OJK Asks Banks Not To Have The Same Fate As Bank Silicon Valley

OJK Banking Supervision Chief Executive Dian Ediana Rae. (Photo: Doc. Antara)

JAKARTA - The Financial Services Authority (OJK) asks banks to strengthen governance, risk management and caution, including by implementing a'stress test' or endurance test and increasing monitoring of capital portfolios and assets.

OJK Banking Supervision Chief Executive Dian Ediana Rae in a written statement said the South Base Committee on Banking Supervision (BCBS) 22-23 March 2023 had emphasized several things, including the importance of learning from the failure of Silicon Valley Bank (SVB) in the United States.

"Learning from the failure of SVB, BCBS also continues to emphasize the importance of sufficient capital ratio and adequate availability of liquidity," said Dian, quoted by Antara.

The cost of capital (cost of capital) and availability of liquidity in sufficient quantities are indeed considered expensive and inefficient.

However, Dian said, BCBS reminded that limited capital and liquidity would cause much greater losses if the banking industry failed to anticipate global macroeconomic movements or turmoil and failed to maintain public trust.

"The economic and social costs will be very large and much more expensive, especially if they trigger the global reshuffle (spill over effect) effect," said Dian.

The case of the failure of SVB and Lehman Brother in 2008, said Dian, should be a valuable lesson to continue to strengthen bank health.

Dian also asked Indonesian banks to monitor asset portfolios and liabilities including the risk of concentration on loans and funding.

Furthermore, Dian assessed that the vulnerability in global banking, which was mainly triggered by bank failures in the United States and Europe, had no significant impact on the Indonesian banking industry.

Dian explained that various indicators show that Indonesian banking is in a solid condition with an average prudential ratio that remains above the global banking average.

As an illustration, in the position of January 2023, the capital adequacy ratio (CAR) of Indonesian banking banks is 25.93 percent and about 85 percent of the capital component is included in the core capital classification (Tier 1 capital; CET 1).

In comparison, the core capital ratio of American banking is 13.52 percent and Europe is 16.13 percent.

In addition, Indonesia's banking liquidity performance is well maintained, including being shown by the Liquidity Coverage Ratio (LCR) and Net-Stable Funding Ratio (NSFR) respectively at 232.22 percent and 134.58 percent.