SP 39/GKPB/OJK/IV/2023
PRESS RELEASE
THE INDONESIAN FINANCIAL SERVICES SECTOR REMAINED STABLE AND SOLID AMIDST GLOBAL VOLATILITY DUE TO BANKING ISSUES IN U.S. AND EUROPE
Jakarta, 3 April 2023. The Indonesian Financial Services Authority (OJK) Board of Commissioners' monthly meeting on 29 March 2023 assessed that the stability of the financial services sector remained stable, with increased intermediation performance, and adequate capital and liquidity of Financial Institutions (FIs). Such conditions were important means of dealing with global dynamics.
In March 2023, the rapid tightening of the monetary policy started to put pressure on global financial system stability, stirring the global banking system due to the closure of several banks in the United States and Europe. The authorities in those jurisdictions have taken swift action to address the issue and mitigate the contagion risk.
In the meantime, the overall global economic performance in 2023 was resilient, as shown by the solid labor market in the U.S. and reduced inflationary pressures although inflation remained at a high level despite lowered pressures on global supply chains. Meanwhile, the reopening of the Chinese economy continues with increased economic activities of Chinese society and industry. However, global monetary policy tightening is expected to continue as demand-side inflation remains high.
Amidst such dynamics of the global economy, the domestic economic indicators recorded another solid growth. The trade balance continued its surplus in February 2023 and the Purchasing Managers' Index (PMI) of the manufacturing sector remained in the expansion zone within the last 18 months. However, public consumption and optimism recorded a slight decrease, as indicated by a decline in both the Consumer Confidence Index and Retail Sales Index, which commonly happens after the National Holidays of Christmas and New Year.
Developments in the Capital Market Sector
In the stock exchange, the Jakarta Composite Index (JCI) as of 31 March 2023 decreased by 0.55 percent mtd although non-resident investors posted an inflow of IDR4.12 trillion. On a year-to-date basis, the JCI fell 0.66 percent with a non-resident investors inflow of IDR6.62 trillion.
Meanwhile, in the bond market, the Indonesian Composite Bond Index (ICBI) increased by 0.96 percent mtd (2.44 percent ytd) to 353.19. In the corporate bond market, the outflow of non-resident investors reached IDR384.04 billion mtd and IDR292.02 billion ytd.
In the Government Securities Market (SBN), as of 30March 2023, non-residents recorded month-to-date (mtd) and year-to-date (ytd) inflows of IDR11.98 trillion and IDR54.11 trillion, respectively. The average SBN yield across all tenors fell by 4.34 bps (mtd) and 13.92 bps (ytd).
Further, the Net Asset Value (NAV) of mutual funds as of 30 March 2023 was recorded at IDR502.8 trillion or decreased by 0.64 percent (mtd) as funds investors posted a net redemption of IDR4.44 trillion (mtd). On a year-to-date basis, the NAV contracted by 0.41 percent and recorded a net redemption of IDR2.86 trillion.
Fundraising through the capital market continued its growth; as of 31 March 2023, reaching IDR54.24 trillion with 24 new issuers. There are still 107 plans for Public Offering in the pipeline with a total value of IDR123.83 trillion.
The SecuritiesCrowdfunding (SCF), as alternative funding for MSMEs, as many as 16 operators have obtained permits from OJK, with 376 issuers, 145,908 investors, and a total amount of IDR817.68 billion raised funds.
The uptrend in the number of investors also continued, as the number of capital market investors reached 10.76 million investors as of 30 March 2023.
Developments in the Banking Sector
In the banking sector, banking loans in February 2023 grew 10.64 percent yoy (January 2023: 10.53 percent yoy) to IDR6,375,3 trillion. The strengthening of loans was primarily supported by investment loans which grew 13.01 percent yoy. On a month-to-month basis, the size of banking loans in February 2023 increased by 1.02 percent mtm or equal to IDR64.44 trillion. Meanwhile, deposits in February 2023 grew by 8.18 percent yoy (January 2023: 8.03 percent yoy) to IDR7,989 trillion, driven mainly by current accounts and time deposits. On a month-to-month basis, deposits in January 2023 grew 0.44 percent or increased IDR34.89 trillion.The fund was predominantly composed of CASA (current accountand savings account) or low-cost funds, which were relatively stable and less sensitive to movements in interest rates.
