Financial Evolution and Regulatory Reform
in Indonesia
Hendri Saparini, PhD
CORE Institute
ECONIT Advisory Group
Independent tink tank in Economic Development
Jakarta - Indonesia
saparini@econit.co.id and saparini@core-institute.co.id
Financial Evolution, Regulatery Reforn and Cooperation in Asia
Seoul National University – 17-18 May 2013
Outline
•
•
•
•
Indonesian Financial Structure
Regulation in Financial Sectors
Roles of banking sector in economy
Roles of capital market in economy
1. Indonesian Financial Structure
• Dominated by banking sector
• Banking regulation has changed over the New Order
to Reformation Era
• Increasing foreign ownership in banking sector after
the liberalisation of banking regulation
Asset Composition of Finance Companies
Banking industry dominates Indonesian financial system
Securities Companies, 0.8
Mutual Funds, 3.3
Rural Banks, 1.2
Pension Funds,
2.7
Pawn Venture Capital
Brokers,
Firms, 0.1
0.6
Loan Companies, 0.1
Finance Companies, 6.2
Insurance Companies, 9.9
Commercial Banks,
75.2
* March 2012
Source: Bank Indonesia
Total Number of Financial Institutions
‘Out-spread’ banks
Type of Institution
Commercial Banks
Rural Banks
June 2012
120
1,667
Insurance Companies*
139
Pension Funds*
271
Finance Companies
197
Venture Capital Firms
89
Securities Companies*
119
Mutual Funds*
685
Loan Companies
4
Pawn Brokers
1
* December 2011
Source: Bank Indonesia
Regulating and Supervising Body
The establishment of OJK (Financial Service Authority) - 2012
Bank Indonesia
Bapepam-LK
(Central Bank)
under MOF
Monetary, Payment
Systems & Foreign
Exchange
Banking regulation &
supervision
Capital Market
Financial Service
Authority
Bank Indonesia
Macro Prudential
Regulation
Monetary, Payment
Systems & Foreign
Exchange
Non Bank Financial
Institutions*
Banking regulation &
supervision
Capital Market
*NBFI includes Pension, Insurance, Finance Companies, Venture Capital, Guarantee Companies
Non Bank Financial
Institutions
Phases of Indonesia financial development
Still consolidating?
(1966-72)
formative period
(1973-82) policybased finance
period under
soaring oil prices
(1983-91)
(1998-2004)
financial-reform
period
financial
restructuring
(1992-97)
(2004-now)
period of
expansion
period of
consolidation
Source: Hamada (2003) dengan tambahan
Time-line of Number of banks in Indonesia
From over-regulated to consolidation after liberalization
formative period
Policy-based
finance period
Financial reform
(deregulation)
expansion
restructurisation
consolidation
250
200
150
100
50
0
1967
1970
1973
State Owned Banks
1976
1979
1982
1985
National Private Banks
1988
1991
1994
Regional Development Banks
1997
2000
2003
2006
2009
2012
Joint Venture & Foreign Owned Banks
Source: Bank Indonesia
Ownership of Banks
Restriction in Asia vs. liberalisation in Indonesia
Country
China
Maximum Foreign
Ownership (%)
20
Malaysia
30
Vietnam
30
Pakistan
49
Thailand
49
Philippines
60
India
74
Indonesia
99
Australia, Taiwan, Japan,
Singapore, South Korea
Not limited,
but highly regulated
http://in.reuters.com/article/2011/08/02/idINIndia-58571120110802
Big Banks Domination in Indonesia
Ten banks hold 65% of national banking assets
No
Bank
Asset
(triliun Rupiah)
Majority Shareholder
Composition (%)
1
Bank Mandiri
635,6
• Government
60,00
2
BRI
551,3
• Government
56,75
3
BCA
442,99
• FarIndo Investments Ltd (Mauritius)
47,15
4
BNI
333,3
• Government
60,00
5
CIMB Niaga
192,7
• CIMB Group Sdn Berhad (Malaysia)
• Santubong Investment Sdn Berhad (Malaysia)
56,1
16,65
6
Bank Danamon
141,93
• Asia Financial (Indonesia) Pte Ltd---Fullerton
Financial Holdings ---Temasek
67,37
7
Panin Bank
133,71
•
•
45,46
38,82
8
Permata Bank
131,80
• Standard Chartered Bank (UK)
• PT Astra International Tbk
44,56
44,56
9
Bank BII
115.77
• ​Sorak Financial Holdings Pte. Ltd---Mayban Offshore
Corporate Service (Malaysia)
• Mayban Offshore Corporate Service (Labuan) Sdn.
