Gambaran Umum i

BSR
Banking Supervision Report
2005

i
Vision:
≈To be recognized, domestically and internationally, as a credible central bank
through the strength of our values as well as the achievement of low, stable rates of inflation∆

Mission:
≈To achieve and maintain rupiah stability by maintaining monetary stability and
by promoting financial system stability for Indonesia»s long-term sustainable development∆

Strategic Values of Bank Indonesia:

≈Principles that represent the foundation of Bank Indonesia, its management and employees
are Competency, Integrity, Transparency, Accountability and Cohesiveness∆

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Table of Contents

Table of Contents iii Chapter 3 Banking Supervisory Framework 27

A. Objective and Strategy of
Foreword vii
Bank Supervisory 29
Executive Summary xi B. Enhance the Effectiveness of
Commercial Bank Supervisory 29
Chapter 1 Banking System Overview 1
1. Risk Management Implementation 30
A. Banking Structure 3
2. Good Corporate Government Implementation 31
B. Commercial Banks 3
3. CAMELS Rating System Implementation 34
1. Growth of Total Commercial Banks and Bank
4. Know Your Customer Implementation 34
Offices 3
5. Commercial Bank Business Plan Implementation 36
2. Composition of Commercial Banks based on
6. The Impact of Mutual Fund 40
Ownership 4
C. Enhance the Effectiveness of
3. Share of Large Banks 4
Sharia Bank Supervisory 44
4. Share of Foreign Acquisition Banks 4
D. Enhance the Effectiveness of Rural Bank
C. Sharia Commercial Banks 5
Supervisory 45
D. Rural Banks 6
E. Banking Licensing and Information System 46
E. Sharia Rural Banks 6
1. Bank Management and Ownership Licensing 46
a. Commercial Bank 46
Chapter 2 Banking Policy and Regulation 7
b. Sharia Bank 47
A. Banking Policy Direction 9
c. Rural Bank 47
1. The Indonesian Banking Architecture 10
2. Banking Sector Management Information
a. Internal Consolidation of Bank Indonesia 10
System 48
b. Strengthen The Banking Structure 17
F. Banking Investigation and Mediation 50
c. Develop The Micro and Medium Enterprise 17
1. Banking Fraud Investigation 50
d. Improve The Customer Protection 18
2. Mediation of Customer and Bank Dispute 51
2. Towards The Implementation of Basel II 18
B. Sharia Banking Policy Direction 20
Chapter 4 Banking Performance 53
C. Rural Banking Policy Direction 21
A. Commercial Banks Performance 55
D. Banking Regulation in 2005 24
B. Sharia Banks Performance 61
C. Rural Banks Performance 64

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Chapter 5 Strengthen the Banking List of Appendices
Infrastructure 69 1. Indonesian Banking Architecture 85
A. Establishment of the Financial Sector Safety Net 69 2. List of Banking Regulation 2005 91
B. Establishment of the Deposit Insurance Institutions 72 3. Banking Key Indicators as of September 2005 97
C. Establishment of the Credit Bureau 73 4. Banking Key financial Ratio as of September 2005 102

Chapter 6 Banking Policy Direction 2006 75

A. Commercial Banking 77
B. Sharia Banking 78
C. Rural Banking 81

List of Boxes

Banking Policy and Regulation Strengthen the Banking Infrastructure

2.1 The 25 Basel Core Principle Compliance 11 5.1 The Facility of Emergency Fund Facility 70
2.2 Consolidation of The Banking
Sector Program 13 Banking Policy Direction 2006
2.3 Banking Sector Human Resources 6.1 Stakeholders» Challenges and Hopes for the
Development 14 Development of Sharia Banking 80
2.4 Risk Based Supervision 16 6.2 Develope BPR Capacity by Encouraging Credit
Distribution to the Agricultural Sector 81
Banking Supervisory framework
3.1 Good Corporate Governance 33
3.2 Know Your Customer/Anti Money Loundering
and Anti Money Laundering Criminal Law 35
3.3 The Barriers of State-owned Bank Non
Performing Loans Settlement 38
3.4 The Mutual Funds Case of Bank Global
(Management Integrity as a Key Factor) 41
3.5 The Mutual Funds Case of PT Bank Negara
Indonesia Tbk. 43

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List of Tables and Figures
Tables Figures

1.1 Commercial Bank Ownership 1.1 Number of Commercial Banks

1.2 Share of Commercial Bank based on Ownership 1.2 Share of 15 Largest Banks

1.3 Share Commercial Bank Ownership based on Foreign

Ownership 4.1 Loan to Deposit Ratio

1.4 Growth of Sharia Banks and Sharia Banks Offices 4.2 Earning Assets

1.5 Growth of Rural Banks Offices 4.3 Growth of Credit

1.6 Growth of Sharia Rural Banks 4.4 Growth of MSM Scale - Enterprise Loan
4.5 MSM Scale - Enterprise NPL

2.1 The Basel II Implementation Roadmap 4.6 Growth of Bank Loan based on Ownership
4.7 Growth of Loan based on Economic Sector

3.1 Commercial Banks Ratings 4.8 Share of Loan based on Economic Sector

3.2 Plan and Actual Examination Progress of Rural Banks 4.9 Growth of NPL

3.3 Fit and Proper Test for Prospective Commercial Banks 4.10 NPL and Loan

Managers and Owners/Ultimate Share Holders 4.11 Loan , NPL and Productive Asset Write-off Reserve

3.4 Fit and Proper Test for Prospective Rural Banks 4.12 Liquidity to NCD

Managers and Owners/Ultimate Share Holders 4.13 Growth Deposit based on in Rupiah and Foreign

3.5 Number of Banking Investigation Currency

3.6 Number of Customer and Bank Dispute 4.14 Growth of ROA

4.15 Growth of Asset, Deposit, Allocated Financing of

4.1 Banking Key Indicators Sharia Commercial Bank & Sharia Banking Unit

4.2 Composition of Sharia Commercial Bank Deposits 4.16 Non Performing Financing

4.3 Composition of Sharia Commercial Bank Financing

4.4 Sharia Commercial Banks Key Indicators
4.5 Growth of PUAS and SWBI
4.6 Rural Banks Key Indicators

Box Tables
2.1.1 The 25 of BCP Compliance
2.3.1 The Training Realization in 2005

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vi
 Foreword

Praise the Lord for His blessing such that the Banking Supervision Report 2005, which is the second edition of

Bank Indonesia»s performance report in regulating and supervising banks, is successfully published as evidence of
Bank Indonesia»s transparency and accountability to its stakeholders and the public.
This report details all of Bank Indonesia»s efforts in performing its duty in setting the rules, issuing and

retracting permits for bank institutions and certain banking activities, supervising and imposing sanctions on
banks, albeit commercial banks, Rural Banks (BPR) or Sharia Banks. In general, the main aspects covered in this
report are as follows: (1) Structure and Development of the Banking Network; (2) Banking Policy and Regulation;

(3) Banking Supervision; (4) Banking Performance; (5) Improvements in Banking Infrastructure; and (6) Direction
of Banking Policy in 2006. Furthermore, pertinent information and relevant issues concerning banking supervision
and regulation are presented effectively in boxes.

Various steps and measures taken by Bank Indonesia to facilitate the restoration of post-crisis banking conditions,
which include programs to recover public trust, recapitalization, credit restructuring and the improvement of banking
terms, along with enhancement of bank supervision, have shown significant progress. Therefore, Bank Indonesia

continues its efforts to maintain and protect sustainable economic stability through a stronger and more effective
banking system, improvements in the national banking structure and to foster rapid growth.
A robust national banking structure is the key foundation of a banking industry capable of serving the public»s

requirements in the globalization era. In conjunction with this, Bank Indonesia has consistently promoted the
banking consolidation process, which will be implemented in 2006 as per the Indonesian Banking Architecture
(IBA) program. In addition, to bolster financial and banking operations, as well as support the implementation of

intermediation, Bank Indonesia states four policies in 2005 as follows: (1) Resume the consolidation process; (2)
Strengthen banking infrastructure; (3) Improve prudential banking principles; and (4) Enhance intermediation.
Despite confronting uncompromising challenges, the performance of the banking industry in 2005, including

Commercial Banks, BPR and Sharia Banking, shows relatively positive progress. Significant hikes in fuel prices,
leading to rising domestic interest rates, inevitably placed additional pressures on the growth of banking services.

vii
In spite of this, however, banking industry performance in general has shown improvements in intermediation,
which is supported by the profitability ratio, liquidity and adequate capital. Furthermore, confidence in banking
has been retained due to the narrowing of the insurance range since April 2005 and the establishment of the

Deposit Insurance Corporation in September 2005.

Finally, this report is expected to provide useful information, in particular to stakeholders and the general
public.

DEPUTY GOVERNOR

BANK INDONESIA

Maman H. Somantri

viii
 Banking Supervision Report

Executive Summary

Executive Summary ix
Banking Supervision Report

x Executive Summary

Executive Summary
Despite this past year of 2005 being replete with
challenges, the banking industry maintained positive
performance. The year was filled with external turbulence,
in particular stemming from hikes in the global oil price,
which aggravated inflation and disturbed macroeconomic
stability. Against this backdrop, domestic interest rates
climbed, which inevitably placed additional pressure on
the growth of banking services.
To overcome such difficulties, Bank Indonesia
consistently improves the banking sector through four
main policies: (1) Accelerate the consolidation process; (2)
Strengthen infrastructure; (3) Improve prudential banking
principles; and (4) Enhance the role of banking
intermediation. These four policies are contained within
the Indonesian Banking Architecture (IBA) program, which
has achieved satisfactory progress in 2005. In the
implementation of all stated policies, Bank Indonesia
defined and refined various terms intended to improve
prudential banking principles and intermediation,
strengthen banking institutions, expand micro, small and
medium-sized enterprises (MSME) as well as support the
availability of the Financial System Safety Net (FSSN).
In the meantime, to bolster sharia banking industry
structure, Bank Indonesia»s policy emphasizes four key
areas: (i) Compliance to sharia principles; (ii) Compliance
to prudential banking principles; (iii) Efficiency of
operations and competitive advantage; and (iv) Stability
of the system and benefit to economy. Consequently,
Bank Indonesia has refined terms concerning capital and
the short-term funding facility of commercial syariah
banks, product certification and sharia banking
transparency, as well as monthly reports from Sharia Rural
Banks (BPRS).
Banking Supervision Report
Subsequently, to set the development policy and
strategy of rural banks, Bank Indonesia has focused on
five steps underscoring the usage and rise of BPR
competitive advantage in conjunction with Pillar I of
Indonesian Banking Architecture: (1) Improve BPR
arrangement; (2) Enhance supervision effectiveness; (3)
Reinforce institution building; (4) Augment capacity
building; and (5) Encourage the expansion of rural banks
beyond Java and Bali. Against this backdrop, in 2004, Bank
Indonesia refined its terms regarding institutions, human
resources, and BPR operations.
In terms of supervision and examination, in 2005,
Bank Indonesia improved the implementation intensity of
on-site and off-site, risk-based supervision and
examination, which have been carried out effectively since
2003. The development of the supervision system has
conformed to international best practices and standards
as stated in The 25 Basel Core Principles for Effective
Banking Supervision. The compliance of Bank Indonesia
to the 25 Basel Core Principles (BCP) significantly improved
and, in general, Bank Indonesia has been able to
successfully meet 22 of the principles. Furthermore,
internally, Bank Indonesia continues its commitment to
improve banking supervision effectiveness by enhancing
the organization of the supervision sector through a
dedicated team. Supervision and examination will be
combined to ensure maximum commitment in performing
consolidated supervision. This enhancement is intended
to optimize the enforcement of all prudential terms and
policies.
In order to support law enforcement in the banking
sector and to resolve customer complaints more quickly
and efficiently, the Special Unit for Banking Investigation
Executive Summary xi
Banking Supervision Report
of Bank Indonesia changed its status to the Directorate of
Banking Investigation and Mediation (DBIM). In line with
such status and name changes, and in addition to DBIM»s
responsibility for investigating criminal conduct in banking,
DBIM has undertaken a new duty; that is to carry out
banking mediation, which represents an alternative dispute
remedial action to customers, especially customers of
MSMEs.
In general, banking performance continued to show
positive progress regardless of prevalent risk pressure
stemming from unfavorable economic conditions,
especially during the second half of 2005. The amount of
fund disbursals and deposits continued to rise for
commercial banks, rural banks, and sharia banks, which is
also supported by adequate capital. A slight drop in
profitability was recorded during the reporting year due
to rising operational costs driven by the mounting interest
rate in the third quarter of 2005.
In 2005, total assets of commercial banks amounted
to Rp197.5 trillion, followed by a credit increase of Rp135.1
trillion or around 22.7%, which exceeded the target growth
of 22%. Deposits significantly grew by Rp164.8 trillion
(approximately 17.1%). This implies that around 82% of
public deposits managed within the reporting period were
disbursed in the form of credit as reflected by the rising
Loan-to-Deposit Ratio (LDR); from 61.8% (December 2004)
to 64.7% (December 2005). This shows that intermediation
in the banking sector continues to strengthen. Nevertheless,
the credit risk of commercial banks tend to increase, which
was reflected by the higher Non Performing Loan (NPL) gross
ratio for commercial banks; from 5.8% (December 2004)
to 8.3% (December 2005). Meanwhile, net NPLs increased
from 1.7% to 4.8% within the same period, but this figure
remained below the maximum limit of 5% stated by Bank
Indonesia. As for micro, small and medium (MSM) credit,
the rising trend of the NPL gross ratio decelerated; from
3.2% to 3.7%.
xii Executive Summary
Sharia banking also remained relatively buoyant. Firstly,
intermediation of sharia banking, whose portfolio is
dominated by funding small and medium enterprises,
strengthened and the Financing-to-Deposit Ratio (FDR) stood
at 97.8%. However, this condition was followed by
heightened financing risk as shown by the climbing of Non-
Performing Financing Ratio, which stood at 2.8%. Despite
the increased risk remaining within relatively safe limits, tight
monitoring was required due to the lack of enjoyable growth
shown in economic conditions. Secondly, reported 36.2%
growth in total assets expanded sharia banks» total asset
share of national banks» total assets by 1.3% at year end.
The performance of rural banks (BPR) remained
positive. BPR total assets grew by as much as 22.1% with
the largest allocation for credit disbursals. Financing
continued to show steady growth following a positive trend
accumulating to 18.1%. This shows that the advancement
of BPR credit primarily stemmed from deposits. The number
of customers rose from 5.8 million to 6 million, which
indicates that the BPR market remains promising and public
trust in rural banks continues to strengthen.
Amidst external uncertainty, the Indonesian economy
in 2006 is expected to depend on the dynamics of internal
and external pressures. Spurring the momentum of
economic growth is very much determined by coherence
and synergy between monetary policy, fiscal policy and
the real sector. From a monetary point of view, Bank
Indonesia will continually strive to reduce inflation to
around the 8% level, which will gradually bring down
interest rates, and thus drive consumption and private
investment. From a fiscal point of view, fiscal stimuli
through consumption and government investment will
rapidly push the economic recovery, particularly if the
potential investment is realized within the first quarter of
2006. In the real sector, economic prospects will become
more dynamic if planned infrastructure projects can be
brought to fruition.

If the coordination of these policies is performed well,
it is expected that, commencing in the second half of 2006,
economic growth will be buoyed not only by consumption
but also investment, and overall, GDP growth in 2006 will
optimistically achieve 5.0 to 5.7%. With regards to
financing, economic growth is anticipated, providing banks
are capable of maintaining their credit disbursals» rate
similar to the previous year.
Banking Supervision Report
The year 2006 represents the start of a five-year
program of full-implementation of all organized IBA
concepts. In the short term, the policy to bolster the
banking structure will focus on banking expansion to
maintain its contribution in financing development. In the
interim, over the medium-to-long term, policy will
concentrate on improving banking foundations and further
exploring several IBA programs, including the application
of Basel II concepts.
Executive Summary xiii
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 Banking Supervision Report

Chapter 1
Banking System Overview

Banking System Overview 1

Banking Supervision Report

2 Banking System Overview


Chapter 1
Banking System Overview
A. BANKING STRUCTURE
Based on the prevailing Law1, Indonesian banking
consists of two systems: conventional bank activities and/
or activities based on sharia principles. Based on the
categories, conventional banks comprise of commercial
banks, including their overseas representatives and branch
offices, and rural banks (BPR). The most significant aspects
that distinguish commercial banks from rural ones are their
activities, legal formation and ownership.
Based on their activities, commercial banks may
perform activities conventionally and/or based on sharia
principles, whereas rural banks specialize in one particular
activity only. Furthermore, in the course of their activities,
commercial banks may issue cheques and provide services
involving foreign currencies, while rural banks perform no
such activities in view of their limited operational coverage
and status as community banks.
With regard to legal formation, both commercial and
rural banks can take the form of a Limited Liability
Company, Cooperation, or Regional Enterprise. The
difference being that rural banks can take one of the forms
stated above as well as other forms stated in government
regulations. The legal formation of overseas representatives
and branch offices follows the legal framework of their
head office.
With regards to ownership, commercial banks are
owned by either the government (State-owned Banks),
national private (National Private Commercial Banks), joint-
venture private (Joint-Venture Banks), foreign-owned
private (Foreign Banks) along with their representatives
1
Law No. 7 Year 1992 on Banking which was amended by Law No. 10 Year 1998
Banking Supervision Report
and branch offices, or regional government (Regional
Development Banks). In contrast, rural banks can solely
be owned by Indonesian citizens, Indonesian legal entities
whose owners are all Indonesian citizens, regional
governments or a combination of the three.
B. COMMERCIAL BANKS
1. Growth of Total Commercial Banks and Bank
Offices
The commercial banks» office network has grown
enormously, particularly since banking the deregulation
package issued in 1988 (October Package 88). Post October
Package 88, the number of commercial banks rose from
11 banks with 1,957 offices to 239 banks with 7,314
offices at year end 1996, dominated by the establishment
of Foreign Exchange and Non-Foreign Exchange National
Private Commercial Banks. However, since the banking
crisis in 1997, the number of commercial banks has
continued to drop as a result of government liquidation,
mergers and self-liquidation.
Over the past two years, the number of banks has
fallen by 7, from 138 in 2003 to 131 at the end of 2005.
The drop was driven by the self-liquidation of a Joint-
Venture Bank (ING Bank), liquidation of two commercial
banks (Bank Asiatic and Bank Dagang Bali), and the merger
of three commercial banks (Bank Pikko, Bank CIC, and
Bank Danpac) into Bank Century in 2004; and the
liquidation of a commercial bank (Bank Global) and the
merger of two commercial banks (Bank Artha Graha and
Bank Interpacific) into Bank Artha Graha International in
2005.
Banking System Overview 3
Banking Supervision Report

3. Share of Large Banks

9000
7878 7661 7730
The banking industry is dominated by 15 banks that
8000
7314 7113 6765 8236
7939
7000 have significant effects on banking system stability. Their
7001
6000 6547 share of total assets reached 73.9%, of credit 70.0%, and
5000
4000 73.4% of deposits in December 2005.
3000
2000
1957
1000 111 239 222 206 162 151 145 141 138 138 131
0 Billion Rp
1988 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
1,200,000,000
Total Bank Total Offices
1,000,000,000
Graph 1.1
Number of Commercial Banks 800,000,000

600,000,000

2. Composition of Commercial Banks based on 400,000,000

200,000,000
Ownership
-
Based on the ownership of commercial banks, there Credit Total Assets Third Party Funds
15 Largest Banks Other Banks
are six categories of commercial banks: State-Owned Banks
Graph 1.2
(Banks owned by government), Foreign Exchange National Share of 15 Largest Banks
Private Commercial Banks (BUSN Devisa), Non-Foreign
Exchange National Private Commercial Banks (BUSN Non-
Devisa), Regional Development Banks (BPD - banks owned 4. Share of Foreign Acquisition Banks
by regional governments), Joint-Venture Banks (National The implementation of a Divestment Program
and foreign-owned banks), and Foreign Banks. Regardless conducted by the government on several National Private
of these categories, Bank Indonesia institutes the same Commercial Banks changed the participatory mapping of
supervision policy to all commercial banks. banking in Indonesia with the existence of foreign
The number of commercial banks based on their acquisition banks. This program illustrates the significance
ownership in December 2005 changed slightly compared of joint foreign ownership in national banking. As of
to those in December 2004. December 2005, the number of banks categorized as
banks whose shares are owned by a foreign party reached
Table 1.1
Commercial Bank Ownership 37 banks, with their share of total assets representing

No. Kelompok Bank

December 2004 December 2005 39.7% of the banking industry, or only 6.0% less than
Total % Total % the total asset share of State-Owned Banks/Regional-
1 State Owned Banks 5 3,7 5 3,8
Owned Banks.
2 Foreign Exchange
Commercial Banks 35 26,1 34 26,0 Foreign acquisition banks have more total assets than
3 Non Foreign Exchange
any other subcategory of foreign banks.
Commercial Banks 38 28,4 37 28,2
4 Regional Development
Banks 26 19,4 26 19,9
5 Joint Venture Banks 19 14,2 18 13,7
6 Foreign Owned Banks 11 8,2 11 8,4
Total 134 100 131 100

4 Banking System Overview

 Banking Supervision Report

C. SHARIA COMMERCIAL BANKS

Throughout 2005, the number of commercial banks
Table 1.2
conducting their activities conventionally and based on
Share of Commercial Bank based on Ownership
sharia principles, or Conventional Commercial Banks that
Total Assets
Total Total aset (Rp) % to total industry
( in million Rp) established Islamic Banking Units (UUS) increased by as
State Owned Banks 31 671,996,246 45,7%
many as four banks: State Savings Bank, BPD of West Nusa
Local 63 215,014,740 14,6%
Tenggara, BPD of West Kalimantan, and BPD of South
Foreign 37 582,816,386 39,7%
Sumatra. Along with the growth in the number of active
Industry 131 1,469,827,372 100,00%
sharia banks, the sharia bank office network also expanded
1) Termasuk Bank BUMN dan BPD
2) Termasuk kantor cabang bank asing, bank campuran dan bank akuisisi asing significantly. During the reporting period, the number of
sharia bank offices (including cash offices, sub-branch
offices, and Sharia Service Units) jumped by 103 offices;
Table 1.3
Share Commercial Bank Ownership based on Foreign from 355 offices at the end of 2004 to 458 offices at year
Ownership
end 2005 (Table 1.4)
Banks Total Assets % total to % total to
( in million Rp) Foreign Bank Industry Bank In terms of expansion, at the end of 2005, the sharia

Brand Offices of bank office network was able to service the public in 68
Foreign Banks 11 140,679,024 24,1% 9,6% districts/municipalities in 27 provinces. This is congruent
Joint Venture Banks 17 58,975,657 10,1% 4,0%
with the efforts of Bank Indonesia in supporting the
Foreign Acquisitioned
Banks 9 383,161,705 65,7% 26,1% expansion of the sharia bank office network beyond the
Total 37 582,816,386 100,0% 39,7% province, as research in the potential of public»s preference
Industry 131 1,469,827,372 39,7% 100,00%
for sharia banks over the past 5 years has suggested.
* Jumlah bank campuran turun disebabkan akuisisi oleh investor lokal

Table 1.4
Growth of Sharia Banks and Sharia Banks Offices

Banks 1992 1999 2000 2001 2002 2003 2004 2005

Commercial Bank 1 2 2 2 2 2 3 3

Sharia Business Unit - 1 3 3 6 8 15 19

Branches - 14 28 48 68 116 152 189

Sub Branches - 7 8 5 11 26 59 105

Cash Offices - 19 26 43 59 101 126 142

Total 1 43 67 101 156 253 355 458

Banking System Overview 5

Banking Supervision Report

D. RURAL BANKS (BPR)
The number of rural banks as of December 2005
reached 2,009, which comprised of 1,293 (64.4%) Limited
Liability Companies (PT), 663 (33%) Regional Enterprises
(PD), and 53 (2.6%) Corporations.
The unevenness of the population distribution and
economic growth constitute reasons why the distribution
of rural bank offices is uneven. As many as 2,572 offices
or 82.8% of all BPR offices are concentrated on Java and
Bali. On the basis of participating in the distribution of
economic development, Bank Indonesia encourages
investor candidates to establish rural banks beyond Java
and Bali, especially in East Indonesia, as stated in one of
its policies. Investors have responded positively due to the
economic potential in such areas, as indicated by the
number of requests for founding rural banks in Sumatra,
Sulawesi, Kalimantan and Papua. The establishment of
rural banks in Sumatra, Sulawesi, Kalimantan and West
Nusa Tenggara has contributed towards growth in the
number of rural banks. However, this figure decreased by
2.1% compared to the previous year.
E. SHARIA RURAL BANKS (BPRS)
The number of Sharia rural banks continued to
increase throughout 2005. Seven Sharia rural banks that
have obtained permits, and six have sought agreement in
principles. One permit of an inoperative Sharia rural bank
was revoked , such that at the end of the reporting period,
there were 92 active Sharia rural banks.

Table 1.5
Growth of Rural Banks Offices

Keterangan 2000 2001 2002 2003 2004 2005

Head offices 2.419 2.355 2.141 2.141 2.158 2.009

Branches 62 76 138 140 163 310

Sub Branches 1 1 468 1.018 1.186 787
Total 2.482 2.432 2.747 3.299 3.507 3.106

Table 1.6
Growth of Sharia Rural Banks

Keterangan 1992 1999 2000 2001 2002 2003 2004 2005

Rural Sharia Banks 9 78 79 81 83 84 88 92

6 Banking System Overview

 Banking Supervision Report

Chapter 2
Banking Policy and
Regulation

Banking Policy and Regulation 7

Banking Supervision Report

8 Banking Policy and Regulation


Chapter 2
Banking Policy and Regulation
A. BANKING POLICY DIRECTION
Banking management and supervision policy is aimed
at establishing continuous economic stability through
stronger and more effective banking system and
institutions, which is congruent to the direction and
purpose of IBA. In 2005, Bank Indonesia endeavored to
bolster the banking sector through four key steps: expedite
the consolidation process, buttress infrastructure, improve
prudent principles, and enhance the role of bank
intermediation.
In instituting the bank management and
supervisory functions, Bank Indonesia holds in high
regard consistent and prudential principles. As a result,
over the past few years, Bank Indonesia has focused its
banking policy direction to protect and maintain
economic stability through a stronger and more effective
banking industry system and institutions. The policy is
based on the fact that banks possess a strategic role in
the economy. Banks as financial intermediaries, liquidity
and financial services providers as well as and monetary
policy transmitters prove that financial and monetary
system stability are very much affected by the health of
the banking system.
To foster a stronger and more effective banking
system and institutions, Bank Indonesia states four major
policy measures that further explicate the IBA blueprint,
to be implemented over the medium and long term, as
follows:
1) Reorient future mechanisms and work patterns of the
national banking industry to further accommodate
the needs of the economy;
Banking Supervision Report
2) Strengthen financial system infrastructure;
3) Enhance the adherence to prudential principles; and
4) Improve the role of banking intermediation.
Efforts to further strengthen national banking
structure play a critical role in developing a banking system
that is capable of fulfilling future public needs in the
globalization era. To this end, Bank Indonesia has
consistently taken steps to drive the banking consolidation
process in 2006, as stated in IBA.
To reinforce banking infrastructure, Bank Indonesia,
the Indonesian Department of Finance and the Deposit
Insurance Corporation (DIC) have signed an agreement
which includes the roles and task allocation to preserve
financial system stability. In addition, to enhance the
coordination between institutions, the Finance System
Stability Forum (FSSF) was established.
To improve prudential principles, Bank Indonesia
maintained focus on accomplishing compliance with the
25 Basel Core Principles (25 BCP) for Effective Banking
Supervision. The compliance rate of Bank Indonesia
towards 25 BCP has improved significantly. Eleven
principles that were previously categorized as non-
compliant have now been classified as compliant. Thus,
22 effective banking supervision principles have now been
checked as compliant. Subsequently, Bank Indonesia
continues to gradually institute Basel II, targeting to apply
the concepts, particularly the supervisory review process
(Pillar II) and market discipline (Pillar III), to Indonesian
banking by 2010. To improve banking management quality
and in concordance with Pillar II, Bank Indonesia formed
an expert banking panel comprising of experts from various
Banking Policy and Regulation 9
Banking Supervision Report
banking fields, and also developed a supervision scheme
adopting risk-based management.
Bank Indonesia prioritized activities in support of
government policy to develop the micro, small and medium
enterprises (MSME) sector in its efforts to improve banking
intermediation. The coverage of such activities is contained
in the MSME Roadmap, drafted by Bank Indonesia in
collaboration with the government.
IBA initiatives to support the development of
MSME include: enhancing the roles of commercial
banks, rural banks (BPR), and sharia banks (linkage
program); forming a guarantee scheme; and establishing
banking research institutions on a regional basis.
Furthermore, Bank Indonesia continuously strives to
consult businesses and banks seeking opportunities to
build economic capacity by regularly conducting
international workshops. Bank Indonesia also fiercely
endeavors to improve technical support in the form of
providing information, research and training to banks.
Cooperation among related departments and
institutions to develop MSME is well maintained at both
the central and regional levels.
1. The Indonesian Banking Architecture (IBA)
The implementation of IBA, as specified within 19
initiative programs, continued to function as planned in
2005. In support of the implementation of all IBA
programs, appropriate regulations were promulgated by
Bank Indonesia.
IBA, which represents a banking blueprint for the
10-year period subsequent to its establishment in 2004,
directs Indonesian banking towards a healthy, strong and
efficient banking system to ensure financial system stability
in the context of supporting national economic growth.
Since its implementation on 9th January 2004, 19
IBA programs have met their objectives.
10 Banking Policy and Regulation
a. Internal Consolidation
To achieve this vision, 7 out of 19 IBA initiatives relate
to the internal consolidation of Bank Indonesia to attain
high quality management as well as an effective and
independent banking supervision system, including
improving the effectiveness of legal enforcement.
1) Establishment of panel banking experts in Bank
Indonesia and preparation of the blueprint to develop
banking research institutions to the end of formulating
more comprehensive regulations
As part of its efforts towards research based policy
principles, Bank Indonesia formed an expert banking panel
comprising of local and foreign experts from their
respective fields; prepared the blueprint for regional
banking research institutions; as well as planned to
establish banking research institutions at four sites
including KBI, universities and regional banks.
2) Improvement of the 25 Basel Core Principles
Compliance
Bank Indonesia»s compliance to the 25 Basel Core
Principles (BCP) has increased significantly. There were 11
principles of the 25 BCP previously classified as non-
compliant, however, at the time of reporting the 11 had
been classified as largely compliant or fully compliant. In
general, Bank Indonesia has been able to implement 22
of the principles. This is based on an evaluation performed
by a technical advisor of the British Financial Supervisory
Authority (FSA) at the end of October 2005. (Box 2.1)

Box 2.1 The 25 Basel Core Principles Compliance
To realize an effective national supervision
system, it is believed that 25 BCP, prepared by Basel
Committee together with supervisory authorities from
15 developing countries as well as input and intensive
consultation from other supervisory authorities around
the globe, must be applied. These principles consist
of the basic elements for an effective supervision
system. In general, they cover preconditions for
effective banking supervision, licensing and structure,
prudential regulations and requirements, methods for
ongoing banking supervision, information
requirements, formal powers of supervisors, and cross-
border banking.
The 25 BCP are intended to form the foundation
for supervisory authorities around the world to be
Banking Supervision Report
applied in the supervision of all banks within their
respective legal framework. Supervisory authorities
around the world are invited to employ Basel»s main
principles by October 1998 at the latest. The expected
implementation comes in the shape of a review that
compares the current conditions of the supervision
system against those stipulated in the principles. The
transformation pace varies depending on whether the
supervisory authority has the required legal authority.
If amendments to the law are necessary, legislators
from each country are immediately asked to offer
advice concerning the required changes to advocate
applicable principles. The document containing the
before aforementioned principles is available on the
BIS web site http://www.bis.org.
Banking Policy and Regulation 11
Banking Supervision Report

Table Box 2.1.1

The 25 of BCP Compliance

Grading By

Core Principle IMF BCP Assessment IMF BCP Assessment

Self-Assessment
May 2005 Oct 2005
2005Ω

1. Objectives, autonomy, powers 1 1 1

2. Permissible activities 1 1 1
3. Licensing criteria 2 2 2
4. Ownership 3 2 2
5. Investment criteria 2 2 2
6. Capital adequacy 2 2 2
7. Credit policies 3 1 1
8. Loan evaluation 3 1 1
9. Large exposures 2 2 2
10. Connected lending 3 2 2
11. Country risk 4 4 2
12. Market risks 2 1 1
13. Other Risks 2 2 2
14. Internal control and audit 2 1 1
15. Money laundering 2 1 1
16. On-site and off-site supervision 2 2 2
17. Bank management contact 2 2 2
18. Off-site data 3 3 2
19. Validation supervisory information 2 2 2
20. Consolidated supervision 3 3 4
21. Accounting standard 2 2 1
22. Remedial measures 3 3 2
23. Globally consolidated supervision 3 3 3
24. Cooperation with host country supervisors 2 2 1
25. Supervision of foreign banks» establishment 2 2 1

Average 2.32 1.96 1.72

1 = Fully Compliant
2 = Largely Compliant
3 = Materially Compliant
4 = Non Compliant

3) Strengthen coordination with other Financial
Institution Supervisory Agencies
A coordination program between supervisory
agencies is designed to augment the effectiveness of the
bank supervisory function, especially in supporting the
implementation of consolidated supervision, risk-
management, and Good Corporate Governance in the
banking industry. Moreover, this program also focuses on
supporting the monitoring and formulation of Financial
System Stability policy. The program is in the form of a
Memorandum of Understanding between Bank Indonesia
and the Department of Finance as the institution that
supervises Non-Bank Financial Institutions.

