FOREW ORD
The Indonesian Banking Booklet Sept ember 2005 edit ion is a
publicat ion designed t o present key highlight s on t he banking
system in Indonesia. For readers, this booklet is expected to provide needed inf ormat ion on t he banking syst em specif ically in regard
t o t he t ask perf ormed by Bank Indonesia
The mat erial present ed in t his booklet covers several aspect s on developments in the banking system, presented in concise form
as key point s or highlight s.
Readers w ho require in-dept h explanat ions and clarif icat ions
of banking regulat ions may ref er t o t he f ull t ext of t he regulat ions issued by Bank Indonesia, available among ot hers on t he Bank
Indonesia w ebsit e (w w w.bi.go.id).
While t he inf ormat ion cont ained in t he Indonesian Banking
Booklet Sept ember 2005 edit ion w ill inevit ably have it s limit at ions,
our hope is t hat it w ill prove great ly usef ul t o readers.
Jakart a, Sept ember 2005 BANK INDONESIA
C O N T E N T S
FOREW ORD i
CONTENTS ii
I BANK INDONESIA 1
A. Vision and M ission of Bank Indonesia 1
B. Shared Values of Bank Indonesia 1
C. Bank Indonesia’s Dest inat ion St at ement 2008 1
D. St rat egic Goals of Bank Indonesia 1
E. Legal Basis of Bank Indonesia 2
F. Import ant Dut ies of Bank Indonesia 2
G. Det ailed Descript ion of Dut ies 2
H. Organizat ion of Bank Indonesia 3
II OPERATION OF THE BANKING SYSTEM 5
A. Def init ion 5
B. Legal Basis of t he Banking Syst em 5
C. Operat ions of Banks 6
Operat ions of Commercial Banks 6
Operat ions of Sharia Commercial Banks 7
Operat ions of Convent ional Rural Banks 9
Operat ions of Sharia Rural Banks 10
D. Operat ions Not Permit t ed f or Banks 10
Operat ions Not Permit t ed f or Convent ional
Commercial Banks 10
Operat ions Not Permit t ed f or Sharia Commercial
Banks 10
Operat ions Not Permit t ed f or Convent ional Rural
Banks 11
Operat ions Not Permit t ed f or Sharia Rural Banks 11
III BANK REGULATION AND SUPERVISION 12 A. Object ives of Banking Regulat ion and Supervision 12
B. Scope of Bank Regulat ion and Supervision 12
C. Bank Supervision 13
IV BANKING POLICIES 17
A. Indonesian Banking Archit ect ure (API) 17
B. Consolidat ion of Banking Syst em 30
C. Building The Indonesian Financial Syst em
Archit ect ure 37
D. Adopt ion of t he Basel II Accord 38
E. Development of Sharia Banking 40
F. Development of Rural Banks 42
G. Act ion Against Suspect ed Banking Crimes 44
H. Promot ion of Small, M edium, and
M icro-Ent erprises (SM Es) 47
I. Development of Banking Inf ormat ion Syst em 52
V KEY BANKING REGULATIONS 55
A. Establishment of Banks and Bank Offices 55
1. Est ablishment of Banks 55
2. Bank Ow ners 57
3. M anagement of Banks 58
4. Sharia Supervisory Board 62
5. Fit and Proper Test f or Commercial Banks and
Rural Banks 63
6. Purchase of Shares in Commercial Banks 66
7. M erger, Consolidation, and Acquisition of Bank 67
8. Est ablishment of Bank Off ices 68
9. Change of Address of Bank Head Off ice and
Branch Office 71
10. Conversion of Convent ional Commercial
Bank/rural Bank Operat ions t o Commercial
Bank/rural Bank Based on Sharia Principles 71
11. Closure of Bank Branch Off ice 72
12. Upgrading of Non-Foreign Exchange Bank t o
Foreign Exchange St at us 72
13. Bank Liquidat ion 72
B. Regulations Pertaining to Business Operations
and Bank Product 73
1. Small-Scale Business Credit (SM E Loans) 73
2. M oney Changer’s License f or Bank 74
4. Commercial Paper (CP) 75
5. Deposit s 76
C. Prudential Regulations 77
1. M inimum Tier One Capit al For Commercial
Banks 77
2. The M inimum Capit al Requirement 78
3. The M inimum Capit al Requirement f or
Commercial Banks Taking Account of
M arket Risk 78
4. Net Open Posit ion (NOP) 79
5. Legal Lending Limit (LLL) 80
6. Earning Assets Quality 82
7. Provision for Assets Losses 83
8. Debt Restructuring 86
9. St at ut ory Reserves 87
10. The Implement at ion of Know Your Cust omer
(KYC) Principles 89
11. Transparency of Financial Condit ion 90
12. Transparency in Bank Product Inf ormat ion and
Use of Cust omer Personal Dat a 91
13. Prudent ial Principles in Equit y Part icipat ion
by Commercial Banks 91
14. Prudent ial Principles in Asset Securit izat ion
f or Commercial Bank 92
D. Rating System 93
Commercial Banks 93
1. Object ives 93
2. Rating System 93
Rural Bank 96
1. Object ives 96
2. Rating System 96
E. Self-Regulatory Banking (SRB) Regulations 97 1. Guidelines f or Formulat ion of Bank Credit Policy 97
2. Int ernal Audit Unit at Commercial Banks 97
3. Compliance Direct or 98
4. Business Plan and Annual Budget 98
6. Applicat ion of Risk M anagement f or
Commercial Banks 100
7. Applicat ion of Risk M anagement In Int ernet
Banking 101
8. Applicat ion of Risk M anagement f or
Banc assurance 101
9. Risk M anagement Cert if icat ion For
M anagement and off icer of Commercial Banks 103
10. Applicat ion of Risk M anagement f or Banks
Conduct ing Act ivit ies Relat ed t o M ut ual Funds 103
F. Other Regulations 104
1. Short Term Funding Facilit y (FPJP) f or
Commercial Banks 104
2. Short Term Funding Facilit y f or Sharia Banks
(FPJPS) 105
3. Int raday Liquidit y Facilit y (FLI) 105
4. The Int raday Liquidit y Facilit y f or Commercial Banks Based on Sharia Principles (FLIS) 106
5. Bank Indonesia Rupiah Deposit Facilit y (FASBI) 106
6. Bank Foreign Borrow ings 106
7. Taxat ion of Int erest 107
8. Foreign Exchange Flow s 107
9. Int erbank M oney M arket Based on Sharia
Principles (PUAS) 107
10. Supervisory Act ions and Designat ion of Bank
St at us 107
11. Follow Up Act ion t o Rural Bank under Special
Surveillance 109
12. Cert if ying Inst it ut ion f or Rural Bank 110
13. Debt or Inf ormat ion Syst em (SID) 110
14. Rest rict ions on Rupiah Transact ions and
Foreign Currency Loans By Banks 111
15. Nat ional Clearing Syst em 112
16. Real Time Gross Set t lement (RTGS) 113
17. Int ercit y Clearing 113
18. Bank Indonesia Cert if icat es (SBIs) 113
19. Bank Indonesia Wadi’ah Cert if icat es (SWBIs) 114
20. Bank Secrecy 114
22. Human Resources Development at Banks 115
23. Deposit or f unds guarant ee 115
24. Special Treat ment f or Commercial Bank Credit
f ollow ing t he Nat ional Disast er in Aceh Province
and Nias Regency, Nort h Sumat era Province 117
25. Special Treat ment f or Rural Bank Credit
f ollow ing t he Nat ional Disast er in Aceh Province
and Nias Regency, Nort h Sumat era Province 117
26. Resolut ion of Cust omer Complaint s 118
G. Reporting by Commercial Banks 118
1. Regular Report s 118
2. Other Reports 119
H. Reporting by Rural Banks 120
1. Regular Report s 120
2. Other Reports 120
VI BANKING INDICATORS 121
VII OTHER 123
A Deposit Insurance Agency 123
B M oney Laundering 124
C Principles f or Sharia Banking Operat ion 126
D Compilat ion of Bank Product s and Act ivit ies 127
I. BANK INDONESIA
B
ank Indonesia is t he Cent ral Bank of t he Republic of Indonesia. Bank Indonesia is an independent st at einst it ut ion, w hich is f ree f rom int ervent ion of t he
government and or ot her part ies, except f or mat t ers explicit ly
prescribed in Act concerning Bank Indonesia.
