initial conditions consisted of a
large fiscal deficit, the increase in long-term bond
yields would be greater. A large fiscal deficit and
high government debt would place additional
upside pressures on bond yields, thereby rising in
the medium term.
Research in Indonesia concerning the impact of SBN
issuances has been conducted by Utari, et al. (2010),
who tested the impact of SUN on the crowding
out phenomenon using an Error Correction Model
and monthly data from 2003-2009. The research
concluded that the presence of domestic SUN had
no significant effect on increasing total credit.
Furthermore, relative changes in SUN stock to GDP
also had no significant impact on changes in the
long-term interest rate. These findings contradict
211BANK INDONESIA
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a. The Impact of SBN on Bank Deposits
Long Term:
Model 1 : DPKt = ß0 + ß1 PDB Riilt + ß2 RDep1t + ß3SBNt + Zt
Model 2 : DPKt = ß0 + ß1 PDB Riilt + ß2 Spreadt + Zt
Short Term:
Model 1:
∆DPK = ß0 + ß1 ECMDPKt-1 + ß2∆PDB Riil +
ß3PDB Riilt-1 + ß4∆RDEP1MTt + ß5 RDEP1MTt-1 + ß4 ∆SBNt + ß5 SBNt-1
Model 2:
∆DPK = ß0 + ß1 ECMDPKt-1 + ß2∆PDB Riil +
ß3PDB Riilt-1 + ß4∆Spreadt + ß5Spreadt-1
b. The Impact of Individual and Nonbank
Portfolio Investment Behaviour
Y_t=SBN, DPK
X_t=Yield SBN, RDep1Yr, Gov_Deficit
Using the VECM method, each nonbank financial
institution is analysed, consisting of: (i) foreign; (ii)
insurance; (iii) pension funds; (iv) individuals; and (v)
mutual funds.
the research of Detragiache, et al (2005), which
analysed data from 89 low-income countries and
found that government bond yields were inversely
correlated with the loan-to-GDP ratio and deposit-
to-GDP ratio.
Excessive government bond issuances could
precipitate the lazy bank phenomenon, namely
a condition that disrupts the bank intermediation
function, causing a decline in bank loans. This
phenomenon was supported by Hauner (2006),
who showed that a high fixed-rate bond coupon,
classified as a risk-free asset, would cause the
banks to receive a constant flow of earnings from
domestic government bond holdings, thus reducing
the incentive for such banks to lend to the private
sector, which would be considered higher risk than
government bonds.
This research seeks to find a relationship between
the impact of a fiscal deficit and deposits in the
banking industry using an Error Correction Model
(ECM) and Vector Error Correction Model (VECM).
The equations tested in this research are detailed as
follows:
3.1. Methodology
3. METHODOLOGY AND DATA
Notes:Spread is the 10-year SBN yield deducted by the 1-month deposit rate.
n n ni i i∆Yt = αt + Σ = 0 ßi ∆Yt-i + Σ = 0δi ∆Xt-i + Σ = 0γi ∆Zt-i + p1 ei
∆Xt = αt + Σ = 0 ßi ∆Yt-i + Σ = 0δi ∆Xt-i + Σ = 0γi ∆Zt-i + p1 ei-1
n n ni i i
212 BANK INDONESIA
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The data used for the research sample is quarterly
banking and macroeconomic data from Q1/2008
to Q4/2016 for the ECM method and monthly data
from January 2013 to December 2016 for the VECM
method.
3.2. Data
Based on a unit root test, it was concluded that
nearly all variables are not stationary at level. ADF
tests with a trend and intercept showed that most
of the data used was not stationary at level but
stationary at the first difference. The stationarity
testing revealed that the ECM and VECM methods
were in line with econometric theory.
The effect of declining deposits due to increased
government domestic financing was subsequently
tested using the ECM method in the long and short
term. The impact on deposits due to increasing SBN
issuances and SBN yields is presented in Article Table
1.4 and Article Table 1.5.
4.1. Stationarity Test
4.2. Impact Analysis of SBN on Deposits
4. RESULTS
Article Table 1.3 Unit Root with an Augmented Dicky Fuller (ADF) Test
Article Table 1.4 Long-Term Equation
Article Table 1.2 Data Summary for the ECM and VECM Methods
ECM Method
*) SBN and Deposit data from each respective institution
*) Significance level of 90%**) Significance level of 95%***) Significance level of 99%
VECM Method
Variable Level First Difference
Deposits
- Foreign 0.1132 0.0000
- Insurance 0.6406 0.0000
- Pension Funds 0.2973 0.0000
- Individual 0.0000 0.0000
- Mutual Funds
SBN
- Foreign 0.9184 0.0000
- Insurance 0.9739 0.0000
- Pension Funds 0.997 0.0000
- Individual 0.0001 0.0004
- Mutual Funds 1.0000 0.0000
Inflation 0.3078 0.0000
Real GDP 0.9961 0.8730
1-month Term Deposit Rate 0.7328 0.0506
10-year SBN yield 0.2985 0.0000
Variable (1) (2)
C -29.679*** -20.345***
Real GDP 3.408*** 2.436***
Term Deposit Rate 0.016*** -
SBN -0.344*** -
Spread - -0.016**
Adjusted R-Squared 0.996 0.988
Variable Data Source
DPK Total Deposits (rupiah and foreign currency) SEKI Bank Indonesia
PDBRL Real GDP CEIC Data
RDEP1 1-Month Term Deposit Rate SEKI Bank Indonesia
SBN Nominal SBN Ministry of Finance
YSBN_10YR 10-Year SBN Yield Bloomberg
Variable Data Source
DPK Total Deposits (rupiah and foreign currency) SEKI Bank Indonesia
PDBRL Real GDP CEICData
RDEP1 1-Month Term Deposit Rate SEKI Bank Indonesia
SBN Nominal SBN Ministry of Finance
YSBN_10YR 10-Year SBN Yield Bloomberg
213BANK INDONESIA
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To observe changes in investor behaviour attributable
to government domestic financing in terms of placing
deposits and buying SBN, this research applied the
Vector Error Correction Model (VECM) method to
each respective investor, namely foreign, insurance,
pension fund, mutual fund and individual investors,
using monthly data from 2013 to 2016. The VECM
method was applied in this research because the
variables were not stationary at level but stationary
at the first difference. The variables used in the VECM
equations were government deficit, SBN, deposits
and spread between the 10-year SBN and 1-month
term deposit rate. Of the five VECM equations for
each respective investor, the results showed that the
optimum lag is 2. Meanwhile, all VECM equations
indicated cointegration, except mutual funds. This
implies that investment decision-making in the
mutual funds industry is more complex compared
to the other investors.
