| | | The Challenge and Opportunity of the Indonesian Debt Market
 Full Report | | Strengthening Pensions and Insurance Markets in Indonesia
Full Report | | |
| | | Indonesia Infrastructure Financing Facility (IIFF)
IIFF focuses in providing a long-term domestic currency financing to infrastructure sector. IIFF has main objective to catalyst private sector participation in infrastructure development. Read more.. | |
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| | Indicators in Indonesia (Figures show the most recent available data and the year) | | |
Indonesian financial sector stability has been well maintained. The banking sector is the largest segment of the financial sector: as of end 2006 it accounted for nearly 78% of financial assets compared to 80% the year before. The slight decline was largely due to the return of growth to the mutual funds industry this year however, the stability of the country’s financial sector still depends mainly on the healthiness of the banking sector. To date, key financial ratios of the banking sector indicate that banks financial performance is sound.
Implementations of some regulations on banking sector have been progressing without adverse impact on financial sector stability. These include (i) the full implementation of a deposit insurance scheme in March 2007 (ii) the enforcement of minimum paid capital for banks that has been raised to Rp80bn by December 2007. The Bank of Indonesia (BI) has indicated most banks would be able to comply with this regulation since shareholders are injecting new capital. BI also indicated that only a few small sized banks would be unable to meet the capital requirement, and mergers and acquisitions of small banks by larger banks are ongoing.
The Government continues to show serious and committed efforts to reform the financial sector. Two financial sector policy packages were issued in July 2006 and July 2007, Both policy packages promote financial sector reforms through clear policy, programs and outputs. The policy actions outlined in the packages cover a number of areas with a time frame for actions up to July 2008. Key areas covered by the packages include strengthening financial system stability including through greater coordination across regulators; improving financial intermediation through strengthening credit information systems; improving regulation and supervision of pension funds and insurance firms; increasing efficiency and liquidity of capital markets; and harmonizing regulations and tax treatment across different segments of the financial sector. While not all of the activities in the policy packages are necessarily of the highest priority - and some reflect compromises driven by political considerations and capacity limitations - the content of the package overall, if implemented, would assist in strengthening the financial sector considerably. Progress of actions are closely monitored by a team under the Coordinating Ministry for Economic Affairs and so far they largely have been on track.
MORE DATA & STATISTIC ON INDONESIA FINANCIAL SECTOR
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MAJOR BANK COMPARISON - Download the latest data, click here (Source: Bank Indonesia)
| 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | Growth Rates | | | | | | | Real GDP | 5.5% | 6.3% | 6.4% | 6.6% | 6.9% | 7.0% | Consumer Inflation | 13.1% | 6.5% | 6.0% | 4.5% | 5.5% | 4.5% | | | | | | | | | Central Govt. Budget (as % of GDP) | | | | | | | Total Revenues | 19.1% | 17.5% | 17.7% | 17.9% | 18.0% | 18.2% | Total Expenditures | 20.0% | 19.0% | 19.4% | 19.5% | 19.5% | 19.7% | Deficit | -0.9% | -1.5% | -1.8% | -1.7% | -1.6% | -1.6% | Total Govt. Debt | 39.7% | 34.5% | 31.9% | 30.1% | 28.3% | 27.2% | | | | | | | | | Balance of Payments | | | | | | | Current Account Balance (US$ billion) | $9.9 | $10.8 | $8.8 | $7.1 | $5.7 | $4.3 | (as % of GDP) | 2.7% | 2.5% | 1.8% | 1.3% | 1.0% | 0.7% | Merchandise Exports (US$ billion) | 103.5 | 116.1 | 125.8 | 136.8 | 151.1 | 167.7 | (% change) | 19.0% | 12.1% | 8.4% | 8.7% | 10.4% | 11.0% | Merchandise Imports (US$ billion) | 73.9 | 83.3 | 93.7 | 105.4 | 120.0 | 137.0 | (% change) | 6.3% | 12.8% | 12.4% | 12.5% | 13.9% | 14.1% | Type of Institutions | Assets | Type of Institutions | Assets | Banks*) | 2,049.6 | Pension Funds | 91.3 | Insurer | 132.0 | Finance Companies | 127.3 | O/S corporate Bonds | 84.6 | Mutual Funds | 93.0 | Rural Institutions | 16.8 | Securities Firm | 12.0 | Pawnshop | 7.4 | Venture Capitals | 3.0 | Total | 2,616.9 | *) Incl Commercial Banks, Sharia Bank, and BPR |  | Sources: BI, Bapepam LK (MOF)
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Banking
The banking sector continues to be the largest subsector in the Indonesian financial sector – with about 80 percent of all financial assets (about IDR 2942 trillion, 59.4 percent of GDP) in 2008. Bank Indonesia data for March 2009 indicates that banking sector’s financial performance remains sound, despite ongoing volatility in global financial markets and its adverse impacts on Indonesia. The gross Non Performing Loan (NPL) ratio in the end of March 2009 was 3.93 percent from 3.2 percent in December 2008. Banking sector Capital Adequacy Ratio (CAR) was 18.03% as of March 2009. Profitability of the banks as measured by the ratios of annual return on assets (ROA), return on equity (ROE), and net interest margin (NIM) are quite high at 2.36%, 21.71% and 5.5% respectively.
