ProdukHukum BankIndonesia
Launching of Basel II for the Indonesian Banking System
by the Governor of Bank Indonesia:
Jakarta, 25 January 2006
Dist inguished guest s, ladies and gent lemen,
1. On t his day, it is f it t ing t hat we express our praise and t hankf ulness t o t he
Almight y God f or t he blessing of meet ing t oget her in t his congenial at mosphere t o
discuss mat t ers of import ant concern. For bankers like ourselves, t he discussion of
Basel II and similar measures f or st rengt hening t he banking syst em is one t hat
always commands our int erest . More import ant ly, t he rules est ablished in Basel II
will gradually come int o use as an operat ional basis f or t he nat ional banking
indust ry.
2. Init ially, I wondered whet her a regulat ory f ramework based on Basel II f or a
banking syst em st ill in t he development st age, such as in Indonesia, would be t he
proper st ep t o t ake. Would t his not be a hurried move? In t he end my doubt s were
put t o rest . Basel II is a set of best pract ices t hat we cannot ignore if we as a
nat ion are t o deal wit h global t rends. These t rends mean t hat we bring ourselves
t o t he level of our part ners if we are t o be accept ed and respect ed in our dealings
wit h ot hers. Needless t o say, we have no desire t o be regarded as an 'Achilles heel'
in t he global f inancial order, part icularly in t he complex net work of relat ionships
in t he banking indust ry. It is Bank Indonesia’ s desire f or t he nat ional banking
indust ry t o speak t he same language as bankers in ot her count ries, at least wit h
our regional neighbours.
3. For t his reason, I explained at t he 2005 Bankers Dinner last year t hat Bank
Indonesia was f ully resolved t o implement t he Basel II working f ramework. This
would be a medium-t erm programme wit h a 3-5 year t ime f rame, one t hat we
must all st rive t o achieve. The expect at ion is t hat al l commercial banks will begin
phasing in t he Basel II f ramework in 2008, commencing wit h t he simplest
approaches.
4. This morning, t he conf idence shared by Bank Indonesia and I f or implement ing
Basel II as t he policy f or t he nat ional banking indust ry has t aken on an even more
concret e dimension. Bank Indonesia has complet ed a st rat egy f or implement ing
Basel II in t he f orm of a road map. This road map clearly present s t he milest ones,
t imet able and t he various act ivit ies t hat we must complet e t o be able t o
impl ement t he approaches and met hodology required by Basel II in due t ime.
Distinguished guests, ladies and gentlemen
5. We all underst and t his will be no easy t ask. Once again, let me emphasise t he
import ance of support ing inf rast ruct ure, including well t rained and qualif ied
human resources. To t his end, I envisage a number of st eps t hat demand serious
act ion f rom t he Indonesian banking syst em during t he preparat ory phase, so t hat
when t he t ime comes, everyt hing can proceed according t o plan. First , t he banking
syst em must learn and underst and t he various prerequisit es and inf rast ruct ure f or
implement ing t he Basel II concept . In t his area, risk management capabilit ies will
be absolut ely essent ial. Pillar I of Basel II is essent ially a met hodology f or
calculat ing bank capit al wit h a more risk-sensit ive approach. Basel II at t empt s t he
comprehensive measurement of credit risk weight ings and is more explicit in
allocat ing port ions of capit al f or operat ional risk. It is obvious, t heref ore, t hat
Basel II relies heavil y on t he abilit y of banks t o implement risk management .
6. Second, all banks must be capable of perf orming gap analysis. Based on t heir
underst anding of t he Basel II concept , all banks must t ake st ock of t heir current
posit ion and begin t o prepare t he act ions necessary t o f ill t hese gaps. The
deployment of a Basel II monit oring t eam at each bank is a very pract ical and
helpf ul solut ion in t his area. The t eam will be able t o put t oget her a caref ully
measured and syst emat ic plan f or use as a monit oring t ool f or each act ivit y t hat
t he bank must undert ake in preparat ion f or Basel II. This t eam will also act as a
count erpart f or Bank Indonesia in monit oring progress at individual banks.
7. Third, each bank will be immediat ely inf ormed wit h great er cert aint y of t he
impact of Basel II on it s capit al adequacy. This is of great import ance. As I have
remarked so of t en, t he road ahead will not be easy. Compet it ion will gat her f orce
and banks will inevit ably f ace more and heavier demands f or service excellence.
Theref ore, if any bank should f eel unable t o meet t he Basel II requirement s during
t his preparat ory period, t hat bank should begin giving t hought t o t aking t he pat h of
accelerat ed consolidat ion as I described some t ime ago, and work act ively f or a
successf ul out come. These banks should know t hat risk management , compet it ion,
Basel II and capit al adequacy have become t he credo of t he current policy f or
banking indust ry consolidat ion. Bank Indonesia has begun t o give priorit y t o t his
policy. As described in t he API vision, by t he end of 2010 we want t o see a new,
more robust st ruct ure f or Indonesia's banking indust ry. This will be a banking
indust ry marked by great er resilience and compet it iveness in a global environment
and working f or t he benef it of t he nat ional development process.
Distinguished guests, ladies and gentlemen,
8. Event ually, our hope is t hat by t aking t he st eps out lined t oday, all our processes in
rest ruct uring and reorganisat ion will move f orward and achieve t heir obj ect ives.
Bank Indonesia will f ollow a consist ent , disciplined pat h in working alongside t hese
correct ive measures. We must keep pressing f orward unt il Indonesia has achieved
t he sound, st rong and compet it ive banking indust ry envisioned by us all. May God
t he Almight y bless and light en the st eps we t ake in moving f orward t o a bright er
f ut ure.
