ProdukHukum BankIndonesia
Publisher :
Bank Indonesia
Jl. MH Thamrin No.2, Jakarta
Indonesia
The preparation of the Financial
Stability Review (FSR) is one of the avenues
through which Bank Indonesia achieves its mission ≈to safeguard the stability of the Indonesian
Rupiah by maintaining monetary and financial system stability for sustainable national
economic development∆.
FSR is published biannually with the objectives:
To improve public insight in terms of understanding financial system stability.
To evaluate potential risks to financial system stability.
To analyze the developments of and issues within the financial system.
To offer policy recommendations to promote and maintain financial system stability.
Information and Orders:
This edition is published in September 2009 and is based on data and information available as of June 2009, unless stated
otherwise.
The PDF format is downloadable from: http://www.bi.go.id
For inquiries, comments and feedback please contact:
Bank Indonesia
Directorate of Banking Research and Regulation
Financial System Stability Bureau
Jl.MH Thamrin No.2, Jakarta, Indonesia
Phone : (+62-21) 381 8902, 381 8075
Fax : (+62-21) 351 8629
Email : BSSK@bi.go.id
Financial Stability Review
( No. 14, March 2010 )
ii
Table of Contents
Foreword
vi
Overview
3
Box 2.1. Bank Liquidity Resilience Indicators
Box 2.1. Bancassurance Performance
43
45
Chapter 3 Financial Infrastructure and Risk
Chapter 1 Macroeconomic Conditions and
the Real Sector
Macroeconomic conditions
Real Sector Conditions
Mitigation
9
9
14
Payment System Performance
Financial Sector Assessment Program (FSAP)
Box 3.1. Implementation of Payment-versusPayment (PvP) Link
Chapter 2 The Financial Sector
21
Box 3.2. ATM and Debit Card Fraud
Indonesian Financial System Structure
21
Box 3.3. Credit Card Risk Mitigation
Financial Sector Resilience
22
22
22
25
29
31
Banking Industry
Funding and Liquidity Risk
Credit Growth and Risk
Market Risk
Profitability and Capital
Non-Bank Financial Institutions And The
34
55
57
58
Chapter 4 Indonesian Financial System Outlook 61
Economic Prospects And Risk Perception
Bank Risk Profile : Level And Direction
Potential Vulnerabilities
61
62
64
Articles
Article 1 Market Competition, Interest Margin and
Capital Market
Insurance Companies
34
36
Article 2 The impact of Monetary Shocks on
Capital Market
38
Non-Performing Loans in Indonesia
Finance Companies
49
49
52
Indonesian Financial System Stability
67
81
iii
List of Tables and Graphs
Tables
1.1
1.2
World Economic Indicators
Graphs
11
The Effect of Rupiah Depreciation on Corporate
Equity
18
2.1
Bank Profitability
31
2.2
Integrated Stress Test Scenarios
33
2.3
Financial Ratios of Finance Companies
35
2.4
NPL Finance Companies
36
2.5
NPL of Finance Companies
36
2.6
Indices of Regional Markets
39
2.7
Sectoral Indices
40
2.8
VaR by SUN Tenure
41
2.9
SUN Ownership
41
4.1
Economic Indicator Projections
62
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1.10
1.11
1.12
1.13
1.14
1.15
1.16
1.17
1.18
1.19
1.20
1.21
1.22
1.23
1.24
1.25
1.26
1.27
1.28
1.29
1.29
1.30
iv
Consumer Confidence in G3 Countries
Purchasing Manager Index (PMI) and Industrial
Production (IP) Index in G3 Countries
Capital Inflows to Asian Market
Global Economic Growth
Total Layoffs U.S. Non-Agricultural Sector
GDP Growth in various Emerging
Market Economies
Household Consumption Ratio against
Domestic (output) Income (%)
Price Index of several Commodities
Non-oil/gas Export Value in Indonesia
Import/Export Growth
IDR/USD Exchange Rate
Estimation Results IDR/USD
Global Exchange Rates
Global Share Price Index
Share Price Indices by Sector
Inflation in ASEAN-5 Countries
Real Interest Rate in Indonesia
Production Index and Production Capacity
Utilization Industrial Sector
Growth of Industrial Sector Export Value
and Industrial GDP
Growth of Automobile and Motorcycle Sales
and Industrial GDP
Manufacturing Sector Credit and GDP
Leading Indicators for the
Trade, Hotels and Restaurants Sector
Composite Prompt Indicator
for the Trade, Hotels and Restaurants Sector
Retail Sales Index
Domestic Consumer Confidence Index
ROA and ROE of Public Listed Non-Financial
Companies
Key Indicators of Corporate Finance
DER and Debt/TA of Public Listed Non-Financial
Companies
Probability of Default (PD) of Public Listed
Non-Financial Companies (a)
Probability of Default (PD) of Public Listed
Non-Financial Companies (b)
Ratio of Net Foreign Exchange Liabilities
against Corporate Equity
9
10
10
10
10
11
11
12
12
12
12
13
13
13
13
14
14
15
15
15
15
16
16
16
16
16
17
17
17
17
18
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
2.11
2.12
2.13
2.14
2.15
2.16
2.17
2.18
2.19
2.20
2.21
2.22
2.23
2.24
2.25
2.26
2.27
2.28
2.29
2.30
2.31
2.32
2.33
2.34
2.35
2.36
2.37
2.38
2.39
2.40
2.41
2.42
Asset Composition of Financial Institutions
Financial Stability Index
Sources of Funds - Banks
Deposits by Component
Foreign Exchange Deposits IDR/USD
Exchange Rate
Bank Liquid Assets
Liquid Assets by Bank Group
Liquid Assets Ratio
Transaction Volume O/N Interbank
Money Market (daily average)
Interbank Money Market Interest Rate
Interbank Money Market Interest Rate
Growth of Credit and Deposits
Credit Growth by Type
Credit Growth by Economic Sector
Credit Growth by Currency
MSM and non-MSM Credit Growth
Non-performing Loans
NPL Ratio by Sector
NPL Ratio of the Manufacturing Sector
NPL Ratio of Trade Sector
NPL Ratio of Trade Subsectors
NPL Ratio by Usage Type
NPL Ratio for Consumption Credit
Credit Risk Stress Test
Rupiah Maturity Profile
Forex Maturity Profile
Interest Rate Risk Stress Test
Net Open Position (overall)
Exchange Rate Risk Stress Test
SUN Share
Stress Test - SUN Price Decline
ROA by Bank Group
BOPO by Bank Group
Monthly Profit/Loss
Interest
Capital, Risk-Weighted Assets and CAR
CAR by Bank Group
Results of Integrated Stress Test
Interbank Stress Tests
Business Activity of Finance Companies
Composition of Financing for Financing
Companies
Finance Companies» Source of Funds
21
22
22
23
2.43
2.50
2.51
2.52
2.53
2.54
2.55
2.56
2.57
2.58
2.59
2.60
2.61
2.62
Penetration of General Insurance in several
Asian Countries
Penetration of Life Insurance in several
Asian Countries
Insurance Industry Performance
Assets-Gross Premiums-Investment
Insurance Industry Performance
Claims-Premiums
Performance of Life Insurance
Investment Performance by Business Type
Performance of Loss Insurance
and Re-assurance
Foreign Investment in SBI, SUN, Stock
IDR/USD Exchange Rate/IDMA Index, JCI
JCI and Global and Regional Indices
Volatility of Several Asian Stock Indices
Bank Share Prices
Stock Market Capitalization and Issuance Value
Benchmark FR Series SUN Price
Average Monthly SUN Price
SUN VaR
SUN Maturity Profile
Issuance and Corporate Bonds Value
Growth of Mutual Funds
Net Asset Value by type of Mutual Fund
38
38
39
39
39
40
40
41
41
41
42
42
42
42
3.1
3.2
3.3
3.4
3.5
3.6
3.7
Nominal Transaction Value
Transaction Volume
BI-RTGS System Transaction in 2009
SKN-BI Transactions in 2009
Debit Card Transaction in 2009
Credit Card Transactions in 2009
E-money Transactions in 2009
49
50
50
51
52
52
52
4.1
4.2
4.3
Economic Growth Projections
Risk Perception in Indonesia
Bank Risk Profile: Level and Direction
61
62
63
2.44
2.45
23
24
24
25
25
25
25
26
26
26
26
27
27
27
28
28
28
28
29
29
29
29
30
30
30
31
31
31
31
32
32
32
32
33
34
34
2.46
2.47
2.48
2.49
37
37
37
37
37
38
35
35
v
Foreword
I welcome the publication of Financial Stability Review No. 14 March 2010. The publication of the Review is critical
as it communicates to a large audience developments and prospects of financial system stability.
This issue of the Review comes to us at a time in which the world economy has started to show signs of recovery
even though the global crisis has not completely dissipated. In fact, we have actually recently witnessed the emergence of
new international issues such as the fiscal crisis in Greece. We view that recovery on a global level is very important as the
increasingly integrated global financial system potentially allows shocks from the international economy to immediately
impact Indonesia. It is therefore essential for us to maintain vigilant towards our financial system.
The Indonesian economy and financial sector has fared much better compared to that of on a global level. Such is
the result of various policies taken by the Government and Bank Indonesia in 2008 and 2009 aimed at taming impacts of
the crisis which peaked in November 2008. The successful policies allowed the economy to grow at a relatively high level
while inflation is kept relatively low and exchange rate adequately managed. With this background, the BI rate has been
maintained at a low and stable level of 6.5% since August 2009.
Riding on the back of such a conducive economy, the banking industry continues to showcase good performance.
At the end of December 2009 the Capital Adequacy Ratio was recorded as exceeding 17% with well-controlled earning
asset quality as reflected by gross and net NPLs of 3.3% and 0.3% respectively. With such well-managed asset quality,
banks were able to produce relatively high levels of profit with ROAs at approximately 2.6% while keeping liquidity wellcontrolled.
Meanwhile the stock market and non bank financial market performance shows encouraging signs and thus breeding optimism about better conditions in the financial system ahead. Such optimism appears to be appropriately called for
as the sovereign rating and rating of several of Indonesia»s big banks are increasing and nearing investment grade.
Such developments are encouraging, however, they should not distract us from the challenges which potentially
can become sources of instability. One of the challenges faced is the low credit growth level which in 2009 only reached
10% (year-on-year). The slow credit growth deserves our serious attention. If the credit slump continuous, the growth of
the economy as a whole will be at stake. Such credit slump also potentially impedes financing of the corporate and
household sector which, in turn, can cause problem loans in the banking sector to increase.
vi
Another important challenge we must face is the increase in short term capital inflows. Such inflows potentially
increase as the economy improves and will put the financial system to be more vulnerable to sudden reversals. As such, it
is very important to maintain investors» trust by continuously promoting effective market discipline supported by improvements in financial sector governance. The Financial Sector Assessment Program (FSAP) which was conducted from the
end of 2009 to early 2010 is expected to become an important reference for efforts in improving the financial sectorƒ
with the banking industry as no exception.
By knowing the opportunities and challenges faced by the financial sector as mentioned above, the financial sector
is expected to continue its advancement and be spared from excess risks. As such, improvements in surveillance must
continue. This can be achieved by, among others, renewing and perfecting the tools and methodologies used for early
detection. In closing, it is my hope that the Review is able to serve its mission to communicate to the public surveillance
results of financial system stability developments and its prospects ahead.
Jakarta, 31 March 2010
Deputy Governor of Bank Indonesia
Muliaman D. Hadad
vii
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viii
Overview
Overview
1
Overview
This page is intentionally blank
2
Overview
Overview
Financial sector resilience during semester-II 2009 was adequately
maintained, supported by conducive macroeconomic conditions including,
among others, low inflation and interest rates, as well as controlled
exchange rate volatility. The banking industry, the dominant industry in
the financial sector, remained sound; reflected by sufficiently high CAR
and profitability, high-quality earning assets and relatively well-managed
liquidity. The stock market and bonds market both indicated improvements
compared to the previous semester. However, a number of sources of
instability remained, including among others, the enduring global crisis,
slow credit allocation and a surge in short-term capital inflows. Looking
forward, risk mitigation measures require further strengthening to ensure
financial system stability and a favorable outlook.
