bsr

The Banking Supervision Report

December 2004
Vision :
“To be recognized, domestically and internationally, as a
credible central bank through the strength of our values and
achievement of low, stable rates of inflation”

Mission :
“To achieve and maintain price stability by maintaining
monetary stability and by promoting financial system stability
for Indonesia’s long term sustainable development”

Strategic Values of Bank Indonesia :

“Competence, Accountability, Integrity, Cohesiveness,
Transparency”

ii
Table of Contents
Foreword v
Chapter 1 Overview of the Banking System 3
Development of a Commercial Bank Network 3
Conventional Commercial Bank 3
Sharia Commercial Bank 3
The Share of Major Banks 4
The Composition of Commercial Bank Ownership 4
The Development of Rural Bank Network 5
Chapter 2 Banking Regulation and Policy 9
Banking Supervision Policy 9
Post-crisis Banking Recovery Programme 9
Improvement of Banking Supervision Effectiveness 9
The Importance of Good Governance 12
Banking Regulation in 2004 13
Human Resource Development 15
Objective 15
Training Programme 2004 15
Direction of Banking Supervision Policy 16
Chapter 3 Bank Supervision 21
Off-site Supervision 21
Supervision Cycle 21
Objective and Strategy of Banking Supervision 22
Supervision Activities 22
Constraints to Bank Supervision 25
Improvements in the Effectiveness of Bank
Supervision 26
On-site Examination 27
Target and Focus of Bank Examination 27
Risk-based Bank Examination at a Glance 27
The Implications of Risk-based Examination 28
Plan and Realization of Bank Examination 28
Results of the Examination 28
Improvements in the Effectiveness of Bank
Examination 29
Information System and Bank Licensing 30
Bank Information System 30
Licensing, Management and Ownership of Commer-
cial Bank 32
Investigation of Banking Cases 32
Chapter 4 The Development of the Banking
Industry 37
Commercial Bank 37
Overview 37
Liquidity and the Role of Banking Intermediation 37
Loan Quality and Capital Adequacy 38
Sharia Bank 38
Rural Bank 39
Chapter 5 Sharia Banking: Policy and Supervision
The Development Policy 43
Policy and Regulation 44
Supervision and Examination 44
Licensing 45
Policy Direction – 2005 46
Chapter 6 Rural Banks: Policy and Supervision 51
Development Policy and Regulation 51
Improvements in the Regulation and Supervision
System 52
Capacity Building and Institution 52
Development of Regulations 54
Supervision and Examination 56
Licensing 56
iii
List of Boxes
Chapter 2
Box 1 Core Principles for Effective Banking Supervision 4.1 Key Banking Indicators 37
10 4.2 The Composition of Sharia Banks’ Funding 38
Box 2 Post-crisis Banking Restructuring Program 11 4.3 Key Indicators of Sharia Banks 39
Box 3 The Importance of Good Governance 12 4.4 Sharia Inter-bank Market and Bank Indonesia
Box 4 Certification Program for Bank Supervisors and Sharia Certificate 39
Examiners 16 4.5 Key Indicators of Rural Banks 39
Box 5 Financial Safety Net 17
Box 6 Implementation of Indonesian Banking 6.1 Plan and Realization of rural bank examination 56
Architecture (IBA) 17

Chapter 3
Figures
Box 1 Problem Banks and Supervision Policy 25
Box 2 On-site Supervisory Presence (OSP) 26
1.1 The Trend of the Number of Commercial
Box 3 The Bank Negara Indonesia (BNI) Case 29
Banks 3
Box 4 The Liquidation of Asiatic Bank and Bank
1.2 Share of the Major Banks 4
Dagang Bali 30
1.3 The Composition of Commercial Bank
Ownership 4
Chapter 5
Box 1 Challenges and Policies of Sharia Banking 46
3.1 Risk-based Supervisory Cycle 21
Chapter 6
Box 1 Professional Certification Program for Rural 4.1 Capital Adequacy Ratio (CAR) Trend 38
Banks (CERTIF) 53

List of Appendices
List of Tables and Figures Appendix 1
Core Principles for Effective Banking Supervision
Appendix 2
Tables Banking Key Indicators
Appendix 3
1.1 Sharia Banking Office Network 4
Key Financial Ratios
1.2 Rural Banks’ Office Network 5
Appendix 4

2.1 Training Programmes in 2004 16 Organization Chart of Bank Indonesia’s Banking Sector
Appendix 5
3.1 Supervisory and Bank Corrective Actions 23 List of Acronyms
3.2 The Interviews for Controlling Shareholders and
Management 32
3.3 Investigation Results 33

iv
 Foreword

With all praise to God Almighty, for His guidance and blessing, this Banking Supervisory Report (BSR) has
been completed as part of the transparency and accountability of Bank Indonesia as the supervisory authority
to the stakeholders and the public. Our appreciation goes to those who have contributed in the preparation
of this report.

Previously, information and policies relating to banking supervision were published by Bank Indonesia in
various reports, namely, Development of Monetar y, Payment System and Banking System (quarterly), Fi-
nancial Stability Review (bi-annually), and Economic Report on Indonesia (annually). However , Bank Indo-
nesia currently publishes an annual banking supervision report to provide more comprehensive information
on the development of polices and regulations, as well as the activities of Bank Indonesia with regard to bank
supervision.

The report comprises of four main aspects, namely: (i) the structure of the banking industry; (ii) the
activities of Bank Indonesia as the supervisory authority: licensing, regulation, off-site supervision, on-site
examination, on-site supervisory presence (OSP), banking investigation, and liquidation; (iii) the development
of banking policies and regulations; (iv) the development of the banking industry, including commercial banks
and rural banks (BPR); and (v) relevant issues in banking supervision.

In addition to micro prudential supervision Bank Indonesia has also has placed more emphasis on macro
prudential supervision through research and surveillance, and developing financial safety nets to maintain
financial system stability.

In 2004, the banking system was relatively stable, despite the fact that there were a number of fraud
cases and the closure of two small failed banks due to poor governance. In general, the performance of the
banking industry is improving, which is supported by adequate liquidity and capital.

Bank Indonesia is continuing to improve the effectiveness of banking supervision in line with interna-
tional standards, especially the Basel Core Principles, among others, through the development of forward
looking and risk-based supervisory approach. The challenge confronted by the banking industry and Bank
Indonesia is becoming more complicated in line with the development of domestic and international economy.

v
In the creation of a sound, efficient and competitive banking system, Bank Indonesia has formulated and
implemented Indonesian Banking Architecture as a basis for the development of the banking industry and
supervision in the future.

We hope that this report can provide valuable information for stakeholders and the general public.

Jakarta, March 2005

Maman H. Somantri

vi
Chapter 1
Overview of the Banking
System

Chapter 1 Overview of the Banking System 1

2 Chapter 1 Overview of the Banking System
Chapter 1
Overview of the Banking System

Institutionally, the banking system in Indonesia
consists of commercial banks and rural banks. The basic
distinction between the two types of banks is in their
roles in the payment system. Commercial banks can
provide demand deposit accounts, whereas rural banks
cannot. Other aspects that distinguish them are capital
requirements and the location for running their
operations. From the nature of its operation, the banking
system is divided into conventional banks and Sharia
banks.
1. DEVELOPMENT OF A COMMERCIAL BANK
NETWORK
Conventional Commercial Bank
Conventional commercial banks have evolved in line
with various banking policies, especially banking
deregulation policy that was stated in the October
Package, 1988. By the end of December 1988, there were
only 111 commercial banks with 1,957 offices. The
quantity of commercial banks reached a peak at the end
8000
6500
5000
of 1996, with 239 banks and 7,314 offices. The growth
of commercial banks was dominated by the establishment
of new commercial banks during the period of 1988-
1996.
During 1997 and up until December 2002, the
number of conventional commercial banks decreased due
to the closure of 18 banks that were liquidated by the
government (including East Timor Regional Development
Bank), ten banks had their operations frozen, 42 had their
business activities frozen , 28 banks merged and two banks
closed of their own initiative (self-liquidation).
For the past two years, there has been a decrease
in the number of banks, from 141 in December 2002 to
133 in December 2004. This is due to the self-liquidation
of three joint-venture banks, namely: Agricole Indosuez,
Bank Societe Generale Indonesia and Bank Merincorp;
the merger of two joint-venture banks (Bank Keppel Tat
Lee Buana and Bank OCBC, became Bank OCBC
Indonesia) and the issuance of a license for the
establishment of one foreign bank (Bank of China). In
2004, there was another self-liquidation of one joint-
venture bank (ING Bank), three banks merged (Bank Pikko,
250
Bank CIC and Bank Danpac, became Bank Century) and
225
two private national banks (Bank Asiatic and Bank Dagang
200
Bali) were liquidated.
175

150
3500 Sharia Commercial Bank
125
Number of Offices (left) Number of Bank (right) In 2004, the number of Sharia Banks increased to
2000 100
1988 1996 1997 1998 1999 2000 2001 2002 2003 2004
three commercial sharia banks, 15 Sharia Business Units
Period Before Crisis (1988-1997) dan Post-Crisis (1998-August 2004)
and 88 Sharia Rural Banks. This was caused by the
Figure 1.1
The Trend of the Number of Commercial Banks conversion of one Conventional Commercial Bank (Bank
Tugu) into a Commercial Sharia Bank, namely Bank Sharia

Chapter 1 Overview of the Banking System 3

Mega Indonesia and the establishment of seven Sharia
Business Units from conventional commercial banks,
which consist of five regional development banks and
two private national banks1. In addition, operational
licenses have also been issued for five Sharia Rural Banks
(BPRS)2. The network of Sharia bank offices has grown
significantly. In 2004, the number of offices3 reached 96,
as shown in Table 1.1.
3. THE COMPOSITION OF COMMERCIAL BANK
OWNERSHIP
From an ownership standpoint, conventional
commercial banks in Indonesia can be divided into five
categories: State-owned Banks, Private Banks (foreign-
exchange and non foreign-exchange 4 ), Regional
Development Banks (provincial state-owned), Joint-venture
Banks (shared ownership between private national and

Table 1.1 foreign banks), and Foreign Banks. Bank Indonesia

Sharia Banking Office Network maintains a standard supervision policy for all banks.
Banking Group 2000 2001 2002 2003 2004

Sharia Commercial Banks 2 2 2 2 3

Sharia Business Unit 3 3 6 8 15 December 1997
Number of Offices 62 96 127 253 355
Foreign Banks
Sharia Rural Banks 78 81 83 84 88 8.80% Government
33.68%
TOTAL 140 177 210 337 443

2. THE SHARE OF MAJOR BANKS

The Indonesian banking industry is dominated by 15 National Private Banks
57.52%
major banks, which have reached 74% market
segmentation of the banking industry’s total assets. In
June 2004
relation to this, Bank Indonesia has located an On-site
Foreign Bank Government
Supervisory Presence Team (OSP) in each bank to assure 31.14% 28.80%

effectiveness in supervising these major banks.

Trillions of Rp
1.000 National Private Banks
15 Major banks 40.06%
Other banks
800

Figure 1.3
600
The Composition of Commercial Bank Ownership
400

200
Before the 1997 economic crisis, foreign ownership
-
Assets DPK Credit in conventional commercial banks was only 8.80% of the

Figure 1.2 total deposited capital. In line with the recovery efforts for
Share of the Major Banks
the Indonesian banking system carried out by the
Indonesian Bank Restructuring Agency through the
1 Bank DKI, BPD Riau, BPD Kalsel, BPD Sumut, BPD Aceh, Bank Niaga and Bank Permata.
2 BPRS Situbondo, BPRS Tenggamus, BPRS Buana Mitra Perwira, BPRS Artha Surya Barokah
and BPRS Bhakti Sumekar
3 Including cash service and sub-branch office 4 Bank has no activity in foreign exchange transaction

4 Chapter 1 Overview of the Banking System

divesture of several banks, foreign ownership increased
to 31.14%. Meanwhile, the decrease in government
ownership from 33.68% in 1997 to 28.80% in June 2004
was not supported by the increase in private national
ownership.
4. THE DEVELOPMENT OF RURAL BANK
NETWORK
The number of rural banks as per the end of the
third quarter of 2004 reached 2 162, not including the
two liquidated banks. Of the 2,162 banks, 89 operated
under a Sharia system.
From a legal status standpoint, there are 1,338 rural
banks in the form of a limited enterprise (62%), 767 rural
banks in the form of a district enterprise (35%) and 57 in
the form of a cooperative enterprise (3%).
Rural banks are not evenly distributed throughout
Indonesia. Eighty-five percent (2,935) of the total number
of rural bank offices in Indonesia (3,454) are concentrated
on Java and Bali by reason of high population density and
economic activity. This concentration has declined by 1.5%
compared to the status at the end of December 2003,
with the establishment of several rural bank offices in
Sumatra, Sulawesi, Kalimantan and Ambon. It is the
intention of Bank Indonesia to spread the establishment
of rural banks outside Java and Bali to encourage equal
economic development throughout Indonesia. This has
been supported by prospective investors who realize the
economic potential of these regions, creating more
demand to establish new rural banks in Sumatera,
Sulawesi, Kalimantan and even Jayapura.
Compared to the end of June 2004, the number of
rural banks has increased by ten, including one Sharia
rural bank. This is because the government has approved
new licensing for offices in Bank Indonesia Branch Office
(BIBO) Solo, Pekanbaru and Semarang along with two
rural banks in each region, one rural bank for each central
district office in BIBO Ambon and Kediri, and in BIBO
Surabaya, one conventional rural bank was converted into
a sharia rural bank. Two problem rural banks, namely, PD
BPR BKK Randublatung and Koperasi BPR Karyawan
Swantara, which did not participate in the Government
Guarantee Program, had their business license
withdrawn.

Table 1.2
Rural Banks Office Network

2004
Description 1997 1998 1999 2000 2001 2002 2003
Q1 Q2 Q3

Central 2,140 2,262 2,427 2,419 2,355 2,141 2,141 2,148 2,157 2,164
Branch 48 56 57 62 76 138 140 141 139 136
Cash Service 1 1 1 1 1 468 1,018 1,019 1,146 1,154
Total 2,189 2,319 2,485 2,482 2,432 2,747 3,299 3,308 3,442 3,454

