New regulation soon to monitor conglomerates
Play
The Financial Services Authority (OJK) will issue a new regulation later this year that will tighten up the monitoring of financial conglomerates as their risks have the potential to have a huge impact on the country's overall financial system.
The new rule, which is slated to be published in the third or fourth quarter this year, will focus on the finances, risk management and good corporate governance of the conglomerates, including their subsidiaries, according to the head of the OJK banking supervision department, Agus Siregar.
“The financial aspect will cover each group’s CAR [capital adequacy ratio] and liquidity,” Agus said on Monday without elaborating.
Thirty-one financial conglomerates have been identified by the OJK, including Bank Mandiri, Bank Central Asia (BCA), Bank Rakyat Indonesia (BRI) and Panincorp. Collectively, they have assets amountingto Rp 9 quadrillion (Bt25.3 trillion) and make up more than 53 per cent of Indonesia’s financial institutions.
State-owned Bank Mandiri has nine subsidiaries and is the largest financial conglomerate in the country. The subsidiaries businesses stretch from investment banking to insurance.
Meanwhile, Panincorp is currently listed as one of the shareholders of publicly listed Panin Insurance, which has a stake in Panin Financial. The latter holds 46 per cent of Panin Bank’s shares. Panin Bank is now one of the top 10 biggest lenders by assets in Indonesia.
Agus said the OJK would conduct “three-layered supervision” on every conglomerate, starting with each subsidiary to the parent company. In an effort to comply with the future regulation, the conglomerates will be required to submit their business plans to the authority before the year-end, according to Agus.
“We expect the conglomerates to submit business plans that cover their whole operations for 2015,” he added.
BCA president director Jahja Setiaatmadja said the nation’s biggest private lender was not worried by the upcoming regulation, adding that the lender already complied with prudential banking practices.
“Our considerations involve credit risk, market risk and liquidity risk. We also monitor the growth of our subsidiaries and adjust it with our own capital strength,” he said on the sidelines of the same seminar.
BCA has five subsidiaries – automotive financing firm BCA Finance, Islamic lender BCA Syariah, securities firm BCA Sekuritas, general insurer Asuransi Umum BCA and money transfer firm BCA Finance in Hong Kong. It is looking to expand its business coverage with the establishments of a brand new life insurer in 2014 and an asset management company in 2015.
Jahja claimed that its CAR, which stands at around 17.4 per cent, was sufficient to guarantee the business sustainability of its subsidiaries and that it did not plan on injecting them with additional capital.
Indonesian banks are required to have a minimum CAR of 8 per cent at present.
Similar to Jahja, BRI finance director Achmad Baiquni said its 17 per cent CAR as a group was more than enough to support the operations of BRI and its subsidiaries: BRISyariah, BRI Agro and BRI Remittance in Hong Kong.
Indonesia’s financial institutions include 120 commercial banks, 139 insurance firms, 199 financing companies and 20,328 investment managers.