1. SOURCES OF INSTABILITY
1.1. Slow Global Recovery
1.2. Sluggish Credit Growth
Post-global crisis, bank credit growth experienced
The global economic crisis has not completely
a significant slowdown, in particular foreign exchange
subsided. While the crisis persists a number of new
(forex) credit. In 2009, total credit grew by just 10% (y-
problems have emerged triggering a subsequent rise in
o-y). This issue requires serious attention as languid credit
global instability, for example the Dubai World financial
disbursements has the potential to spur instability. On a
crisis and the fiscal crisis in Greece.
macro scale, the decline in credit growth places additional
Therefore, tight vigilance is required to avoid a
pressures on future economic growth. From a micro
domino effect creating vulnerabilities in the domestic
perspective,∆the decline in credit growth causes
financial sector and economy.
difficulties
3
Overview
for the corporate sector and households in terms of
2008. Nevertheless, a number of new challenges continue
obtaining funds to finance their business activities. This,
to emerge, including the inauguration of the ASEAN China
in turn, potentially undermines the debt repayment
Free Trade Area (ACFTA) at the beginning of 2010.
capacity of the corporate and household sectors, which in
Furthermore, infrastructure in the country remains
general are bank debtors. From a macro and micro
unsatisfactory reflected by, among others, disruptions in
standpoint, both have the potential to raise non-
the distribution network that precipitated inefficiencies and
performing bank loans (NPL).
created a high-cost economy. If the problems confronting
the real sector are permitted to persist and no resolution
1.3. The Rise in Short-Term Capital Inflows
Short-term capital inflows are resurging back into
is sought, financial sector instability will materialize in the
long term.
Indonesia. This is not only due to the attractive returns
offered by financial instruments in Indonesia, but also due
1.6. Inadequate Legal Protection
to the improved sovereign rating as a result of robust
Financial sector instability will appear if policymakers
domestic economic performance amid pressures stemming
do not receive adequate legal protection. Without clear
from the global crisis. The rise in short-term capital inflows
legal protection, public officials in the financial sector will
requires close vigilance as it is vulnerable to sudden reversals
be unwilling to take the immediate decisions necessary to
which could disrupt financial stability.
avoid the widespread impacts of a crisis. This issue requires
the attention of all related stakeholders to ensure that
1.4. Possibility of Greater Operational Risk
financial system stability remains under control.
Operational risk can arise due to, among others,
natural disasters and fraud. The recent trend of more
2. RISK MITIGATION
frequent natural disasters, like earthquakes and floods,
2.1. Strengthening Capital
that have beset Indonesia has necessitated a contingency
The most important risk mitigation measure is to
plan that can maintain the functioning of financial
increase capital. The Indonesian banking industry uses
infrastructure under any conditions so as to minimize
capital strengthening as one method to mitigate risk. As
potential losses. In addition, greater financial system
such commercial banks in Indonesia-are required to
dependence on information technology, for example
maintain a minimum core capital of Rp100 billion by the
through the pervasive use of ATM cards and Internet
end of 2010. Previously, in 2008, commercial banks were
banking, has dictated the immediate requirement for all-
required to maintain a minimum core capital of Rp80
encompassing security measures and risk mitigation against
billion, for which all banks complied. Despite the fact that
fraud.
in December 2009 several banks had core capital levels of
less than Rp100 billion, experience garnered from the
1.5. The Real Sector and Infrastructure
Real sector conditions remained suboptimal despite
corporate and household performance surpassing that
reported during the peak of the global crisis in quarter IV
4
previous requirement of Rp80 billion indicates that all
commercial banks will meet the new regulations on time.
Overview
2.2. Increasing Loan Loss Provisions
individual banks by emphasizing the fulfillment of
Loan loss provisions are an effective method of
prudential regulations, through onsite and offsite
mitigating credit risk. In 2009, banks increased their
supervision. Conversely, macroprudential surveillance
provisions by Rp12.7 trillion. Therefore, despite a rise in
concentrates more on industry-level analysis.
the gross NPL ratio of the banking industry from 3.2%
In order to reinforce microprudential surveillance,
(December 2008) to 3.3% (December 2009), the net NPL
supervisors participate in a certification program. In
ratio actually declined from 0.8% to just 0.3%.
addition, to strengthen macroprudential surveillance, the
Although loan loss provisions are an effective method
tools and methodologies used in surveillance are
of mitigating credit risk, it is important that the amount of
continuously refined, including stress testing, probability
provisions is not excessive or insufficient. Excessive
of default analysis, transition matrices, as well as other
provisions erode potential bank revenues and insufficient
early warning mechanisms. One of the techniques used
provisions undermine their effectiveness as an instrument
to refine the tools and methodologies associated with
to mitigate risk.
surveillance is to utilize the assessment results of the
Financial Sector Assessment Program (FSAP) conducted in
2.3. Risk Management and Good Governance
Strengthening risk management and good
September/October 2009 (first mission) and February/
March 2010 (second mission).
governance in the financial sector is another method to
mitigate risk. To this end, the risk management certification
3. PROSPECTS FOR FINANCIAL
program was continued for banks. Bank supervisors are
SYSTEM STABILITY
also obliged to participate in a certification program for
The prospects for financial system stability looking
supervisors and apply Risk Based Supervision when in
forward remain favorable. Despite the ongoing global crisis
supervising banks. Additionally, banks are encouraged to
and emerging challenges, there are a number of reasons
improve the quality of their governance, not only to meet
behind the expectations of a positive outlook. First is that
Bank Indonesia»s regulations but also to nurture market
the global economic recovery is continuing. Furthermore,
discipline.
domestic economic performance up until now has
For risk mitigation to be effective from a risk
remained robust and is expected to improve further in time.
management and good governance standpoint, banks
This, in turn, will stimulate banks to actively extend credit,
should obviously not merely orient themselves towards
making a tangible contribution to the economy. In addition,
acquiring certificates and fulfilling formal aspects;
greater credit disbursements by banks will invigorate the
practicing these disciplines in their business operations on
business community and catalyze business activity, which
a daily basis is far more important.
will underpin the economy as a whole.
Second, Indonesia»s ratings - the sovereign rating
2.4. Surveillance
and the individual ratings of large banks - have improved
Risk mitigation is also achieved through the relevant
and are approaching investment grade. This will attract
authorities by strengthening micro and macro prudential
more investors and, therefore,-capital inflows into
aspects. Microprudential surveillance is implemented on
Indonesia. Although the majority of inflows are presently
5
Overview
short term in nature, the current emphasis on financial
Basel II as well as the Indonesian Statement of Financial
deepening is expected to avail a number of longer-term
Accounting Standard (PSAK) No.50 and 55. In addition,-
financial instruments and minimize the risk of sudden
follow-up measures extracted from the results of FSAP are
reversal. Consequently, financial system stability is forecast
expected to raise the quality of the financial sector and
to improve in the future.
banks in Indonesia to the benefit of the national economy.
Third, the banking industry is currently quite prudent
In order to realize these favorable prospects for
and conservative, concentrating on applying good
financial system stability, support and cooperation is
governance. Looking ahead, therefore, banks are expected
required from all relevant stakeholders, including creating
to become more aware of risk and set out appropriate risk
conducive conditions legally, politically and in terms of
mitigation measures before taking business decisions.
security.
From 2010 onwards, banks will begin applying
international standards, including the implementation of
6
Chapter 1 Macroeconomic Conditions and the Real Sector
Chapter 1
Macroeconomic Conditions
and the Real Sector
7
Chapter 1 Macroeconomic Conditions and the Real Sector
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8
Chapter 1 Macroeconomic Conditions and the Real Sector
Chapter 1
Macroeconomic Conditions and
the Real Sector
Macroeconomic stability in Indonesia was well maintained during semester
II of 2009 on the back of strong domestic demand, a stable banking
industry and increasingly optimistic expectations of a global economic
recovery. In addition, an accommodative fiscal and monetary policy stance
buoyed the Indonesian economy in the midst of widespread pressures
stemming from the global crisis. Against this propitious backdrop,
domestic economic growth in Indonesia outpaced that of various other
countries. Looking ahead, the Indonesian economy has the potential to
continue improving in accordance with the growing momentum of the
global economic recovery. Notwithstanding, several risk factors, external
and internal, require continued attention, for example potential hikes in
the global oil price as well as domestic micro-structural challenges, which
include weak industrial sector competitiveness and stagnant infrastructural
development.
1.1. MACROECONOMIC CONDITIONS
began to show signs of improvement. The global economic
Entering semester II of 2009 the global economy
recovery continued as a result of fiscal stimulus packages
began to display signs of a recovery. This was further
introduced by various governments. In general, public
supported by a stabilization process implemented in the
consumption strengthened, which was reflected by
financial market, as well as additional support from
increasing consumer confidence in G3 countries. From the
economic stimuli and a low interest rate. Moreover,
Graph 1.1
Consumer Confidence in G3 Countries
consumer confidence was restored and the business sector,
Index, ma3m
in particular the rapid recovery of domestic demand-based
120
economies such as in China, further supported the global
100
Index, ma3m
Current Condition
Left Scale
120
Future Expectation
Right Scale
100
Euro
Euro
economic recovery process. As a result of such
80
improvements the rate of global economic contraction
60
began to abate.
40
US
US
20
particularly G3-member countries such as the United
0
60
40
Japan
Japan
Economic conditions in developed countries,
States, Japan and European countries using the Euro, also
80
20
0
JanMarMayJul SepNovJanMarMayJul SepNovJanMarMayJul SepNovJanMarMayJul SepNovJanMarMayJul SepNovJanMarMayJul SepNov
2007
2008
2009
2007
2008
2009
Source : Bloomberg (Japan-Economic Watchers Survey, Euro-IFO Survey,
US-Univ. Michigan Survey)
9
Chapter 1 Macroeconomic Conditions and the Real Sector
production side, it was observed that the Purchasing
activity would begin to intensify. Economic growth in
Manager Index (PMI) and Industrial Production (IP) index
emerging Asian countries has occurred more rapidly than
followed an increasing trend. Nonetheless, the process of
in other regions and has, therefore, become an engine of
economic recovery in developed countries was still
world economic growth.
overshadowed by a number of risk factors such as high
unemployment as well as an income level that remains
Graph 1.4
Global Economic Growth
sub-optimal.
%
Graph 1.2
Purchasing Manager Index (PMI) and Industrial Production (IP) Index in G3 Countries
Index, 50 =neutral
10
8
6
4
% yoy, ma 3m
2
60
PMI Manuf EU
55
7
IP EU
2
IP US
50
PMI
Manuf US
45
40
0
-3
-2
-8
-4
-13
-6
World GDP
Advance GDP
Developing Country GDP
I
-18
-23
IP JPN
35
IV
I
II
III
2007
IV
I
II
III
2008
IV
I
II
III
2009
IV
Source : IMF (WEO Oct-09)
-28
PMI Manuf JPN
30
II
III
2006
-33
-38
25
Jan Jul
2007
Jan Jul
2008
Jan Jul
2009
Jan Jul
2007
Jan Jul
2008
Real sector indicators in developed countries, such
Jan Jul
2009
as the declining trend in U.S. job layoffs in the non-
Source : Bloomberg
Economic recovery is inseparable from successful
performance improvements in the financial sector, among
others, characterized by a rebound in asset prices on the
global financial markets and a resurgence of net foreign
capital flows into Asian markets. Consequently, such
improvements would lead to increased optimism of an
agricultural sector, continued to improve indicating that
the economic contraction was beginning to ease.