Chapter 1 Overview of the Banking System 5

Chapter 2
Banking Regulation
and Policy

Chapter 2 Banking Regulation and Policy 7

8 Chapter 2 Banking Regulation and Policy
Chapter 2
Banking Regulation and Policy
Banks have a strategic role in a nation’s economy;
they serve as financial intermediaries and provide liquidity
and other financial services to the public. Banks also serve
as a transmission tool in monetary policy. A good banking
system, which dominates the overall financial system, has
to be maintained to accomplish a stable financial and
monetary system. In pursuit of this, banks have to be
managed in a prudent and professional way to avoid any
systemic risk to financial stability. For that reason, banks
need to be supervised and managed according to
international standards.
1. BANKING SUPERVISION POLICY
Bank Indonesia is responsible to supervise banks
according to prevailing regulations1 and international
standards, namely the Basel Core Principles for Effective
Banking Supervision. A summary of the principles is shown
in Box 1, and the complete translation is given in the
Appendix 1.
Banking supervision has three main purposes: (i) to
create and maintain a sound and stable banking system;
(ii) to protect the customers; and (iii) to increase market
confidence. Bank supervision includes different activities:
licensing, regulation and supervision (on-site examination
and off-site supervision), as well as the liquidation of
problem banks, which are unfeasible based on legitimate
standards.
Bank supervisors monitor banks’ operations based
on submitted periodical reports and/or by general or special
inspections. In general, problems faced by banks can be
1 Act No.13 of 1999 as was amended with Act No. 3 of 2004
detected at an early stage by supervisors if banks report
their financial conditions accurately and transparently. In
some cases, banks purposively try to cover their problems
making it difficult for supervisors to identify the problems
early enough. This makes any follow-up actions ineffective.
On-site inspection could reveal a bank’s problems more
accurately, however, these inspections are only carried out
once a year unless there is an indication of deviation.
Post-crisis Banking Recovery Program
To overcome the currency and banking crisis of 1997,
the government and Bank Indonesia implemented a bank
restructuring program in 1998. It is anticipated that the
program will help rejuvenate the banking system to be
more sound, efficient and competitive, based on
international standards.
Banking restructuring is carried out through two main
programs: (i) a banking recovery program consisting of a
blanket guarantee program, a recapitalization and loan
restructuring program; and (ii) banking system
strengthening program including the improvement of
banking infrastructure, the implementation of good
corporate governance, and improvements in banking
supervision and regulation (see Box 2).
Improvement of Banking Supervision Effective-
ness
Up until now, Bank Indonesia has focused its efforts
towards performing its main task of banking supervision.
Before the crisis, it has been admitted that there were some
weaknesses in the banking supervision system. During the
post-crisis period however, Bank Indonesia has committed
Chapter 2 Banking Regulation and Policy 9
 Box 1 Core Principles for Effective Banking Supervision
In September 1997, The Basel Committee succeeded
in formulating the Core Principles for Effective Banking
Supervision. These principles contain 25 minimum
requirements for an effective supervision system. The
principles (listed in the appendix) can be summarized in seven
main points:
1. Preconditions for effective banking supervision.
The first principle stresses the necessity of a target
framework and transparent, attainable and consistent
liability for all institutes involved in banking supervision.
This principle shows the necessity of a legal framework
to supervise banks and information exchange among
respective institutions.
2. Licensing and structure. (Principles no. 1-5).
These principles focus on the process of licensing,
ownership and the business coverage of banks and
related banking groups. The supervision system has to
be based on a banking licensing system to identify the
institutions to be monitored, especially on the use of
the word BANK in running their businesses, which needs
to be limited to avoid confusion amongst the public.
The licensing system has to include basic assessment
covering aspects of: ownership, management and the
operational scheme. Supervisors have to be able to
review the acquisition of a bank.
3. Prudential regulations and requirements (Principles no.
6-15).
These principles stress the need to identify different types
of risk encountered by banks and methods to ensure
that these risks are well monitored and controlled. The
development and maintenance of prudential guidance
is an integral part of the process. This guidance has to
cover capital adequacy, loan loss reserve, asset
concentration, liquidity, risk management and internal
to increase the effectiveness of bank supervision through
comprehensive programs, namely the Bank Indonesia
Master Plan. Bank Indonesia has already achieved
significant progress, including compliance to the Basel Core
Principles.
In line with the changes in the environment, the
supervision approach adopted by Bank Indonesia is always
evolving. Before the 1997 crisis, banking supervision
10 Chapter 2 Banking Regulation and Policy
control that can be either quantitative or qualitative.
Internal control has to cover procedures intended to
prevent crime in banks.
4. Methods of ongoing bank supervision (Principles no.
16-20).
These principles state that both on-site and off-site
supervision needs to be undertaken. Off-site supervision
includes analyses of the reports and conditions of a bank
and the affiliated entity based on consolidation as well
as individually. The importance of both independent data
validation and the need to interact with bank
management to ensure a bank’s operations are fully
understood is stressed here.
5. Information requirements (Principle no. 21).
Each bank has to maintain an appropriate record
generated from consistent accounting policy to enable
the supervisor to obtain objective understanding on the
financial condition and profitability of the bank. Each
bank also has to issue periodic financial reports
describing their conditions objectively.
6. Formal authority of supervisor (Principle no. 22).
The supervisor has appropriate authority to take
corrective actions if a bank fails to fulfil prudential
standards, or if the importance of a depositor is
threatened.
7. Cross-border banking (Principles no. 23-25).
These principles evaluate the role of home and host
supervisors and stress the need for consolidated
supervision and the authority to exchange information
with other supervisory authorities.
Source: Bank for International Settlements, The Basel
Committee on Banking Supervision, The Core Principles
for Effective Banking Supervision, September 1997.
emphasized compliance to the regulations issued. With
this approach, supervision became predominantly focused
on the extent of deviation from Bank Indonesia’s
regulations.
Since 1998, Bank Indonesia has been developing a
risk-based banking supervision system, which is more
future-oriented. With this approach, banking supervision
is more focused on identifying, reviewing and controlling
 Box 2 Post-crisis Banking Restructuring Program
To facilitate the recovery of the banking sector from
systemic crisis in 1997, the government and Bank Indonesia
executed the banking restructuring program with two main
agendas: (i) banking recovery; and (ii) banking system
strengthening.
A. Banking Restructuring
a. Government guarantee – issued to regain public
confidence, including all claims against bank liabilities
with IBRA (Indonesian Bank Restructuring Agency). The
government guarantee program will be superseded by
a deposit insurance scheme with limited coverage. With
the closure of IBRA, the implementation of the
government guarantee program is now administered
by Government Guarantee Program Unit.
b. Recapitalization – aimed at strengthening bank capital.
This program began with financial review and bank
classification: solvent or insolvent, followed by
recapitalization with the issuance of government bonds
as a replacement for the non-performing loans that were
transferred to IBRA. This recapitalization program was
completed in 2000.
c. Loan Restructuring – initially it was undertaken by three
institutions, namely: IBRA, Indonesian Debt
Restructuring Agency (INDRA) and Jakarta Initiative Task
Force (JITF) as an attempt to expedite the loan
restructuring process, and establish a task force as a
facilitator of the loan restructuring process. After the
closure of the three institutions, loan restructuring was
continued by each bank. Some of the constraints
encountered were some difficulties in settling the loans
syndicate and the group of debtors as well as the poor
legal framework. Bank Indonesia set the NPL indicative
target at a maximum of 5% as of June 2003 to force
banks to improve their loan quality.
the risk banks may encounter in their operations.
However, compliance to prevailing regulations is still
important.
The banking supervision effectiveness improvement
program is continuing and will become more integrated
and optimized through the implementation of Indonesian
Banking Architecture . Implementation of risk-based bank
B. Banking System Strengthening
a. Improvement of banking infrastructure – undertaken
by the establishment of the Deposit Insurance Company,
Indonesian Banking Architecture implementation, the
development of a financial system stability framework
and the development of sharia banking and rural
banking, including the blueprint. As part of a financial
safety net, the Governor of Bank Indonesia and the
Minister of Finance signed a Memorandum of
Understanding on Emergency Liquidity Assistance (ELA),
which defined the basic principles and decision-making
procedures on ELA, problem banks that have systemic
impact, and funding resources of ELA.
b. The implementation of good governance – implemented
through the establishment of the National Committee
on Corporate Governance to formulate and recommend
national policy. Corporate governance is expected to
enhance banking transparency, and the competency and
integrity of bankers through fit and proper tests. In
addition, bank compliance is improved by assigning a
compliance director. Bank Indonesia has also formed a
Special Unit for Banking Investigation to follow-up
banking violations and indications of crime.
c. Improving the effectiveness of banking regulation and
supervision - This initiative covers the enhancement of
bank transparency, exit policy and supervision
effectiveness according to Basel Core Principles. The
activities include the adoption of risk-based supervision
and consolidated supervision, and the placement of on-
site supervisory presence teams in 13 major banks to
analyze and monitor risks. Banking regulations that have
been issued are: implementation of risk management,
incorporating market risk in the bank capital calculation,
fit and proper tests for controlling shareholders and bank
management, and bank transparency.
supervision will be synchronized with the improvement
of risk management in the banking industry.
The enhancement of the above-mentioned system
is necessary based on one basic principle; no matter how
good supervision is, it cannot guarantee against all future
bank failures given that it is the management of a bank
who is ultimately responsible for its performance. Based
Chapter 2 Banking Regulation and Policy 11
on empirical studies and experience from other countries,
resolving problem banks using open bank resolution is
ineffective and creates moral hazards. Problem banks
without systemic impact need to be resolved by prioritizing
private sector solutions, such as capital injection from
shareholders and/or merger with other banks. If this is
unsuccessful the bank has to be liquidated.
It would be an exaggeration if the failure of one bank
is viewed as a failure of the supervisory authority in carrying
out it its task effectively. Furthermore, it is necessary to
develop partnership and discipline among market players
to act responsibly. Surely this is still the challenge.
The Importance of Good Governance
The bank’s management is responsible for adopting
good governance, effective risk-management systems and
adequate internal control to ensure that a bank is well
managed and in line with prudential principles.

Box 3 The Importance of Good Governance

Good governance is the core for sound banking
management. Each key player in the bank industry should
act responsibly. Shareholders are responsible for selecting
players -board of commissioners and the directors- who are
ultimately responsible for bank management. While the
supervisory authority is responsible for formulating regulations
and supervising bank operations.
Senior management is responsible for bank operations
and policy implementation, which are set by the board of
commissioners and the directors. The Audit Committee and
Internal Auditor function as the agents of bank management
in supervising bank operations. The external auditor is
responsible for reviewing and providing professional opinion
regarding bank operations. On the other hand, the customers
(the general public) are expected to be responsible for their
deposits and loans received from a bank.
There are four principles in realizing good governance:
(i) clearly define the strategic goals and organizational culture
and communicate them to all staff members; (ii) determine
and maintain clear responsibility and accountability within an
organization; (iii) ensure that management are competent in
their duty, possessing in-depth understanding of their role in
corporate governance and being independent from outside
interference; and (iv) ensure that there is active board oversight.
From experience, it appears that these principles,
especially the last two, are frequently ignored by shareholders
and management alike.
In line with good governance principles, it is necessary
to develop partnership and discipline from all market players
to perform responsibly. Besides a clear legal framework, it is
necessary to have ongoing education and consistent legal
enforcement.

Responsibility in Importance
Key Player
Risk Management Policy Level Operational Level

Systemic
Regulatory Authority Optimize Strategic -
Banking Supervision Supervise Indirect
Institutional
Shareholders Choose the key players Indirect (Supervise) Indirect
Board of Directors Determine policies Strategic Indirect
Executives Implement policies Strategic (implementation) Strategic
Audit Committee/ Internal Audit Test compliance Indirect (Compliance) Strategic
External Auditor Evaluate and provide opinion Indirect (Evaluation) Indirect
Customer
External Stakeholders/Public Act Responsibly - Indirect
Source: Analysing Bank Risk, The World Bank, 2000.

12 Chapter 2 Banking Regulation and Policy

Subsequently, these policies then need to be implemented
consistently according to prevailing regulations and
international standards.
In cases of bank crime that involve insiders, it can be
difficult for a supervisor to detect the crime at an early
stage. It is very important that the ultimate responsibility
of the bank’s management and control relies on the board
of directors concerned.
2. BANKING REGULATION IN 2004
In 2004, Bank Indonesia issued 14 regulations
concerning conventional banking, which are summarized
as follows:
a) Circular (SE) no. 6/12/DPNP dated 26 February
2004 regarding The Interest Rate Margin for Deposits
Under Blanket Guarantee
This regulation is the implementation of the
government guarantee program, related to PBI No. 3/5/
PBI/2001 dated 22 March 2001 regarding the Guarantee
for Deposits and Inter-Bank Money Market. This circular
replaces the previous circular No. 5/25 dated 23 October
2003 regarding Interest Rate Margin for Deposits Under
Blanket Guarantee.
b) Bank Indonesia Regulation (PBI) No. 6/9/PBI/2004
dated 26 March 2004 regarding The Follow-up Actions
for Supervision and Bank Status
The regulation was issued following the
dissolution of IBRA to reconcile any aspects related to
bank restructuring and the government guarantee
program.
This regulation deals with the mechanism of
problem bank supervision under the following categories:
(i) Banks under Intensive Supervision (BIS): banks that are
considered to have potential difficulties that can endanger
their operations; (ii) Banks under Special Supervision (BSS):
problem banks that threaten their operations; (iii) Banks
with Systemic Impact: problem banks that can also cause
other banks to fail, which could lead to crises in financial
systems.
Classification of BIS and BSS include different
variables: total assets, capital, liquidity, quality of earning
assets, net foreign-exchange position, and the legal lending
limit. Based on BIS and BSS classification, Bank Indonesia
will formulate the following actions:
– update frequency and improve the evaluation of
banks’ business plans to meet the desired goals;
– request banks to prepare action plans based on the
problems they have encountered;
– place a supervisor at a bank if necessary (on-site
supervisory presence);
– request banks to submit their business plan review,
including setting limits for bank transactions and
expansion;
– request banks to replace board members and
executives, as well as shareholders; and
– request banks to sell part or all their business to other
parties.
If all the attempts to solve bank problems do not
succeed, Bank Indonesia will revoke the license and
liquidate the bank.
In case the problem bank has a systemic impact, its
resolution policies are determined by the Coordinating
Committee that consists of the Minister of Finance and
the Governor of Bank Indonesia.
c) Circular No. 6/15/DPNP dated 31 March 2004:
Fit and Proper Test
This provision is the implementation of PBI No. 5/25/
PBI/2003 dated 10 November 2003 regarding Fit and
Proper Test, issued previously.
d) Bank Indonesia Regulation (PBI) No. 6/10/PBI/
2004 dated 12 April 2004 regarding the Rating System
for Commercial Banks’ Soundness and Circular No. 6/23/
DPNP dated 31 May 2004 regarding the Rating System
for Commercial Banks’ Soundness.
Chapter 2 Banking Regulation and Policy 13
 This regulation rearranges the evaluation system for
bank soundness in line with the rapid development of the
bank industry that compounds business complexity and
the bank risks, as well as improvements in the methodology
on banking conditions based on international standards.
The assessment on bank soundness covers various
elements that influence the condition and performance
of a bank. It is carried out through qualitative and
quantitative assessment of different elements, namely,
capital, asset quality, management, earnings, liquidity, and
sensitivity to market risk (CAMELS).
In order to determine the value of the elements
above, calculations and analyses of relevant indicators are
required. After the values have been set, then the level for
each factor needs to be determined. This process carried
out through judgment of the significance of each element.
Each element is assigned a composite scale from 1-
5. Composite Level 1 (CL-1) reflects a bank in excellent
condition able to cope with all the negative effects of the
prevalent economic condition and the financial industry;
Composite Level 5 (CL-5) reflects a bank in a weak
condition sensitive to the negative effects of the prevalent
economic condition and the financial industry. Banks in
this category are facing difficulties in their operations.
e) Circular No. 6/18/DPNP dated 20 April 2004
regarding Implementation of Risk Management on Internet
Banking
This circular was issued due to the rapid growth in
internet banking and as a follow-up of Bank Indonesia
Regulation No. 5/6/PBI/2003 dated 19 May 2003 regarding
the implementation of risk management of commercial
banks. The circular states that banks with an internet
banking facility have to apply effective risk management
to their activities, which cover: (i) active oversight by the
Board of Commissioners and Board of Directors; (ii) control
systems; and (iii) risk management, in particular legal and
reputation risk.
14 Chapter 2 Banking Regulation and Policy
f) Bank Indonesia Regulation (PBI) No. 6/15/PBI/
2004 dated 28 June 2004 regarding Statutory Reserves in
Rupiah and Foreign Currencies for Commercial Banks;
Circular No. 6/26/DPNP dated 30 June 2004 regarding
Statutory Reserves in Rupiah and Foreign Currencies for
Commercial Banks; and Circular No. 24/6/DPNP dated 28
June 2004 regarding the Revocation of Several Bank
Indonesia Circular Letters Concerning Statutory Reserves
for Commercial Banks in Rupiah and Foreign Currency at
Bank Indonesia
It is crucial to maintain monetary stability to achieve
a conducive and stable economic condition. One of the
monetary tools applied by Bank Indonesia in this regard is
the application of statutory reserves in rupiah for all banks
in Indonesia.
In line with economic development, Bank Indonesia
increased the percentage of statutory reserves in rupiah,
from 5% to a progressive, varied percentage level based
on total bank assets, as follows:
(i) Banks that have deposits in rupiah of more than 50
billion have to maintain 8% statutory reserves in
rupiah of the total deposits in rupiah.
(ii) Banks that have deposits in rupiah of 10 – 50 billion
have to maintain 7% statutory reserves in rupiah of
the total deposits in rupiah.
(iii) Banks that have deposit in rupiah of 1 – 10 billion
have to maintain 6% statutory reserves in rupiah of
the total deposit in rupiah.
As compensation, Bank Indonesia will provide interest
on statutory reserves in rupiah in excess of 5 %.
g) Bank Indonesia Regulation (PBI) No. 6/20/PBI/
2004 dated 15 July 2004 regarding The Amendment of
Bank Indonesia Regulation Number 5/13/PBI/2003
concerning the Net Open Position For Commercial Banks.
To create a favorable climate and maintain financial
system stability it is necessary to have a stable exchange
rate. Therefore, net open position (NOP) regulation is
imperative concerning the composition of banks’ foreign
currency and NOP calculation.
Net open position (NOP) is not only calculated based
on the overall position (balance sheet and off-balance sheet
items), but also on the balance sheet position. For the
overall and balance sheet positions, it is compulsory to
maintain NOP at 20% of the capital. For a bank with
market risk, NOP cannot exceed 30% of the capital.
Overall and balance sheet positions are not only
calculated at the end of the day using the closing exchange
rate, but also midday using the mid-day exchange rate.
h) External Circular No. 6/37/DPNP dated 10
September 2004 regarding Assessment and Imposition of
Sanctions in regard to the Implementation of ‘Know Your
Customer’ Principles and Other Requirements Pertaining
to the Law on Money Laundering.
The regulation was issued in relation to the
compliance of commercial banks in applying customer
identification principles and other obligations related to
Law No. 25, 2003 regarding money-laundering crime.
Violation of this regulation will affect the evaluation of
bank soundness with the penalty ranging from freezing
operations to management dismissal through a fit and
proper test mechanism.
i) External Circular No. 6/43/DPNP dated 7 October
2004 regarding Implementation of Risk Management for
Banks Engaging in Joint Marketing Efforts with Insurance
Company (Bancassurance).
This regulation is intended to give protection to the
public and give legal protection to a bank that offers
insurance marketing products (Bancassurance). Banks will
have to manage their reputation and any legal risks that
may come from this activity.
j) Bank Indonesia Regulation (PBI) No. 6/25/PBI/
2004 and External Circular No. 6/44/DPNP dated 22
October 2004 regarding the Business Plan of Commercial
Banks.
This provision is intended to improve the regulation
on the business plan of commercial banks; issued in a Bank
Indonesia Director’s Decree No. 27/117/KEP/DIR dated 25
January 1995. This provision aims to enhance sound
banking practices and direct banks to implement good
planning and an effective risk control systems .
3. HUMAN RESOURCE DEVELOPMENT
Objective
An increase in complexity of banking operations
creates higher banking risks accordingly. Subsequently,
Bank Indonesia has enhanced the risk-based supervision
system by developing human resource quality.
This is conducted through comprehensive training
programs, including relevant modules and materials,
as well as qualified trainers. These training programs
include in-house and overseas training. Bank Indonesia
has developed a Certification Program for Bank
Supervisors and Examiners (Box 4). Bank Indonesia also
plans to establish a Banking Supervision Institute in the
future.
Training Program 2004
During 2004, Bank Indonesia sent its supervisors,
examiners and researchers to attend various training
programs, seminars and workshops, held by Bank
Indonesia and also by national and international institutions
(Table 2.1).
In addition, Bank Indonesia selected members of staff
to participate in apprenticeships in leading central banks
and supervisory authorities.
Each member of Bank Indonesia’s staff in the banking
sector (examiners, supervisors and researchers) has to
follow a risk-based supervision certification program with
a duration of 80 hours or 10 working days per year. For
other training, the duration is 56 hours or seven working
days per staff per year.
Chapter 2 Banking Regulation and Policy 15
 Box 4 Certification Program for Bank Supervisors and Examiners

To achieve effective competency development and to
acquire accreditation, the training includes a well-planned,
standardized program, up-to-date modules and qualified
trainers, combined with a certification program.
The aim of the certification program is to provide staff
in the banking sector a professional standard in carrying out
their duty as bank supervisors.
By following the certification process, it is expected
that the staff will gain a high standard of knowledge and
skills, to nurture individual specialty and competency.
To support the implementation of a certification program,
a Governor’s Decree has been issued concerning certification
committee formation. The role of the certification committee
is to maintain the credibility of the certification program through
by reviewing the best practices concerning the modules, the
trainers and the training providers. This committee consists of
experts in banking supervision and human resources from
relevant institutions such as the supervisory authorities, banker
associations, auditors and academics.
The certification program was conducted on 11 August
– 21 October 2004 for the basic level (grade 1-4), attended
by 137 staff at head office. The continuation of the
certification program will commence in 2005 after the
formation of the certification committee.

Tabel 2.1 among others are: Bank Indonesia regulations regarding

Training Programmes in 2004
exit policy, business license revocation and bank liquidation,
Number of
Trainings in accordance with Law No. 24, 2004 regarding the Deposit
Participants

In-house Training Programs 188 Insurance Company.

