JAKARTA (TheInsiderStories) - Bank Indonesia has issued regulations that require banks to establish additional capital at a time when economic conditions were in good shape (boom period).
The application of the provisions of the establishment of additional capital for anticipated losses from the growth of credit or financing excess (Counter-cyclical Buffer) shall be met by the banks. This is done together with the creation of capital buffers as stipulated in the provisions concerning capital adequacy (CAR), the additional capital for anticipated losses on crisis period (Capital Conservation Buffer) and specific additional capital for banks defined systemic impact or Domestic Systemically Important Banks or D-SIB (Capital Surcharge) aimed to improve the ability of banks to absorb losses.
“The additional capital serves as a buffer (buffer) to absorb losses allegedly entering a period when the economy worsens (burst period),” BI said.
Counter-cyclical Buffer is one of macro-prudential policy instruments aimed at protecting the bank from excessive risk taking behavior. Such behavior reflected excessive lending during economic expansion (boom period) so that the potential increase in systemic risk. Additional capital bank shall be established in the period of expansion will be used when banks face pressure when the economy is contracted so that the sustainability of bank intermediation function can be maintained.
Related to the above, the amount of Countercyclical Buffer dynamic ranged between 0% to 2.5% of Risk Weighted Assets (RWA) of the bank. Bank Indonesia will evaluate the magnitude of the Counter-cyclical Buffer periodically at least 1 (one) time in 6 (six) months.
For the first time, Bank Indonesia sets a Counter-cyclical Buffer of 0% for banks which effectively came into force on Jan. 1, 2016. Such determination considering the economic condition of Indonesia which is currently experiencing a slowdown that is reflected in credit growth slowed down significantly.
The central bank said This policy is inseparable from banking capital requirements issued by the Financial Services Authority, which is expected to strengthen the resilience of the banking system. It is intended to increase the resilience of the banking capital to absorb potential losses when the financial and economic crisis and to prevent the spread of the financial sector crisis to the economic sector. (*)