According to the ADP National Employment Report the
number of layoffs in the U.S. non-agricultural sector from
December 2009 to January 2010 declined from 61,000 to
22,000.
economic recovery in the real sector and global economic
Graph 1.5
Total Layoffs
U.S. Non-Agricultural Sector
Graph 1.3
Capital Inflows to Asian Markets
Thousands of People
Juta USD
250
1.2
average of 1 week movement
average of 4 weeks movement
Service providing
Total NonFarm Private
200
Goods producing
0.7
150
0.2
100
-0.3
50
-0.8
(50)
-1.3
Jan
Apr
Jul
2008
Source : Bloomberg
10
Oct
Jan
Apr
Jul
2009
Oct
Sep
Oct
Nov
2009
Source : The ADP National Employment Report, January 2010
Dec
Jan
Chapter 1 Macroeconomic Conditions and the Real Sector
With improving trends reported for a number of
Expansive economic growth in Indonesia, amid
economic indicators, the global economy in 2009 is
widespread pressures stemming from the global crisis, was
expected to contract by just 0.8% based on the latest
accomplished due to a favourable economic structure and
projections by the International Monetary Fund (IMF),
sound financial system as well as accommodative fiscal and
compared to initial projections of more than 1%. In 2010,
monetary policy. The Indonesian economy was principally
1
the global economy is expected to achieve 3.9% growth .
household consumption. During the global economic
Table 1.1
World Economic Indicators
Category
2008
2009
World Output:
Advanced Economies
United States
Emerging & Developing Countries
3.0
0.5
0.4
6.0
Consumer Price:
Advanced Economies
Emerging & Developing Countries1)
LIBOR2)
US Dollar Deposit
Euro Deposit
Yen Deposit
Oil Price (USD) - rata-rata3)
underpinned by unrelenting domestic demand, especially
contraction, household consumption in Indonesia continued
(%)
Projection
at a high level, driven by relatively stable purchasing power
2010
2011
and unwavering consumer confidence. Thus, despite the
(0.8)
(3.2)
(2.5)
2.0
3.9
2.1
2.7
6.0
4.3
2.4
2.4
6.3
global economic downturn, strong domestic demand
3.4
9.2
0.1
5.2
1.3
5.4
1.5
4.4
Graph 1.7
Household Consumption Ratio against
Domestic (output) Income (%)
3.0
4.6
1.0
1.1
1.2
0.7
0.7
1.3
0.6
1.8
2.3
0.7
36.4
(36.1)
22.6
7.9
Source : World Economic Outlook - January 2010
successfully sustained national economic activity and
ensured a deep correction could be avoided.
%
80
75
Household Consumption / Total Disposable Income (%), Left
Household Consumption / GDP (%), Left
Household Consumption / Domestic Demand (%), Left
70
65
In contrast to a number of other countries, the
60
Indonesian economy in 2009 performed well. Despite an
55
inevitable decline, economic growth in 2009 achieved
4.5%, establishing Indonesia as one of the few countries
in the world that recorded positive growth.
50
1988 1989 19901991 1992 19931994 1995 1996 1997 19981999 2000 2001 2002 20032004 2005 2006 20072008
The favourable characteristics of the Indonesian
financial system, namely a relatively conservative and simple
Graph 1.6
GDP Growth in various Emerging Market Economies
%
banking industry utilizing instruments that are considered
traditional, protected domestic banks and the financial
system from the negative impacts of the global financial
13.00
10.00
crisis. Furthermore, the accommodative fiscal and monetary
7.00
policy stance also reinforced domestic economic resilience.
4.00
1.00
The application of a free-floating exchange rate system, a
(2.00)
Indonesia
Singapore
Thailand
(5.00)
(8.00)
(11.00)
more flexible implementation of an Inflation Targeting
South Korea
China
India
Framework (ITF) monetary policy and a consistent fiscal
Q2 Q3 Q4 Q1Q2Q3Q4 Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q3Q4Q1Q2Q3
2000
2001
2002
2003
2004
Source : CEIC
1 World Economic Outlook - January 2010
2005
2006
2007
2008 2009
policy ensured that the array of policies instituted were
optimal in response to the pressures emanating from the
global economic turmoil.
11
Chapter 1 Macroeconomic Conditions and the Real Sector
Increased economic activity, particularly in emerging
Conversely, imports witnessed a significant decline
Asian markets that enjoyed a more expeditious recovery
consistent with weak demand for imported raw materials
process, strengthened demand for exported goods,
from export-oriented industries and a decline in imports
particularly natural resources. This precipitated a rise in
of consumer goods.
commodity prices on international markets; however, prices
Graph 1.10
Import/Export Growth
remained lower than that of the previous year. The global
oil price, which had plummeted to US$41.7 per barrel in
January 2009, began to rebound in semester II 2009; rising
to US$79.4 per barrel by December 2009. This hastened
an increase in other commodity prices such as aluminium,
copper, tin, rice and coffee.
%
80
60
40
20
(20)
(60)
600
500
Oil
Tin
Palm Oil
Rice
500
400
Export
Import
(40)
Graph 1.8
Price Index of several Commodities
Copper
Gold
Coffee
Aluminium
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov
2007
2008
2009
450
400
The Indonesian external sector in general performed
350
300
300
250
200
200
150
100
100
50
0
better than previously predicted. In 2009, Indonesia»s
balance of payments»ran a surplus of USD12.5 billion.
Foreign exchange reserves totalled US$66.1 billion;
equivalent to 6.5 months of import payments and servicing
0
2000
2001
2002
2003
2004
2005
2006
2007
2008 2009
government foreign debt. Consequently, the rupiah
Source : BI
exchange rate strengthened and experienced less volatility.
Strong demand and rising commodity prices boosted
Compared to the end of semester I 2009, the rupiah
export performance. Despite recording negative annual
gained about 8% on the US dollar reaching Rp9,404/US$
growth, monthly non-oil exports began to experience
by the end of the year. The rupiah was strongest during
positive growth of 6.0% (Y-o-Y) in quarter IV 2009.
quarter IV; averaging Rp9,467/$. Meanwhile, rupiah
Graph 1.9
Non-oil/gas Export Value in Indonesia
USD Million
Graph 1.11
IDR/USD Exchange Rate
USD Million
14,000
10000
8000
Manufacturing
Mining and Quarrying
Agriculture, Hunting, Fishing
Total
10000
8000
6000
6000
4000
4000
2000
2000
12,000
14000
Monthly average
Quarterly average
Semester average
12000
10,000
10000
8,000
8000
6,000
4,000
6000
5 7 2 5 2 1 7 8 5 2 7 6 6 0 8 3 1 8 9 1 4 0
7 7 7 9 4 8 6 5 0 0 6 5 0 8 7 0 8 8 5 5 5 9
2,000 0. 0. 1. 0. 8. 9. 0. 3. 1. 1. 2. 3. 4. 1. 1. 2. 2. 2. 1. 1. 3. 9.
9 9 9 9 8 8 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
0
2006
Source: BI
12
0
2007
2008
2009
3
0
8
.
1
1
4
1
3
.
1
1
2
5
1
.
1
1
5
7
8
.
1
1
5
6
8
.
1
1
0
5
0
.
1
1
7
7
3
.
0
1
3
9
1
.
0
1
3
1
1
.
0
1
4
8
9
.
9
6
5
8
.
9
6
8
4
.
9
6
5
8
.
9
9
5
4
.
9
4000
2000
0
0
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2007
Source : Bloomberg
2008
2009
Chapter 1 Macroeconomic Conditions and the Real Sector
exchange rate volatility against the U.S. dollar during
2009 reached 2,534.36; surpassing that of the previous
semester II 2009 averaged 0.36%; lower than average
semester totalling 2,026.78. Superior domestic stock
volatility during the previous semester at 0.65%.
market performance was in harmony with the enhanced
Accordingly, the Indonesian rupiah appreciated strongly
performance of regional stock markets and markets in
compared to other Asian and major world currencies
developed countries. By sector, the strongest share price
during semester II with the exception of the South Korean
index gain occurred in the basic industry sector; increasing
won.
by 41.9% from 192.9 in late June 2009 to 273.93 in
December 2009.
Graph 1.12
Estimation Results IDR/USD
Graph 1.14
Global Share Price Index
Volatility
4
Lower Limit
3
Upper Limit
2
Actual
35000
35000
Singapore
NYA
New York
Indonesia
Nikkei
30000
1
25000
0
20000
-1
15000
-2
-3
30000
25000
20000
15000
10000
10000
5000
5000
-4
1
31
61
91
121
151
Period (263 days)
181
211
0
0
241
2006
2007
2008
2009
Source: Bloomberg
Graph 1.13
Global Exchange Rates
Graph 1.15
Share Price Indices by Sector
Index
115
4000
4000
Basic Industry
3500
110
3000
105
100
95
IDR
90
KRW
SGD
EUR
THB
Jul
Aug
Sep
Infrastructure
3000
Manufacture
2500
Mining
Property
2500
2000
Consumer
2000
1500
1500
1000
1000
500
500
PHP
JPY
85
Jun
3500
Financial
Oct
Nov
Dec
2009
0
2006
0
2007
2008
2009
Source : Bloomberg
30 June 2009 = 100
Increase of Index = Exchange Rate Appreciation
In the financial sector, optimism surrounding a global
The trend of exchange rate appreciation reinforced
economic recovery as well as sound domestic economic
by the full panoply of measures taken by the Government
conditions, in turn, attracted foreign capital flows into
during the crisis to maintain the supply and distribution of
Indonesian markets. Therefore, domestic financial market
food commodities helped maintain volatile food inflation
performance improved; characterized by an improvement
at a level below its historical average. This consequently
in stock market performance and rupiah appreciation. The
alleviated inflationary pressures. Headline inflation, measured
Jakarta Composite Index (JCI) at the end of semester II
by the Consumer Price Index (CPI), was 2.78 (y-o-y) in
13
Chapter 1 Macroeconomic Conditions and the Real Sector
December 2009, compared to 3.65% (y-o-y) in June 2009.
are replete with challenges, including potential hikes in
Nevertheless, when contrasted against other ASEAN
the global oil price as well as weak industrial sector
countries, inflation in Indonesia is still considered high
competitiveness amid increasing competition stemming
particularly when compared to Malaysia and Singapore.
from the inauguration of ACFTA (ASEAN-China Free Trade
Notwithstanding, the investment climate in Indonesia
Area). In addition, despite slight improvements, high
remained attractive because the interest rate exceeded
unemployment in the U.S. and Europe is a risk factor that
inflation despite a gradual decline in Bank Indonesia»s policy
continues to overshadow the global economic recovery
rate since late 2008. The real interest rate in Indonesia
process and inevitably impacting prospects for the domestic
surpassed several other ASEAN countries as well as the
economy.
United States.
2. 2. REAL SECTOR CONDITIONS
Graph 1.16
Inflation in ASEAN-5 Countries
Along with gradual improvements in global economic
conditions as well as strong domestic demand, the real
y-o-y %
15
Philippines
Singapore
Thailand
Malaysia
sector began to display positive signs of progress,
particularly in the beginning of semester II 2009. Strong
Indonesia
10
external demand drove growth in tradeables sectors,
5
namely manufacturing (food, beverages and tobacco
0
subsector, textile subsector, chemical subsector and
transport subsector, machinery and equipment), agriculture
(5)
Jan
Jun
2007
Nov
Apr
Sep
Feb
2008
Jul
2009
Dec
(plantation subsector), and mining sector (non-oil/gas
Source : CEIC
mining subsector). Furthermore, growth in non-tradeables,
Graph 1.17
Real Interest Rate in Indonesia
namely the trade sector, transport and communications
as well as construction, was driven on the strength of stable
%
domestic demand.