Hal ini mengindikasikan pengambilan keputusan
investasi reksadana lebih kompleks dibandingkan
dengan keempat investor lainnya.
4.3. Changes in Investor Behaviour due to Domestic Financing
Article Table 1.5 Short-Term Equation
*) Significance level of 90%**) Significance level of 95%***) Significance level of 99%
Variable (1) (2)
C -0.976 -0.0796
ECM -0.2369*** -0.293**
D(Real GDP) 0.272 1.864
Real GDP(-1) 0.1596** 0.0067
D(Term Deposit Rate) 0.0024 -
Term Deposit Rate (-1) 0.0003 -
D(SBN(-1)) -0.186* -
SBN(-2) -0.092*** -
D(Spread(-3) - -0.0072**
Spread(-4) - -0.0059
T>2014 Q1 0.015 -
T>2015 Q1 - -0.0211***
T=2015 Q3 -0.033*** -0.0337***
Adjusted R-Squared 0.653 0.799
In the long term, an increase of deposits is affected
by changes in real GDP, the 1-month term deposits
rate, nominal SBN and yield spread between the 10-
year SBN and 1-month term deposit rate. Stronger
economic performance would also accelerate
deposit growth, as indicated by a 3.4% bump
in deposits in the event of a 1% increase in real
GDP. In addition, a 1% hike in the term deposit
rate would also precipitate a 0.016% increase in
banking industry deposits.
Based on the first equation, in addition to the effect
of economic growth and deposit rates, deposit
growth would also be influenced by SBN volume
in the long term. An increase in SBN issuances
would reduce total deposits, indicating a shift in
the allocation of funds by the public from bank
deposits to SBN. The second equation pointed to an
inverse and significant correlation with deposits and
spread between the 10-year SBN and 1-month term
deposit rate (spread), indicating that depositors also
consider SBN yields and spread when placing their
funds. A higher SBN yield and broader spread would
lead to fewer deposits.
Estimations using the short-term equation
produced results consistent with the long-term
equation. According to the first equation, deposits
were inversely and significantly correlated with
SBN, indicating a shift in the allocation of funds by
the public from deposits to SBN. Meanwhile, the
second equation showed an inverse correlation
between deposits and spread between the 10-year
SBN and 1-month term deposit rate, revealing the
same trend as the long-term equation.
214 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
4.3.1. Foreign Investors
The VECM impulse response function for foreign
investors demonstrated that a shock in the form of
an increase in the government deficit would trigger
an increase in foreign SBN holdings. Moreover,
the foreign investor response would return to
equilibrium in the 10th month. Considering
that foreign investors dominate SBN holdings,
accounting for a 43% share, the results of the
impulse response function already explained most
SBN movements due to a larger government deficit.
On the other hand, foreign investors would also
respond to a wider government deficit by reducing
their deposits in the banking industry.
4.3.2 Insurance Investors
The VECM impulse response function for
insurance investors showed that an increase in the
government deficit would again prompt a surge of
SBN holdings and a decline in deposits held in the
banking industry. The results are consistent with
the ECM estimations, which showed a shift away
from deposit placements to SBN. An increase of
SBN holdings by the insurance industry was also
affected.
4.3.3 Pension Fund Investors
The VECM impulse response function for pension
fund investors showed disparate results compared
to foreign and insurance investors. Pension fund
investors would respond to a broader government
deficit by reducing SBN holdings and increasing
placements of deposits in the banking industry.
Considering that pension fund investors only
account for around 5% of total SBN holdings, the
aggregate shift would be negligible.
1200
800
400
0
-400
-8005 10 15 20 25 30
0
-100
-200
-300
-400
-500
-6005 10 15 20 25 30
Response to Cholesky One S. D. Innovations
Response to Cholesky One S. D. Innovations
-600
-700
-800
-900
-1000
-11005 10 15 20 25 30
Response of SBN_ASING to GOV_DEFICIT
Response of SBN_INSURANCE to GOV_DEFICIT
450
400
350
300
250
200
1505 10 15 20 25 30
Response of DPK_ASING to GOV_DEFICIT
Response of DPK_INSURANCE to GOV_DEFICIT
215BANK INDONESIA
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Financial System InfrastructureBanking and IKNB Responds of Bank
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4.3.4 Mutual Fund Investors
The VECM impulse response function for mutual
fund investors revealed that an increase in the
government deficit would again spur an uptick of
SBN holdings and a decline in deposits held in the
banking industry. The results are consistent with the
ECM estimations, which showed a shift away from
deposit placements to SBN.
4.3.5 Individual Investors
The VECM impulse response function for
individual investors showed similar results as
pension fund investors, namely that an increase
in the government deficit would induce a decline
of SBN holdings and an increase of deposits held
in the banking industry. As the investors with the
smallest share of SBN holdings, accounting for
just 2% of the total, the decline of SBN holdings
would not affect the aggregate shift towards SBN.
In addition, the alternative investment options
available to individual investors are considerably
broader compared to the other investors, for
example investment through the capital market
and real sector.