- Information System technology (TSI) basic level banks
- Bank Financial Analysis
- Prevention of Bank Fraud Workshop
- Consolidated Supervision
- Seminar Risk Based Supervision
Certification Program (Level Foundation Grade 1-4)
Other Training Prograns
Total
4. DIRECTION OF BANKING SUPERVISION POLICY
Bank Indonesia will continue to develop banking
supervision policy according to the Basel Core Principles.
To comply with the 25 principles, Bank Indonesia will review
regulations that relate to capital, earning assets, loan
restructuring, asset loss provision and legal lending limit.
Bank Indonesia will also adjust some associated regulations,
80
To create a sound and efficient banking system,
14
45 besides effective regulation and supervision, appropriate
17
financial safety nets are required. A financial safety net is
32
137 one important element to support a stable financial system,
117
which is a prerequisite for sustainable economic
442
development. The government and Bank Indonesia has
completed a financial safety net framework. In such a case,
Bank Indonesia plays the role of ‘lender of the last resort’.
(Box 5).
To achieve a sound, efficient and competitive banking
system, Bank Indonesia has also implemented the
Indonesian Banking Architecture (IBA) as the basis and
future direction of the banking industry. The initiative to
implement IBA began in 2004 (Box 6).

16 Chapter 2 Banking Regulation and Policy

Box 5 Financial Safety Nets
Financial Safety Net is one of the main pillars to create
a sound and efficient banking system, in addition to effective
regulation and supervision. In general, comprehensive financial
safety nets cover five elements: (i) effective regulation; (ii)
effective and independent supervision; (iii) an adequate ‘lender
of the last resort’; (iv) appropriate deposit insurance scheme;
and (v) adequate crisis management.
The government and Bank Indonesia have formulated
a policy framework for financial safety nets containing the
role, responsibility and coordination mechanism of related
institutions in financial safety nets, namely, Bank Indonesia,
the Ministry of Finance, Supervisory Authorities, and
Indonesian Deposit Insurance Company (IDIC). The framework
also elaborates the policies of ‘lender of the last resort’ and
deposit insurance to be adopted in the future.
In accordance with the regulations1, under normal
conditions Bank Indonesia can provide Short-Term Financing
Facilities for banks undergoing liquidity difficulties due to cash
flow mismatch. Additionally, Bank Indonesia can also provide
Emergency Liquidity Assistance for banks undergoing financial
difficulties that have systemic impact which could endanger
financial system stability. The funding for ELA will be borne
1 Act No.13 of 1999as was amanded with Act No.3 of 2004 chapter 11 verse (4).
Box 6 Implementation of Indonesian Banking Architecture (IBA)
Nineteen IBA programs will direct the Indonesian
banking industry towards achieving its vision of a sound,
strong and efficient banking system to create financial system
stability and support national economic growth.
As a first step, Bank Indonesia has conducted internal
restructuring to improve regulation and supervision
effectiveness. Internal restructuring has become the focus of
seven of nineteen IBA programs covering the formation of
banking-specialist panels in Bank Indonesia, the gradual
implementation of Basel Core Principles, improvement of Bank
Indonesia’s coordination with other supervisory authorities,
reorganization of banking supervision functions, improvement
of supervisor and examiner competency through certification,
the development of risk-based supervision, and improvement
of the effectiveness of legal enforcement.
With these programs, Bank Indonesia is expected to
formulate consistent, high-quality and applicable policies by
by the government. Bank Indonesia and the Ministry of
Finance have signed a Memorandum of Understanding
regarding the provision of ELA. The regulations concerning
ELA provision are currently being formulated by Bank
Indonesia and the Ministry of Finance team.
In relation to the phasing out of the Government
Guarantee Program, in September 2004, the People’s
Representative Assembly approved the IDIC law. IDIC will have
two main functions: (i) as insurer of deposits up to a particular
amount; and (ii) handling the resolution and closure of failed
banks.
The implementation of the deposit insurance will be
gradual as follows:
1) Phase I: deposits and inter banks
2) Phase II: deposits
3) Phase III: deposits up to Rp5 billion
4) Phase IV: deposits up to Rp1 billion
5) Phase V: deposits up to Rp100 million
Additionally, Bank Indonesia is actively involved in
maintaining financial system stability through research and
surveillance activities on the development and risks that can
disrupt the financial system. Bank Indonesia publishes
periodically a Financial Stability Review (FSR) covering the
research and surveillance of the financial system.
considering other institutions’ policies and market interest.
Besides, the envisaged higher capabilities of supervisors and
examiners, the improved investigation process through
internal reorganization, and better legal enforcement will
improve the quality of banking supervision quality.
The banking structure to be created by IBA includes
banks with strong capital and appropriate tools to manage
risk. With a minimum capital of Rp100 billion, commercial
banks will be able to absorb confronted risks. Banks will also
be equipped with risk-management tools and internal control
to manage their inherent risks better. The improvement of
risk management is achieved, among other things, through
enhancing the competency of human resources by requiring
bank management and executives to successfully participate
in a risk-management certification program.
Internal control improvement can be achieved with the
enhancement of good governance. The capacity of the banks’
Chapter 2 Banking Regulation and Policy 17
 Sound, strong, and efficient banking system
to create financial system stability for
promotion of national economic growth

Effective and
Healthy
independent Adequate
banking
supervisory infrastructure
structure
system

Effective Strong Robust

regulation banking customer
system industry protection

Pillar 1 Pillar 2 Pillar 3 Pillar 4 Pillar 5 Pillar 6

Indonesian Banking Architecture

operation will also be increased with the improvement of
human resources and efficiency. As a facility for banks to
improve their loan quality assessment, a Credit Bureau, a
body that will organize and maintain the loan data of banks’
customers, will be formed.
Small and medium enterprises (SME) will receive due
consideration too. Bank Indonesia will stimulate the
development of rural banks to reach areas that hitherto do
not have banking services. The linkage program that has
been established with commercial banks will be improved
to provide more incentives to commercial banks and rural
banks to collaborate. Access of SMEs and the general public
to loans will be increased through guarantee schemes and
partnerships with local government authorities.
A complaint mechanism is currently being formulated
to accommodate the suggestions and complaints of
customers regarding their banking services. In anticipation
of disagreements between banks and their customers in
settling disputes, Bank Indonesia will establish an
independent mediatory institution, or bank-client
ombudsman.
Subsequently, the transparency standard for banks in
promoting their products will clearly be defined, so that banks’
customers can make informed decisions on which of the
bank’s products are suitable and to avoid misleading
information. Banks are also encouraged to conduct ongoing
customer education.

18 Chapter 2 Banking Regulation and Policy

Chapter 3
Banking Supervision

Chapter 3 Banking Supervision 19

20 Chapter 3 Banking Supervision
Chapter 3
Banking Supervision

1. OFF-SITE SUPERVISION
Supervision Cycle 1.
Bank Indonesia continues its banking restructuring Understanding
Institution/Core
Knowledge 2.
program consistently to strengthen banking system 6.
ISS Execution Quarterly Risk
resilience. The various efforts taken include improvements Assessment
&
in the quality of banking supervision in line with Supervisory Action

international standards, in particular the 25 Basel Core 5. 3.

Principles. One such program is the implementation of risk-
based supervision.
The risk-based supervision cycle is divided into six
stages: (i) understanding institution (core knowledge); (ii)
quarterly risk assessment; (iii) examination plan; (iv) risk-
focused examination and audit report; (v) Individual
Supervisory Strategy (ISS); and (vi) the implementation of
ISS and supervisory actions.
Based on the aforementioned cycle, off-site
supervision incorporates the first, second, fifth and sixth
stages, the other two (3 and 4) come under on-site
supervision.
Understanding institution or core knowledge is the
supervisory activity best suited to acquire overall
comprehension of banking conditions to support an
effective supervision process. In such a case, the supervisor
analyses different reports submitted by banks, among
others, monthly reports, periodical reports, annual reports,
annual financial reports and other reports from commercial
banks. In addition, supervisors analyse the institution, its
compliance and other financial matters, to obtain
comprehensive core knowledge.
Good comprehension of banks under their
supervision is necessary for supervisors to prepare risk
profiles. Besides, the audit report is also needed, especially
Individual Supervisory
Examination
Strategy (ISS)
Plan
4.
Risk-focused
Examination and Audit
Report
Figure 3.1
Risk-based Supervisory Cycle
as a source of information for risk control systems1. Risk
assessment is conducted quarterly. However, if necessary
the assessment can be more frequent depending upon
the level of the bank’s problems, the supervision status,
the execution and progress of action plans and the
effectiveness of the supervisory actions. Information
sources for the updated risk profile come from audit
reports, information systems and bank reports, as well as
other reports and information, such as the mass media.
Following the risk assessment, an Individual
Supervision Strategy (ISS) is formulated to support risk-
based supervision and to determine the actions required
by the bank. ISS contains the current supervision status of
the bank, the current condition and target of the business
plan, the previous risk profile and supervisory actions. Thus,
1 Risk control systems is a process to control risk which formulated by bank management
in the policies and procedures in line with effective risk management principles. Risk
control systems cover senior boards oversight, policies and procedures, risk assessment
system that fit to bank’s condition and adequate information system as well as and
internal control.

Chapter 3 Banking Supervision 21

ISS becomes a guideline for supervisors, especially for
identifying shortcomings; the potential of a bank’s
business; supervision focus; and the action plans. Through
the ISS, supervisors can monitor and anticipate the
corrective actions that will be undertaken by a bank. In
addition, ISS is also useful for audit trails, planning and
communication. The update of ISS is carried out quarterly
or more often if necessary. Factors affecting the update
are: risk profile, audit report, OSP report, corrective actions,
financial condition trend, and other external events that
affect the condition of a bank, rendering ISS ineffective.
Objective and Strategy of Banking Supervision
In general, the objective of banking supervision is to
create a sound, strong and efficient banking system to
support the growth of national economy. Supervision
strategy is developed according to the needs and
complexity of each bank.
In practice, supervisory activities are divided into two
types: normal action and special action. Normal action is
directed towards the accomplishment of business plans
adhering to prudential principles. This activity is conducted
through several means in the form of financial condition
analyses and bank soundness level through the Supervision
Management Information System (SMIS), analysis of the
reports and bank compliance to regulations, and risk
assessment. In major banks that play a significant role in
the banking system and the economy, an On-site
Supervisory Presence Team (OSP) is assigned to monitor
day-to-day bank operations. The report from the OSP then
becomes important information for bank supervisors.
Meetings between supervisors and bank
management are conducted periodically to discuss bank
conditions and problems. The meetings are not only
conducted with bank management but also with
concerned executives. If the problem encountered is
considered crucial and requires further intensive action,
22 Chapter 3 Banking Supervision
then a meeting should be held with the controlling
shareholders, including recommendations to perform a
special examination.
Special action is arranged according to specific
problems confronted by banks. It is done by requesting a
bank to take corrective actions by submitting several
reports, including a capital restoration plan, an
organizational improvement plan and the realization of
the action plan. Special action is also applied by holding
more intensive meetings with the bank’s management to
seek more comprehensive information on the bank’s
problems including actions taken and to be taken to solve
the problems. If needed, special examination can be
undertaken. If a problem bank is considered to endanger
the business or the customers’ interests, the bank must:
(i) execute the mandatory supervision actions requested
by Bank Indonesia; (ii) be placed under intensive
supervision; and (iii) be placed under special surveillance.
Supervision Activities
During 2004, Bank Indonesia imposed normal
actions on 123 banks because their conditions were good
or relatively sound and special actions were imposed on
12 banks, where the condition was deemed inadequate.
Such banks were placed under intensive supervision and
special surveillance. Banks in good condition but
undertaking high-risk activities were also placed under
special surveillance.
Based on the supervision results in 2004, the basic
problems confronted by banks are shown in Table 3.1.
Among the basic problem banks during 2004, there
were four banks with a Capital Adequacy Ratio (CAR) of
less than 8%. To these banks, Bank Indonesia followed
procedure for problem banks and took the following steps:
(i) place the bank under special surveillance; (ii) request
the bank to submit a Capital Restoration Plan (CRP); (iii)
instruct the bank to undertake mandatory supervisory
 Table 3.1
Supervisory and Bank Corrective Actions

Problems/difficulties Supervisory Actions Corrective Actions

CAR < 8%
NPL Net > 5
Exceeding Legal Lending Limit
Liquidity (MSR) <5%
Credit risk: High
Liquidity Risk: High
Operational Risk:
High
Place under special surveillance, request a capital restoration plan,
request Mandatory Supervisory Action and monitor the execution.
Place under intensive surveillance, request restoration plan and
monitor the execution.
Place under intensive supervision, request restoration plan and
monitor the execution.
Place under special surveillance, request action plan on liquidity
restoration and monitoring.
Apply cease and desist order.
Monitor liquidity condition and request the bank to find
alternative fund resources.
Request the bank to improve the function and implementation of
internal control and monitor the execution.
Submit and implement a capital restoration plan.
Submit and execute an action plan to decrease NPLs.
Submit and execute an action plan to settle the legal
lending limit.
Submit and execute action plan on liquidity
improvements.
Reduce credit risk.
Improve liquidity position.
Improve internal control complete the legislation.

actions (MSA); and (iv) provide a Cease and Desist Order
(CDO) and request a change of management within 15
days of the bank being placed under special surveillance.
The surveillance action aims to improve the condition of
banks to reach the minimum 8% CAR or Minimum
Statutory Reserves (MSR) as regulated. Bank Indonesia
allows six months for listed banks to reach the minimum
CAR and MSR and three month for non listed banks. The
given period can be extended once for up to three months.
With the limited time, the actions taken by banks to
overcome their capital problems are, among others,
augmenting the deposited capital, maintaining adequate
daily liquidity, implement CDO, change management, sell
non-productive assets or attempt a merger with other
banks.
Even though Bank Indonesia has been maintaining
bank soundness, at the beginning of 2004 there were still
two banks where licenses had to be revoked. This is due
to the banks’ management and owners not implementing
the action plans consistently. As a result, they were unable
to improve their bank’s capital to reach the minimum of
8% CAR as scheduled. The business licenses of the two
banks were revoked according to the prevailing regulations
with consideration of the impact on the banking system,
especially on public confidence.
Furthermore, along with the blanket guarantee
program, the banks’ depositors’ claims will be settled by
the Government Guarantee Program Unit under the
Ministry of Finance. The settlement process for the two
banks to have their licenses revoked was carried out
meticulously. This was done to anticipate mistakes in
disbursement and to mitigate the indications of moral
hazard by bank management and staff.
Other steps taken by Bank Indonesia to assist problem
banks include mergers. Currently, the merger of three
banks that have joint ownership is still in process. It is
predicted that through the merger process the three
problem banks can become one sound bank.
Other problems which require attention are the 15
banks with a non-performing loans (NPLs) net ratio of total
loans above the 5% indicator level. As per procedure, Bank
Indonesia will place these banks under intensive supervision,
request them to formulate action plans to reduce the NPLs
and monitor the implementation of the action plan. The
actions being taken by the banks to reduce their NPLs are,
among others, restructure the non-performing loans; sell