4.00
During quarter IV 2009, the manufacturing sector
2.00
0.00
as well as trade, hotels and restaurants showed a significant
-2.00
improvement in performance. The manufacturing sector
-4.00
-6.00
expanded (y-o-y) from 1.3% in quarter III to 4.2% by
Indonesia
US
Singapore
quarter IV. Meanwhile, trade, hotels and restaurants grew
-8.00
2004
2005
2006
2007
2008
2009
by 4.17% (y-o-y) in quarter IV, after contracting by 0.23%
Sources : Bloomberg and CEIC
(y-o-y) in quarter III.
14
Looking forward, the Indonesian economy is
Robust manufacturing sector performance was
expected to continue expanding despite a variety of risk
reflected by increases in related indices as well as greater
factors and potential uncertainty, internally and externally,
utilization of production capacity, and further supported
that should not be overlooked. Efforts to strengthen
by demand side indicators, including industry sector exports
growth momentum in order to hasten economic growth
and sales of automobiles and motorcycles.
Chapter 1 Macroeconomic Conditions and the Real Sector
Graph 1.18
Production Index and Production Capacity Utilization
Industrial Sector
Index
120
Graph 1.21
Manufacturing Sector Credit and GDP
(%)
Utilization of Production Capacity (rhs)
Production Index
(%, y-o-y)
(%, y-o-y)
90
7
6
115
80
110
40
GDP of Industry
Manufacturing Credit (rhs)
Average Manufacturing Credit (rhs)
30
5
20
4
10
3
105
70
100
0
2
-10
1
95
1
2
3
2007
4
1
2
3
2008
4
1
2
3
2009
4
60
Graph 1.19
Growth of Industrial Sector Export Value
and Industrial GDP
(%,yoy)
I
II
III
2007
IV
I
II
III
2008
IV
I
II
III
2009
IV
I
-20
2010
Government policy to encourage real sector
development, in this case the industrial sector, yielded a
(%,yoy)
80
6,0
GDP of Industry
Export Value of Industrial Sector (rhs)
5,0
0
60
number of positive results, particularly in terms of
improving industrial sector resilience against the impacts
of the global economic crisis. Government policy included
4,0
40
3,0
20
2,0
0
of government goods and services, programs to restructure
1,0
-20
the textile and footwear industry (machinery/equipment),
-40
as well as restrictions on food imports, footwear, clothing,
0,0
1
2
3
2007
4
1
2
3
4
1
2008
2
3
4
toys and electronic goods. Pro real sector policies taken to
2009
stimulate industrial sector growth were introduced through
Graph 1.20
Growth of Automobile and Motorcycle Sales
and Industrial GDP
(%, yoy)
programs to utilize domestic products in the procurement
the provision of fiscal stimuli in the form of Government
Borne Import Duty (BMDTP). The industrial sector
(%, yoy)
6,0
120
successfully absorbed 29.4% of the fiscal stimuli introduced
80
by the government.
GDP of Industry
5,0
Car Sales (rhs)
Motorcycle Sales (rhs)
4,0
40
3,0
0
2,0
restaurants sector was primarily driven by improvements
in the large trade subsector due to increasing imports and
-40
1,0
0,0
Improved performance in the trade, hotels and
exports; supported by greater purchasing power. Leading
-80
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2008
2009
indicators pointed towards entering an expansionary phase
in the following quarter. The Composite Prompt Indicator
In terms of financing, from the beginning of 2009
until the end of quarter III, bank loans to the industrial
for the trade sector also improved up until mid-quarter IV
2009.
sector slowed. Nonetheless, in quarter IV bank financing
to the industrial sector began to recover slightly, despite
not attaining overall average growth for 2009.
15
Chapter 1 Macroeconomic Conditions and the Real Sector
In line with the nascent global economic recovery,
Graph 1.22
Leading Indicators for the
Trade, Hotels and Restaurants Sector
102
Trade GDP
avg. of contraction fase :15.2 month
avg. of expansion fase :19.2 month
CLI
101
domestic consumption continued at a high level during
semester II 2009 driven by a relatively stable public
purchasing power and robust consumer confidence.
101
100
Graph 1.25
Domestic Consumer Confidence Index
100
99
Composite Indicators :
CPI, Hotel Occupancy Jakarta,
IPI Machinery Equipments,
IPI Paper Products,
IPI Rubber Plastic Products,
Exchange Rate, Visitors Arrival at 13 Main Gates
99
98
Indeks
140,0
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I
2002
2003
2004
2005
2006
2007
2008
2009 2010
Current Economic Condition Index
Consumer Expectation Index
Consumer Confidence Index
130,0
120,0
110,0
(%, yoy)
80,0
70,0
1,5
GDP of Trading
Composite Prompt of Trading (rhs)
8
r = 0.961
6
Pessimistic
90,0
Index
10
Optimistic
100,0
Graph 1.23
Composite Prompt Indicator
for the Trade, Hotels and Restaurants Sector
1,0
60,0
12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1
2007
2008
2009
2010
0,5
0,0
4
2
-0,5
Strong exports and household consumption, in turn,
-1,0
boosted corporate sector performance, which was
0
-1,5
evidenced by the improving financial position of non-
-2
-2,0
financial companies listed on the Indonesia Stock Exchange
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3
2008
2009
2009
(BEI) that had previously suffered intense pressures during
Stronger public purchasing power stimulated public
the first half of 2009. Increases in the Return on Assets
consumption for both durable and consumable goods.
(ROA) and Return on Equity (ROE) were indications of
Indications of improved trade performance were also
improved corporate performance compared to the same
reflected by the Retail Sales Index, which increased up to
period of the previous year.
the end of quarter IV 2009.
Graph 1.26
ROA and ROE of
Public Listed Non-Financial Companies
Graph 1.24
Retail Sales Index
(%, yoy)
(%, yoy)
40
10
GDP of Trading
8
gSPE_BI (cma, rhs)
400
700
ROA (left)
600
30
6
20
4
10
ROE (right)
500
400
300
200
300
100
200
100
2
0
0
-10
0
0
-100
-100
-200
-20
-2
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3
2008
2009
2009
16
-200
-300
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2003
2004
2005
2006
2007
2008
2009
Chapter 1 Macroeconomic Conditions and the Real Sector
The recovery in Indonesia»s corporate conditions was
Credit risk in the corporate sector is expected to
evident from the current ratio (liquid assets divided by liquid
intensify in the future, especially for export-oriented
liabilities) and inventory turnover ratio (inventory divided
companies due to ACFTA (ASEAN China Free Trade Area).
by total sales). During the reporting period, the current
The potential for increased credit risk is reflected by the
ratio increased while the inventory turnover ratio declined.
rising trend in the Probability of Default (PD) of public listed
The rise in the current ratio reflects an improvement in
non-financial companies. Estimation results show that the
corporate liquidity conditions, while the decline in inventory
number of companies with a PD greater than 0.5 will
turnover indicates that the corporate sector was able to
increase from 24 companies in September 2009 to 27
manage its inventory more efficiently. However, the
companies in September 2010.
collection period did not alter significantly.
Graph 1.29
Probability of Default (PD) of
Public Listed Non-Financial Companies (a)
Graph 1.27
Key Indicators of Corporate Finance
Total
Current Ratio
5
250
4
DER
200
ROA
3
201
2
150
1
2008:Q3
0
2009:Q3
100
ROE
Collection Period
50
23
5
4
4
0
0
Inventory Turn Over
Ratio
1
0
0
0
0.0-0.1 0.1-0.2 0.2-0.3 0.3-0.4 0.4-0.5 0.5-0.6 0.6-0.7 0.7-0.8 0.8-0.9 0.9-1.0
Probability of Default
Graph 1.29
Probability of Default (PD) of
Public Listed Non-Financial Companies (b)
In terms of financing, there were indications that the
corporate sector continued to rely more on internal capital,
reducing their borrowings, either from banks or through
the issuance of bonds and other securities. This was shown
Total
250
by the decline in debt-to-equity ratio (DER) and the ratio
200
of total debt to total assets (Debt/TA).
150
193
100
Graph 1.28
DER and Debt/TA of Public
Listed Non-Financial Companies
50
11
0
DER
4
2
1
1
0
1
0.0-0.1 0.1-0.2 0.2-0.3 0.3-0.4 0.4-0.5 0.5-0.6 0.6-0.7 0.7-0.8 0.8-0.9 0.9-1.0
Probability of Default
1.80
1.60
24
1
Debt/TA
1.40
In addition to credit risk, companies in the real sector
1.20
1.00
could also face exchange rate risk, partly due to
0.80
approximately 16 large conglomerates that have a ratio
0.60
0.40
of foreign exchange net liabilities against capital of more
0.20
0.00
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2003
2004
2005
2006
2007
2008
than 25%. Two of these conglomerates even have ratios
2009
17
Chapter 1 Macroeconomic Conditions and the Real Sector
of over 100%.In addition, the results of stress tests on 46
question must introduce adequate risk mitigation measures
large conglomerates in Indonesia as of September 2009
in order to prevent losses in the event of an exchange rate
indicate that if the rupiah weakens to Rp17,000/USD, there
shock.
Despite an improvement in real sector performance
Graph 1.30
Ratio of Net Foreign Exchange Liabilities
against Corporate Equity
during semester II 2009 severe challenges remain, among
others related to financial system stability and economic
%
resilience. Unstable global financial market conditions could
150
Ratio of Net Forex to
Equity > 25%
100
potentially trigger a sudden foreign capital flow reversal if
50
the current indicators of economic recovery, especially in
0
developed countries, weaken again. This would disrupt
(50)
domestic financial system stability. In addition, various
(100)
micro-structural issues in the real sector remain, such as
weak industrial sector competitiveness and stagnant
(150)
R Z AD AK AN AM A AI N F AC AL AO S K M AE AQ I
T Q AR W
infrastructural development, which require close
is the potential risk that the capital of one conglomerate
observation particularly in the face of tighter market
would decline by 80%. Therefore, the conglomerate in
competition following the inauguration of ACFTA.
Table 1.2
The effect of Rupiah Depreciation on Corporate Equity
Percentage of
Equity Decrease
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Number of corporations
which equity is impacted
18
IDR/USD
10.000 10.500 11.000 11.500 12.000 12.500 13.000 13.500 14.000 14.500 15.000 15.500 16.000 16.500 17.000
2
6
6
2
7
2
1
7
4
2
8
6
1
1
8
5
1
2
7
4
4
1
1
7
2
5
1
1
1
8
2
3
3
5
5
2
4
4
4
3
4
1
2
6
2
3
3
2
1
1
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
3
7
9
11
14
17
17
18
18
19
19
19
19
Chapter 2 The Financial Sector
Chapter 2
The Financial Sector
19
Chapter 2 The Financial Sector
This page is intentionally blank
20
Chapter 2 The Financial Sector
Chapter 2 The Financial Sector
The financial sector Indonesia expanded during semester II 2009 and
stability was maintained due to conducive domestic economic conditions
as well as clearer signs of a global economic recovery. The banking industry
as the dominant industry in the Indonesian financial sector, continued to
perform positively despite suboptimal implementation of the intermediary
function. Notwithstanding, domestic stock market and Government bond
(SUN) market performance improved, thus raising their attractiveness to
investors, both domestic and foreign.
2.1. INDONESIAN FINANCIAL SYSTEM
market also demonstrated favorable growth in semester II
STRUCTURE
2009, evidenced by a 25.04% rally in the Jakarta
There were no significant changes in the structure
Composite Index (JCI) to 2,534.36, whereas the IDMA price
of the Indonesian financial system during the reporting
index of Government bonds (SUN) climbed 4.02% to
semester. The banking industry, consisting of commercial
94.33.
banks and rural banks, remained dominant with an 80%
Graph 2.1
Asset Composition of Financial Institutions
share of total financial sector assets. Meanwhile, the shares
of other financial industry components such as insurance,
pension funds, finance companies, securities and
Commercial Banks
pawnshops remained relatively low.
