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In general, the coverage of Basel III is as follows:
1. Strengthening of Global Capital Framework
Enhancement of capital quality,
consistency and transparency
• Capital requirement of Tier 1 increasing from 4 to 6, with
CET1 capital increasing from 2 to 4.5.
• Tier 1 capital must be dominated by common stocks and retained
earnings. • Other core capital components
consist of subordinated instruments, non-cumulative
dividendscoupons, do not have maturity date and do not have
insentive for buy-back.
• Innovative capital that has incentive for buy-back with
feature such as step-up will be removed gradually.
• Tier 2 capital shall be harmonized • Tier 3 capital will be removed.
• To improve market discipline, transparency aspect of bank
capital will be increased by requiring disclosure of all capital
elements.
Expansion of risks coverage in
the framework of bank capital
• Banks must determine capital needs for credit risks of the counterparties
by using stressed input. • Banks will be imposed with capital
charges for loss potential due to market value.
• Strengthening of standard for collateral management and initial
margining • Development of standard for
inancial market infrastructures, including central counter-parties for
derivative OTC transactions. • Enhancement of credit risk
management of the counterparties, including the set up of wrong way
risk and backtesting exposures of counterparties credits.
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1. Strengthening of Global Capital Framework
Application of leverage ratio
• Limit excessive leverage in banking sector for mitigating risks that can
disrupt inancial and economic system.
• Introduce additional safeguards from risk models and setting faults.
• Bank must have leverage ratio of no less than 3.
Countercyclical Capital Bufer
• Bufer will be in the range of 0 - 2.5 from the common equity or
other capital instrument types that absorbs the loss.
• To anticipate loss arising from excessive credit growth.
Conservation Bufer
• To absorb loss at the time of crises. • Banks will be requested to prepare
2.5 bufer so that the total minimum common equity of banks
is 7. • Banks that are not able to meet
capital conservation bufer will face limitation of dividend payment,
stocks distribution, and bonus.
2. Global Liquidity Standard
Liquidity Coverage Ratio
Liquidity Coverage Ratio LCR is a ratio to ensure adequacy of liquid assets with high
quality to meet 30-day liquidity needs of banks at the time of crises.
Net Stable Funding Ratio
Net Stable Funding Ratio NSFR is a ratio to measure long term resilience of banks,
namely availability of fund sources of banks that is more stable to support
sustainable structural business activities.
Monitoring Tools
• Development of matrix that must be
considered as minimum information types that can be used by supervisors
to catch liquidity risks proiles. •
Liquidity monitoring matrik focuses on maturity mismatch, funding
concentration, and unencumbered asset available.
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Preparation of Basel III Implementation in Indonesia
As one of BCBS members, BI participates in the global QIS Quantitative Impact Study that sofar has been
conducted for the data position of Desember 2010, Juni 2011, Desember 2011 and Juni 2012, followed by the
selection of 2 big banks to be the the respondents. The study result indicates that the fulillment level of the 2
respondent banks to the standard capital and liquidity, consistently above the minimum number required. This
is caused by, among others, components of Indonesia’s banking capital dominated by common equity, and most
the regulatory adjustment currently governed by BI is more conservative compared with what required by Basel
III. The leverage ratios of both respondent banks are also above the minimum limit of 3, so that the capital of the
banks is considered able to cover assets risks of the banks. On liquidity side, LCR and NSFR levels of both banks are
also above the threshold of 100. To complete the implementation of Global QIS toward
the 2 respondent banks and also in order to prepare the implementation of Basel III in Indonesia, BI also conducts
domestic QIS toward all conventional commercial banks by using BCBS template, particularly which related to
capital and leverage, as well as capital level analysis of the entire banking using data of Commercial Bank Monthly
Reports LBU. BI also has issued Consultative Paper CP of Basel III which
already uploaded into BI website and communicated to banking sector and related work units in BI in order to get
responses and inputs.
E. Global Financial Sector Reform
Crises have given a priceless lesson learned in the aspect of global inancial sector regulation. It is clearly deined that
global inancial sector is based on less efective regulation regime in responding to systemic risks. On the other hand,
ramiication of the crises is not easy to detect rapidly due to information asymmetry. Global inancial markets
and institutions promptly transmitted crises from one economy to another economy due to integrated global
inancial markets. Meanwhile, big inancial institutions
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operating globally systemically important inancial institutions as a matter of fact do not have adequate
capital bufer to absorb loss they experienced. One of the causes is the weakness of capital regulation regime
which tends to amplify procyclicality. In relation to the said matter, G-20 has initiated a global inancial sector reform
as one of the important responses against global inancial crises. Since the referred Washington Action Plan WAP
agenda runs ambitiously relected by the tight deadline of completion. From the many initiatives, the most important
reformation agenda is the reform of global liquidity and capital regulation regimes, and also mitigation of
procyclicality normally called Basel III. Meanwhile, crises resolutions for inancial institutions with systemic impacts
are also to be strengthened. This reform shall also touch the enforcement of over-the-counter OTC inancial
market, enhancement of supervisory intensities, and expansion of boundaries in inancial sector regulations
to eliminate fragmentasi between the sectors of banking, capital market, and non-bank inancial institutions.
Further, agenda of inancial sector reform was born, which is a follow-up action since the G-20 meeting in Washington
DC, London dan Pittsburgh. Indonesia as the member of G-20, Financial Stability Board FSB and Basel Committee
on Banking Supervision BCBS has a commitment to support this reform which consists of the following
agenda: 1. Strengthening the global capital regimes and
banking liquidity standards as well as mitigation of procyclicality normally called “Basel III” Building High
Quality Capital and Liquidity Standards – Basel III as referred to in item D
2. Regulations on inancial institutions which have systemic impacts Addressing systemically important
inancial institutions and cross-border resolutions 3. Compensation scheme reformation for executives
in inancial institutions Reforming compensation practices
4. Improving over-the-counter derivative markets 5. Strengthening adherence to international standards
6. Strengthening accounting standards
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7. Developing macro-prudential policy frameworks and tools
8. Harmonizing regulations on markets and inancial institutions Diferentiated nature and scope of
regulation 9. Regulation on Hedge Funds
10. Regulation on Credit Rating Agencies 11. Establishment of Supervisory Colleges
12. Reactivating securities markets with a stronger
prudential base Re-launching securitization on sound basis
F. BPD as Regional Champion BRC
The manifestation of Indonesia’s Banking Architecture requires a bigger role of BPD Regional Development
Bank. This is considering that there is still some space for BPD to develop more optimally. From the total assets
side, BPD segment has reached 9.62 from the national banking total assets, while from the sides of credits and
portion funds collection, BPD just reached 8.47 and 11.14 respectively from the total credits and funds
collected by National Banking Third Party Funds. Based on the parameter, at a glance, it can be concluded that
in terms of scale, the role of BPD will be sharper if the bank focus its operations in each region as the Agent of
Regional Development. Program on the strengthening of BPD covered in BPD
Regional Champion BRC program which is a program to motivate BPD in order to be more efective in implementing
its function as agent of development in the regions, including its implementation strategy. The formulation of
BPD blueprint to become Regional Champion is based on several considerations, among others:
1. The condition of BPD capital which is still low
compared with the average capital in banking industry that potentially weaken BPD resilience in facing
competition with other bank groups in the region. 2. BPD services that do not meet public expectations and
the low awareness of BPD Brand can cause products and services ofered by BPD less attractive and might
lead to the decrease of customers’ trust.
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