Chapter 3 Banking Supervision 23

the non-performing loans; write-off the non-performing
loans; increase loan expansion and maintain adequate
earning assets losses provision. These efforts are ongoing
and the number of banks with a NPL net ratio above 5%
did not change as of the end of 2004.
There were nine banks that exceeded Legal Lending
Limit (LLL) during 2004 due to the alteration of the rupiah
exchange rate. To deal with the excess in LLL, Bank
Indonesia has requested banks to submit their action plan
for LLL settlement with a nine-month time limit, which
begins as of the approval of the action plan. These banks
will be placed under intensive supervision if they are
incapable of overcoming the LLL excess. As of mid 2004,
some banks had resolved LLL excess while others were
still in the final process as stated in the schedule of the
action plan submitted.
During 2004, there were three banks that
continuously could not fulfil the minimum statutory
reserves ratio (MSR). As a supervisory follow-up action,
Bank Indonesia has placed these banks under special
surveillance, requested the banks to submit an action plan
to improve liquidity, to maintain their daily liquidity ratio
and to prepare a contingency plan if the reserves in Bank
Indonesia are inadequate. If the actions taken can not
resolve the liquidity problem, the controlling shareholder
is requested to provide additional capital and assets.
Besides the above mentioned problems, there are
several banks which are categorized as high risk in their
business activity, with a tendency to become stable or
improve. This high risk is caused by the size of inherent risk
and weaknesses in the risk control system. The high risks
encountered in some banks included credit risk, liquidity
risk and operational risk. In anticipation of this, Bank
Indonesia has conducted different types of action as follows:
– For banks with high credit risk, Bank Indonesia applies
a cease and desist order (CDO), which is the restriction
24 Chapter 3 Banking Supervision
of allocating loans or certain types of loans to the
business sector until the conditions required by the
supervisory authority are fulfilled. Banks are also
requested to reduce and/or settle their non-
performing loans. In line with the supervisors’ actions,
banks are obliged to take several steps to control risk
through a write-off, intensifying the settlement of
non-performing loans by forming a loan recovery unit,
loan restructuring, and temporarily discontinuing loan
expansion in the corporate sector.
– For banks with high liquidity risk, Bank Indonesia will
tightly monitor the liquidity condition and request the
banks to improve their funding structure. For long-
term credit funding in particular, it is suggested to
use long-term funding resources. In line with the
supervisors’ actions, banks are obliged to take several
steps to improve liquidity risks by increasing liquidity
reserves by selling government bonds, issuing bonds
and subordinate debts, as well as reducing
dependency on the main depositor and increasing
the collection of third-party funds.
– For banks with high operational risk Bank Indonesia
will request them to improve their operational
guidelines, to empower the internal control function,
apply a lawsuit for every violation that can cause losses
to the bank, examine and deregulate the
authorization delegation and ask the board of
commissioners and the compliance director to
enhance the bank oversight function.
In line with the supervisors’ actions, banks must
attempt to eliminate losses caused by fraud through the
allowance for loss reserves, settling fraud cases legally,
imposing firm sanctions on any staff involved in fraud or
manipulation, and revising the operational guidelines, as
well as improving the function and implementation of
internal control.
 Box 1 Problem Banks and Supervision Policy
In a competitive business environment, banks
encounter various problems which can result in failure.
Subsequently, worldwide, there is no supervisory authority
that can guarantee against bank failure and liquidation. For
example, in the United States, as one of the countries which
has the most advanced supervision system and applies
multiple supervisory agencies, there is still bank failure and
liquidation.
To mitigate the systemic effect of bank failure and
liquidation, which can cause financial instability, good and
efficient management of problem banks is required, as is the
availability of financial safety nets, which have been discussed
previously in Box 4.
The factors affecting problem banks vary and can be
categorized into two groups, namely: (i) internal factors, which
come from within the bank organization, such as: fraud due
to weak internal control and risk management, poor corporate
governance (intrusion by the owner in banking operations),
or mistakes in strategy determination that cause significant
losses; and (ii) external factors, which come from the banking
business environment, such as worsening economic
conditions that can cause business failure for bank debtors
leading to non-performing loans, or financial crisis which can
engulf the whole financial system and the economy..
Post-crisis, the resolution of problem banks in Indonesia
has been carried out by Bank Indonesia and Indonesian Bank
Restructuring Agency (IBRA). For solvent banks with a CAR
above 8%, supervision is carried out by Bank Indonesia.
Referring to Banking Law No.10, 1998, if a bank suffers
from financial difficulties that directly endanger business
Constraints to Bank Supervision
Bank Indonesia has continually taken steps to
improve the effectiveness of bank supervision with the goal
of creating a sound banking system. However, in doing so
there are internal and external constraints.
The internal constraints encountered in bank
supervision include the organization of the supervision,
the adequacy of the human resources, supporting tools
and the number of banks to be supervised. From an
organizational side, off-site supervision and on-site
examination conducted by different working units may
operations, Bank Indonesia can take several actions: (i)
shareholders must inject capital; (ii) shareholders must replace
the Board of Commissioners and Board of Directors; (iii) the
bank must merge or consolidate with another bank; or other
actions. If the shareholders and management of insolvent
banks have been unable to take the necessary steps in a given
time, Bank Indonesia assigns the bank to IBRA to be recovered
or freezed its business activity.
Since the closure of IBRA, the recovery of problem
banks, which do not have systemic impact, has been handled
by Bank Indonesia. For banks with systemic impact, recovery
will be handled by the government, in accordance with the
Memorandum of Understanding between the Minister of
Finance and the Governor of Bank Indonesia dated 17 March
2004.
From the experience of other countries and the 1997/
98 financial crisis there are some good lessons to be learned:
(i) a supervisory authority cannot prevent bank failure; (ii)
shareholders are responsible for selecting capable people to
manage their banks; (iii) ultimate responsibility in bank
management lies with the board of directors. For that reason,
board of commissioners, board of directors and executives
have to be fit and proper; (iv) the audit committee and internal
auditors have to be an extension of the bank management in
supervising a bank’s business; (v) external auditors (public
accountants) play an important role in evaluating a bank’s
financial system; and (vi) the public/customers, as market
associates, have to be trained to be responsible for their
savings and deposits.
influence the effectiveness of supervision. In addition, the
limited number and lower competency of human
resources, as well as inadequate supporting tools, including
a lack of fast and accurate information, cause less optimal
supervision and reduce the speed of the decision-making
process. The problems mentioned are aggravated by the
number of banks to be supervised, which, in turn, creates
a high workload for bank supervisors.
The external constraints include poor legal
enforcement, inadequate risk management and internal
control and the lack of infrastructure to support effective
Chapter 3 Banking Supervision 25
 Box 2 On-site Supervisory Presence (OSP)
OSP is part of banking supervision that places a
supervisor in major banks. This program is implemented in
line with the agreement between the government and IMF
in 2000 regarding the improvement of the supervisory quality
of Bank Indonesia. Initially, Bank Indonesia placed OSP teams
in 9 banks1 but since January 2004, another 4 have been
added making a total of 13.2
Previously, Bank Indonesia adopted compliance based
supervision systems that focused more on the performance
of banks based on historical data and bank compliance toward
prevailing regulations. This type of supervision needs to be
complimented with more forward looking and risk-based
supervision.
This new approach focuses on the evaluation of three
main aspects: the effectiveness of risk management, the
adequacy of internal control and information management
systems. It is expected that OSP team is able to identify bank’s
problem beforehand so that it can be followed up with proper
preventative actions and improvements.
1 Bank Mandiri, Bank BNI, Bank BRI, Bank BTN, Bank BCA, Bank Danamon, Bank
Niaga, Bank BII and Bank Lippo.
2 Bank Permata, Bank Panin, Bank Bukopin, and Bank Buana.
bank operations. Weak legal enforcement is evident from
the lengthy administrative process of justice for banking
cases.
Improvements in the Effectiveness of Bank
Supervision
The challenge faced by the banking industry is
growing in line with the more complicated products and
the higher risks confronted by banks, which necessitates
the implementation of effective risk management. In line
with this, Bank Indonesia has developed a supervision
system using a risk-based approach. Risk-based supervision
is a more effective system and able to anticipate and control
bank business risks.
However, supervision concerning aspects of
compliance is still needed because there are still some
26 Chapter 3 Banking Supervision
The role of OSP teams in terms of supervision is: (i)
monitor the bank liquidity condition daily; (ii) monitor the
new loan disbursements; and (iii) identify, evaluate and
monitor bank risks, including internal control.
OSP team prepares a report periodically to provide
updated information for bank supervisors regarding the
condition and problems of major banks. Therefore, the
improvements necessary could then be taken to overcome
a bank’s problems.
OSP activities integrate with the off-site bank
supervision. In addition the three key activities mentioned above
OSP teams also monitor the implementation of corrective
actions, analyze the impact of new product launchings, and
provide inputs for updating banks’ risk profiles.
The role of OSP is becoming more important in line
with the change in supervisory strategy with the adoption
of risk-based supervision and capital regulation that
incorporates market risks in 2005. In addition, OSP teams
are also expected to provide inputs for intern control. The
challenge is growing in line with greater complexity and
the innovation of bank products based on technology.
Therefore, bank supervisors, in particular the OSP teams,
should be equipped with appropriate skills and tools.
violations in banking regulations and business. The
adoption of compliance supervision in general, emphasizes
institutional aspects, prudential principles, a surveillance
system, management information system, as well as
banking management and operations.
The change in the supervision paradigm from
compliance to a more risk-based approach requires the
improvement of supervision tools. In the short term, Bank
Indonesia plans to improve the organization of supervision,
supervisor competency, the management information
system including a bank reporting system, enhance the
assessment of a bank’s soundness and increase the
effectiveness of OSP teams which are currently posted in
13 major banks.
The improvement of bank supervisor competency is
accomplished through either long-term education, or
short-term courses and seminars. The role of OSP teams
in major banks will also be improved to support the
implementation of risk-based supervision.
The legal system has been improved by imposing
sanctions on banks or management and shareholders
based on prevailing laws. Banks have been requested to
improve internal control, develop a risk-management
culture in banking operations, to develop a realistic business
plan, and to map large debtors to identify their potential
risks. Furthermore, problem banks are placed under
intensive supervision and special surveillance with an
obligation to execute action plans to improve their
condition.
2. ON-SITE EXAMINATION
Target and Focus of Bank Examination
Bank examination intends to obtain the overall
picture of a bank’s business, the financial condition and
constraints which can affect the soundness and the survival
of the bank’s business. Examination is also conducted to
ensure the accuracy of reports submitted to Bank
Indonesia, and the compliance of banks towards prevailing
laws and regulations, as well as internal policies and
procedures, and also to investigate any indication of
banking crime.
The major role of bank examination covers the
formulation of an examination plan, risk-based
examination and report making. Preparing an examination
plan is an important stage because it determines the focus
and coverage of the examination from the very beginning
to improve efficiency in the process. As such, the allocation
of the examiners’ resources can be optimized. The
examination report is important information in determining
an Individual Supervision Strategy (ISS), which is useful to
prepare follow-up examinations and corrective actions.
Since 2003, Bank Indonesia has adopted a risk-based
and forward-looking bank examination approach as an
improvement of the previous approach based on
compliance. This new approach focuses on the inherent
risks of all banking activities and assesses the adequacy of
risk control systems in a bank. It is expected that supervisors
and examiners can assess risk exposure and risk-
management quality to make recommendations for
improvements.
Risk-based Bank Examination at a Glance
With the issuance of the Bank Indonesia Regulation
regarding the Implementation of risk management for
commercial banks in 2004, the examination has been more
focused towards risks. Since the beginning of 2002, this
approach has been tried on large-scale banks. As one of
the stages of the supervision cycle, risk-based examination
focuses on the banks functional activities perceived as high-
risk.
In risk-based examination, the inherent risks of each
bank’s activities and the adequacy of risk control systems
are reviewed so that corrective actions can be taken as
early as possible. The aggregation of inherent risk and risk
control systems produces a composite value that classifies
bank risk status into: low, medium or high. The risk
assessment result can be used to map bank risks and
determine regulation and supervision policies.
In line with the implementation of a Bank Indonesia
Regulation regarding risk management for commercial
banks, banks have submitted their action plan to Bank
Indonesia, containing a work plan measuring the eight
main risks, namely, credit risk, market risk, liquidity risk,
operational risk, legal risk, strategic risk, reputation and
compliance risks, and the application of control systems.
The control systems cover four key areas: (i) active oversight
of the board of commisioners and board of directors; (ii)
policies, procedures and limits, (iii) risk measurement and
monitoring; and (iv) internal control. The application of
risk management in the banking industry is expected to
Chapter 3 Banking Supervision 27
be based on international standards. Banks are also
expected to apply good governance to strengthen the
banking system.
With the adoption of risk based supervision by Bank
Indonesia and risk management by banks, compliance is
still important. Banks are still obliged to report their
financial condition to Bank Indonesia in a standard
reporting format. This report is useful not only for monetary
policy, but also for the monitoring of bank’s financial
condition. It can also be used by Bank Indonesia to assess
individual bank’s conditions (micro) and systemic impacts
(macro).
The Implications of Risk-based Examination
In response to the adoption of risk management
by commercial banks, Bank Indonesia has carried out
some fundamental steps. The first step is to enhance
examiner competence by participating in training, either
in Indonesia or abroad, and internships in central banks
or supervisory authorities of other countries. Secondly, is
to improve the management information system by
integrating all banking information and the use of Audit
Command Language (ACL) to facilitate the assessment
of bank risks. To increase the effectiveness of bank
supervision, Bank Indonesia is combining the off-site and
on-site supervision functions.
Plan and Realization of Bank Examination
Bank Indonesia carries out examinations once per year,
as stated in Decree No. 23, 1999 regarding Bank Indonesia,
revised in Decree No. 3, 2004. During 2004, 83 banks were
examined as scheduled. That examination is a general
inspection carried out on a regular annual basis.
Additionally, a special examination has been
undertaken that covers the fit and proper test,
examination of assets and deposits, and others. The
special examination can be undertaken as an initiative of
28 Chapter 3 Banking Supervision
Directorate of Bank Examination and Directorate of Bank
Supervision or other working units, such as The Special
Unit for Banking Investigation. Other directorates can also
execute a special examination, such as Credit Bureau for
Bank Indonesia Liquidity Credit Examination, Directorate
of Reserve Management for monitoring net open position
and on loan allocations for non-residents, and Bank
Indonesia Branch Offices to inspect branch offices of other
banks.
Results of the Examination
Sound banking can be realized, among others, by
applying prudential principles, including Legal Lending
Limit, Net Open Position, Allowance for Earning Assets
Losses, the Minimum Capital Adequacy Requirement to
ensure banks are managed in a proper and prudential way.
Generally speaking, prudential principles have been
implemented in the banking industry. In fact, banks failing
to implement the principles can cause problems for
themselves. The most common basic problems of banks
are weak governance, poor internal control and inadequate
risk management.
For example, the deviation of Export Bill in BNI
caused losses of more than Rp1 trillion and a criminal
lawsuit filed against Asiatic Bank, which ultimately caused
the closure of the bank. In fact, the problems in Asiatic
Bank had been identified in advance. There was an
indication of deviation on the improper asset placement
in other banks. Before the case could be forwarded to
the courts, it was necessary to undertake intensive
inspection to obtain supporting evidence. The bank
violated prevailing rules and regulations leading to a
conflict of interest. The violations in BNI and Asiatic Bank
happened due to weak internal control unable to reveal
the banks’ problems. In addition, there was a weakness
in risk management, which was not supported by
adequate systems (see boxes 3 and 4).
 Box 3 The Bank Negara Indonesia (BNI) Case
Bank fraud occurring recently has been very serious.
By the end of 2003, there had been a take over of the Export
Bill at BNI Head Office in Kebayoran Baru, with a total value
of USD 166,781,517 and EUR 56,113,947 or equivalent to
approximately Rp1.7 trillion. The case has so far caused
significant losses to BNI of around Rp1.2 trillion. However,
more importantly, the case not only gave BNI a bad reputation
but also the banking system and the country of Indonesia.
The case against BNI happened because of deception
by one BNI Kebayoran Baru Head Office employee who
conspired with an outsider in the take over of the Export Bill
of Gramarindo Group and Petindo Group, which is not in
accord with internal regulations nor general regulations (UCP
500). The take over was phased from June 2002 until July
2003 with a total of 117 letters of credit (L/C). The fraud
occurred due to the low integrity of the employee, and weak
internal control including board oversight.
In fact, the weak internal control of BNI was detected
by Bank Indonesia beforehand through deviation in the
deposits on call and negotiable certificate deposits. As of
2002, Bank Indonesia warned BNI to resolve these weaknesses
immediately but the recovery effort was never carried out
optimally until the bigger case appeared. Furthermore, Bank
Indonesia has taken firm action, such as requesting the
shareholders to replace the management, postponing the
expansion of the office network and requesting the bank to
prepare an action plan to improve its internal control to avoid
more bank fraud.
Bank Indonesia will continue to attempt to supervise
banks in a more effective way. Special attention will also
be given to banks that have significant roles in the banking
system. The implementation of Indonesian Banking
Architecture (IBA) is expected to help facilitate the
realization of the goals.
Improvements in the Effectiveness of Bank
Examination
The implementation of risk management is one of
the foundations of IBA. Of the six pillars, the one relating to
bank supervision and examination is the third pillar, namely,
an effective and independent supervision system. The third
To ensure the internal control function is implemented
effectively, Bank Indonesia has requested the banking sector
to do the following:
1. Prepare and adopt the standard internal audit function
of a bank and operational guidelines; and form an
internal audit unit.
2. Employ a compliance director who is liable for
determining steps to ensure compliance to all the
regulations and internal system and operating
procedures.
3. Submit a report to Bank Indonesia every semester and
an incidental report if there are issues that can endanger
the business of the bank. The report has to be signed
by the Chief Director, Commissioner and the
Compliance Director.
4. Provide a risk-management infrastructure (organization,
policies and procedures, management information
system/technology, and human resources) and
appropriate risk control systems.
It is expected that bank can run its business based on
these prudential principles.
Learning from the experience of bank fraud, banks are
obliged to implement good governance and risk management
with an effective internal control system. Banks also need to
maintain the integrity and competency of human resources.
No matter how good the management and control systems
are, it will be worthless if there is still collusion among low
integrity employees and outsiders for personal gain.
pillar contains a program for forming a specialist team of
examiners as part of Bank Indonesia’s banking consolidation
program and to improve bank examiner competency. The
program is in response to the challenge of the rapid growth
and development of banking products nowadays.
Currently, the Directorate of Bank Examination is
forming a core team of examiners encompassing
information system technology, treasury, earning assets,
‘know your customer’, amongst others. In line with
improvements in the examination results, the inspection
process is to be supported by information system
technology, such as Audit Command Language (ACL) and
other bank audit applications.
Chapter 3 Banking Supervision 29
 Box 4 The Liquidation of Asiatic Bank and Bank Dagang Bali
PT. Bank Asiatic and PT. Bank Dagang Bali suffered from
serious financial difficulties due to fictitious lending and the
violation of prudential principles by bank management in the
interest of the shareholders. This was in the form of the
issuance of negotiable certificate deposits, fictitious lending
to some debtors, and the purchase of large amounts of
fictitious repo bonds. These problems caused a severe decline
in the quality of earning assets that inflicted a huge loss on
the banks, which eventually affected the bank’s capital and
liquidity. These, in turn, made the Capital Adequacy Ratio
(CAR) become negative and the Minimum Statutory Reserves
fall below 5%.
To overcome these problems, Bank Indonesia has taken
supervisory actions in accordance with prevailing regulations
as follows:
1. Conduct a Fit and Proper Test on the management and
controlling shareholders, and impose sanctions on
involved parties or those persons considered not to pass,
by asking them to resign.
2. Place bank under special surveillance.
3. Apply a Cease and Desist Order (CDO), such as: (i) the
prohibition of transactions with other parties verified
by Bank Indonesia; (ii) prohibition to withdraw deposits
by related parties; (iii) prohibition of business expansion
including loan disbursement; (iv) prohibition to sell or
reduce assets or make commitments without approval
from Bank Indonesia; (v) prohibition to make any
amendment or alteration in the shareholding, and
request a capital restoration plan to avoid any difficulties
or a lack of Minimum Statutory Reserves.
3. INFORMATION SYSTEM AND BANK LICENSING
Bank Information System
In line with technological development and in an
effort to improve supervision effectiveness, Bank Indonesia
continues to develop banking management information
systems. This aims to accommodate the approach change
towards risk-based supervision. During 2004, efforts were
made to improve the banking information system to
optimize the settlement process of licensing, supervision
and banking research. As an example, the Bank
30 Chapter 3 Banking Supervision
4. Ask for a written statement from the management
and shareholders to cope with their problematic
Negotiable Certificate Deposit (NCD) and securities,
as well as fictitious lending. This is done by formulating
and submitting a capital restoration plan, and to
execute Mandatory Supervisory Actions (MSA) to
restore the Capital Adequacy Ration (CAR) to a
minimum of 8%.
Although the management and controlling
shareholder were given sufficient time to resolve the banks’
problems, the recovery efforts did not succeed. Ever since
the bank was placed under special surveillance, the financial
condition worsened, as indicated by the negative CAR, high
non-performing loans (NPL), liquidity problems and
continuous violation of Minimum Statutory Reserve. This is
mainly due to bank management and the controlling
shareholder, who did not comply with their commitment as
per the schedule. To secure public funds kept in both banks
and to avoid even worse impacts on other banks, Bank
Indonesia, after coordinating with the Ministry of Finance,
revoked the licenses of the two banks. The procedure of
revoking the licenses was carried out as per Law no. 7, 1992
concerning the banking industry, replaced by Act no. 10,
1998 and Bank Indonesia Regulation No. 6/9/PBI/2004 dated
26 March 2004.
There are two important lessons to be learnt from
the cases, (i) banks can fail for different reasons in their
operations, (ii) the supervisory authority will take firm steps,
including the closure of problem banks which cannot be
recovered.
Performance Report (BPeR) has been developed and
utilized as an analytical tool of a bank’s condition. With
BPeR, supervisors, examiners and bank researchers are able
to identify banks’ conditions in a more comprehensive way,
at individual and industry levels.
In general, banking information system consists of
two main systems, Banking Sector Management
Information System (BSMIS) of Bank Indonesia and Debtor
Information System (DIS) which will be elaborated farther
below:
(1) Banking Sector Management Information System
(BSMIS) of Bank Indonesia
BSMIS is an integrated information system to support
the supervision, examination and regulation of the banking
system of Bank Indonesia. BSMIS comprises of two
modules, Supervisory Management Information System
(SMIS) and Examination Management Information System
(EMIS).
a. Supervisory Management Information System (SMIS).
This is an information system which has been
developed to improve the efficiency and effectiveness
of the supervision system of commercial banks. SMIS
has several uses: (i) expedite the acquisition of
information on a bank’s financial condition (including
bank soundness rating; (ii) increase the security and
integrity of bank data and information; (iii) facilitate
supervisors and researchers in analyzing a bank’s
condition.
In 2004, the development of new SMIS application
modules were completed to accommodate the
alteration of regulations regarding the bank
soundness rating and risk-based supervision, which
will be applied formally at the beginning of 2005.
b. Examination Management Information System (EMIS)
is an information system developed to support
effective commercial bank examinations. Through
EMIS, bank supervisors can acquire integrated data
faster that can assist in analyzing a bank’s condition
and preparing the Examination Report. Thus, it can
increase the control in administration and
documentation systems. The module is constantly
adjusted to accommodate the alteration of regulation
of risk-based supervision.
On top of the two rules mentioned above, BSMIS has
also developed Information System for Banks under
Investigation (ISBI). ISBI is an information system developed
to increase discipline in regulating and supervising in relation
to banking crime through the Special Unit for Banking
Investigation. Through ISBI, it is possible to monitor the
development of an investigation into a bank’s criminal case
conjecture as from the time the deviation report was
accepted (either from the Directorate of Bank Supervision
or from the public), the investigation schedule, the steps
undertaken up to the end results of the investigation activity.
In 2004, Bank Indonesia completed improvements on the
application of ISBI according to the needs of the Special
Unit for Banking Investigation.
(2) Debtor Information System (DIS)
DIS is an information system provided by Bank
Indonesia as a means to exchange information about
debtors among banks that can be used to increase the
efficiency and quality of loan provision. Data processing in
this system is done electronically with the provision of
information for individual debtors (IDI) on-line. The system
is not only utilized by banks but also by other institutions
such as government institutions, international agencies and
academia. The system is also utilized by Bank Indonesia to
support surveillance and examinations.
In 2004, a new DIS application was developed, which
can provide information to all debtors. Previously, only
information for debtors with loans of Rp50 million or more
was available. The aims of the new DIS application are:
- To support micro, small and medium level enterprises
by accelerating the provision of funding with a good
credit information system.
- To expedite the credit information system where the
information requirement in the new system is
punctual.
- To support loan allocation to the real sector with a
controlled risk level where banks can manage credit
risk better.
Chapter 3 Banking Supervision 31
 The new Debtor Information System is expected to
be effective in the first semester of 2005. In accordance
with the policy of the Board of Governors, the new system
will be utilized as a basic information system to form the
Indonesian Credit Information Bureau.
Licensing, Management and Ownership of
Commercial Banks
To stimulate a sound banking system, good
governance in the banking industry is should be improved.
To enable good governance, banks need to be managed
and owned by persons with high competency and integrity.
To find management and shareholders with these
qualifications, fit and proper tests have to be conducted
for management candidates and bank owners. Fit and
proper tests cover an administrative evaluation and only if
candidates have satisfied the administrative requirements
they will then proceed to the interview stage.
In 2004, fit and proper tests were conducted for
applicable candidates, interviewing 239 candidates
consisting of 131 candidates for board of directors, 95
candidates for the Board of Commissioners and 13
candidates to be controlling shareholders. The number of
candidates applying to be controlling shareholders includes
interviews with parties representing the shareholders in
the form of a legal entity. Of the total number of interviews,
Bank Indonesia declared are 181 people as having passed
consisting of 97 directors, 71 commissioners and 13
potential shareholders.
Ever since interviews became part of the fit and
proper test, 1,493 candidates for shareholders and
management have been interviewed, of which 1,287
passed, consisting of 763 director candidates, 482
commissioner candidates and 42 parties representing
controlling shareholders (Table 3.2).
4. INVESTIGATION OF BANKING CASES
Regarding the supervision of banks, there is always
a possibility of Bank Indonesia finding bank fraud thought
to contain criminal aspects. The findings are then
forwarded by the Directorate of Supervision to the Special
Unit on Banking Investigation for follow-up. As well as
coming from the findings of the supervision and
examination teams, fraud information handled by Special
Unit on Banking Investigation also comes from the public.
The main tasks of Special Unit on Banking Investigation,
which was formed on 31 December 1998, is to investigate
indications of banking crime perpetrated by a bank’s
management or owners, including affiliated parties or
other parties. The objective of Special Unit on Banking
Investigation is to improve banks’ compliance to prevailing
regulations by exposing fraud and formulating
recommendations to handle it.
In handling cases of banking crime, Special Unit on
Banking Investigation collaborates with the Police
Department and the Office of the Attorney General. The
collaboration began in 1997 which was described in a
collective decree between the Attorney General of the