A. Vision and M ission of Bank Indonesia
1. Vision
To be a Cent ral Bank est ablished as inst it ut ion of t rust
w it h nat ional and int ernat ional credibilit y t hrough
reinf orcing of it s st rat egic values and achievement of
st able, low inf lat ion. 2. M ission
To achieve and maintain stability in the Rupiah through
management of monet ary st abilit y and development
of f inancial syst em st abilit y in support of long-t erm,
sust ainable nat ional development .
B. Shared Values of Bank Indonesia
Co m p et en cy, in t eg rit y, t ran sp aren cy, acco u n t ab ilit y, cohesiveness.
C. Bank Indonesia’s Destination Statement 2008
To be a credible inst it ut ion by means of eff ect ive policies developed t hrough advancem ent s in com pet ence and
st rat egic part nerships.
D. Strategic Goals of Bank Indonesia
1. M aint ain monet ary st abilit y
2. M aint ain sound and account able int ernal f inance of
Bank Indonesia (BI)
3. Enhance monet ary management eff ect iveness 4. Im prove sound and eff ect ive banking syst em and
promot e a st able f inancial syst em
5. M aint ain t he secure, reliable, and eff icient operat ion
of t he Payment Syst em;
6. Enhance t he ef f ect iveness of ‘ Good Governance’
implement at ion
of Human Resources, Inf ormat ion, Know ledge, and
Organizat ional Design w it h t he BI St rat egy
8. Provide direct ion and m onit or ef f ect iveness in t he
process of st rat egic change at Bank Indonesia.
E. Legal Basis of Bank Indonesia
1. 1945 Const it ut ion of t he Republic of Indonesia
2. Act of t he Republic of Indonesia Number 23 of 1999
concerning Bank Indonesia as amended by Act of t he
Republic of Indonesia Number 3 of 2004
F. Important Duties of Bank Indonesia
1. Establishment and implementation of monetary policy;
2. Regulat ion and ensuring t he smoot h operat ion of t he
payment s syst em;
3. Regulation and supervision of banks.
G. Detailed Description of Duties
1. Est ab lish m o n et ary t arg et s, t ak in g in t o acco u n t
inf lat ion t arget ing, conduct monet ary cont rol, ext end
credit or f inancing based on Sharia Principles t o
overcom e short -t erm f inancial problem of banks
(mismat ch), provide Government -f unded emergency
f inancing in t he event of a bank experiencing f inancial
diff icult ies w it h syst emic impact t hat may pot ent ially
set of f a crisis endangering t he f inancial syst em ,
implement exchange rat e policy, and manage f oreign
exchange reserves
2. Det ermine t he use of payment inst rument s, regulat e
t he int er-bank clearing syst em , arrange t he f inal
set t lement of int er-bank payment t ransact ion, issue
and circulat e t he Rupiah currency as w ell as t o revoke,
w it hdraw and dest roy such currency f rom circulat ion.
3. Grant and revoke licenses of an institutional and certain
business. Prescribe regulat ions, act ivit ies of a bank,
conduct banking supervision and impose sanct ions on
H. Organization of Bank Indonesia
Bank Indonesia is headed by a Board of Governors,
consist ing of a Governor, a Senior Deput y Governor, and
at least f our and not more t han seven Deput y Governors,
nom inat ed and appoint ed by t he President upon t he
approval of the House of Representatives. To assist House o f Rep resen t at ive in co n d u ct in g sp ecif ic asp ect s o f
su p er visio n o f BI, a Su p er viso r y A g en cy h as b een
est ablished in an eff ort t o st rengt hen t he account abilit y, independence, t ransparency, and credibilit y of Bank
Indonesia. Specific aspects of supervision of BI are defined
as t he t asks of :
a. examinat ion of t he BI annual f inancial st at ement ; b. examinat ion of t he operat ing and invest ment budget
of BI;
c. examinat ion of t he decision making procedures f or
o p er at i o n s o u t si d e m o n et ar y p o l i cy an d t h e
management of BI asset s.
Or g an i zat i o n al l y, Ban k In d o n esi a co n si st s o f 2 2
Direct o r at es, 2 Bu reau s an d 6 b u reau s b elo w t h e coordinat ion of Direct orat e, 4 Special Unit s and one
Cent ral Bank Training and St udies Unit in t he Head Off ice,
37 Bank Indonesia Regional Off ices, and 4 Represent at ive
Off ices, each in New York, London, Tokyo, and Singapore. In general terms, Bank Indonesia performs its tasks through
f our sect or unit s, t he Bank Indonesia regional off ices, and
Bank Indonesia represent at ive off ices, all of w hich are
II. OPERATION OF THE BANKING SYSTEM
I
n t his booklet , banking is def ined as all t hat pert ains t o banks, including of banking ent it ies and bank,off ices scope of banking business, and met hods and
processes employed in t he conduct of banking business.
The key principle f or business operat ions conduct ed by t he Indonesian banking syst em is economic democracy applied
w it h t he use of prudent ial principles The primary f unct ion of
t he banking syst em in Indonesia is t o mobilize and disburse f u n d s b elo n g in g t o t h e p u b lic an d t o su p p o rt n at io n al
development t o bring about improved equit able dist ribut ion,
economic grow t h, and nat ional st abilit y aimed at improving
t he w elf are of t he populat ion at large.
The banking syst em has a st rat egic role in support ing t he
sm oot h operat ion of t he paym ent syst em , im plem ent ing
monet ary policy, and achieving f inancial syst em st abilit y. To
achieve t hese aims, it is essent ial t o have a sound, t ransparent ,
and account able banking syst em.
A. Definition
1. Bank is a business ent it y t hat mobilizes deposit f unds from the public and channels these funds to the public
in credit and/or ot her f orms in order t o improve t he
living st andards of t he populat ion at large
2. Commercial Bank is a bank conduct ing convent ional business and/or business based on Sharia Principles,
including provision of clearing payment services
3. Rural Bank is a bank conducting conventional business
and/or business based on Sharia Principles, excluding provision of clearing payment services
4. Sharia Principles are cont ract ual arrangement s based
on Islamic law, made bet w een a bank and anot her
party for deposit of funds and/or financing of business or ot her act ivit ies deemed in accordance w it h Sharia
Principles.
B. Legal Basis of the Banking System
1. Act of t he Republic of Indonesia Number 7 of 1992
concerning Banking as amended by Act of the Republic
2. Act of t he Republic of Indonesia Number 23 of 1999 concerning Bank Indonesia as amended by Act of t he
Republic of Indonesia Number 3 of 2004
C. Operations of Banks
Operations of Commercial Banks
1. M obilizing f unds f rom t he public in t he f orm of
deposit s comprising demand deposit s, t ime deposit s,
cert if icat es of deposit , savings deposit s, and/or ot her equivalent f orm;
2. Ext ending credit ;
3. Issuing not es;
4. Purchasing, selling, or guarant eeing against ow n risk or on behalf of and/or at t he request of a cust omer :
● Bills of exchange, including banker’s accept ances of
w hich t he mat urit y is no longer t han t he common
pract ice of t rading such document s;
● Not es and ot her commercial paper of w hich t he
mat urit y is no longer t hat t he common pract ice of
t rading such document s;
● Treasury bills and government guarant ees; ● Bank Indonesia Cert if icat es (SBIs); ● Bonds;
● Commercial paper w it h a mat urit y of up t o 1 (one)
year;
● Ot her securit ies w it h a mat urit y of up t o 1 (one)
year;
5. Transf erring money, eit her on ow n behalf or at t he
request of a cust omer;
6. Placing f unds in, borrow ing f unds f rom, or lending
f u n d s t o o t h er b an k s, w h et h er b y l et t er,
telecommunications device, or by sight draft, cheques,
or ot her means;
7. Accept ing payment s in respect or claims f or securit ies,
set t ling account s w it h or among t hird part ies;
8. Providing saf et y deposit boxes f or valuable goods and
papers;
9. Undert aking cust odial act ivit ies on behalf of anot her
10. Undert aking placement of f unds among cust omers
in t he f orm of securit ies not list ed in t he st ock exchange;
11. Conduct ing business in f act oring, credit cards, and
t rust eeship;
12. Providing financing and/or conducting other activities based on Sharia Principles in accordance w it h t he
regulat ions st ipulat ed by Bank Indonesia;
13. Conduct ing ot her business commonly undert aken by banks providing t hat such act ivit ies shall not be in co n t r aven t io n o f A ct co n cer n in g Ban k in g an d
prevailing law s;
14. Conduct ing act ivit ies in f oreign currencies w it h due observance t o t he regulat ion of Bank Indonesia;
15. Conduct ing equit y part icipat ion in ot her banks or business ent it ies operat ing in f inancial services, such as l easi n g , ven t u re cap i t al , secu r i t i es h o u ses, i n su r an ce, an d secu r i t i es cl ear i n g h o u se an d
cust odian, w it h due observance of t he regulat ion st ipulat ed by Bank Indonesia;
16. Conduct ing t emporary equit y part icipat ion t o set t le
problem of bad debt or bad financing based on Sharia Principles, on the condition that in due time the equity participation shall be w ithdraw n, w ith due observance
t o t he regulat ion st ipulat ed by Bank Indonesia; and 17. Act ing as f ounder and t he management of a pension
f und in accordance w it h t he prevailing law s on pension funds.