Bhd
54,33
42,96​
10
BTN
111.75
• Government
61,35
Total
2764.95
PT Panin Financial Tbk
Potrayn No 1103 Pty Ltd---ANZ Banking Group
(Australia)
*Data Desember 2012 kecuali Bank Panin Sept. 2012
**Bank BUMN (38%) & 6 bank swasta (27% )
Source: Laporan Keuangan Perusahaan2
Further Banking Regulation
Indonesia ready for Basel III Regulation in 2019
Requirements
Under Basel II
Under Basel III
Minimum Ratio of Total Capital To RWAs*
8%
10.50%
Minimum Ratio of Common Equity to RWAs
2%
4.50% to 7.00%
Tier I capital to RWAs
4%
6.00%
Core Tier I capital to RWAs
2%
5.00%
Capital Conservation Buffers to RWAs
-
2.50%
Leverage Ratio
-
3.00%
Countercyclical Buffer
-
0% to 2.50%
Minimum Liquidity Coverage Ratio
-
TBD (2015)
Minimum Net Stable Funding Ratio
-
TBD (2018)
Systemically important Financial Institutions Charge
-
TBD (2011)
* Risk Weighted Assets
Indicator
Indonesia Banks Performance
2008
2009
2010
2011
2012
Capital Adequacy Ratio (%)
16.76
17.42
17.18
16.05
17.43
Return On Assets Ratio (%)
2.33
2.60
2.86
3.03
3.11
Loan to Deposits Ratio (%)
74.58
72.88
75.21
78.77
83.58
Operating Expenses/Operating Income
(%)
88.59
86.63
86.14
85.42
74.10
2. Limited Role of Banking Sector in Economic
Development
• Poor policy of monetary authority in managing
interest rates
• High interest rate of loan has restricted public access
to banks
• Indonesia national banking tends to take the
capitalists side than the whole economic
development
Monetary Policy Transmission Mechanism
Aimed at inflation rate management?
Source: Bank Indonesia
BI rate & loan rate
Unable to induce loan rate to lower level
20.00
18.00
16.00
14.00
Consumer Loan, 13.22
Percent
12.00
Working Capital Loan, 11.45
Investment Loan, 11.27
10.00
8.00
Time Deposit 6 month, 6.10
6.00
BI Rate, 5.75
4.00
2.00
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Source: Bank Indonesia
Headline Inflation Rate (yoy, %)
Still high, but went lower
14.00
12.00
10.00
8.00
6.00
Indonesia, 4.28
4.00
Philippines, 3.13
Thailand, 3.01
PRC, 2.64
South Korea, 2.18
Malaysia, 1.66
2.00
0.00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-2.00
Source: World Bank
Lending interest rate, 2010
Indonesia, the highest among some Asian countries
14.0
12.4
12.0
10.2
10.0
8.0
%
6.6
6.0
4.9
5.4
6.9
5.8
4.0
2.0
0.0
Malaysia
Singapore
Korea, Rep.