Table 3.2
The Interviews for Controlling Shareholders and Management

Participants Participants Passed Not Passed Participants Passed Not Passed

2003 2004 Accumulation Up to 2004

Directors 135 131 97 34 909 763 146

Commissioner 95 95 71 24 540 482 58
Controlling Shareholder 11 13 13 0 44 42 2
TOTAL 241 239 181 58 1,493 1,287 206

32 Chapter 3 Banking Supervision

 Table 3.3
Investigation Results
(March 1999 - 31 December 2004 (Cumulative))

Commercial Bank Rural Bank TOTAL

Description Number of Number of Number of Number of
Cases Banks
cases banks cases banks

1. The number of cases reported to investigate 251 131 186 96 437 227

2. The number of cases that have been investigated 237 121 169 88 406 209
2.1. The number of cases reported/forwarded to investigator*) 141 55 73 40 214 95
2.2. The number of cases that have not been followed-up**) 96 66 96 48 192 114

3. The number of cases that are still under investigation 14 10 17 8 31 18

*) Including 15 banks reported by the Directorate of Legal Affair - Bank Indonesia

**) Investigation can not be proceed due to:
- Not committed as a criminal act; or
- Have been investigated by other enforcer ; or
- Other institution’s authority (such as taxation); or
- Expired, or void/null.

Republic of Indonesia, the Head of the Police Department
and the Governor of Bank Indonesia dated 6 November
1997. In its development, some regulations that were used
as basic rules for Collective Decree formulation have been
modified or even revoked. Therefore, the collaboration
needs to be improved in accordance with the
organizational development of the related institutions.
Besides, the Collective Decree is expected to provide new
motivaton for related institutions to stimulate, accelerate
and optimize the handling of banking criminal case
conjecture. The Collective Decree of the Republic of
Indonesia Attorney General, Head of the Police Department
and the Governor of Bank Indonesia was signed on 20
December 2004.
Since it became effective in the first quarter 1999
through December 2004, Special Unit on Banking
Investigation has received and handled 251 cases from
131 commercial banks, and 186 cases from 96 Rural Banks.
Of the total, 141 cases in 55 commercial banks and 73
cases in 40 Rural Banks have been investigated and
reported to legal enforcers (Police and Judiciary). During
the period of January to December 2004, Special Unit on
Banking Investigation received 69 cases from 12
commercial banks and 7 cases from 5 rural banks. However,
from all of the received cases, some were not followed-up
because no criminal aspect could be found; because legal
administrators handled the case or it was the domain of
other institutions (tax related cases), the case expired or
because of other aspects that were void.
Considering the importance of Special Unit on
Banking Investigation role in handling banking crime and
related to the initiative of the Indonesian Banking
Architecture, the status of Special Unit on Banking
Investigation will be extended to be a directorate, namely
the Directorate of Banking Investigation and Enforcement
with additional core tasks as mediator of customer
complaints and monitoring the banks’ compliance with
customer protection regulations.
One of the main prerequisites of supporting
investigation activity, which has hitherto been unavailable
to Special Unit on Banking Investigation, is the authority
to investigate banking cases. As a comparison, Bank
Negara Malaysia (BNM) has an investigation unit, namely,
the Special Investigation Unit (SIU) that has the authority
to investigate banking cases. With this authority, the
enforcement of effective banking can be realized in BNM,
which will support stability in the Malaysian financial
system.

Chapter 3 Banking Supervision 33

34 Chapter 3 Banking Supervision
Chapter 4
The Development
of the Banking Industry

Chapter 4 The Development of the Banking Industry 35

36 Chapter 4 The Development of the Banking Industry
Chapter 4
The Development of the Banking Industry

1. COMMERCIAL BANK despite a declining trend. The development of the key

Overview
The condition of the banking industry is satisfactory
and improving. The confidence on banks has been
maintained, which is reflected by the lack of shocks in the
banking system. During 2004, deposits increased to Rp74.5
trillion, equal to 8.4% (y-o-y), and the amount of loans
allocated (including chanelling) increased to Rp117.9
trillion, equal to 24.7% (y-o-y). Loans mainly came from
the increase in deposits and the conversion of the
marketable securities portfolio.
The loan expansion initiated improvements in
banking profitability indicated by the increase in return on
assets (ROA), net interest income (NII) and efficiency. The
loans increase caused a rise in risk-weighted assets;
however, the Capital Adequacy Ratio (CAR) is still sufficient
banking indicators is shown in Table 4.1.
Liquidity and the Role of Banking
Intermediation
The measure taken to increase statutory reserves,
which was applied as of July 2004, has succeeded in
acquiring Rp17.4 trillion banking liquidity excess. However,
banks are still confronted by excess of liquidity due to major
constraints in loan allocations that are mainly caused by
the lower capacity of the real sector, which has not
completely recovered.
The low post-crisis Loan to Deposit Ratio (LDR) has
always been interpreted as inefficiency in banking
intermediation. In fact, the low LDR is caused by a relatively
large number of transfers of bad debts by the recap banks

Table 4.1
Key Banking Indicators
(Trillion of Rp)

Growth
Key Indicators Dec-03 Mar-04 Jun-04 Sep-04 Oct-04 Nov-04 Dec-04
(+/-) (%)

Total Assets 1196.24 1149.95 1185.70 1213.09 1218.35 1228.10 1272.28 76.04 6.36
Earning Assets 1072.40 1080.33 1102.78 1074.71 1127.77 1114.95 1146.83 74.43 6.94
Loans * 477.19 485.91 528.68 555.06 567.26 573.36 595.06 117.87 24.70
New Loans - non SME 1.30 2.15 11.80 12.88 5.90 13.14 16.76 15.47 1193.19
New Loans - SME 0.63 1.18 5.24 7.54 3.18 5.68 5.34 4.71 750.22
Deposits 888.60 875.13 912.79 926.43 928.11 932.50 963.11 74.51 8.38
Net Interest Income 3.20 5.66 5.41 5.31 6.40 5.02 6.32 3.12 97.34
Loan to Deposit Ratio (%) 43.17 43.72 46.41 48.17 49.16 49.52 49.97
Return on Assets (%) 2.50 2.71 2.67 2.97 2.91 3.03 3.46
Non Performing Loans Gross (%) * 8.21 7.76 7.55 6.89 6.73 6.64 5.75
Non Performing Loans Net (%) * 3.04 2.67 2.10 2.12 2.10 2.01 1.72
Capital Adequacy Ratio (%) 19.39 23.50 20.93 20.52 20.38 19.71 19.36
Efficiency Ratio (%) 88.8 91.6 87.0 83.5 84.8 80.8 76.7

*) including chanelling

1) Compare with December 2003

Chapter 4 The Development of the Banking Industry 37

to IBRA. Therefore, the use of LDR as an intermediation adequate loss reserves and earning asset losses provision ;
indicator is misleading. Post-crisis loan growth has been around 178% of the compulsory earning asset losses
lower than prior to the crisis, namely 1.51% per month provision. As a result, the net NPL2 is quite low at 1.72%;
on average compared to 1.29% (2000-04). However, the a significant decrease on the previous year (3.04%).
phenomenon of credit crunch has also happened in other
countries suffering from economic crisis. Empirical studies 2. SHARIA BANK
show that there is a decline and a delay in loan growth in During 2004, the growth of commercial banks that
countries three to five years post crisis. For this reason, it is operate based on sharia principles was high and increasing
recommended to use other measurements, such as the due to the high demand from the public for this kind of
loan growth level and the LDR incremental. service. This was reflected by the significant growth of
banks and office networks, deposits and financing.
Loan Quality and Capital Adequacy The volume of business of the sharia banking industry
Even though it has declined slightly due to the increase is increasing significantly because of the increase in deposits
in risk-weighted assets, the Capital Adequacy Ratio (CAR) and financing. The growth of profit sharing is exceeding
of the banking industry (around 19.36%) is still sufficient. mark-up financing. This is a result of the willingness of
To improve the banking system, especially recap sharia banks to cooperate with non-bank financial
banks; it is necessary to enhance business efficiency and institutions, such as cooperatives and pawnbrokers,
the loan portfolio without ignoring prudential principles. including the development of short-term infrastructure and
Banks need to enhance their internal control and risk- public services projects.
management effectiveness as well as improving their The Financing to Deposit Ratio (FDR) for sharia banks
corporate governance. in 2004 remained high, namely 104.0%. This indicates
Some major problems still confronted by banks are that the role of sharia bank in intermediation is adequate.
high non-performing loans (NPLs). Gross NPLs in December Additionally, the quality of financing for sharia banks is
2004 were 5.75%, decreasing from 8.21% at the end of relatively high, as indicated by the low non-performing
the previous year. However, banks have made more than financing (NPF at less than 5%).
In 2004, sharia banks made a profit of Rp173.5 billion
with a ROA of 1.6%. Considering that this type of bank is
Trillion of Rp Percents
800 25
Table 4.2
700
20 The Composition of Sharia Banks Funding
600
(Billion of Rp)
500 15
Growth
400 Amount (y-o-y) Share
Account Type
300 10
2003 2004* 2003 2004* 2003 2004*
200
5
Wadiah Account 637.5 1,184.2 77.6% 116.5% 11.1% 11.2%
100
Capital RWA CAR
-
Mudharabah Saving 1,610.6 3,055.1 97.5% 113.2% 28.1% 28.9%
0
Dec Dec Dec Jun Jul Dec Jan Feb Mar Apr May Jun Jul Ags Sep Oct Nov Dec
2000 2001 2002 2003 2004 Mudharabah Deposits 3,476.8 6,319.7 99.4% 98.7% 60.7% 59.9%
Total 5,724.9 10,559.0 96.2% 104.6% 100.0% 100.0%
Figure 4.1. *as of November
Capital Adequacy Ratio (CAR) Trend
2 (Nominal Gross NPL - Earning Asset Allowance) / Total Loans

38 Chapter 4 The Development of the Banking Industry

 Table 4.4
still in the development phase, the profit level of sharia
Sharia Inter-bank Market
banks has increased dramatically compared to the same and Bank Indonesia Sharia Certificate

period from the previous year, namely Rp48.5 billion with (Billion of Rp)

a ROA of 0.9%. Due to the high expansion of financing, Indicators Q IV- 2003* Q I - 2004 Q II - 2004 Q III - 2004** Q IV - 2004

which was not followed by a proportional increase in profit,

IMI1 certificate 6.0 19.0 24.0 4.0 23.5
the Capital Adequacy Ratio decreased from 20.7% to BISC2 1,623.0 1,567,0 444,0 415,0 1,094.0

11.9%. * IMI Volume in November; ** IMI Volume in August

1 Interbank Mudharabah Investment Certificate
2 Bank Indonesia Sharia Certificate
Table 4.3
Key Indicators of Sharia Banks
The prospect of sharia banks in 2005 is good. The
(Billion of Rp)
industry will grow rapidly. With a growth rate of 88.6% in
Indicators Q IV - 2003 Q I -2004 Q II -2004 Q III -2004 Q IV -2004*
2004, the volume of business of sharia banks is projected
Assets 7,858.9 9,498.8 11,023.3 12,719.6 14,035.6
to reach Rp24 trillion, or 1.8% of the national banking
Financing 5,530.2 6,415.9 8,356.2 10,131.1 10,978.6
Deposits 5,724.9 7,022.8 8,315.9 9,675.7 10,559.0 industry in 2005.
Profit (loss) 42.7 38.3 85.3 132.0 173.5
current year
Financing to deposit 96.6% 91.4% 100.5% 104.7% 104.0%
3. RURAL BANK
ratio (FDR) Although the share of the rural banks in the banking
NPF 2.3% 2.6% 2.4% 2.8% 2.8%
industry is still very small, the operation of rural banks
* as of November

Table 4.5
Key Indicators of Rural Banks
(Billion Rp)
∆
∆ ∆ ∆
Selected Balance (Sep 04-
No Dec 01 Dec 02 Dec 02- 01 Sep 03 Dec 03 Dec 03- 02 Jun 04 Sep 04 Sep 04- 03
Sheet Data Dec 03)
% % %
%

1 Total assets 6,474 9,080 40.3 11,759 12,635 39.2 14,416 16,015 26.8 36.2

2 Loans (amount) 4,860 6,683 37.5 8,624 8,985 34.4 10,419 11,639 29.5 35.0
Loans (no. of account)* 1,560 1,825 17.0 2,064 1,993 9.2 2,002 2,161 8.4 4.7
3 Deposits 4,280 6,126 43.1 8,270 8,868 44.8 9,894 10,795 21.7 30.5

Deposit (no. of account)* 4,410 5,329 20.8 5,562 5,535 3.9 5,700 5,692 2.8 2.3
- Savings 1,574 2,002 27.2 2,418 2,617 30.7 2,889 3,223 23.2 33.3
Savings (no. of account)* 3,908 4,891 25.2 5,087 5,046 3.2 5,190 5,372 6.5 5.6

- Time deposit 2,706 4,124 52.4 5,852 6,251 51.6 7,005 7,572 21.1 29.4
Time deposit (no. of acc.)* 502 438 (12.7) 475 489 11.6 510 320 (34.6) (32.6)
4 Profit (loss) current year 223 338 51.6 333 429 26.9 294 466 8.6 39.9