12 Banking Policy and Regulation


4) The consolidation program for the banking sector of
Bank Indonesia
The consolidation program includes the ratification
of the High-Level Organization Structure (HLOS); the
consolidation of supervision and audit units; the
improvement and consolidation of the Directorate of
Rural Bank Supervision and Credit Bureau; as well as the
enhancement of the corresponding Directorate of Sharia
Box 2.2 Consolidation of the Banking Sector Program
Mounting supervisory duties and rising pressure
from stakeholders, coupled with banking growth as
well as the diversification of banking tasks from time
to time, require an improved supervisory function at
Bank Indonesia. The organizational structure has been
enhanced through internal consolidation in order to
more effectively enhance supervision through a risk-
based approach. Such improvements have lead to a
dedicated organization at the team level. The separated
supervisory and audit tasks will become unified and,
hence, banking problems can be identified and
concluded more expeditiously. The improvements also
serve to optimize the enforcement of all banking
policies propagated by Bank Indonesia.
The Mapping of the Banking Information System,
the preparation of the Audit Management Information
System (SIMERIK), and the enhancement of the
Supervisory Management Information System
(SIMWAS) have all been undertaken to improve short-
term Banking Supervisory IT. Staff appraisals in October
2005 coupled with human resource proficiency
improvements have also been conducted to bridge the
competence gap.
Banking Supervision Report
Banking. Such improvements are to be carried out
concurrently through the consolidation of the supervision
and audit units into a dedicated team structure.
Consequently, using this approach, off-site supervision,
on-site supervision, and an on-site supervisory presence
(OSP) will all be performed by the same team. This method
aims to raise the effectiveness of risk-based supervision.
(Box 2.2)
Supervisory documents are now centralized at
each Administration Department of each directorate
to ensure tighter control and an application program
to better supervise related documentation is also being
developed by a third party.
An Implementation Task Force has been
organized to prepare the implementation of the
banking audit and supervisory unit consolidation
program to be performed by 1st March 2006, which
comprises of the Information Technology; Banking
Supervisory Human Resources (including the Training
of Specialist Supervisors); the Supervisory Guidelines
Evaluation, Working Mechanisms and Standard
Operating Procedure Level II; Room-Facility; Document
Preparation; Performance Indicator Adjustment;
Budget; and maintain Banking Supervisory Continuity.
In addition to monitoring the progress of each Task
Force, the focus of the 2006 consolidation program is
to issue Internal Circulars to the Banking Supervisory
Unit and evaluate its progress, as well as improve
supervisory transparency to buttress the effectiveness
of enforcement.
Banking Policy and Regulation 13
Banking Supervision Report
5) Bank Indonesia Certification Program for Supervisors
and Auditors
This program intends to boost the competency of
Bank Indonesia»s supervisors and auditors to enable them
to perform their supervisory role more effectively and
efficiently, and concomitantly, enable them to proportion
Box 2.3 Banking Sector Human Resources Development
Demand for improvements in the quality of
banking-sector human resources grew in line with the
development of the banking industry and its products
as well as the development of international banking
regulations. To satisfy such demand, Bank Indonesia
has undertaken various endeavors including, among
others, organizing a systematic, regular and continuous
training program taught by competent and credible
trainers. Through this training program, bank
supervisors are expected to gain high-level competency
and integrity to equate them with bank supervisors of
supervisory authorities in developed countries.
In terms of banking sector human resources (HR)
development in particular, Bank Indonesia continuously
conducts various HR training courses, in the form of
Performance Quality Enhancement, domestically and
abroad. Bank Indonesia has compiled both regular and
selective training. Regular training takes the form of
mandatory certification training attended by all
employees in the banking sector, at Head Office and
at Bank Indonesia branch offices, which is held
continuously every year intended to endow the
participants with additional skills and knowledge in the
banking supervisory field. Conversely, selective training
is held with limited participants, who are selected based
on their competency in a particular field. Such training
14 Banking Policy and Regulation
themselves with bank supervisors of supervisory authorities
in developed countries. In order to meet such a demand,
Bank Indonesia has taken various steps including, among
others, holding systematic, regular and continuous training
programs with the guidance of competent and credible
trainers (Box 2.3).
is provided to produce bank supervisors with special
expertise.
Previously, education and training activities were
conducted by the Focus Group (FG) of Bank Supervision
Development; however, commencing 1st September
2005, these activities are currently conducted by the
Banking School FG under the Directorate of Banking
Research and Regulation. The Banking School FG is
considered as the embryo of a future Banking
Supervision School (BSS) of Bank Indonesia.
Banking Sector Human Resources Training in
2005
As a follow up to the 2004 banking sector HR
training, Bank Indonesia involved its bank supervisors,
inspectors and invited external observers to various
courses and seminars given by in-house trainers as well
as domestic and international training institutions in
2005.
In addition, cooperation was sought with
international institutions including the Office of the
Superintendent of Financial Institutions (OSFI), Canada,
the Financial Stability Institute (FSI), and South East
Asian Central Banks (SEACEN)
to provide training to banking sector employees.
The certification training was conducted from March

through October 2005, commencing from the
foundation level up to the most advanced level,
attended by 596 banking sector employees from Head
Office and the branch offices. Selective training,
Box Table 2.3.1.
Training Realization in 2005
Type of training
Regular/Certification Training
1. Foundation Level
2. Intermediate Level
3. Advanced Level
Special Training
1. Consolidated Supervision
2. Market Risk
3. Basel II
Cooperation with International Institutions
1. BI-SEACEN-OSFI Seminar on Consolidated Supervision
2. BI-SEACEN-IMF Workshop on Financial Soundness Indicators
and Stress Testing
Total
6) Supervisory system development through the intro-
duction of an early warning system and risk-based su-
pervision
The phenomenon of banking failure triggered by
the financial crisis at the end of the 1990s proved that a
shock suffered by a single bank or financial institution
could propagate rapidly and have contagion effects on
other banks and institutions. Witnessing this trend, the
supervisory authorities of many countries intensively
developed an Early Warning System (EWS) to identify
banks potential problems and weaknesses as early as
possible and decide upon anticipative measures. The
development of EWS was a result of heightened
Banking Supervision Report
covering Consolidated Supervision, Market Risk and
Basel II aspects were attended by 168 banking sector
employees. Cooperation with international institutions
involved 25 banking sector employees.
Participants (persons)
270
174
142
28
40
100
15
10
779
awareness that routine bank inspections and supervision
sometimes fail to pick up on weakness signals within a
short time. In addition, international banking supervision
utilizes a complimentary risk-based supervision system,
which is regarded as a comprehensive and dynamic
supervisory concept because not only does it consider
prevailing banking conditions, but also the performance
potential into the future as well. This includes evaluating
a bank»s capability in dealing with the potential risk, be it
an individual bank»s risk or systemic risk.
Banking Policy and Regulation 15
Banking Supervision Report
Box 2.4 Risk-Based Supervision
Among the factors conducive in creating a
healthy and stable banking system and considered as
having an important role is the implementation of an
effective banking supervisory system. The Basel
Committee on Banking Supervision has issued
fundamental, effective principles, which are used as a
reference by the bank supervisory authority to create
effective banking supervision. Included in such
fundamental principles is risk-based supervision. In
relation to this, since 20041 Bank Indonesia has applied
a risk-based supervisory system.
In terms of international banking supervision
practices, risk-based supervision is regarded as a
comprehensive and dynamic supervisory concept
because it considers both current and future banking
conditions, which includes evaluating bank»s ability to
deal with the potential risk, be it individual risk or
systemic risk.
In principle, risk-based supervision is a monitoring
and evaluation process to gauge how far a bank»s risk-
management system and internal control system can
effectively be applied. The primary key in risk-based
supervision is therefore, to ensure that a bank maintains
its risk-management system and its internal control
system appropriately. In general, risk-based supervision
is a proactive approach with the following
characteristics:
1. Requires in-depth understanding of the supervised
bank -particularly the risk profile- and its business
environment to expedite the identification process
for high-risk activities that require special
attention;
1
Initial development of risk-based supervision begun in 2001.
16 Banking Policy and Regulation
2. Requires understanding of the types of risks2 and
the management»s ability to manage risks (internal
and external), especially the risks beyond
management control, like systemic risk and risks
within the business environment; and
3. Uses the framework and terminology designated
especially to evaluate risks, policies, procedures
and risk-management practices.
With improvements in the supervisory
organization of Bank Indonesia, the implementation
of risk-based supervision is expected to generate
superior quality supervision results. This is reflected by
the completed stages of the risk-based supervision
cycle, for example, a bank supervisor can immediately
take a supervisory action based on off-site analysis
without waiting for the on-site supervision result. Adept
and rapid action will enable a supervisor, as early as
possible, to take the necessary enforcement procedures
to prevent further complications at the problematic
bank.
The extensive banking practices conducted
through subsidiaries and affiliated companies make
consolidated supervision an essential tool of banking
supervision. In many cases, a bank is owned by a
holding company. Here the supervision must include
activities conducted by the holding company as well
as the subsidiaries, and as such, be able to recognize
the risk profile of all the companies affiliated to the
bank. Consolidated supervision covers a comprehensive
approach for evaluating the company»s group strength,
including risks that could affect banking operations,
regardless whether the risk is included in the bank»s
2
Credit Risk, Market Risk, Operational Risk, Liquidity Risk, Legal Risk, Compliance
Risk, Strategic Risk and Reputation Risk.
 Banking Supervision Report

balance. Nevertheless, the early developmental stage concerned with the implications of the subsidiaries»
(since 2005) of risk-based supervision is directed risk profile on the risk profile of the bank as parent
towards consolidated supervision, more specifically company (down-stream supervisory).

7) Effectiveness of legal enforcement Improvement management, internal supervision, operational capability,

Bank Indonesia enriched the Special Banking credit and the intermediary function. Accordingly, Bank

Investigation Unit by transforming the organization into Indonesia has issued a regulation that obliges managers

the Directorate of Banking Mediation and Investigation, and banking officers to earn certificates for the following:

and also renewing the joint decree concerning cooperation improving their risk-management quality; driving the

for the criminal handling of illegal banking activities implementation of good governance to improve internal

between Bank Indonesia, the Police Department and supervision; enhancing cooperation to boost HR quality;

Prosecution Office on 20th December 2004. Beyond the encouraging operational cost efficiency to improve the

central level, the joint decree has also been applied operational capacity; as well as establishing the Credit

throughout Bank Indonesia regional territories. Hence, law Bureau for banking institutions to augment their credit

enforcement in the banking sector is expected to run more quality and intermediary function.

efficiently and effectively.

c. Develope The Micro and Medium Enterprises

b. Strengthen The Banking Structure (MSME)

The banking structure advocated by the Indonesian In line with government policy direction to develop

Banking Architecture (IBA) includes banks with strong micro, small and medium enterprises, the IBA initiative to

capital and appropriate tools to manage risk to improve reinforce the banking structure and advance the

their capacity to absorb emerging risks. Therefore, Bank intermediary function prioritizes MSME development. This

Indonesia is focused on strengthening banks» capital involves activities to encourage the role of commercial

position by ratifying a regulation that obliges commercial banks, rural banks (BPR) and sharia banks (linkage

banks to maintain a minimum of Rp100 billion capital in program), establishing a guarantee scheme, and

stages by 2008. establishing regional banking research institutions. The

Subsequently, Bank Indonesia defined the banking establishment of a guarantee scheme intends to enhance

consolidation policy direction up to the horizon of 2010, MSME credit access in cooperation with regional

for banks with both limited and abundant capital, and governments. Furthermore, the regional banking research

promulgated Good Performance Bank criteria as well as institution has the responsibility of resolving intermediary

specified requirements for anchor banks. Banks considered issues more appropriately.

as performing well may potentially act as anchor banks upon In accordance with the agreement between Bank

duly satisfying the criteria stipulated by Bank Indonesia. Indonesia and the government, and as stipulated in the

In an effort to bolster the banking industry, Bank MSME Roadmap, Bank Indonesia»s role in developing

Indonesia focused on enhancing the quality of risk micro, small and medium enterprises is to facilitate and

Banking Policy and Regulation 17

Banking Supervision Report
promote research and surveys, as well as foster innovation.
This is achieved by: (1) providing technical assistance; (2)
developing institutions; (3) defining policies and improving
credit regulations; and (4) enhancing cooperation between
the government and other relevant institutions.
In terms of providing MSME technical development
assistance, Bank Indonesia has adjusted the rules governing
technical assistance, enhancing the information supply to
micro, small and medium enterprises; as well as researching
and providing training to banking institutions and Business
Development Services Providers (BDSP). Cooperation
between relevant departments and institutions to develop
micro, small and medium enterprises is ongoing both at
the central and regional levels. In parallel, Bank Indonesia
continues to address the business community and bank
institutions, through regular workshops, seeking ways of
developing new economic activities.
d. Improve The Customer Protection
The customer protection initiative includes new
regulations which define a customer complaint mechanism
and the establishment of an independent banking
mediation institution to resolving customer complaints
more expeditiously. Furthermore, Bank Indonesia issued a
regulation on the standards of bank transparency in
disclosing banking products. This precludes customers from
misleading information pertaining to banking products.
In addition, a customer education blueprint for financial
products is now under construction to encourage banks
to routinely update their customers» and potential
customers» knowledge.
2. Toward The Implementation of Basel II
Over the medium term, up until 2010, the national
banking industry is adhering to international best practices,
particularly Basel II, representing recommendations and
guidelines issued by BIS and used as a reference by non-
18 Banking Policy and Regulation
G10 country central banks.
The application of the Basel II framework requires
thorough preparation by Bank Indonesia, the banking
industry and other related parties, because of the various
aspects demanded including effective risk-management
practices, competent HR, appropriate information
technology and database support, as well as the availability
of other supporting infrastructure, like an accounting
standard that refers to International Accounting Standard
(IAS) and credible ranking institutions.
To this end, Bank Indonesia has defined the following
implementation stages:
1) Basel II application in Indonesia from 2008 onwards,
for all banks, beginning with the simple approaches,
namely Standardized Approach for credit-risk
calculation and the Basic Indicator Approach to
estimate operational risk;
2) Upon the completion of all requirements and subject
to approval by Bank Indonesia, a bank may shift to
the more advanced approaches; and
3) Basel II is expected to be fully implemented by 2010.
In terms of Basel II implementation, Bank Indonesia
has completed the following:
a) Organizational preparation, HR recruitment, and the
Basel II implementation budget;
b) Improvement of risk-based supervision based on
consolidated supervision;
c) Database development and improvement to meet the
infrastructure requirement within the internal model
framework;
d) Conduct an implementation survey and collate the
position papers regarding the preparedness of banks
to deal with Basel II;
e) Compile the Basel II Implementation roadmap to:
- Provide a foundation in defining policy directives
for Basel II implementation in accordance with
the IBA policy; and
 Banking Supervision Report

- Provide a clearer and more explicit plan for g) Translation of Basel II documentation;
preparations toward the implementation of h) Quantitative Impact Study (QIS) 4 and QIS 5 of 40
Basel II. For example, providing supporting banks (representing approximately 80% of total assets
infrastructure, supervisory organizational in the banking system);
structure and Human Resources); i) ≈Gap analysis∆ to identify the existing availability of
f) Establishment of the Basel II Working Group with infrastructure and preparedness in accordance with
members consisting of representatives from Bank Basel II requirements;
Indonesia, banking institutions and banking j) Completion of 9 national discretion studies; and
associations. Banking institutions have also k) A revision of banking accountancy standards referring
established a Task Force for Basel II implementation to IAS (IAS 32 and IAS 39).
along with the Basel II Implementation Monitoring
Team;

Table 2.1
The Basel II Implementation Roadmap

PILLAR 1 PILLAR 2 PILLAR 3

Parallel Run LBU

Application of Risk Other risks 4) Transparency
PBI Standard sized 1) or Effektive Improvement
Calculation Approach
Issuance Validation Process Calculation Effektive
PBI PBI
(Internal Model) CAR On line System Calculation
Issuance CAR Issuance

Market Risk
Standardized 2) Q3 2007 Q1 2008 - Q4 2008 Q1 2009 Q4 2008 Q1 2009
Internal-Model 3) Q3 2007 begin Q3 2007 Q2 2008 Q2 2008 Q1 2009
Credit Risk
Q3 2007

Q1 2009
Standardized Q3 2007 Q1 2008 - Q4 2008 Q1 2009 Q4 2008 Q1 2009
Internal-Model 3) Q4 2009 begini Q1 2010 Q4 2010 Q4 2010 Q2 2011
Operational Risk
Standardized Q3 2007 Q1 2008 - Q1 2009 Q1 2009 Q4 2008 Q1 2009
Internal-Model 3) Q4 2009 begin Q1 2010 Q4 2010 Q4 2010 Q2 2011
AMA 3) Q4 2009 begin Q2 2010 Q2 2011 Q4 2010 Q2 2011

Remarks:
1) In Parallel Run Period, banks are obliged to submit off-line reports;
2) Calculation improvements for Market Risk in accordance with Basel II;
3) This approach is only applicable to banks that meet the requirements and have obtained approval from Bank Indonesia;
4) Including interest rate risk on the books, legal risk, reputation risk, etc.

All time targets in the above matrix are time completion targets

Banking Policy and Regulation 19

Banking Supervision Report
B. SHARIA BANKING POLICY DIRECTION
Regulations and supervisory policy for sharia banking
are directed toward strengthening the sharia banking
structure by focusing on adherence to sharia principles,
prudential regulations, operational efficiency,
competitiveness, system stability and benefit to the
economy.
Entering the second year of the second-stage
implementation (2004-2008) of the strategic Blueprint for
Sharia Banking Development in Indonesia, sharia banking
policy remains a continuation of the development policy
conducted during the first stage. The initiative is divided
equally into the following four areas of focus:
1) Compliance to Sharia Principles
Bank Indonesia is standardizing the industry through
th
the issuance of PBI No. 7/46/PBI/2005 dated 14
November 2005 on the Agreement for Fund Collection
and Distribution for Sharia Banks after conducting studies
in line with research-based policy principles. The presence
of this standard provides market operators and regulators
a reference to define their evaluation of sharia banks»
adherence to sharia principles; to minimize reputational
risks. In addition, this regulation is designed to instill
discipline into the market and to create a standard
reference.
2) Prudential Regulations
In addition to comprehensively regulating the
development process, Bank Indonesia will impose risk-
based regulations to enable sharia banks to operate within
a sound banking operational framework and satisfy
prudential regulations. This endeavor will be undertaken
by first studying the implementation of risk-based
supervision for sharia banks.
In order to maintain a healthy sharia banking system,
Bank Indonesia developed an exit and entry policy to
20 Banking Policy and Regulation
support sharia banking using high expertise and dedicated
operators in running sharia banking operations.
Furthermore, an evaluation of the 25 BCP
implementation for Effective Banking Supervision within
sharia banking has been completed to gauge how far
Indonesian sharia banking can be evaluated using 25 BCP
and how large the implementation value is.
3) Operational Efficiency and Competitiveness
Bank Indonesia has been trying to create a strategic
alliance among sharia banks through the linkage program
pilot project, specifically between Sharia Commercial
Banks/Sharia Business Units with Sharia Rural Banks (BPRS)
to serve the micro and small enterprise customers. In order
to support this pilot project, Bank Indonesia will compile a
cooperation framework with related organizations, which
will effectively improve the sharia banking operational
efficiency.
Furthermore, a survey was conducted on the
Potentials, Preferences, and Perceptions of the public on
sharia banks in NTB province, which basically represents a
continuation of the same survey previously undertaken in
other Indonesian territories. To assist sharia banking
institutions identify potential areas to open a sharia banking
office, the public»s potentials, preferences and perceptions
of sharia Banks in Indonesia were mapped.
Additionally, to improve sharia banking performance,
the HR competency enhancement program was continued,
specifically targeting sharia bank supervisors and
executives. The supervisory training focused on the
supervisors of various regions considering that many sharia
banking institutions only began to open in the provinces
quite recently. BPRS executives were provided in-depth
product knowledge. HR enhancement was conducted for
sharia banking operators as well as stakeholders too, in
the form of socialization. Similar to the previous year, sharia
banking socialization continues to emphasize the Training

of Trainers, particularly academic instructors of economics
and sharia concepts.
Seeking insight to the enhancement activities of HR,
at the end of 2005, Bank Indonesia together with IRTI-
IDB, The International Association for Islamic Economics
(IAIE), University of Indonesia and ISEI held an International
Conference on Islamic Economics and Finance in Jakarta.
The topics discussed at the conference related to sharia
banking and financing, and initiatives for the betterment
of their development.
4) System Stability and Benefit to the Economy
To realistically expand sharia banking»s role in the
economy, a communication forum for sharia banking
development was established, namely the Sharia Economic
Communication Center (PKES) along with a feedback
mechanism. In addition, cooperation with related parties
to activate alternative funding sources (voluntary sector)
was also conducted.
C. RURAL BANKING POLICY DIRECTION
Regulations and supervisory policy for rural banks
(BPR) are aimed at maintaining a sound, buoyant and
efficient BPR industry with high competitiveness and
greater presence in all territories of Indonesia. The role
and contribution of rural banks was enhanced to serve as
the driving force in terms of funding micro and small
enterprises and rural people.
BPR policy and regulatory measures are consistently
defined to achieve the following goals:
1) The realization of a sound, robust and productive BPR
industry, in pursuit of high competitiveness, namely
an industry that is bolstered by strong capital; with
professional, competent, high-integrity human
resources; and efficient BPR operations.
2) Greater BPR presence throughout Indonesia,
Banking Supervision Report
particularly eastern Indonesia, to provide more
extensive services nationwide.
3) A more distinct role in funding micro and small
enterprises as well as rural people for their
involvement in micro and small enterprises, both
geographically and psychologically.
To achieve the said goals, Bank Indonesia focused
on five measures to empower and strengthen BPR
competitiveness in line with IBA Pillar I as follows:
1) Improving the BPR arrangement
To create sound management in rural banks capable
of contributing positively to national banking activities,
particularly in funding the micro financial sector, Bank
Indonesia improved a number of regulations and
institutions in line with international best practices.
Furthermore, in 2005 a regulation was also ratified to
support supervisory effectiveness in the form of a BPR
database to be used as an early detection tool.
Correspondingly, Bank Indonesia is currently reviewing a
regulation concerning the minimum capital requirement,
credit evaluation, and BPR minimum capital increase as
well as opening new branch offices.
In addition, recently Bank Indonesia amended the
Internal Circular Letter (SE) on BPR Permit Guidelines, PBI
revision regarding Foreign Exchange Traders as well as
regulation revisions on Earning Asset Quality, Minimum
Capital Requirement, Minimum Lending Limit and Health
Level.
2) Enhancing the Effectiveness of BPR Supervision
Enhancing BPR supervisory effectiveness has been
performed through the implementation of a national BPR
supervisory information system up to the end of 2005,
including; electronic reporting (offline (via diskettes) to
the end of 2005 and online (via modem) by the end of
Banking Policy and Regulation 21
Banking Supervision Report
2006); and an inspection strategy based on potential risks.
In addition, Bank Indonesia continuously builds upon
supervisory quantity and quality through certification for
bank supervisors, periodic non-certificate training to
encourage information building and knowledge sharing,
as well as increasing the number of supervisors.
3) BPR Institutional Building
To foster a buoyant BPR industry, Bank Indonesia
continued its restructuring policy by aiding salvageable rural
banks through capitalization, mergers and acquisitions,
as well as encouraging the entry of new investors capable
of boosting capital and strengthening management. In
addition, Bank Indonesia encouraged cooperation between
rural banks and commercial banks by allocating credits to
micro and small enterprises through the linkage program.
Bank Indonesia also facilitated the establishment of Apex
for rural banks.
Linkage Program
The linkage program between rural banks,
commercial banks and other Institutions was improved by
stronger cooperation between commercial banks and rural
banks that are based on a symbiotic-mutuality foundation
and remain business-oriented. The objectives of the
Linkage Program include: enhancing the roles and
contribution of banking institutions in allocating credits
to micro and small enterprises; supporting micro and small
enterprise development, enhancing efficiency, building
capability of BPR human resources, and improving BPR
competitiveness. By the end of December 2005, the linkage
program involved 22 commercial banks and 1,655 rural
banks, with a credit ceiling up to Rp2.802 billion and an
Rp1.521 billion debit balance. To overcome the obstacles
in implementing the linkage program, a working group
for the Linkage Program was established in March 2005.
22 Banking Policy and Regulation
The members include Bank Indonesia (Directorate of
Banking Research and Regulation, and Directorate of Rural
Bank Supervision), BPR Association (Perbarindo), 3 non-
Perbarindo BPR committees and commercial banks.
The agenda of the working group was to define a
Generic Model Linkage Program, to specify the Linkage
Program»s terms and conditions, and to establish joint
agreements/recommendations/regulations with Bank
Indonesia concerning Linkage Program implementation.
The working group has hitherto compiled a Generic Model
Linkage Program, which contains minimum terms and
conditions for rural bank participation; interest rates, a
ceiling limit and guarantees for each type of linkage
program; namely executing, joint financing, and
channeling, ethic codes of linkage program participants;
and Bank Indonesia policy to encourage linkage program
implementation.
Subsequently, on 24th August 2005, the Lending
Agreement Notification Letter involving 10 commercial
banks and 38 rural banks with a credit ceiling of Rp104
billion was signed. To encourage the linkage program to
focus funding on the agricultural sector, cooperation has
been sought with related institutions such as the State
Minister for Cooperatives office and small and medium
enterprises, Department of Agriculture, Logistic Affairs
Agency, and regional authorities.
Apex Institution for Rural Banks Establishment
The Apex institution is expected to function as a
provider of funding to ease liquidity problems (mismatch),
working capital requirement, technical assistance and the
provision of joint services to rural banks. The steps taken
by Bank Indonesia to establish the Apex Institution include
the following:
• Conducting joint, intensive discussions with the task
force focusing on the operational functions of the

Apex institution, including the payment system and
the types of documents to be used by rural banks to
interact with the Apex Institution and BPR clients.
• Deciding upon the business format of the Apex
institution for an ideal rural bank based on research
and study results as well as input obtained during
seminars. As suggested, it is in the form of a
commercial bank owned by the BPR industry.
However, problems arose when establishing a new
commercial bank for apex, which requires substantial
funding besides the prevailing Banking Law prohibits
rural banks from acting as shareholders. Therefore,
supporting regulations for institutions, operations and
ownership, are required.
• Establishing an Apex Working Group comprising of
members from rural banks, the
Perbarindo Association, three commercial banks and
Bank Indonesia in August 2005. The Apex Working Group
has agreed to execute Pilot Projects for Apex institutions
in seven regions following three patterns, namely the Apex
Institution conducted by BPR Leaders (in Yogyakarta and
West Sumatra), Commercial Banks (DKI Jaya and the
surrounding areas, West Java, and East Java), and BPR
Leaders supported by PT Permodalan Nasional Madani
(Central Java and Bali). Currently pilot projects are taking
place in West Sumatra and Central Java; the rest planned
to commence in January 2006.
Micro Financial Policy Strategy in Indonesia Estab-
lishment
GTZ ProFi and Bank Indonesia facilitated discussions
between government bodies and NGOs to institute a
national policy and strategy concept for the micro finance
sector. The concept covers the organizational types of micro
finance institutions in Indonesia, the framework for
regulating and supervising such institutions as well as
suitable development strategies.
Banking Supervision Report
Facilitating Focus Group Discussions on BPR
Development Direction
To consolidate inputs and views from various parties,
particularly external parties such as academicians,
practitioners, observers, associations and other stakeholders,
with regards to policies and the efforts necessary to create
a sound, robust and productive BPR industry, highly
competitive in serving micro and small enterprises and rural
residents, Bank Indonesia held a Focus Group Discussion
on 1st December 2005. The input obtained was subsequently
used to improve the BPR development blueprint.
4) BPR Capacity Building
To build BPR capacity, several measures were taken,
including: conducting a Professional Certificate Program
(CERTIF) for BPR directors, providing technical assistance
for manager-level BPR human resources to improve their
technical competency, and developing BPR information
technology to enhance efficiency.
The BPR Professional Certification Program
(CERTIF)
The certification program intends to boost BPR
human resources quality systematically and continuously
as well as support ≈fit∆ aspects of BPR human resources.
The program was executed by the CERTIF Professional
Certification Institution. In the implementation, the
program is evaluated by the Certification Board chaired
by Bank Indonesia representatives.
CERTIF Professional Certification covers the following
activities:
(1) Completion of the certification curriculum for BPR
directors, provision of the required training materials
and certification test materials.
(2) The Training of Trainers (ToT) to produce qualified and
professional teachers. So far, ToT has been conducted
four times and produced 96 trainers. On 12th to 22nd
Banking Policy and Regulation 23
Banking Supervision Report
September 2005 the fifth ToT was held and attended
by 27 teacher candidates.
(3) By the end of 2005, BPR director certification training
had been conducted 52 times throughout Indonesia,
attended by 1,312 persons; 3 certification tests of
BPR directors, attended by 1,252 participants have
taken place with 1,038 newly certified directors,
exceeding the specified target of 1,000 persons. In
support of CERTIF implementation, Bank Indonesia
subsidized 50% of the training costs to one BPR
director who already had a business license when PBI
No. 6/22/PBI/2004 dated 9th August 2004 regarding
the rural banks was promulgated. As of year end
2005, Bank Indonesia had provided subsidies to 1,082
certification participants.
Technical Assistance for Human Resources and BPR
IT Development
Technical assistance and IT development is as follows:
a. Providing technical assistance for manager-level BPR
human resources, in particular the Account Officer
(AO), to enhance technical competency in the form
of subsidizing 50% of the training costs (including
account officer and ≈excellent≈service∆ training). In
future, the HR development will be fully funded by
the BPR industry alone without subsidies from Bank
Indonesia or other donors, through an education cost
allocation from the rural banks themselves.
b. Organizing a workshop and BPR Funding to the
Agricultural Sector Seminar to encourage rural banks
to expand their lending portfolio to the agricultural
sector and obey the implicit message of banking law
that rural banks should finance micro and small
enterprises and rural people.
c. Developing IT for rural banks. In this case, Bank
Indonesia encouraged rural banks to use IT in its
operational activities to improve efficiency and to
simplify BPR reporting to Bank Indonesia.
24 Banking Policy and Regulation
5) Encouraging Rural Banks to Spread Beyond Java
and Bali
To enhance the role of rural banks and their
contribution to micro and small enterprises as well as
rural communities in Indonesia, rural banks are expected
to mushroom throughout Indonesia. Permits for rural
banks in Java and Bali are allocated very selectively;
however, rural banks are actively encouraged outside Java
and Bali.
To foster BPR expansion, Bank Indonesia and the
management institution PPM conducted a scientific study,
the BPR Establishment Feasibility Study, to design a formula
for evaluating the potential and feasibility of appropriate
and accountable rural banks. Based on the study, BPR
Establishment Feasibility Study Evaluation Guidelines have
been drawn up. The guidelines will be socialized in the
form of training of Bank Indonesia staff/officers, which
are in charge of BPR permits, in January 2006.
6) Designing a BPR Blueprint
To design a BPR Blueprint, Bank Indonesia conducted
a Focus Group Discussion (FGD) on 1st December 2005.
The FGD sought to drawn upon the input and views from
various related parties, particularly external parties such
as academicians, practitioners, observers, associations and
other stakeholders, regarding policies and/or efforts
required to create a sound, robust and productive BPR
industry, which is highly competitive to serve micro and
small enterprises as well as rural communities.
D. BANKING REGULATION IN 2005
In 2005, Bank Indonesia issued the following
regulations:
1. Eight Bank Indonesia Regulations (PBI) in the Banking
Rules and Policies Package, January 2005 (Pakjan
2005) intended to solidify prudential aspects and
improve the intermediary function;