China
Thailand
India
Indonesia
Source: World Bank
Net Interest Margin
Indonesia also the highest among ASEAN countries
8
7.5
7.1
7
6.6
6
%
5
4
3.7
3.4
2.8
3
2
2
1.9
2.7
3.4
3.3
3.1
3.3
2.6
1.8
1
0
Singapore
Malaysia
Thailand
2010
2011
Phippines
Indonesia
2012E
Source: Maybank Kim Eng, 2013
Fee Based Income, 2011
Poor creativity, relying on interest based income
25%
21%
20%
20%
15%
14%
12%
10%
10%
5%
0%
Indonesia
Philippines
Malaysia
Singapore
Thailand
Source: Maybank Kim Eng, 2013
Limiting factors of investment
High interest rate, main obstacle for investment
rate
26%
tax
5%
security
5%
labor
7%
regulation
9%
acces to bank credit
14%
infrastructure
18%
administration
16%
Source: Bussiness Survey, Bank Indonesia, QIV-2012
Prime Lending Rate
Wide gap of interest rates (microfinance vs. other loan)
Prime Lending Rate (%)*
Bank
Corporate Loan
Retail Loan
Consumer Loan
Microfinance
Loan
Housing
Non Housing
Mandiri
10.00
12.00
22.00
10.75
12.00
BRI
9.75
11.75
19.25
10
12
BCA
9.25
10.60
N/A
9.50
8.18
BNI
10.00
11.60
11.60
10.65
12.25
CIMB Niaga
9.85
10.75
19.00
10.80
10.70
Danamon
10.00
11.00
19.76
11.75
12.49
*per 31 March 2013
Source: website perusahaan
Share of Loans to SMEs: Very Small
The Number of SMEs is very huge
Bank Financing for SMEs
Number of SMEs & Large Enterprises
Kredit
(Rp Triliun)
UMKM
(Rp Triliun)
961
245
25%
1,221
217
18%
Regional Development
Banks
223
43
19%
Joint Venture Banks &
Foreign Owned Banks
331
10
3%
2,737
515
19%
Type
State Owned Banks
Commercial Banks
Total
*Feb. 2013
Percent
Small
1%
Medium
0%
Large
4,838
0%
Micro
53,207,500
99%
*2010
Source: Bank Indonesia, BPS
Domestic Financing Profile
Sources of business financing: mainly from internal source
Indonesia
Bank Finance
for
Investment
7%
Trade Credit
Financing for
Investment
1%
Equity, Sale of
Stock For
Investment
3%
Internal
Finance for
Investment
88%
East Asia & Pasific
Other
Financing for
Investment
1%
Equity, Sale of
Stock For
Other
Investment
Financing for
6%
Trade Credit
Investment
Financing for
8%
Investment
3%
Bank Finance
for
Investment
20%
Internal
Finance for
Investment
63%
Source: Enterprise survey, World Bank, 2009
Percentage of firms with a bank loan
One of the Lowest in ASEAN
80
72.5
70
60.4
60
49.9
50
% 40
32.2
33.2
30
18.2
20
10
20.7
6.9
0
Timor-Leste
(2009)
Indonesia (2009) Cambodia (2007) Lao PDR (2012) Philippines (2009) Vietnam (2009)
Malaysia (2007)
Thailand (2006)
Source: World bank
External Debt Outstanding
Government & Monetary Authority
Private
140
120
Billions of USD
100
80
60
40
20
0
1996
1999
2002
2005
2008
2011
Source: Bank Indonesia
Capital & Financial Account
Grew highly after 2008 crises
30.0
Capital and Financial
Account
20.0
Billions of US$
10.0
0.0
-10.0
-20.0
Current Account
-30.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Bank Indonesia
Domestic credit provided by banks*
Banking roles in financing is the lowest
200
180
160
Thailand
China
140
Malaysia
%
120
Korea
100
80
India
60
Philippines
40
Indonesia
20
0
1990
*% of GDP
1993
1996
1999
2002
2005
2008
2011
Source: World Bank
Rate of Return on Commercial Bank Equity
Indonesian banking: the highest
30
Indonesia, 26
25
20
PRC, 18
Philipines, 17
Malaysia, 16
Singapore, 16
% 15
India, 13
10
Thailand, 10
South Korea, 7
5
0
2003
2004
2005
2006
2007
2008
2009
2010
Source: ADB
Component of Lending Rate Base
Withheld by interests
Component
Barrier
Cost of Loanable Fund
big depositors bargaining possition
Overhead Cost
bank efficiency
Margin
shareholders interest
Tax
government regulation
Risk premium
economy & politic stability
Charactersitics of Indonesian Banking
Dominated by big depositors over Rp. 5 billion
Classification of deposit
Number of Account (%)
Value (%)
N < 100M
97.59
15.64
100M < N < 500M
1.83
14.64
500M < N < 1B
0.3
8.43
1B < N < 5B
0.24
17.92
N > 5B
0.05
43.38
Total
100
100
Source: Bank Indonesia
Banking Loans Distribution
Mining grew highly, manufacture sector slower
3000
Mining and Quarrying
2500
Index, 2002=100
2000
1500
Electricity, Gas and Water
Supply
Construction
Transport and Communication
Trade, Hotel, and Restaurant
Financial, Ownership &
Business Services
1000
500
Manufacturing Industry
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Bank Indonesia
Loan Distribution by Sector
Decreasing loans to manufacture, increasing to trade sectors
100%
90%
80%
Electricity, Gas and Water Supply
70%
Construction
60%
Mining and Quarrying
Transport and Communication
50%
Agriculture, Livestock, Forestry & Fishery
Services
40%
Financial, Ownership & Business Services
Manufacturing Industry
30%
Trade, Hotel, and Restaurant
20%
10%
0%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Bank Indonesia
3. Limited role of capital market in financing
• Low attrectiveness of going-public from government and
private enterprises
• Despite te fact of low attractiveness to go public, Indonesian
capital market has highly performed, particularly in sectors
with strong fundamental performance
• Foreign investment flow was still high as a result of high rate of
return.