Operations of Sharia Commercial Banks
1. M obilizing f unds f rom t he public in t he f orm of
deposit s and invest ment s t hat include but not limit ed t o:
a. Demand deposit s based on t he w adi’ah principle;
b. Savings deposit s based on t he w adi’ ah and or mudharabah principle;
c. Time deposit s based on t he mudharabah principle;
or
2. Disbursing funds by means of:
a. Sale and purchase principles, t hat include:
● ist ishna; ● salam;
b. Prof it sharing principles, t hat include but are not
limit ed t o:
● mudharabah; ● musyarakah;
c. Lease principles, t hat include but are not limit ed
t o:
● ijarah
● ijarah munt ahiya bit t amlik
d. Len d in g an d b o r ro w in g b ased o n t h e q ard h
principle.
e. Banking serve based on t he principles t hat include but are not limited to :
● w akalah; ● haw alah; ● kaf alah; ● rahn.
3. Purchasing, selling, and/or guarant eeing at ow n risk
t hird part y securit ies issued on t he basis of underlying
t ransact ions based on sharia principles;
4. Purchasing Government and/or BI securit ies issued on
t he basis of Sharia Principles;
5. Issuing securit ies based on Sharia Principle;
6. Transf erring money, eit her on ow n behalf and/or at t he request of a cust omers on t he basis of t he sharia
principle;
7. Accepting payments for claims on issued securities and
set t ling account s w it h or among t hird part ies based on t he Sharia principle;
8. Providing saf et y deposit boxes f or valuable goods and
papers based on t he w adi’ah yad amanah principle;
9. Un d er t ak i n g cu st o d i al act i vi t i es, i n cl u d i n g administ rat ion f or ot her part ies on a cont ract ual basis
applying t he w akalah principle;
10. Providing let t ers of credit (L/Cs) based on Sharia
principle;
11. Providing bank guarant ee f acilit ies based on Sharia
12. Conducting debit card operations, charge chard based
on t he Sharia principle;
13. Conduct ing t rust eeship operat ions based on t he
w akalah principle;
14. Conducting other activities customarily undertaken by
banks insof ar as t hey are approved by t he Bank
Indonesia and Nat ional Sharia Council;
15. Conduct ing act ivit ies in f oreign currency based on t he
sharf principle;
16. Conduct ing equit y part icipat ion based on t he sharia
p rin cip le in an o t h er b an k o r f in an cial co m p an y
co n d u ct in g b u sin ess o p erat io n s b ased o n Sh aria
Principles; such as business of rent , capit al vent ure,
secu r i t i es co m p an y, i n su r an ce, an d cl ear an ce
inst it ut ion of solving and deposit ory;
17. Conduct ing t emporary equit y part icipat ion based on
the Sharia principle to settle problem of bad financing,
subject t o t he requirement of subsequent w it hdraw al
from equit y part icipat ion in accordance w it h policy as
specif ied by Bank Indonesia; and
18. Act ing as f ounder and t he management of a pension
f und based on Sharia Principles in accordance w it h
t he prevailing law s on pension f unds;
19. Bank may operat e as a social inst it ut ion, receiving
f unds f rom social f unds like zakat , inf aq, shadaqah,
w aqaf , grant s, or ot her and disbursing t hese f unds
accordance sharia principle on behalf of Bank or amil
zakat inst it ut ion w hich is select ed by government
Operations of Conventional Rural Banks
1. M obilizing f unds f rom t he public in t he f orm of
deposit s comprising t ime deposit s, savings deposit s,
and/or ot her equivalent f orm;
2. Ext ending credit ;
3. Placing funds in Bank Indonesia Certificates (SBIs), time
deposits, certificates of deposit, and/or savings deposits
Operations of Sharia Rural Banks
1. M obilize f unds f rom t he public in t he f orm s t hat
include but are not limit ed t o:
a. Savi n g s d ep o si t s b ased o n t h e w ad i ’ ah o r
mudharabah principle;
b. Time deposit s based on t he mudharabah principle; and or
c. Ot her f orm applying t he w adi’ah or mudharabah
principle.
2. Channel funds in forms that include but are not limited
t o:
a. Sale an d p u rch ase t ran sact io n s b ased o n t h e
principles of :
- murabahah; - ist ishna; and/or - salam;
b. Leasing t ransact ion under t he Ijarah Principle
c. Prof it -sharing f inancing based on principle of :
- mudharabah; and/ or - musyarakah;
3. Conduct ot her act ivit ies not in cont ravent ion of t he concerning Banking and Sharia Principles.
D. Operations Not Permitted for Banks
O p e r a t io n s N o t Pe r m it t e d f o r Co n v e n t io n a l Commercial Banks
1. Conduct ing equit y part icipat ion, w it h t he except ion
of t hose ref erred t o No. 15 and 16 operat ion f or
commercial bank above;
2. Conduct ing business in insurance;
3. Undert aking business ot her t han t hose ref erred t o in
let t er C above.
Operat ions Not Permit t ed f or Sharia Commercial Banks
1. Conduct ing equit y part icipat ion, w it h t he except ion
of t hose ref erred t o in No. 15 and 16 operat ion f or sharia commercial bank above;
3. Undert aking business ot her t han t hose ref erred t o in let t er C above
4. Conduct ing convent ional banking operat ions.
5. Co n ver t in g b u sin ess t o t h at o f a co n ven t io n al
commercial bank
Operations Not Permitted for Conventional Rural Banks
1. Accepting deposits in the form of demand deposit and part icipat ing in t ransact ion
2. Conduct ing business in f oreign currencies except as
money changer;
3. Conduct ing equit y part icipat ion; 4. Conduct ing business in insurance;
5. Conduct ing ot her business ot her t han t hose ref erred
t o in let t er C
Operations Not Permitted for Sharia Rural Banks
1. Conduct ing operat ions as ref erred t o operat ion not
perm it t ed f or convent ional rural bank t hat st at ed
above;
2. Conducting other business not referred to in the above
let t er C;
3. Conduct ing convent ional business operat ions.
III. BANK REGULATION AND SUPERVISION
As part of it s mandat e f or bank regulat ion and supervision,
Bank Indonesia enact s regulat ions; issues and revokes licenses
f or incorporat ion, est ablishment of bank off ices, and specif ic
bank act ivit ies; conduct s bank supervision; and im poses
sanct ions.
A. Objectives of Banking Regulation and Supervision
The primary f ocus of banking regulat ion and supervision is t o ensure t he opt imum f unct ioning Indonesia’s banking
system as:
1. An inst it ut ion of public t rust in respect of f unding and
disbursement of f unds;
2. An inst it ut ion f or implement at ion of monet ary policy;
3. An inst it ut ion cont ribut ing t o economic grow t h and
equit y;
W it h t he aim of creat ing a sound banking syst em (bot h
overall and in t erm s of individual banks) capable of safeguarding the public interest, achieving sound grow th,
and cont ribut ing in a usef ul capacit y t o t he nat ional
economy.
