Indonesia: Financial Sector Assessment Program-Detailed Assessment of Observance-Basel Core Principles for Effective Banking Supervision
IMF Staff Country Reports, August 13, 2024
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- Indonesia: Financial Sector Assessment Program-Detailed Assessment of Observance-Basel Core Principles for Effective Banking Supervision
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Bibliographic details
- Published: August 13, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400286216.002
Executive summary and main findings
- The paper presents a Detailed Assessment of Observance of the Basel Core Principles for Effective Banking Supervision for the Indonesia Financial Sector Assessment Program.
- The Financial Services Authority (OJK) achieves good baseline supervision; building supervisory capacity and enhancing the supervisory framework will contribute to achieving higher supervision standards.
- It is crucial for legislation to recognize the safety and soundness of banks and the banking sector as the OJK’s primary responsibility, given its broader mandates.
- The OJK is encouraged to continue to examine banks’ evolving business models to identify changing risk profiles early.
- There is further scope for the OJK to dedicate more attention to assessing a bank’s risk culture, model governance and stress testing.
- There is scope for more analysis of models, model governance, model validation, and the role of the independent risk management unit to verify and validate the results.
- Material enhancements are needed to effectively mitigate the risks associated with related party transactions and potential sources of concentration risk.
- While the OJK has broad powers for corrective measures, a portfolio view of noncompliance with regulations will help address early unsafe and unsound practices.
Policy recommendations and supervisory priorities
- Strengthen legislative recognition that the OJK’s primary responsibility includes the safety and soundness of banks and the banking sector.
- Build supervisory capacity and enhance supervisory frameworks to move beyond good baseline supervision toward higher standards.
- Increase supervisory focus on:
- Evolving bank business models to detect changing risk profiles early.
- Assessment of bank risk culture.
- Model governance, model validation, and analysis of models.
- Stress testing practices and the role of independent risk management units in verification and validation.
- Implement material enhancements to mitigate risks from related party transactions and sources of concentration risk.
- Use a portfolio view of noncompliance with regulations to detect and address early unsafe and unsound practices despite broad corrective powers.
Subject coverage and keywords
- Subject: Anti-money laundering and combating the financing of terrorism (AML/CFT), Bank supervision, Credit risk, Crime, Financial regulation and supervision, Financial sector policy and analysis, Financial sector stability, Market risk
- Keywords: Anti-money laundering and combating the financing of terrorism (AML/CFT), bank Indonesia rupiah securities, bank rating, Bank supervision, banking segment, Credit risk, Financial sector stability, Global, IMF-World Bank Financial Sector Assessment Program, Market risk, staff team of the International Monetary Fund
Publication metadata and access
- Publication date: August 13, 2024
- Series: Country Report No. 2024/273
- Volume: 2024
- Issue: 273
- Pages: 238
- DOI: https://doi.org/10.5089/9798400286216.002
- ISBN: 9798400286216
- ISSN: 1934-7685
International Monetary Fund. Monetary and Capital Markets Department "Indonesia: Financial Sector Assessment Program-Detailed Assessment of Observance-Basel Core Principles for Effective Banking Supervision", IMF Staff Country Reports 2024, 273 (2024).
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