speech bm dialogrisk 100609en
Keynote Speech
MANAGING RISK IN CHANGING ERA1
BUDI MULYA
Deputy Governor of Bank Indonesia
Ladies and Gentlemen,
I would like to thank Thomson Reuters, the organizer of today’s dialogue, for inviting
me to share and to exchange views with all of you – key persons of the Indonesian
financial market industry. It is now increasingly important for all of us to have a common
understanding in certain areas in financial market, for the benefit of all society despite that
we have different interest. Therefore, the dialogue amongst market participants as well as
with the relevant authority, like today’s event would become more relevant since we are
facing a structural change, both in financial market and in broader aspect of the economy
globally in the aftermath of the most recent global financial market turmoil.
The latest global market turbulence give us some lessons learn. As in other
catastrophe, the cause was multi facet. However, all possible causes lie with, or closely
relate to, human being behavior. More specifically they lie on how, both market players
and regulators/authorities, perceive risk. This phenomenon is somewhat in contrasts with
the fact that during the last decade, risk management has become one important topic in
financial market discussion. One most important factor we learn is that market players
tends to have ‘return illusion’. The terminology in which I refer to is a tendency of not
assessing risk properly in ‘peaceful’ situation, where the risk tends to be covered by its
high potential return, and that we – as human being - tend to be easily trapped in
complacency.
On the other hand, regulators have also too much confidence in expecting that
market discipline to work. On this respect, many have observed that financial market
regulation is considered to be too loose in particular with regard to ‘over the counter’
(OTC) transaction. Thus, traditional wisdom to prevent from a repeating tragedy is to
ensure the properness and fairness in financial market business.
In line with the tendency I just mentioned, the adoption of international financial
reporting standard is un-doubtfully should become our priority agenda, to increase
transparency and comparability of financial reporting and hence to encourage market
discipline. In turn, this will lead to better risk measurement and risk management.
I personally do hope that we all support and have a proper preparation toward the
adoption of the international accounting standard, such as PSAK 50 and 55 in due time,
that is January 2010. Today, I will not go into detail on discussing those two accounting
1
Address at Risk Indonesia 2009, a financial industry forum organized by Thomson Reuters, Grand Hyatt-Jakarta, 10
June 2009.
1
standard. But I would rather addressing more on the surrounding aspect we have learnt
from the recent crisis which I believe become more important and increasingly relevant
with the substance of PSAK 50 and 55.
Ladies and gentlemen,
I intentionally mention the behavior aspect in banking industry and in financial
market behind the biggest financial crisis in post World War II era, as a prologue of my
speech today to always remind us that the financial market failure will always be too costly
for society. This is also true in our domestic economy as we observed the 1997/98 crisis.
I will turn into what are the impacts of the global financial turmoil to our economy
after describing at glance what has been happening in global economy, to give a
background on references for our next agenda to fix and to improve our banking industry,
as well as our domestic financial market to be best fit with our economy’s need.
As we are all aware the emerge of US Sub-prime mortgage crisis about twenty
months ago, and in particular the collapse of Lehman Brother in September 2008, has a
global impact – of course with different magnitude. The impact on every economy
depends on the structure of the economy and its domestic financial market inter-linkage
with global financial market. However, we have been witnessing that the decoupling
theme almost disappear in the era of global economy, while trade and financial market
integrate. On the other side, the recent crises also prompt the change of global financial
market landscape and adjustment of the authority approach in regulating and supervising
banking industry and financial market in particular.
From a macro economy point of view, global economy growth has contracted
dramatically and trade activities squeezed. Major advanced countries have experienced
negative growth, including some of our neighboring countries in Asia. This has led to a
massive fiscal spending from countries globally which increase fiscal deficit significantly.
These measures and also some various blanked guarantee program is nothing but
intended to prevent from further deterioration of the economy and to safeguard the
financial institution/ banking industry, as the best possible and politically feasible effort to
ensure the economy enters into the recovery path.