To achieve t hese object ives, t he approaches used are as
f ollow s:
1. Deregulat ion
2. Prudent ial banking; and
3. Self -regulat ory banking, in w hich banks consist ent ly
i m p l em en t t h ei r o w n i n t er n al r eg u l at i o n s f o r
operat ional act ivit ies w it hin t he overall guidelines of
prudent ial principles.
B. Scope of Bank Regulation and Supervision
1. Right t o license, com prising t he right t o est ablish
procedures f or t he licensing and est ablishment of a bank. The scope of licensing by Bank Indonesia
includes issuance and revocat ion of operat ing licenses
f or banks; issuance of licenses f or est ablishm ent ,
clo su re, an d ch an g e o f ad d ress o f b an k o f f ices; approval of bank ow ners and m anagem ent ; and
issuance of licenses f or banks t o conduct cert ain
2. Right t o regulat e, comprising t he right t o est ablish reg u lat io n s g o ver n in g b an k in g o p er at io n s an d
act ivit ies f or t he purpose of f ost ering a sound banking
syst em capable of delivering banking services as
desired by the public.
3. Right t o cont rol, comprising t he right t o supervise banks. Bank supervision t akes place t hrough on-sit e
su p er vi si o n an d o f f - si t e su p er vi si o n . On - si t e
supervision may t ake t he f orm of general examinat ion and special examinat ion aimed at obt aining a pict ure
of t he f inancial condit ion of t he bank, monit oring t he
level of bank compliance w it h prevailing regulat ions,
and ascert aining w het her t he bank is involved in any u n so u n d p r act i ces t h at m ay j eo p ar d i ze t h e
sust ainabilit y of bank operat ions. Off -sit e supervision
is supervision t hrough periodical report s delivered by
banks, examinat ion report s, and ot her inf ormat ion. If
it becomes necessary during t he implement at ion of supervision, Bank Indonesia may conduct examination
o f o t h er p ar t i es, i n cl u d i n g p ar en t co m p an y,
subsidiaries, connect ed part ies, aff iliat ed part ies, and bank debt ors. Bank Indonesia may assign anot her
part y t o conduct examinat ion on behalf of and in t he
n am e o f Ban k In d o n esia. Fo r b an k classif ied as
Systemically Important Bank, Bank Indonesia conducts On Sit e Supervisory Presence (OSP) by placing it s
supervisor in t he bank.
4. Right to impose sanctions in accordance w ith law s and
regulat ions in t he event t hat a bank is not f ully compliant or is in non-compliance w it h regulat ions.
Su ch act io n s co n t ain elem en t s o f g u id an ce t o
encourage banks to operate in compliance w ith sound
banking principles.
C. Bank Supervision
To perf orm it s bank supervision t asks, BI has int roduced a
syst em f or supervision applying t he t w in approaches of compliance-based supervision and risk-based supervision
(RBS). The use of t he RBS approach does not mean doing
an eff ort t o im prove t he supervisory syst em and t hus st ren g t h en t h e ef f ect iven ess an d ef f icien cy o f b an k
supervision. Over t ime, t he supervisory approach applied
by BI w ill be progressively changed over t o f ully risk-based
supervision.
1. Compliance based supervision
The compliance-based supervision approach essentially
st resses t h e m o n it o rin g o f b an k co m p lian ce f o r
enf orcement of t he regulat ory provisions relevant t o bank operat ions and m anagem ent . This approach
ref ers t o t he past condit ion of t he bank w it h t he
object ive of obt aining assurance t hat t he bank is
operat ed and managed properly in compliance w it h prudent ial banking principles.
2. Risk based supervision
The risk-based supervision approach represent s a
forw ard-looking approach to supervision. In using this
approach, supervision/examination of a bank is focused on inherent risks in major business lines and t he risk
cont rol syst em. This approach allow s great er room
f or proact ive act ions by t he supervisory aut horit y t o prevent problems f rom arising w it hin t he bank. The
risk-based supervision approach applies a supervision
D. Banking Sector at Bank Indonesia
Th e b an k in g sect o r at BI is o r g an ized u n d er n in e
Direct orat es and 32 Bank Indonesia Regional Off ices. The
banking sector organization is responsible for the functions
of licensing and inf ormat ion, research and regulat ion,
IV. BANKING POLICIES
A. Indonesian Banking Architecture (API)
Th e In d o n esi an Ban k i n g A rch i t ect u re (A PI) i s a
com prehensive, basic f ram ew ork and set s f ort h t he
direct ion, out line, and w orking st ruct ures f or t he banking
industry over the next five to ten years. This policy initiative is f ounded on a vision of creat ing a sound, st rong, and
eff icient banking syst em f or achieving f inancial syst em
st abilit y in support of nat ional economic grow t h. To bring the API vision into fruition, a number of objectives
have been est ablished:
1. Creat io n o f so u n d d o m est ic b an k in g st ru ct u res,
capable of m eet ing t he needs of t he public and promot ing sust ainable economic development .
2. Creat ion of an eff ect ive syst em f or bank regulat ion
and supervision in line w it h int ernat ional st andards.
3. Creat ion of a st rong, highly com pet it ive banking
indust ry, resilient in t he f ace of risks.
4. Building of good corporat e governance f or int ernal
st rengt hening of t he nat ional banking indust ry.
5. Provision of a com plet e range of inf rast ruct ure t o support t he creat ion of a healt hy banking indust ry.
6. Empow erment and prot ect ion of t he consumers of
banking services.
The six object ives are depict ed below as six pillars f or
The program s f or im plem ent at ion of t he API w ill be conduct ed in st ages, commencing in 2004. The st ages
f or achieving each object ive are as f ollow s:
1. Program f or reinf orcing t he st ruct ure of t he nat ional
banking syst em
No. Act ivit y (Pillar I) Time Frame
1. St rengt hening of bank capit al
a. In cr ease t h e m i n i m u m
cap i t al r eq u i r em en t f o r co m m er ci al b an k s (i n
-cluding regional
develop-m en t b an k s) t o Rp 1 0 0
billion
b. Ret ain Rp 3 t rillion capit al
requirem ent f or est
ablish-ment of new banks through
January 1, 2011
2. St r en g t h en t h e co m p
e-t ie-t iveness of rural banks
a. St r en g t h en t h e l i n k ag e p r o g r am b et w een co m
-m ercial b an k s an d r u r al
banks
b. Si m p l i f y p ro cesses f o r o p en i n g o f r u r al b an k
branch off ices
c. Facilit at e est ablishm ent of
jo in t service f acilit ies f o r rural banks
3. Improve access to credit
a. Facilit at e est ablishm ent of loan guarant ee scheme
b. Promote lending to specific
business sect ors
2004 – 2010
2004 – 2010
2004
2004
2004 – 2005
2004 – 2006
2. Program f or Improved Qualit y of Bank Regulat ion
No. Act ivit y (Pillar II) Time Frame
1. Fo rm alizin g t h e syn d icat io n
process in policy making for the banking syst em
a. Involve t hird part ies in all f o r m u l at i o n o f b an k i n g
policy
b. Est ablish panel of banking expert s
c. Facilit at e est ablishm ent of b an k i n g r esearch i n
s-t is-t u s-t io n s as-t reg io n al an d cent ral level
2. Phased implementation of 25 The Basle Core Principles f or
Eff ect ive Banking Supervision
3. Program f or Improvement of Supervisory Funct ion
No. Act ivit y (Pillar III) Time Frame
1. St ren g t h en in g co o rd in at io n
among supervisory agencies a. In st i t u t e r eg u l ar co o
r-dinat ion and cooperat ion
2. Co n so lid at io n t h e b an k in g
sect or at Bank Indonesia a. Consolidat e t he supervision
and examinat ion f unct ions b. Reo r g an i ze t h e b an k i n g
sect or at Bank Indonesia c. Establish enforcement team d. Est ab l i sh a sp eci al i st
examinat ion t eam
2004
2004
2004 – 2005
2004 – 2013
2004
2004 – 2005
2004 – 2005
3. En h an ci n g co m p et en cy o f
bank examiners
a. In t ro d u ce cert if icat io n o f
bank examiners
b. A t t ach exam i n er s f r o m
in t er n at io n al su p erviso ry
agencies
4. Develo p m en t o f syst em f o r
risk-based supervision
a. Design risk-based model for
supervision
5. Im p r o ve ef f ect i ven ess o f
enf orcement
a. St ren g t h en in vest ig at io n
process for banking crimes
