Download Bank Indonesia – 7th Annual International Seminar

Bank Indonesia – 7th Annual International Seminar
Large Complex Financial Institutions: Too Big to Manage? Too Big to Regulate?
STRICTLY PRIVATE AND CONFIDENTIAL
Topic: Are Large Financial Institutions Too Big to Manage and Regulate?
There are examples of large well-managed financial institutions and of countries with success in regulating the financial industry
 Current financial context makes comparisons difficult – both big and small financial institutions affected
Management
 Institutions in the FDIC’s Failed Bank List (65 since Jan 2007) come in all shapes and sizes
 Some large financial firms have been well managed through the crisis: JP Morgan, HSBC
 Historical Analysis - 2004 data shows little significant difference by Asset Size
Total Assets
>US$100bn
US$40bn to US$100bn
US$20bn to US$40bn
US$5bn to US$20bn
US$1bn to US$5bn
# of US
Institutions
(public)
10
16
16
64
196
Efficiency
Ratio (%)
57.70%
53.98%
53.77%
56.53%
57.60%
ROAA (%)
1.39%
1.31%
1.45%
1.29%
1.14%
Non-Interest
Expense /
Assets (%)
3.45%
2.95%
2.85%
2.35%
3.12%
- Given how close the numbers
are – no clear statistical
correlation between
profitability and size
Source: ANL DataSource
 Observations of successful big firms
 World-class management and controls
 Effective use of technology to achieve scale while increasing convenience and maintaining service
 Strong culture
 Governments’ responsibility: not regulate firms but the industries they compete in and products they sell
Regulations
 Financial crisis was also the result of regulatory “misses”, which were wide in scope. Examples:
 US Congress:
 Banking: deregulation repealing banking provisions in Glass-Steagall
 Mortgages: lowering minimum down-payments
 CDS: Commodity Futures Modernization Act allowing trade of Credit-default swaps with limited
oversight
 Federal Reserve: in 2001, the Fed funds rate was reduced 11 times from 6.5% to 1.75%
 HUD: require Fannie Mae to dedicate 50% of its business to “low- and moderate-income families”
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STRICTLY PRIVATE AND CONFIDENTIAL
Indonesia Focus – Banking Sector
Of the top 10 banks in Indonesia, 73% of assets are owned by state-owned entities
 Stability - ownership structure of large banks in Indonesia provide stability
Name
Bank Mandiri Tbk PT
Bank Rakyat Indonesia
Bank Central Asia Tbk PT
Bank Negara Indonesia Persero Tbk PT
Bank Danamon Indonesia Tbk PT
Bank CIMB Niaga Tbk PT
Bank Pan Indonesia Tbk PT
Bank Internasional Indonesia Tbk PT
Bank Permata Tbk PT
Bank Mega Tbk PT
Total Assets (IDR bn)
358,438,700
246,076,900
245,569,900
201,741,100
107,268,400
103,197,600
64,391,920
56,855,130
54,059,520
34,860,870
Majority Owner
State-owned
State-owned
Djarum Group
State-owned
Singapore
Malaysia
Panin Group
Singapore
Standard Chartered / Astra Group
Para Group
Total Top 10
1,472,460,040
State-owned or Equivalent
1,073,577,830 73% of Top 10
Note: Total bank assets IDR2,311 trn
 Impact of 1997/1998 crisis – “conservative” regulations
Indonesia Financial Sector Loans and Deposits
Total Assets (Rp trn)
CAR (%)
Gross NPLs (%)
NII (%)
ROA (%)
2004
1,272
19.4%
5.8%
5.5%
3.5%
2006
1,694
20.5%
7.0%
6.9%
2.6%
2008
2,311
16.2%
3.8%
9.4%
2.3%
 Better coordination between government and Bank Indonesia (e.g. Bank Century case)
 Continued tight regulatory oversight and policies
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STRICTLY PRIVATE AND CONFIDENTIAL
Indonesia Focus – Financial Sector Proportion in the Economy
The banking sector still represents a small part of the Indonesian economy
 Financial sector in the economy - financial sector still represents a small part of the economy in Indonesia vs. industrialized countries
Indonesia GDP By Sector
2,082
IDR bn
1,738
1,847
10%
13%
Other
Transportation & Communication
Mining
Services
Financial Services
9%
Agriculture
Hospitality & Trade
Manufacturing
Source: Bank Indonesia
 Size of the economy has also likely limited the size of banks
 Domestic Consumption driven GDP – natural diversification of risk
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STRICTLY PRIVATE AND CONFIDENTIAL
Indonesia Focus – Financial Supervision
As Indonesia grows, financial supervision might change
 Internationalization - as Indonesia grows through increased FDI and focus on exports, the weight of the financial
services sector in the economy will grow and naturally become more international
 Link to natural resources
 Need for collaboration between government agencies, ministries and sectors
 Potential future changes in regulatory structure
 Bapepam – LK
 BI (independent)
 New regulatory body: FSA (UK), MAS (Singapore)
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