Central bank in almost all over the world has also taken dramatic measure in
monetary policy stance by reducing policy rate in a never seen magnitude and speed with
major central banks’ policy rate close to reach ‘zero’ level. This monetary policy measure
has then been followed by various measures in its implementation via central banks’
market operation ranging from expanding eligible assets and central banks’ counterparties,
lengthening the maturity of market operation, including assets outright buying operation
and increase the size of liquidity.
The central banks measures as I mention reflects an extraordinary attempt of the
central banks to address the serious disruption in money market which has spread into the
complex channel of financial market because the crisis has caused lost of trust amongst
financial market players, which then quickly affect the credit market. The lost of
2
confidence is to some extent reflecting the overreacting behavior of market. This means a
dramatic swing of risk measuring practice from less prudent in ‘normal’ time into ‘too rigid’
and almost paranoid when the situation in reverse, as I previously mention. We also can
observe a similar situation in our domestic market.
Meanwhile, the fiscal measures as I mention are taken not without consequence as it
basically represent the heighten dilemma faced by authorities between managing
deflation risk in the short-term needed to pull the economic recovery and its long-term
consequence of potential inflation risk. The long-term potential risk tends to rise as many
parties have started to ask the possible ‘exit strategy’ from both the fiscal authority and
central bank, and it has also been reflected in the tendency of the steepening yield curve
we observe globally. This highlights that the uncertainty ahead is still quite high.
Ladies and gentlemen,
From the financial market perspective, I would like to specifically focus on one aspect
that contributes significantly on the deepness of the recent financial crisis that is,
derivative transaction. Derivative transaction, that was originally created to help in
managing risk, namely to hedge, has evolved too far. It has become too complex and has
deviated too far from its link with real economic underlying transaction, which eventually
serves in the opposite direction.
Indeed, it has become more as a ‘tool’ to enhance return, thus adding risk. Some
market players have maneuvered in this kind of transaction that tends to be traded in
over-the-counter transaction, non-standardized, lack of disclosure and relatively distance
from authority’s monitoring. But, now the regulators approach with regard to this specific
transaction has started to reverse toward ‘flight to simplicity’.
The regulation of the over-the-counter market has become one agenda in
overhauling financial market. The US authority for example, has started to enhance its
supervision by introducing new regulation on derivative transaction, including centralized
clearing and exchange trading for standardized derivative product. This just show the spirit
of having a more transparent and efficient market, as well as to ensure that the risk
always being assessed fairly.
On this particular aspect and with different magnitude we have also experienced how
delicate it is in dealing with disputes that rise amongst parties involves in this over-thecounter and complex structured product transaction. This experience also remind us that
in the future we have to have a better infrastructure that facilitate the benefit of derivative
transaction in meeting the need of business sector while preventing from excessive
misused of this kind of transaction for solely enhance return and without any economic
purpose.
3
Ladies and gentlemen,
I will now turn into our domestic economy. In general, our economy so far can be said
somewhat sheltered from global economic downturn. Though weakening, our economy
grows 4.4% in the first quarter of 2009 and along with of China and India, mark as one of
the rare economy that are still experiencing positive growth. In our case, the positive
growth is mainly because our economy is less dependent to export compare with other
export driven neighboring countries. Our domestic demand, which contribute more than
60% of GDP is quite resilience and partly supported by election spending. Against this
backdrop, we expect the economy to grow around 3.0%-4.0% for the whole 2009. We have
also observed a much better perception toward our economy which has been so pessimist
since last October 2008. Last week, IMF revised up their forecast of our economic growth
prospect in 2009 from previous 2.5% to 3%-4%. In line with the weakening demand,
inflation also drops to 6.04% in May 2009 from around 11% in 2008. For the whole 2009,
we expect inflation to subdue to the lower end of the 5%-7% range.