In addition, total assets of commercial b
Bank Indonesia
Jl. MH Thamrin No.2, Jakarta
Indonesia
The preparation of the Financial
Stability Review (FSR) is one of the avenues
through which Bank Indonesia achieves its mission ≈to safeguard the stability of the Indonesian
Rupiah by maintaining monetary and financial system stability for sustainable national
economic development∆.
FSR is published biannually with the objectives:
To improve public insight in terms of understanding financial system stability.
To evaluate potential risks to financial system stability.
To analyze the developments of and issues within the financial system.
To offer policy recommendations to promote and maintain financial system stability.
Information and Orders:
This edition is published in September 2009 and is based on data and information available as of June 2009, unless stated
otherwise.
The PDF format is downloadable from: http://www.bi.go.id
For inquiries, comments and feedback please contact:
Bank Indonesia
Directorate of Banking Research and Regulation
Financial System Stability Bureau
Jl.MH Thamrin No.2, Jakarta, Indonesia
Phone : (+62-21) 381 8902, 381 8075
Fax : (+62-21) 351 8629
Email : BSSK@bi.go.id
Financial Stability Review
( No. 14, March 2010 )
ii
Table of Contents
Foreword
vi
Overview
3
Box 2.1. Bank Liquidity Resilience Indicators
Box 2.1. Bancassurance Performance
43
45
Chapter 3 Financial Infrastructure and Risk
Chapter 1 Macroeconomic Conditions and
the Real Sector
Macroeconomic conditions
Real Sector Conditions
Mitigation
9
9
14
Payment System Performance
Financial Sector Assessment Program (FSAP)
Box 3.1. Implementation of Payment-versusPayment (PvP) Link
Chapter 2 The Financial Sector
21
Box 3.2. ATM and Debit Card Fraud
Indonesian Financial System Structure
21
Box 3.3. Credit Card Risk Mitigation
Financial Sector Resilience
22
22
22
25
29
31
Banking Industry
Funding and Liquidity Risk
Credit Growth and Risk
Market Risk
Profitability and Capital
Non-Bank Financial Institutions And The
34
55
57
58
Chapter 4 Indonesian Financial System Outlook 61
Economic Prospects And Risk Perception
Bank Risk Profile : Level And Direction
Potential Vulnerabilities
61
62
64
Articles
Article 1 Market Competition, Interest Margin and
Capital Market
Insurance Companies
34
36
Article 2 The impact of Monetary Shocks on
Capital Market
38
Non-Performing Loans in Indonesia
Finance Companies
49
49
52
Indonesian Financial System Stability
67
81
iii
List of Tables and Graphs
Tables
1.1
1.2
World Economic Indicators
Graphs
11
The Effect of Rupiah Depreciation on Corporate
Equity
18
2.1
Bank Profitability
31
2.2
Integrated Stress Test Scenarios
33
2.3
Financial Ratios of Finance Companies
35
2.4
NPL Finance Companies
36
2.5
NPL of Finance Companies
36
2.6
Indices of Regional Markets
39
2.7
Sectoral Indices
40
2.8
VaR by SUN Tenure
41
2.9
SUN Ownership
41
4.1
Economic Indicator Projections
62
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1.10
1.11
1.12
1.13
1.14
1.15
1.16
1.17
1.18
1.19
1.20
1.21
1.22
1.23
1.24
1.25
1.26
1.27
1.28
1.29
1.29
1.30
iv
Consumer Confidence in G3 Countries
Purchasing Manager Index (PMI) and Industrial
Production (IP) Index in G3 Countries
Capital Inflows to Asian Market
Global Economic Growth
Total Layoffs U.S. Non-Agricultural Sector
GDP Growth in various Emerging
Market Economies
Household Consumption Ratio against
Domestic (output) Income (%)
Price Index of several Commodities
Non-oil/gas Export Value in Indonesia
Import/Export Growth
IDR/USD Exchange Rate
Estimation Results IDR/USD
Global Exchange Rates
Global Share Price Index
Share Price Indices by Sector
Inflation in ASEAN-5 Countries
Real Interest Rate in Indonesia
Production Index and Production Capacity
Utilization Industrial Sector
Growth of Industrial Sector Export Value
and Industrial GDP
Growth of Automobile and Motorcycle Sales
and Industrial GDP
Manufacturing Sector Credit and GDP
Leading Indicators for the
Trade, Hotels and Restaurants Sector
Composite Prompt Indicator
for the Trade, Hotels and Restaurants Sector
Retail Sales Index
Domestic Consumer Confidence Index
ROA and ROE of Public Listed Non-Financial
Companies
Key Indicators of Corporate Finance
DER and Debt/TA of Public Listed Non-Financial
Companies
Probability of Default (PD) of Public Listed
Non-Financial Companies (a)
Probability of Default (PD) of Public Listed
Non-Financial Companies (b)
Ratio of Net Foreign Exchange Liabilities
against Corporate Equity
9
10
10
10
10
11
11
12
12
12
12
13
13
13
13
14
14
15
15
15
15
16
16
16
16
16
17
17
17
17
18
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
2.11
2.12
2.13
2.14
2.15
2.16
2.17
2.18
2.19
2.20
2.21
2.22
2.23
2.24
2.25
2.26
2.27
2.28
2.29
2.30
2.31
2.32
2.33
2.34
2.35
2.36
2.37
2.38
2.39
2.40
2.41
2.42
Asset Composition of Financial Institutions
Financial Stability Index
Sources of Funds - Banks
Deposits by Component
Foreign Exchange Deposits IDR/USD
Exchange Rate
Bank Liquid Assets
Liquid Assets by Bank Group
Liquid Assets Ratio
Transaction Volume O/N Interbank
Money Market (daily average)
Interbank Money Market Interest Rate
Interbank Money Market Interest Rate
Growth of Credit and Deposits
Credit Growth by Type
Credit Growth by Economic Sector
Credit Growth by Currency
MSM and non-MSM Credit Growth
Non-performing Loans
NPL Ratio by Sector
NPL Ratio of the Manufacturing Sector
NPL Ratio of Trade Sector
NPL Ratio of Trade Subsectors
NPL Ratio by Usage Type
NPL Ratio for Consumption Credit
Credit Risk Stress Test
Rupiah Maturity Profile
Forex Maturity Profile
Interest Rate Risk Stress Test
Net Open Position (overall)
Exchange Rate Risk Stress Test
SUN Share
Stress Test - SUN Price Decline
ROA by Bank Group
BOPO by Bank Group
Monthly Profit/Loss
Interest
Capital, Risk-Weighted Assets and CAR
CAR by Bank Group
Results of Integrated Stress Test
Interbank Stress Tests
Business Activity of Finance Companies
Composition of Financing for Financing
Companies
Finance Companies» Source of Funds
21
22
22
23
2.43
2.50
2.51
2.52
2.53
2.54
2.55
2.56
2.57
2.58
2.59
2.60
2.61
2.62
Penetration of General Insurance in several
Asian Countries
Penetration of Life Insurance in several
Asian Countries
Insurance Industry Performance
Assets-Gross Premiums-Investment
Insurance Industry Performance
Claims-Premiums
Performance of Life Insurance
Investment Performance by Business Type
Performance of Loss Insurance
and Re-assurance
Foreign Investment in SBI, SUN, Stock
IDR/USD Exchange Rate/IDMA Index, JCI
JCI and Global and Regional Indices
Volatility of Several Asian Stock Indices
Bank Share Prices
Stock Market Capitalization and Issuance Value
Benchmark FR Series SUN Price
Average Monthly SUN Price
SUN VaR
SUN Maturity Profile
Issuance and Corporate Bonds Value
Growth of Mutual Funds
Net Asset Value by type of Mutual Fund
38
38
39
39
39
40
40
41
41
41
42
42
42
42
3.1
3.2
3.3
3.4
3.5
3.6
3.7
Nominal Transaction Value
Transaction Volume
BI-RTGS System Transaction in 2009
SKN-BI Transactions in 2009
Debit Card Transaction in 2009
Credit Card Transactions in 2009
E-money Transactions in 2009
49
50
50
51
52
52
52
4.1
4.2
4.3
Economic Growth Projections
Risk Perception in Indonesia
Bank Risk Profile: Level and Direction
61
62
63
2.44
2.45
23
24
24
25
25
25
25
26
26
26
26
27
27
27
28
28
28
28
29
29
29
29
30
30
30
31
31
31
31
32
32
32
32
33
34
34
2.46
2.47
2.48
2.49
37
37
37
37
37
38
35
35
v
Foreword
I welcome the publication of Financial Stability Review No. 14 March 2010. The publication of the Review is critical
as it communicates to a large audience developments and prospects of financial system stability.
This issue of the Review comes to us at a time in which the world economy has started to show signs of recovery
even though the global crisis has not completely dissipated. In fact, we have actually recently witnessed the emergence of
new international issues such as the fiscal crisis in Greece. We view that recovery on a global level is very important as the
increasingly integrated global financial system potentially allows shocks from the international economy to immediately
impact Indonesia. It is therefore essential for us to maintain vigilant towards our financial system.
The Indonesian economy and financial sector has fared much better compared to that of on a global level. Such is
the result of various policies taken by the Government and Bank Indonesia in 2008 and 2009 aimed at taming impacts of
the crisis which peaked in November 2008. The successful policies allowed the economy to grow at a relatively high level
while inflation is kept relatively low and exchange rate adequately managed. With this background, the BI rate has been
maintained at a low and stable level of 6.5% since August 2009.
Riding on the back of such a conducive economy, the banking industry continues to showcase good performance.
At the end of December 2009 the Capital Adequacy Ratio was recorded as exceeding 17% with well-controlled earning
asset quality as reflected by gross and net NPLs of 3.3% and 0.3% respectively. With such well-managed asset quality,
banks were able to produce relatively high levels of profit with ROAs at approximately 2.6% while keeping liquidity wellcontrolled.
Meanwhile the stock market and non bank financial market performance shows encouraging signs and thus breeding optimism about better conditions in the financial system ahead. Such optimism appears to be appropriately called for
as the sovereign rating and rating of several of Indonesia»s big banks are increasing and nearing investment grade.
Such developments are encouraging, however, they should not distract us from the challenges which potentially
can become sources of instability. One of the challenges faced is the low credit growth level which in 2009 only reached
10% (year-on-year). The slow credit growth deserves our serious attention. If the credit slump continuous, the growth of
the economy as a whole will be at stake. Such credit slump also potentially impedes financing of the corporate and
household sector which, in turn, can cause problem loans in the banking sector to increase.
vi
Another important challenge we must face is the increase in short term capital inflows. Such inflows potentially
increase as the economy improves and will put the financial system to be more vulnerable to sudden reversals. As such, it
is very important to maintain investors» trust by continuously promoting effective market discipline supported by improvements in financial sector governance. The Financial Sector Assessment Program (FSAP) which was conducted from the
end of 2009 to early 2010 is expected to become an important reference for efforts in improving the financial sectorƒ
with the banking industry as no exception.
By knowing the opportunities and challenges faced by the financial sector as mentioned above, the financial sector
is expected to continue its advancement and be spared from excess risks. As such, improvements in surveillance must
continue. This can be achieved by, among others, renewing and perfecting the tools and methodologies used for early
detection. In closing, it is my hope that the Review is able to serve its mission to communicate to the public surveillance
results of financial system stability developments and its prospects ahead.
Jakarta, 31 March 2010
Deputy Governor of Bank Indonesia
Muliaman D. Hadad
vii
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viii
Overview
Overview
1
Overview
This page is intentionally blank
2
Overview
Overview
Financial sector resilience during semester-II 2009 was adequately
maintained, supported by conducive macroeconomic conditions including,
among others, low inflation and interest rates, as well as controlled
exchange rate volatility. The banking industry, the dominant industry in
the financial sector, remained sound; reflected by sufficiently high CAR
and profitability, high-quality earning assets and relatively well-managed
liquidity. The stock market and bonds market both indicated improvements
compared to the previous semester. However, a number of sources of
instability remained, including among others, the enduring global crisis,
slow credit allocation and a surge in short-term capital inflows. Looking
forward, risk mitigation measures require further strengthening to ensure
financial system stability and a favorable outlook.
