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The Central Bank of Republic of Indonesia Potensi Pengembangan Ekonomi Syariah di Indonesia Associate Prof. Dr Rifki Ismal Universal Indonesia Economic Festival 9 Maret 2013 Sekolah Tinggi Akuntansi Negara Indonesian Economy : Monetary Policy and Financial Stability – Recent Development Executive Summary 3 Indonesia’s economic growth remains robust in 2012 amidst the continuation of global economic slowdown. Contributed by buoyant consumption and investment, economic growth in the Q4-2012 reached 6.11%, and charted 6.23% for the whole year of 2012. Inflation in January 2013 remained subdued and arrive at 4.57%(yoy) which is within target range of 4.5%±1%. Financial system stability remained solid with intermediation function is improving within prudential manner: capital adequacy ratio (CAR) is well above 8% and gross non-performing loan (NPL) below 5%. In December 2012, credit growth charted 23.1% (yoy) with investment loan recorded the highest growth of 27.4% (yoy), In the Board of Governors' Meeting convened on 7 March 2013, Bank Indonesia decided to hold the BI rate steady at 5.75% in which considered consistent with low inflation forecast and contained within its target range of 4.5%±1% in 2013 and 2014. Most sectors in 2013 will grow higher than the previous year 4 GDP by Sectors 2010 GDP Agriculture Mining and Quarrying Processing Industry Electric, Gas and Clean Water Constructions Trade, Hotel and Restaurant Transport and Communication Finance Services 6.2% 3.0% 3.9% 4.7% 5.3% 7.0% 8.7% 13.4% 5.7% 6.0% Economic Structure 2013 Finance 7.0% Transportati on 6.5% Services 10.3% Agriculture 15.6% Mining 12.3-12.4% Trade 13.0% Industry 24.2.3% Constructio n 10.3% Electricity 0.8% 2011 6.5% 3.4% 1.4% 6.1% 4.8% 6.7% 9.2% 10.7% 6.8% 6.7% 2012 6.2% 4.0% 1.5% 5.7% 6.4% 7.5% 8.1% 10.0% 7.2% 5.2% Budget 2013 6.8% 3.7% 2.8% 6.5% 6.6% 7.5% 8.9% 12.1% 6.1% 6.0% Outlook 2013 6.6% 6.8% 4.1% 4.1% 0.3% 0.3% 6.3% 6.5% 6.7% 6.7% 8.8% 9.3% 8.1% 8.3% 11.7% 11.9% 6.7% 7.1% 5.7% 5.7% Contribution to Growth 2012 2013 0.51% 0.11% 1.47% 0.05% 0.49% 1.44% 0.98% 0.69% 0.49% 0.51% 0.02% 1.62% - 1.67% 0.05% 0.58% - 0.62% 1.45% - 1.5% 1.19% - 1.21% 0.65% - 0.68% 0.53% Projection for 2013: The industrial sector remains the largest contributor to growth. The agricultural sector will grow by about 4%, supported by productivity improvement programs, land, and diversification of products. Transport and communications, construction, and trade are the sector with the highest Source: Ministry of Finance Presentation on Feb 28, 2013 growth. 4 Indonesian Economy 5 Exchange Rate On January 2013, Rupiah depreciated by 0.22% (mtm) to Rp9.654 per USD, with a contained volatility. In the future, BI will continue to maintain the stability of Rupiah exchange rate consistent with its economic fundamentals. Direct Investment • Investment activity Indonesia continues on an upward trend. Total direct investment in 2010-2012 are around US$22.9 billion, US$27.9 billion, and US$34.8 billion respectively. • In 2012, direct investment exceeded government target and increased by 24.6% (yoy) Direct Investment Growth (%, yoy) 80 71.6 54.2 60 40 20.5 20.4 24.6 20 0 2006 -20 2008 2009 -14.0 Source: Ministry of Finance Presentation on Feb 28, 2013 -40 2007 -32.8 2010 2011 2012 6 Inflation pressure remain contained, with core inflation continuing to trend down … Headline Inflation 10,0 9,0 8,0 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0,0 yoy (%) December 2012 inflation: January 2013 inflation: Ytd = 1.03% Yoy = 4.3% Yoy = 4.57% Mtm= 0.54% Mtm= 1.03% Headline Inflation Ytd = 4.3% 9,17 7,02 6,44 4,50 5,67 3,72 4,57 4,61 3,56 2,41 J-09 M-09 M-09 J-09 S-09 N-09 J-10 M-10 M-10 J-10 S-10 N-10 J-11 M-11 M-11 J-11 S-11 N-11 J-12 M-12 M-12 J-12 S-12 N-12 J-13 Source: BPS, (2012) 8,0 7,5 7,0 6,5 6,0 5,5 5,0 4,5 4,0 3,5 3,0 Inflation by Component yoy (%) yoy (%) 18,25 20,00 7,39 15,00 7,48 10,00 10,59 5,00 2,49 -6,01 2,42 0,00 4,32 -5,00 3,56 -10,00 J-09 M-09 M-09 J-09 S-09 N-09 J-10 M-10 M-10 J-10 S-10 N-10 J-11 M-11 M-11 J-11 S-11 N-11 J-12 M-12 M-12 J-12 S-12 N-12 J-13 Core (LHS) Source : BPS, 2012) Inflation by Measures (percent, yoy) Source : National Bureau of Statistics Administered Price(RHS) Volatile Food(RHS) Source: Ministry of Finance Presentation on Feb 28, 2013 6 Labor productivity keeps increasing … Unemployment Rate 7 Poverty Level 11% 18% 15% 9% Sept-12: 11.66% 12% Aug-12: 6.14% 7% 5.8%-6.1% 