2. Two PBIs; one to bolster banking institutions in terms
of capital and the other to augment the quality of
risk-management in commercial banks;
3. Three PBI revisions to ameliorate the effectiveness of
the reporting system and boost commercial bank
transparency;
4. PBI revision to raise the quality of collateral related to
the Short-term Funding Facilities of Commercial
Banks;
5. PBI revision to develop the supervisory follow-up
action mechanism and commercial bank status
determination, through ratifying laws regarding the
Saving Guarantee Institution;
6. PBI revision on rupiah exchange rate stability in the
form of regulations pertaining to the Minimum
Reserve Requirement of commercial banks, both in
Banking Supervision Report
rupiah and foreign currency, and on the Net Foreign
Exchange Position of commercial banks;
7. Seven PBI special regulations on sharia banking
stipulating capital issues, agreement standards,
enhancement of BPRS monthly reporting
effectiveness, a short-term financing facility for sharia
banks and transparency;
8. Four PBI for rural banks detailing special treatment
and post natural disaster protocol for rural banks in
Nangroe Aceh Darussalam, Nias and North Sumatra,
abolishment of the blanket guarantee and BPR follow
up in terms of new laws concerning the
Savings Guarantee Institution, and BPR monthly
reporting effectiveness; and
9. PBI outlining technical assistance to micro, small and
medium enterprises.
Banking Policy and Regulation 25
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26 Banking Policy and Regulation

 Banking Supervision Report

Chapter 3
Banking Supervisory
Framework

Banking Supervision 27
Banking Supervision Report

28 Banking Supervision

Chapter 3
Banking Supervisory Framework
A. OBJECTIVE AND STRATEGY OF BANKING SUPER-
VISORY
Bank Indonesia implements banking supervision
through on-site supervision and off-site supervision. On-
site and off-site supervision aims to provide a picture of
the banking financial situation, monitor the compliance
level towards prevailing regulations, and detect the
presence of unhealthy practices that may threaten banking
business continuity. The goal of banking supervision is to
create a healthy, strong and efficient banking system to
support national economic growth.
In reality, off-site supervision is conducted through
monitoring periodic reports submitted to Bank Indonesia
of inspection results and other kinds of reports. In terms
of on-site supervision, if required, Bank Indonesia performs
inspection on the bank, including its related parties such
as its holding company, subsidiaries, affiliated companies
and bank debtors. In addition, Bank Indonesia may assign
a third party, for and on behalf of Bank Indonesia, to
conduct the inspection.
Bank Indonesia applies a supervisory strategy in
accordance with the needs and complexities of the
individual bank. Therefore, the supervisory follow-up is
differentiated into: general actions, special actions, and
bank status determination. General actions support the
work plan achievement by considering prudential principles
and sound banking activities. In this case, the supervisor
also conducts periodic meetings with the bank»s
management to discuss the bank»s conditions and
outstanding issues. On the other hand, special actions are
designated in accordance with specific issues to be dealt
with by the bank and may require the bank to establish an
Banking Supervision Report
improvement plan. In determining the bank»s status, a bank
may be categorized as: a bank under general supervision;
a bank under intensive supervision; a bank under special
surveillance; a bank with systemic impact; and a bank with
non-systemic impact.
In exercising supervision, the Directorate of Banking
Supervision conducts cross coordination among work units,
including:
• UKIP that later became DIMP in the case of following
up on inspection results indicating criminal actions;
• The Credit Bureau to deliver Bank Indonesia Liquidity
Credit and its banking administration;
• Directorate of Monetary and Economic Statistics to
oversee the Commercial Bank Monthly Report;
• Directorate of Payment System and Accounting to
implement BI-Real Time Gross Settlement (RTGS); and
• KBI in the regions to inspect commercial banks» branch
offices.
B. ENHANCE THE EFFECTIVENESS OF COMMER-
CIAL BANK SUPERVISORY
Effective banking supervision is one of the
prerequisites for creating a strong and sound banking
industry. Therefore, Bank Indonesia consistently endeavors
to develop an effective and independent supervisory system
in accordance with international standards, particularly the
Basic Basel Principles. Among the programs implemented
is risk-based supervision.
There are six cycles contained within the risk-based
supervisory process; (i) institutional understanding; (ii)
quarterly risk evaluation; (iii) inspection plans; (iv) risk-
focused inspection and reporting the inspection results;
Banking Supervision 29
Banking Supervision Report
(v) individual bank»s supervisory strategy; and (vi)
implementation of tailor made banking supervision and
supervisory follow up. Based on the mentioned cycles, close
coordination between off-site and on-site supervisors is
crucial to create an effective and efficient supervisory
system.
In addition, to enhance numerous facets of the
supervisory system, various program applications have been
implemented, including risk management, good corporate
governance, an evaluation system of a bank»s health based
on CAMELS, and the application of Know-Your-Customer
(KYC) rules. The practice of such programs is expected to
strengthen the supervisory system to create a sound, robust
and efficient banking system to support national economic
growth.
In the evaluation of risk-management
implementation, in particular related to internal control, a
supervisor shall conduct several measures, including:
1) Evaluating the internal control system guidelines
submitted by a bank. If considered inappropriate, the
supervisor shall present a letter of guidance to the
bank requesting a revision on the submitted internal
control system guidelines;
2) Evaluating the effectiveness of internal control system
application based on a bank»s off-site supervision data;
3) Mapping the results of supervisory and inspection
evaluations on internal control system
implementation; and
4) Summoning the bank»s director and Internal Audit
Work Unit, as well as requesting the bank to compile
an action plan where required.
These actions are intended, among others, to urge a
bank to apply the rules of risk management and the
internal control system in the running of its operational
activities.
To enhance supervisor competency in guiding a bank,
especially in terms of risk management application, Bank
30 Banking Supervision
Indonesia has, among others, taken the following
measures:
1) Bank Supervisor Certification for Risk Management;
2) Calculation of bank CAR by calculating market risk;
3) CAMELS evaluation;
4) Bank risk profile compilation;
5) Individual Supervisory Strategy (ISS) compilation;
6) Bank internal control system effectiveness evaluation;
and
7) Basel II preparation with national banking institutions.
Furthermore, to ameliorate supervisor competency,
specialist supervisory groups have been established, namely
the Treasury, Information System Technology, Know Your
Customers/Anti-Money Laundering (KYC/AML), Aqua/
Trade Finance, and Risk-based Supervision (RBS). The
specialist groups mentioned employ the services of
inspectors with relevant expertise and experience.
1. Risk Management Implementation
Rapid change in internal and external banking
environments has been accompanied by more complex
risks in banking business activities. The more complicated
the risk, the greater the need for sound good governance
practices as well as identification, measurement,
monitoring and bank risk control functions. The
enhancement of identification, measurement and
monitoring, as well as the risk control functions are meant
to ensure that banking activities do not create a loss that
exceeds a bank»s capabilities, which would disturb business
continuity. Therefore, the functional activities of bank
management must, as far as possible, be integrated into a
system to create a comprehensive and accurate risk
management.
The promulgation of PBI No. 5/8/PBI/2003 regarding
«Risk Management Application by Commercial Banks»
obliges all banks to apply risk management effectively. Risk-
management application requires active supervision

amongs the board of commissioners and directors; policy,
procedure and limit determination adequacy; an
identification process, measurement, monitoring and risk
control, as well as risk-management IS adequacy; and a
thorough internal control system. Monitoring risk-
management application is conducted by classifying
banking risks into eight categories, viz. Credit Risk, Market
Risk, Operational Risk, Liquidity Risk, Legal Risk, Reputation
Risk, Strategic Risk and Compliance Risk.
The evaluation of those mentioned risks is very much
determined by the complexity of a bank»s business. A bank
with high business complexity, despite being classified as
a small or medium bank, will be evaluated using eight
risks in total. On the other hand, a bank with medium or
regular business complexity will only be evaluated using
five risks, namely Credit Risk, Market Risk, Operational Risk,
Liquidity Risk and Compliance Risk
Different banks are at different stages of
preparedness in terms of risk management
implementation. Large-scale banks, in general, already
have their own risk-management special work units,
implementation and monitoring procedures, as well the
support of Human Resources with appropriate expertise.
However, smaller banks have not reached the economies
of scale to have their own risk-management special work
unit or to employ Human Resources with sufficient risk-
management experience. This phenomenon occurs
because the risk complexity dealt with by smaller banks is
far lower than that dealt with by the larger banks.
Generally speaking, the difficulties confronted by a
bank in its risk management application will appear in the
process of risk identification and measurement, especially
in terms of operational risk. This is true because the process
requires an accurate quantitative parameter and risk
measuring model. In reality, most banks have not found
suitable parameters or models to identify and measure
risks. As a result, individual banks are currently trying to
Banking Supervision Report
develop parameters and models that really reflect their
business activity risks. In addition, banks also commonly
have a problem with data availability and adequacy, both
internally and externally (national banking).
The application of banking risk management requires
attention on the following issues:
1) Relatively uneven credit distribution will potentially
raise credit risk;
2) The domination of short-term core depositors and
deposits will potentially increase liquidity risk;
3) Inappropriate bank operational guidelines, with no
updating and no periodic evaluation will potentially
increase operational risk;
4) More integrated banking products and insurance, as
well as capital market products without proper
disclosure of information from banks» personnel and
without clear explanation to customers, will potentially
intensify reputation, legal and compliance risks; and
5) Data availability and adequacy both internally and
externally (national banking).
2. Good Corporate Government Implementation
The term GCG has been known since the separation
of company owner and management. In the banking
sector, GCG was introduced in 1999, among others by
international institutions such as the Organization for
Economic Cooperation and Development (OECD) and BIS.
Each institution has encouraged GCG application in their
respective member countries. OECD issued the OECD
Principles of Corporate Governance in June 1999, whereas
BIS issued Enhancing Corporate Governance for Banking
Organization in September 1999.
GCG application in the banking industry is intended
to minimize moral hazard both for banks and customers,
ensure bank-and-customer obligatory payments duly
promised, as well as establish a more efficient and
transparent market. In addition, GCG was instituted to
Banking Supervision 31
Banking Supervision Report
avoid conflicts of interest, power abuse and inappropriate
resource allocation. From Bank Indonesia»s perspective as
regulator of the banking sector, effective GCG application
should assist banking supervision.
Appropriate and effective GCG application could
minimize banks» problems because the parties involved in
bank management could work independently without
interference from the owner and other related parties,
transparently, accountably, responsibly and fairly.
Conversely, ineffective GCG application, capable of
creating a problematic bank are as follow:
1. Interference from the Controlling Shareholders» family
in the bank»s operational activities and misuising the
bank to benefit their group interest;
2. Non-independent bank management;
3. Low integrity of the bank»s management and
employees;
4. Inappropriate internal controls; and
5. Violation of prudential principles.
Hitherto, eventhough Bank Indonesia have not issued
any specific GCG regulations to enhance the effectiveness
of banking GCG application, there have been various PBIs
that include GCG elements and other regulations related
to prudential regulations and GCG principles. An example
is a PBI on transparency that regulates the submission
procedure of financial reports to the public, which includes
disclosure of or notes on the financial report; a PBI on
banking institutions that regulates the membership
structure of commissioners and directors, which obliges
independent party involvement; a PBI on the Health Level
Evaluation System; a PBI on Risk-management Application;
a PBI on Assets Quality; a PBI on Maximum Lending Limit;
among others. Furthermore, especially for banks going
public, enforcement of GCG implementation has also been
given by Bapepam concerning the terms and conditions
to be met by banks wishing to go public.
32 Banking Supervision
Considering the importance of good governance and
evaluating GCG in national banking, Bank Indonesia has
introduced several measures including:
a) Summoning the board of commissioners, directors
and shareholders to give presentations on what has
been done towards realizing appropriate good
governance, comprising of both internal controls and
risk-management aspects;
b) Based on their presentations, supervisors analyze the
GCG effectiveness of the respective bank. Considering
the absence of Bank Indonesia guidelines regarding
GCG application, the analysis is conducted based on
best practices, supported by an Inspection Result
Report and off-site supervision data.
c) If, based on the analysis results, issues are found which
require follow-up work; supervisors shall submit a
supervisory letter to the bank requesting to improve
GCG application in their respective bank.
Poor corporate governance is often the result of the
following:
a) Too much owner interference in banking operations;
b) No effective internal guidelines for good corporate
governance;
c) Insufficient socialization of internal banking
guidelines;
d) Absence of references / detailed rules from the
banking authority; and
e) Insufficient qualified personnel quality.
Subsequently, Bank Indonesia shall also socialize GCG
to supervisors and banks in several KBI territories such as
KBI Surabaya, KBI Semarang, KBI Bandung, KBI Medan
and KBI Denpasar. This introductory program will continue
in the years ahead to cover other KBI territories and will
include other banks such as the Regional Development
Bank. In addition, Bank Indonesia shall make ongoing
improvements to GCG rules for the banking industry.

Box 3.1 Good Corporate Governance
The application of GCG should include the
≈ownership factor∆ because of its specific uniqueness
and the underlying difference of issues. As we know,
a bank can be categorized as a state-owned bank; a
private-owned bank and a public-owned bank when
ownership is diffused (diffused nature of shareholder
base).
Moral hazard of a state-owned bank and a
diffused-ownership bank normally occurs in the
centralized power of top management or the bank
executives. The lack of a dominant shareholder role
may increase the role and power of the management
executives. On the other hand, for an individual or
group-owned private bank, moral hazard may occur
in the centralized power of the owners or controlling
shareholders that act as commissioners.
Nevertheless, in general, PSP influence to
distribute a bank»s money to their own companies has
been greatly reduced in line with growing awareness
to comply with the BMPK regulations.
Weaknesses may still pervade GCG application
for cases of fraud in a bank. There is no denial that
fraud occurs due to human nature desiring to get more
than what one actually owns; or ≈the greed factor∆.
By the same token, opportunities may emerge for an
employee/officer to engage in fraudulent activities
triggered by pressure; be it economic pressure, a sense
of unfairness, lack of company appreciation, lifestyle,
family pressure and more.
Fraud is categorized into the following:
1. Misappropriation of assets that do not belong to
the actor (employee, officer or top management)
Banking Supervision Report
is the most common fraud. This kind of fraud is
relatively easy to identify and detect as it is in the
form of a theft of a tangible asset.
2. Financial Misrepresentation or misleading financial
reporting that may misinform the financial report
user and lead to inaccurate decision making.
3. Corruption & Bribery, misuses office power for
mutual benefit, which is difficult to prove due to
the mutual benefit factor. For example,
cooperation between a company officer and
supplier in the form of cost or expense mark-up is
difficult to prove.
Against this backdrop, Bank Indonesia as
supervisor will continue to encourage all banks under
its supervision to keep improving GCG application
actively and proactively. Continuous improvement is
necessary of the banks» internal control systems and
human resource development as human capital is
extremely important in GCG application. Yet, above all,
the role of top management as a role model for their
subordinates cannot be underestimated (the-tone-of-
the-top principle). With that, GCG application must be
acknowledged by all staff levels in the organization,
namely to prioritize long-term rather than short-term
survival, as reflected in value enhancement of the
company (long-term growth and survival).
Bank Indonesia is planning to conduct a GCG
inspection of banks. At the time of writing, the GCG
inspection guidelines are still being compiled.
Banking Supervision 33
Banking Supervision Report

3. CAMELS Rating System Implementation From the evaluation, Bank Indonesia may ask the
Along with PBI No. 6/10/PBI/2004 dated 12th April board of directors, commissioners and/or shareholders to
2004 regarding the Health Level Evaluation System of submit a follow-up plan containing improvement measures
Commercial Banks, Bank Indonesia has used an evaluation to be taken by the bank within a specific time period.
system known as CAMELS (Capital, Asset Quality, A Comparison of Commercial Banks» Composite
Management, Earning, Liquidity, and Sensitivity to Market Ratings as of December 2004 and 2005 is presented in
Risk) since the December 2004 evaluation period. Based Table 3.1.
on the PBI, the bank health level is defined as a qualitative
Table 3.1
evaluation result of various aspects influential to the Commercial Banks Ratings
condition or performance of a bank through Quantitative
No. of Banks %
and/or Qualitative Evaluation of capital, asset quality, Composite Rating
December 2004 December 2005
management, profitability, liquidity and sensitivity factors
1. Very good 2.3% 0.8%
against market risk. For Foreign Bank Branch Offices, the 2. Good 58.1% 53.1%
evaluation is only made on asset and management quality 3. Adequate 36.5% 39.1%
factors. 4. Fairly good 3.1% 7.0%
5. Poor 0% 0%
Compared to the previous evaluation approach, there
Total 100% 100%
are now several basic differences including: more emphasis
on qualitative evaluation, risk-management is calculated
in the management factor evaluation, and it is more risk 4. Know-Your-Customer/Anti-Money Laundering
sensitive with the presence of a sensitivity evaluation (KYC/AML) Principles Implementation
against market risk. The banking industry is faced with money laundering
In addition, banks have implemented some rules, for risk, namely the entry of illegal money originating from a
which penalties are deducted according to the health level criminal act that violates financial system law. The bank,
evaluation, including: non-adoption and/or non- as a financial institution that rests on trust, should be able
compliance with BMPK regulations, PDN violation, violation to maintain its reputation by avoiding dealing with any
of Know-Your-Customer principles, violation of bank clients/customers involved in illegitimate business practices.
product information transparency, misuse of personal With that, the bank must have an appropriate procedural
customer data and violation of the customer complaint and preventive mechanism to minimize money laundering
settlements. practices.
The bank health level evaluation result is rated into This action cannot be separated from the role of FATF
five composite ranks, namely: Rating-1 (very good), Rating- (The Financial Action Task Force) that maintains the Non-
2 (good), Rating-3 (adequate), Rating-4 (fairly good), and Cooperative Countries Territories or NCCTs List against
Rating-5 (poor). international standard practices related to money
Bank Indonesia conducts the evaluation quarterly laundering and subject to a specific trade penalty (counter
based on inspection results, periodical bank reports, and measures) that incur losses. FATF issues the list of countries
other published information. included in the NCCTs List periodically.

34 Banking Supervision

Box 3.2 Know Your Customer/Anti-Money Laundering and Anti Money Laundering
Criminal Law
The Bank Indonesia regulation related to the KYC
or Know-Your-Customer principles has experienced a
number of improvements in line with prevailing best
practices. This means that Bank Indonesia now has
the tools applicable by supervisors to conduct its
enforcement function on banks under supervision. In
accordance with the issuance of PBI No. 6/37/PBI/2004
dated 10th September 2004 regarding the Evaluation
and Penalties concerning the Application of Know-
Your-Customer principles and other Obligations related
with the Money Laundering Criminal Law, the
evaluation of KYC and Money Laundering Criminal
Law application is included in the calculation of the
health level of commercial banks through management
factors covering Active Supervision by Management;
Policy and Procedures, Internal Control and Internal
Audit Function; Management Information System, and
Human Resources and Training with a rating from one
to five: Very Good, Good, Adequate, Fairly Good, Poor.
Eventually, owing to continuous diligent efforts
and cooperation among related institutions,
particularly between Bank Indonesia and PPATK, the
Republic of Indonesia was removed from the list of
uncooperative countries (NCCTs List) in April 2005.
Nevertheless, the exclusion is still subject to a one-
year probation period and remains under tight FATF
monitoring control. Hence, continuous effort from all
parties is required, including the law enforcement body,
to ensure the country»s complete withdrawal from the
NCCT List.
The profile ratings of KYC/AML application based
on the inspection of 128 banks, conducted from
January to December 2005, are as follows:
Banking Supervision Report
Bank KYC Rating %
Banks with a rating of 1 (Very Good) 4 3.13%
Banks with a rating of 2 (Good) 16 12.50%
Banks with a rating of 3 (Adequate) 68 53.13%
Banks with a rating of 4 (Fairly Good) 40 31.25%
Banks that are unrated 0 0%
Total Banks 128 100%
Source: Banking Supervision
Based on the inspection/supervision of KYC/AML
application, certain facets of implementation that
require enhancement are as follows:
- Supporting infrastructure for KYC/AML
application, such as information system
technology that supports banks» efforts to monitor
financial transactions conducted by a bank»s client
(related to the Suspicious Transaction Report or
STR and Cash Transaction Report or CTR);
- Periodic adjustment/updating of customer data
or the Customer Information File (CIF);
- Creating Customer Identification Numbers to
simplify customer transaction monitoring by
banks;
- Creating an audit procedure in accordance with
KYC/AML application at the head office and
branch offices;
- Periodic training or refresher courses on KYC/AML,
considering that the modus operandi and
methods used to launder money by criminals
changes continually;
- Regular identification of High-risk Customers,
High-risk Businesses and High-risk Countries as
well ass periodic updates for more intensive
monitoring;
Banking Supervision 35
Banking Supervision Report
- KYC/AML policy and procedures; and
- Establishment of Know-Your-Customer Work
Units; with regards to the fact that the
organization will be more oriented towards costs,
particularly for small-scale and medium-scale
banks.
Supervision of KYC/AML application covers the
examination of KYC/AML Application Guidelines
submitted by banks, including any revisions/
improvements/adjustments. Based on such
weaknesses, continuous guidance must be provided,
for example by conducting special meetings with the
bank; meeting with the bank»s management to discuss
inspection results; sending a supervisory letter to
remind the bank to immediately follow-up on
outstanding issues; consider the importance of KYC/
AML implementation, for the sake of the bank, the
people and the country.
In addition, there is an information exchange
cooperation between bank supervisors and the
Financial Transaction Analysis Examination Center,
5. Commercial Bank Business Plan Implementation
One tool for banking supervision, based on PBI No.
6/25/PBI/2004, is that a commercial bank is now obliged
to compile and submit its Business Plan to Bank Indonesia.
The Business Plan must be compiled realistically and
measurably by considering healthy banking and prudential
principles other than internal and external factor changes.
The Business Plan is expected to direct and support the
bank»s vision towards enhanced operational activities and
help achieve GCG implementation. From a Bank
Supervisor»s point of view, the compilation and submission
of a Business Plan could assist the supervisor to anticipate,
in advance, banking activities and therefore arrange an
appropriate forward-looking supervisory strategy.
36 Banking Supervision
particularly concerning Suspicious Financial Transaction
Reports, which may or may not have been submitted
by a bank that must be followed up by supervisors
based on inspection results.
In this case, it is the banking supervisor»s duty
to encourage and reinforce efforts to truly exert
preventive measures against money laundering
practice, among others through the Know-Your-
Customer (KYC) principle application. Subsequently,
in this case, a supervisor training on money
laundering will also be continuously conducted
periodically.
Several factors that require attention to enhance
KYC/AML application quality in the future included:
an internal control support; internal audit function
optimization; an adequate management information
system (MIS), and law enforcement enhancement
regarding the rules of KYC/AML. In addition it is
equally important to enhance bank officer»s
awareness in timely reporting of the Suspicious
Transaction Report.
A bank»s Business Plan should at least contain current
bank performance as well as the short- and mid-term targets
to be achieved by the bank. The short- and mid-term targets
should consist of a financial target (quantitative) and a non-
financial target (qualitative). Quantitative targets must
include financial projections, a fund collection and
distribution plan, capital plan as well as certain posts and
ratio projections. The fund distribution must detail explicitly
the distribution plan of Micro, Small and Medium credits.
Meanwhile, the qualitative targets must include
management policy and strategy, risk-management
application, organizational and HR development plan, new
activities and product development plan, as well as an office
network revision plan.

The Business Plan should cover the upcoming three-
year period, however, the bank must submit it to Bank
Indonesia annually every January. For example, in January
2005, a bank must submit its 2005-2008 plans, whereas
in January 2006, the bank must submit its 2006-2008
plans. The Bank Supervisor shall evaluate whether the
Business Plan submitted by bank has complied with
prevailing rules, namely being realistic, measurable,
responsive to internal and external factors, taking into
consideration prudential and sound banking principles. The
evaluation of whether or not the Business Plan projection
figures are realistic shall be conducted by a Bank Supervisor
using stress testing on the base case scenario and historical
data. When the Business Plan is deemed not to satisfy
those criteria, Bank Indonesia can request the bank to make
adjustments. On the other hand, the bank is allowed to
make one-off revision to its Business Plan when there is a
significant change in internal or external factors that affect
the bank»s financial condition. The Business Plan revision
must be submitted in writing to Bank Indonesia by or
before the end of first semester of the current year,
accompanied by an explanation detailing the reasons of
the revision.
In terms of monitoring the Plan»s implementation and
achievement, a bank is obliged to submit its Business Plan
Realization Report quarterly (March, June, September and
December) to Bank Indonesia. The report must contain a
comparison between the business plan and actual figures
up to the reporting period along with explanations of any
significant deviations. Efforts must also be made to improve
the realization of its Business Plan. In addition, the board
of commissioners must submit their Business Plan
Supervisory Report to Bank Indonesia every semester,
containing the commissioners» opinion regarding business
plan realization; evaluating the fairness of factors that
influence the bank»s performance, and efforts for bettering
bank performance.
Banking Supervision Report
Based on the Business Plan recapitulation of all
commercial banks in 2005, total commercial bank assets
were projected to grow by 12.7%, namely from Rp1,272.1
trillion at the end of 2004 to Rp1,434.0 trillion at the end
of 2005. By December 2005, commercial bank total asset
realization had exceeded the original target, more
specifically Rp1, 469.8 trillion, or 102.5% of the 2005 year
end target.
Commercial bank total assets surpassed their target
largely due to the realization of deposits. Total commercial
bank deposits (demand deposits, savings and time deposits)
reached Rp1,127.9 trillion by the end of December 2005;
or 102.4% of the 2005 year end target of Rp1,101.7
trillion. The relatively good realization of deposits cannot
be separated from the tremendous efforts of banks to
attract the public»s money by offering higher interest rates
and many other incentives like prizes, bonuses and more.
The relatively good performance of deposits was
balanced by credit allocation realization. Until December
2005, total credit allocation from all commercial banks
totaled Rp730.2 trillion or 100.7% of the year-end target:
Rp725.5 trillion. Commercial bank credit realization
showed a 22.7% increase from the 2004 year-end position
of Rp595.1 trillion. Furthermore, we can see that the credit
realization for Micro, Small and Medium, which was
Rp271.1 trillion at year-end 2004 increased to Rp354.9
trillion at year-end 2005; an increase of 30.9%. This Micro,
Small and Medium increase was a far larger increase
compared to total credit.
The Loan-to-Deposit Ratio (LDR) of commercial banks
at the end of December 2005 was 64.7%, against the
LDR target of 65.9%, attributable to an increase in deposits
vis-à-vis credit.
In terms of quality, there has been a decline in
commercial bank credit quality compared to the year-end
2004 position. As of December 2005, gross non-
performing loans (NPL) of all commercial banks totaled
Banking Supervision 37
Banking Supervision Report
8.3%, representing a hike compared to the year-end 2004
position of 5.8%. Meanwhile, despite remaining below
the maximum 5% level stipulated by Bank Indonesia, the
NPL net ratio for commercial banks was 4.8% by the end
of December 2005, which was also higher compared to
the 2004 year-end figure of 1.7%.
For Micro, Small and Medium credit, gross NPL
remained relatively low, namely 3.2% at the end of
December 2004 and 3.7% at the end of December 2005.
Tighter competition between banks and the higher
deposit interest rate compared to the credit interest rate
narrowed the profit margin of banks. Overall, the total
net profit of commercial banks up to the end of December
2005 was Rp24.9 trillion; only 90.3% of the Rp27.6 trillion
target. The drop in banking profitability at the end of 2005
was also reflected by a falling Return-on-Assets (ROA) ratio
from 3.5% in 2004 to 2.6% at the end of December 2005.
Box 3.3 The Barriers of State-owned Bank Non Performing Loans Settlement
The relatively high NPL of State-Owned Banks,
which are commonly known as Bank BUMN (State-
Owned Business Enterprises), is attributable to, among
others, the absence of an appropriate legal
infrastructure to resolve non-performing loans. As a
result, in terms of competition in the banking industry,
state-owned banks are not really on a level playing
field with private banks, particularly in the handling of
bad credit.
There are two rules that are not conducive for
resolving non-performing loans from state-owned
banks, namely:
1. Government Asset / Loan Definition
Article 2, letter g of Law No. 17 of 2003 regarding
Government Finance defines that «Government
38 Banking Supervision
The unfavorable net profits mentioned above, in
time, will affect capital realization. The Capital Adequacy
Ratio (CAR) of commercial banks was 19.5% at the end
of December 2005; slightly below the target of 20.6%.
Deviation from the targeted CAR was less drastic than for
net profit as well as total capital because it was partially
compensated by the Weighed Asset According to Risk (as
a denominator component in the CAR calculation), which
was also below the stipulated target.
Against this backdrop, the realization of commercial
banks» business plans in 2005 has not been fully
successfully in line with designated targets. Although the
realization of total assets and deposits was considerably
good, the economic condition during the last quarter of
2005 was not favorable and the interest rate hike reduced
commercial banks» profit gain.
Finance includes self-managed state wealth/regional
wealth, or that managed by another party, in the form
of money, securities, loans, goods and any other rights
of money value, including the separated wealth from
central/regional government enterprises∆. However, it
does emphasize the implementation of regulations:
a. Minister for Finance Decree No. 300/KMK.01/2002
regarding Government Loans Management,
stipulates that government loans include loans to
government enterprises both directly or indirectly
controlled by the government (Article 1);
b. Minister of Finance Regulation No. 31/PMK.07/
2005 regarding the Proposal Application
Procedures, Examination and Determination on
Annulment of Central/Regional Government
Enterprises and Central/Regional Government