Our Balance of Payment has also rebalanced to a surplus of USD 4.2 billion in the first
quarter of 2009 as both export and import demand shrinks, while favorable market
sentiments invites capital inflows. We expect these conditions to continue forward. For the
whole 2009, we expect the overall balance to be in surplus of USD 6.5 billion supported by
current account surplus of USD 0.9 billion and capital and financial account surplus of
USD5.8 billion. Based on this development, the level of international reserves would be
around $56 billion in 2009, hence supportive for the stability of rupiah exchange rate.
Rupiah exchange rate that has been undervalued since the last October 2008
performs well in the recent months. Along with other regional currencies, rupiah has been
moving on an appreciating trend as the market’s risk perception toward emerging market’s
assets improves. This development is also consistent with improvements of our economic
fundamental. The rupiah appreciation recently is considered to not negatively impact our
external balance since it comes along with the Balance of Payment surplus.
Ladies and gentlemen,
Our domestic financial market has also experienced high volatility during the
development of the global financial crisis. On this area, I will focus on the impact on our
money market and banking industry. We have observed that our domestic banking sector
could be considered strong and relatively resilience, at least from a normative
measurement perspective. Their capital adequacy ratio is still around 17% in average, far
above the regulation requirement. NPL, despite showing an increasing trend is still below
5%. However, we have learnt that during the crisis, a higher CAR will benefit individual
bank.
One important aspect worth to note with regard to our domestic banking system was
that they also indicate similar behavior as I previously mention in the first part of my
speech today. They tend to become too risk averse, in particular with regard to assessing
counterparty risk. This has caused our money market to also experience a serious
4
distortion during the global crisis as shown in some money market indicators. The JIBOR 1
m spread over BI Rate has widened significantly since September last year, showing the
similar pattern with LIBOR 3 m spread in international money market. The JIBOR 1 m
spread which in normal situation below 20 bps, reach as high as 225 bps between end of
September to early of January this year. The similar situation also can be seen in spread
between Base Lending Rate (BLR) – in particular for consumer loans - over BI Rate, the
spread has increased significantly since the mid of September 2008 of around 900 bps
now. BLR has started to reach above 16% level since September 2008, despite that BI Rate
has declined 250 bps to 7% now.
Those two indicators tell us the perception of increasing liquidity risk in banking
industry, which limit the flow of liquidity amongst banks despite that the stock of surplus
liquidity in inter-bank money market is quite high as reflected in Bank Indonesia OMO
instrument of around 270 trillion now. Considering this facts, I would like to note at least
three aspects of our banking practices.
First, since 1998 our banking operates in surplus money market liquidity. Thus in
contrast with inter-bank money market in advance economy where they have daily
liquidity shortage. Hence, banking in advance economy has to borrow liquidity from
central bank through central bank open market operation. In this regard, I observe our
banking industry tend to be too complacent on liquidity risk management as they observe
that there will always be cash available in daily money market.
Second, the environment as I describe above has also led into the too much reliance
on unsecured lending/borrowing in inter-bank money market for liquidity management
purpose. Therefore, when the counterparty risk increase as we observe since the
development of the recent crises, the flow of inter-bank transaction could drop
significantly and liquidity stop to flow in money market. Each bank prefers to hold huge
amount of cash balance and place them in central bank OMO instrument. This
phenomenon has also discouraged the need to develop secured or collateralized interbank transaction, such as repo market. In this regard, Bank Indonesia has actually initiated
the development of standardized repo agreement since 2005 by inviting fixed income
market participants to establish standard repo agreement. The Indonesian version of MRA
is already available in June 2005, but the respond from market is quite marginal.
Third, the recent development in global financial market has also pointed the
potential risk in domestic banking funding strategy. Their too much reliance on traditional
third parties funding (DPK), such as current account, saving account and term deposit
should also be companied by some money market instrument in measurable manner. The
dependence on that traditional funding is reasonably fragile in liquidity management,
partly due to the increasing availability of financial market instrument and in turn lead to
unhealthy competition amongst banks.