400
200
0
-200
-400
-6005 10 15 20 25 30
400
0
-400
-800
-1200
-1160
-20005 10 15 20 25 30
Response to Cholesky One S. D. Innovations
Response of SBN_PENSIONFUNDS to GOV_DEFICIT Response of DPK_PENSIONFUNDS to GOV_DEFICIT
600
500
400
300
200
100
1000
800
600
400
200
05 510 1015 1520 2040 4025 2545 4530 3050 50
Response to Cholesky One S. D. Innovations
Response of SBN_MUTUALFUNDS to GOV_DEFICIT Response of DPK_ MUTUALFUNDS to GOV_DEFICIT
5 10 15 20 25 30
1000
0
-1000
-2000
-3000
30000
25000
20000
15000
10000
5000
05 10 15 20 25 30
Response to Cholesky One S. D. Innovations
Response of SBN_INDIVIDUAL to GOV_DEFICIT Response of DPK_INDIVIDUAL to GOV_DEFICIT
216 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
The unit root testing showed that nearly all variables
were not stationary at level. ADF tests with a trend
and intercept showed that most of the data used
was not stationary at level but stationary at the
first difference. The stationarity testing revealed
that the ECM and VECM methods were in line with
econometric theory.
Estimations using two Error Correction Model
(ECM) equations revealed that in addition to
economic growth, deposits were significantly and
inversely correlated with SBN issuance volume and
yield spread between the 10-year SBN and 1-month
term deposit rate. Such dynamics indicated that the
customers’ decision to place funds in bank deposits
was influenced by the investment return on SBN
yields as well as term deposit rates. Furthermore,
ECM estimations also substantiated a shift in the
public’s funds from bank deposits to tradeable
government securities (SBN).
1. Based on estimations using a Vector Error
Correction Model (VECM), an increase in
government domestic financing would induce
a mixed response amongst the various investors
tested.
a. Foreign, insurance industry and mutual
fund investors, accounting for 43%, 12%
and 5% of total SBN holdings respectively,
would respond to an increase in government
domestic financing by increasing SBN
purchases and reducing placements in bank
deposits.
5.1. Conclusion
5.2 Policy Implications
5. CONCLUSION AND POLICY IMPLICATIONS b. In contrast, an increase in government
domestic financing would induce a decline
of SBN holdings and prompt a surge of
bank deposits amongst pension fund
investors (5% share of total SBN holdings)
and individual investors (2% share).
c. Despite contradicting the direction of
the foreign, insurance and mutual fund
investors, the response of the pension fund
and individual investors would not influence
aggregate demand considering the share
of SBN holdings attributable to both types
of investors is relatively small. In addition,
individual and pension fund investors
have many alternative investment options
available through the real sector.
Considering that the future direction of government
fiscal financing is oriented towards domestic
financing, Bank Indonesia must remain vigilant of
financial system stability because an increase in
SBN issuance volume and spread between the 10-
year SBN and 1-month term deposit rate will erode
bank deposits and ultimately undermine the bank
intermediation function.
217BANK INDONESIA
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Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
BIBLIOGRAPHY
Ardagna, Silvia. 2009. Financial Markets’ Behavior Around Episodes of Large Changes in the Fiscal Stance.
European Economic Reviews
Baldacci, E. dan Kumar, M. 2010. Fiscal Deficits, Public Debt, and Sovereign Bond Yields. IMF Working
Paper.
Belke, A dan Polleit T. 2009. Monetary Economics in Globalized Financial Markets. Springers.
Detragiache, E, et al. 2005. Finance in Lower Income Countries: An Empirical Exploration. IMF Working
Paper.
Gale, W dan Orszag, P. 2002. The Economic Effects of Long-Term Fiscal Discipline, Tax Policy Center
Discussion Paper. December.
Hauner, D. dan Kumar, M. 2009. Fiscal Policy and Interest Rates: How Sustainable is the New Economy? IMF
Working Paper 06/112 (Washington: IMF).
Parkin, M. 2012. Macroeconomics. Prentice Hall: USA.
218 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
THE IMPACT OF INTERCONNECTEDNESS IN THE INTERBANK MONEY MARKET ON BANKING INDUSTRY EFFICIENCY IN INDONESIA
Article 2
Ndari Surjaningsih4, Januar Hafidz5, Justina Adamanti6, Maulana Haris Muhajir7,
M. Sahirul Alim8
218 BANK INDONESIA
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219BANK INDONESIA
Financial Markets Households and Corporations
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Financial System InfrastructureBanking and IKNB Responds of Bank
Indonesia’s Policy
is the result of bank efforts to maintain adequate
liquidity through short-term funds that are disbursed
as long-term loans/financing. Bank default and/or
illiquid banks can propagate with rapidity to other
banks in the system.
Despite the adverse effects that may arise,
interconnectedness also provides a means to
manage liquidity and transfer risk more efficiently
(Liu, Qulet and Roth, 2015). The benefits, however,
of interconnectedness in the banking industry are
also influenced by the structure of the interbank
market. Allen and Gale (2000) found that resilience
to unexpected liquidity shocks would increase in a
more complex market, namely a market where all
banks are interconnected. Therefore, it has become
a salient issue to analyse the descriptive statistics of
bank interconnectedness in Indonesia.
Interconnectedness can also affect the level of
efficiency achieved at a particular bank because the
interbank money market represents an alternative
source of financing and a means to place bank funds,
which would influence the cost and profit efficiency
of the bank. Consequently, how the benefits of the
interbank money market, as an alternative source
of financing and means to place bank funds, affect
bank efficiency should also be reviewed.
Against that backdrop, this research has two
apposite goals, namely to analyse interbank
transactions in the interbank money market using
network statistics as well as to analyse the impact of
interconnectedness in the banking industry on cost
and profit efficiency.
Against a backdrop of increasing competition in
the financial markets, accompanied by dynamic
technological change in banking operations,
efficiency has become an important factor for the
banks to consider in terms of business sustainability.
In addition, the banks are not only competing
amongst themselves but also with nonbank
financial institutions, which is placing more pressure
than ever on the banking industry to operate more
efficiently (Spong, et al., 1995).
Increasing competition undermines the market
power of a particular bank, which can affect
efficiency. Market power refers to individual
corporate behaviour in terms of controlling the
pricing strategy, while competition deals more with
the interactions between market members as an
aggregate (developing economies Rozas, 2007).
Competition between banks could compel one
bank to raise deposit rates and ultimately create
inefficiencies. Furthermore, less efficiency has also
been linked to an increase in excessive risk-taking
behaviour. An inefficient bank generally faces
operational, lending, market and reputational
problems, which create a high risk profile (Fiordelisi,
Ibanez and Molyneux, 2010).
