Indonesia’s FSA Rates Stability Is Maintained In The Midst Of Financial Market Pressure

Financial Services Authority (OJK) reported in the fourth months of 2020, fund raising through the capital market worth of Rp28.3 trillion (US$1.83 billion) with 22 new issuers - Photo by TheInsiderStories

JAKARTA (TheInsiderStories) Financial Services Authority (FSA) board of commissioner meeting assessed that the stability of the financial services sector and liquidity conditions in the Indonesian financial markets still in good condition amid pressure on emerging markets.

On the domestic side, the economic growth in the second quarter (2Q) of 2018 showed improvement compared to the same period the previous year, the board said. The inflation rate also is at a controlled level.

In addition, domestic corporate performance is also still adequate, partly reflected in the financial performance of the Indonesian Stock Exchange issuers, most of which recorded improvements.

However, in recent times, risk factors in global financial markets have increased again, which is influenced by expectations of continued increases in the Fed Funds Rate and turmoil in Turkish financial markets. This has led to increased pressure on financial markets in emerging markets, particularly in countries experiencing external imbalances.

Amid increasing pressure on global financial markets, the domestic capital market in August 2018 was still relatively stable. As of August 24, the Jakarta Composite Index strengthened by 0.5 percent, supported by the entry of domestic investors.

Whereas in the Government bond market, short, medium and long-term tenor yields increased by 128 bps, 162 bps and 122 bps respectively. During this period, non-resident investors recorded net sell in shares of Rp2.5 trillion (US$172.41 million), and net buy in government securities amounted to Rp8.2 trillion.

Meanwhile, the intermediary performance of the financial services sector in July 2018 generally remained positive. Banking loans and financing receivables grew by 11.34 percent in annual basis (YoY) and 5.53 percent YoY, respectively compared to the previous month 10.75 percent and 5.18 percent.

In terms of fund raising, banking third party funds grew by 6.89 percent YoY. Life insurance premiums, general insurance and reinsurance recorded growth of 23.6 percent YoY and 14.8 percent YoY. While in the capital market, the collection of funds by corporations in the period January-July had reached Rp108 trillion, with new issuers amounting to 35 companies.

Total investment under management funds as of the end of July 2018 had reached Rp.717.6 trillion, an increase of 4.63 percent compared to the end of 2017. Amidst continued volatility in the domestic financial market, the risk profile of financial services institutions (credit, market and liquidity risks) is maintained at manageable levels.

The gross banking Non-Performing Loan ratio was 2.73 percent (June 2.67 percent), while the financing company’s Non-Performing Financing ratio was at 3.18 percent (June 3.15 percent).

Meanwhile, the capital of financial services institutions was recorded at a fairly high level. Banking capital adequacy ratio as of July 2018 was recorded at 22.76 percent, while the risk-based capital in the general insurance and life insurance industries was 311 percent and 457 percent respectively.

The boar said, the dynamics in financial markets are expected to continue as global downside risks remain high. FSA constantly observes developments in the economy and financial markets, as well as their impact on financial market liquidity and the performance of the national financial services sector.

Several risk factors of concern include developments in interest rates and global liquidity, turmoil in financial markets in emerging markets, and trade war tensions.

The agency said will take policy steps needed to maintain the stability of the national financial services sector and strengthen coordination with relevant institutions.

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