Loans, among others specifies that government
loans will only cover central government loans.
The absolute annulment of state enterprise loans
can only be conducted after management is taken
over by the Branch of the Committee for
Managing Government Loans (article 3)
It is stated in Article 9, PMK No. 31/PMK.07/2005
that an absolute annulment is meant as the dissolution
of the government enterprise loan claim. Meanwhile,
the claim termination shall be conducted by:
a. Principle loan termination shall be decided by the
Minister of Finance;
b. Loan interest, penalty and or costs of the
annulment shall be decided by the concerned
government enterprises.
Hence, considering that state-owned banks must
follow the above mentioned loans/credit procedures,
therefore, they do not have any authority to terminate
loans against the principle loan to resolve non-
performing loans as conducted by private banks that
can sell the dissolved credit and/or credit collateral by
way of discount in accordance with market value, which
is lower than the bank loan/claim. Another option is
to restructure non-performing loans through a
≈haircut∆ based on the debtors» real financial capability.
2. Vagueness of first level asset settlement scope
Article 4 of Law No. 49/Prp 1960 regarding the
Committee for Managing Government loans clarified
that ≈In principle, the first level settlement of
government loans must be resolved by the related
Banking Supervision Report
institution or enterprise...∆ Further it was said that if
not successful, the resolution must be handed over to
the Committee for Managing Government Loans. The
sense/scope of the first level asset settlement is clarified
in the following implementation guidelines:
a. Article 2 paragraph 1 of Minister of Finance Decree
No. 300/KMK.01/2002 regarding the
Management of Government Loans emphasized
that the settlement of first level government loans
must be resolved by the concerned state
enterprises themselves in accordance with
prevailing rules of law.
b. Article 2 paragraph 2 of the mentioned Minister
of Finance Decree further regulates that in the
case of unsuccessful first level settlement, the
related state enterprise must hand over the
management of such government loans to the
Committee for Managing Government Loans
Based on these rules, there remains no clarity in
the scope of first level settlement that can be conducted
by state-owned banks. Considering the high NPL of
state-owned banks at the moment and, hence, the
need for restructuring state-owned banks» assets as
well as improving the state-owned banks»
competitiveness, the government must create a more
conducive climate. This can be achieved by passing
authority for first level NPL settlement, with broader
scope, to state-owned banks by clearly stating that such
banks, when conducting first level settlement, may
conduct a collateral execution, auction and/or haircut
the credit restructuring.
Banking Supervision 39
Banking Supervision Report
6. The Impact of Mutual Funds
One of the barriers that affected national banking
system sustainability during 2005 was constraints in mutual
funds. Unlike 2002 and 2003, which saw the kindling of
mutual funds products, 2005 marked the turning point
with huge redemptions and withdrawal actions.
Meanwhile, the mutual funds heyday in 2002 and 2003
triggered the banking industry to join the party by acting
as mutual funds selling agents - with among others,
underlying government bonds - issued by investment
managers, from the bank»s subsidiaries (securities
companies).
Actually, investor funding withdrawal from mutual
funds products was not something extraordinary, because
as an «investment» product, it has major inherent market
risk stemming from fluctuating investment value, which
depends on existing market parameters against the
benchmark. Unlike traditional banking products, such as
savings and time deposits, mutual funds have specific
consequences. Consequently, investors must have
sufficient knowledge and understanding when involved
in such transactions.
When the interest rate trend is declining in the market
place, the mutual funds price with underlying government
bonds increases. On the other hand, when the interest
rate trend is rising, the mutual funds price drops.
The year 2005 was signified by a number of sensitive
periods when the interest rate increased, which among
others was triggered by hikes in the Fed Fund rate, global
oil and gas prices, increasing demand for US dollars, IDR
fluctuation against USD, and a general rise in inflation that
spurred a BI rate increase, which is used as the interest
rate reference.
Albeit a logical sequence of events, investors were
not fully aware of it due to lack of understanding and
insufficient knowledge regarding the inherent risks of the
product. Additionally, banks acting as selling agents
40 Banking Supervision
probably did not fully educate or socialize the risks to
prospective investors or only explained the potential profit
gain rather than any consequences of loss. Moreover, banks
acting as selling agents spread through various areas of
the country instead of being concentrated in the head
office. This spread existing expertise thinly, which lead to
a lack of knowledge in the branch offices.
To combat these problems, the Deputy Governor
issued a circular addressed to all banks in the form of
Circular No. 5/13/DPG/DPNP dated 3rd October 2003
concerning Prudential Principles for Banks in Conducting
Activities related to Mutual Funds. Through this bill, in
essence, Bank Indonesia prohibited any banks involved in
mutual funds activities to act as standby buyers for bonds
portfolios available with the investment managers. As a
consequence, bonds transactions between banks and
investment managers (partly owned subsidiaries) must be
conducted transparently and should refer to mark to
market. Ergo, a bank must include its investment manager
logo and clearly explicate the inherent investment risks to
clients regarding mutual funds, which are not guaranteed
under the Government Guarantee Program. Banks are also
prohibited from guaranteeing a return on the investment
gain and investment gains must be adjusted to the market
mechanism, i.e. floating.
In addition to the circular, Bank Indonesia also
promulgated PBI No. 5/8/PBI/2003 dated 19th May 2003
regarding Risk-management Application for Commercial
Banks, as well as Bank Indonesia Circular No. 7/19/DPNP
dated 14th June 2005. The circular stipulated that in order
to apply effective risk management, banks must undertake
the following:
a) Ensure that the investment manager acting as a
partner in mutual funds activities has been listed
and have obtained a valid permit from the capital
market authority in accordance with prevailing rules
of law;

b) Ensure that the respective mutual funds have obtained
an effective statement from the capital market
authority in accordance with prevailing rules of law;
Box 3.4 The Mutual Funds Case of Bank Global (Management Integrity as a Key Factor)
The criminal case of PT Bank Global in 2004
almost happened without warning; everything seemed
to be running fine. One of the rating agencies even
raised Bank Global»s rating from BBB to A- in July 2003.
Beyond Bank Indonesia»s and Bapepam»s (Capital
Market Supervisory Authority) knowledge, banks
without valid permits/certification to act as selling
agents had, in fact, been selling mutual funds1 to the
public since 2003. This caused bank deposits to plunge
from Rp1.5 trillion in mid 2003 into Rp800 billion at
the end of 2004.
The funds collected from the sales of mutual
funds to the public were not used to actually buy
mutual funds, but were embezzled by corrupt
management for personal use. This was a blatant
violation of Banking Law No. 7, 1997, which was
amended by Law No. 10 in 1998 (bookkeeping
engineering) and Criminal Codes (embezzlement /
theft). Several days before the bank was liquidated,
management still tried to engineer the bookkeeping
by recording the mutual funds waiting to be cashed
by customers as Bank Global»s bonds in the form of a
savings account. Management hoped that the bonds
would therefore be settled by the government through
the Government Guarantee Program.
What went wrong?
It is understood that the main driving factor of
banking crime stems from the bad mentality of
1
Reksadana Mantap, published by Prudence Asset Management
Banking Supervision Report
c) Identify, measure, monitor and control risks stemming
from activities related to mutual funds; and
d) Provide complete and transparent information to
customers.
management. No matter how good the system is if
management has no integrity it is useless. Nevertheless,
all systems have flaws and this is what Bank Indonesia
strives to continually improve as the banking supervisor
authority.
In the Bank Global case, the weak point exploited
by the corrupt executives was poor coordination and
weak legal infrastructure that served as an umbrella
covering the bank»s activities in terms of financial
services. This was reflected by the following points:
(i) Reporting of financial services business activities.
The bank did not report/acknowledge its mutual
funds selling activities to Bank Indonesia. However,
the problem remained that mutual funds were not
a bank product and are regulated by Bapepam.
(ii) The bank did not have an operating permit to act
as a mutual funds selling representative. Yet
Bapepam, in its authority, had no mandate to
conduct an inspection of banking activities.
(iii) Public supervisory failure. As a public company
(80% of the bank»s shares are owned by the public
through the capital market) investor protection
heavily relied on the honesty of issuer reports
provided by a public accountant. Yet, the 2003
year-end bank audit report indicated that the bank
remained in sound condition. PT Kasnic Credit
Rating Indonesia - a rating agency √ even raised
the bank»s rating from BBB+ to A-, based on the
sub-ordination bonds issued by the bank.
Banking Supervision 41
Banking Supervision Report
Coupled with risk-management imple-
mentation, Bank Indonesia issued Circular No. 7/19/
DPNP dated 14th June 2005 on Risk-management
Application for any Bank Conducting Activities related
to Mutual Funds. This circular obliged concerned
banks to provide complete and transparent
information to customers. In particular, to explain that
mutual funds are a capital market product for which
the bank has no responsibility for any risks incurred.
Also, that those mutual funds are not covered by the
Government Guarantee Program.
What»s next?
Financial services products have been developing
so rapidly and the business conflict of interest between
non-bank financial institutions and banks is becoming
Based on mutual funds inspections of banks during
the 2004√2005 inspection period, the unhealthy banking
practices were found to be as follows:
a) The investment gain was fixed up front. This is clearly
not a common practice. Mutual funds» investment
gain cannot be guaranteed.
b) Participation Unit Ownership Confirmation was
commonly issued by the Custodian Bank. In practice,
the confirmation was issued and signed by its own
bank officer, which created the impression to
customers that the mutual funds product was actually
the bank»s product.
c) There was a sale of mutual funds products similar to
banking products which encouraged the public to
think that mutual funds are equivalent to banking
products, like savings and deposit accounts.
d) The relationship between the bank and custodian
bank was only limited to money transfers for
purchasing and cashing mutual funds. The bank never
42 Banking Supervision
more intense. Against this backdrop, coordination with
the related financial services authority must be
continually enhanced. To this end, the idea of universal
banking in that financial services institutions can
conduct both banking and non-banking business
activities requires a clear legal umbrella. This would
enable due supervision to be executed more
comprehensively.
Bank Indonesia will also continue to monitor
financial services products that involve banking
activities. Despite awareness that legal infrastructure
development always lags behind societal dynamics (in
this case financial services products), Bank Indonesia
should have been alerted to this alarming condition as
early as possible in order to take immediate anticipative
measures.
submitted investor data to the custodian bank and
likewise the custodian bank never submitted any
report to the bank.
Due to the many pervasive weaknesses found in the
application of risk management by the bank in marketing
mutual funds products, the supervisor took the following
measures:
1) Follow-up of inspection results by sending a
supervisory letter to the bank for the bank to make
corrections to its mutual funds marketing practice in
accordance with prevailing rules of law. This includes
providing information and explanations regarding
mutual funds products to investors.
2) Asking the bank to renew the cooperation agreement
with its investment manager when considered in
violation of the rules and prudential principles.
3) Monitoring the mutual funds reports submitted by
banks.

Box 3.5 The Mutual Funds Case of PT Bank Negara Indonesia Tbk.
The huge redemptions that occurred in 2005
could basically have been resolved by mutual funds
players, but not the BNI Dana Plus mutual funds issued
by BNI Securities and marketed by PT Bank BNI (Persero)
Tbk (Bank).
The bank served as a mutual funds selling agent,
known as BNI Investment, since October 2002. BNI
Investment was the product link for selling BNI Dana
Plus mutual funds issued by BNI Securities (the bank»s
subsidiary). One of the bank»s objectives in marketing
the BNI Investment was not to lose its depositors.
Therefore, initially, BNI Investment was designed to look
like a deposit account, promising a fixed return of 2.5%
above the deposit interest rate within a certain time
frame.
The bank did not fully act as a BNI Dana Plus
mutual funds selling agent exposing the bank to
liquidity risk, market risk, legal risk and reputation risk.
If the bank had acted solely as a selling agent, it would
have only had to deal with reputation risk.
Upon the issuance of Bank Indonesia Circular No.
5/13/DPG/DPNP dated 3rd October 2003, regarding
Prudential Principles in Conducting Activities Related
to Mutual Funds, from 1st April 2004 onwards, the
bank published BNI Investment features, particularly
those related to investment gain, which was originally
a fixed return, becoming a floating return in
accordance with the Net Asset Value. Furthermore a
clause was added stipulating that investing in BNI
Investment would not fall under the safety umbrella
of the Government Guarantee Program.
Banking Supervision Report
The bank»s mutual funds activities developed
rapidly, as signified by an increase in NAB and the number
of participating units. However, triggered by higher
interest rates that lowered the bond price, in early July
and September 2005, huge, rush redemptions from
customers followed. This was generated by a NAB per
unit drop due to a falling government bonds price in the
investment portfolio of the BNI Dana Plus mutual funds.
The bank was trying to socialize and educate its
selling agents spread throughout the branches, but it
seems the socialization and education process faltered;
some investors continued to receive investment kits of
old features. In addition, the education process and
information dissemination to investors regarding
investment risk was inappropriate, shown by many
investors» claims that asked for full restitution on their
mutual funds.
Another problem was related to the liquidity of
BNI Securities in dealing with such a huge rush
redemption. At the time when the interest rate was
rising, followed by falling bond prices, BNI Securities
had difficulty in selling their government bonds. Against
this backdrop, the bank had to handle the risk by buying
back the government bonds offered by BNI Securities
in order to help pay the mutual funds investors.
Being a selling agent of mutual funds products of
BNI Securities (the BNI subsidiary) sparked high exposure
to bank risk. This was primarily because of the potential
risk transfer from the subsidiary to its mother company.
To monitor such a condition, bank supervision should be
conducted in a more consolidated way.
Banking Supervision 43
Banking Supervision Report
C. ENHANCE THE EFFECTIVENESS OF SHARIA BANK
SUPERVISORY
Sharia Banking Inspection and Supervision have been
conducted referring to several Sharia parameters, as well
as considering prudential principles. The activities shall
continually be augmented in line with the plan set out in
the Sharia Banking Blueprint. Meanwhile, inspection and
supervision results have started to depict true Sharia
banking industry conditions viewed from Non-Performing
Financing (NPF) development, which remained under 5%
based on the application of Sharia Productive Asset Quality
rules and the Financing-to-Deposit Ratio (FDR), that is
considerably healthy.
Since 2001, the approach to the supervision of Sharia
Banks has been to use a pattern that integrates off-site
supervision with on-site inspection in line with the adoption
of risk-based supervision. In order to implement the
approach in accordance with the expected goals, various
efforts have been undertaken including competency
enhancement through the bank supervision certification
program and additional Sharia Bank supervisors. In
addition, in 2005, efforts were doubled through an
internship program overseen by Bank Indonesia Office
supervisors in the inspection program conducted by Sharia
Bank supervisors. Plus, a knowledge sharing program
among Bank Indonesia offices in a workshop conducted
at the Head Office was organized.
Related to supervisory information management, at
the end of 2003 the Sharia Commercial Bank monthly
report was brought into effect and adjusted to specific
Sharia Bank operational characteristics. The report presents
financial information by office and also consolidated
information per Sharia bank. In 2005, this was followed
by the BPRS monthly report that was also adjusted to BPRS
operational characteristics and executable online to enable
quicker and more accurate information sent to Bank
Indonesia.
44 Banking Supervision
Anticipating the meteoric growth of Sharia Banks in
2005, the Sharia supervisory policy remained directed
towards compliance with prudential principles and
prevailing rules, including compliance to Sharia principles.
This includes GCG principle application and money
laundering criminal prevention through Know-Your-
Customer principles.
One of the barriers to supervising Sharia Banks is
that Sharia principles for banking operations are not fully
in accordance with the instructions of the National Sharia
Board. Efforts to overcome the barriers include coordination
with the Sharia Supervisory Boards of related banks other
than DSN. In addition, in 2005 Bank Indonesia, with the
involvement of the Sharia Banking Experts Committee,
DSN, Sharia Banks and Sharia banking experts issued a
number of regulations related to the requirements of Sharia
bank supervision.
Considering the importance of DPS presence to
ensure Sharia Bank operation is in compliance with Sharia
principles, Bank Indonesia continuously supports effort to
enhance DPS competency, be it through providing experts
and information as well as technical assistance for
organizing training workshops. This is in line with the
issuance of terms, conditions and procedures of DPS
membership recruitment through PBI No. 6/24/PBI/2004
regarding Commercial Banks Conducting Business
Activities Based on Sharia Principles.
In order to improve supervision quality, Bank
Indonesia regularly enhances supervisory effectiveness,
for example through periodic and punctual inspections,
following up on inspection findings, as well as asking
for owner commitment and the bank»s management to
operate their bank soundly, avoiding moral hazard.
Based on inspections and supervision, the bank is
required to improve the resolution of its problems, for
example by minimizing non-performing financing
through write-offs, establishing adequate reserves,
 Banking Supervision Report

boosting capital, facilitating meetings between owners 2) BPR operations have not been fully conducted based
and investors, as well as requiring the bank to improve on good governance supported by appropriate
its management. procedure and systems. This has resulted in weak
control of BPR business management and inefficiency.
D. ENHANCE THE EFFECTIVENESS OF RURAL BANK 3) BPR owners interfere in operations, which creates
SUPERVISORY disadvantages
The goal for supervising rural banks (BPR) is to create To train high-quality BPR personnel with good
sound, strong and efficient banks capable of meeting the integrity and sufficient competence to provide sound BPR
public»s needs, supportive of monetary control and management (good corporate governance), Bank
proficient at driving economic development through the Indonesia continues to extend technical assistance as well
development of micro businesses. as a training and certification program. In addition, Bank
In order to enhance supervisory effectiveness, various Indonesia evaluates the capability and appropriateness,
efforts have been taken, including the national through fit and proper tests, of any party deemed to have
implementation of the BPR Supervision Information System major influence over BPR control and management.
at the end of 2005; designing electronic BPR reporting: In accordance to Law No. 23, 1999, superseded by
both offline (via diskettes) by the end of 2005 and online Law No. 3, 2004, Bank Indonesia conducts periodic bank
(via modem) in 2006; as well as compiling an inspection inspections, at least once annually. In 2005, 2,072 rural
strategy based on potential risk. Submitting monthly online banks were inspected as planned. These inspections were
financial reports to Bank Indonesia is expected to reveal routine general inspections conducted annually, whereas
information on the financial situation and business special inspections were conducted based on individual
conditions of rural banks timely and accurately to support rural banks.
the supervision system.
Table 3.2
In addition, Bank Indonesia continues to strive to Plan and Actual Examination Progress of
Rural Banks
enhance supervisory quantity and quality through
2004 2005
certification of bank supervisors, periodic non-certification
training of information building and knowledge sharing General Audit
- Target 1,937 2,054
plus creating additional supervisors.
- Realization 1,949 2,069
Despite positive development in the BPR industry, it - Difference 12 15
is still confronted by several constraints as follows: Special Audit
- Target 168 211
1) Inadequate Human Resources quality, both
- Realization 342 593
managerial and technical operational levels, which - Difference 174 382
results in high overhead costs for the BPR operation.
Furthermore, inappropriate credit analysis has resulted BPR inspection findings revealed that unhealthy

in relatively high NPL, errors are still found in the banking practices are still apparent, including the following:

bookkeeping and reporting system and a lack of 1. A process of bank credit distribution to both related

innovative product development for enhancing and unrelated parties existed to avoid BMPK violation.

market share restrict BPR growth. 2. There were internal disputes among the management

Banking Supervision 45
Banking Supervision Report

and also between management and the owners that
affected banking operations.
3. The reports submitted to Bank Indonesia were not
fully accurate.
4. There were banking practices within banks in the
interest management and/or owners.
5. There were foreign currency business activities; more
specifically money was invested in foreign currency
into other banks and foreign currency loans were
received.
Any banks conducting the above mentioned
unhealthy banking practices were castigated be it through
reprimanding letters or interviews concerning necessary
follow-up measures to be taken by the bank to resolve
the outstanding issues. Administrative sanctions were also
imposed in accordance with prevailing rules of law.
However, most rural banks suffering from major problems
and under special surveillance were settled through
acquisition and/or raising their CAR to 4% minimum as
well as a 3% minimum Cash Ratio. In addition, any
executives or owners proven to be the source of the
problem were removed. Criminal intent was reported to
UKIP for further action.
E. BANKING LICENSING AND INFORMATION SYSTEM
1. Bank Management and Ownership Licensing
a. Commercial Banks
In order to create a solid banking system, appropriate
good governance practices should be enhanced in the
banking industry. To foster good governance, banking
activities must be managed and owned by highly
competent people with good integrity. Therefore, to raise
management and controlling shareholders to meet such
requirements, fit and proper tests for bank management
candidates and owners are conducted.
The fit and proper test process covers an
administrative evaluation stage, and if a candidate meets
the administrative requirements, an interview will follow.
In 2005, interviews that made use of the fit and
proper process totaled 381 management candidates and
bank shareholders/owners: consisting of 190 directors, 41
compliance directors, 133 commissioners/supervisors and
17 shareholders. The number of successful candidates was
145 directors, 31 compliance directors, 113 commissioners/
supervisors and 14 shareholders. Those failing the
interviews numbered 45 directors, 10 compliance directors,
20 commissioners/supervisors and 3 shareholders.
Compared to 2004, the number of participants interviewed
went up by 142 persons or 59.41%.

Table 3.3
Fit and Proper Test for Prospective Commercial Banks Managers and Owners/Ultimate Share Holders

Partici Pass Fall Partici Pass Fall Partici Pass Fall

pants pants pants
2004 2005 Accumulating until 2005
Board of Directors : 131 96 35 231 176 56 1.140 938 202
a. Directors 103 80 24 190 144 46 889 751 138
b. Compliance Directors 28 17 11 41 31 10 251 187 64
Commissioners/Supervisors 95 71 24 133 113 20 673 595 78
Shareholders 13 13 0 17 14 3 61 56 5
Total 239 180 59 381 303 79 1.874 1.589 285

46 Banking Supervision

Overall, up to 2005, interviews were given to 1,874
management candidates and bank owners, with 1,589
declared successful, consisting of 938 directors, 595
commissioners/supervisors and 56 parties representing
controlling shareholders.
b. Sharia Banks
To build a strong foundation for Sharia growth, one
preliminary initiative, in line with the development of
Indonesian Sharia banking contained in the blueprint, was
to develop the Sharia bank office network. This represented
the main reference for permit procedures. A permit is the
main gateway for entry of a bank or bank office into the
Sharia banking industry. Hence the role of a permit in
creating a sound banking industry is to ensure that permit
processing is conducted transparently and timely, paying
attention to prevailing rules and prudential principles.
Good governance is one of the supports to create a
sound Sharia banking industry. In order to expend good
governance, Sharia banking activities must be managed
by highly competent people with good integrity; meaning
controlling shareholders, management (directors and
commissioners) and Sharia Supervisory Boards. To ensure
qualified controlling shareholders, management and DPS,
Bank Indonesia conducted interviews (Fit and Proper test)
of shareholder candidates/ultimate shareholders,
management and DPS of Sharia banks.
Upon the issuance of a PBI regarding BPRS and BUS
in 2004, the coverage of permit types increased at the
start of 2005, namely by obliging BUS, UUS and BPRS to
obtain approval from Bank Indonesia prior to the launch
of a new product.
The socialization of Sharia permits to founder
candidates, management candidates and DPS candidates
as well as executive banks, is conducted to minimize the
existing information barriers through various media. This
included the provision of Implementation Guidelines for
Banking Supervision Report
Sharia Bank Office Opening as well as leaflets on setting-
up procedures, conversion procedures and BPRS acquisition
procedures.
In 2005, Bank Indonesia was able to process permits
faster than the time specified in the rules, more specifically
63.27% of the maximum time specified.
c. Rural Banks
To create robust, efficient and productive rural banks
capable of open development to provide financial services
to the public as well as Micro, Small and Medium
Enterprises (MSME), be it in villages and cities, the permit
sub-section must conduct the following activities:
a) Examine the administrative requirements for principle
and business permits in accordance with prevailing
regulations.
b) Conduct fit and proper test interviews to PSP and
BPR management to be established within KPBI
working territory (Jabodetabek).
c) Evaluate/discuss the potentials and saturation point
for rural banks established in KPBI working territory
through presentations conducted by independent
consultants, shareholder candidates and BPR
management.
d) Coordinate with KBI for rural banks to be established
in KBI working territory to ensure they meet the
requirements, using fit and proper tests as well as
evaluating the potentials and saturation point of the
BPR location.
In 2005, Bank Indonesia granted principle permits
to 30 BPR and business permits to 32 BPR; cancelled 6
BPR business permits, and granted a permit for the merger
of 130 BPR into 11.
In 2005 there were 39 permit applications for
conventional BPR establishment: principle approvals were
given to 30, business permits to 32. Three applications
were withdrawn and 15 declined, the reasons for which
Banking Supervision 47
Banking Supervision Report

were due to capital deposit sources and owner/
management competency not complying with the rules.
Based on the business permits given in 2005, 11 BPR
(34.4%) were located in Java and Bali, the remaining 21
(65.6%) outside Java and Bali. The high number of BPR
permit applications showed there remains a great deal of
investor interest in Micro & Small Enterprise development
through a BPR financial institution. This also showed that
more people believe in the BPR prospects.
Fit and Proper Test for Ultimate Share Holders (PSP)
and BPR Management
To ensure fit and proper PSP and BPR management
to run business activities, Bank Indonesia selects from PSP/
BPR management candidates, decides on permits for new
rural bank and PSP/BPR management revisions. Based on
the fit and proper test interview, Bank Indonesia decides
upon the successful PSP/BPR candidates. In general, PSP
and management are declared unsuccessful if they fail to
meet administrative, competency and/or integrity
requirements as specified by Bank Indonesia, or if the
candidate belongs to the List of Unsuccessful Candidates
and/or the List of Non-Performing Loans
Table 3.4 shows the number of fit and proper tests
conducted on shareholder candidates, commissioners and
BPR directors in 2005.
2. Banking Sector Management Information
System
To support the implementation of banking
supervisory tasks, inspection and examination, Bank
Indonesia uses its Management Information System (MIS)
known as Bank Indonesia Banking Sector. Bank Indonesia
Banking Sector covers banking sector applications used
to generate fast and accurate information to enhance the
effectiveness of commercial bank supervision. It covers
three modules, viz. SIMWAS (Supervisory Management
Information System), SIMERIK (Inspection Management
Information System) and SIBADI (Information System for
Banks under Investigation).
a) SIMWAS (Supervisory Management Information
System)
SIMWAS is an information system developed to
enhance the efficiency and effectiveness of commercial
bank supervision. SIMWAS provides several benefits,

Table 3.4
Fit and Proper Test for Prospective Rural Banks Managers and Owners/Ultimate Share Holders
2005
2004
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
P PS F P PS F P PS F P PS F P PS F P PS F
New Entry
PSP 89 85 4 17 14 3 27 21 6 50 38 12 38 33 5 132 106 26
Commissioner 276 202 74 81 53 28 99 75 24 164 128 36 107 78 29 451 334 117
Board of Director 420 281 139 107 75 32 132 84 48 158 106 52 120 65 55 517 330 187
Total 785 568 217 205 142 63 258 180 78 372 272 100 265 176 89 1,100 770 330

Existing
PSP 8 4 4 8 4 4 1 1 - - - - 3 3 - 12 8 4
Commissioner 78 51 27 47 38 9 21 17 4 31 20 11 29 18 11 128 93 35
Board of Director 97 70 27 37 33 4 23 20 3 43 34 9 39 27 12 142 114 28
Total 183 125 58 92 75 17 45 38 7 74 54 20 71 48 23 282 215 67

Remarks : P : Participants PS : Pass

PSP : Ultimate Shareholders F : Fall

48 Banking Supervision

namely (i) to accelerate information procurement regarding
a bank»s financial condition (including the Bank Health
Level); (ii) to enhance data security and integrity as well as
banking information; and (iii) to simplify the analysis of a
bank»s condition by supervisors and examiners.
In 2005, modules for SIMWAS application were
applied. They support risk-based supervision
implementation (RBS) intended to evaluate a bank»s risk
profile, and CAMELS, which is intended to evaluate a
commercial bank»s health level against Capital, Asset
Quality, Management, Earnings, Liquidity and Sensitivity
to Market Risk factors. Additionally, the EWS (Early Warning
System) module was completed, which is a supervisory
tool in form of an information system on a bank»s
performance that assists supervisors to detect changing
health conditions earlier, before the change has a chance
to become more serious.
b) SIMERIK (Inspection Management Information
System)
SIMERIK is an information system developed to
support commercial bank inspection effectiveness. Using
SIMERIK, bank inspectors can obtain integrated data faster
to provide assistance in condition analysis and the
completion of the Bank Inspection Result Report. SIMERIK
has also enhanced administration and documentation
orderliness. In 2005, the modules were adjusted to
accommodate risk-based supervision implementation.
c) SIBADI (Information System for Banks under
Investigation)
SIBADI is an information system developed to
strengthen orderly administration and simplify the
monitoring of criminal investigation in the banking industry.
Using SIBADI , it is possible to monitor investigation
developments on suspicion of criminal intent by a bank»s
staff from the day a deviated report is received (from the
Banking Supervision Report
banking supervisory workforce or the public), investigation
schedules, and measures conducted up to the final result
of the investigation. In 2005, SIBADI application
improvement was made inline with UKIP requirements.
d) Debtors Information System (SID)
SID is a system that provides debtors information; it
is the result of processing the Debtors Report received by
Bank Indonesia from the Reporting Party. SID is arranged
to assist the Reporting Party in smoothing their funding
supply process, to assist risk-management application, and
help banks identify debtor quality in terms of meeting the
prevailing regulations. This system is also used to support
bank supervision and inspection of Bank Indonesia.
This system is currently regulated by PBI No. 7/8/PBI,
dated 24th January 2005, as follows:
1) The reporting party, previously limited to commercial
banks, is presently expanded to include rural banks
and other non-bank financial institutions (Non-bank
Credit Card Institutions and Non-Bank Financial
Institutions).
2) The Debtors List, which originally only provided a
credit facility for Rp50 million and above, has now
been expanded to any amount starting from Rp1,-.
3) SID application development, including the supply of
online and real-time SID information.
In terms of SID implementation, a new SID application
has been developed along with supporting facilities to
reduce the barriers in arranging SID. In addition, in 2005
the following actions have been taken:
1) Commercial Banks reported their debtors with Rp50
million ceiling and above in April 2005 for March
2005. On the other hand, the Rp50 million ceiling
and below must be reported in January 2006 for
December 2005 data. BPR will begin reporting its
debtors from February 2006 and beyond for the
January 2006 data position.
Banking Supervision 49
Banking Supervision Report
2) In terms of SID implementation in Non-Bank Financial
Institutions, a meeting with the Department of
Finance was arranged to prepare for participation in
SID and the establishment of a Working Group.
Subsequently, to enhance SID quality towards the
establishment of a Credit Bureau, there will be
improvements made to the SID request services, for
example by providing Individual Debtor Information (IDI)
in a batch, simplifying and accelerating data searches,
separating data for Credit Bureau service needs, providing
historical data, as well as providing a scoring facility.
F. BANKING INVESTIGATION AND MEDIATION
Based on PDG No. 7/29/PDG/2005 dated 12 th
December 2005 apropos the Fifth Revision of PDG No. 3/
1/PDG/2005 regarding Banking Sector Organization and
th
the Circular No. 7/98/INTERN dated 12 December 2005,
the Banking Investigation Special Unit Task Force (UKIP)
changed its status into a directorate under a new title:
Directorate of Banking Investigation and Mediation (DIMP).
With such a name and status changes, other than
conducting an investigation, DIMP also shoulders the
burden of a new task, namely banking mediation.
a) Bank Fraud Investigation
One of the basic tasks of DIMP is to investigate any
suspicion of manipulation in the banking field, particularly
one with criminal intent, conducted by a bank affiliate or
any other party that uses a bank as a target or object.
The source of information to be investigated is based
on supervision or inspection findings, and/or personal
reports/information concerning banking malpractice
suspected to contain criminal elements.
The outcome of the investigation will be scrutinized
and studied in depth through a cooperative forum for
criminal handling in the banking field, the mechanism for
50 Banking Supervision
which was regulated in a Joint Decree (SKB) between the
Attorney General of the Republic of Indonesia, the Head
of Police and the Governor of Bank Indonesia dated 6th
November 1997, superseded on 20th December 2004. The
forum consists of a Working Group and a Plenary Team,
whose members originate from the representative
institutions, namely the Banking Work Unit of Bank
Indonesia, Police Headquarters Intelligence Agency, the
Office of the Attorney General of Republic of Indonesia,
Jakarta Metropolitan Regional Police Department, and High
Court of DKI Jakarta.
For smoother handling of criminal suspicion in the
banking field occurring in Bank Indonesia Office (KBI)
working territory, the Joint Decree (SKB) also applies to
regions. The organizational structure of the SKB Teams in
the regions shall consist of a Working Group and Plenary
Team. The members are Bank Indonesia Office (KBI)
Banking Field Officers, General Crime Assistant (Aspidum)
and Special Crime Assistant to the High Court (Aspidsus),
and the local Directorate of Regional Police Economic
Intelligence (Ditserse Ekonomi Polda). The Plenary Team
comprises of the local leader of Bank Indonesia, Head of
the High Court Office, and the local Head of the Regional
Police.
Hence, in the SKB forum the tasks are split in
accordance with each respective authority, namely Bank
Indonesia as the banking authority which shall provide
information/report on criminal acts in the banking field,
the Police Department which serves as investigator and
the Attorney Office as prosecutor. With such split of tasks,
law enforcement in the banking field is expected to be
well executed so that the desire for creating and
maintaining financial system stability can be realized.
Table 3.5 shows the cases reported from the banking
field handled by DIMP (formerly UKIP) from January to
December 2005.
 Banking Supervision Report

The table reinforces Bank Indonesia»s unwavering reported could be processed quickly (investigation through
commitment to help implement law enforcement in the to court proceedings), namely PT Bank Global, PT Bank
banking field, although only a handful of cases of the total Negara Indonesia and PT Bank International Indonesia.