b. Im p ro ve t ran sp aren cy o f
su p ervisio n an d en f o
rce-ment
c. Est ab l i sh i n t er n al o m
-b u d sm an f o r su p erviso ry
problems
d. Improve legal protection for
bank supervisors
4. Quality Improvement Program for Bank M anagement
and Operat ions
No. Act ivit y (Pillar IV) Time Frame
1. St rengt hen Good Corporat e
Governance (GCG)
a. Est ab lish m in im u m st an
-dards f or GCG
b. En co u r ag e b an k s t o g o
public
2004 – 2005
2004 – 2005
2004 – 2005
2004 – 2005
2004 – 2005
2004 – 2005
2004
2004 – 2005
2. Im prove qualit y of bank risk
management
a. In t ro d u ce co m p u l so r y
cer t i f i cat i o n o f r i sk
managers
3. Im p r o ve b an k o p er at i n g
capabilit ies
a. Encourage banks to develop
sh ared u se o f o p er at in g
f acilit ies t o reduce cost s
b. Faci l i t at e p r o vi si o n o f
ed u cat i o n n eed ed f o r
im p ro vem en t o f b an k in g
operat ions
5. Program f or Development of Banking Inf rast ruct ure
No. Act ivit y (Pillar V) Time Frame
1. Development of Credit Bureau
a. In it iat e est ab lish m en t o f
credit bureau
2. Opt imize use of credit rat ing
agencies
a. Inst it ut e compulsory rat ing
f or bonds issued by banks
2004 – 2005
2004 – 2005
2004 – 205
2004 – 2005
2004 – 2005
2004 – 2005
2004 – 2005
2004 6. Program f or Improvement of Cust omer Prot ect ion
No. Act ivit y (Pillar VI) Time Frame
1. Prepare standards for customer
complaint mechanism
a. Est ablish minimum
requirement s f or consumer
complaint s mechanism
2. Est ablish independent mediat ion agency
a. Facilit at e est ablishm ent of
banking mediat ion agency
3. Draf t in g o f t ran sp aren cy o f
product information
a. Facilit at e p rep ar at io n o f
m i n i m u m st an d ard s o f t r an sp ar en cy i n b an k
product information
4. Promote consumer education a. Encourage banks to educate
co n su m er s o n f i n an ci al
Under t he program f or st ruct ural reinf orcement of t he
Progress Implementation API
Pillar Progress as of Q3/ 2005 Pillar I
1.1 Im p ro vem en t o f b an k
capit al
- Policy direct ion on banking
consolidat ion:
est ablishment of crit eria f or
high perf orming banks and
anchor banks
- Bank Indonesia Regulat ion N o . 7 / 1 5 / P B I / 2 0 0 5
concer ning M inim um Tier
One Capit al f or Commercial
Banks
- Building of public aw areness
of t hese regulat ions
- Ho st i n g o f sem i n ar o n
Cooperat ive Banks
- Concept of Circular let t er
concer ning M inim um Tier
One Capit al f or Commercial
Banks
1.2 Bu i l d i n g t h e co m p e-t ie-t iveness of rural banks
- Research on Saturation Level of Rural Banks
- Resear ch o n Li n k ag e
Program
- Research on Shared Services for Rural Banks
- Draf t p o licy d irect io n f o r
strengthening of the linkage
program
- Draf t Bank APEX Blueprint
- Su r vey o f i m p act o f
Co m m er ci al Ban k m i cro
- Launching of Policy Direction
f or Linkage Program
- Si g n at u r e o f l i n k ag e
program loan agreement for commercial banks and rural
banks
1.3 Im p r o vi n g access t o
credit
- M o U o n l o an g u ar an t ee
scheme signed by Askrindo
w i t h 4 p r o vi n ces an d 9 regencies, also BPD
- Im p r o vem en t an d
h ar m o n i zat i o n o f l eg al
p r o vi si o n s h am p er i n g o p erat io n o f t h e reg io n al
cred it g u ar an t ee sch em e
launched by BI and relevant
agencies
- Building of public aw areness
o n t h e l o an g u ar an t ee
scheme in some provinces
Pillar II
2.1 Fo r m al i zi n g t h e
syndicat ion process in p o l i cym ak i n g f o r t h e
banking syst em
- Bl u e Pr i n t o n b an k i n g research inst it ut ions at t he
nat ional and regional
level-Fo r m at i o n o f p an el o f
banking experts
- Inaugural meet ing of panel
of banking expert s
2.2 Phased implement at ion
o f 2 5 Basel Co r e Principles f or Eff ect ive
Banking Supervision
Upgrading of core principles
scheduled f or com plet ion in 2 0 0 5 i n f o l l o w u p t o
Pillar III
banking sect or at Bank
Indonesia allocat ion of banks, human
reso u r ces, an d o r g an i
-zat ional unit s
- Final Draf t on est ablishment
of special t eam of specialist examiners
- Final Draf t on Task Force f or
Resolution of Problem Banks
w it hin t he Bank Supervision organizat ional st ruct ure
- Cert if icat ion of employees
in t he banking sect or - Attachment of examiners to
in t er n at io n al su p erviso ry
inst it ut ions
1.4 Development of syst em
for risk-based supervision
M ore user-f riendly EW S and
1.5 M o re ef f ect ive en f o
r-cement
Reo r g an i zat i o n o f t h e Banking Investigation Unit
(UKIP) an d st r o n g er
en f o r cem en t ag ai n st
criminal act ions t hrough t he Joint Decree bet w een
BI, t h e Nat io n al Po lice,
an d t h e A t t o r n
ey-General’s Office
Pillar IV
1.1 Building Good Corpo-rat e Governance (GCG)
- Draft on GCG and roles and
d u t i es o f Ban k Co m
-missioners and Direct ors t o
be proposed f or inclusion in
Bank Indonesia Regulat ion - Draf t on est ablishm ent of
cooperat ion f orum f or Bank
GCG involving BI, banking asso ci at i o n s, an d t h e
Nat ional Governance Policy
Commit t ee
1.2 Improving t he qualit y of
bank risk management
- Est ab l i sh m en t o f Ri sk M anagem ent Cert if icat ion
Agency (BI-IRPA)
- Implement at ion of Execut ive
Ri sk M an ag em en t Cer t i
-f i cat i o n Pr o g r am -f o r Di rect o r s o f Co m m erci al
Banks
- Im p l em en t at i o n o f Ri sk M anagem ent Cert if icat ion
Program f or Commissioners
of Commercial Banks
Fin al d raf t o n im p lem en t at i o n o f Reg u l ar Cer t i
- Bank Indonesia Regulat ion No. 7/25 concerning Risk
M anagement Cert if icat
ion-Building public aw areness
1.3 St r en g t h en i n g b an k
operat ional capacit y
- Draft paper on use of shared
facilities for banking services
- Draf t program on joint bank ed u cat i o n an d t r ai n i n g
programs
- Dr af t p u b l i cat i o n o f
indicat ors of bank eff iciency
Pillar V
1.1 Developm ent of Credit Bureau
Ban k In d o n esia Reg u lat io n No. 7/8/PBI/2005 concerning
the Debtor Information System
1.2 Opt im ize use of credit
rating agencies
Preparat ion of st udy on rat ing
r eq u i rem en t s f o r d eb t
inst rum ent s/bonds issued by
banks
Pillar VI
6.1 Fo r m u l at i o n o f
standards for customer
complaint s mechanism
- Bank Indonesia Regulat ion
N o . 7 / 7 / P B I / 2 0 0 5
co n cern in g Reso lu t io n o f Cust omer Complaint s
- Circular Let t er of BI No. 7/
2 4 / DPNP co n cer n i n g
Reso l u t i o n o f Cu st o m er Co m p l ai n t s, p ro vi d i n g
inst ruct ions f or im plem
en-tation of the Bank Indonesia
- Building of public aw areness
o f t h e Circu lar Let t er o n
Reso l u t i o n o f Cu st o m er
Complaint s
6.2 Est ab l i sh m en t o f
independent m ediat ion
agency
Dr af t Ban k In d o n esi a
Reg u l at i o n o n t h e b an k
mediat ion agency
6.3 Draf t ing of regulat ions
o n t r an sp ar en cy o f
product information
- Bank Indonesia Regulat ion
N o . 7 / 6 / P B I / 2 0 0 5
concerning Transparency of
Bank Product Inf orm at ion an d Use o f Cu st o m er
Personal Dat a
- Circular Let t er of BI No. 7/ 25/DPNP concerning
Trans-p aren cy o f Ban k Pro d u ct
In f o r m at i o n an d Use o f
Cu st o m er Perso n al Dat a, p ro vid in g in st ru ct io n s f o r
implement at ion of t he Bank
Indonesia Regulat ion
- Building of public aw areness o f Ci rcu l ar Let t er o n
Tr an sp ar en cy o f Ban k
Product Information and Use
of Cust omer Personal Dat a
6.4 Pr o m o t i n g p u b l i c
education for consumers
Pr ep ar at i o n o f p u b l i c
B. Consolidation of the Banking System 1. Objectives
- To rein f o rce t h e in st it u t io n al st ru ct u re o f t h e
banking syst em by increasing capit al t o a level
com m ensurat e w it h t he invest m ent needed t o
respond t o f ut ure challenges
- To encourage banks t o prepare t hemselves more
t horoughly in inf ormat ion t echnology, qualit y of
human resources, and st andard pract ices of risk management to enable them to operate on the level
of prime banks in 2011
- To promot e a high level of compet it iveness in t he
banking system so that it w ill support the minimum annual economic grow t h and st and st rong in t he
f ace of globalizat ion and increasingly com plex
ext ernal challenges.
