EXECUTI VE SUM M ARY
The " I nt ernat ional Convergence of Capit al Measurem ent and Capit al St andards -
A Revised Fram ework" ( Basel I I ) ,, issued by t he Basel Com m it t ee on Banking
Supervision at t he Bank for I nt ernat ional Set t lem ent s ( BI S), is a revised and updated
version of t he Basel Accord 1988 ( Basel I ) . This fram ework provides a m ore risk
-sensit ive definit ion of capit al adequacy and cont ains incent ives for banks t o im prove
t heir risk m anagem ent . Basel I I is specifically aim ed at int ernat ionally act ive banks and
seeks t o st rengt hen t he securit y and soundness of t he int ernat ional financial syst em by
em phasising risk- based calculat ion of bank capit al, t he supervisory review process and
m arket discipline. The Basel I I Fram ework is based on a forward- looking appr oach t hat
enables im provem ent s and adj ust m ent s t o be m ade over t im e. I n t his w ay, t he Basel I I
fram ew ork is able t o keep pace w it h changes in t he m arket place and advances in risk
m anagem ent .
For t he G10 nat ions t hem selves, Basel I I com es int o force by t he end of 2006.
Nevert heless, t his t im efram e is not binding on non - G10 nat ions, given t hat in t he
developm ent of t heir supervision processes, each count ry has different priorit ies. Am ong
t hese priorit ies is im proved com pliance w it h t he Basel Core Principles for Effect ive
Banking Supervision ( BCPs) . The st at e of preparedness for com pliance wit h t he various
precondit ions for Basel I I is a key fact or in t he t im efram es adopt ed by individual
count ries. The preparedness encom passes such areas as qualit y of r isk m anagem ent
and of inform at ion syst em s and dat abases in t he banking syst em . I n addit ion , Basel I I
im plem ent at ion is dependent on t he condit ion of infrast ruct ure, w hich includes
account ing st andards and est ablishm ent of a rat ing agency, and readiness on part of t he
supervisory aut horit y, part icularly in t he area of nat ional discret ion.
I n August 2004, Bank I ndonesia conduct ed a survey t o ascert ain bank
percept ions of Basel I I and t he expect at ions and preferences of banks for
im plem ent at ion of Basel I I in I ndonesi a. The survey also sought inform at ion on levels of
preparedness, obst acles and const raint s faced by I ndonesian banks in regard t o t he
planned im plem ent at ion of Basel I I . The survey’s overall findings indicat ed t hat
I ndonesian banks gener ally under st ood t he obj ect ives, benefit s and consequences of
Basel I I . The m ost im port ant benefit s from Basel I I would be im provem ent s in t he
qualit y of r isk- based m anagem ent of capit al, developm ent of risk m anagem ent pract ices
and corporat e governance, along wit h im proved t ransparency t hat would prom ot e
m arket discipline. The banking indust ry also responded posit ively in t heir affirm at ion t hat
Basel I I would becom e one of t heir m aj or priorit ies. How ever, m ost banks st ill regarded
im plem ent at ion of risk m anagem ent as an obligat ion, not as a need.
I n t he area of I T infrast ruct ure and especially dat abases, m ost I ndonesian banks
were unable t o sat isfy t he requirem ent s set out in Basel I I . Alt hough banks plan t o
rect ify t his condit ion int ernally and t hrough use of ext ernal sources, in 2004- 2005 bank
budget ed spending. For t his reason, banks are unlikely t o m eet t he Basel I I dat abase
requirem ent s for t he next several years.
Most banks expressed t h e preference for Basel I I t o be applied t o all com m ercial
banks. However, 34.7% of banks want ed Basel I I t o be m andat ory for banks m eet ing
cert ain crit eria as int ernat ionally act ive banks, while com pliance wit h Basel I I for ot her
com m ercial banks should be volunt ary. Concerning t he t im e needed t o im plem ent Basel
I I , t he t im e fram es put forward by banks varied widely from 2005 t o 2012, depending on
t he approach t o be followed.
Based on t he st udy and analysis of t he survey and t he readiness of t he
super visory aut horit y, 2009 is proposed as t he year for full im plem ent at ion of Basel I I
for all banks in I ndonesia. Bank I ndonesia is t o consider t his r ecom m endat ion in t he
policy direct ion for t he banking syst em . Under t his plan, banks will apply t he
st andardised approach for calculat ion of credit risk and t he basic indicat or approach for
calculat ion of operat ional risk. This policy recom m endat ion is int ended t o allow sufficient
t im e for t he banking syst em and t he supervisory aut horit y t o set up t he required
infrast ruct ure for Basel I I .
I n t he next st ep, t w o essent ial t asks for t he pract ical im plem ent at ion of t his
policy are t he preparat ion of a roadm ap and act ion plan for im plem ent at ion of Basel I I .
