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Business and Economics > Banks and Banking

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Cover IMF Staff Country Reports
Indonesia: Financial Sector Assessment Program-Technical Note on Stress Testing and Systemic Risk Analysis
International Monetary Fund. Monetary and Capital Markets Department
The FSAP team undertook a thorough top-down corporate and bank solvency, bank liquidity stress tests as well as analysis of interconnectedness using mid-2023 data. This note covers the methodology and results of the scenario-based solvency test, the single factor sensitivity analysis, the liquidity test, and interconnectedness analysis. The stress test exercise was carried out on a sample of 105 commercial banks. The analysis is heavily dependent on supervisory data on individual banks’ positions shared by the OJK and BI as well as publicly available information on corporate sector. While FSAP results are not directly comparable to the authorities’ own stress testing results due to differences in scenarios, methodologies, and objectives, they provide an assessment of the system-wide resilience of the Indonesian banking sector at the current juncture.
Keywords:
banking sector characteristic; coverage ratio; interconnectedness ANALYSIS; capital markets department; bank credit risk; liquidity sensitivity analysis; FX LIQUIDITY ANALYSIS; Stress testing; Commercial banks; Liquidity; Loans; Securities; Global
Cover IMF Staff Country Reports
Indonesia: Financial Sector Assessment Program-Technical Note on Macroprudential Policy
International Monetary Fund. Monetary and Capital Markets Department
The 2017 FSAP focused its recommendations around strengthening and clarifying the mandates of the authorities. The FSAP noted that the multiple objectives of the organizations, together with the fact that there was no defined framework for cooperation and the separate control over prudential tools, created the risk that policies implemented by both agencies might come into conflict or have undesirable consequences and blur accountability lines.
Keywords:
IMF-World Bank Financial Sector Assessment Program; Macroprudential liquidity incentive; Indonesia FSAP; Macroprudential intermediation ratio; financing ratio; Financial sector stability; Macroprudential policy; Systemic risk; Stress testing; Global
Cover IMF Staff Country Reports
Indonesia: Financial Sector Assessment Program-Detailed Assessment of Observance-Basel Core Principles for Effective Banking Supervision
International Monetary Fund. Monetary and Capital Markets Department
This paper presents a Detailed Assessment of Observance of the Basel Core Principles for Effective Banking Supervision for the Indonesia Financial Sector Assessment Program. The Financial Services Authority (OJK) achieves good baseline supervision; building supervisory capacity and enhancing the supervisory framework will contribute to achieving higher supervision standards. It is crucial for legislation to recognize the safety and soundness of banks and the banking sector as the OJK’s primary responsibility, given its broader mandates. The OJK is encouraged to continue to examine banks’ evolving business models to identify changing risk profiles early. There is further scope for the OJK to dedicate more attention to assessing a bank’s risk culture, model governance and stress testing. There is scope for more analysis of models, model governance, model validation, and the role of the independent risk management unit to verify and validate the results. Material enhancements are needed to effectively mitigate the risks associated with related party transactions and potential sources of concentration risk. While the OJK has broad powers for corrective measures, a portfolio view of noncompliance with regulations will help address early unsafe and unsound practices.
Keywords:
IMF-World Bank Financial Sector Assessment Program; bank Indonesia rupiah securities; banking segment; staff team of the International Monetary Fund; bank rating; Credit risk; Financial sector stability; Anti-money laundering and combating the financing of terrorism (AML/CFT); Market risk; Bank supervision; Global
Cover IMF Staff Country Reports
Indonesia: Financial Sector Assessment Program-Financial System Stability Assessment
International Monetary Fund. Monetary and Capital Markets Department
This paper presents financial sector stability assessment as part of Financial Sector Assessment Program in Indonesia. The financial system appears to be broadly resilient, has strong capital and liquidity buffers but remains relatively small and dominated by banks, especially few state-owned banks. Household and corporate indebtedness and public debt are low. The increase in banks’ holdings of government bonds and loans to state-owned enterprises has tightened the sovereign-bank nexus, but banks appear to be resilient. Credit risk tends to be higher in pandemic-hit industries and highly leveraged corporations. The mission recommends strengthening loan quality recognition by banks and risk assessment of small banks. Corporate and banks foreign exchange (FX) liquidity analysis could be integrated to identify systemic FX risks which can inform the setting of micro- and macroprudential policy instruments. Strengthening independence of the supervisor and providing clarity on primary supervisory objectives is important. Indonesia’s resolution framework should be more closely aligned to the FSB Key Attributes, including regarding the bail-in tool, and should cover financial conglomerates in the framework. Authorities should not delay resolution of weak banks by providing liquidity assistance from the deposit insurance fund.