5% 9% 9.5-10.5% 6% 2007 2008 2009 2010 2011 2012 2013 target 2007 Labor Productivity 2008 2009 2010 2011 2012 2013 target Minimum Wage 1200 80 25% Minimum Wage 70 Labour Productivity, Current Price 60 Labour Productivity, Riil Price Minimum Wage Growth 1000 20% 800 15% 50 40 600 10% 30 20 400 5% 200 10 0 0 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Ministry of Finance Presentation on Feb 28, 2013 7 8 Indonesian Banking: Recent Development Indonesian Banking Sound Financial Sector Banking industry has been more resilient, as indicated by secure level of CAR above 8% (17.3% at the end of Dec’2012) and gross NPLs managed at below 5% (1.9% in Dec’2012). Further improvement in banking intermediation is reflected in improving credit growth, recorded in December 2012 at 23.1% (yoy), in which investment credit, working capital credit, and consumption credit grew by 27.4% (yoy), 23.2% (yoy), and 19.9% (yoy). 9 Executive Summary 10 Roles of Banking in the Domestic Economy The role of the Indonesian banking is not yet optimal to support the real sector. Credit to GDP ratio is relatively low compared to the ASEAN countries. The Indonesian Credit to GDP ratio stands between 26%-32%, almost the same as Philippines and Brunei. While others, especially Thailand and Singapore has more than 100% credit to GDP ratio. Malaysia is following them with a growing ratio from 96% to 112%. As such, the are more rooms to utilize the banking sector to boost the domestic economy. % 160 140 2008 Indonesia Singapore Malaysia Phillipines Brunei Thailand 2008 26.60 106.70 96.70 29.10 35.20 113.00 2009 27.70 109.90 111.60 29.20 44.50 116.40 2010 29.10 100.00 110.70 29.60 40.90 123.90 2011 31.70 112.60 112.20 31.80 31.80 140.10 2009 120 2010 2011 100 80 60 40 20 0 Indonesia Singapore Malaysia Phillipines Brunei Thailand Indonesian Islamic Banks – Sustainable Growth and Role in Economic Development & Financial Stability Indonesia’s Islamic Bank (iB) Development 12 Rp. Triliun 250,000,000 60% ASSET (left axis) GASSET Gfinancing Gdeposit 50% 200,000,000 40% 150,000,000 30% 100,000,000 20% 50,000,000 10% 0% Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 Mei-08 Juli-08 Sept - 08 Nov-08 Jan-09 Mar-09 Mei-09 Jul-09 Sept-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Feb-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 0 Indonesia’s IB (BUS+UUS) average growth in last 5 years reach 37% for asset then 36% for financing and 38% for deposits. Whereas in 2012, the growth for asset (±34%) value Rp. 195 T, financing (±44%) value Rp.147,5 T and deposit (±28%) value Rp.147,5 T. Indonesia’s iB aset ±98% dominated by Islamic Commercial Bank (BUS) and Islamic Busines Unit (UUS). In year 2012, the IB’s (BUS+UUS) performance relatively good, reflected by : (i) optimum intermediation function with average FDR reach 97,16%; (ii) CAR beyond minimum regulation 8% with average CAR reach ±17%; and (iii) Non Performing Financing (NPF) under 5% with average 2.72% and even in December 2012 reach 2.22%. Current Growth is in line with projections 13 230,000,000 180,000,000 European Crisis 210,000,000 Islamic banks’ (BUS+UUS+BPRS) asset growing in 2012 reach Rp. 199,72 T and within BI’s previous projection scenarios between moderate scenario (Rp.187.2T) and optimistic scenario (Rp.206T). Nov-12 Sep-12 Jul-12 May-12 Mar-12 Jan-12 Nov-11 Sep-11 Jul-11 May-11 Projections 90,000,000 Mar-11 Actual Jul-12 110,000,000 May-12 60,000,000 Mar-12 130,000,000 Jan-12 80,000,000 Nov-11 150,000,000 Sep-11 100,000,000 Jul-11 170,000,000 May-11 120,000,000 Mar-11 190,000,000 Jan-11 140,000,000 Jan-11 160,000,000 Increasing number of Islamic Bank (iB) s Customer With 11 Islamic Commercial Bank (BUS), 24 Islamic Business Unit (UUS) and 156 Islamic Rural Bank (BPRS), the office network increased from 2.101 in year 2011 becoming into 2.663 (26,75%). The increasing number of iB’s customer iB’s account number (financing + deposits) increases ± 4 million accounts from ± 10.4 mio year 2011 into ± 14.4 mio in Dec’12 (38%, yoy) The significant increasing number of iB’s customer in last 4 years (average ± 31%), even growth in period 2011 – 2012 (± 38%) higher than previous period reflect the more trusted iB by Indonesia’s people for saving/invest fund More broaden customer has been serviced by Islamic banks 14 The Decreasing Growth of Non Productive Financing Share/Sector 15 The direction of more financing toward productive sector looks on the right track by the end of 2012 Decreasing growth of non productive financing share Financing growth to Non productive sector (services and others) has decelerated from 8,4% (2010 - 2011) become 0,82% (2011 – 2012) or decreasing 7,59%. The growth share of Non Productive financing type compare to productive (working capital + Investment) has decelerated from 30,09% (2010 - 2011) become 1,92% (2011 - 2012) or decreasing 28%. Data :Sept’12 Islamic Banks (iB) : Promote Financial Stability 16 Advantages as Islamic banks during current global uncertain periods: 1. 