Indonesia imposes higher capital adequacy for some banks

PHOTO: Indonesia imposes higher capital adequacy for some banks

JAKARTA - Indonesia's central bank has imposed higher capital adequacy requirements for some commercial banks, in its latest policy effort to increase the stability of the financial system in Southeast Asia's largest economy.

The new rule, issued on Nov. 28 and coming into force in March 2013, requires banks to maintain a capital adequacy ratio of between 8 and 14 per cent depending on their risk profile, from a current flat requirement of 8 per cent, Bank Indonesia said in a statement.

"Bank Indonesia is authorised to set higher minimum capital from the range set, in circumstances where Bank Indonesia considers the calculation of minimum capital is not adequate to anticipate risk," Bank Indonesia said.

Banks with the highest risk profile will need a capital adequacy ratio of between 11 to 14 per cent, while banks with the lowest risk profile will still only need a capital adequacy ratio of 8 per cent.

Medium risk profiles require 9-11 per cent.

The central bank said it will review and evaluate the risk profiles based on internal capital adequacy assessment processes.

Bank Indonesia on Nov 23 said that foreign banks will need to hold 8 per cent of their local third party funds in bonds as a capital buffer by June 2013.

The central bank will also link permits for all banks'business activities and products to their level of core capital, in a new regulation planned for January, as it steps up efforts to control a fragmented banking sector.

Indonesia's larger banks have maintained high levels of Tier 1 capital and proved resilient to global financial troubles, but there are many small rural lenders across the archipelago.

The new requirements are unlikely to deter global banks from expanding in Indonesia, where the economy is growing over 6 per cent per year and loan growth stands at over 20 per cent.