1. SOURCES OF INSTABILITY
1.1. Slow Global Recovery
1.2. Sluggish Credit Growth
Post-global crisis, bank credit growth experienced
The global economic crisis has not completely
a significant slowdown, in particular foreign exchange
subsided. While the crisis persists a number of new
(forex) credit. In 2009, total credit grew by just 10% (y-
problems have emerged triggering a subsequent rise in
o-y). This issue requires serious attention as languid credit
global instability, for example the Dubai World financial
disbursements has the potential to spur instability. On a
crisis and the fiscal crisis in Greece.
macro scale, the decline in credit growth places additional
Therefore, tight vigilance is required to avoid a
pressures on future economic growth. From a micro
domino effect creating vulnerabilities in the domestic
perspective,∆the decline in credit growth causes
financial sector and economy.
difficulties
3
Overview
for the corporate sector and households in terms of
2008. Nevertheless, a number of new challenges continue
obtaining funds to finance their business activities. This,
to emerge, including the inauguration of the ASEAN China
in turn, potentially undermines the debt repayment
Free Trade Area (ACFTA) at the beginning of 2010.
capacity of the corporate and household sectors, which in
Furthermore, infrastructure in the country remains
general are bank debtors. From a macro and micro
unsatisfactory reflected by, among others, disruptions in
standpoint, both have the potential to raise non-
the distribution network that precipitated inefficiencies and
performing bank loans (NPL).
created a high-cost economy. If the problems confronting
the real sector are permitted to persist and no resolution
1.3. The Rise in Short-Term Capital Inflows
Short-term capital inflows are resurging back into
is sought, financial sector instability will materialize in the
long term.
Indonesia. This is not only due to the attractive returns
offered by financial instruments in Indonesia, but also due
1.6. Inadequate Legal Protection
to the improved sovereign rating as a result of robust
Financial sector instability will appear if policymakers
domestic economic performance amid pressures stemming
do not receive adequate legal protection. Without clear
from the global crisis. The rise in short-term capital inflows
legal protection, public officials in the financial sector will
requires close vigilance as it is vulnerable to sudden reversals
be unwilling to take the immediate decisions necessary to
which could disrupt financial stability.
avoid the widespread impacts of a crisis. This issue requires
the attention of all related stakeholders to ensure that
1.4. Possibility of Greater Operational Risk
financial system stability remains under control.
Operational risk can arise due to, among others,
natural disasters and fraud. The recent trend of more
2. RISK MITIGATION
frequent natural disasters, like earthquakes and floods,
2.1. Strengthening Capital
that have beset Indonesia has necessitated a contingency
The most important risk mitigation measure is to
plan that can maintain the functioning of financial
increase capital. The Indonesian banking industry uses
infrastructure under any conditions so as to minimize
capital strengthening as one method to mitigate risk. As
potential losses. In addition, greater financial system
such commercial banks in Indonesia-are required to
dependence on information technology, for example
maintain a minimum core capital of Rp100 billion by the
through the pervasive use of ATM cards and Internet
end of 2010. Previously, in 2008, commercial banks were
banking, has dictated the immediate requirement for all-
required to maintain a minimum core capital of Rp80
encompassing security measures and risk mitigation against
billion, for which all banks complied. Despite the fact that
fraud.
in December 2009 several banks had core capital levels of
less than Rp100 billion, experience garnered from the
1.5. The Real Sector and Infrastructure
Real sector conditions remained suboptimal despite
corporate and household performance surpassing that
reported during the peak of the global crisis in quarter IV
4
previous requirement of Rp80 billion indicates that all
commercial banks will meet the new regulations on time.
Overview
2.2. Increasing Loan Loss Provisions
individual banks by emphasizing the fulfillment of
Loan loss provisions are an effective method of
prudential regulations, through onsite and offsite
mitigating credit risk. In 2009, banks increased their
supervision. Conversely, macroprudential surveillance
provisions by Rp12.7 trillion. Therefore, despite a rise in
concentrates more on industry-level analysis.
the gross NPL ratio of the banking industry from 3.2%
In order to reinforce microprudential surveillance,
(December 2008) to 3.3% (December 2009), the net NPL
supervisors participate in a certification program. In
ratio actually declined from 0.8% to just 0.3%.
addition, to strengthen macroprudential surveillance, the
Although loan loss provisions are an effective method
tools and methodologies used in surveillance are
of mitigating credit risk, it is important that the amount of
continuously refined, including stress testing, probability
provisions is not excessive or insufficient. Excessive
of default analysis, transition matrices, as well as other
provisions erode potential bank revenues and insufficient
early warning mechanisms. One of the techniques used
provisions undermine their effectiveness as an instrument
to refine the tools and methodologies associated with
to mitigate risk.
surveillance is to utilize the assessment results of the
Financial Sector Assessment Program (FSAP) conducted in
2.3. Risk Management and Good Governance
Strengthening risk management and good
September/October 2009 (first mission) and February/
March 2010 (second mission).
governance in the financial sector is another method to
mitigate risk. To this end, the risk management certification
3. PROSPECTS FOR FINANCIAL
program was continued for banks. Bank supervisors are
SYSTEM STABILITY
also obliged to participate in a certification program for
The prospects for financial system stability looking
supervisors and apply Risk Based Supervision when in
forward remain favorable. Despite the ongoing global crisis
supervising banks. Additionally, banks are encouraged to
and emerging challenges, there are a number of reasons
improve the quality of their governance, not only to meet
behind the expectations of a positive outlook. First is that
Bank Indonesia»s regulations but also to nurture market
the global economic recovery is continuing. Furthermore,
discipline.
domestic economic performance up until now has
For risk mitigation to be effective from a risk
remained robust and is expected to improve further in time.
management and good governance standpoint, banks
This, in turn, will stimulate banks to actively extend credit,
should obviously not merely orient themselves towards
making a tangible contribution to the economy. In addition,
acquiring certificates and fulfilling formal aspects;
greater credit disbursements by banks will invigorate the
practicing these disciplines in their business operations on
business community and catalyze business activity, which
a daily basis is far more important.
will underpin the economy as a whole.
Second, Indonesia»s ratings - the sovereign rating
2.4. Surveillance
and the individual ratings of large banks - have improved
Risk mitigation is also achieved through the relevant
and are approaching investment grade. This will attract
authorities by strengthening micro and macro prudential
more investors and, therefore,-capital inflows into
aspects. Microprudential surveillance is implemented on
Indonesia. Although the majority of inflows are presently
5
Overview
short term in nature, the current emphasis on financial
Basel II as well as the Indonesian Statement of Financial
deepening is expected to avail a number of longer-term
Accounting Standard (PSAK) No.50 and 55. In addition,-
financial instruments and minimize the risk of sudden
follow-up measures extracted from the results of FSAP are
reversal. Consequently, financial system stability is forecast
expected to raise the quality of the financial sector and
to improve in the future.
banks in Indonesia to the benefit of the national economy.
Third, the banking industry is currently quite prudent
In order to realize these favorable prospects for
and conservative, concentrating on applying good
financial system stability, support and cooperation is
governance. Looking ahead, therefore, banks are expected
required from all relevant stakeholders, including creating
to become more aware of risk and set out appropriate risk
conducive conditions legally, politically and in terms of
mitigation measures before taking business decisions.
security.
From 2010 onwards, banks will begin applying
international standards, including the implementation of
6
Chapter 1 Macroeconomic Conditions and the Real Sector
Chapter 1
Macroeconomic Conditions
and the Real Sector
7
Chapter 1 Macroeconomic Conditions and the Real Sector
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8
Chapter 1 Macroeconomic Conditions and the Real Sector
Chapter 1
Macroeconomic Conditions and
the Real Sector
Macroeconomic stability in Indonesia was well maintained during semester
II of 2009 on the back of strong domestic demand, a stable banking
industry and increasingly optimistic expectations of a global economic
recovery. In addition, an accommodative fiscal and monetary policy stance
buoyed the Indonesian economy in the midst of widespread pressures
stemming from the global crisis. Against this propitious backdrop,
domestic economic growth in Indonesia outpaced that of various other
countries. Looking ahead, the Indonesian economy has the potential to
continue improving in accordance with the growing momentum of the
global economic recovery. Notwithstanding, several risk factors, external
and internal, require continued attention, for example potential hikes in
the global oil price as well as domestic micro-structural challenges, which
include weak industrial sector competitiveness and stagnant infrastructural
development.
1.1. MACROECONOMIC CONDITIONS
began to show signs of improvement. The global economic
Entering semester II of 2009 the global economy
recovery continued as a result of fiscal stimulus packages
began to display signs of a recovery. This was further
introduced by various governments. In general, public
supported by a stabilization process implemented in the
consumption strengthened, which was reflected by
financial market, as well as additional support from
increasing consumer confidence in G3 countries. From the
economic stimuli and a low interest rate. Moreover,
Graph 1.1
Consumer Confidence in G3 Countries
consumer confidence was restored and the business sector,
Index, ma3m
in particular the rapid recovery of domestic demand-based
120
economies such as in China, further supported the global
100
Index, ma3m
Current Condition
Left Scale
120
Future Expectation
Right Scale
100
Euro
Euro
economic recovery process. As a result of such
80
improvements the rate of global economic contraction
60
began to abate.
40
US
US
20
particularly G3-member countries such as the United
0
60
40
Japan
Japan
Economic conditions in developed countries,
States, Japan and European countries using the Euro, also
80
20
0
JanMarMayJul SepNovJanMarMayJul SepNovJanMarMayJul SepNovJanMarMayJul SepNovJanMarMayJul SepNovJanMarMayJul SepNov
2007
2008
2009
2007
2008
2009
Source : Bloomberg (Japan-Economic Watchers Survey, Euro-IFO Survey,
US-Univ. Michigan Survey)
9
Chapter 1 Macroeconomic Conditions and the Real Sector
production side, it was observed that the Purchasing
activity would begin to intensify. Economic growth in
Manager Index (PMI) and Industrial Production (IP) index
emerging Asian countries has occurred more rapidly than
followed an increasing trend. Nonetheless, the process of
in other regions and has, therefore, become an engine of
economic recovery in developed countries was still
world economic growth.
overshadowed by a number of risk factors such as high
unemployment as well as an income level that remains
Graph 1.4
Global Economic Growth
sub-optimal.
%
Graph 1.2
Purchasing Manager Index (PMI) and Industrial Production (IP) Index in G3 Countries
Index, 50 =neutral
10
8
6
4
% yoy, ma 3m
2
60
PMI Manuf EU
55
7
IP EU
2
IP US
50
PMI
Manuf US
45
40
0
-3
-2
-8
-4
-13
-6
World GDP
Advance GDP
Developing Country GDP
I
-18
-23
IP JPN
35
IV
I
II
III
2007
IV
I
II
III
2008
IV
I
II
III
2009
IV
Source : IMF (WEO Oct-09)
-28
PMI Manuf JPN
30
II
III
2006
-33
-38
25
Jan Jul
2007
Jan Jul
2008
Jan Jul
2009
Jan Jul
2007
Jan Jul
2008
Real sector indicators in developed countries, such
Jan Jul
2009
as the declining trend in U.S. job layoffs in the non-
Source : Bloomberg
Economic recovery is inseparable from successful
performance improvements in the financial sector, among
others, characterized by a rebound in asset prices on the
global financial markets and a resurgence of net foreign
capital flows into Asian markets. Consequently, such
improvements would lead to increased optimism of an
agricultural sector, continued to improve indicating that
the economic contraction was beginning to ease.