2. Phases of Bank Consolidation
No. Period Consolidation Phase
1 2004 - 2005 Consolidat ion applying a market -driven approach
2 2005 - 2007 A. For Banks w it h Tier 1 capit al below Rp 100
billion
- A ccel er at i o n b y req u irin g b an k s t o
h ave m in im u m Rp 8 0 b i l l i o n t i er 1 cap i t al b y en d o f 2007
- Ban k s f al l i n g w el l short of Rp 80 billion t ier 1 cap it al m ay
m in im u m t arg et ed
Rp 80 billion t ier 1 cap i t al b y en d o f 2007
- Ban k s w i t h t i er 1
capit al just short of Rp 8 0 b illio n m ay ad d cap i t al t o ach i eve t h e
m in im u m t arg et ed Rp 80 billion t ier 1 cap i t al b y en d o f
2007.
B. Banks w ith tier 1 capital
above Rp 100 billion - BI w ill urge banks t o
i m p r o ve t h ei r
p er f o r m an ce b y est ablishing crit eria f or High Perf orming Banks t hat must be
m et by t he end of 2007
- Ban k s al r ead y
m eet i n g t h e Hi g h Per f o r m i n g Ban k crit eria and meet ing cert ain ot her crit eria
may be cat egorized as b an k s w i t h pot ent ial t o become
Anchor Banks - Ban k s w i t h t h e
necessary pot ent ial
act i n g as co n -solidat or
- Banks not m eet ing
t he High Perf orming Bank crit eria shall be given opport unit y t o
m eet t h e Hi g h Per f o r m i n g Ban k crit eria by t he end of
2007
- Ban k s al r ead y cat egorized as High Perf orming Banks at
the end of 2005 w ill be expected to retain t h i s st at u s an d
d evel o p t h ei r b u sin ess acco rd in g t o t h e f o cu s est ab lish ed b y t h e
individual bank - Fo r su p er vi so r y
p u r p o ses, Ban k
In d o n esi a w i l l co n d u ct t est in g t o det ermine t he High
Per f o r m i n g Ban k , n o n - H i g h Per f o r m i n g Ban k ,
an d A n ch o r Ban k categories at the end of each year.
3 2008 - 2010 A. Banks previously w it h
t ier 1 capit al below t he Rp 1 0 0 b i l l i o n minimum
These banks shall be rest r i ct ed f r o m co n d u ct i n g cer t ai n business act ivit ies and g i ven a 1 - year t r an si t i o n p er i o d t o adjust to the business rest r i ct i o n s. Th ese sanct ions shall remain in f o rce even if t h e Bank is able t o m eet t h e m in im u m t ier 1 capit al at t he end of 2010. The sanct ions i n cl u d e b u t are n o t l i m i t ed t o t h e f ollow ing:
- No t co n d u ct business as a foreign e x c h a n g e commercial bank - Li m i t p ro vi si o n o f
f u n d s p er d eb t o r an d /o r p er d eb t o r group t o a ceiling or outstanding credit of no more than Rp 500 million
- Lim it t he m axim um deposit or f unds t hat may be accumulated b y t h e b an k t o 1 0 (t en ) t i m es t i er 1 capit al; and/or - Cl o se d o w n t h e
2) Banks achieving Rp 80 billion t ier 1 capit al by end of 2007
Th e b an k sh al l b e r eq u i red t o m ak e f u r t h er ef f o r t s t o increase capit al t o t he t arget ed minimum Rp 100 billion tier 1 capital by no lat er t han end of 2010
3) Ban k s ach i evi n g Rp 100 billion tier 1 capital by end of 2007 These banks shall be req u ired t o im p ro ve perf orm ance in order t o m eet t h e Hi g h Per f o r m i n g Ban k crit eria by t he end of 2010.
B. Banks w ith existing tier 1 capital above the Rp 100 billion minimum
2) Ban k s t h at b eco m e Anchor Banks status by end of 2007
Th e b an k sh al l b e required to maintain its st at us as Anchor Bank
an d p er f o r m i t s f u n ct io n as co n so li-dat or in keeping w it h
t h e b u si n ess p l an ag reed w i t h Ban k In d o n esia, w it h f in al result s t o be achieved
no lat er t han t he end of 2010
3) Non-High Perf orm ing Banks
Throughout the grade
period (2008-2010), BI w ill co n d u ct reg u lar t est ing f or compliance w i t h t h e Hi g h
Per f o r m i n g Ban k crit eria. If t h e Hig h Per f o r m i n g Ban k
crit eria are n o t m et , disincent ives shall be ordered for the bank in t he f orm of t ight ened
rest r i ct i o n s o n t h e licen sin g p ro cess f o r expansion of business
act ivit ies d eem ed t o carry great er risks.
u n su cce ssf u l in a ch ie v in g Rp 1 0 0 billion tier 1 capital by end of 2010
Th e b an k sh al l b e
subject t o rest rict ions
on its business activities
an d g i ven a 1 - year
t r an si t i o n p er i o d t o
ad j u st t o t h e
restrictions on business
act ivit ies
B. Banks w ith existing tier 1 capital of more t han Rp 100 billion minimum at end of 2007
a. As a result of the entire
b an k co n so l i d at i o n
process, af t er 2010 all
Banks w ill comply w it h
t h e Hig h -Perf o rm in g
Bank crit eria
b. If an y n o n - Hi g h
Per f o r m i n g Ban k s
rem ain , t h ese b an k s
shall be t arget ed f or
mandatory merger and
acquisit ion
c. Fo l l o w i n g t h i s, t h e
n at i o n al b an k i n g
system shall take shape
according t o t he st rat a
set o u t i n t h e
In d o n esi an Ban k i n g
3. Definition and Criteria for High Performing Banks
High Perf orming Banks are banks t hat have met t he
f ollow ing crit eria f or t he past 3 years:
1. have more t han Rp 100 billion in t ier 1 capit al;
2. overall rat ing is sound (at least composit e rat ing 2)
w it h t he management f act or classif ied as good; 3. capit al adequacy rat io (CAR) is a minimum of 10% ;
4. good rating in governance.
Ban k In d o n esia w ill evalu at e t h e st at u s o f Hig h Perf orming Banks on a regular basis.
High Performing Banks can potentially become Anchor
Banks provided t hat t hey meet t he f ollow ing crit eria:
1. The Bank has t he requisit e capacit y f or sound grow th and expansion, supported by strong and
st ab le cap it al cap ab le o f ab so r b in g r isk an d
su p p o rt in g b u sin ess act ivit ies as ref lect ed in
minimum 12% CAR and minimum 6% tier 1 capital
rat io;
2. The Bank also has capacit y f or sust ainable grow t h,
ref lect ed in st rong prof it abilit y as indicat ed by a
minimum 1.5% Ret urn on Asset s (ROA).