Those three points I mention should become our next agenda in order to improve
domestic banking and financial market resilience, and in particular to encourage better risk
management in general. Particularly, considering that the surplus liquidity situation would
5
rationally would be declining from time to time in line with increasing economic activity
and changing strategy of government cash and debt management.
Another aspect that we should also aware off is the increasing need to have an
international standard of transparency and disclosure level. This includes the adoption of
International Financial Reporting Standard and International Accounting Standard, such as
PSAK 50 and PSAK 55. The lack of transparency has contributed to deepen the financial
crisis and exaggerate panic behavior in financial market.
Ladies and gentlemen,
Before I conclude my speech today, I will again remind us to always act in proper
manner, in particular with regard to risk management.
We have seen some early indications of global economic stabilization, as well as in
financial market but there are still some uncertainty ahead. However, we have also seen
indication that some market players do not change the way they do business in financial
market as indicate in the way they respond to the better than expected ‘news’. The better
than expected indicators will raise confidence amongst market players. But history told us
that confidence tends not to reflect fundamental improvement. Rather, it reflects market
gains or losses. If market indices go up regardless the speed of the movement, people feel
better and vice versa.
Thus, in respond to the recent improvement indicators we have to always keep in
mind to respond wisely. Be cautiously optimistic will possibly be much better for us to
have a more sustainable better future, rather than showing a too optimistic behavior. With
regard to domestic banking, I do hope that they can now start to adopt better risk
measurement. Hence, not to avoid risk by stop lending but to be able to prudently select
the potential business to lend. Lending into business sector is ‘what the banking is for’ to
our economy.
Finally, I do hope we have a fruitful discussion today and stance ready to have a well
preparation of the adoption PSAK 50 and 55, and look forward to see the better practice in
risk management in the challenging period ahead.
THANK YOU.
Jakarta, 10 June 2009
6
MANAGING RISK IN CHANGING ERA1
BUDI MULYA
Deputy Governor of Bank Indonesia
Ladies and Gentlemen,
I would like to thank Thomson Reuters, the organizer of today’s dialogue, for inviting
me to share and to exchange views with all of you – key persons of the Indonesian
financial market industry. It is now increasingly important for all of us to have a common
understanding in certain areas in financial market, for the benefit of all society despite that
we have different interest. Therefore, the dialogue amongst market participants as well as
with the relevant authority, like today’s event would become more relevant since we are
facing a structural change, both in financial market and in broader aspect of the economy
globally in the aftermath of the most recent global financial market turmoil.
The latest global market turbulence give us some lessons learn. As in other
catastrophe, the cause was multi facet. However, all possible causes lie with, or closely
relate to, human being behavior. More specifically they lie on how, both market players
and regulators/authorities, perceive risk. This phenomenon is somewhat in contrasts with
the fact that during the last decade, risk management has become one important topic in
financial market discussion. One most important factor we learn is that market players
tends to have ‘return illusion’. The terminology in which I refer to is a tendency of not
assessing risk properly in ‘peaceful’ situation, where the risk tends to be covered by its
high potential return, and that we – as human being - tend to be easily trapped in
complacency.
On the other hand, regulators have also too much confidence in expecting that
market discipline to work. On this respect, many have observed that financial market
regulation is considered to be too loose in particular with regard to ‘over the counter’
(OTC) transaction. Thus, traditional wisdom to prevent from a repeating tragedy is to
ensure the properness and fairness in financial market business.
In line with the tendency I just mentioned, the adoption of international financial
reporting standard is un-doubtfully should become our priority agenda, to increase
transparency and comparability of financial reporting and hence to encourage market
discipline. In turn, this will lead to better risk measurement and risk management.
