Agus D W Martowardojo: Maintaining financial stability amid continued
economic growth deceleration
Keynote speech by Mr Agus D W Martowardojo, Governor of Bank Indonesia, at the
Discussion and Launching of the Financial Stability Review Book, Jakarta, 10 December 2015.
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Honorable,
Our Predecessors Governors of Bank Indonesia,
Members of the Board of Governors of Bank Indonesia,
Officials in the Ministries and State Agencies,
Banking Leaders
Representatives of Industry Associations
Academicians and Economic Observers
Attendees and Invitees,
Assalamu'alaikum warahmatullahi wabarakatuh,
Good afternoon and best wishes to us all,
First of all, let us pray our praise and gratitude to Allah SWT, the God Almighty for only upon
His grace and blessing, we can all gather here in good health to participate in the discussion
and launching of the Book on Financial Stability Review (Kajian Stabilitas Keuangan-KSK)
No. 25, September Edition Year 2015.
The development of this KSK constitutes a part of the transparency and accountability of
Bank Indonesia's duty implementation in the field of macro- prudential. As one of the
routine semester publications, KSK contains the results of assessment and review of Bank
Indonesia toward the condition of the national financial system.
Such assessment also covers our monitoring to the sources of vulnerability and imbalance of
the financial system that can be found in the financial markets; financial agencies/institutions,
namely households and corporates; banking; and Non-Bank Financial Institutions (Institusi
Keuangan Non-Bank-IKNB); and also financial infrastructures.
Due to the deceleration of economic growth experienced by Indonesia, it is critical for
Bank Indonesia as the authority in the field of macro-prudential to continue maintaining
the stability of financial system. Especially, as the dynamics of the global financial system
continue to remain under uncertainties.
Therefore, the edition of KSK this time takes up the theme of "Maintaining Financial Stability
amid Continued Economic Growth Deceleration" We are convinced that our duty in maintaining
the stability of economy will be more challenging. Hence, we expect that depth assessment
and review on the condition of national financial system will be a valuable reference for us in
taking measures in the future.
Ladies and Gentlemen,
The condition of Indonesia's financial system in 2015 in general is still overwhelmed by
various challenges and fluctuations, both sourced from global and domestic. The still weak
global economic recovery, the continued declining price of commodities and the decreasing
capital inflows to developing countries have become the pressure trigger to the developing
countries' economics including Indonesia.
Those conditions are also hardened by the uncertainty and magnitude of the Fed interest
rate normalization as well as the measures of monetary easing by European countries,
Japan, and China in the efforts to recover their economic growth. One of the China's efforts,
i.e. by unexpectedly devaluating Yuan currency, has also triggered fluctuations in the global
financial market and given additional pressure to the developing countries.
From the domestic side, the development of financial system in Indonesia also encountered
several challenges. Amidst the slowdown of economic growth, pro-cyclical banking reflected
in the slowdown of credit growth needs to be looked more closely. Besides, the high
pressure against Rupiah exchange rate as well as the non-optimal absorption of fiscal
budget also colors the dynamics of Indonesia's financial system.
Attendees, Ladies and Gentlemen,
In response to the increasing pressure against the economic stability derived from global
and domestic, Bank Indonesia as the macro-prudential authority has pursued the policy
which focused to encourage the realization of macro- economic stability while maintaining
the momentum of growth.
Efforts carried out by Bank Indonesia has been taken through loosening measurable
macroprudential policies in order to give space for recovery, for the economic sectors with
relatively controlled risk.
The easing macro-prudential policies taken, i.e.:
• Loan to Value Ratio (LTV) magnitude adjustment for property loan, and a decrease
in advance for motor vehicle loan in order to provide stimulus from the demand
side.
• Improvement of regulation of statutory reserves (Giro Wajib Minimum-GWM) of Loan
to Funding Ratio (GWM-LFR) to expand space for banking in channeling loans,
including MSME's credit, by taking into account commercial papers (securities) issued
by banks as third party fund components.