2. 3. 4. Profit and loss sharing system will be beneficial and provide fair return to all parties. With this system, islamic banks will promote social welfare as the benefit receivers need to pay zakah as part of social contribution while complying to the shariah principle. The products offered by islamic banks always use real sector transaction as its underlying; therefore, the impact of islamic financial transaction can be significant to promote economic growth Reduce potential excessive speculation since islamic finance prohibits the speculative motive. Derivatives products are prohibited by islamic principles because of the existance of gharar In the case of Indonesia: a. b. islamic banks nature is to focus on developing small and medium enterprises as the underlying, and there are relatively small risks involved Exposure to currency risk, financial sector is relatively small Indonesian Islamic Banks – Policy Direction and Prospect BI Policy: Product Innovation 1. 2. 3. 4. 18 In the current highly competitive environment, islamic banks cannot rely on standard product to attract customers. Islamic financial institutions must act and able to offer pure and genuine Islamic products that bring up the uniqueness of sharia principles that can meet customers' and investors needs BI will facilitate Working Group Discussions (with National Sharia Board and indonesia Accountant Association) to activate innovation and creativity regarding product development to attract more customers. BI will consider to improve related regulations on Islamic banking products in order to increase the efficiency of the product licensing process. In order to increase public awareness to Islamic banking products (iB financial literacy), socialization programs / public education and communication will be more focused on equality "parity" and the uniqueness of "distinctiveness" of the product Islamic banking. Islamic banks are expected to strengthen the product development unit in order to accelerate the equalization of products and service levels with conventional banks, to increase service to meet customers needs BI Policy: Emphasis Financing in Productive Sector 1. 2. 19 Bank Indonesia in its capacity will facilitate link and match program between islamic banks and industry which is prioritized by the government, such as infrastructure, agriculture, as well as others. Focus Group Discussions and business match will be the main forum to match supply and demand between banks and productive sectors. BI have facilitated several FGDs and have received positive feedbacks. In return, this will help promoting resilience of islamic banks, as well as generate higher asset growth, so that asset share of islamic banks compared to that of in conventional will gradually increase projection of 15-20% in the next decade Projection of Indonesia’s iB (BUS+UUS+BPRS): 2013 Baseline (Rp. Moderate (%) Triliun) Asset Deposit (DPK) Financing (PYD) (Rp. Optimistic (%) (Rp. Triliun) (%) Triliun) 255 36 % 269 44% 296 58% 168 17% 177 23% 186 29% 200 36% 211 43% 222 50% Growth (%) Growth (Rp. Triliun) 60,00% 300 50,00% 250 40,00% Base Pesimis line 30,00% Moderat 20,00% Optimis 200 Base Pesimis line 150 Moderat 100 Optimis 50 10,00% 0 0,00% Aset DPK 20 PYD Aset DPK PYD . 21 Wass. Wr. Wb. The End Thank You SHORT BIO 22 Associate Prof. Dr. Rifki Ismal is both a central banker and lecturer. He earned bachelor degree in economics from University of Indonesia, master in economics from University of Michigan, ann arbor (USA) and PhD in Islamic economics and Finance from Durham University (England) in 2010. An Associate Professor in Islamic Banking and Finance is from the Australian Government (Australian Center for Islamic Financial Studies). He has published more than 30 papers in international journals (especially emerald journal series – london) and will publish a book titling: Islamic bank in Indonesia (John Wiley and Sons) in March 2013.