3. Th e Ban k p lays a su p p o rt ive ro le in t h e b an k
in t erm ed iary f u n ct io n t h at p ro m o t es n at io n al
eco n o m i c d evel o p m en t , ref l ect ed i n cr ed i t
expansion in keeping w it h prudent ial principles. This w ill be ref lect ed in real credit expansion at a
minimum of 22% per annum or minimum 50%
LDR and non-perf orming loans (net ) below 5%
4. The Bank is a publicly list ed company or is planning t o be list ed in t he near f ut ure
5. The Bank has t he abilit y and capacit y t o t ake act ion
as consolidat or w hile st ill meet ing t he crit eria f or
High Perf orming Bank.
C. Bu ild in g t h e In d o n e sia n Fin a n cia l Sy st e m Architecture (ASKI)
The f inancial syst em is a syst em t hat encompasses banks, the capital market, insurance, pension funds, multi finance,
and ot her inf rast ruct ure. All of t hese int eract w it h each
services including t he payment syst em. For t his reason,
none of t he element s w it hin t he f inancial syst em can be view ed in isolat ion.
The new phenomenon of f inancial globalizat ion marked
by liberalizat ion of capit al market s and f ree movement of capit al, t echnological advancement , and prolif erat ion of in n o vat io n s in f in an cial p ro d u ct s an d ser vices h as
co n t r i b u t ed t o an u n f o reseen l evel o f f i n an ci al globalizat ion t hat is also capable of generat ing sizeable gains accom panied by new risks. In t his regard, t o accelerat e t he pace of economic recovery and prepare f or
t he challenges and opport unit ies of t he f ut ure, it is necessary t o prepare a blueprint f or t he Indonesian f inancial syst em archit ect ure.
To build t he Indonesian f inancial syst em archit ect ure as a st rat egic f oundat ion t hat set s f ort h t he vision and blue print f or t he development of a robust , st able, and sound f inancial syst em in Indonesia over t he medium and
long-t erm, a suslong-t ained program of collaboralong-t ion is needed long-t halong-t brings t oget her all st akeholders in t he f inancial syst em.
D. Adoption of the Basel II Accord
The Basel Capit al Accord is a capit al measurement syst em launched by t he Basel Commit t ee on Banking Supervision
(BCBS) in 1988. As a result of grow ing sophist icat ion of f in an cial m ark et in st ru m en t s, ad van cem en t s in risk management, the past capital requirements and one-size-f it s-all ap p ro ach lo st relevan ce an d it t h u s b ecam e
necessary t o updat e t he 1988 Basel Capit al Accord. The revisions t o t he 1988 Basel Capit al Accord are know n as Basel II.
It is not in f act obligat ory f or Indonesia t o adopt Basel II. Nevert heless, Indonesia f aces t he need t o creat e a more risk-orient ed capit al st ruct ure as part of t he building of a
more st able f inancial syst em, consist ent w it h t he Basel II object ives. This, com bined w it h t he need f or great er incent ives t o st rengt hen risk management capabilit y and
Under Basel II, various requirement s must be met . The scope of t hese requirem ent s includes an Account ing
Syst em , Risk M an ag em en t Pr act ices, M an ag em en t
Inf ormat ion Syst em, Adequat e Supervisory Framew ork,
and Legal Framew ork. The adopt ion of Basel II by means
of 3 pillars is illust rat ed as f ollow s:
Pillar 1. M inimum Capit al Requirement s
Calculat ion of bank capit al needs in line w it h risk sensit ive capit al allocat ion.
Pillar 2. Supervisory Review Process
A syst em of supervision w it h t he abilit y t o validat e t he
met hod used t o calculat e t he capit al requirement . This
also includes calculations of unquantifiable capital factors,
such as liquidit y risk, int erest rat es in t he banking book, reput at ion risk, and st rat egic risk t hat enables rapid
assessment of any bank deemed t o be undercapit alized
and immediat e imposit ion of t he appropriat e supervisory
act ions.
Pillar 3. M arket Discipline
As inst it ut ions of t rust , Banks are expect ed t o provide
cust om ers w it h accurat e inf orm at ion t hat serves as a reliable guide f or invest or decisions.
The preparat ions needed f or adopt ion of Basel II in
Indonesia include t he f ollow ing:
● Develo p m en t an d an alysis o f t h e q u alit y o f risk
management by t he banking syst em
● Improvements to risk-based bank supervision that build
● Assessment of the feasibility of a domestic rating agency
qualif ied t o issue rat ings usable as benchm arks in
measurement of credit risk.
● Improvements to accounting standards in keeping w ith
In t er n at io n al A cco u n t in g St an d ard s f o r accu rat e
present at ion of f inancial inf ormat ion.
● Developm ent and enhancem ent of a dat abase as
required inf rast ruct ure f or t he f ut ure applicat ion of
Int ernal M odels.
E. Development of Sharia Banking
Implementation of the sharia banking development policy
is guided by t he st rat egic init iat ives set out in t he Blue Print f or Development of Sharia Banking in Indonesia.
These init iat ives f ocus on f our key areas: compliance w it h
sharia principles, prudential banking, operational efficiency
and compet it iveness, and syst em st abilit y and benef it s f or
t he economy.
The init iat ive w ill be carried out over t hree st ages of
development, each w ith specific objectives. The first stage
involved laying t he f oundat ions f or f ut ure grow t h. The second st age f ocuses on st ruct ural reinf orcement of t he
sharia banking indust ry, and t he t hird st age t arget s
com pliance w it h int ernat ional f inancial st andards and
service qualit y.
In 2005, t he sharia banking development process ent ered
t he second st age (2004-2008). The second st age of t he
init iat ive in essence builds on t he development programs
carried out in st age I. This development w ill t ake place by adding to and strengthening the supporting infrastructure,
building t he compet ency, skills, and prof essionalism of
sharia banking inst it ut ions and personnel, and improving
t he int ermediary f unct ion, eff iciency and compet it iveness of t he sharia banking indust ry.
Implementation of the 2005 Strategic Initiatives
The strategic initiative for compliance w ith sharia principles covers eff ort s t o build underst anding of sharia f inancial
concepts, promote and facilitate the formulation of sharia
f o r in t eg rat ed reg u lat io n an d su p ervisio n . Cu rren t
measures relat ed t o t his init iat ive include f urt her w ork on
standardized contractual terms, more effective functioning
of t he Nat ional Sharia Arbit rat ion Council (Basyarnas) and
t he Sharia Econom ics Com m unicat ion Forum (PKES),
design of an int eract ive mult imedia prof ile of t he sharia
banking indust ry, disseminat ion of inf ormat ion in various
f orms, including seminars, w orkshops, and t raining in t he
basics of sharia banking (TOT), and public aw areness
campaigns t hrough elect ronic media (TV).
The st rat egic init iat ive f or prudent ial banking is being
im p lem en t ed t h ro u g h im p ro vem en t s t o p ru d en t ial
regulat ions appropriat e t o t he operat ional charact erist ics
o f sh aria b an ks. Pro g ress in t h is area in clu d es t h e
promulgat ion of Bank Indonesia Regulat ion (PBI) No. 7/
13/PBI/2005 concerning t he M inimum Capit al Adequacy
Requirem ent f or Com m ercial Banks based on Sharia
Principles.
The st rat egic init iat ive f or operat ional ef f iciency and
compet it iveness w ill be implement ed t hrough design of
St andard Operat ing Procedures f or Sharia Rural Bank
Pro d u ct s in b o t h f u n d in g an d f u n d s d isb u rsem en t ,
t echnical assist ance f or organizat ion of t raining in sharia
account ing f or f inancial st aff f rom Sharia Rural Banks
(SRBs) throughout Indonesia, development of a curriculum
and cert if icat ion program modules f or SRB management
personnel, including direct ors, commissioners, and sharia
su p er vi so r y b o ar d s, an d t ech n i cal assi st an ce f o r
organizat ion of m urabahah product t raining f or SRB
f in an cial st af f in w est er n In d o n esia. To su p p o rt t h e
operat ional eff iciency of sharia banking, Bank Indonesia
has issued t hree regulat ions: Bank Indonesia Regulat ion
No. 7/24/PBI/2005 dat ed August 3, 2005, concerning t he
Short-Term Financing Facility for Sharia Banks (FPJPS), Bank
Indonesia Regulation No. 7/35/PBI/2005 dated September
29, 2005, amending Bank Indonesia Regulat ion No. 6/
24/PBI/2004 concerning Sharia Commercial Banks, and
September 2005 amending Bank Indonesia Regulation No.