In addition to that, Bank Indonesia also performed macro-prudential supervision, among
others was realized by implementing surveillance and joint audit with OJK toward banks
that have highest foreign exchange risk exposure, in order to mitigate the emergence of
systemic risk in banking in the midst of weakening pressure of Rupiah exchange rate. To
strengthen that, Bank Indonesia also continues conducting assessments to the overall
national financial system.
Furthermore, the maintained financial stability system has also been the result of Bank
Indonesia policy-mix synergy, namely, by exercising monetary policy carefully and
consistently, as well as solid coordination with the Government and relevant authorities,
both in the form of bilateral coordination and within the framework of Financial System
Stability Coordination Forum (Forum Koordinasi Stabilitas Sistem Keuangan-FKSSK).
Attendees, Ladies and Gentlemen,
The Banking industry as the main part of the national financial system, currently is in a
maintained state. The banking capital is maintained at high level, far above the minimum
requirement. Whereas, the ratio of non- performing loan also remains relatively low.
Therefore, the banking industry resilience represented the largest asset share in the
domestic financial system is still quite strong to absorb arising risk potential, especially
credit risk, market risk and liquidity risk.
Moreover, non-bank financial industry is also still capable to stay at a safe level, although
with a risk that tends to increase, following the still weak global economic recovery, the
deceleration of domestic economy, and the continued declining commodity prices.
In the household sector, credit risk is still relatively maintained although we need to
remain cautious as there is increasing Debt Service Ratio (DSR). The increase of DSR
reflects the decrease in the ability of the household sector in paying their debts in line with
the slowdown of domestic economy.
On the side of financial system infrastructure, we are grateful that implementation of payment
system has been able to run safely, efficiently and reliably so that it become one of the
main supporting factors of the maintained financial system stability.
In the effort to continue strengthening the national financial infrastructure, consecutively in
June and November 2015, Bank Indonesia has implemented National Clearing System
of Bank Indonesia (Sistem Kliring Nasional Bank Indonesia-SKNBI) and Real Time Gross
Settlement (RTGS) as well as Scriptless Securities Settlement System (SSSS) of
Generation II.
The overall effort of strengthening, both in the context of retail payment activities and high
value, is intended to enhance the efficiency of the national payment system and to increase
the protection and speed of service for customers. With the availability of increasing quality
of the payment system service, the supports to the activities in the financial system,
which in turn contributed in maintaining the financial system stability, are also expected
to continue improving.
Nevertheless, the stability of the financial system is still not immune from the risk potentials,
whether liquidity risk, credit risk or market risk. Therefore, Bank Indonesia will constantly
take macro-prudential policy directed at efforts to control key risks that could potentially
pose a systemic risk and maintain the balance of the financial system.
Attendees, Ladies and Gentlemen,
In the future, the global economy will still be faced with the tough challenges, especially if
the deceleration of China's economic structural still continues, commodity prices still
experience pressures, and the plan of The Fed monetary policy normalization continues to
create fluctuation in the global financial market. Those three factors will impact significantly
to the Indonesia's economy and the condition of the financial system.
In the midst of those challenges, the policy of financial system stability needs to continue
to be strengthened in order to enhance financial system resilience against various risk
potentials, and all at once to motivate the function of banking intermediation to be more
efficient and equitable to support the financing of the economy.
In the effort to maintain the stability of the national financial system, which is our joint
responsibility, Bank Indonesia will always promote coordination and intensive
communication with the Government and relevant Authorities in responding to the existing
challenges. We believe that the key to overcome various challenges in the future is to
establish a close synergy among all stakeholders in Indonesia.
Ladies and Gentlemen, Attendees,
Thereby, what we can convey as an introduction. We, naturally, hope that the book on
Financial Stability Review - Bank Indonesia could become an increasingly quality reference
in the future, and so that this discussion forum also contributes in expanding the insight,
in building the understanding, and in encouraging constructive measures in the effort to
create the stability of financial system in Indonesia.
In closing, may Allah the God Almighty always bless us and lighten our steps.