Such conditions supported the banking liquidity as reflected in liquidity ratios that were kept above the threshold. The ratios of Liquid Assets/Non- Core Deposit (AL/NCD) and Liquid Assets/Deposits (AL/DPK) in February 2023 were 129.58 percent (January 2023: 129.64 percent) and 29.09percent (January 2023: 29.13 percent), respectively, well above the regulatory threshold of 50 percent and 10 percent. The Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR, as of December 2022) were 244.20 percent and 140.42 percent, well above their respective regulatory threshold of 100percent.
Credit risk in February 2023 was maintained, with banking ratios of net NPL of 0.75 percent (January 2023: 0.76 percent) and gross NPL of 2.58 percent (January 2023: 2.59 percent). Meanwhile, loan restructuring related to Covid-19 in February 2023 continued to decline to IDR427.7 trillion (January 2023: IDR435.74 trillion) and the number of debtors also decreased to 1.93 million customers (January 2023: 2.02 million customers). Whereas for market risk, the Net Open Position (NOP) was recorded at 1.47 percent (January 2023: 1.51 percent), far below the 20 percent threshold.
In terms of capital, the Capital Adequacy Ratio (CAR) of banks was at a moderately high level and grew stronger to 26.1 percent (January 2023: 25.88 percent).
Developments in the NBFI Sector
In the NBFI sector, premium income in the insurance sector increased significantly. As of February 2023, commercial insurance premium income reached IDR54.11 trillion or grew by 9.88 percent yoy (January 2023: 5.22 percent yoy). Such increase was driven by the general insurance and reinsurance premium which grew 27.56 percent yoy in February 2023, reaching IDR23.79 trillion. Life insurance premium also showed some improvements; as of February 2023, it only slightly contracted by 0.90 percent yoy (January 2023: -5.25 percent yoy), with a value of IDR30.33trillion.
The value of outstanding receivables in February 2023 was recorded at IDR428.42 trillion or grew 15.28 percent yoy (January 2023: 14.57 percent yoy). This increase was mainly driven by financing for working capital and investment, which grew 32.76 percent yoy and 19.93 percent yoy, respectively. The risk profile of Financing Companies was maintained, as the non-performing financing (NPF) ratio on February 2023 decreased to 2.36 percent (January 2023: 2.40 percent). The pension fund sector saw asset growth of 4.60 percent yoy (January 2023: 5.48 percent yoy), with a total asset value of IDR347.89 trillion.
FinTech peer-to-peer (P2P) lending in February 2023 recorded a growth in the outstanding financing of 44.62 percent yoy or equal to IDR50.09 trillion (January 2023: IDR51.03 trillion or 63.47 percent yoy). Meanwhile, the aggregated credit risk (TWP90/Loan Repayment Success Rate within 90 days after the date of maturity) was down to 2.69 percent yoy (January 2023: 2.75 percent yoy).
Moreover, capital in the NBFI sector was maintained, as life insurance and general insurance and reinsurance each recorded Risk-Based Capital (RBC) of 478.21 percent and 320.81 percent (January 2023: 474.04 percent and 319.51 percent). In aggregate, the insurance industry's RBC remained above the threshold of 120 percent; however, OJK continues to monitor the RBC of each insurance company. The debt to equity or gearing ratio of finance companies, was stable at 2.07 times (January 2023: 2.03 time), far below the maximum limit of 10 times.
Developments in the Consumer Protection and Education
OJK continues to promote nationwide coverage of financial inclusion and financial literacy to meet the government's policy target of achieving 90 percent financial inclusion by 2024. To do so, TPAKDs (Regional Financial Access Acceleration Teams) as the coordination forum to accelerate the expansion of access to finance at the subnational level have a critical role that must be optimized.