5 LDR 80.9% 77.0% 77.3% 74.5% 78.5% 79.5%

6 NPLs 11.8% 8.7% 8.4% 8.0% 7.9% 8.0%
7 ROA 3.4% 3.7% 2.8% 3.4% 2.0% 2.9%

8 ROE 20.0% 24.7% 20.1% 25.0% 15.4% 22.9%

*) Account in Thousand

Chapter 4 The Development of the Banking Industry 39

continues to grow. This is reflected in the growth of total
assets, deposits and loans that have stimulated the increase
in rural banks profitability.
Total assets as of September 2004 were Rp16 trillion,
increasing 26.8% (y-t-d) or 36.2% (y-o-y). The increase
was due to the growth in loans which mainly came from
increases in deposits. Collected deposits up to the end of
September 2004 totaled Rp108 trillion, increasing 21.7%
(y-t-d) or 30.5% (y-o-y).
Total loans as of September 2004 reached Rp11.6
40 Chapter 4 The Development of the Banking Industry
trillion, increasing 29.5% (y-t-d) or 35% (y-o-y). This
pushed the LDR from 74.5% to 79.5%.
The number of customers has increased from 5.54
million in December 2003 to 5.7 million in September
2004. The improvement of rural banks business volume,
especially deposits and the number of depositors show
the increase in public confidence towards rural banks.
Additionally, there is still a prospective market for the
development of rural banks to enhance their roles in
financing small and micro businesses.
Chapter 5
Sharia Banking:
Policy and Supervision

Chapter 5 Sharia Banking: Policy and Supervision 41

42 Chapter 5 Sharia Banking: Policy and Supervision
Chapter 5
Sharia Banking: Policy and Supervision
1. THE DEVELOPMENT POLICY
The implementation of the policy for sharia banking
in 2004 referred to the Blueprint for the Development of
sharia Banking in Indonesia. The realization of initiatives
stipulated in the blueprint focus on four development
areas, namely: (i) compliance to sharia principles; (ii)
prudential principles; (iii) operational efficiency and
competitive capacity; and (iv) systemic stability and benefits
to the economy.
The initiative on the compliance of sharia principles
includes efforts to increase the understanding of the sharia
financial concept, to accelerate sharia financial norms and
review the mechanisms of an integrated regulation and
supervision system. Increasing the understanding of the
sharia financial concept is carried out through institutional
support to strengthen the National Sharia Council and
the Sharia Supervisory Board, and facilitating the formation
of sharia financial norms with the improvement of the
Standard Financial Accountancy Statement no. 59 in
collaboration with the Indonesian Accountants Association
and sharia banking officials.
In line with the application of research-based policy,
Bank Indonesia has also undertaken studies related to the
formation and improvement of a regulation and
supervision system for sharia banks. Studies and research
carried out during 2004 include: potential research, public
preferences and attitudes towards sharia banks, research
on sharia guarantees and saving institutions, a study on
Statutory Reserves for sharia banks, a study on problem
Sharia Rural Banks, and a study on the taxation of sharia
financial contracts and linkages between sharia financial
institutions.
Bank Indonesia also provided operational assistance
to the National Sharia Arbitrage Body which performs as
the sharia banks’ financial civil dispute settlement body.
Support for systemic stability and benefits to the economy
is undertaken through providing technical and operational
assistance to the Sharia Economic Communication Centre
in terms of public education to improve awareness about
sharia banking.
To establish affiliation with banking authorities in
other countries and IDB, Bank Indonesia is actively involved
in the formulation of international standards, among others
are: Accounting and Auditing Organization for Islamic and
Financial Institutions (AAOIFI) and Islamic Financial Services
Board (IFSB) as well as the International Islamic Financial
Market (IIFM).
AAOIFI is an international institution that has a
function in developing accountancy, audit and governance
standards, as well as sharia contract standards for all
institutions that provide sharia financial services. IFSB is an
international board that has a function to harmonize the
sharia banking regulation and supervision system and to
determine operational guidance for best-practice sharia
banking all over the world. IIFM is an international body
to regulate the mechanism and code of conduct of the
sharia international financial market.
In commemoration of IDB’s 30th anniversary, Bank
Indonesia will hold the Sixth International Conference on
Islamic Economic and Finance in Jakarta, August 2005.
This is a follow up of the successful conference in 2003 on
Islamic Banking: Risk Management, Regulation and
Supervision. The conference was an important contribution
to the development of thoughts regarding international
Chapter 5 Sharia Banking: Policy and Supervision 43
sharia banking and to promote Indonesian sharia banking
in an international forum
2. POLICY AND REGULATION
In developing the sharia banking industry, Bank
Indonesia has been consistent on four principles: market
driven, objective, a gradual and sustainable approach and
compliance to sharia rules. The implementation of these
policies was then focused into four development areas:
a. Compliance to sharia principles. The initiatives
include: (i) to increase the understanding of the
s haria financial concept; (ii) to accelerate and
facilitate sharia financial norms; and (iii) to review
the mechanisms of an integrated regulation and
supervision system.
b. Prudential principles. In 2004, Bank Indonesia issued
three Bank Indonesia Regulations (PBI) related to
prudential principles, namely: (i) PBI No. 6/18/PBI/2004
regarding Earning Assets Quality for Sharia Rural
Banks (BPRS); (ii) PBI No. 6/19/PBI/2004 regarding
Allowance for Earning Assets Losses for Sharia Rural
Banks; (iii) PBI No. 6/21/PBI/2004 regarding Minimum
Statutory Reserves in Rupiah and Foreign Currency
for Commercial Banks Conducting Business based on
Sharia Principles.
c. The improvement of human resource development.
To improve the efficiency and quality of sharia banks’
services, in 2004 Bank Indonesia, in collaboration with
the Association of Sharia Banks, held a training
program on murabahah receivables for Sharia Rural
Banks for account officers, covering two levels. In the
same year, Bank Indonesia held five basic training
courses on sharia banking for 200 Bank Indonesia
staff including participants from government
institutions, such as State Development Planning
Agency, the Ministry of Finance, the Ministry of
Industry, the Ministry of Trade, the Ministry of
44 Chapter 5 Sharia Banking: Policy and Supervision
Religious Affairs and the Ministry of Cooperations.
Bank Indonesia also helped to improve the
competency of human resources in sharia banks by
holding training courses to upgrade sharia bank staff
over two levels. Included in the training were 67
supervisors from 25 Bank Indonesia offices. The
quality of human resources has been strengthened
by involving supervisors, researchers and bank analysts
in various international forums.
d. Systemic stability and the effectiveness of the
economy. Public education has been carried out
continuously and intensively by Bank Indonesia since
2000. Proper understanding of the sharia banking
condition and its characteristics by the public will
facilitate increased stability in the sharia banking
system. For that reason, the role of the Sharia
Economic Communication Centre, which was formed
in 2003, has become more important and in 2004
started a networking system with related institutions.
Bank Indonesia also contributed thoughts and
operational assistance.
Another type of support given to develop sharia
banking includes the improvement of office network
regulations, both for commercial sharia banks and sharia
rural banks, which was shown in Bank Indonesia
regulations regarding commercial sharia banks and sharia
rural banks institutions: PBI No. 6/17/PBI/2004 regarding
Rural Banks based on Sharia Principles and PBI No. 6/24/
PBI/2004 regarding Commercial Sharia Banks.
3. SUPERVISION AND EXAMINATION
Since 2001, the approach of sharia bank supervision
has used a dedicated team model, which integrates off-
site and on-site examination, in line with the new risk-
based supervision approach. The implementation of the
new approach will be effective if it is supported by an
appropriate number of competent bank supervisors high
in integrity, as well as an accurate information system. For
that reason, in 2004 as part of The Bank Supervisor
Certification Program, bank supervisors’ competency was
improved. Also in 2004, a job training program was
implemented for supervisors of Bank Indonesia’s offices
conducted by sharia bank supervisors in Bank Indonesia’s
Head Office.
In relation to supervision information management,
commercial sharia banks have been required to submit
monthly reports since the end of 2003 and starting in 2004,
sharia banks reported their business based on sharia
principles. The current information system can only provide
the information for each individual office, whereas for
consolidated financial data, the reporting system still uses
a conventional bank report format. In future, the system
will be improved so that it can provide more accurate and
on-time reports.
In anticipation of the rapid growth of sharia banking,
bank supervision policy in 2004 has been directed towards
the application of prudential principles and the compliance
of prevailing rules including sharia principles. This includes
the implementation of good corporate governance
principles and the prevention of money laundering and
other banking crime in all banking institutions through
the application of ‘know your customer’ principles.
One of the constraints to the supervision of sharia
banks is the difference in interpretation of sharia rules and
principles, which can be found in official religious advice
from the Sharia National Council (SNC). Furthermore,
conventional bank practices are still found in sharia banks.
This can be seen from the application of sharia products,
which refers to the conventional banking model. In an
effort to overcome the constraints, the Sharia Supervisory
Council (SSC) of respective banks is coordinating with
the SNC. Bank Indonesia must also revise contract
standardization and the educational program for sharia
bank officials. When formulating the study which is to be
started in 2005, Bank Indonesia will involve the Sharia
Banking Specialist Committee, the SNC, sharia banks and
resource persons involved in sharia business.
Considering the importance of the Sharia Supervisory
Council (SSC) to ensure the proper operation of sharia banks
using sharia principles, Bank Indonesia has always been in
full support of improving the competency of SSC by
providing resource persons, information and other technical
assistance to hold training programs. Additionally, the task
and role of SSC will be strengthened further by the issuance
of Bank Indonesia regulations regarding the requirements
and procedures for recruiting the SSC, as per PBI No. 6/24/
PBI/2004 regarding Commercial Banks that run their
business based on Sharia principles.
To improve the quality of supervision, Bank Indonesia
continuously enhances supervision effectiveness through
periodical and on-time examinations, and follow up on
the findings. The commitment of bank management to
run their businesses in a good way and avoid any moral
hazards is prerequisite. Based on the supervision and
examination results, banks are requested to produce action
plans related to the problems faced, such as to reduce
non-performing financing, to form adequate reserves, to
increase capital and to help facilitate meetings among
shareholders and investors. In addition, banks were
requested to improve their governance.
Even though Bank Indonesia has made all efforts to
improve the management and operation of banks, the
outcome is not always acceptable. If a bank’s problems
cannot be resolved, Bank Indonesia can revoke a bank’s
license and close the business.
4. LICENSING
One of the initiatives of the blueprint is the expansion
of office networks as a foundation for the growth of sharia
banks. Increasing the number of offices and networks
became the main thrust of the sharia bank licensing policy.
Chapter 5 Sharia Banking: Policy and Supervision 45
For that reason, Bank Indonesia is fully support to the
establishment of sharia banks, the conversion of
conventional banks to sharia banks, and the opening of
additional sharia business units within conventional banks
with prudential principles. These attempts were described
in Bank Indonesia’s regulations on the improvement of
institutional aspects. During 2004, Bank Indonesia
completed licensing procedures for sharia banks in a timely
manner. As of December 2004, of 135 licensing applications,
98 have been approved and 37 are still being processed.
Within the framework of improving licensing
quality, Bank Indonesia consistently tries to process
applications on time. There are some difficulties in the
bank licensing procedure in Bank Indonesia. The major
difficulty is the lack of knowledge of the bank founders,
management and even SSC regarding licensing
procedures, banking operations and regulations. For this
reason, Bank Indonesia provides technical assistance to
banks through training programs and public education,
and by issuing booklets regarding procedures to establish
sharia banks.
5. POLICY DIRECTION — 2005
In line with the discussion on the draft of Banking
Laws, it is anticipated that in 2005, the draft of Sharia
Banking Laws will also be discussed in the People’s
Representatives Assembly. With Sharia Banking Laws in
place, it is expected that the basic legal principles of sharia
banks will be more solid.
The policy to develop sharia banking in 2005 will
continue on the initiatives already implemented as stated
in the Blueprint. The initiative on compliance with sharia
principles will be reinforced by the implementation of
standard contracts and the evaluation of a bank’s condition
in reference to sharia characteristics. It will be strengthened
further with the harmonization of SNC official religious
advice and sharia banking regulations.
46 Chapter 5 Sharia Banking: Policy and Supervision
The initiative on prudential principles will be
strengthened through the formulation of guidelines on
the status of a bank’s condition in relation to international
standards and the risk-based supervision system. For this
reason, Bank Indonesia will collaborate actively with
international institutions. As part of the financial safety
net concept, Bank Indonesia will formulate the entry and
exit policy for sharia banks.
The initiative on aspects of improving operational
efficiency and competitive capacity will be executed by
the implementation of good corporate governance. To
enhance the competency of sharia bank officials, Bank
Indonesia will implement a certification program and
provide technical assistance. To encourage strategic
alliance, Bank Indonesia will execute a trial program aimed
at developing a model for financial allocation, especially
for small and micro enterprises.
The initiative regarding aspects of systemic stability
and the benefits to the economy will be carried out through
a continuation of a research program on public preferences
in the banking industry, which will be supplemented by
preference mapping. This will be useful as a reference in
directing sharia banking development in the future.
Additionally, the results of the deposit insurance scheme
study can then be used as a recommendation in
formulating government regulations.
Bank Indonesia will synchronise all initiatives in the
blueprint with Indonesian Banking Architecture (IBA) and
the planned Indonesian Financial System Architecture (IFSA).
To fully support the development of sharia banking, Bank
Indonesia will promote the publishing of standard reference
books, such as sharia economic text books as the main
reference for the acedemia to create qualified sharia bank
officials. Finally, the public education program will be run
in a more systematic and sustainable way, as one of the
efforts to give better understanding regarding the objectives
and the operation of sharia banks in Indonesia.
Box 1 Challenges and Policies of Sharia Banking
The policy direction of sharia banking in 2004 has
continued to build a strong foundation for the development
of sharia banking. In 2005, these policies will focus on efforts
to strengthen the structure of the Sharia banking industry
through the implementation of programs to reinforce the
effectiveness of programs that were implemented in 2004.
Four key principles regarding the development of sharia
banking in 2005 include:
1. Compliance with sharia principles
One of the main issues in the development of sharia
banking is a better understanding of Sharia financial
concepts, especially for sharia bank supervisors. Bank
Indonesia has continuously provided technical training
for the Sharia Supervisory Council (SSC), as well as for
other bank management.
Another issue is to integrate sharia norms with banking
supervision regulations and guidance. For this reason,
Bank Indonesia has developed an evaluation system
for the supervision of a bank’s condition with the
application of specific characteristics of sharia banks.
2. The Implementation of Prudential Regulations
In addition to integrating sharia norms with banking
supervision regulations, Bank Indonesia has also
committed to develop good corporate governance and
update the supervision and examination system for
sharia banks. For that, Bank Indonesia has developed a
risk-based supervision system and issued prudential
regulations.
3. Efficiency and Competitive Capacity
Besides the focus on the development of human
resource competency through different types of training
program, Bank Indonesia will also collaborate with
related institutes to improve the sharia financial market
instrument, such as Sharia Government Bonds and tax
regulations, which will stimulate the development of
sharia banking and the efficiency of the Sharia
Arbitrage Body.
4. Systemic Stabilization and the Economic Benefits
One focus under this activity is the development of
the Sharia Economic Information Center as the
credible information exchange body useful to mitigate
financial crises in sharia financial institutions. It is
planned to have a deposit insurance scheme for sharia
banking products.
Other improvement initiatives include: compliance
with the 25 Basel Core Principles and a review of the entry
and exit policy for sharia banks that relate to the second
key principles and the implementation of Sharia Rural
Banks official certification in relation to the third key
principle.
Chapter 5 Sharia Banking: Policy and Supervision 47
48 Chapter 5 Sharia Banking: Policy and Supervision
Chapter 6
Rural Banks:
Policy and Supervision

