Page 5 - Perpustakaan Lemhannas RI

5. Establish regular contacts with domestic and foreign supervisors to strengthen
consolidated supervision and home-host cooperation and information exchange
relationships.

6. Submit to the House of Representatives (DPR) draft prompt corrective action
legislation to achieve timely corrective measures, to remove discretion from the
process, and limit the time banks can spend under intensive supervision.

7. Maintain capital adequacy requirement in line with the Basel I norms until Pillars
2 and 3 of the Basel II framework are operational; more generally, handle the
transition to Basel II and new accounting standards carefully to ensure the right
balance between various interactive elements.

8. Strengthen Bl and banks' stress testing capability.
9. Revise the law to give SOCBs more flexibility in dividend payout, debt

restructuring, and management of capital structure and business risks.

Regulatory Structure
Review financial sector supervision and regulation to ensure micro-macro prudential
coordination while reforming the financial supervision framework.

Central Banking
1. Strengthen Bl’s balance sheet by agreement with the government to restructure

zero interest government debt into market interest bearing debt.
2. Improve the selection process of Bl's Board members.
3. Further clarify Bl's policy objective and develop a mechanism to eliminate the

discrepancy between the official inflation targets announced by the Ministry of
Finance (MOF) and the targets used by Bl.
4. Disclose criteria for selecting counterparties in FOREX market.

Banking Industry
1. Within the banking system, activities are concentrated in a few large commercial

banks.
2. Foreign banks are increasingly playing an important role in the Indonesian

banking sector
3. Banks rely on short-term funding
4. The interbank market is thin and segmented.
5. The non-bank financial sector remains small and underdeveloped, accounting for

less than 10 percent of GDP.

Banking Regulation and Supervision
1. The assessment of the Basel Core Principles found compliance to be broad, with

a few critical exceptions and qualifications.
2. Although the capital base is adequate, its quality and consistency should be

improved.
3. There are also issues with asset classification and provisioning regulations.
4. Regulation and supervision of interest rate risk on banks’ banking book is

lacking.
5. Finally, the lack of effective arrangements for regular cooperation between the

various domestic supervisory authorities and foreign supervisors is an
impediment to Bl in discharging its duties.