In terms of financial system stability, potential shocks/
pressures from excessive risk-taking behaviour could
spill over and affect other banks through contagion
or the domino effect due to interconnectedness
in the banking industry that exposes the financial
system. Interconnectedness in the banking industry
1. INTRODUCTION
4 Senior Researcher, Macroprudential Policy Department, Bank Indonesia. E-mail: [email protected] Senior Researcher, Macroprudential Policy Department, Bank Indonesia. E-mail: [email protected] Researcher, Macroprudential Policy Department, Bank Indonesia. E-mail: [email protected] Researcher, Macroprudential Policy Department, Bank Indonesia. E-mail: [email protected] Research Fellow, Macroprudential Policy Department, Bank Indonesia. E-mail: [email protected]
220 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
2.1. Efficiency
2. LITERATURE REVIEW
Efficiency is often considered synonymous with
productivity but the two are quite different. The
Production Possibility Curve (PPC), which illustrates
the relationship between output and input, is used
to explain the differences between efficiency and
production. PPC shows the maximum output that
can be produced at a firm in combination with a
certain input. A firm is considered efficient when
producing output along the PPC and, conversely,
is considered inefficient when producing output
below the PPC. Meanwhile, productivity is measured
using the ratio between output and input. In other
words, an efficient company could still raise its level
of productivity (Coelli, et al., 2005).
Bank efficiency is measured using several indicators,
including the BOPO efficiency ratio, cost-to-
income ratio (CIR) and net interest margin (NIM).
A lower BOPO efficiency ratio indicates greater
efficiency because the bank can minimise costs
and maximise operating income. The cost-to-
income ratio (CIR) is the ratio of overhead costs
to interest and non-interest income, therefore a
higher CIR is indicative of greater inefficiency or
less efficiency. Meanwhile, the net interest margin
(NIM) illustrates the performance of the respective
bank’s primary business lines, reflecting how well
asset management can generate interest income
and liabilities can incur interest expenses (Hafidz
and Astuti, 2013).
In the economic literature, bank efficiency is
typically influenced by several factors, including
the organisational structure, prevailing regulations
and level of competition (Hughes, 2008).
Empirically, a number of studies have discussed the
various determinants of bank efficiency. Repkova
(2015) found that capital as well as liquidity and
portfolio risks were inversely correlated with bank
efficiency in the Czech Republic. In contrast, the
return on assets (ROA), interest rates and GDP
were found to correlate positively with bank
efficiency. In the European Union, Mesa, et al.
(2014) found that size, the wholesale funding
ratio and sources of income had a positive effect
on bank efficiency, while the level of competition
and loan diversification were inversely correlated.
In the case of Indonesia, Viverita and Ariff (2011)
showed that size and non-performing loans (NPL)
were inversely correlated with cost and profit
efficiency in the banking industry.
There are two hypotheses that entertain the
relationship between bank competition and
efficiency, namely the competition-efficiency
hypothesis and the competition-inefficiency
hypothesis. On one hand, the competition-
efficiency hypothesis states that an increasing level
of competition would enhance efficiency because
competition would force a bank to minimise costs,
offer lower cost services and simultaneously raise
profits. On the other hand, the competition-
inefficiency hypothesis opines the opposite, namely
that increasing competition would actually reduce
bank efficiency (Shaeck and Cihak, 2008).
221BANK INDONESIA
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Financial System InfrastructureBanking and IKNB Responds of Bank
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3.1. Network Statistics
3. RESEARCH METHODOLOGY AND DATA
Network theory is indispensable when measuring
interconnectedness. A network consists of clusters
of nodes (representing financial institutions) and
edges (reflecting the assets and liabilities of a
financial institution as a measure of interbank
contractual liabilities). In a directed network, as the
dominant network structure used in this research
paper, one node is connected to a second node
but the second node is not necessarily connected
to the first. In other words, the relationship is not
reciprocal or mutual. Conversely, in an undirected
network there is a mutual relationship between all
connected nodes (Article Figure 2.1).
Financial interconnectedness benefits the financial
system through greater risk management efficiency.
Nevertheless, Allen and Gale (2000) found that
the structure of the interbank money market
network also has a significant impact on shock
propagation. In the interbank money market,
where all banks are interconnected with a complete
network structure, the respective asset share of
each individual bank is comparatively small and no
single bank is dominant. Consequently, credit risk
is more diversified in comparison to an incomplete
or segmented network structure. Nonetheless,
a complete network structure tends to amplify
contagion risk compared to a segmented structure,
where the risk is isolated and contained only in the
specific segment or cluster.
In general, the interbank money market offers
an alternative means to place funds in terms of
managing liquidity and maximising idle funds to
generate profit. Interconnectedness in the interbank
money market could enhance efficiency but also
exacerbate inefficiency for the banks, depending
on the costs and goals of utilising interbank
funds. In their research concerning the impact
of interconnectedness in the banking industry
on bank efficiency in Brazil, Guerra, et al. (2014)
found that interconnectedness improves bank cost
efficiency. Notwithstanding, interconnectedness
was not significant in terms of improving bank
2.2. Interconnectedness
profit efficiency. Therefore, banking industry
interconnectedness in Brazil was focused more on
managing liquidity rather than as an alternative
source of bank income. The paper by Guerra, et
al. (2014) serves as the primary reference for this
research.
Article Figure 2.1 Network Types
Directed Network
edge edge
node node
Undirected Network
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FINANCIAL STABILITY REVIEWNo. 29, September 2017
According to network theory, there are several
basic terms used to explain the primary goal of this
research. The degree of node i is the number of edges
that start and end at node i. A bank with a higher
degree implies a greater number of connections with
other banks. The indegree of node i in the number
of edges that end at node i, while the outdegree is
the number of edges that originate from node i. A
bank with a higher indegree and outdegree shows
a higher frequency of lending and borrowing with
other banks. A weighted network calculates the
value of interbank transactions, thus revealing the
dominance, either as lender dominance (weighted
outdegree) or borrower dominance (weighted
indegree). A path is a cluster of nodes connected
through several edges. In a weighted network, the
weight of the path is the total of all weighted edges
between the first node and the last in the path.