Keywords:
banks FX liquidity analysis; systemwide FX liquidity stress test; coverage ratio; bank FX liquidity stress test; banking sector; Financial sector stability; Anti-money laundering and combating the financing of terrorism (AML/CFT); Macroprudential policy; Commercial banks; Financial Sector Assessment Program; Global
Cover IMF Working Papers
EMDE Central Bank Interventions during COVID-19 to Support Market Functioning
Kelly Eckhold
,
Julia Faltermeier
,
Darryl King
,
Istvan Mak
, and
Dmitri Petrov
This paper examines emerging market and developing economy (EMDE) central bank interventions to maintain financial stability during the COVID-19 pandemic. Through empirical analysis and case study reviews, it identifies lessons for designing future programs to address challenges faced in EMDEs, including less-developed financial markets and lower levels of institutional credibility. The focus is on the functioning of the financial markets that are key to maintaining financial stability—money, securities, and FX funding markets. Several lessons emerge, including: (i) objectives should be well-specified and communicated to facilitate eventual exit; (ii) intervention triggers should prioritize liquidity metrics over prices; (iii) actions should be sufficiently large to address market dysfunction; (iv) the risks of fiscal dominance and moral hazard should be minimized; and (v) program design should incentivize self-liquidation by appropriate pricing or through short-term operations that quickly liquidate. While interventions may increase risks to central bank balance sheets, potentially challenging policy solvency and operational independence, a well-designed framework can significantly mitigate these risks.
Keywords:
COVID-19 pandemic; central bank interventions; liquidity; and financial stability.; intervention trigger; money market intervention; market dysfunction; Chicago Board option exchange volatility index; government securities intervention; Central bank operations; Financial sector stability; Securities markets; Money markets; Global; Africa
Cover Shocks and Capital Flows
Shocks and Capital Flows
Policy Responses in a Volatile World

Abstract

The high exposure of open economies to shocks makes them particularly vulnerable to volatile capital flows and advanced economy monetary policy spillovers. How should and do domestic policymakers respond? The traditional answer has been to use flexible exchange rates as a shock absorber. But flexible exchange rates may not offer full insulation when financial markets are imperfect. This book brings together recent empirical studies at the International Monetary Fund (IMF) on the effectiveness of different tools in responding to such shocks. The 18 chapters in this volume provide a rich background to the recently launched Integrated Policy Framework by the IMF. They comprise assessments of countries’ actual use of different tools, as well as in-depth evaluations of their effectiveness and side effects, covering macroprudential policies, monetary policy, foreign-exchange intervention, and capital flow management policies. Many of the studies involve new data and methods to tackle the inherently difficult problems in identifying and comparing the effects of policies under different circumstances. As a result, the volume offers the reader a comprehensive, in-depth coverage of the policy-oriented empirical research that has informed the development of a new way of thinking about open-economy macroeconomics at the IMF.