According to the ADP National Employment Report the
number of layoffs in the U.S. non-agricultural sector from
December 2009 to January 2010 declined from 61,000 to
22,000.
economic recovery in the real sector and global economic
Graph 1.5
Total Layoffs
U.S. Non-Agricultural Sector
Graph 1.3
Capital Inflows to Asian Markets
Thousands of People
Juta USD
250
1.2
average of 1 week movement
average of 4 weeks movement
Service providing
Total NonFarm Private
200
Goods producing
0.7
150
0.2
100
-0.3
50
-0.8
(50)
-1.3
Jan
Apr
Jul
2008
Source : Bloomberg
10
Oct
Jan
Apr
Jul
2009
Oct
Sep
Oct
Nov
2009
Source : The ADP National Employment Report, January 2010
Dec
Jan
Chapter 1 Macroeconomic Conditions and the Real Sector
With improving trends reported for a number of
Expansive economic growth in Indonesia, amid
economic indicators, the global economy in 2009 is
widespread pressures stemming from the global crisis, was
expected to contract by just 0.8% based on the latest
accomplished due to a favourable economic structure and
projections by the International Monetary Fund (IMF),
sound financial system as well as accommodative fiscal and
compared to initial projections of more than 1%. In 2010,
monetary policy. The Indonesian economy was principally
1
the global economy is expected to achieve 3.9% growth .
household consumption. During the global economic
Table 1.1
World Economic Indicators
Category
2008
2009
World Output:
Advanced Economies
United States
Emerging & Developing Countries
3.0
0.5
0.4
6.0
Consumer Price:
Advanced Economies
Emerging & Developing Countries1)
LIBOR2)
US Dollar Deposit
Euro Deposit
Yen Deposit
Oil Price (USD) - rata-rata3)
underpinned by unrelenting domestic demand, especially
contraction, household consumption in Indonesia continued
(%)
Projection
at a high level, driven by relatively stable purchasing power
2010
2011
and unwavering consumer confidence. Thus, despite the
(0.8)
(3.2)
(2.5)
2.0
3.9
2.1
2.7
6.0
4.3
2.4
2.4
6.3
global economic downturn, strong domestic demand
3.4
9.2
0.1
5.2
1.3
5.4
1.5
4.4
Graph 1.7
Household Consumption Ratio against
Domestic (output) Income (%)
3.0
4.6
1.0
1.1
1.2
0.7
0.7
1.3
0.6
1.8
2.3
0.7
36.4
(36.1)
22.6
7.9
Source : World Economic Outlook - January 2010
successfully sustained national economic activity and
ensured a deep correction could be avoided.
%
80
75
Household Consumption / Total Disposable Income (%), Left
Household Consumption / GDP (%), Left
Household Consumption / Domestic Demand (%), Left
70
65
In contrast to a number of other countries, the
60
Indonesian economy in 2009 performed well. Despite an
55
inevitable decline, economic growth in 2009 achieved
4.5%, establishing Indonesia as one of the few countries
in the world that recorded positive growth.
50
1988 1989 19901991 1992 19931994 1995 1996 1997 19981999 2000 2001 2002 20032004 2005 2006 20072008
The favourable characteristics of the Indonesian
financial system, namely a relatively conservative and simple
Graph 1.6
GDP Growth in various Emerging Market Economies
%
banking industry utilizing instruments that are considered
traditional, protected domestic banks and the financial
system from the negative impacts of the global financial
13.00
10.00
crisis. Furthermore, the accommodative fiscal and monetary
7.00
policy stance also reinforced domestic economic resilience.
4.00
1.00
The application of a free-floating exchange rate system, a
(2.00)
Indonesia
Singapore
Thailand
(5.00)
(8.00)
(11.00)
more flexible implementation of an Inflation Targeting
South Korea
China
India
Framework (ITF) monetary policy and a consistent fiscal
Q2 Q3 Q4 Q1Q2Q3Q4 Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q3Q4Q1Q2Q3
2000
2001
2002
2003
2004
Source : CEIC
1 World Economic Outlook - January 2010
2005
2006
2007
2008 2009
policy ensured that the array of policies instituted were
optimal in response to the pressures emanating from the
global economic turmoil.
11
Chapter 1 Macroeconomic Conditions and the Real Sector
Increased economic activity, particularly in emerging
Conversely, imports witnessed a significant decline
Asian markets that enjoyed a more expeditious recovery
consistent with weak demand for imported raw materials
process, strengthened demand for exported goods,
from export-oriented industries and a decline in imports
particularly natural resources. This precipitated a rise in
of consumer goods.
commodity prices on international markets; however, prices
Graph 1.10
Import/Export Growth
remained lower than that of the previous year. The global
oil price, which had plummeted to US$41.7 per barrel in
January 2009, began to rebound in semester II 2009; rising
to US$79.4 per barrel by December 2009. This hastened
an increase in other commodity prices such as aluminium,
copper, tin, rice and coffee.
%
80
60
40
20
(20)
(60)
600
500
Oil
Tin
Palm Oil
Rice
500
400
Export
Import
(40)
Graph 1.8
Price Index of several Commodities
Copper
Gold
Coffee
Aluminium
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov
2007
2008
2009
450
400
The Indonesian external sector in general performed
350
300
300
250
200
200
150
100
100
50
0
better than previously predicted. In 2009, Indonesia»s
balance of payments»ran a surplus of USD12.5 billion.
Foreign exchange reserves totalled US$66.1 billion;
equivalent to 6.5 months of import payments and servicing
0
2000
2001
2002
2003
2004
2005
2006
2007
2008 2009
government foreign debt. Consequently, the rupiah
Source : BI
exchange rate strengthened and experienced less volatility.
Strong demand and rising commodity prices boosted
Compared to the end of semester I 2009, the rupiah
export performance. Despite recording negative annual
gained about 8% on the US dollar reaching Rp9,404/US$
growth, monthly non-oil exports began to experience
by the end of the year. The rupiah was strongest during
positive growth of 6.0% (Y-o-Y) in quarter IV 2009.
quarter IV; averaging Rp9,467/$. Meanwhile, rupiah
Graph 1.9
Non-oil/gas Export Value in Indonesia
USD Million
Graph 1.11
IDR/USD Exchange Rate
USD Million
14,000
10000
8000
Manufacturing
Mining and Quarrying
Agriculture, Hunting, Fishing
Total
10000
8000
6000
6000
4000
4000
2000
2000
12,000
14000
Monthly average
Quarterly average
Semester average
12000
10,000
10000
8,000
8000
6,000
4,000
6000
5 7 2 5 2 1 7 8 5 2 7 6 6 0 8 3 1 8 9 1 4 0
7 7 7 9 4 8 6 5 0 0 6 5 0 8 7 0 8 8 5 5 5 9
2,000 0. 0. 1. 0. 8. 9. 0. 3. 1. 1. 2. 3. 4. 1. 1. 2. 2. 2. 1. 1. 3. 9.
9 9 9 9 8 8 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
0
2006
Source: BI
12
0
2007
2008
2009
3
0
8
.
1
1
4
1
3
.
1
1
2
5
1
.
1
1
5
7
8
.
1
1
5
6
8
.
1
1
0
5
0
.
1
1
7
7
3
.
0
1
3
9
1
.
0
1
3
1
1
.
0
1
4
8
9
.
9
6
5
8
.
9
6
8
4
.
9
6
5
8
.
9
9
5
4
.
9
4000
2000
0
0
1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112
2007
Source : Bloomberg
2008
2009
Chapter 1 Macroeconomic Conditions and the Real Sector
exchange rate volatility against the U.S. dollar during
2009 reached 2,534.36; surpassing that of the previous
semester II 2009 averaged 0.36%; lower than average
semester totalling 2,026.78. Superior domestic stock
volatility during the previous semester at 0.65%.
market performance was in harmony with the enhanced
Accordingly, the Indonesian rupiah appreciated strongly
performance of regional stock markets and markets in
compared to other Asian and major world currencies
developed countries. By sector, the strongest share price
during semester II with the exception of the South Korean
index gain occurred in the basic industry sector; increasing
won.
by 41.9% from 192.9 in late June 2009 to 273.93 in
December 2009.
Graph 1.12
Estimation Results IDR/USD
Graph 1.14
Global Share Price Index
Volatility
4
Lower Limit
3
Upper Limit
2
Actual
35000
35000
Singapore
NYA
New York
Indonesia
Nikkei
30000
1
25000
0
20000
-1
15000
-2
-3
30000
25000
20000
15000
10000
10000
5000
5000
-4
1
31
61
91
121
151
Period (263 days)
181
211
0
0
241
2006
2007
2008
2009
Source: Bloomberg
Graph 1.13
Global Exchange Rates
Graph 1.15
Share Price Indices by Sector
Index
115
4000
4000
Basic Industry
3500
110
3000
105
100
95
IDR
90
KRW
SGD
EUR
THB
Jul
Aug
Sep
Infrastructure
3000
Manufacture
2500
Mining
Property
2500
2000
Consumer
2000
1500
1500
1000
1000
500
500
PHP
JPY
85
Jun
3500
Financial
Oct
Nov
Dec
2009
0
2006
0
2007
2008
2009
Source : Bloomberg
30 June 2009 = 100
Increase of Index = Exchange Rate Appreciation
In the financial sector, optimism surrounding a global
The trend of exchange rate appreciation reinforced
economic recovery as well as sound domestic economic
by the full panoply of measures taken by the Government
conditions, in turn, attracted foreign capital flows into
during the crisis to maintain the supply and distribution of
Indonesian markets. Therefore, domestic financial market
food commodities helped maintain volatile food inflation
performance improved; characterized by an improvement
at a level below its historical average. This consequently
in stock market performance and rupiah appreciation. The
alleviated inflationary pressures. Headline inflation, measured
Jakarta Composite Index (JCI) at the end of semester II
by the Consumer Price Index (CPI), was 2.78 (y-o-y) in
13
Chapter 1 Macroeconomic Conditions and the Real Sector
December 2009, compared to 3.65% (y-o-y) in June 2009.
are replete with challenges, including potential hikes in
Nevertheless, when contrasted against other ASEAN
the global oil price as well as weak industrial sector
countries, inflation in Indonesia is still considered high
competitiveness amid increasing competition stemming
particularly when compared to Malaysia and Singapore.
from the inauguration of ACFTA (ASEAN-China Free Trade
Notwithstanding, the investment climate in Indonesia
Area). In addition, despite slight improvements, high
remained attractive because the interest rate exceeded
unemployment in the U.S. and Europe is a risk factor that
inflation despite a gradual decline in Bank Indonesia»s policy
continues to overshadow the global economic recovery
rate since late 2008. The real interest rate in Indonesia
process and inevitably impacting prospects for the domestic
surpassed several other ASEAN countries as well as the
economy.
United States.
2. 2. REAL SECTOR CONDITIONS
Graph 1.16
Inflation in ASEAN-5 Countries
Along with gradual improvements in global economic
conditions as well as strong domestic demand, the real
y-o-y %
15
Philippines
Singapore
Thailand
Malaysia
sector began to display positive signs of progress,
particularly in the beginning of semester II 2009. Strong
Indonesia
10
external demand drove growth in tradeables sectors,
5
namely manufacturing (food, beverages and tobacco
0
subsector, textile subsector, chemical subsector and
transport subsector, machinery and equipment), agriculture
(5)
Jan
Jun
2007
Nov
Apr
Sep
Feb
2008
Jul
2009
Dec
(plantation subsector), and mining sector (non-oil/gas
Source : CEIC
mining subsector). Furthermore, growth in non-tradeables,
Graph 1.17
Real Interest Rate in Indonesia
namely the trade sector, transport and communications
as well as construction, was driven on the strength of stable
%
domestic demand.