As of 31 March 2023, as many as 492 TPAKDs have been established in 34 provinces and 458 districts/municipalities (89.30 percent of the total number of districts/municipalities in Indonesia). The number is expected to grow in line with the need for better access to finance in the regions, advancement in information technology, and development of economic potentials at the subnational level.
Apart from TPAKDs, OJK also promotes massive financial literacy and education programs, delivered in-person (offline) and virtually (online) through LearningManagement System (LMS) and social media. In February 2023, OJK organized 28 financial education activities participated by 8,730 individuals. In addition, Sikapi Uangmu, a digital communication media providing information on financial education to the public through mini-site and application, has published 70 contents related to financial education, reaching 390,640 viewers.
Taking advantage of the holy month of Ramadhan, OJK held a Series of Islamic Financial Literacy and Education Programs through “Gebyar Safari Ramadhan" from 24 March to 4 April 2023. Events include, among others, webinars on Islamic finance education, GebyarRamadhan Nusantara (with the engagement of OJK Offices and Regional Offices), and various competitions to attract public interest.
Meanwhile, from the early of January to 31 March 2023, OJK received 76,201 inquiries, including 4,852 complaints, 34 complaints that were indicative of misconduct, and 385 disputes received by LAPS SJK, the Alternative Dispute Resolution Agency for the Financial Services Sector. Of these complaints, 2,411 complaints were related to the banking sector, 2,417 complaints were related to the NBFI sector, and the rest were inquiries related to the capital market sector.
Policy Direction
To maintain the stability of the financial services sector and to address future challenges while keeping the national economic growth, OJK implements the following strategies:
A. Policies to Maintain Financial System Stability
1. Problems with banks in the U.S. and Europe have a relatively limited impact on the Indonesian banking industry not only because there was no direct exposure to the banks that were shut down but also due to Indonesia's stable domestic financial conditions. Also, authorities in many jurisdictions were able to take swift action to mitigate the risk of contagion. To ensure that banks remain resilient and able to anticipate the downside risks arising from these global dynamics, OJK requires banks to:
Strengthen governance, risk management, and prudential principles;
Conduct periodical stress test exercises using various scenarios;
Monitor their asset and liabilities portfolio, including credit concentration risk on loans and financing. In this case, OJK closely monitors the composition of deposits and banking loans to ensure that they are well-diversified;
Maintain capital adequacy ratio and availability of high-quality liquid assets; and
Avoid excessive risk-taking behavior in the form of speculative practices.
OJK always takes anticipatory measures in responding to any dynamics that may affect the Indonesian banking system and strengthens coordination between authorities who are members of the Indonesian Financial System Stability Committee (KSSK).
2. OJK requires insurance companies to carry out the underwriting process, establish technical reserves, and manage investments prudently, to avoid the impact of declining economic conditions on liquidity and solvency. This is to ensure that insurance companies remain resilient in facing global economic uncertainties that can affect the insurance market cycle, particularly due to increased cost of capital and insurance risk exposure, primarily those that are sensitive to economic conditions.
3. To mitigate any potential spillover effects as credit restructuring policies in several segments and sectors are coming to an end, OJK ensures that FIs have established and evaluated adequate reserves, including continuously requires FIs to re-assess the debtors whose debts are being restructured as well as any potential decline and pressures on the said debtors.
4. Taking into account the fluctuations in global financial markets that might continue, OJK closely monitors the sufficiency of banking liquidity, particularly the availability and composition of the securities portfolio classified as High-Quality Liquid Asset (HQLA).
