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Financial Sector Reviews: Maintaining Stability

JAKARTA (TheInsiderStories) – Wimboh Santoso, new Chairman of Indonesia’s Financial Services Authority (FSA) has declared he will elevate the regulator to its next level: deepening the market.

During his campaign, Wimboh revealed that his office will not only strive to maintain overall financial stability, facilitating the intermediation of banking sector and capital markets – signifying a stimulation of economic growth – but also creating new financial instruments and enlarging investors’ base, in order to deepen financial markets.

Now, it has been 100 days since he came to office (last June) promptly laying down ten strategic policies, namely: (1) IT-Based Supervision, (2) integrated supervision and regulation, (3) adherence to an international prudential standard, (4) non-bank industry reform, (5) financial industry efficiency.

Further, (6) capital market revitalization, (7) promoting financials with no ‘blank spots’ or regulatory arbitrage, (8) expanding financial service access, (9) improving consumer protection, as well as (10) promoting sharia-compliant financing.

New market instrument initiatives include derivatives and hedging, limited concession schemes, as well as asset-backed securities for infrastructure investment funds.

“However, overall it is still compact for such massive infrastructure investment needs. We must leverage our market size and competitiveness, compared to peer countries in the region and broaden the market,” he said recently.

Good progress has been exhibited in some areas: in the capital markets, the Jakarta Composite Index (JCI) continues to hit new records, along with better 10-year government benchmark yields.

Despite a tolerated non-resident net sell level of Rp11.2 trillion (US$,829.63 million), JCI was able to rise by 0.6 per cent on a monthly basis in September (versus August: 0.4 per cent). The index even hit a new record, to 6025.434 points on 25 October, 1.23 per cent (73.35 point) higher over the previous day’s close.

This new level is expected to result in a more positive psychological impact and hopes that the index will rise further. Santoso also expects to see the excellent performance of the financial market replicated in other industries.

“I hope the inflow of money will not only be channeled into portfolio investments, but also into the real sector of the economy, especially for small and medium enterprises (SMEs). We are actually pushing for SMEs to list their shares on the Stock Exchange, through the issuance of OJK Decree No. 54/2017 regarding prospectuses and initial offerings for SMEs,” Wimboh said on Monday (31/10).

Meanwhile, non-resident investors still managed to book a Rp34.2 trillion net buy in September (year-to-month net buy at Rp153.5 trillion). This dragged down short, medium and long term tenure of government bonds by 15.1 bps, 14.6 bps, and 24,8bps, respectively.

“The good news from global markets is the recovery of the US economy. The (U.S) Gross Domestic Product increased at a 3.0 per cent annual rate from July-September, after expanding by 3.1 per cent in the second quarter. Domestically, growth is expected to rise in the second half. The central bank has meanwhile cut rates over two consecutive months, in August and September,” he said.

Indonesia’s financial service intermediation sector grew at a moderate level. Banking industry loans grew by 7.86 per cent in September versus 8.26 per cent in August, while debt financing rose 8.16 per cent on an annual basis in September, versus 9.13 per cent in August.

The 9M loan growth is still promising if we look at selected data from major banks. Loans of four state-owned lenders (IDX: BBNI, IDX: BBRI, IDX: BBTN, IDX: BMRI) plus the largest private lender (by assets) PT Bank Central Asia Tbk (IDX: BBCA) grew by 13.4 per cent over the period.

Although Bank Indonesia has cut its 2017 loan-growth target to a range of 8 to 10 per cent from an earlier 10 to 12 per cent, and with almost 20 per cent annual growth in the past decade, OJK is pushing for banking efficiency to lower interest rates, as part of its five-year agenda through 2022. The regulator will seek more consolidation in the banking and non-banking financial industries, including Islamic lenders.

Regarding collection of funding, the bank’s third-party funds grew by 11.69 per cent on an annual basis in September, versus 9.6 per cent in August. Life insurance premiums rose by 37.8 per cent in September versus 36.5 per cent in August, while general insurance premiums and re-insurance grew by 4.35 per cent, compared to 2.03 per cent in August.

Meanwhile, from January – September 118 public companies raised funds from the capital market, for a total of Rp182.2 trillion, up 32.1 per cent compared to same period last year (87 public companies).

Of these 118 public companies, 29 are new issuers, already passing this year’s target of 21 new public company issuance.

In addition to a moderate level of financial services intermediation growth, the risk level of loans, market and liquidity also appears manageable. Credit risk in September settled, with Non-Performing Loan (NPL) gross ratio falling to 2.93 per cent from 3.05 per cent in August and financing institutions’ Non-Performing Financing (NPF) also dipping to 3.18 per cent from 3.31 per cent in August.

Written by Yosi Winosa, email: yosi.winosa@theinsiderstories.com