Market Capitalisation vs GDP
Limited role of capital market to economy in Indonesia
160
137
140
129
120
% of GDP
100
89
80
74
78
55
60
46
46
Indonesia
China
40
20
0
India
Philippines
Thailand
Korea, Rep.
Singapore
Malaysia
*data tahun 2011
Source: World Bank
Number of listed companies
Less than 500 Indonesian companies go public
6,000
5,191
5,000
4,000
3,000
2,304
2,056
2,000
1,540
1,000
776
254
459
920
1,547
1,665
1,784
954
558
Philippine Indonesia The SE of Singapore Bursa Shanghai Shenzhen
SE
SE
Thailand Exchange Malaysia
SE
SE
Hong
National Korea Australian Japan BSE India
Kong
SE India Exchange
SE
Exchange
Exchanges
Group
Data per 2012
Source: World Federation of Exchanges
Asia Growth Index
IHSG, the most expansive after 2008 crises
Index, 100=Jan 2009
350
IHSG, Indonesia
300
250
200
KLS, Malaysia
STI, Singapore
KOSPI, Korea
Hanseng, Hongkong
150
Nikkei, Japan
100
50
0
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
Source: Yahoofinance
Indonesian Indices by sector
Consumer good , the most attractive
Index, 100=Jan.2008
400
Consumer Goods
350
Miscellanous
300
250
Finance
Basic Industry
200
Trade & Service
150
Property
Infrastructure
100
Agriculture
Mining
50
0
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Source: Yahoofinance
IDX Financial Data & Ratios, 2011
Consumer goods went higher then the others
Industry
EPS (Rp)
BV (Rp)
PER (x)
PBV (x)
Consumer Goods Industry
5,679
13,813
16.2
8.7
Agriculture
1,298
1.79
3.9
2.2
Miscellaneous Industry
728
2,334
12.2
1.0
Mining
484
1,384
16.1
3.0
Basic Industry and Chemical
243
1,306
4.1
0.9
Finance
118
727
10.3
1.3
Infrastructure, Utilities & Transportation
91
952
11.0
2.0
Trade, Services & Investment
87
1,627
22.3
2.3
Property, Real Estate And Building Construction
64
417
23.1
1.4
Sumber: IDX Statistics 2012
Issuance Volume of Bond Market, 2012
Bonds as financing resources in Indonesia: Very Low
1800
1600
1400
USD Billions
1200
1000
800
600
400
200
0
KR
MY
TH
Govt LCY
SG
Gov FCY
Corp LCY
ID
PH
VN
Corp FCY
Source: ADB
Asian LCY Bond Returns Index
Indonesian bonds’ return: the Highest in Asia
800
700
600
500
Indonesia
China
400
Korea
Malaysia
300
Philippines
Singapore
200
Thailand
100
0
Source: ADB
Foreign Holdings in LCY Government Bonds
High return attracted foreign investors
40.0
35.0
Indonesia, 33.0
30.0
Malaysia, 29.8
%
25.0
20.0
Thailand, 16.4
15.0
Korea, 9.5
10.0
Japan, 8.8
5.0
0.0
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Source: ADB
Foreign Ownership on Portfolio Investment
Foreign investors’ domination
Year
Bank
Indonesia
Certificate
(SBI)
2008
8.4
10
87.4
17
2009
44.18
5
108
2010
54.93
27
2011
7.8
2012
0.41
%
Tradable
Government
Securities
SBN
%
Equity
%
Total
452
60
548
19
783
61
935
195.76
31
1,184
63
1,435
10
222.86
31
1,211
60
1,442
0.3
270.52
33
1,484
59
1,755
Source: Bank Indonesia, MOF, KSEI