B. Policies to Strengthen the Financial Services Sector and Market Infrastructure
1. OJK supports the implementation of Natural Resources Export Proceeds (DHE SDA) policy which introduces the use of Foreign Currency Term Deposit under Conventional Open Market Operation of the Central Bank (TD OPT Valas BI) as an alternative instrument for funds from export proceeds to be placed and deposited in Indonesia, effective from the beginning of March. OJK supports by providing guidelines for banks on how to present the TD OPT Valas BI in the bank's financial statement, as follows:
When exporters/customers opt for the DHE SDA fund to be placed in TD OPT Valas BI, the exporter's fund in such Foreign Exchange Term Deposit is posted as Other Liabilities while on the asset side, the fund placement is posted as Other Assets.
The fees/yield from the Central Bank of Indonesia (BI) shall be posted as non-interest income while the fees/yield from the fund placement will be passed-through immediately to the exporter/customer.
In general, assets and liabilities arising from placing the fund into TD OPT Valas BI (provided that there is no risk exposure) would not have any effects on the prudential treatments (such as Liquidity Coverage Ratio (LCR), Net-Stable Funding Ratio (NSFR), Minimum Capital Adequacy Requirement (KPMM)/Capital Equivalency Maintained Assets (CEMA), Legal Lending Limit (BMPK), and Asset Quality).
2. OJK seeks to grow and develop the Islamic banking industry by strengthening, accelerating, and improving the conversion of conventional banks into Islamic banks by issuing a guideline on the conversion of Conventional Commercial Banks into Islamic Commercial Banks and the conversion of Conventional Rural Banks (BPR) into Islamic Rural Banks (BPRS).
3. OJK launched the Sharia Securities Information System (SIDES) in March 2023 which is expected to increase the role of Issuers and Public Companies in disseminating information on financial and business activities that are relevant and objective as well as supporting OJK in developing a register of Sharia Securities.
4. In the NBFI sector, OJK has issued technical provisions to support enhanced supervision of the Indonesian Export Financing Institution (LPEI), i.e., OJK Circular (SEOJK) No. 4/SEOJK.05/2023 on the Monthly Report of LPEI and OJK Circular (SEOJK) No. 5/SEOJK.05/2023 on the Minimum Capital Adequacy Requirement of LPEI. Under those provisions, LPEI is to submit its monthly report via an online platform for better efficiency and timeliness. OJK Circular (SEOJK) No. 5/SEOJK.05/2023 provides guidelines for LPEI and stipulates that the Minimum Capital Adequacy Requirement (KPMM) shall include: 1) Internal CapitalAdequacy Assessment Process (ICAAP); 2) Supervisory Review and Evaluation Process (SREP); and 3) calculation of the minimum capital adequacy requirement that is commensurate with the risk profile.
5. As part of the efforts to enhance off-site supervision and to help the supervisors in early detection (for early warning) regarding potential problems in the NBFIs, OJK has finally completed the development of an application called PRIME (Securities Information and Monitoring Portal for NBFIs) as a tool to help supervisors in monitoring whether NBFIs' investment complies with the requirements and limitations outlined in the applicable regulations.
6. To support the implementation of Law No. 4 of 2023 on the Financial Sector Development and Strengthening (UU P2SK) which sets out the importance of having compulsory insurance to build a resilient economy, OJK consulted the relevant stakeholders to establish a regulatory framework on compulsory insurance products, which include, among others, third party liability insurance in traffic accidents, fire insurance, home insurance for unexpected events and disasters, and event insurance.
7. To strengthen the insurance industry, OJK is currently reviewing the optimal capital requirements for insurance companies to absorb the impact of the economic downturn and to support the business development of their company.
8. In sustainable finance, OJK through its role as the principal representative in ASEAN Taxonomy Board (ATB) supports sustainable development activities and investments through its active role in voicing out the importance of support for gradual energy transition and ensuring, at the same time, that social and economic developments are not sidelined.
On 27 March 2023, the ASEAN Taxonomy for Sustainable Financeversion 2 (ATSF ver. 2) was published by the ATB to facilitate ASEAN countries' green transition to attract global investments to support sustainable development in the region. ATSF 2 is a global pioneer for a regional taxonomy that thoroughly considers coal phase-outs (CPOs) in decarbonization to achieve the goals of the Paris Agreement by providing tools that can significantly contribute to the transition. In regard to the interoperability between the regional taxonomy and the national taxonomy, ATSF Ver. 2 can be used as a reference in developing the national taxonomy.