I personally do hope that we all support and have a proper preparation toward the
adoption of the international accounting standard, such as PSAK 50 and 55 in due time,
that is January 2010. Today, I will not go into detail on discussing those two accounting
1
Address at Risk Indonesia 2009, a financial industry forum organized by Thomson Reuters, Grand Hyatt-Jakarta, 10
June 2009.
1
standard. But I would rather addressing more on the surrounding aspect we have learnt
from the recent crisis which I believe become more important and increasingly relevant
with the substance of PSAK 50 and 55.
Ladies and gentlemen,
I intentionally mention the behavior aspect in banking industry and in financial
market behind the biggest financial crisis in post World War II era, as a prologue of my
speech today to always remind us that the financial market failure will always be too costly
for society. This is also true in our domestic economy as we observed the 1997/98 crisis.
I will turn into what are the impacts of the global financial turmoil to our economy
after describing at glance what has been happening in global economy, to give a
background on references for our next agenda to fix and to improve our banking industry,
as well as our domestic financial market to be best fit with our economy’s need.
As we are all aware the emerge of US Sub-prime mortgage crisis about twenty
months ago, and in particular the collapse of Lehman Brother in September 2008, has a
global impact – of course with different magnitude. The impact on every economy
depends on the structure of the economy and its domestic financial market inter-linkage
with global financial market. However, we have been witnessing that the decoupling
theme almost disappear in the era of global economy, while trade and financial market
integrate. On the other side, the recent crises also prompt the change of global financial
market landscape and adjustment of the authority approach in regulating and supervising
banking industry and financial market in particular.
From a macro economy point of view, global economy growth has contracted
dramatically and trade activities squeezed. Major advanced countries have experienced
negative growth, including some of our neighboring countries in Asia. This has led to a
massive fiscal spending from countries globally which increase fiscal deficit significantly.
These measures and also some various blanked guarantee program is nothing but
intended to prevent from further deterioration of the economy and to safeguard the
financial institution/ banking industry, as the best possible and politically feasible effort to
ensure the economy enters into the recovery path.
Central bank in almost all over the world has also taken dramatic measure in
monetary policy stance by reducing policy rate in a never seen magnitude and speed with
major central banks’ policy rate close to reach ‘zero’ level. This monetary policy measure
has then been followed by various measures in its implementation via central banks’
market operation ranging from expanding eligible assets and central banks’ counterparties,
lengthening the maturity of market operation, including assets outright buying operation
and increase the size of liquidity.
The central banks measures as I mention reflects an extraordinary attempt of the
central banks to address the serious disruption in money market which has spread into the
complex channel of financial market because the crisis has caused lost of trust amongst
financial market players, which then quickly affect the credit market. The lost of
2
confidence is to some extent reflecting the overreacting behavior of market. This means a
dramatic swing of risk measuring practice from less prudent in ‘normal’ time into ‘too rigid’
and almost paranoid when the situation in reverse, as I previously mention. We also can
observe a similar situation in our domestic market.
Meanwhile, the fiscal measures as I mention are taken not without consequence as it
basically represent the heighten dilemma faced by authorities between managing
deflation risk in the short-term needed to pull the economic recovery and its long-term
consequence of potential inflation risk. The long-term potential risk tends to rise as many
parties have started to ask the possible ‘exit strategy’ from both the fiscal authority and
central bank, and it has also been reflected in the tendency of the steepening yield curve
we observe globally. This highlights that the uncertainty ahead is still quite high.
Ladies and gentlemen,
From the financial market perspective, I would like to specifically focus on one aspect
that contributes significantly on the deepness of the recent financial crisis that is,
derivative transaction. Derivative transaction, that was originally created to help in
managing risk, namely to hedge, has evolved too far. It has become too complex and has
deviated too far from its link with real economic underlying transaction, which eventually
serves in the opposite direction.
