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Ada Pertanyaan? Hubungi Kami Marcell Sihombing, Nando Narendra
Muliaman D. Hadad, Chairman of the Board of Commissioners at the OJK. Photo by: RES.
The Financial Services Authority (OJK) is currently formulating an OJK regulation which will reduce the mandatory minimum core-capital requirement for banks seeking to establish new branch offices and thus improve their efficiency. It is hoped that this new OJK regulation will be issued before the end of April 2016.
According to Muliaman D. Hadad, Chairman of the Board of Commissioners at the OJK, the mandatory minimum core-capital requirement for the establishment of branch offices will be reduced significantly. “It [the mandatory minimum-capital requirement] will probably be reduced by around 40% to 50%,” Mr. Hadad stated from Jakarta on Friday, 3 April 2016.
This anticipated 40% to 50% reduction will be granted to banks that successfully manage to reduce their Operational Expenses Against Operational Income (Beban Operasional terhadap Pendapatan Operational - BOPO) and Net Interest Margin (NIM) or Net Operating Margin (NOM) ratios below a certain threshold.
At present, OJK Regulation No. 6/POJK.03/2016on Business Activities and Branch Offices Based on Core Bank Capital (OJK Regulation) stipulates that banks are prohibited from establishing new branch offices without first satisfying the mandatory minimum core-capital requirement. Article 21 of the OJK Regulation states that the OJK may only approve the establishment of new branch offices by banks, as stipulated within a bank’s business plan, after taking the bank’s efficiency levels (which are based upon the BOPO and NIM/NOM ratios) into consideration.
Moreover, Article 29 of the OJK Regulation stipulates that the OJK may either approve or reject a bank’s application to establish a branch office within a certain area, based upon an assessment of several factors including healthy competition between businesses, efforts to achieve equitable development throughout Indonesia, and a bank’s financial inclusivity, which should offer greater financial access to productive low-income citizens.
Mr. Hadad believes that the OJK regulation currently under deliberation will act as an incentive that will encourage banks to create inventive new products. Furthermore, any reduction in a bank’s BOPO ratio should also lead to a reduction in its NIM ratio too. Indeed, Indonesia’s BOPO and NIM ratios are currently way above those of other ASEAN member countries. As a result, the country’s banking sector has to impose high interest rates on any loans that it makes in order to cover these skyrocketing BOPO and NIM ratios.
Mr. Hadad concluded his statement by revealing that the OJK regulation currently under deliberation should be finalized and issued by the middle of April 2016. The regulation was initially planned for the end of March, however there have been some delays over at the OJK.
“Banks that manage to reduce their BOPO ratios to below a certain threshold will be offered a significant reduction [to the mandatory minimum core-capital requirement]. The more that a BOPO ratio is reduced, the bigger the reduction that will be offered as regards the establishment of any new branch offices,” Mr. Hadad concluded.
Meanwhile, according to recent research conducted by Henan Putihrai (HP Financial) and published on 11 April 2016, banks that successfully manage to reduce their BOPO and NIM ratios to below a certain threshold should positively incentivize the banking sector as a whole, especially those banks which are planning to expand their businesses. This capital incentive, it is believed, should help to reduce the high cost of funding for the banking sector and ultimately enable banks to lower their loan interest rates.
By way of example, the average BOPO ratio for conventional banks, as of January 2016, was set at 84.84% (increasing 271 bps, year-over-year), while the average NIM ratio was set at 5.63% (increasing 139 bps, year-over-year).
“The government’s effort to improve banking efficiency through the offering of incentives which will minimize BOPO and NIM ratios should make a positive contribution [to the banking sector],” HP Financial asserted in its recent analysis of the sector.
(rfs/sp)
Marcell Sihombing, Nando Narendra
Muliaman D. Hadad, Chairman of the Board of Commissioners at the OJK. Photo by: RES.
The Financial Services Authority (OJK) is currently formulating an OJK regulation which will reduce the mandatory minimum core-capital requirement for banks seeking to establish new branch offices and thus improve their efficiency. It is hoped that this new OJK regulation will be issued before the end of April 2016.
According to Muliaman D. Hadad, Chairman of the Board of Commissioners at the OJK, the mandatory minimum core-capital requirement for the establishment of branch offices will be reduced significantly. “It [the mandatory minimum-capital requirement] will probably be reduced by around 40% to 50%,” Mr. Hadad stated from Jakarta on Friday, 3 April 2016.
This anticipated 40% to 50% reduction will be granted to banks that successfully manage to reduce their Operational Expenses Against Operational Income (Beban Operasional terhadap Pendapatan Operational - BOPO) and Net Interest Margin (NIM) or Net Operating Margin (NOM) ratios below a certain threshold.
At present, OJK Regulation No. 6/POJK.03/2016on Business Activities and Branch Offices Based on Core Bank Capital (OJK Regulation) stipulates that banks are prohibited from establishing new branch offices without first satisfying the mandatory minimum core-capital requirement. Article 21 of the OJK Regulation states that the OJK may only approve the establishment of new branch offices by banks, as stipulated within a bank’s business plan, after taking the bank’s efficiency levels (which are based upon the BOPO and NIM/NOM ratios) into consideration.
Moreover, Article 29 of the OJK Regulation stipulates that the OJK may either approve or reject a bank’s application to establish a branch office within a certain area, based upon an assessment of several factors including healthy competition between businesses, efforts to achieve equitable development throughout Indonesia, and a bank’s financial inclusivity, which should offer greater financial access to productive low-income citizens.
Mr. Hadad believes that the OJK regulation currently under deliberation will act as an incentive that will encourage banks to create inventive new products. Furthermore, any reduction in a bank’s BOPO ratio should also lead to a reduction in its NIM ratio too. Indeed, Indonesia’s BOPO and NIM ratios are currently way above those of other ASEAN member countries. As a result, the country’s banking sector has to impose high interest rates on any loans that it makes in order to cover these skyrocketing BOPO and NIM ratios.
Mr. Hadad concluded his statement by revealing that the OJK regulation currently under deliberation should be finalized and issued by the middle of April 2016. The regulation was initially planned for the end of March, however there have been some delays over at the OJK.
“Banks that manage to reduce their BOPO ratios to below a certain threshold will be offered a significant reduction [to the mandatory minimum core-capital requirement]. The more that a BOPO ratio is reduced, the bigger the reduction that will be offered as regards the establishment of any new branch offices,” Mr. Hadad concluded.
Meanwhile, according to recent research conducted by Henan Putihrai (HP Financial) and published on 11 April 2016, banks that successfully manage to reduce their BOPO and NIM ratios to below a certain threshold should positively incentivize the banking sector as a whole, especially those banks which are planning to expand their businesses. This capital incentive, it is believed, should help to reduce the high cost of funding for the banking sector and ultimately enable banks to lower their loan interest rates.
By way of example, the average BOPO ratio for conventional banks, as of January 2016, was set at 84.84% (increasing 271 bps, year-over-year), while the average NIM ratio was set at 5.63% (increasing 139 bps, year-over-year).
“The government’s effort to improve banking efficiency through the offering of incentives which will minimize BOPO and NIM ratios should make a positive contribution [to the banking sector],” HP Financial asserted in its recent analysis of the sector.
(rfs/sp)