Table 3.5
Number of Banking Investigation
Commercial Rulal
Total
Description Banks Banks
Cases Banks Cases Banks Cases Banks
1. Reported for investigation purposes 70 45 84 36 154 82
2. Investigated 58 37 76 32 134 69
2.1 Reported / given to Investigator *) 24 11 60 24 84 35
2.2 Investigation has been ceased **) 34 26 16 8 50 34
3. Under investigation process 12 9 8 4 20 13

*) Including cases in areas reported/given by Bank Indonesia Offices (KBI) through a Regional Joint Decree mechanism, as well as cases
reported to Financial Transaction Reports and Analysis Center (PPATK)
**) Reasons why investigations have ceased:
- Found not to be of a criminal nature, or
- Has been signed by law enforcer, or
- Considered as under the jurisdiction of other authorities (such as tax), or
- Has expired or other matters conforming to null and void criteria

b) Mediation of Customers and Bank Dispute customer or customer representative to the banking
The new task shouldered by DIMP is to conduct mediation institution could be implemented after
banking mediation as instructed in PBI No. 8/5/PBI/2006 completing a bank complaint settlement process.
on Banking Mediation. The implementation of banking Therefore, banking mediation is basically a follow-up effort
mediation is an alternative for dispute settlement offered (phase 2) of a customer complaint that failed to be settled
to bank customers, especially small and medium enterprise internally by the respective bank (phase 1).
customers. Banking mediation shall be implemented by The mediation function has been conducted since
an independent mediation institution to be established by October 2005, and the number of disputes handled up to
the banking association by or before December 2007. December 2005 is available in Table 3.6.
Before the establishment of such independent mediation
institution, the banking mediation function shall be
undertaken by DIMP √ Bank Indonesia.
The dispute settlement process that involves a
mediator to reach an agreement between a customer and
a bank is referred to as mediation. It is a civil dispute if the
amount disputed has a maximum value of up to
Rp500,000,000. Dispute mediation forwarded by a

Banking Supervision 51
Banking Supervision Report

Table 3.6
Number of Customer and Bank Dispute

Commercial Rulal
Total
Description Banks Banks
Disputes Banks Disputes Banks Disputes Banks

1. Number of civil disputes received 17 17 0 0 17 17

2. Number of civil disputes mediated 13 13 0 0 13 13
3. Number of civil disputes in process 4 4 0 0 4 4

52 Banking Supervision
 Banking Supervision Report

Chapter 4
Banking Performance

Banking Performance 53
Banking Supervision Report

54 Banking Performance

Chapter 4
Banking Performance
In 2005, banks performed considerably well despite
confronting heavy challenges, for instance the rising
domestic interest rate.
A. COMMERCIAL BANKS PERFORMANCE
Commercial banks continued to perform buoyantly
despite facing risk pressures amidst the unfavorable
economic conditions, particularly during the second half
of 2005. Total assets, credit distribution and deposits
continued to grow, bolstered by considerably large
capital. Profitability fell slightly due to higher operational
costs, especially prior to the interest rate hike in the third
quarter.
In 2005, total assets rose by Rp197.5 trillion,
followed by an increase of Rp135.1 trillion in credit; or
about 22.7%. The credit growth exceeded the 22%
target for 2005. Deposits also grew significantly by
Rp164.8 trillion; or 17.1%. This translates to 82% of
deposits accumulated by banking institutions were
redistributed in the form of credit, which is reflected in
the Loan-to-Deposit Ratio (LDR) increase from 61.8%
(December 2004) to 64.7% (December 2005). This
indicates that the intermediation function of the banking
sector performed well.
Despite performing well, 2005 was beset with
challenges in terms of banking activities. First , the
pressure emanating from credit risk that had to be dealt
with by the banks, particularly in the second half of the
year, increased significantly. The increase in credit risk,
among others, was shown by the deteriorating banking
Banking Supervision Report
credit quality. Gross non-performing loans (NPLs) rose
from 5.8% (December 2004) to 8.3% (December 2005).
Furthermore, net NPLs also rose; from 1.7% to 4.8%.
The reason for the poor performance of banking credit
was, among others, due to lackluster corporate credit
quality, an incomplete credit restructuring program, and
the degenerating business and investment climate.
Second , despite positive results, commercial bank
profitability suffered pressure from the rise in the
operational interest costs in line with the deposit interest
rate hike. Nevertheless, the said interest rate hike was
still overcome by the banks ensuring that ROA
achievement was still appropriate. Apart from the
pressure on profitability, the CAR of banks during 2005
remained relatively stable, on a climbing trend vis-à-vis
year end 2004: from 19.4% (December 2004) to 19.5%
(December 2005). The positive commercial bank
performance generated additional profit which kept
CAR stable. Furthermore, the CAR increase also
originated from right issues and subordination debt
instrument issuance - particularly on the major bank
group.
Banking Performance 55
Banking Supervision Report

Table 4.1
Banking Key Indicators

Growth (y-o-y)
Main Indicators Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05
Nominal (%)

Total Assets (T Rp) 1,030.5 1,099.7 1,112.2 1,196.2 1,272.3 1,469.83 197.5 15.5
Deposits (T Rp) 699.1 797.4 835.8 888.6 963.1 1,127.94 164.8 17.1
Credit (T Rp) 320.5 358.6 410.29 477.19 595.1 730.2 135.1 22.7
Earning Assets (T Rp) 1,007.2 1,048.1 1,023.6 1,072.4 1,146.8 1,300.2 153.3 13.4
NII (Net Interest Income) (T Rp) 2.9 3.1 4.01 3.2 6.3 6.2 -0.1 -1.6
LDR (%) 45.8 45,0 49.1 53.7 61.8 64.7 2.9 4.8
ROA (%) 0.9 1.37 1.9 2.5 3.5 2.6
NPLs Gross (%) 18.8 12.1 8.1 8.2 5.8 8.3
NPLs net (%) 5.8 3.6 2.1 3.0 1.7 4.8
CAR (%) 12.7 20.5 22.5 19.4 19.4 19.5
Credit / Earning Assets (%) 33.0 34.8 40,1 44.5 51.9 56.2
NIM (NII / Earning Assets) (%) 0.3 0.3 0.4 0.3 0.6 0.5
Liquid Assets / Total Assets (%) 12.0 13.7 15.1 14.9 15.8
Core Deposits / Total Assets (%) 0.5 0.5 0.5 0.5 0.5 0.5
BOPO (%) 105.7 99.4 124.6 88.8 76.7 87.7

Total Banks 142 142 141 138 133 131

Total Offices 6,542 6,826 6,966 7,730 7,939 8,236

*) includes chanelling

Intermediation Function Improvement

Banking intermediation continued to improve amidst
unfavorable economic conditions, particularly in the second Rp Trillion Percent
1.200 140
half of 2005. This is illustrated by the Rp135.1 trillion
1.000 120
(22.7%) growth in credit; exceeding the 22.0% growth
100
800
target for 2005. The higher growth expanded the credit 80
600
share in total banking earning assets from 51.9% to 60
400
40
56.2%. Viewed by credit type, the highest growth was
200 20
reported for consumption credit, which achieved 36.8%. Credit (left) Deposits (left) LDR (right)
0 0
Meanwhile, working capital credit (KMK) and investment 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Dec 05

credit (KI) grew by 22.4% and 13.2% respectively. It is Graph 4.1

Loan-to-Deposit Ratio
necessary to note that despite such growth, investment
credit recorded slower growth compared to the other types
of credit.

56 Banking Performance
 Banking Supervision Report

Percent Percent Percent

60 20 10
18 9
50
16 8
14 7
40
12 6
30 10 5
Credit (left) 8
20 4
6
Securities to Third Party and BI (left) 3
4
10 2
Placement on Other Banks (right) 2
1
0 0 Industry MKM
0
2002 2003 2004 2005 Dec-05 Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep
2002 2003 2004 2005
Graph 4.2
Earning Assets Graph 4.5
MSM Scale - Enterprise NPL
Percent
40
35 Working Kapital Kredit

30
Investment Credit Credit to micro, small and medium enterprises
Consumption Credit
25
(MSME), up to December 2005, grew by 30.9% (y-o-y).
20
15 Since 2001, MSME credit has continually increased, which
10
is evident from the expansion in share of total banking
5
0 credit. Amidst the rising domestic interest rate, credit for
-5
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec this sector continued growing despite a slight slowdown
2005
Graph 4.3 in the third quarter. Positive MSME credit performance was
Growth of Credit 2005
reflected by its better quality compared to banking credits
in general. The gross NPL ratio of MSME credit was 3.7%
(Rp13.1 trillion).
Credit to micro, small and medium enterprises
Relatively buoyant banking credit growth in 2005
(MSME) showed signs of growth, both in terms of growth
was supported by credit growth from the large banks
and performance.
group, foreign banks and mixed banks. In accordance with
their market shares, nominally the greatest credit increase

Trillion Percent
in 2005 stemmed from the large banks group with 21.2%
800 60 growth. Conversely, credits extended by foreign banks and
Credit Share of SME Loans
700
SMEs Loans 50 the mixed banks group grew by 40.2% and 44.5%
600
40 respectively; surpassing the banking industry average. With
500

400 30 such impressive growth, the credit share of the second

300
20 bank group reached 23.7% of the total banking credit
200
10
100 increase in 2005.
0 0
1999 2003 2005 Nov

Graph 4.4
Growth of MSM Scale - Enterprise Loan

Banking Performance 57
Banking Supervision Report

Trillion Percent
Percent
100 50
90 45 Electricity
80 40 Mining
70 35 Social Service
60 30 Service
50 25 Agriculture
40 20 Construction
30 15 Transportation 2005
20 10 Industry 2004
10 5 Others
- 0 Trading
Large Banks Medium Size Small Banks Joint Venture Foreign Banks
Banks Banks -40 -20 0 20 40 60
Nominal Percentage

Graph 4.6 Graph 4.7

Growth of Bank Loan based on Ownership Growth of Loan based on Economic Sector

1.2%
1.4% 0.8%
10.4% 19.5%
Credits for industry funding remained robust, 5.3%
3.9%
dominated by working capital credit whilst. Credits to fund
production grew by 18.2% over the previous year. 2.9%

Nevertheless, growth stemmed more from funding 30.0%

24.6%
working capital to support existing debtors» operations.
Trading Others Industry
When viewed from the perspective of the economic sector, Transportation Construction Agriculture
Service Social Service Mining
credit for the construction sector showed significant Electricity

growth. Construction sector credit growth reached 35.3%, Grafik 4.8

Share of Loan based on Economic Sector
the highest compared to other economic sectors. The high
growth of this type of credit remained affected by the
Trillion Percent

high economic growth in 2005, despite volatile economic 120 180

160
conditions due to the high oil and gas fuel prices, especially 100
140

prior to the third quarter. The high credit growth in the 80 120
100
60
construction sector was in concordance with the growth 80
40 60
of consumption credit, which was primarily utilized to fund
40
20
housing projects. 20
0 0
Intermediation was considered to have functioned L DPK KL D M NPL
Nominal Percent
well and banks maintained sufficient capital to overcome
Graph 4.9
the unexpected losses and mitigate the deteriorating Growth of NPL
quality of banking credit.

58 Banking Performance
 Banking Supervision Report

Percent Rp. Trillion

Rp. Trillion Rp. Trillion
12 800
100 800
700
10 90
700
600 80
600
8 70
500
60 500
6 400
50 400
NPL Gross (left) NPL Net (left) Loan (right) 300 40
4 300
200 30
200
2 20
100
10 100
- 0 NPL (left) PPAP (left) Credit (right)
Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
0 0
1999 2000 2001 2002 2003 2004 Dec-05
2002 2003 2004 2005

Graph 4.11
Graph 4.10
Loan, NPL and Productive Asset Write-aff Reserve
NPL and Loan

The banking gross NPL ratio increased from 5.8% in
December 2004 into 8.3% due to the rise in NPL category
credit by Rp26.4 trillion. Net NPL followed a similar trend;
rising from 1.7% into 4.8%.
In terms of quality, all types of credit decreased.
Investment credit NPL grew by Rp12.6 trillion triggering
the highest recorded gross NPL ratio, namely 15.2%
(December 2004 was 6.6%). This reflected the investment
climate condition in Indonesia as well as the credit
development prospects ahead. The quality of working
capital credit and consumption credit also slipped, which
is shown by the NPL rise of Rp12.1 trillion and Rp1.7 trillion
respectively at the end of 2004. Hence, the gross NPL ratio
of working capital credit and consumption credit increased
to 7.8% (from 5.0%) and 2.2% (from 1.9%) respectively.
Aside from the increase in NPL, banks established
very appropriate reserves. In line with the non-performing
credits, the allowance for earning asset losses (PPAP) also
increased by Rp3.8 trillion. Consequently, the resilience
of the banking sector against greater systemic crisis
potential was reasonably robust. The amount of PPAP was
considered appropriate, hence net banking NPL, in general,
have not exceeded 5%, which is the indicative limit for a
bank not included in the intensive supervisory category.
Adequate liquidity
Bank liquidity was deemed robust, reflected by stable
banking liquidity indicators in 2005. The liquid instrument
ratio against expiring deposits was well maintained above
100% reflecting good liquidity in the banking industry.
Additionally, good anticipation by the banks regarding the
policy to raise the minimum reserve requirement as of 8th
September 2005, and the relatively stable condition of the
Bank Money Market subsequent to the exclusion of inter-
bank call money transactions from the guarantee scheme
as of 22nd September, 2005 was also factors that bolstered
banking liquidity in 2005.
In 2005, banking liquidity only rose by 2.1%. Non-
core deposits (NCD), however, climbed by 10.1%, which
decreased the banking liquidity ratio at the end of 2005
from 114% to 105.7%. The increase in liquidity by 2.1%
in 2005 was influenced by, among others, the decrease of
one of its components, namely the Rp38.1 trillion
investments in Bank Indonesia Certificates (SBI), whereas
other components only increased moderately. The lower
bank placement on SBI was due to the banks» obligation
to fulfill the additional Reserve Requirement Minimum in
Rupiah as of 8th September 2005. Furthermore, the
banking NCD rise of 10.1% within one year was influenced

Banking Performance 59
Banking Supervision Report

Rp. Trillion Rp Trillion

250
1.000 250
130%
200
900

115% 200
150
800
rupiah (left)
100% valas (right)
100 700
150
50 85%
600

0 70% 500 100

Dec Jan Apr Jul Oct Dec Feb Apr Jun Augt Oct Dec
2002 2005 2002 2004 2005 2006
Liquid Assets (left) NCD (left) Liquid Assets/NCD (right)
Graph 4.12 Graph 4.13 Growth of Deposit based on in Rupiah
Liquidity to NCD and Foreign Currency

by the high banking deposit growth rate, especially the Profitability and Capitalization
short-term time deposits. On the other hand, the bank Banks profitability remained positive despite
liquidity management pattern did not change and excess mounting pressure. This was reflected by a fall in ROA
bank liquidity was primarily placed in SBI and Fasbi (Bank and efficiency, among others due to the operational costs»
Indonesia Facility). interest rate in line with the actual interest rate rise. In
addition, CAR for 2005 remained relatively stable, but
The performance of Deposits climbed slightly compared to the end of 2004; from
In 2005, the deposits followed an uphill trend, 19.4% (December 2004) to 19.5% (December 2005).
climbing by 17.1% representing Rp164.8 trillion over 2004; This was because of the additional capital from the large
Rp112 trillion stemmed from rupiah deposits and Rp52.9 banks that succeeded in conducting rights issues and
trillion from dollar deposits. This increase was evident on obtaining subordination debt.
the gyro and time deposit components, with 14.5% and
34.2% respectively, whereas within a year savings dropped
Percent
by 5% or Rp14.9 trillion. Of the total deposits, most
3,5
Large Banks Other Banks Industry
(73.42%) originated from large banks group, with the
3,0
remainder from the other banks group. The significant rise
2,5
in deposits particularly short term deposits among others,
2,0
corresponded to the surging interest rates trend during
2005, On the other hand, the savings interest rate tend to 1,5

remain flat. In addition, such hikes were also related to 1,0

Dec Jun Jul Aug Sep Oct Nov
2004 2005
the large-scale mutual funds redemption in 2005.
Graph 4.14
Growth of ROA

60 Banking Performance

Performance of the Regional Development Bank
(BPD)
In 2005, BPD performance, in general, remained
sound and BPD played a significant role in national banking
activities. This was reflected in the accrual of total assets
and credit distribution as well as the collection of public»s
funds during December 2005.
BPD asset development over the last 12 months was
vast. The main component that enjoyed the rapid
development was credit growth supported by growing
deposits. This was made possible due to the available credit
distribution scheme that obliges debtors to deposit their
unused funds into deposit accounts.
Despite competition from non-BPD banks and the
repeal of the regional governments» mandate to deposit
their money into BPD, deposits still showed positive growth.
The regional governments» funds still significantly affected
total deposits. During the first nine months the funds
tended to decline, however, the final three months saw a
rise. It is noteworthy that the sitting funds of regional
governments were in form of a General Allocation Fund
(DAU) that tended to be volatile.
Credit continued to grow; at 25% within 12 months,
which was dominated by rupiah credits; dollar credits
remained insignificant.
Capitalization, measured by CAR, performed very
well. The BPD consolidated CAR was 19.2% (almost the
same as national banking CAR: 19.4%).
BPD total earning assets amounted to Rp61.7 trillion
or 3% of the total assets of all the banks in Indonesia.
BPD earning asset composition was 60% on credits, 25%
on inter-bank assets, 13% on SBI and the rest on securities.
BPD had a KPA ratio below the commercial banks,
however, in terms of the NPL ratio, BPD outperformed
commercial banks as the earning assets at BPD were current
assets. The BPD credit collection composition was
Banking Supervision Report
dominated by current credits, with the earning asset
elimination reserve above 100%.
BPD ROA was, overall, better than for the commercial
banks. Comparing the Operational Liability Ratio to
Operational Revenue (BOP), it appears that the superior
ratio resulted from better BPD efficiency vis-à-vis
commercial banks.
BPD had a higher LDR ratio compared to the
commercial banks. Using LDR as an intermediation
indicator, the BPD intermediation function seemed to run
well despite requiring enhancements.
B. SHARIA BANKS PERFORMANCE
In 2005, the sharia banking industry generally
performed relatively well compared to the national banking
industry overall. The higher performance, among others,
was reflected by the increase in total asset share and the
financing allocated to national banking. Furthermore, the
intermediation function of sharia banking operated
effectively, which is shown by the asset composition
dominated by financing to the real sector, particularly the
small and medium enterprises with the FDR ratio reaching
97.8%. Nevertheless, compared to the rapid growth of
2004, the past year has seen a slowdown in sharia banking
growth.
Such developments are inseparable from the 2005
monetary economic condition that triggered a number of
situations; raising funding risk as well as risk displacement
due to the interest rate increase in conventional banks.
In line with the growing office network, in 2005 the
sharia banking industry experienced a considerably swift
total asset increase, of Rp5.55 trillion (36.2%), reaching
Rp20.9 trillion at the end of the reporting period. This
increased sharia banks» total asset share from 1.3% at the
end of 2004 to 1.4% at the end of 2005.
Banking Performance 61
Banking Supervision Report

Sharia deposits during 2005 grew from Rp3.7 trillion
(31.4%) to Rp15.6 trillion. Gyro wadiah increased by Rp0.4
trillion (26.2%) to Rp2 trillion, mudharabah savings jumped
from Rp1.1 trillion (33.9%) to Rp4.4 trillion, whereas
mudharabah deposits climbed by Rp2.2 trillion (31.4%)
to Rp9.2 trillion. These increases were directly affected by
office network development and the sharia services
outreach during 2005. Such increases improved the share
of sharia deposits in the national banking industry to 1.4%.
Rp. Billion
indicated in the investment shifting orientation of some
clients, particularly clients with large savings
denominations, from the short term (1 month) into longer-
term investments. This is a clear indication of greater client
confidence in sharia banking. Furthermore, the continuing
upward trend of saving interest rates at conventional banks
potentially heightened the level of displacement risk from
sharia bank to conventional banks.
The funding distribution activities through sharia
allocated financing (PYD) in 2005 also showed an increase
of Rp3.7 trillion (Rp32.6%) to Rp15.2 trillion. The growth
Percent (yoy)

25.000 140,0 improved the share of sharia banking financing in the total
Total Assets (left axis)
Assets (yoy) 120,0 national banking credit from 2.1% at year end 2004 to
20.000
Deposits (yoy) 100,0
Financing (yoy) 2.2% in 2005. By type, the increase was mainly enjoyed
15.000 80,0
by the profit-sharing based financing group consisting of
10.000 60,0

40,0
Rp1.1 trillion (51.5%) in mudharabah funding, Rp0.6
5.000
20,0 trillion (49.4%) musyarakah funding, and the buy-sell
0
I II III IV I II III IV I II III IV I II III IV
- based, namely the murabahah, istishna and qard loans
2002 2003 2004 2005
amounting to Rp2 trillion (33.0%). Profit-sharing financing,
Graph 4.15
Growth of Assets, Deposits, Allocated Financing through working capital yield-sharing under the favourable
of Sharia Commercial Banks and Sharia Banking Units
financing program (linkage program) between sharia banks
and other financial institutions; such as BPRS, cooperatives
In terms of composition, no significant changes were as well as mortgages, and as recommended in IBA, was
reported on the deposits with mudharabah deposits preferred amongst others.
remaining dominant with a 58.8% share. Nonetheless, in In terms of usage and in line with the micro, small
terms of duration, and in line with the competitive yield and medium enterprise (64.6%) dominated financing;
sharing level, the 3 and 6-month mudharabah deposits working capital funding remained paramount. In 2005,
experienced remarkable surges, partly due to the rising working capital financing grew by Rp2.2 trillion (37.2%),
deposit interest rates of conventional banks. This is reaching 52.4% of total (PYD). Furthermore, the

Table 4.2
Composition of Sharia Commercial Bank Deposits
Outstanding (million Rp) Growth (y-o-y) Shares
Type of Funding
2004 2005 2004 2005 2004 2005

Wadiah 1.620.115 2.045.333 154,1% 26,2% 13,7% 13,1%

Mudharabah Saving 3.263.759 4.370.568 102,6% 33,9% 27,5% 28,0%
Mudharabah Deposit 6.978.243 9.166.428 100,7% 31,4% 58,8% 58,8%
Total 11.862.117 15.582.329 107,2% 31,4% 100,0% 100,0%

62 Banking Performance
 Banking Supervision Report

development impacted various consumption financing In 2005 sharia banks recorded Rp238.6 billion profit;
products like murabahah motor vehicles and sharia charge an increase of Rp76.3 billion (47%) over the previous year.
cards, bolstering consumption financing, which jumped However, compared with the managed asset value, the
Rp0.7 trillion (36.0%) and increased its share to 17.2%. profit growth rate slowed vis-à-vis 2004. This was reflected
Improvements in financing allocation were by the ROA ratio which slid 1.41% in 2004 to 1.35% at
accompanied by more non-performing financing (NPF), the end of 2005.
attributable to the sky-rocketing inflation which reduced The capitalization of sharia banking was sound,
customer purchasing power. Nevertheless, the increase indicated by the average capital adequacy ratio of sharia
remained low and controllable, which is reflected in the commercial banks at 13.35%. Such a ratio was achieved
NFF (gross) ratio of sharia banking amounting to 2.8% at through the capital injection of Rp0.22 trillion. Considering
the end of the year. this positive development, it is projected that sharia
banking will be resilient to mounting financing risk.

Rp. Billion Percent (yoy)

800 5,0
Sharia Money Market
NPF Ratio NPF 4,5
700 The performance of the sharia money market was
4,0
600
3,5 generally signified by the higher inter-bank call money
500 3,0
400 2,5 transaction volume based on sharia principles (PUAS),
2,0
300 whilst Bank Indonesia Wadiah Certificate (SWBI)
1,5
200
1,0 transactions dropped. The PUAS transaction volume
100 0,5
- - jumped from Rp0.3 trillion in 2004 to Rp2.1 trillion in 2005,
I II III IV I II III IV I II III IV I II III IV
2002 2003 2004 2005 whereas the average position of outstanding SWBI in 2005

Graph 4.16 fell from Rp0.9 trillion to Rp0.5 trillion. This condition was
Non Performing Financing
influenced by the preference of sharia banks, who
considered inter-bank call money placement as more
profitable than SWBI placement, in line with the rising costs
of funds in the banking industry in general.

Table 4.3
Composition of Sharia Commercial Bank Financing

Outstanding (million Rp) Growth (y-o-y) Shares

Type of Financing
2004 2005 2004 2005 2004 2005

Musyarakah 1.270.868 1.898.389 315,3% 49,4% 11,1% 12,5%

Mudharabah 2.062.202 3.123.759 159,6% 51,5% 17,9% 20,5%
Murabahah 7.640.299 9.487.318 93,1% 24,2% 66,5% 62,3%
Istishna 312.962 281.676 5,7% -10,0% 2,7% 1,8%
Qard 98.928 124.862 na 26,2% 0,9% 0,8%
Ijarah 104.674 315.938 na 201,8% 0,9% 2,1%
Total 11.489.933 15.231.942 250,7% 178,6% 100,0% 100,0%

Remarks: Qard and Ijarah have been customer interests since 2004

Banking Performance 63
Banking Supervision Report

Table 4.4
Sharia Commercial Banks Key Indicators

Type of Financing 4th Quarter-04 1st Quarter-05 2nd Quarter-05 3rd Quarter-05 4th Quarter-05

Assets 15.325.997 16.359.409 17.743.060 18.454.192 20.879.849

Allocated Financing 11.489.933 12.959.341 14.270.381 14.753.299 15.231.942
Deposits 11.862.117 12.258.803 13.357.524 13.357.973 15.582.329
Capital 731.039 735.058 960.972 1.010.528 951.224
Current year Profit (Loss) 162.366 70.963 100.531 198.601 238.639
FDR 96,9% 105,7% 106,8% 110,4% 97,8%
NPF 2,4% 2,8% 3,8% 4,7% 2,8%

Table 4.5
Growth of PUAS and SWBI

Type of Financing 2004 1st Quarter-05 2nd Quarter-05 3rd Quarter-05 4th Quarter-05* 2005*

IMA certificate 294.5 123 350.1 650.6 996.7 2,120.4

SWBI (monthly average) 945.8 665.8 488.7 435.0 424.5 510.7

* IMA Volume in November

C. RURAL BANKS PERFORMANCE

Despite their small share in the banking industry, the
performance of rural banks continued positively. Rising
total assets, deposits, and credit allocation by rural banks
were considerably large so as to increase profitability.
The total assets of rural banks in 2005 continued an
upward trend compared with previous years. Total assets
by the end of December 2005 amounted to Rp20.4 trillion;
increasing by 22.1% (y-o-y). The gain stemmed from
greater credit allocation; primarily a rise in the number of
people using rural banks for their savings.
Deposits showed stable growth and followed a
positive trend. Total deposits up to the end of December
2005 amounted to Rp13.2 trillion; an increase of 18.1%
(y-o-y). The number of customers by year end 2005 rose
to 6 million from 5.8 million. This signifies that the BPR
market remains promising and that public confidence in
rural banks is on the rise.
In line with greater deposits collected by rural banks,
credit allocation also rose in 2005. The total amount of
credit allocated reached Rp14.7 trillion in December 2005;
a jump of 20.6% (y-o-y) with a total of 2.5 million debtor
customers. The credit increase stimulated a rise in LDR from
80.7% to 82%. However, the NPL ratio of BPR climbed by
0.4% to 8%. Revealing that credit quality at the end of
2005 had slipped. More over, ROA and return on earnings
(ROE) dropped by 0.2% and 0.1% respectively.

64 Banking Performance
 Banking Supervision Report

Table 4.6
Rural Banks Key Indicators

∆ Dec 03 ∆ Dec 04 ∆ Dec 05

Particular Accounts in Balance Dec Dec Dec Dec
No - Dec 02 - Dec 03 - Dec 04
Sheet 02 03 04 05**)
% % %

1 Total Assets 9.080 12.635 39,2 16.707 32,2 20.393 22,06

2 Denominated Credit 6.683 8.985 34,4 12.149 35,2 14.654 20,62
Number of Loans Accounts *) 1.825 1.993 9,2 2.167 8,7 2.478 14,35
3 Deposits 6.126 8.868 44,8 11.161 25,9 13.178 18,07
Number of Deposit Accounts *) 5.329 5.535 3,9 5.761 4,1 6.004 4,22
- Saving 2.002 2.617 30,7 3.301 26,1 3.757 13,81
Number of Savings Account *) 4.891 5.046 3,2 5.439 7,8 5.672 4,28
- Deposit 4.124 6.251 51,6 7.860 25,7 9.421 19,86
Number of Time Deposit Accounts *) 438 489 11,6 32 (34,2) 332 3,11
4 Current Year Profit/Loss 338 429 26,9 539 25,6 604 12,06
5 LDR 77,0% 74,5% 80,7% 82,0%
6 NPLs 8,7% 8,0% 7,6% 8,0%
7 ROA 3,7% 3,4% 3,2% 3,0%
8 ROE 24,7% 25,0% 25,4% 25,3%
*) Accounts are specified in thousands
**) Only covers Conventional BPR data

Banking Performance 65
Banking Supervision Report

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66 Banking Performance
 Banking Supervision Report