5/17/PBI/2003 concerning Requirement s and Procedure
for Implementation of the Government Blanket Guarantee
f or Payment Obligat ions of Rural Banks.
The st rat egic init iat ive f or syst em st abilit y and benef it s f or
t he econom y w ill be im plem ent ed t hrough advanced
t raining in sharia bank supervision f or supervisors at Bank
Indonesia Regional Off ices and preparat ions f or host ing
an int ernat ional conf erence on t he t hem e of Islam ic
Economics and Finance.
F. Development of Rural Banks
1. Future Expectations for the Rural Bank Industry
a. Achievement of a sound, st rong, product ive, and
highly compet it ive rural bank indust ry backed by
st rong capit al, prof essional and compet ent human
resources of high int egrit y, and eff icient operat ions
w it hin individual rural banks.
b. W id er d ist rib u t io n o f ru ral b an k s t h ro u g h o u t
Indonesia, especially in t he east ern regions and
aw ay from the main population centers of Java and
Bali, t o ensure more equit able service coverage in
all part s of Indonesia.
c. Expanded role and cont ribut ion of t he rural bank
industry as a spearhead in financing the agricultural
and SM E sect ors in rural areas, building on t he
st ren g t h s o f t h eir g eo g rap h ical p ro xim it y an d
psychological aff init y t o SM Es.
2. Number of Rural Banks and Branch Offices
In order t o build a sound rural bank indust ry, Bank
Indonesia is implement ing a rest ruct uring policy f or
t h e ru ral b an k in d u st ry t o b e p u rsu ed t h ro u g h
acquisit ion, addit ion of paid up capit al, or merger of
problem rural banks w it h prospect s f or recovery. If a
rural bank is past recovery, a f reeze w ill be imposed
on its business activities or its operating license revoked
an d af f ai r s w o u n d u p w i t h su p p o r t f r o m t h e
3. Improvements to the Rural Bank Regulation and Supervision System
Bank Indonesia is w orking t o draf t improvement s t o
the regulatory and supervisory system that take greater
account of t he specif ic charact erist ics of rural banks
and int ernat ional best pract ices. These improvement s include enhancement s t o t he use of t he rural bank
d at ab ase as an ear l y w ar n i n g syst em , g r eat er
eff ect iveness in law enf orcement , and enhancement s t o prudent ial principles specif ic t o rural banks.
4. Capacity and Institution Building for Rural Banks
● Professional Certification Program for Rural
Banks (CERTIF)
In cooperation w ith the Financial Institutions Project
(ProFI) supported by German Technical Cooperation
(GTZ), Bank Indonesia is providing a cert if icat ed
t raining program f or rural banks w it h t he object ive building a sound, strong rural bank industry. Aimed
at capacit y and inst it ut ion building, t his program
w ill in t urn build more compet ent and prof essional bankers f or t he management of rural banks.
The cert if icat ion program consist s of f our m ain
modules: M anagement Skills, M anagement Theory,
Operat ional M anagem ent Skills, and St rat egic M an ag em en t . Th e cer t i f i cat i o n p ro g r am i s
mandat ory f or direct ors and candidat e direct ors of
rural banks, as specified in the regulatory provisions
for the fit and proper test for rural banks to support t he capacit y of rural bank human resources. Under
t he program, rural banks are t arget ed t o have at
least 1 (one) cert if ied direct or in each bank by
December 31, 2006, w it h cert if icat ion of all rural b an k d irect o rs an d can d id at e d irect o rs t o b e
complet ed by December 31, 2008.
● Strengthening of Rural Banking Infrastructure
To su p p o r t t h e creat i o n o f t h e n ecessar y
inf rast ruct ure t o support t he rural bank indust ry,
an apex inst it ut ion f or t he rural bank indust ry t o assist rural banks in resolving mismat ch in liquidit y
and off ering alt ernat ive f und placement s f or rural
banks holding excess liquidit y. The main f unct ion
of t he apex inst it ut ion is t o pool f unds and operat e
t he payment syst em f unct ion f or rural banks. The est ablishment of t he apex inst it ut ion w it hin t he
overall rural banking inf rast ruct ure is expect ed t o
b r in g ab o u t im p ro vem en t s in t h e o p er at in g eff iciency and compet it iveness of t he rural bank
indust ry.
5. Building Cooperation betw een Rural Banks and Commercial Banks/ Ot her Inst it ut ions (Linkage Program)
Ban k In d o n esia is b u ild in g co o p erat io n b et w een
commercial banks and rural banks through the linkage
program in order t o promot e rural banks in t heir role as lending inst it ut ions t o small-scale ent erprises and
m icro ent erprises (SM Es). As of Sept em ber 2004,
collaborat ive linkages had been est ablished bet w een a t ot al of 869 rural banks and 25 f inancial inst it ut ions
(24 commercial banks and PT PNM ) w it h a combined
loan ceiling reaching Rp 968 billion and disbursed
loans at Rp 592 billion. The linkage program has brought benef it s t o bot h commercial banks and t he
rural banks. In t his program, BI seeks mainly t o ensure
a climat e of f air compet it ion by promot ing a mut ually
beneficial linkage program betw een commercial banks and rural banks.
G. Action Against Suspected Banking Crimes
To support and expedit e act ions t o com bat banking off ences cont aining element s of crime, Bank Indonesia
has est ablished close cooperat ion w it h t he Indonesian
Police and the Attorney General’s Office. This cooperation
is set out in a Joint Decree concerning Cooperat ion on Cases of Banking Crimes signed on December 20, 2004.
This Joint Decree up dat ed t he same Decree in last t ime.
of crime and meet ing t he crit eria f or invest igat ion w ill be placed in t he hands of t he police and At t orney General’s
Of f i ce f o r f u r t h er act i o n . Fu r t h er m o r e, t o assi st
invest igat ors in uncovering cases of banking crimes, BI
may be asked t o provide inf ormat ion in t he capacit y of
w it ness or expert w it ness. Through t his, all f orm s of banking off enses cont aining element s of crime can be
handled quickly and prof essionally under t he applicable
law s.
The scope of cooperat ion bet w een t he At t orney General,
t he Nat ional Police, and Bank Indonesia in combat ing
banking crim es covers m ainly t he crim es st ipulat ed in
Chapt er VIII, Art icle 46 t hrough Art icle 50A of Act No. 7 of 1992 concerning Banking as amended by Act No. 10
o f 1 9 9 8 . Th ese crim es co m e w it h in t h e f o llo w in g
cat egories:
1. Crimes relat ed t o Licensing (Art icle 46);
2. Crimes relat ed t o Bank Secrecy provisions (Art icles 47 and 47A);
3. Crim es relat ed t o Su p ervisio n o f Ban ks b y Ban k
Indonesia (Art icle 48);
4. Crimes relat ed t o Bank Business Operat ions (Art icle
49);
5. Crimes relat ed t o Aff iliat ed Part ies of Banks (Art icle
50);
6. Crimes relat ed t o t he Ow ners/Shareholders of Banks
(Art icle 50A).
If a crime at a Bank comes t o t he at t ent ion t o BI f rom
supervision or examinat ion or complaint f rom t he public and t hat crime is not st ipulat ed in t he Banking Law, t he
scope of cooperation may also extend to crimes stipulated
in ot her legal provisions, f or example, Act No. 31 of 1999
concerning Eradicat ion of Corrupt ion as amended by Act No. 20 of 2001 and t he Criminal Code (KUHP).
Enforcement against banking crimes during 2005
Enf orcem ent against banking crim es is key aspect t o building a st rong, highly compet it ive banking indust ry
capable of w it hst anding risks. The handing over of cases