Based on the terms explained above, network
centrality can be calculated, namely the importance
of one node relative to the network. Closeness
is a measure of the average distance from one
node to another in a network, thus reflecting the
closeness of one node to the others. Betweenness
is a measure of the extent to which a node acts as
an intermediary by connecting to the other nodes
that are not connected to each other, as measured
by the number of shortest paths that pass through
the given node.
Network density is measured using the clustering
coefficient. A higher clustering coefficient indicates
a denser network or more connected nodes in the
network. Meanwhile, the degree distribution is
used to observe the degree of connectivity between
the nodes, either concentrated or not. The measure
is the degree frequency distribution of a node in
a network. A concentrated network implies a few
nodes with a high degree and many nodes with a
low degree. In contrast, a complete network occurs
when most nodes have a relatively consistent degree.
One distribution that meets the characteristics of
degree distribution is the scale-free (power law)
distribution, which has fewer highly connected
nodes, leading to a relatively concentrated degree
distribution.
In response to the second research question, the
Stochastic Frontier Analysis (SFA) methodology
developed by Battese and Coelli (1995) was used to
generate efficiency measures/data. The inefficiency
variables were subsequently used as dependent
variables to observe whether the interconnectedness
variables, along with the other independent/
explanatory variables, influenced bank efficiency.
This was adapted from the method used by Guerra,
et al. (2014), consisting of two equations, namely
the SFA equation and the inefficiency determinant
equation.
Efficiency frontier analysis was conducted from two
perspectives, namely cost efficiency and profit efficiency.
In terms of cost efficiency, the banks strive to minimise
the costs, while profit efficiency implies that the banks
seek to maximise profits. Such characteristics have
different implications when formulating the Stochastic
Frontier Analysis (SFA).
The frontier cost function can be expressed as
follows:
3.2. Efficiency Measurement
αt ln ( – )it + – ln ( – )it + Σ = 1 δj ln ( – )it ln ( – )it + uit + vit
w1 3w1 yj w11w2 jw2 z w22
ln (C/w2 z)it = ß0 + Σ = 1ßj ln ( – )it + – Σ =1 Σ =1 ßjk In ( – )it In ( – ) +3 3 3y3 yj yk1j j k j z z2
223BANK INDONESIA
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Based on the Stochastic Frontier Analysis (SFA) and
network statistics described in the previous chapter,
Article Table 2.1 summarises the 18 equations
estimated to analyse the impact of banking industry
interconnectedness on bank efficiency, which
have been grouped into two categories, namely
the inefficiency equations using the frontier cost
approach and the frontier profit approach. Each
category will utilise explanatory variables added
gradually.
3.3. Research Model
Equation (1) was estimated as a translog functional
form, where i is the bank and t is the period, while j
= k = 1, 2, 3 are the three output variables. Output
(y), as used in this model, consist of credit, securities
and placements at another bank. In addition, there
are two input variables (w), namely the interest
expense on total deposits and non-interest income
on total assets, as well as one fixed input variable (z),
namely total earning assets. Output to total earning
assets was normalised to reduce heteroscedasticity
and facilitate a residual comparison of each
bank estimated to calculate the inefficiency.
Normalisation by input price, w_2, aimed to achieve
price homogeneity. v-it is the random error term,
while u_it represents the level of inefficiency.
The notation of the cost function is positive in the
inefficiency variable because the cost is considered
inefficient when above its frontier. Oppositely, in the
profit function, inefficiency is negative. Therefore, a
company is considered inefficient when below its
frontier. The profit function equation is expressed
as follows:
uit = θ0+θit xit+θt bt+mit
αt ln ( – )it + – ln ( – )it In ( – )it + Σ = 1 δj ln ( – )it ln ( – )it - uit + vit
w1 w1 w1 w13 yj1w2 w2 w2 w2j z2
ln (π/w2 z)it = ß0 + Σ = 1ßj ln ( – )it + – Σ =1 Σ =1 ßjk In ( – )it In ( – )it +3 3 3yj yj yk1
j j k z z z2
Equation (2) Meanwhile, the determinant of
inefficiency, per Battese and Coelli (1995), was
formulated as follows:
consisting of the equity-to-asset ratio (ETA),
assets, the Herfindahl-Hirschman Index (HHI) and
a dummy bank group. ETA represents the bank’s
ability to optimise its resources. Assets are a proxy
of bank size and the Herfindahl-Hirschman Index
(HHI) represents the level of bank competition.
Vector bt represents interconnectedness in the
banking industry using several network statistics
indicators.
The three equations above were estimated
simultaneously with the maximum likelihood
method using STATA software and an sfpanel
similar to Belotti, et al. (2012). Referring to Guerra,
et al. (2014) as well as Bos and Koetter (2007), this
research utilises negative performance indicators as
additional variables in the frontier profit equation
to overcome the possibility of a negative profit
variable that could not be transformed in the form
of a logarithm.
Equation (3) Where mit is defined as a truncation
of the normal distribution with a average of zero
and variance 𝜎2. Vector xit is the control variable,
224 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Article Table 2.1 Inefficiency Equations
Article Table 2.2 Data
Model Independent Variable
C P VCB
C1 P1 VCB, Clustering
C2 P2 VCB, Clustering, Degree, Closeness, Betweenness
C3 P3 VCB, Clustering, Indegree, Outdegree
C4 P4 VCB, Clustering, W_Indegree, W_Outdegree
C5 P5 VCB, Alpha
C6 P6 VCB, Alpha, Degree, Closeness, Betweenness
C7 P7 VCB, Alpha, Indegree, Outdegree
C8 P8 VCB, Alpha, W_Indegree, W_Outdegree
Data Definition Source
Credit (Rp) Total outstanding bank loans at nonbanks
Monthly Commercial Bank Reports,Bank Indonesia
Liquid assets (Rp) Total liquid assets held by a bank for a given period
Placements at another bank Total bank placements at another bank
Earning Aset Total bank placements in the form of credit, securities investments and other fund placements
Interest expense (Rp) Total interest expenses
Not Interest expense (Rp) Total non-interest expenses
Assets (Rp) Total assets
Equity (Rp) Total capital
Deposits (Rp) Total deposits
Profit (Rp) Earnings before interest and tax (EBIT)
Costs (Rp) Operating costs
Call money interbank transactions recorded on the LBU form
Interbank call money placements at another bank
This research utilised data from the Monthly
Commercial Bank Reports (LBU) covering the period
from Q3/2010 to Q4/2015. The sample includes 93
banks, excluding Islamic banks and several banks
with incomplete data. Article Table 2.2 presents a
summary of the variables used.