Keywords:
Capital flows; monetary policy; exchange rate policy; foreign exchange intervention; macroprudential policy; capital controls; FX debt; account restrictiveness; exchange rate intervention; IT regime; Exchange rates; Macroprudential policy instruments; Global; Asia and Pacific; Caribbean; Central America; Europe
Cover IMF Staff Country Reports
Indonesia: Selected Issues
International Monetary Fund. Asia and Pacific Dept
The Selected Issues paper discusses lessons for a changing investor base in Indonesia. The decision of different investors to hold local-currency (LC) government debt can reflect both global and domestic conditions. Results point to the importance of global factors especially for nonresidents (NRs), while domestic investor holdings are mostly associated with higher debt security issuances, and Bank of Indonesia acts as a residual financier under adverse conditions. Results are mostly robust to different specifications. The results suggest that NR holdings of LC debt support the bond market and domestic credit, but financial market volatility may be higher. The paper finds that domestic banks and nonbanks are typically the marginal investors of new LC debt issued in emerging markets (EM). In normal times, domestic banks and nonbanks absorb most of the new issuances of LC debt in our sample of EMs. However, domestic nonbanks assume the key role in absorbing new debt supply during episodes of large declines in the NR share of LC debt. This finding is important for Indonesia, given the limited role of domestic nonbanks in the economy. In this context, further deepening of the domestic retail investor base, in line with the Indonesian authorities’ medium-term debt strategy, could support market depth and reduce volatility.
Keywords:
investor base; LC debt; marginal investor; implications of the change; different investor; Central bank policy rate; Bond yields; Inflation; Real interest rates; Global
Cover IMF Staff Country Reports
Indonesia: Technical Assistance Report-Financial Soundness Indicators Statistics Mission
International Monetary Fund. Statistics Dept.
This Technical Assistance report on Indonesia presents summary and recommendations from the Financial Soundness Indicators (FSI) mission. The mission reviewed and made recommendations aligning the FSIs currently compiled by the Indonesia Financial Services Authority—Otoritas Jasa Keuangan (OJK) to assess consistency with the methodology of the 2019 FSIs Guide. A timeframe for reporting FSI data and metadata to the IMF was discussed and agreed on with OJK officials. The 2019 FSIs Guide recommends that deposit takers’ data be compiled on a cross-border, cross-sector, domestically incorporated consolidation basis. The report recommends to compile FSIs using cross-border, cross-sector, domestically incorporated consolidation basis. Another detailed recommendation is that in coordination with the Bank Indonesia, identify the source of the abrupt data change in the supervisory deductions data and update the historical series, as necessary. It is also imperative to compile residential real estate and commercial real estate loans memorandum series in line with the definitions provided in the 2019 FSIs Guide.
Keywords:
Financial Soundness Indicators 2019 FSIs Guide Deposit takers Other financial corporations; memorandum series report form; staff team of the International Monetary Fund; coverage report form; OJK staff; report constitute; Financial soundness indicators; Liquidity requirements; Commercial banks; Financial statements; Capital adequacy requirements; Asia and Pacific
Cover IMF Working Papers
Monetary Policy Communication and Financial Markets in India
Mr. Faisal Ahmed
,
Mahir Binici
, and
Mr. Jarkko Turunen
Forward-looking monetary policy communication has become a key element of flexible inflation-targeting regimes across advanced and emerging market economies. The Reserve Bank of India’s implementation of a flexible inflation targeting framework since 2016 has been supported by a broad set of communication tools, more recently aided by policy innovations such as forward guidance on policy rates and, asset purchases, increasing the predictability of monetary policy. A review of the recent innovations of monetary policy communications during the initial waves of the pandemic suggests forward guidance likely played a key role in moderating uncertainty and supporting some asset prices. We also find that the relationship between monetary policy surprises and yields for government and corporate securities across all maturities are positive and statistically significant. The results support an important role for monetary policy communication in guiding market expectations about the monetary policy stance, including the likely path of policy interest rates.
Keywords:
Monetary policy; communication; forward guidance; inflation targeting; India; monetary policy announcement; inflation-targeting regime; inflation targeting framework; asset purchase; monetary policy surprise; Monetary policy communication; Asset prices; Central bank policy rate; Inflation; Global
Cover IMF Staff Country Reports
Indonesia: Selected Issues
International Monetary Fund. Asia and Pacific Dept
Selected Issues
Keywords:
B. policy response; recession trend; output loss; Policy consideration; green financing; Money markets; Climate finance; Greenhouse gas emissions; COVID-19; Global; Southeast Asia; Caribbean; South Asia; Africa