Chapter 5
Strengthen the Banking
Infrastructure

Strengthen the Banking Infrastructure 67

Banking Supervision Report

68 Strengthen the Banking Infrastructure


Chapter 5
Strengthen the Banking Infrastructure
To build a sound and stable banking industry, which
is capable of contributing to national economic
development, strengthening banking infrastructure is
crucial. Such endeavors are conducted by Bank Indonesia
through cooperation with various parties, particularly the
Deposit Insurance Institution (LPS), in particular to
accelerate the full implementation of a Financial Sector
Safety Net (FSSN). In addition, Bank Indonesia is also
preparing the establishment of a Credit Bureau.
A. ESTABLISHMENT OF THE FINANCIAL SECTOR
SAFETY NET (FSSN)
The government and Bank Indonesia have compiled
a comprehensive FSSN framework as part of the efforts to
create a sound and stable banking system. Within the FSSN
framework, the goals and elements are clearly specified,
including tasks and responsibilities as well as the related
institutional coordination mechanism on crisis prevention
and resolution, deposit insurance, and the emergency fund
facility to prevent systemic banking crises. The framework
prepared by the government and Bank Indonesia advocates
the following mechanisms: (i) coordination to achieve
effective banking regulations and supervision; (ii) provision
of the lender of last resort facility, particularly to prevent
systemic risk; (iii) improve the effectiveness of deposit
insurance and banking crisis resolution; and (iv) improve
the effectiveness banking crisis resolution. As a
coordinating vehicle, a coordination committee was
established, whose members consist of the Minister of
Finance, the Governor of Bank Indonesia and the Chairman
on the Commissioning Board of the Deposit Insurance
Institution.
Banking Supervision Report
For each institution to have a strong legal foundation,
both the government and Bank Indonesia are considering
the necessity for laws concerning FSSN. Currently, the team
established by the government and Bank Indonesia is
drafting a bill on FSSN that will make a clear legal
foundation for the related institutions (Bank Indonesia,
Department of Finance and LPS) in conducting their roles
and collaborating to maintain financial system stability.
On the 30th December 2005, a joint agreement was
signed between the Governor of Bank Indonesia, the
Minister of Finance, and the Chairman of the
Commissioning Board for LPS on the establishment of the
Financial System Stability Forum (FSSK). The forum serves
as an instrument for the coordination and exchange of
information between the three institutions to maintain
financial system stability.
Emergency Funding Facility (FPD)
As a basic element of FSSN, the lender of last resort
facility, particularly to be used as an instrument to prevent
probable systemic banking crises, is absolutely mandatory.
For that reason, Bank Indonesia and the Department of
Finance agreed to provide an EFF. The settlement measures
of the FPD regulation constitute the embryo of the Financial
Sector Safety Net law drafting process, which in future
will serve as an umbrella of regulations that safeguard and
secure financial sector stability.
FPD is essentially a lender of last resort to prevent
systemic banking crises that endangers financial stability.
This facility will be provided by Bank Indonesia to
commercial banks that suffer liquidity problems with
potential systemic impacts. Banks that apply for FPD must
Strengthen the Banking Infrastructure 69
Banking Supervision Report
satisfy the solvency requirements specified by Bank
Indonesia and the liquidity problem faced should represent
a potential systemic effect. The provision of FPD must be
made based on a joint decree between Minister of Finance
and the Governor of Bank Indonesia at a Coordination
Committee forum. The source of FPD funding stems from
the state budget and expenditures based upon the issuance
of SUN by the Minister of Finance in accordance with
prevailing laws. Hence, the provision of FPD will be
conducted using a very stringent process based on
collateral and will be allocated very rarely.
Box 5.1 The Facility of Emergency Fund Facility
In conducting business, banks face various risks,
including liquidity risk. Liquidity risk constitutes a short-
term funding problem due to a mismatch between
incoming cash flow and outgoing cash flow that may
end in a negative gyro balance at Bank Indonesia. If
this is not immediately resolved, the liquidity problem
may spread to other banks, hence creating a systemic
impact. Systemic risk has the potential to trigger a crisis
in the financial system, thus severely affecting financial
stability.
To solve such liquidity problem, a bank must
endeavor to seek funds in the money market using
the various money market instruments available. If the
efforts fail, the bank can apply for a loan from Bank
Indonesia as the lender of last resort. The lender of
last resort policy is part of the financial safety net in
maintaining financial system stability. A comprehensive
financial safety net framework clearly contains the role
of each related institution and coordination mechanism
for both prevention and crisis settlement. Financial
system stability must absolutely be maintained to
bolster monetary stability to foster sustainable
70 Strengthen the Banking Infrastructure
The provision is designed to only solve short term
liquidity issues, faced by banks with a fund mismatch that
is expected have a negative gyro balance. To obtain FPD,
banks will be obliged to submit collateral in the form of
bank-owned assets, prioritizing the most liquid and highest
quality as well as a Personal Guarantee and / or Corporate
Guarantee of Bank PSP. Other than collateral, bank PSP
may be requested to submit additional collateral in the
form of shares, securities and/or other assets. The collateral
value will be based on the asset evaluation result of an
independent appraisal (Box 5.1).
economic growth.
The lender of last resort facility provided by Bank
Indonesia can generally be categorized into two types:
for normal conditions and for emergency or crisis
conditions. Based on Law No. 23, 1999, superseded by
Law No. 3, 2004, Bank Indonesia, as the lender of last
resort, can provide a funding facility to a commercial
bank to solve its liquidity problems, be it under normal
or emergency conditions.
A Short-Term Funding Facility (FPJP) is provided
by Bank Indonesia to resolve end-of-day liquidity
problems (overnight), under normal conditions. This
facility must be supported by valuable liquid collateral
from the concerned bank to Bank Indonesia.
The Emergency Funding Facility (FPD) is only
provided by Bank Indonesia to solvent banks suffering
from liquidity problems, which entails systemic risk to
financial and economic stability. Systemic impact is a
contagion effect from one problematic bank that may
induce liquidity problems in other banks, which can
destroy trust in the banking system and disturb financial
system stability. The supply of FPD is based on a joint

decree between the Minister of Finance and the
Governor of Bank Indonesia. FPD originates from the
state budget and expenditure.
To ensure accountability and transparency, a
Memorandum of Understanding between the Minister
of Finance and the Governor of Bank Indonesia was
signed on 17th March 2004 concerning the decision-
making protocol on systemic impact, the emergency
funding facility supply, and the source of funding from
the state budget and expenditure. Subsequently, the
regulations regarding the Emergency Funding Facility
(FPD) for commercial banks were validated in the
Minister of Finance Decree No. 136/PMK.05/2005 dated
30th December 2005 and Bank Indonesia Regulation
(PBI) No. 8/1/2006 dated 3rd January 2006. In addition,
on 30th December, a joint decree was signed by the
Minister of Finance, the Governor of Bank Indonesia
and the Chairman of the Commissioning Board for the
Savings Guarantee Institution concerning the
establishment of a Financial System Stability Forum. The
forum facilitates coordination and information
exchange among related institutions.
If Bank Indonesia concurs that a bank applying
for FPD is of systemic impact, the Governor of Bank
Indonesia will immediately ask the Minister of Finance
to organize a meeting. As a result, the Minister of
Finance and Governor of Bank Indonesia can discuss
the problem and decide upon the resolution.
If the state budget is somewhat strained, in
relation to the funding, the Minister of Finance can
issue government bonds (SUN) in accordance with
prevailing laws. The SUN issued are permitted to be
traded, however, the Minister of Finance can delay the
trading for a specific period based on the meeting
between the Minister of Finance and the Governor of
Bank Indonesia.
Banking Supervision Report
To avoid moral hazard, the conditions for FPD
provision shall be regulated clearly and selectively,
comprising of: (i) banks only with systemic impact; (ii)
banks having a Minimum Capital Provision Requirement
(KPMM) ratio at least 5%; and (iii) banks obliged to secure
a collateral guarantee. In addition, FPD provision will fully
be at the discretion of the Minister of Finance and the
Governor of Bank Indonesia; meaning that not all banks
that apply for FPD will immediately receive it.
Assets generally accepted as good bank collateral
are the most liquid as well as highest quality assets and
can be combined with other assets, including but not
limited to assets belonging to the shareholders and/or
shares in the name of the bank»s controlling
shareholders. Assets used for bank collateral must be
free from confiscation, not being used as collateral to
any other party and not involved in a legal case or
dispute. In addition, the assets used as collateral cannot
be transferred, traded or securitised by the bank. The
collateral will be valued through an independent
appraisal appointed by the Minister of Finance based
on the nomination list submitted by the bank. The
collateral must be supplemented with a personal
guarantee from the controlling shareholders and / or a
corporate guarantee from the controlling shareholders»
company accompanied by a list of additional assets.
Bank Indonesia then places the FPD beneficiary
bank under special surveillance in accordance with the
prevailing Bank Indonesia Regulation (PBI) on the
Follow-up for Supervision and the Determination of
Bank Status. The status will terminate when the FPD
beneficiary bank repays the FPD and meets the terms
and conditions regulated in the PBI.
The FPD beneficiary bank is obliged to prepare
an action plan to resolve its liquidity problems as well
as a FPD repayment plan within five working days
Strengthen the Banking Infrastructure 71
Banking Supervision Report
following the provision of FPD and present a weekly
progress report to Bank Indonesia copied to the Minister
of Finance. In addition to this, the FPD beneficiary bank
is prohibited from: (i) cashing the related party»s savings
account in the»FPD beneficiary bank unless otherwise
decided in the meeting between the Minister of Finance
and the Governor of Bank Indonesia, and (ii) distributing
the dividend in any form before the FPD has been
repaid. The controlling shareholders of the FPD
beneficiary bank are also prohibited from transferring
their shares to other parties without Bank Indonesia»s
approval.
B. ESTABLISHMENT OF THE DEPOSIT INSURANCE
INSTITUTIONS (LPS)
Based on Law No. 24, 2004 concerning LPS
establishment, LPS officially began operations on 22nd
September 2005. LPS establishment was also
accompanied by a reduction in coverage of the blanket
guarantee program. LPS has two functions, to guarantee
the savings of banks» customers and to troubleshoot or
manage a problematic bank or in the case of a failed
bank. Unlike the blanket guarantee program, the
guarantee provided by LPS is limited and used to reduce
the state budget burden and minimize moral hazard.
Nevertheless, safeguarding the customers» interest
remains paramount.
The deposit insurance scheme was made mandatory
for all banks. Every bank that operates in Indonesia,
whether commercial or rural is obliged to participate. The
types of deposit insurance include savings, gyros, deposit
certificates, time deposits and other equivalent savings.
To be most effective and to limit any negative impacts,
the deposit insurance scheme operated by LPS will be
applied in the following stages:
• 22nd September 2005 √ 21st March 2006 : all savings
72 Strengthen the Banking Infrastructure
Banks that violate such regulations will be
subjected to an administrative penalty in the form of
employment termination of the bank executives and
or restrictions from clearance activities. More serious
violations are subject to an administrative penalty in
accordance with Law No. 7, 1992 superseded by Law
No. 10, 1998.
The FPD is expected to complement the existing
financial safety net to buttress financial system stability.
Upon the availability of a clear and transparent
regulation on FPD, it is believed that Bank Indonesia
Liquidity Assistance will never again be required.
• 22nd March 2006 √ 21st September 2006: up to Rp5
billion
• 22nd September 2006 √ 21 March 2007: up to Rp1
billion
• 22nd march 2007 √ onwards: up to Rp100 million
The amount is valid per customer per bank. By
guaranteeing up to Rp100 million, the majority (95%) of
customers savings in Indonesia are protected.
Subsequently, in cases where a bank suffers financial
difficulty but fails to recover, resulting in the revocation of
its business license, LPS will reimburse the savings of each
customer up to a certain amount. The savings that are not
covered by the guarantee will be settled through the bank
liquidation process. The availability of a savings guarantee
by LPS is expected to restore and maintain the public»s
trust in the banking industry.
From the management aspect, LPS management
consists of the Commissioning Board and Chief Executive
(two-tier system). The LPS Commissioning Board consists
of 2 ex-officio officers (one each from Bank Indonesia and
the Department of Finance) and 2 ex-officio officers
(external). In this case, Bank Indonesia has supported the
establishment of LPS through participation in the
 Banking Supervision Report

compilation of LPS regulations and the temporary
assignment of Bank Indonesia employees to LPS. Bank
Indonesia is required to improve its bank supervisory
effectiveness and transparency. Currently, a Memorandum
of Understanding between Bank Indonesia and LPS
regarding coordination mechanisms and information
exchange is being penned.
their credit history, which can be accessed by the credit
provider through the Credit Bureau; and
d. Other than the above, debtor information can assist
in reducing the dependency of a credit provider on
conventional collateral as the credit provider can
evaluate the debtors credit history as a collateral
substitute / complement.

C. ESTABLISHMENT OF THE CREDIT BUREAU

To enhance healthy credit activities and make the
intermediation function effective, supporting infrastructure
that is capable of accelerating the credit supply process to
debtors/customers wich also reduces the potential of non-
performing loans is considered necessary. In support of
this, clear and accurate information regarding the prospects
of potential debtors is required.
At present, such comprehensive information on
individual prospective debtors is known as the Debtor
System Information (SID), managed and developed by Bank
Indonesia. For a definition, SID is a system that provides
information on debtors, which processes outputs from the
debtors report received by Bank Indonesia from reporting
parties (Commercial Banks, BPR/S and LKBB).
SID represents an embryo and the beginning stages
of support for the Credit Bureau (Credit Information
Center) in Indonesia. In general, the benefits obtained from
the presence of the Credit Bureau include:
a. Smoothing the fund supply process, namely assisting
banks and other financial service institutions in
conducting debtor quality identification to satisfy
prevailing rules;
b. Applying risk-management to reduce non-performing
loan risk in the future, and consequently reducing
NPL;
c. Providing information regarding the quality of
debtors, including broader information to credit
providers. This is made possible by the availability of

Strengthen the Banking Infrastructure 73

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74 Strengthen the Banking Infrastructure

 Banking Supervision Report

Chapter 6
Banking Policy Direction
2006

Banking Policy Direction in 2006 75

Banking Supervision Report

76 Banking Policy Direction in 2006


Chapter 6
Banking Policy Direction 2006
A. COMMERCIAL BANKING
Amidst external uncertainties it is envisaged that the
Indonesian economy in 2006 will be dependent upon
domestic economic dynamics. Stimulating growth
momentum will be very much determined by coherence
and synergy between monetary and fiscal policy as well as
the real sector. From a monetary side, Bank Indonesia will
consistently endeavor to reduce inflation to approximately
8% in 2006 thereby allowing the interest rate to be lowered
gradually to stimulate private consumption and investment.
From a fiscal perspective, government consumption and
investment will stimulate economic recovery, in particular if
the investment funding potential can be realized within the
first quarter of 2006. In terms of the real sector, economic
prospects will become more dynamic when the planned
infrastructure projects are realized.
If such policies are well coordinated, it is expected
that in the beginning of Semester II, 2006, economic
growth will be bolstered by both investment as well as
consumption. Consequently, in 2006 as a whole, Gross
Domestic Product (GDP) will attain an optimistic scenario
in the range of 5.0-5.7%. In terms of funding, optimistic
economic growth will be accomplished providing that the
banking sector can maintain credit distribution at a level
akin to the previous year.
The reporting year of 2006 will be the first year of
full implementation of the five-year IBA program in its
entirety. As such, policy in 2006 to strengthen sound
banking structure will focus on providing banks with
sufficient maneuverability to continually play a role in the
development of funding while concomitantly underpinning
banking foundations. Bank Indonesia has determined nine
Banking Supervision Report
banking policy measures, consisting of four near-term
measures and five medium-to-long term measures.
In the near term, the policy measures intend to
provide a buffer to the banking industry to continually
play a role in the development of funding comprising of
the following measures:
Adjusting PBI regulation No. 7/2/PBI/2005 regarding
Commercial Bank Asset Quality Evaluation by continually
giving attention to prudential principles. This measure is
temporary, which in principle is a simplification and staging
measure for the application of regulation.
Considering a readjustment of the GWM ratio
regulation as and when macroeconomic conditions allow.
This GWM adjustment will be reconsidered during the first
quarter. It is believed that macroeconomic conditions in
2006 will stabilize and therefore, it will be possible to loosen
banking liquidity slightly.
Improving access to Islamic banking services by giving
permit to conventional bank branches, which own UUS,
to also serve Islamic transactions (office channeling). This
will render to establishment of other UUS branches in many
locations to provide Islamic banking services unnecessary.
Expanding the banking services network, particularly
for micro, small and medium enterprises, to encourage
widespread growth in new areas. In addition, Bank
Indonesia is currently planning to adjust the size of ATMR
for certain retail activities, including in this case ATMR
funding to micro and small enterprises. It is expected that
this step, will provide banking institutions more room and
enthusiasm to allocate funding support to the various
activities of this sector.
Banking Policy Direction in 2006 77
Banking Supervision Report
Bank Indonesia»s medium-to-long term policy
direction focuses on five measures intended to solidify
banking foundations and explicate several IBA programs
wich includes the following:
Strengthen the capital structure to accelerate the
consolidation process. Referring to the PBI Regulation No.
7/15/PBI/2005 regarding Commercial Banks» Minimum Core
Capital, an effectiveness indicator of this acceleration process
will be available in the first quarter of 2006 when the action
plans of banks» with capital below Rp100 billion, have been
received. Bank Indonesia will take the necessary steps to
restrict banking activity if PBI No. 7/15/PBI/2005 is not met.
Enhance the role of foreign banks in the economy.
The role of foreign banks in the intermediation process
needs to be improved. Furthermore, Bank Indonesia will
also enhance individual bankers» roles by instituting policy
guidelines concerning domestic banking human resource
development to mirror and be able to compete with
international banking personnel.
Prepare the banking community to anticipate the
future of the banking industry. In light of the banking
industry development wich tends to move towards
universal banking, Bank Indonesia is planning to clarify its
position and policy directions in rearranging the
relationships between banks and the money markets.
Considering the possible consequences, policies conducive
to universal banking in Indonesia will be formulated
selectively. Bank Indonesia will relate the operating permits
with various tight conditions that illustrate the bank»s
preparedness to anticipate the possible risk that may
emerge.
Strengthen internal banking management. This policy
intends to enhance the resilience and competitiveness of
individual banks enabling them to act soundly and generate
profit from their respective peer group. Therefore, the
implementation focuses on best practices that refer to the
efficiency and effectiveness of the bank»s business activity
78 Banking Policy Direction in 2006
management, including the future application of good
governance principles and Basel II.
Improve banking industry infrastructure. In 2006,
Bank Indonesia will buttress infrastructure regarding five
key issues, namely improving the Financial Sector Safety
Net (FSSN), establishing an Apex Institution for rural banks,
a Banking Mediation Institution, a Card Use Payment
Instrument Activity Arrangement and Banking Examination
Institution in various regions in Indonesia as well as
launching the Credit Bureau.
B. SHARIA BANKING
The direction of sharia bank development policy in
2006 will remain based on the strategic initiatives included
in the Sharia Banking Development Blueprint. However,
in line with developments domestically and abroad, the
blueprint compiled in 2002 requires additional review and
adjustment according to the changes in current conditions.
Furthermore, the blueprint needs to be synchronized with
the alterations in IBA and Indonesian Financial System
Architecture (IFSA). Therefore, the Sharia Banking Blueprint
will be augmented at the beginning of 2006 to satisfy the
above mentioned issues, which will be implemented
through the policies designated for 2006. With this
augmentation, it is proposed that sharia banking will
develop in accordance with performance expectations and
be capable of meeting future globalization challenges.
Among the proposed enrichment is the addition of
2 other focus areas of development to the previous four
focus areas. Thus, the six focus areas of development are
as follow:
1) The fulfillment of sharia principles in the operation
of sharia banks;
2) The application of prudential principles in the
operational activities of sharia banks;
3) The realization of a competitive and efficient sharia
banking system;

4) The realization of systemic stability to benefit the
broader community;
5) Raising the quantity and improving the quality of
sharia banking personnel; and
6) The optimization of the social function of sharia banks
to facilitate the voluntary sector and empower the
people»s economy.
Initiatives to realize sharia principles in sharia banking
operations will be conducted through a follow-up study
and agreed standard implementation. The kinds of
agreements include kafalah, hiwalah, and rahn. In addition,
cooperation and coordination between fatwa (instruction)
authority institution and any other related institutions will
be improved.
Initiatives to bring to fruition prudential principles in
sharia banking will be conducted through a study and the
implementation of the earning asset quality regulation
improvement for commercial sharia banks. Furthermore,
good corporate governance will be institutionalized for
sharia banking and the health level of sharia rural banks
(BPRS) will be studied.
To improve the competitiveness and efficiency of the
sharia banking system, a study will be conducted on the
sharia financial markets, which will include the structure,
instruments and prevailing agreements. This will represent
a preliminary study to support the creation of an efficient
sharia financial system through the broader creation of
sharia financial and monetary instruments issued by the
government and the private sector, exemplified by local
and international characteristics.
The maintenance of systemic stability as well as
benefiting the broader community will be performed
through the implementation of a pilot project linkage. The
pilot project will involve sharia banks and supporting
institutions wich will provide technical training assistance
and management as well as spiritual building. This pilot
Banking Supervision Report
project is expected to become a sample project to be
replicated by the sharia banking institutions.
The initiative to augment the quantity of Sharia
Human Resources and simultaneously boost their quality
will continue to be conducted through a systematic,
focused and persistent educational program in an endeavor
to improve sharia bank»s personnel and broaden people»s
understanding of sharia banking. The Human Resource
Quality Enhancement Program for rural banks will be
conducted through a BPRS certification program. In
addition, the compilation of sharia economic textbooks,
which began in 2004, has received attention from the
Islamic Research and Training Institute-Islamic Development
Bank (IRTI-IDB), bringing it to an international forum for
its completion.
Optimizing the social function of sharia banks to
facilitate the voluntary sector and empower the people»s
economy will be conducted through a study on the
voluntary sector. The potential of voluntary sector for sharia
funding, namely zakat, infak, shodaqah and wakaf (ZISW)
in Indonesia, where population is predominantly Moslem,
is significant, however, in reality only a small fraction is
collectible by the zakat managing institutions. Sharia banks
that have a social function are expected to become a
catalyst between people obliged to pay zakat and people
eligible to receive zakat, as well as the zakat managing
institutions.
As in the past, Bank Indonesia periodically conducts
a year-end seminar. Among the intentions and objectives
of such seminars is to listen to the responses from
stakeholders on the efforts and policies executed by Bank
Indonesia over the previous year and to seek ideas for policy
direction in the upcoming year. At the year-end seminar in
2005, stakeholders» challenges and hopes regarding the
development of sharia banking in Indonesia were revealed
(Box 6.1).
Banking Policy Direction in 2006 79
Banking Supervision Report
Box 6.1 Stakeholders’ Challenges and Hopes for the Development of Sharia Banking
At the 2005 year-end seminar, which was
conducted by Bank Indonesia Sharia Banking
Directorate, stakeholders» hopes and constraints
surrounding the development of sharia banking were
identified. Based on data, the domestic sharia banking
growth in 2005 was lower than the previous two years.
The soaring global oil price and macroeconomic
conditions impinged on sharia banking industry growth.
This also mirrors the constraints faced by the real sector
because sharia banking is considered to be a reflection
of the real sector.
In the years to come, these limitations must be
given greater attention in the form of working
programs. Macroeconomic conditions in the future will
not differ vastly from 2005, be it GDP or the high
interest and inflation (monthly) rates; yet in the future,
economic growth is expected to improve with a gradual
drop in inflation (y-o-y). Against this backdrop, the
banking industry will still have to deal with barriers;
however sharia banking in particular is expected to
perform better in 2006. To this end, the industry must
work harder and broaden relations with various trade
institutions (real sector) to provide stronger impetus for
sharia banking development.
The challenges and hopes siphoned from the
seminar represent invaluable inputs for Bank Indonesia
to formulate sharia banking development policy,
particularly in determining policy direction for 2006.
Several challenges, which should be given due attention
in future include the following:
1. Integrated and synergized relationships among
institutions to bolster the sharia banking industry,
like Bank Indonesia, DSN, Sharia Banks, Education
Institutions and more; the presence of integral and
80 Banking Policy Direction in 2006
comprehensive regulations as a result of regular
tripartite discussions. The regulations will foster
foreign investment, like, for example, the office
network expansion regulation (spin off).
2. The socialization of sharia banking must shift its
target to community interests/will power to
encourage the public to conduct financial
transactions through sharia banks.
3. Enhancing the quality of sharia personnel through
providing more training, literature, education
curriculums and more. Bank Indonesia policy will
be formulated in accordance with fatwa and
ensure conducive conditions for business players.
4. The government must show political will to
develop sharia banking, in addition to providing
opportunities for Islamic financial players in
Indonesia to grow. In future, the sharia financial
system will become the national agenda.
5. Sharia banking is believed to be a reflection of
the real sector. In order to reflect the real sector
more accurately, a study on the rate of return
index compilation will be conducted and become
a reference for the price determination of sharia
banking products (describing the existing
transmission mechanism in sharia economics, not
relying on the interest rate)
6. The role of sharia banks and their social function
as well as funding access (direct/indirect) for micro,
small and medium enterprises must be appraised.
7. The application of GCG, risk-management and
the certification program must be accelerated to
increase the competitiveness of sharia banks at
both the national and international levels.

Various sharia banking service innovations
(products) along with simple procedures have been
improved to meet the various communities» needs for
C. RURAL BANKING
BPR policy direction in 2006 represents a continuation
of the 2005 policy as follows:
1. The realization of sound, strong, productive BPR with
high competitiveness, namely an industry supported
by strong capital; professional, competent and highly-
integrated personnel; and efficient BPR operation.
2. BPR distribution is expected not to be concentrated
solely in Java and Bali, but to spread throughout the
Box 6.2 Develope BPR Capacity by Encouraging Credit Distribution to the Agri-
cultural Sector
To satisfy Banking Law, which stipulates that BPRs
are expected to fund micro and small enterprises and
residents of remote villages, Bank Indonesia has
encouraged rural banks to enhance their credit
distribution portfolio to the agricultural sector. As of
March 2005 the data shows that BPR credit to the
agricultural sector was only 5.95% of the total BPR
credit (Rp12.83 trillion).
To support such measures, Bank Indonesia
conducted a seminar and workshop involving BPR
directors on ≈BPR Funding to the Agricultural Sector∆
attended by account officers from rural banks, whereby
credit distribution to the agricultural sector remains
small. The workshop is planned to be conducted five
times in provinces where rural banks are numerous yet
most of which have not allocated credit to the
agricultural sector.
Banking Supervision Report
sharia financial services, like the Islamic Bank ONH (Haji
Pilgrimage Savings) Scheme, Islamic Bank ATM
Multifunction Card and joint products.
country, particularly eastern Indonesian territory, to
provide more distributed services to all parts of
Indonesia.
3. The BPR industry is expected to improve its role and
contribution in funding micro and small enterprises
as well as the residents of remote villages.
4. BPR is expected to fulfill its role as the spear point for
micro and small enterprises due to its closeness to
such people both geographically and psychologically.
The objective of the seminar is to broaden the
insight of BPR directors regarding credits to the
agricultural sector. Conversely, the workshops are
intended to enrich BPR employees with knowledge and
skills on funding the agricultural sector including animal
husbandry, fisheries and plantations (planting period,
seeding period, harvest period, and marketing) to
motivate rural banks to engage in the agricultural
sector. Furthermore, the workshops are intended as a
tool to transfer knowledge from rural banks that have
been successful in funding the agricultural sector to
other rural banks which have not funded or
insufficiently funded the agricultural sector. After
attending the workshop, rural banks are expected to
enhance their credit distribution to the agricultural
sector.
Banking Policy Direction in 2006 81
Banking Supervision Report

The first seminar and workshop were conducted
rd th
in Malang on 23 to 24 September 2005, attended
by directors and account officers from 50 rural banks
in East Java. This event involved the participation of
experts from agricultural offices, cooperative offices,
micro and small enterprises, as well as BRI and rural banks.
In addition, the program was also attended by the BPR
Association (DPP Perbarindo and DPD Perbarindo Jatim)
and GTZ ProFI.

82 Banking Policy Direction in 2006

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Appendix

Appendix - Indonesian Banking Architecture 83

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84 Appendix - Indonesian Banking Architecture

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Appendix 1

Indonesian Banking Architecture

A sound, strong, and efficient banking

system to create financial system stability in
support national economic growth

Sound Independent Adequate

Structure of the and Supporting
Banking Effective System of Infrastructure
System Bank Supervision

Effective Strong Banking Consumer

Regulatory Industry Protection
System

1st pillar 2nd pillar 3rd pillar 4th pillar 5th pillar 6th pillar

PILLAR I HEALTHY BANKING STRUCTURE
The banking structure desired through IBA includes
a commercial bank with solid capital and effective risk-
management, a rural bank with high competitiveness, as
well as micro, small and medium enterprises with greater
credit access.
1. Strengthening Banking Capital
To shape the future of the national banking industry
and its mechanisms, which are to be more accommodative
to the national economy and accelerate banking
consolidation, on 30th June 2005 the Governor of Bank
Indonesia announced a new strategy application, namely
the light-handed approach but which is open to a possible
heavy-handed approach if the new strategy does not
perform as expected. Furthermore, Bank Indonesia has
specified the banking consolidation policy direction up to
2010 both for small and large capital banks and
promulgated the Good Performance Bank criteria as well
as specified the requirements for anchor banks. Any banks
that are performing well can potentially become an anchor
bank if they satisfy the criteria announced by Bank
Indonesia to the public. This program is supported by Bank
Indonesia Regulation No. 7/15/PBI/2005 dated 1st July 2005
that makes it mandatory for a commercial bank to maintain
a core capital of at least Rp80 billion by 2008 and Rp100
billion by 2010.
2. Strengthening the Competitiveness of Rural
Banks (BPR)
Initiatives to strengthen BPR competitiveness were
implemented through a win-win solution partnership spirit
among commercial banks and rural banks rested on
business aspects. In relation to this, Bank Indonesia formed
a Linkage Program working group with members
comprising of Bank Indonesia and representatives from

Appendix - Indonesian Banking Architecture 85

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10 commercial banks, 2 rural banks and the banking
association. The Generic Model Linkage Program was used
as a guideline for all banks, which executed the linkage
program duly decided and implemented through a credit
agreement between 10 commercial banks and 38 BPR/S.
3. Enhancing Credit Access
Bank Indonesia continuously endeavors to enhance
credit access, particularly for micro, small and medium
enterprises. The Memorandum of Understanding for the
Establishment of a Credit Guarantee Scheme among four
provincial governments, nine regencies and municipalities,
th
Askrindo and BPD, was signed on 11 October 2004.
Nevertheless, the implementation has fallen short of the
proposed plan, considering that there are still a number
of outstanding fundamental legal issues, particularly for
business players in the regions. On one side, there are legal
instruments, namely Government Regulation No. 107,
2000 regarding Regional Loans and Law No. 33, 2004
regarding the Financial Balance between the Central
Government and Regional Governments, which prohibits
a regional government from entering into a guarantee
agreement with other parties. On the other side, there are
legal instruments that support a guarantee implementation
in the regions, viz. Law No. 1, 2004 regarding the State
Treasury and Presidential Decree No. 7/2005 regarding the
Medium-term Development Plan, 2004-2009. Against this
backdrop, Bank Indonesia continually coordinates with the
Economic Coordinating Minister, Department for Domestic
Affairs, Minister of Cooperatives and Small and Medium
Enterprises, Department of Finance, Askrindo as well as
other related parties to solve various fundamental issues.
PILLAR II AN EFFECTIVE REGULATORY SYSTEM
The enhancement of system effectiveness is directed
towards full compliance of the 25 BCP for Effective Banking
Supervision.
86 Appendix - Indonesian Banking Architecture
4. Improving the Quality of Banking
a. To create more comprehensive regulations, Bank
Indonesia formed a Banking Expert Panel with the
membership of experts in their respective fields, both
from within and outside the country. The expert panel
has met twice; in January and December 2005. The
main objective of the meetings was to provide inputs
from the external side in relation to banking
regulations.
b. Bank Indonesia continued to facilitate the formation
of a regional banking research institution blueprint
and a plan to establish banking research institutions
in four universities involving Bank Indonesia Branch
Offices, universities and banking institutions in the
provinces. The opportunities and challenges related
with the establishment are still under discussion
through coordination with the related parties.
5. Enhancing the Implementation of 25 BCP for
Effective Banking Supervision in stages.
Based on the final evaluation in October 2005, which
was conducted by FSA technical advisors (UK), the
compliance level of Bank Indonesia to the 25 BCP showed
significant improvement. Eleven points of the core
principles, which in the past were qualitatively categorized
as non-compliant, have become largely compliant and fully
compliant. Hence, in general, by using the 25 BCP
parameters, 22 of the principles, in terms of Bank Indonesia
supervision, are considered compliant.
PILLAR III AN INDEPENDENT AND EFFECTIVE SU-
PERVISORY SYSTEM
In line with the fast changing banking environment,
since 1998 Bank Indonesia has been developing more
future oriented risk-based bank supervision. With this
approach, other than bank compliance to prevailing
regulations, banking supervision concentrates on the

identification, evaluation, monitoring and control of
business risks. In addition, the implementation has been
harmonized with the application of risk-management and
GCG improvement in the banking industry.
6. Enhancing the Supervisory Function
Regular coordination and cooperation with the
supervisory institutions continued, particularly to
encourage banking industry GCG implementation.
7. Reorganization Program in the Banking Sector
To optimize the enforcement of all banking
regulations and policies enacted by Bank Indonesia, the
supervisory organization was enhanced by creating a
dedicated organization at the team level. The tasks of
supervision and inspection, which in the past were
separate, are now one. This is hoped will identify and
settle any related issues within banking more
expeditiously.
8. Enhancing Supervisory Competence
In line with the more developed banking industry
and products as well as international banking regulations,
bank supervisors are expected to satisfy a high level of
competence and integrity to enable them to supervise
banks more effectively and efficiently on a par with bank
supervisors of supervisory authorities in developed
countries. To meet such requirements, Bank Indonesia held
training programs systematically, regularly and continuously
guided by competent and credible instructors. These
education and training activities were conducted by the
Bank Supervisory Development Focus Group (FG) and on
st
1 September 2005 were taken over by the Banking School
FG under the Directorate of Banking Research and
Regulation (DPNP). This Banking School Focus Group is
seen as an embryo for the formation of the Bank
Indonesia»s Banking Supervision School (BSS).
Appendix - Indonesian Banking Architecture
Laporan Pengawasan Perbankan
9. Developing a risk-based supervision system:
Early Warning System and Risk-Based Supervision
(RBS) Model
The bank failure phenomena, which were triggered
by the Asian Financial Crisis in the 1990s, proved that a
crisis experienced by one financial institution/bank could
spread quickly and contagiously to other institutions/banks.
With this in mind, the supervisory authorities in many
countries intensively developed an Early Warning system
(EWS) intended to identify bank weaknesses and potential
problems as early as possible and provide anticipative
solutions to the problems. EWS development was also
spurred by an awareness that routine bank inspections
and supervision sometimes failed to detect bank
weaknesses sufficiently quickly. Therefore, the detection
of indicators that can signify bank weaknesses or failure is
extremely important.
Bank Indonesia has developed an EWS for individual
banks in stages. In the first stage, a Financial Ratios EWS
was compiled where a bank»s financial condition was
evaluated comparatively against its peer group based on
financial ratios, risk profiles and the bank»s CAMELS ratios.
The financial ratios EWS has been equipped with
applications accessible by supervisors through SIMWAS.
In the second stage, a Model Prediction EWS was compiled
where the variables influential to a bank»s failure or
resilience were identified that could be used to estimate a
bank»s failure or resilience probability in the subsequent
period. In time, this prediction model is expected to be
available to supervisors accompanying the Financial Ratios
EWS as a supervisory tool and a judgment tool on a bank»s
condition under its supervision.
10. Enhancing the Effectiveness of Enforcement
Bank Indonesia restructured the Banking
Investigation Special Unit (UKIP) into the Directorate of
Banking Investigation and Mediation (DIMP) and signed
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and a Joint Decree among Bank Indonesia, the Police
Department and the Attorney General of the Republic of
Indonesia to enhance the effectiveness of enforcement
against white-collar crime.
PILLAR IV STRONG BANKING INDUSTRY
Efforts to solidify the banking industry are directed
towards GCG implementation enhancement; augmenting
the quality of risk-management and building operational
capacity.
11. Enhancing Banking GCG
a. The concept of the GCG principles include the tasks
and responsibilities of the commissioners and bank
directors, the implementation of the working unit task
force for internal control, and the independence of
directors and commissioners that will soon be
governed by Bank Indonesia regulations.
b. The establishment of a GCG cooperation forum
among Bank Indonesia and Banking Associations as
the National Governance Policy Committee
12. Enhancing the Quality of Risk-Management
a. Issuance of Bank Indonesia Regulation No. 7/25/PBI/
2005 regarding Mandatory Risk-Management
Certification for Commercial Bank Officers.
b. Establishment of a Risk-Management Certification
Body (BI-IRPA) and the implementation of risk-
management certification testing for 529 bank
directors and commissioners as well as the 1,700 bank
employees.
c. Compilation of the joint bank services facility
utilization concept, joint bank training and education
programs and the publication of bank efficiency
indicators to enhance operational capability.
88 Appendix - Indonesian Banking Architecture
13. Enhancing the Operational Capability of Banks
Several concepts to enhance the operational
capability of banks have been discussed intensively,
covering: the joint bank services, joint bank training and
education programs, and the publication of efficiency
indicators.
PILLAR V ADEQUATE SUPPORTING INFRASTRUC-
TURE
To encourage the banking community to expand its
credit allocation so as to bring positive impacts on the
banking industry, Bank Indonesia has initiated the
establishment of the Credit Bureau. The existence of the
Credit Bureau is expected to avail useful information for
the banking community to enhance their credit risk-
management quality, in turn reducing non-performing
loans and improving banking intermediation.
14. Developing a Credit Bureau
Clear and accurate information on the potential of
prospective debtors will buttress healthy credit activity and
affect the intermediation function. SID, representing one
type of comprehensive information media on an individual
prospective debtor, is a system that provides information
obtained from debtor reports processed by Bank Indonesia
from the reporting parties (commercial banks, BPR/S, and
LKBB). The improvement of SID regulations in the form of
Bank Indonesia Regulation No. 7/8/PBI/2005 dated 24th
January 2005 pertaining to the Debtor Information System
is considered as the embryo of the Credit Bureau in
Indonesia.
15. Optimizing the use of credit rating agencies
Bank Indonesia conducted a study on the obligation
rating for bonds issued in line with the BAPEPAM
regulations.