3.4. Data
4.1. Network Statistics
4. RESULTS
Private banks tended to dominate interbank money
market transactions (Article Graph 2.2) and that trend
did not change during the observation period. In terms
of weighted degree, consistent with market share,
private banks and regional banks initiated the largest
total of transactions, primarily because both bank
groups are populated by the most members. Based on
average transactions per bank by bank type, however,
state-owned banks, joint venture banks and foreign
banks transacted more frequently in the interbank
money market.
According to the weighted indegree, private national
and regional banks were dominant. In terms of the
average per bank, state-owned banks were more
dominant as borrowers compared to the other bank
225BANK INDONESIA
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Foreign
Joint Venture
Regional Banks
State-Owned Banks
Private26%
4%
48%
6%
9%
Article Graph 2.1 Composition of Banks Transacting in the Interbank Money Market
Article Graph 2.2 Weighted Degree by Bank Type and Average per Bank by Bank Type
Joint Venture
Joint Venture
State-Owned Banks
State-Owned Banks
Foreign
Foreign
Regional Banks
Regional Banks
Private
Private
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Weighted Degree by Bank Type
2010 2011 2012 2013 2014 2015 Rata2
15%
12%
27%
14%
37%
14%
11%
21%
17%
37%
11%
12%
25%
16%
37%
9%
10%
33%
15%
35%
11%
10%
31%
14%
33%
11%
10%
33%
10%
36%
12%
11%
27%
14%
36%
4E+13
3SE+13
3E+13
2SE+13
2E+13
1SE+13
1E+13
5E+12
0
Average Weighted Degree per Bank by Type
2010 2011 2012 2013 2014 2015
groups (Article Graph 2.4 – Weighted Indegree by
Bank Type). Regarding weighted outdegree, state-
owned banks and regional banks were dominant.
On the other hand, based on the average per
bank by bank type, state-owned banks remained
dominant as lenders in the interbank money market
(Article Graph 2.5). In general, private national
banks played a large role in lending transactions in
Article Graph 2.3 Weighted Indegree by Bank Type
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Weighted Indegree by Bank Type
2010 2011 2012 2013 2014 2015 Rata-rata
24%
16%
15%
10%
34%
22%
14%
16%
13%
36%
15%
17%
15%
14%
39%
11%
13%
25%
14%
36%
13%
14%
27%
12%
35%
12%
14%
21%
9%
45%
16%
15%
20%
12%
37%
1.8E+13
1.6E+13
1.4E+13
1.2E+13
1E+13
8E+12
6E+12
4E+12
2E+12
0
Average Weighted Indegree per Bank by Type
2010 2011 2012 2013 2014 2015
226 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
Article Graph 2.4 Weighted Outdegree by Bank Type
Article Graph 2.5 Large and Small Bank Interaction Article Graph 2.6 Interbank Rate Interaction between Large and Small Banksl
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Weighted Outdegree by Bank Type
2010 2011 2012 2013 2014 2015 Rata-rata
6%7%
28%
18%
40%
7%7%
27%
22%
37%
7%6%
34%
18%
34%
6%6%
40%
15%
33%
10%
7%
34%
17%
32%
11%
6%
45%
11%
28%
8%
7%
35%
17%
34%
2.5E+13
2E+13
1SE+13
1E+13
5E+12
0
Average Weighted Outdegree per Bank by Type
2010 2011 2012 2013 2014 2015
the interbank money market in terms of intensity
and transaction volume.
To investigate the presence of segmentation between
bank clusters, the banks were categorised based on
specific criteria, asset size for instance. There were
four interbank interaction groups9, namely big bank
to big bank, big bank to small bank, small bank to big
bank and small bank to small bank. Article Graph 2.6
shows that the interactions between big banks were
dominant in the interbank money market, followed
by small banks to big banks and small banks to small
banks. Such conditions reflect lending prudence at
the big banks, namely by favouring other large banks
rather than the small banks, which is indicative of
segmentation in the interbank money market. In
terms of interest rates, transactions between small
banks consistently applied the highest interest rates
(Article Graph 2.7).
Average closeness between the banks continued to
increase year on year (Article Graph 2.8). Meanwhile,
the role of banks as intermediaries also expanded, as
evidenced by the increase in betweenness, despite
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Weighted Degree Interaksi Bank Besar & Kecil
2010 2011 2012 2013 2014 2015
15%
12%
27%
14%
14%
11%
21%
17%
11%
12%
25%
16%
9%
10%
33%
15%
11%
10%
31%
14%
11%
10%
33%
10%
B-K K-KB-B K-B
5.0
4.0
3.0
2.0
1.0
0.0
Suku Bunga PUAB (%)
2010 2011 2012 2013 2014 2015 2016
9 Banks considered first as lenders and second as borrowers.
Joint Venture
State-Owned Banks
Foreign Regional Banks
Private
Joint Venture State-Owned BanksForeign Regional Banks Private
227BANK INDONESIA
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Financial System InfrastructureBanking and IKNB Responds of Bank
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moderating slightly in 2015 (Article Graph 2.9). The
average clustering value, however, remained relatively
stable for the duration of the observation period
(Article Graph 2.10), indicating no significant changes
in the segmentation structure of the banking industry.
Based on Article Graph 2.11, the distribution
degree of interbank money market transactions
tended to concentrate on the left side of the
graph, implying a low degree. This was confirmed
by the alpha coefficient (power law), for which
the value remained relatively stable at around 0.3
for the last six years of the period (Article Graph
2.12). A stable alpha value showed that the level
of transaction concentration did not change
significantly.
