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F inancial E volution and R egulatory R eform in Indonesia

F inancial E volution and R egulatory R eform in Indonesia. Hendri Saparini, PhD CORE Institute ECONIT Advisory Group Independent tink tank in Economic Development Jakarta - Indonesia saparini@econit.co.id and saparini@core-institute.co.id

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F inancial E volution and R egulatory R eform in Indonesia

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  1. Financial Evolution and Regulatory Reform in Indonesia Hendri Saparini, PhD CORE Institute ECONIT Advisory Group Independent tink tank in Economic Development Jakarta - Indonesia saparini@econit.co.id and saparini@core-institute.co.id Financial Evolution, Regulatery Reforn and Cooperation in Asia Seoul National University – 17-18 May 2013

  2. Outline • Indonesian Financial Structure • Regulation in Financial Sectors • Roles of banking sector in economy • Roles of capital market in economy

  3. 1. Indonesian Financial Structure • Dominated by banking sector • Banking regulation has changed over the New Order to Reformation Era • Increasing foreign ownership in banking sector after the liberalisation of banking regulation

  4. Asset Composition of Finance CompaniesBanking industry dominates Indonesian financial system * March 2012 Source: Bank Indonesia

  5. Total Number of Financial Institutions‘Out-spread’ banks * December 2011 Source: Bank Indonesia

  6. Regulating and Supervising Body The establishment of OJK (Financial Service Authority) - 2012 *NBFI includes Pension, Insurance, Finance Companies, Venture Capital, Guarantee Companies

  7. Phases of Indonesia financial developmentStill consolidating? Source: Hamada (2003) dengan tambahan

  8. Time-line of Number of banks in Indonesia From over-regulated to consolidation after liberalization • Policy-based • finance period Financial reform (deregulation) restructurisation consolidation • formative period • expansion Source: Bank Indonesia

  9. Ownership of BanksRestriction in Asia vs. liberalisation in Indonesia http://in.reuters.com/article/2011/08/02/idINIndia-58571120110802

  10. Big Banks Domination in IndonesiaTen banks hold 65% of national banking assets *Data Desember 2012 kecuali Bank Panin Sept. 2012 **Bank BUMN (38%) & 6 bank swasta (27% ) Source: Laporan Keuangan Perusahaan2

  11. Further Banking Regulation Indonesia ready for Basel III Regulation in 2019 * Risk Weighted Assets Indonesia Banks Performance

  12. 2. Limited Role of Banking Sector in Economic Development • Poor policy of monetary authority in managing interest rates • High interest rate of loan has restricted public access to banks • Indonesia national banking tends to take the capitalists side than the whole economic development

  13. Monetary Policy Transmission MechanismAimed at inflation rate management? Source: Bank Indonesia

  14. BI rate & loan rateUnable to induce loan rate to lower level Source: Bank Indonesia

  15. Headline Inflation Rate (yoy, %)Still high, but went lower Source: World Bank

  16. Lending interest rate, 2010Indonesia, the highest among some Asian countries Source: World Bank

  17. Net Interest MarginIndonesia also the highest among ASEAN countries Source: Maybank Kim Eng, 2013

  18. Fee Based Income, 2011Poor creativity, relying on interest based income Source: Maybank Kim Eng, 2013

  19. Limiting factors of investmentHigh interest rate, main obstacle for investment Source: Bussiness Survey, Bank Indonesia, QIV-2012

  20. Prime Lending RateWide gap of interest rates (microfinance vs. other loan) *per 31 March 2013 Source: website perusahaan

  21. Share of Loans to SMEs: Very Small The Number of SMEs is very huge Bank Financing for SMEs Number of SMEs & Large Enterprises *Feb. 2013 *2010 Source: Bank Indonesia, BPS

  22. Domestic Financing ProfileSources of business financing: mainly from internal source Indonesia East Asia & Pasific Source: Enterprise survey, World Bank, 2009

  23. Percentage of firms with a bank loanOne of the Lowest in ASEAN Source: World bank

  24. External Debt Outstanding Source: Bank Indonesia

  25. Capital & Financial AccountGrew highly after 2008 crises Source: Bank Indonesia

  26. Domestic credit provided by banks*Banking roles in financing is the lowest *% of GDP Source: World Bank

  27. Rate of Return on Commercial Bank EquityIndonesian banking: the highest Source: ADB

  28. Component of Lending RateBase Withheld by interests

  29. Charactersitics of Indonesian BankingDominated by big depositors over Rp. 5 billion Source: Bank Indonesia

  30. Banking Loans Distribution Mining grew highly, manufacture sector slower Source: Bank Indonesia

  31. Loan Distribution by SectorDecreasing loans to manufacture, increasing to trade sectors Source: Bank Indonesia

  32. 3. Limited role of capital market in financing • Low attrectiveness of going-public from government and private enterprises • Despite te fact of low attractiveness to go public, Indonesian capital market has highly performed, particularly in sectors with strong fundamental performance • Foreign investment flow was still high as a result of high rate of return.

  33. Market Capitalisation vs GDPLimited role of capital market to economy in Indonesia *data tahun 2011 Source: World Bank

  34. Number of listed companiesLess than 500 Indonesian companies go public Data per 2012 Source: World Federation of Exchanges

  35. Asia Growth IndexIHSG, the most expansive after 2008 crises Source: Yahoofinance

  36. Indonesian Indices by sectorConsumer good , the most attractive Source: Yahoofinance

  37. IDX Financial Data & Ratios, 2011Consumer goods went higher then the others Sumber: IDX Statistics 2012

  38. Issuance Volume of Bond Market, 2012Bonds as financing resources in Indonesia: Very Low Source: ADB

  39. Asian LCY Bond Returns IndexIndonesian bonds’ return: the Highest in Asia Source: ADB

  40. Foreign Holdings in LCY Government BondsHigh returnattracted foreign investors Source: ADB

  41. Foreign Ownership on Portfolio InvestmentForeign investors’ domination Source: Bank Indonesia, MOF, KSEI

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