Sunday, October 30, 2011

INDONESIA - REGULATIONS - OJK Bill Approved

TEMPO Interactive, Jakarta:Indonesia's parliament on Thursday approved a long-delayed bill creating a new regulator to oversee a growing financial industry in Southeast Asia's largest economy but faced widespread skepticism on how effective the watchdog would be.

The new regulator, to be known as the OJK, will take over the supervision of banks, brokerages and insurance firms from the central bank and capital market watchdog Bapepam-LK starting from 2013.  (source)


OJK, or Otoritas Jasa Keuangan, translates as Financial Services Authority and is based in part on the UK's FSA.
The move to create the body came about to avoid a repeat of the 1997/98 financial crisis, during which many Indonesians banks collapsed or were shut.

However, analysts say Bank Indonesia (BI) has improved banking supervision in recent years, and some were skeptical whether the OJK could do a better job than the central bank at a time of global economic uncertainty rooted in the euro zone crisis and U.S. woes.

"The banking sector is confused on why the OJK should be founded because Bank Indonesia's supervision is good...Our banks have the strongest financial indicators in Southeast Asia due to Bank Indonesia's role," said Juniman, an economist at Bank Internasional Indonesia (BII) in Jakarta.

"This is a political decision," he added.

In the 2008 global credit crisis, Indonesia's banks were well capitalised and mostly escaped unscathed, though the government bailed out one small lender over fraud, creating a political storm that later brought down the finance minister.

Lawyers said Bank Indonesia's long history as banking regulator means the new body may struggle to avoid the central bank's influence.

"BI, which has been a part of Indonesia from day one, will certainly out-rank OJK in terms of their know-how, experience and in-depth knowledge of Indonesian monetary (policy) and banking," said Indri Pramitaswari Guritno, a partner at Hadiputranto, Hadinoto & Partners, a Jakarta law firm.

"Taking this into account, purely from a logical perspective, there could be a possibility that BI will still be given certain autonomy," she added.

NO OWNERSHIP LIMITS

Indonesia is currently the only emerging market in Asia with almost no ownership limits on banks. It is one of Asia's most fragmented banking markets, and foreign lenders control about one-quarter of the country's outstanding loans.

The bill creating the OJK was meant to be approved last year, but lawmakers long wrangled over the composition of its nine-member board of commissioners.

They agreed last week that the central bank and finance ministry would each be allocated one seat. The president will nominate candidates, who must be approved by parliament, for the other seven seats.

The commissioners, who will have a five-year term, should not hold other posts in financial institutions or political parties to ensure independency, according to a draft of the bill seen by Reuters.

"The OJK is outside the government, which means the OJK is not under the government's authority," Finance Minister Agus Martowardojo told parliament in a speech on Thursday.

The bill stipulates the creation of a forum to manage a crisis, whose members would include the finance minister, the central bank governor and OJK's head of commissioners.

The OJK will also be responsible for granting banking licenses, currently the responsibility of the central bank, according to the draft.

Bank Indonesia has been reluctant to relinquish its supervisory role over commercial banks on fears this will reduce its effectiveness in policy making, especially at times of crisis.

It has also been trying to get tougher on fraud, slapping strong sanctions on Citibank in May following alleged embezzlement by one of its wealth managers.

"What's important is for the supervision of systemically important banks -- if possible we won't need to ask for permission from the OJK to do this," said central bank spokesman Difi A. Johansyah.

IT WILL TAKE TIME

Lawyers said it will take a while for the new regulatory body to be up and running, meaning banks were likely to face a prolonged period of uncertainty.

"There will likely continue to be legal uncertainty especially during the transition period, and more of a need for good guidance and policy from the regulators who are assigned to the various posts," said Melli Dara, managing partner of law firm Melli Darsa & Co.

"This is where the other challenge will arise, as in this political and legal climate, regulators are neither incentivized nor motivated to provide sensible and practical solutions outside what is clearly set out in (existing) regulations," she added.

Indonesia's central bank has temporarily barred takeovers in the banking sector, citing coming ownership rules, which has spawned uncertainty about the regulatory environment and already scuttled some prospective cross-border deals.

"As a bank, whoever becomes the supervisor, BI or OJK, we will comply with existing regulations," said Zulkifli Zaini, CEO of state Bank Mandiri, Indonesia's largest bank by assets.

BLOOMBERG 


Source : http://www.tempointeractive.com/hg/nasional/2011/10/28/brk,20111028-363837,uk.html  - Oct 28, 2011

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