C. OJK Governance Strengthening
1. OJK continues to encourage stronger integrity of OJK personnel. The commitment brought OJK to receive an award from the Indonesian Corruption Eradication Commission as the institution with Best Unit for Graft Control that ranked 1st in the category of national ministries/agencies. This encouraged OJK to continue in maintaining and increasing the integrity of all OJK personnel. It is also expected to increase the commitment of the leaders in OJK Work Units to make sure that the code of ethics is implemented along with the application of Know Your Employee (KYE). All OJK personnel who were required to submit their Asset Declaration (LHKPN) have also made a timely submission, i.e., before 31 March 2023 for the 2022 reporting period.
2. OJK also strengthens its 1st line of defense to improve the quality of internal control by strengthening the Quality Assurance Quality Control (QAQC)mechanism and advancing the effectiveness of internal control. OJK is currently undergoing internal transformation both in terms of business process and governance, an endeavor to carry out its mandate to improve public service delivery and supervision in the financial services sector.
On the 2nd and 3rd lines of defense, OJK continues to ensure that the transformation process continues and encourages that integrated governance,risk, and compliance (GRC) is established. OJK also proactively engages in consultative support and assistance to make sure that the organizational transformation is well executed and that the deliverables are immediately achieved.
3. To strengthen the governance of the financial services industry, OJK proactively collaborates with professional associations in the governance aspect, one of which is the internal auditor association, to improve the role of internal auditors as a catalyst in communicating problems they identify on the ground to the management of the FIs.
4. OJK carries out internal transformation as planned, to support enhanced supervision and better service delivery to the public and financial services industry as well as other OJK main functions. Improvements continue to be made in the organizational structure, business process, and information system, focusing on permit and licensing and integrated data management to perform the work more effectively and ensure that the benefits are delivered to the public in general, and to the financial services industry in particular.
OJK is also undertaking an assessment to improve business processes regarding enforcement in the financial services sector to ensure that financial system integrity is achieved in accordance with the prevailing laws and regulations.
D. Policies for financial literacy and inclusion as well as stronger consumer protection
1. To strengthen the Alternative Dispute Resolution Agency (LAPS) for the Financial Services Sector, OJK will encourage support from the financial services industry,e.g., through more publications regarding LAPS as an alternative dispute resolution forum between consumers and financial services businesses and by providing more support for the agency's management in delivering their work program and agenda.
2. To minimize the gap between the financial literacy index and financial inclusion index, OJK issued OJK Regulation (POJK) No. 3 of 2023 on Financial Inclusion and Literacy Enhancement in the Financial Services Sector for Consumers and the Public, which is an amended version of OJK Regulation (POJK) No. 76 of 2016. Revisions were made to accommodate the swift and strong dynamics in the developments of innovation and technology in the financial services sector to give the opportunity for financial services businesses to create or to use IT-based methods in their activities to increase financial inclusion and literacy.
3. In combating illegal online lending and illegal investment, OJK together with all members of the Investment Alert Task Force (SWI) from 12 Ministries/Agencies has taken actions in handling illegal online loans and investments. In February2023, SWI stopped 8 entities from making unlicensed investment offers as well as took follow-up actions against 85 online lending platforms identified as illegal. SWI has instructed all illegal entities to recover the losses of the public.
E. Policies in Handling FIs Under Special Mention
1. To enhance its investigative authority and to build a credible criminal justice system, OJK regularly coordinates with other institutions and law enforcement agencies, i.e., the Indonesian National Police (Polri), the Attorney General's Office, the Indonesian Financial Transaction Reports and Analysis Center (Financial Intelligence Unit/ PPATK), and the Deposit Insurance Corporation (LPS). In Q1-2023, OJK improved coordination and communication with the Police Department and Provincial Prosecution Office of West Sumatera Province by organizing outreach activities on financial crimes.