Key Financial Statements of Commercial Banks | | Dec-07 | Mar-08 | Jun-08 | Sep-08 | Dec-08 | Mar-09 | CAR (%) | 19.30 | 20.52 | 17.58 | 17.26 | 16.76 | 18.03 | NIM (%) | 5.70 | 5.64 | 5.65 | 5.73 | 5.66 | 5.50 | NPL (Gross) (%) | 4.07 | 3.75 | 3.54 | 3.32 | 3.20 | 3.93 | ROA (%) | 2.78 | 2.72 | 2.53 | 2.64 | 2.33 | 2.36 | ROE (%) | 17.98 | 19.00 | 19.08 | 18.40 | 14.38 | 21.71 | Op Ex/Op Inc (%) | 84.05 | 85.19 | 85.30 | 83.72 | 88.59 | 90.68 | LDR (%) | 66.32 | 70.66 | 73.89 | 77.72 | 74.58 | 73.08 | Earning Assets Provision (%) | 193.95 | 147.79 | 120.77 | 147.04 | 168.12 | 154.53 | Deposits (IDR Trillions) | 1,510.8 | 1,466.2 | 1,554.2 | 1,603.5 | 1,753.3 | 1,786.2 | Y-O-Y Growth (%) | 17.40 | 13.5 | 14.7 | 14.5 | 16.1 | 21.8 | Loan (IDR Trillions) | 1,002.0 | 1,036.1 | 1,148.4 | 1,246.1 | 1,307.7 | 1,305.4 | Y-O-Y Growth (%) | 26.5 | 29.4 | 33.3 | 36.3 | 30.5 | 26.0 | Assets | 1,986.5 | 1,944.7 | 2,040.8 | 2,125.4 | 2,310.6 | 2,352.1 | Y-O-Y Growth (%) | 17.3 | 14.1 | 15.2 | 14.8 | 16.3 | 21.0 | Sources: Bank Indonesia, Monthly Statistic Despite the greater strength and resilience of the banking system since the crisis in 1997-98, one aspect that has remained largely unchanged is the structure of bank liabilities. Over 85 per cent of Indonesian banks’ deposits are less than one month in maturity (Figure 2). This situation implies that banks cannot make long-term loans to infrastructure projects. In fact, most of banks’ loan portfolios are also short term consisting of consumption and working capital loans that are typically less than one year in maturity. Even where longer-term loans are made, they are almost always at floating interest rates
 | Proportion of Deposits per Februari 2009 (Total Deposits: IDR 1,771,098 Billions) | Breakdown Loan Based on Purpose Borrowings per Februari 2009 (Total Loans: IDR of 1,301,844 Billions) |  |  | More Progress:
 Non-Bank Financial Institution (NBFI)
Financial Sector Stability
Useful Resources:
Major Bank Comparison Data (Source: Bank Indonesia Website)
Low level of access to financial services
Access to financial services is increasingly recognized as critically important in creating a foundation for positive economic growth systemic barriers to accessing loan and saving instruments remain a challenge for households and enterprises of all sizes in Indonesia, which make them very vulnerable to economic shocks. Financial Services include banking services, deposit, loan, remittance, mortgage, payment services and more widely other non bank financial products, such as insurance products, pensions, stock, and security market. Being able to access these services requires physical accessibility as well as affordability and eligibility Access has often been overlooked, however, in financial sector development and the formal financial sector in many developing countries serves only a small minority of the population. Recently, especially with the impetus of the Year of Micro Credit in 2005, more emphasis has been given to access to finance as part of the overall development agenda. More inclusive financial sectors can also help achieve the Millennium Development Goals (MDGs). Read more.. More Key Issues:
Money Laundering Issues
Low level of Banking Intermediation
Small NBFI Role
Shortage long-term resources to finance infrastructure
Access to Finance
The World Bank has conducted nation-wide household survey focusing on access to financial services in Indonesia. This survey aimed to collect the information on:
1) Existing available financial services (both formal, informal banking and non-banking sectors)
2) The constraints/challenges households face in accessing formal financial services,
3) Unmet household needs for financial services
4) The level of financial literacy and
5) Access and financial services needs of migrant workers and their families.
