JAKARTA (TheInsiderStories) – The Financial Services Authority (FSA) is working on the new policies concerning on the commercial banks and its business activities, said the agency yesterday. Previously the classification under the concept of commercial bank business activities.
The future regulation also regulates the paid-in capital to establish a new bank from a minimum of Rp3 trillion to Rp10 trillion. The new regulation is estimating will change the landscape of the banking industry. One of the crucial points in the proposed legislation is the grouping will no longer be counted by entity but based on the core capital.
The new category are a bank with a core capital of less than Rp6 trillion (US$428.57 million), up to Rp14 trillion, lower than Rp70 trillion, and more than Rp70 trillion. In the existing rule, the bank categorize as BOOK 1 with a core capital less than Rp1 trillion, BOOK 2 under Rp5 trillion, BOOK 3 has a core capital up to Rp 30 trillion, and BOOK 4 more than Rp30 trillion.
“The provisions related to the operation of bank products, which were originally only related to bank core capital, were adjusted to an approach that was oriented towards customer needs while still paying attention to capital capacity and risk management,” wrote the draft.
This downgrade, said FSA, could slightly reduce bank liabilities. To comply the new policy, the regulator has encouraged banking consolidation by releasing a minimum core capital requirement for banks of Rp1 trillion in this year and gradually will be increase to a minimum of Rp2 trillion in 2022, and at least of Rp3 trillion in 2023.
Last year, the regulator has postponed the implementation of Basel III for Indonesian Bank, as part of the agency’ stimulus for the financial sectors. The policy included the calculation of weighted assets for credit valuation adjustment, operational, credit, and market risk will postponed to Jan. 1, 2023 and the minimum capital provisions until the December 2022 data period.
To that, the banks are still referring to the existing rule. The regulator also hopes that the financial services players can immediately realize the “new normal”, said the chairman, Wimboh Santoso. He delivered a further stimulus package policies in the banking sectors, such as relaxation policy for conventional and Sharia commercial banks.
Accordance to POJK No.11/POJK.03/2020 concerning stimulus for COVID-19 period, he stated, the loan restructuring excluded from the calculation of Loans at Risk in assessing the soundness of a bank. The agency also relaxed the obligations to fulfill the Capital Conservation Buffer in the capital component 2.5 percent of Risk Weighted Assets for bank in the category of BOOK 3 and BOOK 4 will be temporarily removed until March, 31, 2021.
Obligations to fulfill Liquidity Coverage Ratio and Net Stable Funding Ratio for BOOK 3, BOOK 4, and foreign banks must be maintained as low as 85 percent up to March 31, 2021, he adds. Santoso explained, the lenders are required to formulate an action plan to restore both compliance to 100 percent no later than April 30, 2021.
He continued, assessment of foreclosed quality of collateral based on term time of ownership may be suspended until March 31, 2021. FSA also give a relaxation for rural banks and sharia rural banks.
For both, the agency allowed them to form an allowance for earning asset losses less than 0.5 percent or does not form the general the losses for productive assets with good quality in the form of placements at other banks and credit or financing with current quality for monthly report since April 2020.
In addition, provision of funds in the form of interbank fund placement for liquidity problems in the rural banks are exempt a maximum of 30 percent of their capital for all related and unrelated parties. The policy valid until March 31, 2021.
FSA estimates that credit growth of Indonesian lender will be in the range of 6 -7 percent in this year, lower than Bank Indonesia’ projection of 7 – 9 percent. As October 2020, the loan growth was recorded contracted 0.47 percent compared to last year, slowing down from the previous month which still recorded positive growth of 0.12 percent.
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