Chapter 6 Rural Banks: Policy and Supervision 49

50 Chapter 6 Rural Banks: Policy and Supervision
Chapter 6
Rural Banks: Policy and Supervision
1. DEVELOPMENT POLICY AND REGULATION
Bank Indonesia continually attempts to improve the
effectiveness of the supervision and regulation of rural
banks to achieve a sound rural bank industry through the
implementation of various programs: (i) rural bank
restructuring program; (ii) improvements in the regulation
and supervision system; (iii) enhancement of rural bank
capacity and institution; and (iv) strengthening rural bank
industry infrastructure. These programs are as follows:
a) Restructuring Program
To facilitate the realization of a sound rural bank
industry, Bank Indonesia has implemented a restructuring
program through acquisitions, capital injection and
mergers of problem rural banks that are still feasible.
When the restructuring program fails, Bank Indonesia is
forced to take action either through freezing business
activities or revoking the rural bank license. Since May
2001 until the end of September 2004, Bank Indonesia
has consolidated 66 rural banks into one and has merged
nine rural banks into three.
b) The Implementation of the Government’s Guarantee
Program
As a follow up on the signing of a Memorandum of
Understanding between the Minister of Finance and the
Governor of Bank Indonesia regarding the implementation
of a guarantee program for rural banks dated 15 June
2003, Bank Indonesia issued Bank Indonesia Regulation
No. 5/17 PBI/2003 dated 3 September 2003 as a
replacement of Bank Indonesia Regulation No. 3/12/PBI/
2001 regarding the Requirements and Procedures for the
Operation of the Government’s Guarantee Program for
the Settlement of the Liabilities of Rural Banks. The aim is
to optimize the implementation of the Government
Guarantee Program to rural bank by including items not
accommodated before, such as the inclusion of mergers,
acquisitions and consolidation in the program.
Based on the above regulation, rural banks have to
follow the Government Guarantee Program by fulfilling
the following requirements: (i) the soundness rating of rural
banks has to be fairly sound and not under a special
surveillance program; (ii) the statement of participation
from the bank management and shareholders; (iii) a fee
must be paid; (iv) a nominative list of deposits must be
provided; and (v) a penalty must be paid.
Up to July 2004, there were 175 rural banks unable
to fulfil the requirement to participate in the Government
Guarantee Program, including five sharia rural banks. Rural
banks failing to meet the requirements have to announce
their status to the public. In such a case, the settlement of
all deposits will be borne by the rural bank according to
prevailing regulations.
If any rural banks fail to announce their participation
status, Bank Indonesia will announce it to the public to
protect the bank’s customers in order to stabilize the rural
banking industry.
c) The Settlement of Deposits for Non-participants of the
Guarantee Program
The settlement of deposits for non-participants of
the guarantee program (including five rural banks whose
licenses were revoked in 2004) will be borne by the
respective rural banks through liquidation according to
Chapter 6 Rural Banks: Policy and Supervision 51
prevailing regulations. Based on Government Regulation
(PP) No. 25, 1999 and the Director Decree of Bank
Indonesia no. 32/54/KEP/DIR, 1999, the rural bank
liquidation process will be enforced by the Liquidation Team
and Bank Indonesia will act as supervisor.
In practice, the difficulty in settling deposits through
liquidation is attributable to the poor asset quality of rural
banks in liquidation (RBL), meaning the amount of assets
are insufficient to settle the liabilities. Bank Indonesia has
to ensure that the settlement process is in accordance with
prevailing regulations, for example, creditors are given
priority in the settlement process. Bank Indonesia also
requests the shareholders be willing to pay the deposits
through the settlement of RBL’s assets.
Improvements in the Regulation and
Supervision System
Improvements in the regulation and supervision
system were carried out with consideration of the
characteristics of rural banks and international best
practices. In line with this there are some steps to be taken,
namely: (i) improvements in some criteria of rural bank
institution; (ii) the use of a rural bank database as an early
detection system; (iii) legal enforcement efficiency; (iv)
selecting rural bank management candidates through fit
and proper tests; (v) improve the prudential principles,
including CAMEL aspects and the rural bank soundness
rating, which covers the stipulations of CAMEL, capital
adequacy ratio, asset quality, earning assets losses
provision, legal lending limit; and (vi) changes in loan
classification, the allowance of earning assets, as well as
a loan restructuring system.
To improve rural bank institution, Bank Indonesia
issued regulation No. 6/22/PBI/2004 dated 9 August 2004
regarding Rural Banks to replace Director Decree No. 32/
35/KEP/DIR. In the regulation, there is an improvement on
capital rules and regulations, a modification on the
52 Chapter 6 Rural Banks: Policy and Supervision
requirements for the opening of a rural bank branch office,
and conditions for selecting a rural bank’s board of
directors. In addition, Bank Indonesia issued Regulation
No. 6/23/PBI/2004 concerning the Fit and Proper Test for
Rural Banks, dated 9 August 2004.
To promote efficiency in the rural bank licensing
procedure, Bank Indonesia has examined the saturation
level of rural banks in a few regions. This research aimed
to identify the affecting factors and determine the
saturation level of rural banks in one region. The result of
the research will be used as a reference for Bank Indonesia
in issuing licenses, address changes or opening rural bank
branch offices. The research has produced a formula to
measure the rural bank saturation level. However, further
research is required to anticipate the tight competition
between commercial banks and rural banks.
Capacity Building and Institution
a) Professional Certification Program (CERTIF)
On 12 July 2004, Bank Indonesia launched the rural
bank Professional Certification Program requiring directors
of rural banks to pass the program. The target is for a
minimum of one director by the end of 2006 and for all
directors by the end of 2008. This program intends to
improve the quality of rural bank human resources in an
appropriate and continuous way.
b) Promoting the Use of Information Technology
The development of rural banks requires the use of
information technology, therefore, rural banks are required
to submit a monthly report via diskette. Currently, Bank
Indonesia is developing software to improve the
microbanking system for rural banks with technical assistance
provided by Food and Agriculture Organization (FAO).
c) The Linkage Program for Commercial Banks and Rural
Banks
Bank Indonesia stimulates linkages between
commercial banks and rural banks in terms of loan
 Box 1 Professional Certification Program for Rural Banks (CERTIF)
In relation to the capacity improvement of the rural
banking institution, a BPR Professional Certification Program
CERTIF was launched on 12 July 2004. The program stipulates
that BPR directors must pass a graduation certificate, at least
for one director by the end of 2006 and for all directors by
the end of 2008.
The CERTIF program in intended to improve the quality
of human resources in rural banks in a systematic and
sustainable way. A pilot project was implemented in East Java
province and Bali with support from Bankakedemie, which
has completed several programs: (i) the establishment of
training institutes as part of the pilot project; (ii) the
composition of a curriculum, training modules and exam
material; (iii) training of trainers (ToT) that has been conducted
twice; and (iv) two certified training courses run by the
consultancy agency IRBA, Malang and one training course
run by IRBA, Bali.
The National Task Force, which has Bank Indonesia
membership (the Directorate of Rural Banks Supervisory, the
head of Bank Indonesia Branch Office in Surabaya, Denpasar
and an official from the Directorate of Sharia Banking), has
conducted twelve meetings with some agreements on the
foundation of a certification institution by the Indonesian
Banking Development Foundation and the expansion of the
allocation for Small and Micro Enterprises (SME). The
linkage program is the continuation of the successful Micro
Credit Project oriented towards mutual collaboration
between commercial banks and rural banks, or with other
micro finance institutions to develop a network to allocate
micro credit.
As of June 2004, there was collaboration between
924 rural banks and 25 financial institutions (24 commercial
banks and PNM Ltd.) with a cap of Rp944 billion and a
Rp536 billion outstanding debit. From the survey
conducted by Bank Indonesia in cooperation with the
Economic Faculty of Padjajaran University, concerning the
impact of linkage programs on the improvement of rural
bank performance, there are some important results as
follows:
certified training program to other parts of Indonesia, such
as: West Java, Jabotabek (Jakarta, Bogor, Tangerang and
Bekasi), South Sumatra, West Sumatra and South Sulawesi
through the Training of Trainers (ToT) program for the training
of candidates in those areas.
In accordance with Bank Indonesia Regulation No. 6/
22/PBI/2004 dated 9 August 2004 and External Circular Letter
No. 6/34/DPBPR dated 13 August 2004 regarding Certification
Institutions for rural banks, the establishment of this institution
must take into consideration Bank Indonesia’s
recommendations. The institution has the right to regulate
the certification system and issue graduation certificates, give
accreditation for trainers and to training institutes, and to set
the test procedures and exam material, all in collaboration
with institutions that have been established from Certification
Council, National Curriculum Committee and Management
Council.
In supporting the implementation of CERTIF, Bank
Indonesia provides training grants as much as 50% of the
total training costs for one rural banks director, in particular
for rural banks that were founded before the issuance of the
regulation.
In future, the development of a human resources
program for rural banks will be self-funded.
– A linkage program has positive impacts on both
commercial banks and rural banks, therefore it is
recommended to be continued.
– Bank Indonesia will have to continuously stimulate
the participation of commercial banks in the linkage
program and create policies to increase the
competitive capacity of rural banks. Commercial
banks need to lower their interest rates for rural banks
and continue to monitor and provide technical
assistance to rural banks.
– Support from the credit guarantee institution is
necessary to warrant loan allocation for relatively
sound rural banks.
– Incentives should be given to commercial banks and
rural banks capable of increasing their loan allocation
Chapter 6 Rural Banks: Policy and Supervision 53
 to small and micro enterprises.
– Bank Indonesia should provide incentives to
commercial banks, maintain a sound competitive
environment, improve supervision and provide
information regarding rural banks to the public.
d) Intensification of Rural Banking Industry Infrastructure
To stimulate the development of infrastructure which
supports the growth of the rural banking industry, Bank
Indonesia is undertaking the following activities:
– Promoting the formation of a Deposit Insurance
Company for both commercial and rural banks.
– Empowering the role of rural bank associations.
– Stimulating the formation of apex in the rural banking
industry. Apex pools funds to assist rural banks
overcome liquidity mismatch and facilitate a rural bank
settlement system. Apex is expected to be able to
provide training on information technology and
provide working capital for its members. Bank
Indonesia is currently conducting research, in
collaboration with the Institute for Development of
Economics and Finance (INDEF) and the Bogor
Agricultural Institute, to formulate the draft of
regulations for institutional and operational aspects
regarding the establishment of apex for rural banks.
Apex is expected to improve the efficiency and
competitiveness of rural banks.
Development of Regulations
During 2004, Bank Indonesia issued regulations and
circulars regarding rural banks, namely: (i) rural bank
institution; (ii) the improvement of rural bank management
competency through institutional qualifications; and (iii)
fit and proper tests for controlling shareholders and rural
bank management.
The Bank Indonesia regulations and circulars issued
during 2004 can be summarized as follows:
54 Chapter 6 Rural Banks: Policy and Supervision
1. PBI No. 6/22/PBI/2004 regarding Rural Bank dated 9
August 2004, SE BI No. 6/33/DPBPR dated 13 August
2004 regarding Rural Bank and SE BI No. 6/34/DPBPR
dated 13 August 2004 regarding Certification
Program for Rural Bank.
a. Paid-up capital for the establishment of rural
banks was modified to: (i) Rp5 billion for rural
banks located in DKI Jakarta; (ii) Rp2 billion for
rural banks located in provincial capitals in Java
and Bali and in the region of Bogor, Depok,
Tangerang and Bekasi; (iii) Rp1 billion for rural
banks located in provincial capitals outside of
Java and Bali and in areas outside the regions
mentioned in item two; and (iv) Rp500 million
for rural banks located in the areas outside the
categories already mentioned.
b. Supplementary administrative requirements for
the establishment of rural banks include a letter
of notification, a copy of a bachelor degree or
graduation certificate proving to have completed
110 credits, and the ability to present the
feasibility of potential rural banks.
c. The shareholder and management candidates
have to satisfy all requirements as stated in the
fit and proper test.
d. Members of the board of directors have to hold
a certificate from the certification institution
(CERTIF) according to the following
requirements: (i) At least one board member has
to hold a certificate no later than 31 December
2006; and (ii) the other board members no later
than 31 December 2008.
e. At least one candidate of the board of directors
has to hold a certificate at the time of submitting
the proposal as of 31 December 2006 and all
candidates after 31 December 2008.
f. Dual functions are forbidden for the board of
 commissioners and board of directors at Rural
Banks, Sharia Rural Banks and/or Commercial
Banks.
g. Number of commissioners and directors are at
least two.
h. The obligation to increase paid-up capital based
on locality as mentioned in item (a) by the end
of 2010 through several stages: (i) Minimum
40% of paid-up capital on 31 December 2006;
(ii) Minimum 70% of paid-up capital on 31
December 2008; and (iii) 100% of paid-up
capital on 31 December 2010.
Rural Banks failing to satisfy the paid-up capital
requirement by the end of 2010 have to realign
their position to an area with suitable paid-up
capital requirements in line with business
restriction sanctions.
i. The opening of branch office does not require
the addition of paid-up capital but relates to the
ability of rural banks to meet the paid-up capital
requirement, the soundness rating for the past
12 months considered Sound and minimum
15% Capital Adequacy Ratio (CAR) for the past
3 months. Rural Banks can only open one branch
office within a year from the issuance of the
license.
2. Bank Indonesia Regulation No. 6/23/PBI/2004
regarding Fit and Proper Test for Rural Banks dated 9
August 2004 and Bank Indonesia Circular Letter No.
6/35/DPBPR dated 16 August 2004 regarding Fit and
Proper Test for Rural Banks.
a. Fit and proper tests are carried out by Bank
Indonesia for: (i) controlling shareholder
candidates and rural bank management
candidates, and (ii) controlling shareholders,
directors and executives of rural banks, if there
is an indication of violations of sound banking
practices based on the supervision and other
information.
b. Fit and proper tests for controlling shareholders
and new candidates are carried out to evaluate
integrity and financial viability. The evaluation
grades for controlling shareholder candidates
are: Passed or Not Passed, whereas the grades
for existing controlling shareholders are: Passed,
Conditionally Passed and Not Passed.
c. Fit and proper tests for shareholders, directors
and executives are carried out to evaluate
integrity, competence and financial reputation.
The evaluation grades for directors are: Passed
and Not Passed, whereas grades for existing
directors and executives are: Passed,
Conditionally Passed and Not Passed.
d. Persons graded as Passed can keep their position
in rural banks. Persons graded as Conditionally
Passed can still keep their position with a
statement to not commit the same violation,
increase their competency and settle overdue
loans. For those who are Not Passed, they are
not allowed to be in any position of controlling
shareholders, directors or executives at a rural
bank.
e. The grading level is based on the results of
examinations regarding the above mentioned
indications and refers to certain criteria according
to the role of that person in the violation.
f. The sanctions which can be brought against
controlling shareholders, directors and executives
consist of bans from taking specific job
appointments for 2, 3, 5 or 20 years, determined
by the impact of the violation on the rural bank’s
capital condition or by a violation on a statement
made that will cause someone to receive a
particular penalty.
Chapter 6 Rural Banks: Policy and Supervision 55

g. In the fit and proper tests, rural banks are given
two opportunities to provide supporting
evidence on the results of Bank Indonesia
supervision.
h. Black-listed persons in the banking industry
under the former regulations will be placed on
the list of Not Passed persons for a period of 20
years.
2. SUPERVISION AND EXAMINATION
a. Off-site supervision
The objective of rural bank supervision is to create a
sound, strong and efficient banking system that
complies with the public’s needs and stimulates
economic growth through the improvement of micro
business.
In conducting the off-site supervision and examination
of rural banks, Bank Indonesia applies a unified system
where the supervision and inspection functions are
integrated. This system is applied taking into
consideration the small coverage of rural banks
compared to commercial banks so that supervisors
can identify problems easier and can provide solutions
as early as possible.
b. On-site examination
The general on-site examination for rural banks is
conducted once a year while a more specific one is
conducted based on the problems confronted by each
rural bank. The plan and realization of rural bank
examinations in 2004 (data up to August 2004) is as
follows:
Based on the examination report, one of the basic
problems confronted by rural banks is poor management
and governance. Some rural bank directors and staff are
not professional, and there is still intervention from the
owner in rural bank operations. As a result, rural banks
are not run properly, and some offenses are committed
56 Chapter 6 Rural Banks: Policy and Supervision
Table 6.1
Plan and Realization of rural bank examination
Nature of Examination Plan Realization Deviation
General examinations 1,194 1,155 (39) -3,4%
Specific examinations 101 192 91 47,4%
Total examinations 1,295 1,347 52 3,9%
mostly for the sake of the owner, the directors or their
cronies. For this reason, Bank Indonesia provides technical
assistance to rural banks to improve the capacity of human
resources through a certification program.
For rural banks committing unsound banking
practices, Bank Indonesia has taken supervisory actions
and/or imposed sanctions according to the prevailing
regulations. For the worst problem banks, including ones
under special surveillance, can be resolved through
acquisition and/or capital injection by the owner to reach
4% minimum CAR and 3% minimum cash ratio.
Additionally, directors and/or the owner who prove to be
the cause of the problems in the rural bank need to be
replaced. Violations that have indications of criminal
behaviour need to be reported to Special Unit on Banking
Investigation for follow-up actions.
From 1987 up to the end of September 2004, 130
rural bank business licenses were revoked without
following frozen operations procedure. Since September
2004, 194 rural banks had their business operations frozen.
Of the 194 rural banks, 182 licenses have been revoked
and two others are still frozen. Meanwhile, 10 other rural
banks were successfully saved through the acquisition
process and capital injection.
3. LICENSING
a. The objective and main activity of licensing
The objective of licensing is to establish new and
sound rural banks, which are also efficient and able
to develop properly to provide financial services for
 the public and micro, small and medium sized
businesses. The target is achieved through the
following main activities:
– Analyze the completion of administrative
requirements, principal licenses and business
licenses according to the prevailing regulations.
– Conduct interviews (fit and proper tests) for
controlling shareholders and directors of rural
banks to be established in Jakarta Head Office
(Jabotabek).
– Discuss the potential and saturation level of rural
banks which are to be established in Jakarta
Head Office following a recommendation by an
independent consultant and candidates for
shareholder and management positions.
– Coordinate with Bank Indonesia’s branch offices
regarding the establishment of rural banks in
branch office areas, in terms of regulation,
compliance, fit and proper tests and assessments
on the potential and saturation point.
b. The number of rural bank licenses
Since May 2001 and up until the end of September
2004, there were 142 license applications for the
establishment of new rural banks. Of the 142
applications, nine have been principally approved, 50
have received business licenses and 74 are still in
processing. The rejection of two applications was
caused by the paid-up capital resources not complying
with the regulations. The high number of license
applications indicates greater investor interest in the
development of SMEs, which are the main market of
rural banks.
c.. Fit and proper test data for controlling shareholders
and the management of rural banks
During 2004, fit and proper tests for controlling
shareholders, the board of commissioners and
directors of rural banks were conducted with regard
to the issuance of licenses for new rural banks. The
number of applicants who passed the test is 266: 96
shareholders, 78 commissioners and 92 directors.
For existing rural banks (until August 2004) there are
around 700 directors and owners following fit and
proper tests in conjunction with the changes in rural
bank directors and owners. Only 339 director
candidates and 247 owner candidates have passed
and been approved, the rest are considered as not
passed due to integrity and competency requirements.
Chapter 6 Rural Banks: Policy and Supervision 57
58 Chapter 6 Rural Banks: Policy and Supervision
Appendices

