Dampak Rekapitalisasi Terhadap Kinerja Keuangan dan Pemulihan Fungsi Intermediasi Bank Umum Swasta Nasional dan Bank Pembangunan Daerah Peserta Program Rekapitalisasi

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Banking Liberalization An Indonesian
Experience

Presented in the symposium of the Assessment of
Trade in Services held by WTO Secretariat Geneva,
March 2002
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AGENDA
 

• I. INTRODUCTION
• II. BANKING REFORMS LIBERALIZATION
• III. BANKING LIBERALIZATION SINCE THE OUTBREAK
  OF THE FINANCIAL CRISIS
• IV. LESSONS LEARNED FROM INDONESIA EXPERIENCE
• V. BANKING LIBERALIZATION IN THE CONTEXT OF
  MULTILATERAL AGREEMENTS

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I.INTRODUCTION

• DEREGULATION PACKAGE
• in the real sector invite foreign direct
  investment (Act No.1 of 1967)
• in banking sector (Act No.14 of 1967) October,
  1988 policy package (the policy on foreign entry
  in banking sector)
• liberal regime for foreign exchange flows

• Crash of the international oil market (the
  mid-1980s)
• Deteriorated economy
• Issued a series of deregulations by the
  Government

• MULTILATERAL AGREEMENTS (WTO, APEC, ASEAN)
• Liberalization process in banking sector
• to strengthen the banking regulations and
  oversight framework
• should be integral part of any liberalization
  program

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II. BANKING REFORMS LIBERALIZATION
 

• SERIES OF FINANCIAL AND BANKING DEREGULATION
  PACKAGE
• 1. June 1983 policy package
• 3 main points i.e. lifting credit ceiling and
  liberating deposit interest rates and phasing out
  Bank Indonesia liquidity credit.
• The aim of policy to reduce limitation for
  banks to extend credits and to eliminate
  provisions on bank deposit interest rates
  previously prescribed by Bank Indonesia.
• 2. October 1988 policy package
• This package set forth financial, monetary and
  banking policies, especially easing of
  restrictions relating to banking institution
  covering the opening of new private banks, bank
  offices and non bank financial institutions and
  various prudential banking regulations.
• The impact of policy package the establishment
  of large number of new private banks, both
  domestic and joint venture banks

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II. BANKING REFORMS LIBERALIZATION (Cont.)
 

•  3. The March 25, 1989 policy package
• Foreign exchange banks and non-banks financial
  institutions were required to maintain a net open
  position at not more than 25 of stockholders
  equity
• Offshore borrowing ceilings for foreign exchange
  banks and non-bank financial institutions were
  eliminated
• Commercial banks, development banks, and non
  financial institutions were permitted to lend
  investment credits and to undertake equity
  participation with a certain requirement.

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II. BANKING REFORMS
LIBERALIZATION (Cont.)
 

•  4.   The February 28, 1991 policy package
• This package sets forth
• The Basic Scheme for Bank Supervision
• Provisions related to
• Licensing, ownership, and management of banks,
  covering the foundation, ownership and management
  banks, opening of offices, and equity
  participation of banks in overseas financial
  institutions
• Prudential principles, covering capital adequacy
  requirements, legal lending limit, and net open
  position
• Supporting factors for banking operations.
• 5.   The May 29, 1993 policy package
• This package covers prudential measures that
  should be fulfilled by bank i.e. Capital Adequacy
  Ratio, regulation concerning allowance for
  earning assets losses and provision on legal
  lending limit.

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II.BANKING REFORMS LIBERALIZATION(Cont.)
 

• 1. The enactment of new Banking Act No. 7 of 1992
  to replace Banking Act No. 14 of 1967.
• the function of banks as a development agent is
  continued.
• the purpose of banking system is to support
  national development in order to improve
  equitable distribution of wealth, economic
  growth, and national stability
• 2. The main distinction
• Banking structure
• Banking Act No. 14 of 1967 consist of several
  types of banks depend on the core bank business
  such as Development Banks, Commercial Banks, and
  Regional Development Banks.
• Banking Act No. 7 of 1992 there are only two
  kinds of banks i.e. Commercial Banks and Rural
  Banks. This Act does not classify banks based on
  their core businesses.

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BANKING REFORMS LIBERALIZATION

• 3.The enactment of the ownership of banks on
  Banking Act No. 7 of 1992
• Classification of commercial banks domestic
  commercial banks, joint venture banks, foreign
  banks
• Geographical limitation
• joint venture banks and foreign banks may only
  open their offices in eight major cities with
  limited number of offices in each city.
• Foreign participation in the ownership of
  commercial banks,
• foreign employees could engage in the
  management of joint venture banks and foreign
  banks.
• the foreign employees should conduct a transfer
  of knowledge to Indonesian employees.

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III. BANKING LIBERALIZATION SINCE THE OUTBREAK
OF THE FINANCIAL CRISIS
 
The Bank Reform Program

• Banking Crisis
• Exchange rate turbulance
• The fragility of banking system
• The liquidation of 16 banks

The Strategic Measures

• Government Guarantee Scheme
• Banking restructuring
• re-capitalization
• corporate restructuring
• legal framework improvement
• enhance banking supervision

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BANKING LIBERALIZATION SINCE THE OUTBREAK OF THE
FINANCIAL CRISIS
 

• A New Banking Act No. 10 of 1998 and Its
  Implementation Regulations
• 1. Relaxation of foreign participation in the
  establishment of new banks.
• foreign citizens and or foreign legal entities
  together with Indonesian citizens and or
  Indonesian legal entities may establish a new
  locally incorporated bank based on a
  partnership principle.
• 2. Relaxation of foreign participation in
  existing banks
• Foreign investors may also participate in
  existing banks through
• direct acquisition and or
• purchasing banks shares through stock exchange
• 3. Opening of foreign bank branches.
• a foreign bank may open a new branch and
  sub-branch
• requirements
• having good rating and reputation from the
  International rating agency
• possessing total assets included in the list of
  top world rank 200
• placing the operational funds in Rupiah or
  foreign currency with the minimum equivalent
  value of Rp. 3 trillion ( USD 300 Million).  

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IV. LESSONS LEARNED FROM INDONESIAN EXPERIENCE
 
) Position of March ) Position of
December In the year 2001 1 U is equivalent
with Rp. 10.000,- Source Bank Indonesia
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V. BANKING LIBERALIZATION IN THE CONTEXT OF
MULTILATERAL AGREEMENTS
 

• 1. Indonesia has made a moderate commitments in
  the international fora.
• 2. The process of liberalization should be
  properly managed and overseen in order to secure
  domestic interest and to avoid unnecessary
  negative impact of liberalization process.
• 3. The assessment of trade in services
• Undertaking an assessment of trade in services at
  the national level
• Difficulties lack of data, analytical and
  methodological problems
• Enable developing countries to have a better
  picture relating to the course of their
  countries liberalization process.
• 4. The treatment of autonomous liberalization
• Having an agreed criteria and modalities for the
  granting of credit for autonomous liberalization

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End of Presentation

• Thank You

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