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Bank Central Asia (BBCA), Indonesia’s largest lender by market value and second largest bank by assets, posted net profit of IDR 11.72 trillion (US $1.2 billion) in 2012, meaning an 8.3 percent increase from last year's result. This growth is limited compared to net profit of its main competitors Bank Mandiri that posted 26.6 percent growth in 2012, and Bank Rakyat Indonesia (BRI) that posted a 22.8 percent growth in net profit.
Bank Mandiri, Indonesia’s largest bank by assets, reported net profit of IDR 15.5 trillion (US $1.6 billion) over 2012, implying a 26.6 percent increase compared to 2011. Profit growth was fuelled by increase in net interest income, which increased to USD 27.5 trillion (US $2.85 billion), up from IDR 23.6 trillion in the previous year, and a growth in fee-based income of 2.4 percent. Total outstanding loans at the bank rose 23.7 percent to IDR 388.8 trillion (US $40.3 billion).
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New York-based financial services firm Standard & Poor's stated that Indonesia's banking industry will feel the negative impact of Indonesia's sluggish economic growth in combination with persistently low commodity prices next year. This combination may weaken profitability of the nation's banking industry. S&P puts Indonesia's economic growth in 2016 at 5 percent (y/y), below the International Monetary Fund's and World Bank's forecast as well as the central government's target, all at 5.3 percent (y/y).
Indonesia’s Financial Services Authority (OJK) issued a new regulation that simplifies the opening of a foreign currency bank account by a foreign national (expat). A circular, S-246/S.01/2015 (dated 15 September 2015 and signed by OJK Chairman Muliaman D. Hadad), has been sent to all directors of Indonesian commercial banks that conduct business in foreign currencies. This new rule, part of the economic policy package that was released by the Indonesian government on 9 September, aims to boost foreign currency funds in Indonesia and support the rupiah.
Soon it will be easier for foreigners (expats) to have a foreign currency bank account (non-rupiah) in Indonesia. Muliaman D. Hadad, Chairman of the Financial Services Authority (OJK), stated it is bound to issue a new regulation that allows for easier banking in foreign currencies in Indonesia. This regulation is made in an effort to raise the country’s foreign exchange reserves and support the ailing rupiah.
During Bank Indonesia’s Board of Governors it was decided on 18th August 2015 to hold the BI Rate at 7.50 percent, while maintaining the Deposit Facility rate at 5.50 percent and the Lending Facility rate at 8.00 percent. The decision is consonant with efforts to control inflation within the target corridor of 4±1 percent in 2015 and 2016. In the short term, Bank Indonesia (BI) is focused on efforts to stabilize the rupiah amid uncertainty in the global economy, by optimizing monetary operations in the rupiah and the foreign exchange market.
Indonesian financial authorities are considering to ease foreign ownership limits for local Islamic banks and to promote new sharia-compliant financial tools in an effort to make the Islamic finance industry more attractive to foreign investors and the Indonesian population. Despite having the world’s largest Muslim population and being a dynamic emerging economy, Indonesia plays only a very minor role in the global Islamic banking industry. Meanwhile, domestically, Islamic banking still seriously lags behind conventional banking.
Indonesia’s central bank (Bank Indonesia) decided to maintain its benchmark interest rate (BI rate) at 7.50 percent, the deposit facility rate at 5.50 percent and lending facility rate at 8.00 percent. This interest rate environment is considered to be in line with the central bank’s ongoing efforts to push the country’s inflation figure within its target of 4±1 percent for 2015 and 2016, as well as to control the country’s current account deficit towards a healthier level at 2.5-3 percent of gross domestic product (GDP) in the medium term.
Syariah banking or Islamic finance is a large untapped potential in Indonesia, a country where about 13 percent of the total global Muslim population live. With nearly 90 percent of the 250 million people in Indonesia adhering to Islam, the market share of syariah (sharia) finance is remarkably low. At USD $24 billion, Islamic banks in Indonesia only held 4.9 percent of the country’s total banking assets in 2013, hence making Indonesia’s Financial Services Authority (OJK) decide to launch a five-year roadmap in a move to boost syariah banking.
Bank Indonesia (the central bank of Indonesia) and the Financial Services Authority (OJK) signed an agreement (the ASEAN Banking Integration Framework, abbreviated ABIF) with Malaysia’s central bank to support banking integration in the ASEAN region. The website of Bank Indonesia states that ABIF “provides an operating framework for ASEAN member states to implement principles and the integration process in the banking sector to support the ASEAN Economic Community (AEC) [which is to be implemented later this year]”.
The Bank for International Settlements (BIS) wrote in its most recent report that emerging economies, which includes Indonesia, are highly vulnerable to severe capital outflows as investments from the West have been highly speculative and can be quickly pulled out from emerging markets. Even when only a light shock occurs, capital outflows will be significant as international investors have been showing ‘herd behaviour’. This behavior can rock the financial fundamentals of emerging markets and leave these countries shattered.
The central bank of Indonesia (Bank Indonesia) kept its key interest rate (BI rate) at 7.50 percent for the tenth consecutive month as inflation is under control and well within the year-end target of the central bank (3.5-5.5 percent). The lending facility and deposit facility were kept at 7.50 percent and 5.75 percent, respectively, at Thursday’s Board of Governor’s Meeting (11/09). The central bank also expects that the current interest rate environment is capable of curbing the country’s wide current account deficit.
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