PILLAR VI CUSTOMER PROTECTION
Customer protection programs are intended to
empower customers through establishing a mediation
institution accompanied by a customer complaint
settlement mechanism, transparency in the determination
of banking product standards, and education for customers
as well as prospective customers.
16. Customer Complaint Mechanism Standards
Banking regulations in Indonesia, beginning in 2005,
witnessed a new development by covering the protection
and empowerment of customers. With this development,
Bank Indonesia expected the banking community to place
more attention on customer rights to maintain the
respective bank»s reputation and enhance public
confidence in the banking institution. Based on Bank
Indonesia Regulation No. 7/7/PBI/2005, Bank Indonesia is
defining a standard to settle customer complaints to avoid
exacerbating the complaint settlement process through
transparency and accountability.
17. Establishing a Banking Mediation Institution
Bank Indonesia is endeavoring to form a Banking
Mediation Institution, which is expected to facilitate dispute
settlements between customers and banks simply,
economically and expeditiously. The establishment of such
an institution is planned to be conducted in stages. Initially,
Appendix - Indonesian Banking Architecture
Laporan Pengawasan Perbankan
the mediation function will be conducted by Bank
Indonesia, which at the same time will prepare an
independent Banking Mediation Institution outside of Bank
Indonesia. The second stage will involve the mediation
function being conducted fully by the Banking Mediation
Institution involving customer representatives, legal experts,
financial experts and banking experts to maintain the
Banking Mediation Institution»s independence.
18. Enhancing Product Information Transparency
Based on Bank Indonesia Regulation No. 7/6/PBI/
2005 dated 20th January 2005, Bank Indonesia designated
a regulation that governs banking product transparency
and the use of personal customer data, as part of the effort
to enhance GCG application in the banking sector, to clarify
the use and risk of financial products, to protect and
empower customers, as well ass reduce asymmetric
information.
19. Promoting Customer Education
To encourage banks to educate their customers on
financial products, an education blueprint for the customer
education strategy over both the short and long term was
compiled in 2005. This education program will activity be
pursued in 2006, among others, by forming a Community
Education Forum that involves elements of banking,
customer institutions and related government bodies.
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90 Appendix - Indonesian Banking Architecture


Appendix 2
List of Banking Regulation 2005
A. COMMERCIAL BANKS
The January 2005 Banking Regulation and Policy
Package (Pakjan 2005) is intended to strengthen
prudential aspects and enhance the banking in-
termediary function.
1. Bank Indonesia Regulation No. 7/1/PBI/2005 dated
10th January 2005 regarding Foreign Loans.
Foreign Loans (PLN), as one funding source for banks,
have an important role in national economic and
banking sector growth. However, if the flow of such
loans is too low, foreign loans can affect the exchange
rate, the robustness of the balance of payments and
monetary stability. The improved regulation includes,
among others, criteria and requirements for accepting
short-term foreign loans, maintenance of a short-term
foreign loan position, mandatory exceptions for a
short-term foreign loan daily balance, Bank
Indonesia»s approval mechanism particularly for long-
term foreign loans, a plan to enter the market, a
reporting mechanism to monitor foreign loan
exposure, as well as detailing Bank Indonesia»s
discretion in defining a long-term foreign loan ceiling.
2. Bank Indonesia Regulation No. 7/2/PBI/2005 dated
20th January 2005 regarding Asset Quality Evaluation
of Commercial Banks.
This regulation improvement intends to encourage
available funding, especially for micro, small and
medium enterprises (MSME), improve the bank asset
quality evaluation, and enhance the application of
bank credit risk-management. The improved
Appendix - List of Banking Regulation 2005
Laporan Pengawasan Perbankan
regulation redefines the criteria, terms and conditions
as well as the quality evaluation of funding, expansion
of the asset coverage to be evaluated, namely
productive and non-productive assets, expansion of
the eligible collateral coverage to reduce the
established reserves factor, terms and conditions of
the quality evaluation of funding made to small
enterprises, and credits for specific areas like Maluku
and Papua.
An article that drew attention to the emergence of
pro-and-contra was the uniform classification system,
namely the same quality designation for bank funding
distributed to finance one project or one debtor. The
application of this uniform classification system is
expected to prevent asymmetric information in the
banking system, to reduce debtor moral hazard, to
enhance the fairness of productive asset quality
evaluation, to instill market discipline, to create
financial system stability based on the application of
international standards and good risk-management,
and to create a solid foundation for the application
of Basel II in due course.
3. Bank Indonesia Regulation No. 7/3/PBI/2005 dated
20th January 2005 regarding the Maximum Limit of
Credit Allocation by Commercial Banks (BMPK).
The objectives of this regulation are to foster stimuli
and allow breathing space for the banking community
to enhance their funding supply capacity to the real
sector to support economic growth based on
prudential principles. The improved regulation, among
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others, raises BMPK to state-owned enterprises for
development that affects the basic requirements of
the public; raised from 20% to 30% of the total bank
capital.
4. Bank Indonesia Regulation No. 7/4/PBI/2005 dated
20th January 2005 regarding Prudential Principles in
Commercial Bank Asset Securitization Activities.
In line with business development, the complexity of
transactions and types of risk in banking activities,
an alternative credit risk mitigation technique has
been developed, namely asset securitization in
accordance with international standards. A bank»s
ability to better manage credit risk as well as liquidity
is required to support intermediation activities. The
regulation stipulates the criteria and requirements for
transferable financial assets, and a bank»s role in asset
securitization activities, namely acting as the original
creditor, credit support provider, liquidity provider as
well as other roles.
5. Bank Indonesia Regulation No. 7/5/PBI/2005 dated
th
20 January 2005 regarding Special Treatment for
Post National Disaster Credit from Commercial Banks
in Nangroe Aceh Darussalam province and Nias
Regency in North Sumatra.
The objective of this regulation is, in particular, to
ease the burden of banks and the public in regions
affected by natural disasters. As such, economic
recovery can be improved in affected regions in the
years ahead. The policy is in line with Bank Indonesia»s
policy of providing more attention to affected regions
and micro, small and medium enterprises. The
regulation includes, among others: relaxing the
requirements for credit quality evaluation and other
funding supply as well as restructuring the
classification of credit quality until the end of January
2008.
92 Appendix - List of Banking Regulation 2005
6. Bank Indonesia Regulation No. 7/6/PBI/2005 dated
20th January 2005 regarding the Transparency of
Banking Product Information and the Use of Personal
Customer Data.
In an effort to enhance banking-sector GCG
application, to clarify the benefits and risks associated
with a financial product, to empower and protect
customers, as well as minimize asymmetric
information, it was deemed necessary to designate
regulations concerning banking product transparency
and the use of personal customer data. This regulation
essentially controls a bank»s obligation to transparently
inform its customers of banking products, prohibit
misleading and unethical information, as well as
restrict the distribution of personal customer data.
7. Bank Indonesia Regulation No. 7/7/PBI/2005 dated
20 th January 2005 regarding the Settlement of
Customer Complaints.
The settlement of customer complaints falls under
the umbrella of customer protection to ensure a
customer»s rights in his or her connection with a bank.
An untended customer complaint could potentially
generate reputational risk to a bank, and in the longer
term reduce public trust in the banking institution.
The objective of this regulation is to ensure that banks
handle customer complaints directly and
systematically. The regulation includes, among others,
the bank»s obligation to settle every customer
complaint.
8. Bank Indonesia Regulation No. 7/8/PBI/2005 dated
24th January 2005 regarding the Debtor Information
System.
In order to be effective, banking intermediation
requires the presence of supporting infrastructure that
enables a more expeditious credit distribution process
and enables reducing the potential for non-

performing loans. To this end, Bank Indonesia
established the Credit Bureau. The abovementioned
regulation will add information to debtor profiles to
enhance the quality of credit risk-management, to
encourage banking institutions to increase their credit
allocation, and provide other benefits to the banking
industry. Essentially, the regulation obliges a bank to
report more complete debtor information coverage
and make such information available to the banking
industry for use in credit risk-management, enabling
decision-making conducive to higher quality credit
allocation. In addition, to provide more comprehensive
information, the reporting coverage has been
expanded to include rural certain rural banks, non-
bank credit card providers and certain LKBB.
Stronger Banking Institutions through Capital
Regulation and Higher Risk-Management Quality
9. Bank Indonesia Regulation No. 7/15/PBI/2005 dated
1 st July 2005 regarding Total Core Capital of
Commercial Banks
This regulation is part of the effort to bolster the
banking structure in accordance with IBA
objectives. Solid capitalization is required to absorb
potential losses (risk) and to develop infrastructure
for bank expansion and in anticipation of Basel II
application.
10. Bank Indonesia Regulation No. 7/25/PBI/2005 dated
rd
3 August 2005 regarding Risk-Management
Certification for the Management and Officers of
Commercial Banks.
This regulation is designed to enhance management
and officer competency and expertise supporting risk-
management in the ever increasing complexity of the
banking business. This will emphasize the requirement
for good corporate governance practices and the risk-
Appendix - List of Banking Regulation 2005
Laporan Pengawasan Perbankan
management function, in accordance with the
objectives stipulated by IBA.
Other Regulation Revisions
11. Bank Indonesia Regulation No. 7/10/PBI/2005 dated
9 th March 2005 regarding the Daily Reports of
Commercial Banks and No. 7/12/PBI/2005 dated 31st
May 2005, which represents a revision to Bank
Indonesia Regulation No. 7/10/PBI/2004 regarding the
Daily Reports of Commercial Banks.
The revision is designed to enhance the reporting
system based on PIPU to support Bank Indonesia»s
implementation framework in the monetary sector,
banking, and a more effective payment system
through the availability of punctual, safe, accurate,
reliable, objective, complete and simultaneously
accessible daily banking information in real-time.
12. Bank Indonesia Regulation No. 7/21/PBI/2005 dated
3 rd August 2005 regarding the revision of Bank
Indonesia Regulation No. 5/15/PBI 2003 dated 4th
February 2003 regarding Short-Term Funding for
Commercial Banks.
This regulation obliges banks to maintain their
collateral in accordance with the prevailing regulation.
Banks with short-term funding difficulties may utilize
the said facility providing they own high-quality and
liquid collateral with a minimum amount equal to
the facility being received. Furthermore, Bank
Indonesia will impose interest on the facility provided
based on the highest value of the most up-to-date
PUAB interest rate and SBI discount rate plus a certain
margin.
13. Bank Indonesia Regulation No. 7/27/PBI/2005 dated
24th August 2005 regarding the revision of Bank
Indonesia Regulation No. 3/17/PBI 2001 regarding the
Periodic Reports of Commercial Banks.
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Laporan Pengawasan Perbankan
This revision will enhance the reporting effectiveness
of defining and instituting monetary policy and risk-
based bank supervision. The scope of improvement
covers the procedure and delivery system of several
commercial bank reports to ensure punctual and
accurate daily information.
14. Bank Indonesia Regulation No. 7/38/PBI/2005 dated
10th October 2005 regarding the revision of Bank
Indonesia Regulation No. 6/9/PBI 2004: Follow-up for
Commercial Bank Status Designation and Supervision.
This revision improves the follow-up mechanisms of
commercial bank supervision and status designation
in relation to the ratification of laws concerning the
Savings Guarantee Institution (LPS), which, among
others, regulates LPS» functions in conducting the
recovery or liquidation of a commercial bank.
15. Bank Indonesia Regulation No. 7/45/PBI/2005 dated
11th November 2005 regarding Special Treatment for
Commercial Bank Credit Post-National Disaster in
Nangroe Aceh Darussalam, as well as Nias Regency
and South Nias Regency in North Sumatra Province.
This regulation will support economic recovery in
tsunami hit regions through the provision of special
treatment for credits stemming from commercial
banks.
16. Bank Indonesia Regulation No. 7/50/PBI/2005 dated
th
29 November 2005 regarding the revision of Bank
Indonesia Regulation No. 3/22/PBI 2001: Financial
Condition Transparency from Commercial Banks.
This regulation accommodates the Islamic Supervisory
Board in supervising and ensuring that a bank»s
products and operational activities satisfy Islamic
principles.
17. Bank Indonesia Regulation No. 7/29/PBI/2005 dated
th
6 September 2005 regarding the revision of Bank
Indonesia Regulation No. 6/15/PBI/2004: the
94 Appendix - List of Banking Regulation 2005
Minimum Reserve Requirement for Commercial Banks
in Rupiah and Foreign Currency.
This revision represents a follow-up measure on
monetary policy to maintain national financial stability
by controlling the amount of money in circulation. To
calculate the minimum rupiah reserve requirement,
other than based on deposits, the calculation is also
based on LDR. As compensation, Bank Indonesia has
raised the interest on giro savings from 3% to 5.5%
for all additional rupiah GWM above 5%.
18. Bank Indonesia Regulation No. 7/37/PBI/2005 dated
30th September 2005 regarding the second revision
of Bank Indonesia Regulation No. 5/13/PBI/2003
regarding Commercial Bank PDN.
This regulation changes the PDN calculation method
at the close of day from the Gross Aggregate Position
method to the Net Aggregate Position method. The
Net PDN calculation at the close of day will be defined
using the Gross Aggregate Position method.
19. Bank Indonesia Regulation No. 7/49/PBI/2005 dated
29th November 2005 regarding the second revision
of Bank Indonesia Regulation No. 5/15/PBI/2003:
Minimum Reserve Requirement for Commercial Banks
in Rupiah and Foreign Currency.
This regulation revises the giro interest calculation for
additional GWM from 5.5% to 6.5% for additional
rupiah GWM above 5%.
B. SHARIA BANKING REGULATIONS
Seven Sharia Banking regulation improvements were
made as follows:
1. Bank Indonesia Regulation No. 7/9/PBI/2005 dated
25th January 2005 regarding the Monthly Reports for
Sharia Rural Banks (BPRS).
Before this regulation was enacted, BPRS submitted
their monthly reports offline to Bank Indonesia. With

the issuance of this regulation, information pertaining
to BPRS is provided online, timely and accurately.
2. Bank Indonesia Regulation No. 7/13/PBI/2005 dated
10th June 2005 regarding the Minimum Capital
Requirement for Commercial Banks based on Sharia
Principles.
The fulfillment of the minimum capital requirement
for commercial banks based on sharia principles
entails the application of prudential principles in
concordance with the capital structure suitable to the
characteristics of sharia banks.
3. Bank Indonesia Regulation No. 7/23/PBI/2005 dated
rd
3 August 2005 regarding the revision of Bank
Indonesia Regulation No. 5/3/PBI/2003 dated 4th
February 2003: Short-Term Funding Facility for Sharia
Banks.
This regulation controls the interest sharia banks
extend in the submission of FPJPS.
4. Bank Indonesia Regulation No. 7/35/PBI/2005
regarding the revision of Bank Indonesia Regulation
No. 6/24/PBI/2004 regarding Commercial Banks that
Conduct Business Activities based on Sharia Principles.
In order to expand the sharia banking network to be
able to serve all levels of people, an improvement to
the sharia commercial bank capital structure
regulation was made. As such, the revision is more
suitable with sharia banking characteristics and leads
towards the application of international standards.
5. Bank Indonesia Regulation No. 7/46/PBI/2005 dated
14th November 2005 regarding an Agreement on
Fund Collection and Distribution for Banks that
Conduct Business Activities based on Sharia Principles.
To maintain public confidence in sharia banks in
compliance with sharia principles, Bank Indonesia
enacted a regulation governing agreements on sharia
banking products. Such a regulation is also expected
Appendix - List of Banking Regulation 2005
Laporan Pengawasan Perbankan
to provide clear, common perceptions regarding sharia
bank practitioners and supervisors surrounding sharia
banking product agreements.
6. Bank Indonesia Regulation No. 7/47/PBI/2005 dated
14th November 2005 regarding Transparent Financial
Conditions of Rural Sharia Banks.
This regulation is designed to enhance BPRS financial
transparency to the public.
7. Bank Indonesia Regulation No. 7/50/PBI/2005 dated
29th November 2005 regarding the revision of Bank
Indonesia Regulation No. 3/22/PBI/2001: Bank
Financial Condition Transparency.
This regulation will enhance the transparency of sharia
commercial banks» financial condition to the public.
C. RURAL BANK (BPR) REGULATIONS
Four BPR regulations were issued as follows:
1. Bank Indonesia Regulation No. 7/17/PBI/2005 dated
1st July 2005 regarding Special Treatment for Post-
National Disaster Credit from Commercial Banks in
Nangroe Aceh Darussalam, as well as Nias Regency
and South Nias Regency in North Sumatra Province.
The tsunami in Nangroe Aceh Darussalam and the
earthquake in Nias Regency of North Sumatra
impacted upon the Indonesian economy as a whole
but, in particular, in Nangroe Aceh Darussalam and
Nias Regency. Debtors directly affected by the disaster
had difficulty in repaying their commitments in
accordance to their credit agreements or financing
agreements, which undermined BPR operational
conditions. In addition, the disaster impinged upon
the institutions, management and physical BPR
conditions. Against this backdrop, Bank Indonesia
considered it necessary to provide special treatment
concerning the credits, in form of tolerance regarding
the credit quality evaluation and periodic reporting
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Laporan Pengawasan Perbankan
commitment for the related rural banks.
2. Bank Indonesia Regulation No. 7/33/PBI/2005 dated
nd
22 September 2005 regarding the cancellation of
Bank Indonesia Regulation No. 5/17/PBI/2003
regarding the Conditions and Implementation
Procedures for Government Guarantees against BPR
Payment Requirement.
By validating Law No. 24, 2004 regarding the Savings
Guarantee Institution, the BPR guarantee function
will be taken over by LPS effective from 22 nd
September 2005. Consequently, Bank Indonesia
Regulation No. 5/17/PBI/2003 regarding the
Conditions and Procedures of Government
Guarantee Implementation for the BPR Payment
Requirement and its implementation were declared
obsolete.
3. Bank Indonesia Regulation No. 7/34/PBI/2005 dated
22nd September 2005 and Circular No. 7/50/DPBPR
th
dated 11 December 2005 regarding the Follow-up
of Rural Banks under Special Surveillance.
Bank Indonesia restructured rural banks with the
potential to recover by conducting special surveillance;
and revoked the business licenses of unrecoverable
rural banks after a LPS declaration that the problem
bank was unrecoverable. In such a case, the rural bank
may be placed under special surveillance. In addition,
Bank Indonesia shall define unrecoverable rural banks
under special surveillance and instruct LPS to handle
them based on specified criteria. Bank Indonesia must
notify LPS of any rural bank under special surveillance.
96 Appendix - List of Banking Regulation 2005
After receiving notice from Bank Indonesia, LPS will
make an evaluation of whether the problem bank
can be saved or not. In the case of an unrecoverable
rural bank, Bank Indonesia will revoke the respective
bank»s business license upon receiving a notice from
LPS and make a public announcement.
4. Bank Indonesia Regulation No. 7/51/PBI/2005 dated
14th December 2005 regarding the Monthly Reports
of Rural Banks.
In line with the rapid development of information
technology and the increasing need for a
management information system for rural bank
supervision, the forms and procedures of the Monthly
Report has been enhanced to encourage a sound
banking system.
D. OTHERS
1. Bank Indonesia Regulation No. 7/39/PBI/2005 dated
18th October 2005 regarding Technical Assistance for
Micro, Small and Medium Enterprises.
Micro, small and medium enterprises (MSME) have a
strategic role in maintaining the national economy.
To this end, Bank Indonesia»s experience and expertise
is expected to assist the development of micro, small
and medium enterprises by enhancing the intensity
and effectiveness of dynamic technical assistance,
applicable to prevailing conditions, requirements and
most recent internal and external conditions of Bank
Indonesia. The technical assistance will be provided
in form of training and/or the supply of information.
Appendix 3
Banking Key Indicators as of September 2005 (in million Rp)
PRODUCTIVE ASSETS DEPOSITS

SECURITI CONTINU-
TOTAL OTHER
ES TO 3RD PLACEMENT ANCE
NO. BANK NAME CLAIMS
CREDITS PARTY ON OTHER INCLUSION COMMIT- TOTAL GIRO SAVINGS DEPOSITS TOTAL E QUIT
UITYY
ASSETS
AND BI BANKS TO
MENT TO
3RD PARTY
3RD PARTY

STATE-OWNED BANKS
1 PT BANK MANDIRI (PERSERO) Tbk 241,876,157 100,081,490 95,891,088 14,708,638 2,108,907 10,224,670 18,534,042 241,548,835 39,914,968 44,198,536 96,155,443 180,268,947 23,553,773
2 PT BANK NEGARA INDONESIA (PERSERO),Tbk 146,887,306 62,418,329 44,476,302 16,793,156 2,482,126 4,137,739 9,124,658 139,432,310 33,586,472 35,812,324 42,440,473 111,839,269 11,220,041
3 PT BANK RAKYAT INDONESIA (PERSERO) Tbk. 113,397,161 71,899,553 25,660,588 4,827,303 68,419 624,974 2,037,674 105,118,511 16,742,255 46,287,227 27,171,266 90,200,748 11,432,183
4 PT BANK TABUNGAN NEGARA (PERSERO) Tbk. 27,936,066 14,525,068 10,474,776 919,812 2,696 6,735 25,929,087 1,184,771 5,717,982 11,229,767 18,132,520 1,377,148
5 PT BANK EKSPOR INDONESIA (PERSERO) 7,590,291 1,987,803 905,169 4,257,529 380,529 7,531,030 422,424 10,705 433,129 3,767,272
FOREX NATIONAL PRIVATE COMMERCIAL BANKS
6 PT BANK CENTRAL ASIA Tbk. 148,094,480 50,906,106 62,402,253 9,883,700 383,704 1,813,996 2,175,177 127,564,936 30,864,282 65,580,688 30,986,891 127,431,861 15,441,177
7 PT BANK DANAMON INDONESIA Tbk 64,880,393 35,639,872 15,858,950 5,749,765 963,148 776,296 2,396,169 61,384,200 4,753,978 9,183,046 29,491,979 43,429,003 8,203,631
8 PT BANK INTERNASIONAL INDONESIA Tbk 47,344,718 19,478,631 14,849,898 6,896,694 487,416 729,520 988,082 43,430,241 11,198,202 6,168,846 18,360,718 35,727,766 4,491,918
9 PT BANK NIAGA, Tbk 39,095,093 27,649,197 4,410,071 2,898,943 252,980 761,861 1,092,315 37,065,367 5,738,387 4,875,978 20,073,135 30,687,500 3,835,566
10 PT PAN INDONESIA BANK, Tbk 34,553,301 14,611,645 13,246,060 2,521,875 296,986 256,736 509,682 31,442,984 5,006,667 4,246,348 17,110,225 26,363,240 4,339,466
11 PT BANK PERMATA Tbk (d/h PT. BANK BALI ) 33,502,753 21,558,376 5,102,366 2,256,231 128,138 378,320 607,866 30,031,297 5,862,010 4,381,618 16,114,189 26,357,817 2,484,381
12 PT BANK LIPPO , Tbk 27,532,632 7,351,970 10,513,917 3,886,651 3,464 42,095 470,782 22,268,879 8,524,674 9,756,764 5,923,691 24,205,129 2,499,089
13 PT BANK MEGA, Tbk 23,529,679 10,277,016 9,523,931 300,128 31 65,709 266,899 20,433,714 2,216,806 1,917,828 15,570,530 19,705,164 1,282,273
14 PT BANK NISP, Tbk 19,487,661 12,610,751 2,837,122 1,532,747 55,223 332,628 941,034 18,309,505 2,156,677 3,233,074 10,228,411 15,618,162 1,177,403
15 PT BANK BUKOPIN 18,794,628 14,183,033 1,928,911 943,849 550 86,803 556,331 17,699,477 3,225,208 1,683,131 9,840,003 14,748,342 1,213,950
16 PT BANK BUANA INDONESIA Tbk. 15,857,781 10,213,989 2,423,331 1,394,055 88 45,704 242,524 14,319,691 3,531,463 4,240,700 4,619,839 12,392,002 2,208,841
17 PT BANK CENTURY Tbk.(BANK CIC-6.12.2004) 11,575,045 2,258,550 2,413,125 4,013,891 564,437 121,265 9,371,268 590,453 554,393 7,003,230 8,148,076 404,318
18 PT BANK EKONOMI RAHARJA 11,194,529 5,211,186 3,713,292 1,048,956 58,691 246,538 10,278,663 2,059,991 3,290,153 4,828,923 10,179,067 741,998
19 PT BANK ARTHA GRAHA INTERNASIONAL TBK 9,788,718 7,095,081 619,206 690,348 12,990 16,551 132,935 8,567,111 1,014,314 738,472 5,883,587 7,636,373 542,600
20 PT.BANK SYARIAH MANDIRI 7,321,144 6,007,824 530,270 107,302 294,777 6,940,173 920,557 1,759,199 3,259,064 5,938,820 641,368
21 PT BANK MUAMALAT INDONESIA 6,748,962 5,802,114 305,000 116,734 6,802 61,710 6,292,360 438,653 1,485,724 3,255,631 5,180,008 784,145
22 PT BANK BUMIPUTERA INDONESIA, Tbk 3,712,216 2,617,209 534,447 111,642 33,144 50,627 3,347,069 420,699 412,830 2,288,801 3,122,330 344,725
23 PT BANK MESTIKA DHARMA 3,067,097 2,622,436 137,929 35,157 65,679 2,861,201 322,551 1,361,645 626,317 2,310,513 672,021

Appendix - Banking Key Indicators as of September 2005 97

 (in million Rp)
PRODUCTIVE ASSETS DEPOSITS

SECURITI CONTINU-
TOTAL OTHER
ES TO 3RD PLACEMENT ANCE
NO. BANK NAME CLAIMS
CREDITS PARTY ON OTHER INCLUSION COMMIT- TOTAL GIRO SAVINGS DEPOSITS TOTAL E QUIT
UITYY
ASSETS
AND BI BANKS TO
MENT TO
3RD PARTY
3RD PARTY

24 PT BANK HAGA 3,035,704 1,782,657 652,661 257,852 13,697 83,918 2,790,785 726,236 536,226 1,439,700 2,702,162 167,190
25 PT BANK MAYAPADA INTERNATIONAL, Tbk 2,896,643 1,969,163 11,163 71,612 29,278 12,061 2,093,277 152,081 106,049 1,985,091 2,243,221 318,366
26 PT. BANK NUSANTARA PARAHYANGAN TBK. 2,722,207 1,421,601 635,893 366,585 2,990 28,204 2,455,273 517,040 266,070 1,652,550 2,435,660 150,100
27 PT BANK MASPION INDONESIA 1,596,251 889,362 448,591 20,481 4,087 20,676 1,383,197 193,986 395,538 831,660 1,421,184 152,042
28 PT BANK KESAWAN, Tbk 1,581,145 795,913 441,753 64,776 76,538 23,554 1,402,534 205,657 370,456 891,532 1,467,645 95,344
29 PT BANK BUMI ARTA 1,236,952 530,569 463,458 44,610 7,544 4,017 6,873 1,057,071 301,974 339,335 315,489 956,798 208,742
30 PT BANK ARTA NIAGA KENCANA 1,140,072 715,061 59,741 223,858 24,136 1,022,796 128,336 188,072 673,567 989,975 122,968
31 PT BANK HAGAKITA 987,281 728,663 44,813 101,518 1,938 13,989 890,921 187,919 122,005 554,826 864,750 80,776
32 PT BANK GANESHA 926,786 613,922 126,962 85,361 37,858 864,103 98,650 60,723 650,548 809,921 97,891
33 PT BANK SWADESI, Tbk 812,608 448,710 145,613 133,851 1,927 1,484 731,585 93,682 68,096 522,846 684,624 109,130
34 PT BANK ANTAR DAERAH 590,630 421,360 65,626 34,792 6 345 20,940 543,069 91,463 178,236 200,385 470,084 54,438
35 PT BANK SHINTA INDONESIA 510,320 130,426 104,723 233,187 884 12,478 481,698 72,804 31,236 293,418 397,458 87,613
36 PT BANK IFI 489,654 234,254 86,563 59,455 17,884 398,156 18,334 11,518 322,059 351,911 69,182
37 PT. BANK HALIM INDONESIA 476,546 296,760 123,943 19,884 1,303 14,783 456,673 45,841 46,324 242,791 334,956 101,955
38 PT BANK WINDU KENTJANA 464,590 259,688 66,313 30,665 2,844 359,510 98,405 125,090 212,539 436,034 16,134
39 PT BANK METRO EXPRESS 376,372 170,232 72,685 96,948 63 3,084 343,012 64,394 56,977 103,274 224,645 145,413
NON-FOREX NATIONAL PRIVATE COMMERCIAL BANKS
40 PT BANK TABUNGAN PENSIUNAN NASIONAL 4,209,042 3,054,599 556,057 49,716 22 650 3,661,044 15,232 478,492 2,804,746 3,298,470 760,350
41 PT BANK AGRONIAGA Tbk. 2,310,566 1,814,993 323,043 2,085 20 3,024 2,143,165 243,341 45,082 1,442,358 1,730,781 261,478
42 PT BANK JASA JAKARTA 2,071,249 1,527,837 388,690 5,718 5,813 1,928,058 177,933 133,150 1,460,627 1,771,710 253,313
43 PT BANK VICTORIA INTERNATIONAL, Tbk 1,926,719 706,449 1,044,965 284 922 1,752,620 75,580 92,022 1,532,778 1,700,380 172,331
44 PT BANK EKSEKUTIF INTERNASIONAL 1,582,461 1,185,797 43,261 1,085 2,246 1,232,389 16,667 85,069 1,311,909 1,413,645 140,927
45 PT BANK YUDHA BHAKTI 1,472,669 744,542 376,472 174,492 10 13,200 1,308,716 87,194 57,935 1,139,227 1,284,356 97,347
46 PT BANK HARDA INTERNASIONAL 981,308 710,851 119,378 1,368 3,207 834,804 163,712 55,134 644,599 863,445 78,316
47 PT BANK HIMPUNAN SAUDARA 1906 750,571 539,796 120,113 2,632 387 2,831 665,759 40,454 82,054 525,362 647,870 69,192
48 PT BANK INDEX SELINDO 727,455 553,174 88,292 2,899 1,450 645,815 86,416 163,122 392,304 641,842 68,472
49 PT BANK PERSYARIKATAN INDONESIA 715,065 202,480 370,416 3,661 3,500 580,057 187,487 72,660 364,421 624,568 -14,113
50 PT BANK AKITA 669,509 523,513 67,179 5,527 2,399 598,618 97,509 23,736 450,282 571,527 72,532

