Launching of Basel II for the Indonesian Banking System by t he Governor of Bank Indonesia:
Jakarta, 25 January 2006
Dist inguished guest s, ladies and gent lemen,
1. On t his day, it is f it t ing t hat we express our praise and t hankf ul ness t o t he Al might y God f or t he bl essing of meet ing t oget her in t his congenial at mosphere t o discuss mat t ers of import ant concern. For bankers l ike oursel ves, t he discussion of Basel II and simil ar measures f or st rengt hening t he banking syst em is one t hat al ways commands our int erest . More import ant l y, t he rul es est abl ished in Basel II will gradually come int o use as an operat ional basis f or t he nat ional banking indust ry.
2. Init ial l y, I wondered whet her a regul at ory f ramework based on Basel II f or a banking syst em st il l in t he devel opment st age, such as in Indonesia, woul d be t he proper st ep t o t ake. Would t his not be a hurried move? In t he end my doubt s were put t o rest . Basel II is a set of best pract ices t hat we cannot ignore if we as a nat ion are t o deal wit h gl obal t rends. These t rends mean t hat we bring ourselves t o t he l evel of our part ners if we are t o be accept ed and respect ed in our deal ings wit h ot hers. Needl ess t o say, we have no desire t o be regarded as an 'Achil l es heel ' in t he gl obal f inancial order, part icul arl y in t he compl ex net work of rel at ionships in t he banking indust ry. It is Bank Indonesia’ s desire f or t he nat ional banking indust ry t o speak t he same language as bankers in ot her count ries, at least wit h our regional neighbours.
3. For t his reason, I explained at t he 2005 Bankers Dinner last year t hat Bank Indonesia was f ul l y resol ved t o impl ement t he Basel II working f ramework. This woul d be a medium-t erm programme wit h a 3-5 year t ime f rame, one t hat we must al l st rive t o achieve. The expect at ion is t hat al l commercial banks wil l begin phasing in t he Basel II f ramework in 2008, commencing wit h t he simplest approaches.
4. This morning, t he conf idence shared by Bank Indonesia and I f or implement ing Basel II as t he pol icy f or t he nat ional banking indust ry has t aken on an even more concret e dimension. Bank Indonesia has compl et ed a st rat egy f or impl ement ing Basel II in t he f orm of a road map. This road map cl earl y present s t he mil est ones, t imet abl e and t he various act ivit ies t hat we must compl et e t o be abl e t o impl ement t he approaches and met hodology required by Basel II in due t ime.
Distinguished guests, ladies and gentlemen
cal cul at ing bank capit al wit h a more risk-sensit ive approach. Basel II at t empt s t he comprehensive measurement of credit risk weight ings and is more expl icit in al l ocat ing port ions of capit al f or operat ional risk. It is obvious, t heref ore, t hat Basel II relies heavil y on t he abilit y of banks t o implement risk management .
6. Second, al l banks must be capabl e of perf orming gap anal ysis. Based on t heir underst anding of t he Basel II concept , all banks must t ake st ock of t heir current posit ion and begin t o prepare t he act ions necessary t o f il l t hese gaps. The deployment of a Basel II monit oring t eam at each bank is a very pract ical and helpf ul solut ion in t his area. The t eam will be able t o put t oget her a caref ully measured and syst emat ic pl an f or use as a monit oring t ool f or each act ivit y t hat t he bank must undert ake in preparat ion f or Basel II. This t eam wil l al so act as a count erpart f or Bank Indonesia in monit oring progress at individual banks.
7. Third, each bank wil l be immediat el y inf ormed wit h great er cert aint y of t he impact of Basel II on it s capit al adequacy. This is of great import ance. As I have remarked so of t en, t he road ahead wil l not be easy. Compet it ion wil l gat her f orce and banks wil l inevit abl y f ace more and heavier demands f or service excel l ence. Theref ore, if any bank shoul d f eel unabl e t o meet t he Basel II requirement s during t his preparat ory period, t hat bank shoul d begin giving t hought t o t aking t he pat h of accelerat ed consolidat ion as I described some t ime ago, and work act ively f or a successf ul out come. These banks should know t hat risk management , compet it ion, Basel II and capit al adequacy have become t he credo of t he current policy f or banking indust ry consol idat ion. Bank Indonesia has begun t o give priorit y t o t his pol icy. As described in t he API vision, by t he end of 2010 we want t o see a new, more robust st ruct ure f or Indonesia's banking indust ry. This wil l be a banking indust ry marked by great er resil ience and compet it iveness in a gl obal environment and working f or t he benef it of t he nat ional devel opment process.
Distinguished guests, ladies and gentlemen,
8. Event ual l y, our hope is t hat by t aking t he st eps out lined t oday, all our processes in rest ruct uring and reorganisat ion wil l move f orward and achieve t heir obj ect ives. Bank Indonesia wil l f ol l ow a consist ent , discipl ined pat h in working al ongside t hese correct ive measures. We must keep pressing f orward unt il Indonesia has achieved t he sound, st rong and compet it ive banking indust ry envisioned by us all. May God t he Al might y bl ess and l ight en the st eps we t ake in moving f orward t o a bright er f ut ure.
Jakart a, 25 January 2006 THE GOVERNOR OF BANK INDONESIA