100%
90%
80%
70%
60%
50%
40%
30%
0.009
0.008
0.008
0.007
0.007
0.006
0.006
0.005
0.005
0.004
2010 20102011 20112012 20122013 20132014 20142015 2015
Average Closeness Average Betweeness
Article Graph 2.7 Average Closeness Article Graph 2.8 Industry Betweenness
0.210
0.205
0.200
0.195
0.190
0.185
0.36
0.35
0.34
0.33
0.32
0.31
0.30
0.29
0.28
0.203
0.35
0.188 0.190
0.192
0.206
0.198
2010
2010
2011
2011
2012
2012
2013
2013
2014
2014
2015
2015
Average Clustering
Alpha (Power law)
Article Graph 2.9 Industry Average Clustering Coefficient
Article Graph 2.10 Degree Distribution Article Graph 2.11 Alpha Coefficient (Power Law)
0.32
0.30
0.31
0.32 0.33
0 10 20 30 40 50 60 70 80 90 100
Degree Distribution
100%
90%
80%
70%
60%
50%
40%
30%
228 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
The results of the impact analysis of
interconnectedness on inefficiency from the cost
and profit perspectives are explained in this chapter.
In both equations, inefficiency is the dependent
variable. Therefore, a negative coefficient of the
dependent variable implies that the impact will be a
reduction of inefficiency or, in other words, greater
efficiency and vice versa, a positive coefficient would
imply increasing inefficiency. As a test of robustness,
each frontier was estimated twice, namely using the
clustering coefficient and alpha coefficient (power
law).
Cost Frontier Inefficiency Equation
The left panel of Article Table 2.3 summarises
the results of the cost frontier equation using the
clustering coefficient. On the cost side, the banks
were more efficient as borrowers, as evidenced by
the Windegree variable in the C4 model, which was
negative and significant. In contrast, inefficiencies
appeared when the banks acted as lenders, as
4.2. Interconnectedness and Efficiency
demonstrated by the outdegree and Woutdegree
variables in models C3 and C4, which were positive
and significant. Such results are explained by
lower interbank rates compared to other types of
placements, especially credit.
The banks were inefficient as intermediaries, as
indicated by the betweenness variable in the C2
model, which was significant. Furthermore, the
closeness of one bank to another also exacerbated
inefficiency, as shown by the positive and significant
closeness variable in model C2. This was possibly
due to segmentation, thereby limiting bank access
to other banks in terms of obtaining lower interest
rates.
The robustness of the models was tested by
estimating the cost frontier by substituting the
clustering coefficient with the alpha coefficient
(power law), the results of which are presented
in the right panel of Article Table 2.3. Although
the alpha variable was not significant, the models
were shown to be robust because no changes
were identified in the direction or significance in all
models.
Article Table 2.3 Cost Frontier Estimation Results
Variable Model C Model C1 Model C2 Model C3 Model C4 c Model C5 Model C6 Model C7 Model C8
HHI 3.240*** 3.318*** 3.307*** 3.358*** 3.222*** HHI 2.690*** 3.097*** 3.160*** 3.065***
ETA -0.367*** -0.376*** -0.394*** -0.402*** -0.393*** ETA -0348*** -0.377*** -0.381*** -0.379***
Size -0.084*** -0.091*** -0.105*** -0.103*** -0.091*** Size -0.70*** -0.088*** -0.088*** -0.080***
State-Owned Banks -0.120 -0.112 -0.167 -0.115 -0.109 Persero -0.078 -0.125 -0.074 -0.075
Foreign -0.314 -0.337 -0.313 -0.349 -0.330 Asing -0.249 -0.253 -0.286 -0.283
Joint Venture -0.082** -0.088** -0.081** 3.240*** 3.240*** Campuran -0.086** -0.082** -0.091** -0.087**
Regional Banks -0.453*** -0.465*** -0.421*** -0.431*** -0.401*** BPD -0.483*** -0.458** -0.471*** -0443***
Clustering 0.115 -0.001 -0.028 - 0.036 Alpha -0.050 -0.040 -0.023 -0.039
Degree -0.013 Degree -0.017
Closeness 0.309*** Closeness 0.274***
Betweenness 2.823*** Betweenness 2.601***
Indegree - 0.006 Indegree -0.003
Outdegree 0.042*** Outdegree 0.029**
Windegree - 0.002** Windegree -0.002**
Woutdegree 0.004*** Woutdegree 0.004***
_cons -18.352*** - 18.741*** - 18.459*** -18.779*** -18.110*** _cons -16.860*** -17.424*** -17.784*** -17.328***
t 22 22 22 22 22 t 22 22 22 22
observations 2046 2046 2046 2046 2046 observations 2046 2046 2046 2046
Total Banks 93 93 93 93 93 Jumla Bank 93 93 93 93
229BANK INDONESIA
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Profit Frontier
Concerning profit inefficiency (left panel of Article
Table 2.4), the banks became inefficient in terms of
maximising profit as transaction intensity increased
in the interbank money market. Such developments
were confirmed by the positive and significant
degree variable in model P2. More specifically, the
banks became inefficient as lenders, as indicated
by the indegree and windegree variables in models
P3 and P4. The same conclusion was drawn by
Tabak, et al. (2014), namely that the interbank
money market is not an optimal means to enhance
profit efficiency. Meanwhile, the banks were
efficient in maximising profit when close to another
bank because the idle funds could be lent to the
other bank. The same robustness test showed no
significant changes in the independent variables but
the alpha coefficient was negative and significant
(right side of Article Table 2.4), indicating that the
banks were more efficient in terms of maximising
profit when they transacted less in the interbank
money market. Those findings corroborate the
previous conclusion that relates to degree.
Control Variable
The control variable was similar to the cost inefficiency
and profit inefficiency variables in terms of direction and
significance. The Herfindahl-Hirschman Index (HHI), as
a proxy of competition, was positive and significant.
The results can be interpreted as a higher HHI implies
a higher level of inefficiency. A higher HHI points to
lower competition due to increasing concentration,
which ultimately made the banks inefficient. The ETA
variable was negative and significant, indicating that
more equity made the banks more efficient because
they could mitigate the potential maturity mismatch,
which would incur a higher cost for the bank in terms
of seeking other funding sources. Meanwhile, the
size variable was negative and significant, meaning
that the larger banks were more efficient. Such
dynamics are consistent with economies of scale in the
microeconomic literature.