Indeed, it has become more as a ‘tool’ to enhance return, thus adding risk. Some
market players have maneuvered in this kind of transaction that tends to be traded in
over-the-counter transaction, non-standardized, lack of disclosure and relatively distance
from authority’s monitoring. But, now the regulators approach with regard to this specific
transaction has started to reverse toward ‘flight to simplicity’.
The regulation of the over-the-counter market has become one agenda in
overhauling financial market. The US authority for example, has started to enhance its
supervision by introducing new regulation on derivative transaction, including centralized
clearing and exchange trading for standardized derivative product. This just show the spirit
of having a more transparent and efficient market, as well as to ensure that the risk
always being assessed fairly.
On this particular aspect and with different magnitude we have also experienced how
delicate it is in dealing with disputes that rise amongst parties involves in this over-thecounter and complex structured product transaction. This experience also remind us that
in the future we have to have a better infrastructure that facilitate the benefit of derivative
transaction in meeting the need of business sector while preventing from excessive
misused of this kind of transaction for solely enhance return and without any economic
purpose.
3
Ladies and gentlemen,
I will now turn into our domestic economy. In general, our economy so far can be said
somewhat sheltered from global economic downturn. Though weakening, our economy
grows 4.4% in the first quarter of 2009 and along with of China and India, mark as one of
the rare economy that are still experiencing positive growth. In our case, the positive
growth is mainly because our economy is less dependent to export compare with other
export driven neighboring countries. Our domestic demand, which contribute more than
60% of GDP is quite resilience and partly supported by election spending. Against this
backdrop, we expect the economy to grow around 3.0%-4.0% for the whole 2009. We have
also observed a much better perception toward our economy which has been so pessimist
since last October 2008. Last week, IMF revised up their forecast of our economic growth
prospect in 2009 from previous 2.5% to 3%-4%. In line with the weakening demand,
inflation also drops to 6.04% in May 2009 from around 11% in 2008. For the whole 2009,
we expect inflation to subdue to the lower end of the 5%-7% range.
Our Balance of Payment has also rebalanced to a surplus of USD 4.2 billion in the first
quarter of 2009 as both export and import demand shrinks, while favorable market
sentiments invites capital inflows. We expect these conditions to continue forward. For the
whole 2009, we expect the overall balance to be in surplus of USD 6.5 billion supported by
current account surplus of USD 0.9 billion and capital and financial account surplus of
USD5.8 billion. Based on this development, the level of international reserves would be
around $56 billion in 2009, hence supportive for the stability of rupiah exchange rate.
Rupiah exchange rate that has been undervalued since the last October 2008
performs well in the recent months. Along with other regional currencies, rupiah has been
moving on an appreciating trend as the market’s risk perception toward emerging market’s
assets improves. This development is also consistent with improvements of our economic
fundamental. The rupiah appreciation recently is considered to not negatively impact our
external balance since it comes along with the Balance of Payment surplus.
Ladies and gentlemen,
Our domestic financial market has also experienced high volatility during the
development of the global financial crisis. On this area, I will focus on the impact on our
money market and banking industry. We have observed that our domestic banking sector
could be considered strong and relatively resilience, at least from a normative
measurement perspective. Their capital adequacy ratio is still around 17% in average, far
above the regulation requirement. NPL, despite showing an increasing trend is still below
5%. However, we have learnt that during the crisis, a higher CAR will benefit individual
bank.
One important aspect worth to note with regard to our domestic banking system was
that they also indicate similar behavior as I previously mention in the first part of my
speech today. They tend to become too risk averse, in particular with regard to assessing
counterparty risk. This has caused our money market to also experience a serious
4
distortion during the global crisis as shown in some money market indicators. The JIBOR 1
m spread over BI Rate has widened significantly since September last year, showing the
similar pattern with LIBOR 3 m spread in international money market. The JIBOR 1 m
spread which in normal situation below 20 bps, reach as high as 225 bps between end of
September to early of January this year. The similar situation also can be seen in spread
between Base Lending Rate (BLR) – in particular for consumer loans - over BI Rate, the
spread has increased significantly since the mid of September 2008 of around 900 bps
now. BLR has started to reach above 16% level since September 2008, despite that BI Rate
has declined 250 bps to 7% now.