4.00
During quarter IV 2009, the manufacturing sector
2.00
0.00
as well as trade, hotels and restaurants showed a significant
-2.00
improvement in performance. The manufacturing sector
-4.00
-6.00
expanded (y-o-y) from 1.3% in quarter III to 4.2% by
Indonesia
US
Singapore
quarter IV. Meanwhile, trade, hotels and restaurants grew
-8.00
2004
2005
2006
2007
2008
2009
by 4.17% (y-o-y) in quarter IV, after contracting by 0.23%
Sources : Bloomberg and CEIC
(y-o-y) in quarter III.
14
Looking forward, the Indonesian economy is
Robust manufacturing sector performance was
expected to continue expanding despite a variety of risk
reflected by increases in related indices as well as greater
factors and potential uncertainty, internally and externally,
utilization of production capacity, and further supported
that should not be overlooked. Efforts to strengthen
by demand side indicators, including industry sector exports
growth momentum in order to hasten economic growth
and sales of automobiles and motorcycles.
Chapter 1 Macroeconomic Conditions and the Real Sector
Graph 1.18
Production Index and Production Capacity Utilization
Industrial Sector
Index
120
Graph 1.21
Manufacturing Sector Credit and GDP
(%)
Utilization of Production Capacity (rhs)
Production Index
(%, y-o-y)
(%, y-o-y)
90
7
6
115
80
110
40
GDP of Industry
Manufacturing Credit (rhs)
Average Manufacturing Credit (rhs)
30
5
20
4
10
3
105
70
100
0
2
-10
1
95
1
2
3
2007
4
1
2
3
2008
4
1
2
3
2009
4
60
Graph 1.19
Growth of Industrial Sector Export Value
and Industrial GDP
(%,yoy)
I
II
III
2007
IV
I
II
III
2008
IV
I
II
III
2009
IV
I
-20
2010
Government policy to encourage real sector
development, in this case the industrial sector, yielded a
(%,yoy)
80
6,0
GDP of Industry
Export Value of Industrial Sector (rhs)
5,0
0
60
number of positive results, particularly in terms of
improving industrial sector resilience against the impacts
of the global economic crisis. Government policy included
4,0
40
3,0
20
2,0
0
of government goods and services, programs to restructure
1,0
-20
the textile and footwear industry (machinery/equipment),
-40
as well as restrictions on food imports, footwear, clothing,
0,0
1
2
3
2007
4
1
2
3
4
1
2008
2
3
4
toys and electronic goods. Pro real sector policies taken to
2009
stimulate industrial sector growth were introduced through
Graph 1.20
Growth of Automobile and Motorcycle Sales
and Industrial GDP
(%, yoy)
programs to utilize domestic products in the procurement
the provision of fiscal stimuli in the form of Government
Borne Import Duty (BMDTP). The industrial sector
(%, yoy)
6,0
120
successfully absorbed 29.4% of the fiscal stimuli introduced
80
by the government.
GDP of Industry
5,0
Car Sales (rhs)
Motorcycle Sales (rhs)
4,0
40
3,0
0
2,0
restaurants sector was primarily driven by improvements
in the large trade subsector due to increasing imports and
-40
1,0
0,0
Improved performance in the trade, hotels and
exports; supported by greater purchasing power. Leading
-80
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2008
2009
indicators pointed towards entering an expansionary phase
in the following quarter. The Composite Prompt Indicator
In terms of financing, from the beginning of 2009
until the end of quarter III, bank loans to the industrial
for the trade sector also improved up until mid-quarter IV
2009.
sector slowed. Nonetheless, in quarter IV bank financing
to the industrial sector began to recover slightly, despite
not attaining overall average growth for 2009.
15
Chapter 1 Macroeconomic Conditions and the Real Sector
In line with the nascent global economic recovery,
Graph 1.22
Leading Indicators for the
Trade, Hotels and Restaurants Sector
102
Trade GDP
avg. of contraction fase :15.2 month
avg. of expansion fase :19.2 month
CLI
101
domestic consumption continued at a high level during
semester II 2009 driven by a relatively stable public
purchasing power and robust consumer confidence.
101
100
Graph 1.25
Domestic Consumer Confidence Index
100
99
Composite Indicators :
CPI, Hotel Occupancy Jakarta,
IPI Machinery Equipments,
IPI Paper Products,
IPI Rubber Plastic Products,
Exchange Rate, Visitors Arrival at 13 Main Gates
99
98
Indeks
140,0
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I
2002
2003
2004
2005
2006
2007
2008
2009 2010
Current Economic Condition Index
Consumer Expectation Index
Consumer Confidence Index
130,0
120,0
110,0
(%, yoy)
80,0
70,0
1,5
GDP of Trading
Composite Prompt of Trading (rhs)
8
r = 0.961
6
Pessimistic
90,0
Index
10
Optimistic
100,0
Graph 1.23
Composite Prompt Indicator
for the Trade, Hotels and Restaurants Sector
1,0
60,0
12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1
2007
2008
2009
2010
0,5
0,0
4
2
-0,5
Strong exports and household consumption, in turn,
-1,0
boosted corporate sector performance, which was
0
-1,5
evidenced by the improving financial position of non-
-2
-2,0
financial companies listed on the Indonesia Stock Exchange
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3
2008
2009
2009
(BEI) that had previously suffered intense pressures during
Stronger public purchasing power stimulated public
the first half of 2009. Increases in the Return on Assets
consumption for both durable and consumable goods.
(ROA) and Return on Equity (ROE) were indications of
Indications of improved trade performance were also
improved corporate performance compared to the same
reflected by the Retail Sales Index, which increased up to
period of the previous year.
the end of quarter IV 2009.
Graph 1.26
ROA and ROE of
Public Listed Non-Financial Companies
Graph 1.24
Retail Sales Index
(%, yoy)
(%, yoy)
40
10
GDP of Trading
8
gSPE_BI (cma, rhs)
400
700
ROA (left)
600
30
6
20
4
10
ROE (right)
500
400
300
200
300
100
200
100
2
0
0
-10
0
0
-100
-100
-200
-20
-2
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3
2008
2009
2009
16
-200
-300
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2003
2004
2005
2006
2007
2008
2009
Chapter 1 Macroeconomic Conditions and the Real Sector
The recovery in Indonesia»s corporate conditions was
Credit risk in the corporate sector is expected to
evident from the current ratio (liquid assets divided by liquid
intensify in the future, especially for export-oriented
liabilities) and inventory turnover ratio (inventory divided
companies due to ACFTA (ASEAN China Free Trade Area).
by total sales). During the reporting period, the current
The potential for increased credit risk is reflected by the
ratio increased while the inventory turnover ratio declined.
rising trend in the Probability of Default (PD) of public listed
The rise in the current ratio reflects an improvement in
non-financial companies. Estimation results show that the
corporate liquidity conditions, while the decline in inventory
number of companies with a PD greater than 0.5 will
turnover indicates that the corporate sector was able to
increase from 24 companies in September 2009 to 27
manage its inventory more efficiently. However, the
companies in September 2010.
collection period did not alter significantly.
Graph 1.29
Probability of Default (PD) of
Public Listed Non-Financial Companies (a)
Graph 1.27
Key Indicators of Corporate Finance
Total
Current Ratio
5
250
4
DER
200
ROA
3
201
2
150
1
2008:Q3
0
2009:Q3
100
ROE
Collection Period
50
23
5
4
4
0
0
Inventory Turn Over
Ratio
1
0
0
0
0.0-0.1 0.1-0.2 0.2-0.3 0.3-0.4 0.4-0.5 0.5-0.6 0.6-0.7 0.7-0.8 0.8-0.9 0.9-1.0
Probability of Default
Graph 1.29
Probability of Default (PD) of
Public Listed Non-Financial Companies (b)
In terms of financing, there were indications that the
corporate sector continued to rely more on internal capital,
reducing their borrowings, either from banks or through
the issuance of bonds and other securities. This was shown
Total
250
by the decline in debt-to-equity ratio (DER) and the ratio
200
of total debt to total assets (Debt/TA).
150
193
100
Graph 1.28
DER and Debt/TA of Public
Listed Non-Financial Companies
50
11
0
DER
4
2
1
1
0
1
0.0-0.1 0.1-0.2 0.2-0.3 0.3-0.4 0.4-0.5 0.5-0.6 0.6-0.7 0.7-0.8 0.8-0.9 0.9-1.0
Probability of Default
1.80
1.60
24
1
Debt/TA
1.40
In addition to credit risk, companies in the real sector
1.20
1.00
could also face exchange rate risk, partly due to
0.80
approximately 16 large conglomerates that have a ratio
0.60
0.40
of foreign exchange net liabilities against capital of more
0.20
0.00
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2003
2004
2005
2006
2007
2008
than 25%. Two of these conglomerates even have ratios
2009
17
Chapter 1 Macroeconomic Conditions and the Real Sector
of over 100%.In addition, the results of stress tests on 46
question must introduce adequate risk mitigation measures
large conglomerates in Indonesia as of September 2009
in order to prevent losses in the event of an exchange rate
indicate that if the rupiah weakens to Rp17,000/USD, there
shock.
Despite an improvement in real sector performance
Graph 1.30
Ratio of Net Foreign Exchange Liabilities
against Corporate Equity
during semester II 2009 severe challenges remain, among
others related to financial system stability and economic
%
resilience. Unstable global financial market conditions could
150
Ratio of Net Forex to
Equity > 25%
100
potentially trigger a sudden foreign capital flow reversal if
50
the current indicators of economic recovery, especially in
0
developed countries, weaken again. This would disrupt
(50)
domestic financial system stability. In addition, various
(100)
micro-structural issues in the real sector remain, such as
weak industrial sector competitiveness and stagnant
(150)
R Z AD AK AN AM A AI N F AC AL AO S K M AE AQ I
T Q AR W
infrastructural development, which require close
is the potential risk that the capital of one conglomerate
observation particularly in the face of tighter market
would decline by 80%. Therefore, the conglomerate in
competition following the inauguration of ACFTA.
Table 1.2
The effect of Rupiah Depreciation on Corporate Equity
Percentage of
Equity Decrease
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Number of corporations
which equity is impacted
18
IDR/USD
10.000 10.500 11.000 11.500 12.000 12.500 13.000 13.500 14.000 14.500 15.000 15.500 16.000 16.500 17.000
2
6
6
2
7
2
1
7
4
2
8
6
1
1
8
5
1
2
7
4
4
1
1
7
2
5
1
1
1
8
2
3
3
5
5
2
4
4
4
3
4
1
2
6
2
3
3
2
1
1
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
3
7
9
11
14
17
17
18
18
19
19
19
19
Chapter 2 The Financial Sector
Chapter 2
The Financial Sector
19
Chapter 2 The Financial Sector
This page is intentionally blank
20
Chapter 2 The Financial Sector
Chapter 2 The Financial Sector
The financial sector Indonesia expanded during semester II 2009 and
stability was maintained due to conducive domestic economic conditions
as well as clearer signs of a global economic recovery. The banking industry
as the dominant industry in the Indonesian financial sector, continued to
perform positively despite suboptimal implementation of the intermediary
function. Notwithstanding, domestic stock market and Government bond
(SUN) market performance improved, thus raising their attractiveness to
investors, both domestic and foreign.
2.1. INDONESIAN FINANCIAL SYSTEM
market also demonstrated favorable growth in semester II
STRUCTURE
2009, evidenced by a 25.04% rally in the Jakarta
There were no significant changes in the structure
Composite Index (JCI) to 2,534.36, whereas the IDMA price
of the Indonesian financial system during the reporting
index of Government bonds (SUN) climbed 4.02% to
semester. The banking industry, consisting of commercial
94.33.
banks and rural banks, remained dominant with an 80%
Graph 2.1
Asset Composition of Financial Institutions
share of total financial sector assets. Meanwhile, the shares
of other financial industry components such as insurance,
pension funds, finance companies, securities and
Commercial Banks
pawnshops remained relatively low.
In addition, total assets of commercial b