The Survey completed by the end of 2007. The Survey Data Analysis has been completed . In addition to the household survey, the review on financial sector in Indonesia as well as the regulatory framework are conducted. The result including the survey result and policy recommendation is expected to be ready by the middle of 2009. This is the first national representative survey focusing on access to finance in Indonesia. Along with survey implementation, basic financial literacy training for unbanked households conducted based on the assumption that financial literacy (the level of understanding financial services particularly in banking sector) is one of the main obstacles for households in accessing the formal financial services. The study will also cover the result of this experiment.
In addition to the nation-wide survey, the World Bank has conducted the Household Survey on Access to Finance focusing on Migrant Workers Families in East Java, West Nusa Tenggara, East Nusa Tenggara with the partnership of ANTARA (Australia Nusa Tenggara Assistance for Regional Autonomy) Program in late 2008. The survey aimed the similar objectives as the nation-wide survey but focusing on the migrant workers households. The data analysis is currently underway and the report expects to be published in later 2009.
One of the constraints for migrant workers and their families face to access to finance is the lack of financial literacy. To overcome the low financial literacy and to provide better financial education could improve the access to financial services as well as the choices of using different type of financial services which they need to use pre/during/post migration period. The World Bank plans to conduct the pilot financial training to understand the impact of financial literacy training to improve access issues for migrant workers households. The pilot program expects to start in late 2009.
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| Money Laundering
The World Bank, together with many other international donor agencies, has supported the Indonesian Government in this area. On the regulation side, the Bank has assisted a review of KYC regulation in the capital market. Capacity building and training is a major component of Bank assistance. It has facilitated the Global Dialogue Series through video conferences. and sponsored staff of PPATK and other Government institutions to attend a “Training the Trainers” course in Bangkok.. More recently, the Bank is also supporting the Government in fighting illegal logging through the AML framework. A workshop on this subject was held in Jakarta in 2005 and further assistance is on-going
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Banking Industry
The World Bank has worked with Bank Indonesia in the areas of corporate governance and risk assessment of banks. The World Bank remains committed to assisting the Government, Bank Indonesia and the Industry in order to foster a vibrant banking sector in Indonesia.
Non-Bank Financial Institution (NBFI)
Working with Bapepam-LK, the World Bank is supporting the efforts of the Government of Indonesia to strengthen NBFIs. A comprehensive report on NBFIs was published in December 2006.
In September 2007, The Bank, together with Pension Bureau in Bapepam and LK conducted a study of Options for Reforming the Indoensian Civil Service Pension and Saving schemes. Two reports was finalized on Baseline Actuarial Model of Current Civil Service Schemes and Reform Options and Law 40 Harmonizations.
In the infrastructure financing area, The Bank, together with other development partners, i.e. IFC, ADB, and DEG-KFW, is supporting government in the establishment of the Indonesia Infrastructure Finance Facility (IIFF). IIFF is an NBFI that focuses in providing a long-term domestic currency financing to infrastructure sector. IIFF has main objective to catalyst private sector participation in infrastructure development. More about this project
| | | Financial Sector Assessment Program (FSAP)
In Indonesia, the World Bank together with the IMF have conducted assessments and produced four ROSCs; i) Corporate Governance (2004) ii) Accounting and Auditing (2005) iii) Data Dissemination and iv) Fiscal Transparency (2006). These would contribute to identify vulnerabilities and to establishing priorities for strengthening financial systems and institutions in Indonesia. All four reports could be downloaded from the web link below :
The ROSC on Corporate Governance benchmarks the country’s observance of corporate governance against the OECD Principles of Corporate Governance. This report includes an assessment of Indonesia’s complaince to each OECD principle. Each statement is given the benchmarks, based upon the country’s level of observance of the Principle as well as the policy recommendation for each principle. The ROSC on Accounting and Auditing provides an assessment of accounting and auditing practices in Indonesia. The review process involved an assessment of actual practices and analysis of effectiveness of the mechanisms for ensuring compliance with formal standards. It uses international Financial Reporting Standards) and International Standards on Auditing as benchmarks and draws on international experience and good practices in the field of accounting and auditing regulation. This report provides policy recommendations. The ROSC on Data Dissemination provides an assessment of Indonesia’s macroeconomic statistics against the Special Data Dissemination Standard (SDDS). It is complemented by an assessment of data quality based on the IMF’s Data Quality Assessment Framework which lays out internationally accepted practices in statistics, ranging from good governance in data-producing agencies to practices specific to datasets. The ROSC on Fiscal Transparency provides an assessment of fiscal transparency practices in relation to the requirements of the IMF Code of Good Practices on Fiscal Transparency and is based on discussions with the authorities and other organizations, the authorities’ response to the IMF fiscal transparency questionnaire, and other sources of information. |
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