Those two indicators tell us the perception of increasing liquidity risk in banking
industry, which limit the flow of liquidity amongst banks despite that the stock of surplus
liquidity in inter-bank money market is quite high as reflected in Bank Indonesia OMO
instrument of around 270 trillion now. Considering this facts, I would like to note at least
three aspects of our banking practices.
First, since 1998 our banking operates in surplus money market liquidity. Thus in
contrast with inter-bank money market in advance economy where they have daily
liquidity shortage. Hence, banking in advance economy has to borrow liquidity from
central bank through central bank open market operation. In this regard, I observe our
banking industry tend to be too complacent on liquidity risk management as they observe
that there will always be cash available in daily money market.
Second, the environment as I describe above has also led into the too much reliance
on unsecured lending/borrowing in inter-bank money market for liquidity management
purpose. Therefore, when the counterparty risk increase as we observe since the
development of the recent crises, the flow of inter-bank transaction could drop
significantly and liquidity stop to flow in money market. Each bank prefers to hold huge
amount of cash balance and place them in central bank OMO instrument. This
phenomenon has also discouraged the need to develop secured or collateralized interbank transaction, such as repo market. In this regard, Bank Indonesia has actually initiated
the development of standardized repo agreement since 2005 by inviting fixed income
market participants to establish standard repo agreement. The Indonesian version of MRA
is already available in June 2005, but the respond from market is quite marginal.
Third, the recent development in global financial market has also pointed the
potential risk in domestic banking funding strategy. Their too much reliance on traditional
third parties funding (DPK), such as current account, saving account and term deposit
should also be companied by some money market instrument in measurable manner. The
dependence on that traditional funding is reasonably fragile in liquidity management,
partly due to the increasing availability of financial market instrument and in turn lead to
unhealthy competition amongst banks.
Those three points I mention should become our next agenda in order to improve
domestic banking and financial market resilience, and in particular to encourage better risk
management in general. Particularly, considering that the surplus liquidity situation would
5
rationally would be declining from time to time in line with increasing economic activity
and changing strategy of government cash and debt management.
Another aspect that we should also aware off is the increasing need to have an
international standard of transparency and disclosure level. This includes the adoption of
International Financial Reporting Standard and International Accounting Standard, such as
PSAK 50 and PSAK 55. The lack of transparency has contributed to deepen the financial
crisis and exaggerate panic behavior in financial market.
Ladies and gentlemen,
Before I conclude my speech today, I will again remind us to always act in proper
manner, in particular with regard to risk management.
We have seen some early indications of global economic stabilization, as well as in
financial market but there are still some uncertainty ahead. However, we have also seen
indication that some market players do not change the way they do business in financial
market as indicate in the way they respond to the better than expected ‘news’. The better
than expected indicators will raise confidence amongst market players. But history told us
that confidence tends not to reflect fundamental improvement. Rather, it reflects market
gains or losses. If market indices go up regardless the speed of the movement, people feel
better and vice versa.
Thus, in respond to the recent improvement indicators we have to always keep in
mind to respond wisely. Be cautiously optimistic will possibly be much better for us to
have a more sustainable better future, rather than showing a too optimistic behavior. With
regard to domestic banking, I do hope that they can now start to adopt better risk
measurement. Hence, not to avoid risk by stop lending but to be able to prudently select
the potential business to lend. Lending into business sector is ‘what the banking is for’ to
our economy.
Finally, I do hope we have a fruitful discussion today and stance ready to have a well
preparation of the adoption PSAK 50 and 55, and look forward to see the better practice in
risk management in the challenging period ahead.
THANK YOU.
Jakarta, 10 June 2009
6