Bank Mandiri's Office (Photo: The Insider Stories)

JAKARTA (TheInsiderStories) – Indonesia’s Financial Services Authority (FSA) will impose additional capital for systemically important banks (SIBs) based on their size, interconnectedness with the financial system, and the complexity of their business to protect against any failures.

FSA told the country’s systemically important banks to create a tier-1 capital surcharge of between 1 per cent and 3.5 per cent of risk-weighted assets, depending on the size and perceived riskiness of the lender, the regulator said in a statement on its website Tuesday. Banks have until Jan. 1 to meet the additional requirement, it said.

The “capital surcharges” are in addition to capital adequacy ratio (CAR) requirement, which is set at a minimum of 8 percent of risk-weighted assets.

The FSA may impose an additional 1 per cent surcharge if a bank is found to be even more systemically important than FSA’s current classification.

The regulation is part of Indonesia’s move to fully adopt Basel III, a global regulatory framework for banks’ capital adequacy norms, the FSA said. The methodology used to identify systemically important banks will be revised at least once every three years, the authority added.

The move may conflict with government efforts to reverse a slowdown in lending and bolster the economy. The credit growth in Indonesia, Southeast Asia’s largest economy, has fallen to single digits in the past two years from a more than 20 per cent average in the decade before, as weak private investment weighs on demand for loans. President Joko Widodo early this month urged banks to take more risks as he seeks to accelerate economic growth before a re-election bid in 2019.

FSA classified the country’s systemically important banks into five categories when deciding the size of the new capital surcharge. Together with Bank Indonesia, the regulator will revise the classification in March and September every year based on the lenders’ performance data.

Since the 2010 Financial Sector Assessment Program (FSAP), Indonesia’s macroeconomic performance has been robust and the financial system has been stable. The financial system has weathered well a simultaneous economic and credit deceleration.

Corporate vulnerabilities have remained broadly in check, though debt at risk is elevated in some sectors and external refinancing risk persists. The banking system remains sound even though, as economic growth has slowed, banks’ high profitability has fallen somewhat and problem loans have risen. Banks’ capitalization remains strong and well above regulatory minimal.

Written by Elisa Valenta, email: elisa.valenta@theinsiderstories.com

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