Appendix - Banking Key Indicators as of September 2005 98

 (in million Rp)
PRODUCTIVE ASSETS DEPOSITS

SECURITI CONTINU-
TOTAL OTHER
ES TO 3RD PLACEMENT ANCE
NO. BANK NAME CLAIMS
CREDITS PARTY ON OTHER INCLUSION COMMIT- TOTAL GIRO SAVINGS DEPOSITS TOTAL E QUIT
UITYY
ASSETS
AND BI BANKS TO
MENT TO
3RD PARTY
3RD PARTY

51 PT BANK UIB 623,428 468,013 80,500 2,615 13,016 564,144 45,448 36,758 447,397 529,603 78,049
52 PT BANK DIPO INTERNATIONAL 548,220 456,717 39,761 142 15,557 512,177 169,644 19,422 255,443 444,509 86,339
53 PT BANK SYARIAH MEGA INDONESIA 490,564 378,567 26,663 174 405,404 34,276 4,054 369,798 408,128 68,845
54 PT CENTRATAMA NASIONAL BANK 471,008 368,129 18,982 3,616 8,174 398,901 30,070 76,122 284,916 391,108 60,410
55 PT PRIMA MASTER BANK 419,250 344,802 23,377 555 875 369,609 76,809 60,165 234,324 371,298 27,159
56 PT BANK MULTI ARTA SENTOSA (MAS) 339,272 268,242 42,178 1,607 1,331 313,358 19,492 30,628 245,998 296,118 39,087
57 PT BANK KESEJAHTERAAN EKONOMI 335,693 299,433 11,790 607 311,830 8,512 22,823 175,760 207,095 99,369
58 PT BANK INDOMONEX 310,047 227,404 40,071 5,539 195 273,209 27,280 37,938 208,093 273,311 25,462
59 PT BANK DJASA ARTA 306,140 178,656 49,551 6,237 3,090 237,534 35,113 49,290 171,507 255,910 32,896
60 PT BANK FAMA INTERNASIONAL 284,179 221,211 34,500 1,003 256,714 8,812 13,260 218,571 240,643 35,091
61 PT BANK SRI PARTHA 280,784 155,221 18,860 10 174,091 4,331 143,431 73,839 221,601 46,727
62 PT BANK MITRANIAGA 269,171 159,816 73,889 1,558 235,263 12,190 21,350 217,232 250,772 16,177
63 PT BANK INA PERDANA 251,155 187,029 27,478 10,834 204 225,545 29,407 35,067 137,321 201,795 28,076
64 PT BANK MAYORA 247,092 107,399 107,971 28 9,345 224,743 25,558 27,736 158,408 211,702 32,204
65 PT ANGLOMAS INTERNASIONAL BANK 226,908 189,995 19,956 101 1,440 211,492 18,675 33,480 141,535 193,690 25,160
66 PT BANK BINTANG MANUNGGAL 200,992 150,591 24,443 11,260 1,410 187,704 22,027 11,526 134,876 168,429 27,966
67 PT BANK ARTOS INDONESIA 191,451 145,152 15,993 294 161,439 20,763 22,343 113,432 156,538 26,135
68 PT BANK SINAR HARAPAN BALI 169,992 128,164 14,000 3,969 146,133 3,932 90,300 36,145 130,377 20,939
69 PT BANK HARFA 162,556 101,807 18,184 436 1,650 122,077 7,909 16,359 92,497 116,765 30,602
70 PT BANK HARMONI INTERNATIONAL 158,050 109,592 17,949 4,017 7,738 1,400 140,696 17,377 39,724 73,021 130,122 23,208
71 PT LIMAN INTERNATIONAL BANK 144,946 55,454 21,255 45,057 34 121,800 17,246 25,745 30,038 73,029 64,656
72 PT BANK BISNIS INTERNASIONAL 140,757 90,346 20,306 821 209 111,682 14,026 10,989 83,875 108,890 28,916
73 PT BANK ROYAL INDONESIA 138,299 23,430 69,364 25,467 10 118,271 68,385 7,028 30,598 106,011 19,990
74 PT BANK PURBA DANARTA 70,753 10,756 47,249 4,283 62,288 9,748 10,292 28,790 48,830 20,934
75 PT BANK SWAGUNA 37,777 12,392 437 66 230 13,125 1,226 1,978 10,628 13,832 23,271
76 PT BANK ALFINDO 26,467 8,522 13,180 393 17 22,112 4,877 3,166 5,343 13,386 12,672
RURAL DEVELOPMENT BANKS (BPD)
77 PT BPD JAWA BARAT 15,763,104 10,144,052 325,191 3,532,008 273 95,486 14,097,010 5,825,447 1,657,573 4,641,639 12,124,659 1,503,088

Appendix - Banking Key Indicators as of September 2005 99

 (in million Rp)
PRODUCTIVE ASSETS DEPOSITS

SECURITI CONTINU-
TOTAL OTHER
ES TO 3RD PLACEMENT ANCE
NO. BANK NAME CLAIMS
CREDITS PARTY ON OTHER INCLUSION COMMIT- TOTAL GIRO SAVINGS DEPOSITS TOTAL E QUIT
UITYY
ASSETS
AND BI BANKS TO
MENT TO
3RD PARTY
3RD PARTY

78 PT. BPD JAWA TIMUR 10,875,255 4,148,124 3,637,277 295,870 262,231 8,343,502 5,472,025 1,891,281 1,806,961 9,170,267 894,579
79 PT. BANK DKI 8,415,500 2,696,352 3,554,818 947,635 927 3,769 181,571 7,385,072 2,742,946 940,648 3,199,096 6,882,690 623,019
80 PT BPD JAWA TENGAH 7,691,133 4,276,963 358,756 1,812,484 2,541 69,382 6,520,126 2,746,262 1,327,070 2,424,974 6,498,306 855,996
81 PT BPD RIAU 6,256,317 1,482,227 3,394,855 549,826 1,124 376 69,888 5,498,296 3,964,942 751,588 1,037,166 5,753,696 391,613
82 PT. BANK ACEH 5,486,975 1,617,274 2,599,714 470,580 130 20,888 4,708,586 3,421,538 662,094 901,659 4,985,291 264,583
83 BPD KALIMANTAN TIMUR 5,404,262 1,682,160 2,596,160 307,238 3,124 5,958 66,266 4,660,906 2,296,456 879,835 1,418,418 4,594,709 535,429
84 PT. BPD SUMATERA UTARA 4,363,160 1,878,222 1,029,867 664,288 750 33,630 3,606,757 1,917,092 811,014 765,492 3,493,598 268,909
85 PT. BPD BALI 3,555,134 2,454,617 720,450 61,788 635 7,953 3,245,443 1,009,827 993,719 806,130 2,809,676 519,702
86 PT BPD SUMATERA SELATAN 3,509,970 1,786,462 350,000 121,131 1,250 1,225 97,964 2,358,032 1,832,146 544,984 621,217 2,998,347 276,676
87 BPD SUMATERA BARAT 3,443,449 2,296,958 535,412 352,925 250 12,723 3,198,268 1,157,539 681,959 670,428 2,509,926 304,336
88 PT BPD SULAWESI SELATAN 2,718,650 1,374,946 431,071 495,034 65 3,067 2,304,183 1,386,148 227,959 379,896 1,994,003 394,608
89 PT. BPD PAPUA 2,408,449 874,181 475,000 599,620 24,663 1,973,464 1,332,917 426,954 212,222 1,972,093 325,138
90 PT. BPD KALIMANTAN BARAT 1,696,164 789,905 275,913 368,803 161 26,171 1,460,953 773,374 502,272 198,945 1,474,591 149,508
91 BPD YOGYAKARTA 1,617,922 957,730 361,141 59,936 130 5,097 1,384,034 610,836 523,477 250,731 1,385,044 138,619
92 BPD KALIMANTAN SELATAN 1,542,884 632,128 294,667 146,236 639 20,370 1,094,040 874,669 260,180 221,355 1,356,204 150,277
93 PT. BPD NUSA TENGGARA BARAT 1,443,377 991,023 7,861 110,418 952 44,533 1,154,787 488,190 286,687 206,386 981,263 182,035
94 PT BANK KALTENG 1,387,087 447,601 507,520 152,960 500 42,787 1,151,368 883,802 225,805 42,377 1,151,984 103,214
95 PT. BPD SULAWESI UTARA 1,348,548 673,921 374,964 160,618 10,843 1,220,346 248,339 290,772 390,331 929,442 165,399
96 PT. BANK LAMPUNG 1,340,930 838,555 5,000 167,798 477 15,108 1,026,938 641,050 128,851 191,740 961,641 109,319
97 PT. BPD NUSA TENGGARA TIMUR 1,278,028 894,629 75,382 38,711 1,008,722 787,271 188,431 96,834 1,072,536 136,797
98 PT. BPD MALUKU 902,618 402,352 102,398 209,803 714,553 417,913 177,747 147,741 743,401 80,137
99 BPD JAMBI 678,749 365,274 183,135 85 9,614 558,108 348,748 79,068 115,941 543,757 112,000
100 PT. BPD BENGKULU 567,719 397,632 14,756 32,880 80 3,808 449,156 298,081 82,459 85,145 465,685 46,360
101 BPD SULAWESI TENGGARA 480,661 262,479 144,071 57 3,493 410,100 291,134 76,682 28,718 396,534 69,831
102 PT. BPD SULAWESI TENGAH 396,352 154,417 8,000 173,000 10,475 345,892 306,165 25,605 16,515 348,285 23,963
JOINT-VENTURE BANKS
103 PT BANK DBS INDONESIA 9,588,371 5,706,601 1,276,485 1,739,949 291,566 640,094 9,654,695 1,070,219 18,904 4,824,093 5,913,216 1,411,540
104 PT BANK MIZUHO INDONESIA 7,248,531 4,445,856 933,089 661,233 894,728 1,623,511 8,558,417 3,172,584 6,355 1,818,200 4,997,139 842,059

Appendix - Banking Key Indicators as of September 2005 100

 (in million Rp)
PRODUCTIVE ASSETS DEPOSITS

SECURITI CONTINU-
TOTAL OTHER
ES TO 3RD PLACEMENT ANCE
NO. BANK NAME CLAIMS
CREDITS PARTY ON OTHER INCLUSION COMMIT- TOTAL GIRO SAVINGS DEPOSITS TOTAL E QUIT
UITYY
ASSETS
AND BI BANKS TO
MENT TO
3RD PARTY
3RD PARTY

105 PT BANK UFJ INDONESIA 6,471,816 4,729,860 297,246 1,028,013 69,565 197,226 800,724 7,122,634 1,728,249 3,527 1,477,748 3,209,524 935,591
106 PT BANK SUMITOMO MITSUI INDONESIA 5,868,058 4,441,822 238,169 928,551 98,064 516,409 6,223,015 2,105,441 1,813,345 3,918,786 1,193,041
107 PT BANK COMMONWEALTH 5,328,015 858,326 1,592,902 2,452,943 64 15,594 60,071 4,979,900 252,260 168,059 3,865,810 4,286,129 175,945
108 PT ANZ PANIN BANK 3,971,633 2,326,326 1,255,100 127,803 605,148 4,314,377 768,029 1,965,325 2,733,354 759,657
109 PT BANK RESONA PERDANIA 3,568,041 2,856,742 207,116 261,112 40,281 165,403 379,980 3,910,634 892,088 1,067 991,492 1,884,647 893,699
110 PT BANK RABOBANK INTERNASIONAL INDONESIA 3,545,088 2,841,157 350,500 342,162 127,001 25,511 270,202 3,956,533 289,430 1,728,454 2,017,884 434,481
111 PT BANK CHINATRUST INDONESIA 3,303,954 2,710,021 147,862 182,103 174,766 327,095 3,541,847 628,971 65,724 1,214,426 1,909,121 706,839
112 PT BANK UOB INDONESIA 3,198,027 1,584,657 832,569 589,623 1,938 96,538 313,138 3,418,463 678,778 39,072 1,540,596 2,258,446 580,311
113 PT KOREA EXCHANGE BANK DANAMON 2,582,538 1,285,210 779,674 503,160 10,080 265,660 2,843,784 717,279 431,335 1,148,614 551,928
114 PT BANK WOORI INDONESIA 2,470,452 1,009,947 770,472 632,055 24,659 93,327 2,530,460 506,892 98,299 508,052 1,113,243 619,938
115 PT BANK OCBC-INDONESIA 2,082,328 999,792 489,133 433,297 137,211 103,679 2,163,112 210,297 561,690 771,987 387,633
116 PT BANK BNP PARIBAS INDONESIA 1,295,914 1,208,468 24,659 129,985 30,073 769,506 2,162,691 104,003 483,917 587,920 217,076
117 PT BANK FINCONESIA 987,920 803,589 173,931 37,032 38,855 77,680 1,131,087 33,049 464,611 497,660 208,200
118 PT BANK MULTICOR 618,083 329,431 135,433 84,850 3,887 54,752 608,353 103,654 17,736 332,076 453,466 149,661
119 PT BANK MAYBANK INDOCORP 381,040 101,961 179,251 71,409 11,085 363,706 81,941 119,423 201,364 167,367
120 PT. BANK CAPITAL INDONESIA 33,492 9,253 11,061 158 20,472 127 565 6,832 7,524 25,674
FOREIGN BANKS
121 CITIBANK N.A. 30,525,276 15,472,922 2,949,550 9,804,278 1,500 492,619 1,871,615 30,592,484 8,310,351 1,975,566 13,820,582 24,106,499 3,113,761
122 THE HONGKONG & SHANGHAI B.C. 27,729,636 12,476,206 3,966,125 9,024,484 2,170 979,888 3,131,838 29,580,711 8,428,842 11,832,497 20,261,339 491,019
123 STANDARD CHARTERED BANK 24,906,501 8,191,220 5,635,374 7,088,151 1,744,646 2,339,061 24,998,452 4,593,771 919,536 10,000,816 15,514,123 117,800
124 DEUTSCHE BANK AG. 21,641,560 4,774,671 7,861,391 7,407,325 37,659 122,683 1,092,793 21,296,522 3,310,375 9,738,901 13,049,276 729,101
125 ABN AMRO BANK 19,756,058 7,452,567 2,648,436 8,412,591 1,271 192,184 356,391 19,063,440 5,682,283 526,315 9,225,119 15,433,717 1,191,617
126 THE BANK OF TOKYO-MITSUBISH UFJ LTD. 13,854,801 9,372,623 718,565 3,324,266 149,273 1,395,209 14,959,936 3,996,649 2,714,364 6,711,013 2,908,674
127 JP. MORGAN CHASE BANK, N.A 4,379,423 2,215,827 260,918 1,772,138 66,159 207,898 4,522,940 504,534 2,197,850 2,702,384 1,763
128 AMERICAN EXPRESS BANK, LTD 3,844,044 1,655,671 49,737 1,587,982 69,021 42,453 3,404,864 505,879 24,516 2,784,705 3,315,100 56,654
129 THE BANGKOK BANK COMP. LTD 1,869,781 1,303,120 265,897 267,244 59,295 148,216 2,043,772 375,499 380,460 755,959 193,542
130 BANK OF CHINA LIMITED 690,461 45,218 145,724 484,408 169,311 844,661 129,737 3,331 65,469 198,537 -10,712
131 BANK OF AMERICA, N.A 418,712 17,205 85,845 283,072 32,087 418,209 270,403 51,711 322,114 679

Appendix - Banking Key Indicators as of September 2005 101

Appendix 4
Banking Key Financial Ratio as of September 2005 (Percent)
PPAP ttoo Compliance
NO BANK NAME
ME CAR NPL ROA BOPO LDR
ve Assets
Produktive
Produkti PPAP

STATE-OWNED BANKS
1 PT BANK MANDIRI (PERSERO) Tbk 23.66 14.27 6.29 103.12 1.05 88.05 55.20
2 PT BANK NEGARA INDONESIA (PERSERO),Tbk 16.05 14.44 4.52 100.45 1.71 84.37 56.54
3 PT BANK RAKYAT INDONESIA (PERSERO) Tbk. 16.11 5.13 5.30 172.77 4.62 72.51 80.64
4 PT BANK TABUNGAN NEGARA (PERSERO) Tbk. 16.51 1.92 2.62 238.22 1.59 86.11 80.03
5 PT BANK EKSPOR INDONESIA (PERSERO) 122.23 0.00 1.29 142.85 3.79 51.32 458.94
FOREX NATIONAL PRIVATE COMMERCIAL BANKS
6 PT BANK CENTRAL ASIA Tbk. 22.21 1.66 1.17 123.65 3.35 66.28 39.95
7 PT BANK DANAMON INDONESIA Tbk 25.18 2.20 1.97 117.17 4.08 66.17 82.35
8 PT BANK INTERNASIONAL INDONESIA Tbk 18.61 2.85 1.21 123.25 1.94 81.73 54.66
9 PT BANK NIAGA, Tbk 17.75 6.09 2.52 102.03 2.45 81.27 90.09
10 PT PAN INDONESIA BANK, Tbk 32.27 9.05 4.26 124.80 2.82 71.65 55.42
11 PT BANK PERMATA Tbk (d/h PT. BANK BALI ) 10.10 6.40 4.10 160.80 1.40 89.10 81.80
12 PT BANK LIPPO , Tbk 22.46 5.34 4.43 172.25 2.37 75.38 30.37
13 PT BANK MEGA, Tbk 11.95 1.10 0.74 100.00 1.80 83.30 52.15
14 PT BANK NISP, Tbk 14.08 2.26 1.16 100.65 0.85 93.05 80.60
15 PT BANK BUKOPIN 13.11 3.53 1.44 103.98 2.17 82.97 96.17
16 PT BANK BUANA INDONESIA Tbk. 19.77 1.84 1.06 107.73 3.36 70.86 82.42
17 PT BANK CENTURY Tbk.(BANK CIC-6.12.2004) 9.33 3.92 1.12 102.52 0.66 92.52 27.60
18 PT BANK EKONOMI RAHARJA 12.65 0.87 1.29 190.77 1.96 79.06 51.20
19 PT BANK ARTHA GRAHA INTERNASIONAL TBK 11.68 2.95 2.16 123.49 0.54 95.43 92.89
20 PT.BANK SYARIAH MANDIRI 10.80 6.26 2.53 100.66 2.38 81.84 101.16
21 PT BANK MUAMALAT INDONESIA 16.35 2.62 1.46 113.48 2.85 79.56 92.29
22 PT BANK BUMIPUTERA INDONESIA, Tbk 14.76 6.50 1.91 100.25 0.16 101.77 76.64
23 PT BANK MESTIKA DHARMA 21.14 2.53 2.83 263.82 7.91 46.69 113.49
24 PT BANK HAGA 8.89 2.59 2.16 100.00 1.62 85.03 65.69

Appendix - Core Banking Financial Ratios as of September 2005 102

 (Percent)
PPAP ttoo Compliance
NO BANK NAME
ME CAR NPL ROA BOPO LDR
Produkti ve Assets
Produktive PPAP

25 PT BANK MAYAPADA INTERNATIONAL, Tbk 14.43 1.96 1.95 133.24 0.97 92.30 86.54
26 PT. BANK NUSANTARA PARAHYANGAN TBK. 10.35 0.08 2.01 264.00 1.13 91.77 58.37
27 PT BANK MASPION INDONESIA 16.43 1.15 1.07 133.73 1.15 90.28 62.56
28 PT BANK KESAWAN, Tbk 11.58 8.17 2.06 108.42 0.16 98.79 54.23
29 PT BANK BUMI ARTA 28.64 3.15 2.23 184.07 1.32 89.69 55.29
30 PT BANK ARTA NIAGA KENCANA 18.26 2.24 0.92 100.00 1.25 89.80 71.83
31 PT BANK HAGAKITA 9.74 1.90 1.61 100.00 1.52 87.53 84.26
32 PT BANK GANESHA 17.41 5.26 2.27 114.35 0.78 94.53 75.80
33 PT BANK SWADESI, Tbk 23.17 3.66 3.16 122.20 2.05 81.33 65.54
34 PT BANK ANTAR DAERAH 14.94 0.84 1.60 139.44 1.11 91.32 85.86
35 PT BANK SHINTA INDONESIA 57.04 11.35 4.63 145.34 1.22 93.25 32.81
36 PT BANK IFI 30.15 4.73 0.86 37.97 -0.20 98.68 66.57
37 PT. BANK HALIM INDONESIA 60.03 1.53 2.09 308.95 2.50 80.75 84.61
38 PT BANK WINDU KENTJANA 15.55 1.75 1.20 137.70 0.07 106.20 59.57
39 PT BANK METRO EXPRESS 59.77 2.39 2.38 184.00 3.92 64.30 75.78
NON-FOREX NATIONAL PRIVATE COMMERCIAL BANKS
40 PT BANK TABUNGAN PENSIUNAN NASIONAL 21.59 1.08 2.65 92.27 5.78 72.49 92.61
41 PT BANK AGRONIAGA Tbk. 16.19 4.65 1.46 107.74 2.00 84.00 94.00
42 PT BANK JASA JAKARTA 17.44 0.59 4.07 348.21 2.95 71.98 86.23
43 PT BANK VICTORIA INTERNATIONAL, Tbk 23.08 6.63 4.74 483.57 1.64 87.54 40.75
44 PT BANK EKSEKUTIF INTERNASIONAL 10.50 10.66 2.96 100.63 -4.31 130.40 83.88
45 PT BANK YUDHA BHAKTI 17.68 2.52 1.79 155.59 3.04 78.96 57.97
46 PT BANK HARDA INTERNASIONAL 12.08 4.74 1.65 101.89 0.81 90.83 82.33
47 PT BANK HIMPUNAN SAUDARA 1906 12.29 0.49 1.25 103.70 1.97 89.00 83.30
48 PT BANK INDEX SELINDO 12.50 2.56 2.05 110.87 1.97 84.40 86.27
49 PT BANK PERSYARIKATAN INDONESIA 14.80 70.08 8.18 114.79 -8.14 316.74 29.39
50 PT BANK AKITA 12.91 2.41 0.74 100.05 2.49 90.09 91.60
51 PT BANK UIB 15.47 3.12 1.65 100.00 1.86 85.84 88.37
52 PT BANK DIPO INTERNATIONAL 16.56 4.18 1.97 145.81 4.35 69.18 102.81

Appendix - Core Banking Financial Ratios as of September 2005 103

 (Percent)
PPAP ttoo Compliance
NO BANK NAME
ME CAR NPL ROA BOPO LDR
Produkti ve Assets
Produktive PPAP

53 PT BANK SYARIAH MEGA INDONESIA 16.71 0.97 1.26 100.28 1.61 88.69 92.76
54 PT CENTRATAMA NASIONAL BANK 13.76 2.74 0.16 99.95 3.20 81.36 82.14
55 PT PRIMA MASTER BANK 12.77 0.64 0.98 140.50 1.02 92.07 92.40
56 PT BANK MULTI ARTA SENTOSA (MAS) 19.95 2.38 1.54 112.73 1.70 85.44 90.59
57 PT BANK KESEJAHTERAAN EKONOMI 32.21 3.07 3.13 105.38 6.58 65.91 144.59
58 PT BANK INDOMONEX 10.80 3.33 1.22 111.17 1.00 94.40 83.20
59 PT BANK DJASA ARTA 12.98 3.20 2.81 133.45 0.39 96.48 69.81
60 PT BANK FAMA INTERNASIONAL 14.85 2.32 2.10 101.41 2.18 83.41 91.92
61 PT BANK SRI PARTHA 19.70 5.96 2.44 166.64 0.29 99.62 70.05
62 PT BANK MITRANIAGA 19.46 2.55 0.86 131.66 1.00 93.39 63.73
63 PT BANK INA PERDANA 24.56 3.15 1.48 106.42 1.82 86.77 92.60
64 PT BANK MAYORA 19.97 2.45 2.05 276.24 1.28 93.59 50.73
65 PT ANGLOMAS INTERNASIONAL BANK 12.00 3.00 1.00 101.00 2.00 91.00 98.00
66 PT BANK BINTANG MANUNGGAL 18.78 0.65 2.15 106.02 2.82 79.47 89.41
67 PT BANK ARTOS INDONESIA 18.20 0.82 0.94 105.71 0.46 97.82 92.73
68 PT BANK SINAR HARAPAN BALI 14.71 0.82 1.94 105.90 1.85 89.39 98.30
69 PT BANK HARFA 16.77 2.07 1.00 121.62 13.09 42.55 87.19
70 PT BANK HARMONI INTERNATIONAL 19.97 1.47 1.73 150.75 1.82 89.58 84.22
71 PT LIMAN INTERNATIONAL BANK 81.64 3.36 1.34 164.08 2.88 78.19 75.93
72 PT BANK BISNIS INTERNASIONAL 30.33 3.36 1.20 153.00 0.75 97.16 82.97
73 PT BANK ROYAL INDONESIA 49.76 0.46 0.61 115.41 0.11 95.16 22.10
74 PT BANK PURBA DANARTA 214.56 4.16 3.00 317.10 2.18 82.22 22.03
75 PT BANK SWAGUNA 151.37 32.57 11.56 63.87 -2.94 127.61 89.58
76 PT BANK ALFINDO 111.61 0.00 0.38 100.00 -2.53 133.25 63.66
RURAL DEVELOPMENT BANKS (BPD)
77 PT BPD JAWA BARAT 14.34 0.41 1.32 108.91 3.82 71.85 83.66
78 PT. BPD JAWA TIMUR 21.48 1.25 1.61 165.49 4.31 67.41 45.23
79 PT. BANK DKI 17.30 4.34 1.87 123.74 1.58 87.71 39.18
80 PT BPD JAWA TENGAH 14.74 1.08 1.55 115.20 4.90 66.95 65.82

Appendix - Core Banking Financial Ratios as of September 2005 104

 (Percent)
PPAP ttoo Compliance
NO BANK NAME
ME CAR NPL ROA BOPO LDR
Produkti ve Assets
Produktive PPAP

81 PT BPD RIAU 21.62 4.14 1.05 100.00 2.64 70.62 25.76

82 PT. BANK ACEH 18.10 4.31 1.21 105.75 2.26 74.65 32.44
83 BPD KALIMANTAN TIMUR 28.02 3.20 0.95 100.12 4.10 57.92 36.16
84 PT. BPD SUMATERA UTARA 30.05 3.18 1.59 111.53 3.52 79.64 53.76
85 PT. BPD BALI 19.14 1.13 1.63 117.56 5.87 60.96 87.36
86 PT BPD SUMATERA SELATAN 14.54 4.13 2.53 158.97 1.87 86.34 59.57
87 BPD SUMATERA BARAT 16.21 6.00 2.98 109.61 4.34 69.98 91.44
88 PT BPD SULAWESI SELATAN 23.16 2.75 2.11 112.68 6.28 56.28 68.95
89 PT. BPD PAPUA 26.89 3.81 3.06 109.55 4.18 70.49 44.33
90 PT. BPD KALIMANTAN BARAT 16.39 1.64 1.67 116.45 3.67 73.03 53.57
91 BPD YOGYAKARTA 15.05 1.08 1.43 107.74 4.12 72.56 69.15
92 BPD KALIMANTAN SELATAN 19.43 3.17 1.77 105.54 3.72 71.44 46.77
93 PT. BPD NUSA TENGGARA BARAT 14.61 0.88 1.61 100.00 4.58 77.48 100.99
94 PT BANK KALTENG 16.30 4.79 1.97 129.45 2.46 70.44 38.86
95 PT. BPD SULAWESI UTARA 16.24 1.83 1.97 82.37 7.88 63.62 72.51
96 PT. BANK LAMPUNG 12.61 1.67 2.04 100.65 3.36 77.78 70.02
97 PT. BPD NUSA TENGGARA TIMUR 15.25 0.69 1.52 101.47 5.72 60.25 83.41
98 PT. BPD MALUKU 21.26 5.42 2.84 100.00 0.34 97.67 54.13
99 BPD JAMBI 24.89 1.23 1.68 111.20 5.34 59.64 67.18
100 PT. BPD BENGKULU 10.01 1.99 1.77 96.37 3.94 72.13 85.39
101 BPD SULAWESI TENGGARA 28.03 4.44 2.73 100.21 7.71 54.93 66.19
102 PT. BPD SULAWESI TENGAH 11.92 8.89 2.40 136.71 1.72 81.88 44.34
BANK CAMPURAN
103 PT BANK DBS INDONESIA 23.34 0.51 1.05 107.67 2.95 82.54 96.65
104 PT BANK MIZUHO INDONESIA 18.53 0.74 2.33 209.32 2.48 63.02 88.97
105 PT BANK UFJ INDONESIA 19.76 0.44 2.45 169.8 4.18 56.96 147.37
106 PT BANK SUMITOMO MITSUI INDONESIA 44.21 2.21 3.91 100.00 3.34 53.81 113.25
107 PT BANK COMMONWEALTH 10.71 0.07 0.66 100.06 -0.46 106.07 16.90
108 PT ANZ PANIN BANK 17.88 4.06 1.96 101.06 5.25 70.36 85.11

Appendix - Core Banking Financial Ratios as of September 2005 105

 (Percent)
PPAP ttoo Compliance
NO BANK NAME
ME CAR NPL ROA BOPO LDR
Produkti ve Assets
Produktive PPAP

109 PT BANK RESONA PERDANIA 23.78 8.76 7.20 154.38 2.40 77.76 151.58
110 PT BANK RABOBANK INTERNASIONAL INDONESIA 20.62 4.67 7.35 102.15 4.44 58.29 140.80
111 PT BANK CHINATRUST INDONESIA 18.75 2.05 2.28 103.78 5.85 60.43 141.96
112 PT BANK UOB INDONESIA 39.93 1.36 3.25 103.45 3.94 59.71 70.17
113 PT KOREA EXCHANGE BANK DANAMON 42.37 2.84 0.07 124.6 6.48 29.54 111.89
114 PT BANK WOORI INDONESIA 79.55 4.24 2.00 161.09 6.14 32.11 90.41
115 PT BANK OCBC-INDONESIA 51.15 7.30 3.11 104.73 2.37 69.02 129.51
116 PT BANK BNP PARIBAS INDONESIA 21.83 10.43 7.13 140.33 3.02 117.38 205.55
117 PT BANK FINCONESIA 32.21 10.63 10.31 119.78 1.03 90.08 161.47
118 PT BANK MULTICOR 43.81 0.20 1.87 172.63 3.53 71.15 72.63
119 PT BANK MAYBANK INDOCORP 111.82 4.92 1.81 96.46 7.76 67.19 50.64
120 PT. BANK CAPITAL INDONESIA 107.30 0.00 1.32 131.71 -12.67 230.12 122.98
FOREIGN BANKS
121 CITIBANK N.A. 14.08 0.00 3.90 127.45 5.65 65.82 64.19
122 THE HONGKONG & SHANGHAI B.C. 17.82 1.00 2.00 124.00 4.00 58.00 62.00
123 STANDARD CHARTERED BANK 10.76 1.61 2.32 123.59 4.36 72.33 52.80
124 DEUTSCHE BANK AG. 16.80 11.47 3.19 103.24 -4.06 153.38 36.59
125 ABN AMRO BANK 17.31 1.50 2.40 100.56 3.21 68.22 48.29
126 THE BANK OF TOKYO-MITSUBISH UFJ LTD. 45.21 0.43 1.37 100.59 2.17 70.90 139.66
127 JP. MORGAN CHASE BANK, N.A 20.48 0.14 1.87 162.40 -0.02 121.97 82.00
128 AMERICAN EXPRESS BANK, LTD 19.15 0.46 1.16 100.02 -0.61 104.65 49.94
129 THE BANGKOK BANK COMP. LTD 46.59 9.58 5.11 94.35 4.33 61.02 172.38
130 BANK OF CHINA LIMITED 178.40 0.00 0.91 100.06 0.32 79.88 22.78
131 BANK OF AMERICA, N.A 81.00 0.00 1.00 105.00 2.00 79.00 5.00

Appendix - Core Banking Financial Ratios as of September 2005 106