Further, to fulfill the mandate of the Financial Sector Law (UU P2SK) that stipulates a priority to uphold the principles of ultimum remediumand restorative justice in enforcing the laws for criminality in the financial sector, OJK also rolled out activities to disseminate the prevention of financial crimes to financial services businesses in West Sumatera province.
OJK started 2023 by issuing 6 Investigation Warrants (SPRINDIK) for banking cases. Upon the referral of case files and reviews by the prosecutor, 2 case files were declared complete (P-21) by the Public Prosecutors, and the suspects and evidence in one of the two cases were handed over (stage 2). From 2014 to Q1-2023, OJK Investigators completed a total of 101 cases consisting of 79 cases in the banking sector, 5 cases in the capital market sector, and 17 cases in the NBFI sector.
2. With regard to PT Asuransi Jiwa Adisarana Wanaartha (WAL), an insurance company whose business license had been revoked, OJK imposed a sanction of canceling the registration of Public Accountants (AP) and Public Accounting Firm (KAP) [that were implicated in the case]. The Public Accountants are not allowed to provide their services to FIs, and the Public Accounting Firm is not allowed to take on new engagements after the cancellation decree is issued. OJK also continues to monitor the liquidation process and the ongoing work program of the Liquidation Team.
3. OJK imposed administrative sanction on PT Delapan Sembilan Aset (previously PT Indosurya Asset Management) in the form of revocation of business license as the company failed to engage employee(s) designated to run the functions of Investment Manager for 2 consecutive years. Company dissolution shall take place no later than 180 days after the revocation is made and the company must settle all obligations to their customers and OJK.
4. OJK imposes a sanction in the form of Restriction of Business Activities to:
PT Jakarta Inti Bersama, an insurance broker company, for violating OJK regulations, among others: Company Directors did not have and failed to submit to the OJK a brokerage certification of at least 1 (one) level below the highest qualification level set by the Insurance Professional Body; the company has not fully carried out its duties in line with OJK regulations, and other regulatory provisions. The restrictive sanction is valid for 3 (three) months.
PT Jasa AdvisindoSejahtera, an insurance broker company, valid for 3 (three) months, for failing to meet the minimum equity requirements.
PT Mega Jasa Reinsurance Brokers, a reinsurance broker company, valid for 3 (three) months,for failing to meet several OJK regulations, among others: the company did not have sufficient funds to meet its obligations and was lack of liquidity; the company has yet to use [dedicated] account for insurance premiums in accordance with the regulations, and other regulatory provisions.
Arya Bagiastra, an actuarial consultant, who is sanctioned from 3 March 2023 (the date when the sanction letter was issued) until 31 December 2023, for failing to meet several OJK regulations, among others: violating the rules that prohibit actuarial consultants to provide required services to the same NBFI for more than three times consecutively, and other regulatory provisions.
Parties subject to a restrictive sanction that limits the conduct of their business are prohibited from performing their business activities until they address the underlying cause of the sanction. The Parties, however, are still required to settle its obligations that are due.
5. OJK has also suspended the following business activities:
PT Corpus Prima Ventura, a Venture Capital Company in Jayapura, for failing to meet OJK regulations requiring Venture Capital Companies to comply with Article 59 paragraph 1 of OJK Regulation (POJK) No. 35/POJK.05/2015.
PT Topas Multi Finance, a finance company, for failing to meet OJK regulations requiring the candidates of Principal Parties to obtain approval from OJK prior to carrying out their actions, duties, and functions as Principal Parties.
An entity subject to a suspension sanction is prohibited from performing its business activities.
OJK is optimistic that the multitude of measures can bring about a resilient financial services sector in dealing with global uncertainties.OJK also continues to increase its vigilance by closely monitoring developments in the global economy and the conditions in the financial services industryand is ready to implement necessary policies to maintain the stability of the financial services sector and support national economic growth.