Jakart a, 25 January 2006
THE GOVERNOR OF BANK INDONESIA
Burhanuddin Abdullah
by the Governor of Bank Indonesia:
Jakarta, 25 January 2006
Dist inguished guest s, ladies and gent lemen,
1. On t his day, it is f it t ing t hat we express our praise and t hankf ulness t o t he
Almight y God f or t he blessing of meet ing t oget her in t his congenial at mosphere t o
discuss mat t ers of import ant concern. For bankers like ourselves, t he discussion of
Basel II and similar measures f or st rengt hening t he banking syst em is one t hat
always commands our int erest . More import ant ly, t he rules est ablished in Basel II
will gradually come int o use as an operat ional basis f or t he nat ional banking
indust ry.
2. Init ially, I wondered whet her a regulat ory f ramework based on Basel II f or a
banking syst em st ill in t he development st age, such as in Indonesia, would be t he
proper st ep t o t ake. Would t his not be a hurried move? In t he end my doubt s were
put t o rest . Basel II is a set of best pract ices t hat we cannot ignore if we as a
nat ion are t o deal wit h global t rends. These t rends mean t hat we bring ourselves
t o t he level of our part ners if we are t o be accept ed and respect ed in our dealings
wit h ot hers. Needless t o say, we have no desire t o be regarded as an 'Achilles heel'
in t he global f inancial order, part icularly in t he complex net work of relat ionships
in t he banking indust ry. It is Bank Indonesia’ s desire f or t he nat ional banking
indust ry t o speak t he same language as bankers in ot her count ries, at least wit h
our regional neighbours.
3. For t his reason, I explained at t he 2005 Bankers Dinner last year t hat Bank
Indonesia was f ully resolved t o implement t he Basel II working f ramework. This
would be a medium-t erm programme wit h a 3-5 year t ime f rame, one t hat we
must all st rive t o achieve. The expect at ion is t hat al l commercial banks will begin
phasing in t he Basel II f ramework in 2008, commencing wit h t he simplest
approaches.
4. This morning, t he conf idence shared by Bank Indonesia and I f or implement ing
Basel II as t he policy f or t he nat ional banking indust ry has t aken on an even more
concret e dimension. Bank Indonesia has complet ed a st rat egy f or implement ing
Basel II in t he f orm of a road map. This road map clearly present s t he milest ones,
t imet able and t he various act ivit ies t hat we must complet e t o be able t o
impl ement t he approaches and met hodology required by Basel II in due t ime.
Distinguished guests, ladies and gentlemen
5. We all underst and t his will be no easy t ask. Once again, let me emphasise t he
import ance of support ing inf rast ruct ure, including well t rained and qualif ied
human resources. To t his end, I envisage a number of st eps t hat demand serious
act ion f rom t he Indonesian banking syst em during t he preparat ory phase, so t hat
when t he t ime comes, everyt hing can proceed according t o plan. First , t he banking
syst em must learn and underst and t he various prerequisit es and inf rast ruct ure f or
implement ing t he Basel II concept . In t his area, risk management capabilit ies will
be absolut ely essent ial. Pillar I of Basel II is essent ially a met hodology f or
calculat ing bank capit al wit h a more risk-sensit ive approach. Basel II at t empt s t he
comprehensive measurement of credit risk weight ings and is more explicit in
allocat ing port ions of capit al f or operat ional risk. It is obvious, t heref ore, t hat
Basel II relies heavil y on t he abilit y of banks t o implement risk management .
6. Second, all banks must be capable of perf orming gap analysis. Based on t heir
underst anding of t he Basel II concept , all banks must t ake st ock of t heir current
posit ion and begin t o prepare t he act ions necessary t o f ill t hese gaps. The
deployment of a Basel II monit oring t eam at each bank is a very pract ical and
helpf ul solut ion in t his area. The t eam will be able t o put t oget her a caref ully
measured and syst emat ic plan f or use as a monit oring t ool f or each act ivit y t hat
t he bank must undert ake in preparat ion f or Basel II. This t eam will also act as a
count erpart f or Bank Indonesia in monit oring progress at individual banks.
7. Third, each bank will be immediat ely inf ormed wit h great er cert aint y of t he
impact of Basel II on it s capit al adequacy. This is of great import ance. As I have
remarked so of t en, t he road ahead will not be easy. Compet it ion will gat her f orce
and banks will inevit ably f ace more and heavier demands f or service excellence.
Theref ore, if any bank should f eel unable t o meet t he Basel II requirement s during
t his preparat ory period, t hat bank should begin giving t hought t o t aking t he pat h of
accelerat ed consolidat ion as I described some t ime ago, and work act ively f or a
successf ul out come. These banks should know t hat risk management , compet it ion,
Basel II and capit al adequacy have become t he credo of t he current policy f or
banking indust ry consolidat ion. Bank Indonesia has begun t o give priorit y t o t his
policy. As described in t he API vision, by t he end of 2010 we want t o see a new,
more robust st ruct ure f or Indonesia's banking indust ry. This will be a banking
indust ry marked by great er resilience and compet it iveness in a global environment
and working f or t he benef it of t he nat ional development process.
Distinguished guests, ladies and gentlemen,
8. Event ually, our hope is t hat by t aking t he st eps out lined t oday, all our processes in
rest ruct uring and reorganisat ion will move f orward and achieve t heir obj ect ives.
Bank Indonesia will f ollow a consist ent , disciplined pat h in working alongside t hese
correct ive measures. We must keep pressing f orward unt il Indonesia has achieved
t he sound, st rong and compet it ive banking indust ry envisioned by us all. May God
t he Almight y bless and light en the st eps we t ake in moving f orward t o a bright er
f ut ure.
Jakart a, 25 January 2006
THE GOVERNOR OF BANK INDONESIA
Burhanuddin Abdullah