Article Table 2.4 Profit Frontier Estimation Results
Variable Model C Model C1 Model C2 Model C3 Model C4 c Model C5 Model C6 Model C7 Model C8
profit inefficiency (u) profit inefficiency (u)
HHI 20.508*** 20.512*** 19.407*** 19.345*** 19.509*** HHI 21.718*** 20.271*** 20.270*** 20.933***
ETA -0.161*** -1.061*** -0.975*** -0.976*** -0.955*** ETA -1.015*** -0.931*** -0.937*** -0.912***
Size -0.233*** -0.232*** -0.284*** -0.281*** -0.254*** Size -0.258*** -0.314*** -0.307*** -0.279***
State-Owned Banks -0.791*** -0.794*** -0.597 -0.609*** -0.684*** Persero -0.278*** -0.942 -0.074 -1.019
Foreign 0.018 -0.020 -0.006 -0.043 -0.062 Asing -0.159 0,124 -0.286 0.061
Joint Venture 0.162** -0.164** -0.023 0.018 0.069 Campuran -0.374*** 0.197 -0.091** 0.257**
Regional Banks -1.712*** -1.714*** -1.572*** -1.583*** -1.617*** BPD -1.483*** -1.354*** -0.471*** -1.395***
Clustering 0.024 -0.083 -0.085 - 0.104 Alpha -1.043*** -0.897*** -0.908 -0.925***
Degree -0.219 *** Degree 0.233
Closeness -1.271*** Closeness 0.274***
Betweenness 2.358 Betweenness 2.601***
Indegree -0.157*** Indegree 0.158***
Outdegree -0.026 Outdegree -0.021**
Windegree 0.013** Windegree 0.013**
Woutdegree -0.005*** Woutdegree -0.005***
_cons -123.833*** -123.868*** - 116.112*** -116.366*** 116.307*** _cons -133.126*** -1223912*** -123.017*** -124.365***
t 22 22 22 22 22 t 22 22 22 22
observations 2046 2046 2046 2046 2046 observations 2046 2046 2046 2046
Total Banks 93 93 93 93 93 Jumla Bank 93 93 93 93
230 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
5.1. Conclusion
5. CONCLUSION AND RECOMMENDATIONS
• In terms of network statistics, there are tendencies
toward concentration and segmentation in the
interbank money market. Such conditions are
evidenced by a lower clustering value and a low
degree of scale-free distribution.
• Interbank transactions by borrower banks
increased cost efficiency but also caused
inefficiency in terms of maximising profit as
lender banks because interbank transactions
were utilised more for short-term liquidity
management rather than to maximise profits,
such as placements in other earning assets.
• The presence of betweenness when seeking
funds from the interbank money market could
undermine efficiency.
• A greater degree of closeness caused cost
inefficiency. This was possibly due to interbank
• Measures are required to encourage banks with
a low degree distribution to interact mutually in
order to minimise the concentration risk, while
simultaneously increasing interbank money
market access to other clusters.
• Incentives should be considered for banks with
a low degree distribution to open new credit
lines to other banks in order to stimulate more
efficient interbank transactions in terms of costs
and profits.
5.2. Recommendations
money market segmentation that influences
the interest rates. In contrast, a higher degree
of closeness created efficiency in terms of
maximising profit because interbank money
market activities encouraged the banks to
maximise idle fund placements.
231BANK INDONESIA
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232 BANK INDONESIA
FINANCIAL STABILITY REVIEWNo. 29, September 2017
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No. 29, September 2017FINANCIAL STABILITY REVIEW
Director Erwin Rijanto - Filianingsih Hendarta - Linda Maulidina - Farida Peranginangin
Coordinator and Editor Rozidyanti – Theresia Silitonga - Agus Fadjar Setiawan - Riza Putera – Agung Bayu Purwoko
Drafting Team Retno Ponco Windarti, M. Firdaus Muttaqin, Kurniawan Agung, Ita Rulina, Indra Gunawan, Ndari
Suryaningsih, Cicilia A. Harun, Sri Noerhidajati, Mirza Yuniar, Januar Hafidz, Viana Sari, Khairani
Syafitri, Bayu Adi Gunawan, Susana Wibisana, Heny Sulistyaningsih, Hero Wonida, Vienella
Zarmida, Lisa Rienellda, Arifatul Khorida, Zulfia Fathma, Anita, Sagita Rachmanira, Astrid Fiona
H., Annisaa Prima Astuti, Maulana Harris Muhajir, Ibrahim Adrian Nugroho, Anindhita Kemala D,
Apsari Anindita N.P, Rani Wijayanti, Harris Dwi Putra, Pita Pratita, Vergina Hapsari, Ardo Prayoga,
Kartina Eka Darmawanti, Aski Catranti, Saraswati, Prayudhi Azwar, Mario Simatupang, Noviati,
Rakhma Fatmaningrum, Tri Siwi Permadi Astuti, Fransiskus Xaverius Tyas Prasaja, Martha K. Pratiwi,
Muhammad Adrianto Eko Budhi Setiyanto, Donny Ananta, Lely Yudha Prasetyaningsih,Taufik
Saleh, I Gede Arnawa.
Translated by Matthew Burrows.
OTHER DEPARTMENT CONTRIBUTION ON SELECTED ANALYSIS Economic and Monetary Policy Department
Financial System Surveillance Department
SME Development Department
Islamic Economics and Finance Department
Statistics Department
Financial Market Development Department
Payment System Policy and Oversight Department
Payment System Management Department
East Java Representative Office Bank Indonesia
PRODUCTION AND DISSEMINATION TEAM Saprudin, Elsa Puspa Silfia, I Made Yogi
No. 29, September 2017FINANCIAL STABILITY REVIEW
FINA
NC
IAL STA
BILITY REV
IEW
MACROPRUDENTIAL POLICY DEPARTMENT
No
. 29, Septem
ber 2017
Maintaining FSS Stimulating the Economy
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