Appendices 59
60 Appendices
Appendix 1
Core Principles for Effective Banking Supervision
This document is a revised version of consultative
paper which was published by BIS (Bank for International
Settlement) on April 1997, confirming 25 principles which
are ensured by the Basel Committee to be implemented
for effective supervision.
Basel Core Principles were developed by the Basel
Committee in collaboration with supervisory authorities
from 15 developing countries and have received inputs
from intensive consultation with many supervisory
authorities worldwide. The principles cover basic elements
of an effective supervision system. The principles have
comprehensive coverage including preconditions for
effective bank supervision, licensing and structure,
requirement and prudential regulations, and method of
ongoing supervision.
Basel Core Principles is intended to be a basic
guideline for supervisory authorities worldwide to be
applied to banking supervision in line their own regulations.
Supervision authorities worldwide were urged to apply
these principles at least in October 1998. The
implementation includes a review of the current supervisory
system compared to the principles. The pace of change
varies depending on whether the supervisory authority has
the legal power or not. If changes in the law are required,
legislators of each country are requested to give immediate
consideration to the necessary changes to ensure that the
1 Source: The Core Principles for Effective Banking Supervision, Bank for International
Settlements, September 1997.
2 The Basel Committee on Banking Supervision founded by the Governors of Central
Banks of the Group of Ten Countries in 1975. This Committee members include senior
manager from supervisory authorities and central banks from Belgium, Canada, France,
Germany, Italy, Japan, Luxembourg, Netherland, Sweden, Switzerland, England and United
States. The Committee, meet regularly at the Bank for International Settlements (BIS) in
Basel, Switzerland where the Secretary reside permanently. The Basel Committee
continuosly develop banking supervisory systems and approach to be implemented in-
ternationally.
principles are applicable to all important aspects. The
documents of the principles can be downloaded from the
BIS web site: http://www.bis.org.
PRECONDITIONS FOR EFFECTIVE BANKING
SUPERVISION
1. An effective system of banking supervision will have
clear responsibilities and objectives for each agency
involved in the supervision of banking organizations.
Each such agency should possess operational
independence and adequate resources. A suitable
legal framework for banking supervision is also
necessary, including provisions relating to
authorization of banking organizations and their
ongoing supervision; powers to address compliance
with laws as well as safety and soundness concerns;
and legal protection for supervisors. Arrangements
for sharing information between supervisors and
protecting the confidentiality of such information
should be in place.
LICENSING AND STRUCTURE
2. The permissible activities of institutions that are
licensed and subject to supervision as banks must be
clearly defined, and the use of the word “bank” in
names should be controlled as far as possible.
3. The licensing authority must have the right to set
criteria and reject applications for establishments that
do not meet the standards set. The licensing process,
at a minimum, should consist of an assessment of
the banking organization’s ownership structure,
directors and senior management, its operating plan
Appendices 61
 and internal controls, and its projected financial
condition, including its capital base; where the
proposed owner or parent organization is a foreign
bank, the prior consent of its home country supervisor
should be obtained.
4. Banking supervisors must have the authority to review
and reject any proposals to transfer significant
ownership or controlling interests in existing banks
to other parties.
5. Banking supervisors must have the authority to
establish criteria for reviewing major acquisitions or
investments by a bank and ensuring that corporate
affiliations or structures do not expose the bank to
undue risks or hinder effective supervision.
PRUDENTIAL REGULATIONS AND
REQUIREMENTS
6. Banking supervisors must set prudent and appropriate
minimum capital adequacy requirements for all banks.
Such requirements should reflect the risks that the
banks undertake, and must define the components
of capital, bearing in mind their ability to absorb
losses. At least for internationally active banks, these
requirements must not be less than those established
in the Basle Capital Accord and its amendments.
7. An essential part of any supervisory system is the
evaluation of a bank’s policies, practices and
procedures related to the granting of loans and
making of investments and the ongoing management
of the loan and investment portfolios.
8. Banking supervisors must be satisfied that banks
establish and adhere to adequate policies, practices
and procedures for evaluating the quality of assets
and the adequacy of loan loss provisions and loan
loss reserves.
9. Banking supervisors must be satisfied that banks have
management information systems that enable
62 Appendices
management to identify concentrations within the
portfolio and supervisors must set prudential limits
to restrict bank exposures to single borrowers or
groups of related borrowers.
10. In order to prevent abuses arising from connected
lending, banking supervisors must have in place
requirements that banks lend to related companies
and individuals on an arm’s-length basis, that such
extensions of credit are effectively monitored, and
that other appropriate steps are taken to control or
mitigate the risks.
11. Banking supervisors must be satisfied that banks have
adequate policies and procedures for identifying,
monitoring and controlling country risk and transfer
risk in their international lending and investment
activities, and for maintaining appropriate reserves
against such risks.
12. Banking supervisors must be satisfied that banks have
in place systems that accurately measure, monitor and
adequately control market risks; supervisors should
have powers to impose specific limits and/or a specific
capital charge on market risk exposures, if warranted.
13. Banking supervisors must be satisfied that banks have
in place a comprehensive risk management process
(including appropriate board and senior management
oversight) to identify, measure, monitor and control
all other material risks and, where appropriate, to hold
capital against these risks.
14. Banking supervisors must determine that banks have
in place internal controls that are adequate for the
nature and scale of their business. These should
include clear arrangements for delegating authority
and responsibility; separation of the functions that
involve committing the bank, paying away its funds,
and accounting for its assets and liabilities;
reconciliation of these processes; safeguarding its
assets; and appropriate independent internal or
 external audit and compliance functions to test
adherence to these controls as well as applicable laws
and regulations.
15. Banking supervisors must determine that banks have
adequate policies, practices and procedures in place,
including strict “know-your-customer” rules, that
promote high ethical and professional standards in
the financial sector and prevent the bank being used,
intentionally or unintentionally, by criminal elements.
METHODS OF ONGOING BANKING SUPERVISION
16. An effective banking supervisory system should
consist of some form of both on-site and off-site
supervision.
17. Banking supervisors must have regular contact with
bank management and thorough understanding of
the institution’s operations.
18. Banking supervisors must have a means of collecting,
reviewing and analyzing prudential reports and
statistical returns from banks on a solo and
consolidated basis.
19. Banking supervisors must have a means of
independent validation of supervisory information
either through on-site examinations or use of external
auditors.
20. An essential element of banking supervision is the
ability of the supervisors to supervise the banking
group on a consolidated basis.
INFORMATION REQUIREMENTS
21. Banking supervisors must be satisfied that each bank
maintains adequate records drawn up in accordance
with consistent accounting policies and practices that
enable the supervisor to obtain a true and fair view
of the financial condition of the bank and the
profitability of its business, and that the bank
publishes on a regular basis financial statements that
fairly reflect its condition.
FORMAL POWERS OF SUPERVISORS
22. Banking supervisors must have at their disposal
adequate supervisory measures to bring about timely
corrective action when banks fail to meet prudential
requirements (such as minimum capital adequacy
ratios), when there are regulatory violations, or
where depositors are threatened in any other way.
In extreme circumstances, this should include the
ability to revoke the banking license or recommend
its revocation.
CROSS-BORDER BANKING
23. Banking supervisors must practice global consolidated
supervision over their internationally-active banking
organizations, adequately monitoring and applying
appropriate prudential norms to all aspects of the
business conducted by these banking organizations
worldwide, primarily at their foreign branches, joint
ventures and subsidiaries.
24. A key component of consolidated supervision is
establishing contact and information exchange with
the various other supervisors involved, primarily host
country supervisory authorities.
25. Banking supervisors must require the local operations
of foreign banks to be conducted to the same high
standards as are required of domestic institutions and
must have powers to share information needed by
the home country supervisors of those banks for the
purpose of carrying out consolidated supervision.
Appendices 63
Appendix 2
Banking Key Indicators (Million of Rp)

EARNING ASSETS DEPOSITS

TOTAL COMMIT-
No BANKS L O A N S SECURITIES INTER-BANK OTHER EQUITY
ASSETS MENT AND DEMAND SAVING TIME
AND PLACEMENT INVESTMENT CLAIMS TOTAL TOTAL
CONTIGENCY DEPOSIT ACCOUNT DEPOSIT
BIS

STATE-OWNED BANK
1 PT BANK MANDIRI (PERSERO) Tbk 228,727,465 81,338,713 104,669,283 15,551,812 1,882,069 6,147,665 15,139,023 224,728,565 42,364,778 44,637,844 75,969,286 162,971,908 23,782,691
2 PT BANK NEGARA INDONESIA (PERSERO),Tbk 129,972,228 51,758,953 51,912,983 10,101,085 3,443,442 2,501,826 7,710,914 127,429,203 30,213,329 36,058,973 36,300,793 102,573,085 11,946,676
3 PT BANK RAKYAT INDONESIA (PERSERO) Tbk, 100,086,609 58,381,719 28,794,335 5,118,821 61,308 110,817 2,373,079 94,840,079 12,975,443 41,142,461 24,449,128 78,567,032 11,742,744
4 PT BANK TABUNGAN NEGARA (PERSERO) Tbk, 26,647,428 12,072,920 12,775,474 179,362 4,341 25,032,097 1,364,850 5,743,624 11,426,324 18,534,798 1,166,513
5 PT BANK EKSPOR INDONESIA (PERSERO) 5,737,152 783,198 1,152,246 3,789,665 5,146 5,730,255 0 0 4,570 4,570 3,673,745
PRIVATE NATIONAL FOREX BANK
6 PT BANK CENTRAL ASIA Tbk, 143,355,044 35,817,736 85,813,176 4,704,806 257,804 791,269 1,731,569 129,116,360 28,552,673 63,498,175 33,626,807 125,677,655 13,672,243
7 PT BANK DANAMON INDONESIA Tbk 53,324,203 25,747,562 20,707,954 1,851,243 974,876 508,852 1,080,942 50,871,429 4,803,090 10,903,421 20,040,235 35,746,746 8,146,186
8 PT BANK INTERNASIONAL INDONESIA Tbk 35,783,117 12,220,471 14,467,745 5,221,642 60,750 707,051 369,750 33,047,409 9,738,434 5,838,607 13,466,902 29,043,943 4,096,127
9 PT BANK PERMATA Tbk (prev. PT, BANK BALI ) 31,391,579 13,297,987 12,638,048 1,473,848 141,028 203,887 452,408 28,207,206 4,982,004 3,988,836 16,593,280 25,564,120 2,205,096
10 PT LIPPO BANK, Tbk 27,353,918 5,428,310 14,732,884 2,558,258 3,464 80,979 637,260 23,441,155 8,524,965 10,291,391 5,690,363 24,506,719 1,723,181
11 PT BANK NIAGA, Tbk 27,239,356 18,370,136 4,915,080 1,393,735 144,451 338,902 707,000 25,869,304 5,303,801 4,639,911 11,832,924 21,776,636 2,175,322
12 PT PAN INDONESIA BANK, Tbk 22,296,369 10,574,709 6,851,417 2,437,938 246,796 130,277 415,151 20,656,288 4,378,863 3,882,903 6,629,424 14,891,190 4,200,571
13 PT BANK MEGA, Tbk 17,215,031 7,314,403 7,683,333 302,873 37,615 55,268 125,894 15,519,386 2,759,719 1,805,326 10,606,917 15,171,962 1,253,234
14 PT BANK NISP, Tbk 16,534,806 9,450,846 3,894,728 981,027 56,215 727,211 593,860 15,703,887 1,634,990 2,562,449 7,736,678 11,934,117 1,229,854
15 PT BANK BUANA INDONESIA Tbk, 15,880,659 7,121,283 5,102,296 2,148,034 88 26,226 250,264 14,648,191 3,918,602 4,532,548 4,583,969 13,035,119 1,923,011
16 PT BANK BUKOPIN 15,620,846 12,632,541 1,312,064 316,013 550 8,637 530,016 14,799,821 2,670,027 1,462,689 8,709,497 12,842,213 1,075,641
17 PT BANK EKONOMI RAHARJA 10,117,253 4,144,738 4,616,757 597,179 31,167 235,661 9,625,502 1,635,377 3,059,129 4,546,093 9,240,599 503,481
18 PT BANK ARTHA GRAHA 8,517,479 5,287,664 1,327,464 569,904 131 2,079 41,687 7,228,929 799,690 687,204 5,263,569 6,750,463 298,130
19 PT BANK CENTURY Tbk,(BANK CIC-6,12,2004) 6,292,682 1,155,645 1,041,875 2,442,498 274,281 11,839 4,926,138 403,148 318,649 3,509,542 4,231,339 446,230
20 PT,BANK SYARIAH MANDIRI, Tbk 6,051,925 5,007,108 369,994 5,478 1,127 118,702 5,502,409 776,780 1,431,134 2,846,170 5,054,084 505,827
21 PT BANK MUAMALAT INDONESIA 4,279,170 3,766,817 80,129 26,083 6,802 53,194 3,933,025 333,864 1,007,860 2,068,248 3,409,972 335,310
22 PT BANK HAGA 3,723,868 1,538,132 1,661,685 215,943 12,046 75,527 3,503,333 1,025,604 715,640 1,718,011 3,459,255 125,975
23 PT BANK BUMIPUTERA INDONESIA 3,579,489 2,651,487 492,812 69,020 17,558 119,934 3,350,811 525,330 374,136 1,848,807 2,748,273 264,495
24 PT BANK MESTIKA DHARMA 2,840,357 1,933,327 647,878 7,653 2,000 110,710 2,701,568 448,537 1,270,134 451,442 2,170,113 578,800
25 PT BANK MAYAPADA INTERNATIONAL 2,437,771 1,426,022 168,072 104,725 13,739 12,387 1,724,945 269,054 106,875 1,636,750 2,012,679 301,662
26 PT, BANK NUSANTARA PARAHYANGAN TBK, 2,125,238 960,228 718,141 262,703 10,183 20,750 1,972,005 558,978 244,433 1,138,596 1,942,007 134,068

Appendices 64
 (Million of Rp)

EARNING ASSETS DEPOSITS

TOTAL COMMIT-
No BANKS L O A N S SECURITIES INTER-BANK OTHER EQUITY
ASSETS MENT AND DEMAND SAVING TIME
AND PLACEMENT INVESTMENT CLAIMS TOTAL TOTAL
CONTIGENCY DEPOSIT ACCOUNT DEPOSIT
BIS

27 PT BANK MASPION INDONESIA 1,758,617 1,050,847 426,547 66,330 2,717 19,810 1,566,251 187,237 500,174 868,836 1,556,247 138,199
28 PT BANK BUMI ARTA 1,529,510 377,183 384,273 609,448 7,366 3,152 11,229 1,392,651 447,094 390,531 437,590 1,275,215 194,244
29 PT BANK KESAWAN, Tbk 1,492,810 634,156 594,208 44,358 2,218 1,274,940 238,946 342,613 789,511 1,371,070 106,575
30 PT BANK PIKKO (MERG,CENTURY 6,12,2004) 1,203,163 326,497 228,720 449,430 37,064 14,881 1,056,592 74,417 208,011 967,605 1,250,033 -274,842
31 PT BANK ARTA NIAGA KENCANA 952,184 651,905 167,786 27,274 18 17,102 864,085 125,521 188,287 499,131 812,939 115,143
32 PT BANK IFI 870,658 283,837 405,927 60,420 17,839 768,023 28,614 14,299 420,421 463,334 84,343
33 PT BANK GANESHA 803,885 464,868 158,319 71,278 13,568 33,714 741,747 83,259 48,321 558,273 689,853 85,595
34 PT BANK HAGAKITA 741,853 560,196 48,915 45,239 3,519 11,854 669,723 202,369 123,935 312,261 638,565 72,307
35 PT BANK SWADESI, Tbk 707,509 372,768 258,885 24,583 6 4,630 660,872 82,714 78,789 430,499 592,002 101,921
36 PT BANK ANTAR DAERAH 572,707 369,251 127,127 17,060 6 98 23,896 537,438 92,690 193,348 177,071 463,109 50,910
37 PT, BANK HALIM INDONESIA 463,150 267,562 148,377 11,074 2,300 17,620 446,933 38,477 52,266 251,633 342,376 95,258
38 PT BANK SHINTA INDONESIA 432,871 108,544 259,762 52,865 21,262 442,433 118,128 45,460 167,632 331,220 81,869
39 PT BANK METRO EKSPRESS 361,379 119,356 184,432 30,476 71 6,253 340,588 69,335 54,003 92,510 215,848 137,412
40 PT BANK WINDU KENTJANA 338,671 168,752 48,652 41,182 524 259,110 84,900 131,461 95,540 311,901 17,003
PRIVATE NATIONAL NON-FOREX BANK
41 PT BANK TABUNGAN PENSIUNAN NASIONAL 3,442,348 2,537,913 356,739 22,387 22 945 2,918,006 8,896 451,889 2,186,923 2,647,708 583,464
42 PT BANK AGRONIAGA Tbk, 2,067,494 1,588,720 326,327 30,307 20 7,830 1,953,204 341,938 46,461 1,232,658 1,621,057 180,898
43 PT BANK VICTORIA INTERNATIONAL 1,964,143 751,777 1,092,078 13 12,721 9,633 1,866,222 68,050 79,012 1,519,543 1,666,605 152,131
44 PT GLOBAL INTL BANK (closed 13,1,2005) 1,848,094 670,935 774,565 42 27,924 1,473,466 16,049 38,674 748,998 803,721 499,041
45 PT BANK JASA JAKARTA 1,802,985 1,214,845 449,906 32,001 7,758 1,704,510 230,278 135,045 1,178,123 1,543,446 226,759
46 PT BANK EKSEKUTIF INTERNASIONAL, Tbk, 1,618,974 1,141,272 129,857 10,947 668 1,282,744 20,089 70,731 1,258,314 1,349,134 195,678
47 PT BANK YUDHA BHAKTI 1,363,262 692,844 384,987 151,260 10 19,117 1,248,218 73,113 52,606 1,048,102 1,173,821 121,231
48 PT BANK HARDA INTERNASIONAL 1,025,251 629,559 293,743 21,544 1,900 946,746 147,181 49,399 738,964 935,544 56,048
49 PT BANK DANPAC (MERG,CENTURY 6,12,04) 905,932 379,943 175,744 289,162 8,703 853,552 71,327 53,103 504,077 628,507 148,206
50 PT BANK INDEX SELINDO 640,627 353,624 215,294 10,381 1,450 580,749 81,307 172,179 332,209 585,695 44,163
51 PT BANK PERSYARIKATAN INDONESIA 606,708 578,831 1,204 7,427 4,525 591,987 56,754 68,280 369,479 494,513 7,514
52 PT BANK UIB 557,430 383,197 123,200 6,271 512,668 37,736 29,374 402,926 470,036 70,045
53 PT DIPO INTERNATIONAL BANK 544,609 417,622 67,481 570 15,405 501,078 197,837 18,027 240,707 456,571 71,001

Appendices 65
 (Million of Rp)
EARNING ASSETS DEPOSITS

TOTAL COMMIT-
No BANKS L O A N S SECURITIES INTER-BANK OTHER EQUITY
ASSETS MENT AND DEMAND SAVING TIME
AND PLACEMENT INVESTMENT CLAIMS TOTAL TOTAL
CONTIGENCY DEPOSIT ACCOUNT DEPOSIT
BIS

54 PT BANK HIMPUNAN SAUDARA 1906 527.883 427.013 32.499 2.112 3.727 162 465.513 42.089 68.108 349.958 460.155 62.002
55 PT BANK AKITA 491.574 386.485 43.025 49 588 430.147 66.384 29.703 312.810 408.897 65.636
56 PT BANK SYARIAH MEGA INDONESIA 402.425 303.276 20.663 458 324.397 38.830 4.471 288.951 332.252 64.808
57 PT CENTRATAMA NASIONAL BANK 393.670 308.618 17.351 2.536 6.910 335.415 31.705 60.224 241.031 332.960 46.100
58 PT PRIMA MASTER BANK 391.955 315.351 28.973 5.182 450 349.956 65.239 44.312 245.728 355.279 25.656
59 PT BANK MULTI ARTA SENTOSA (MAS) 328.458 221.506 83.672 410 1.089 306.677 23.057 41.585 222.754 287.396 35.556
60 PT BANK KESEJAHTERAAN EKONOMI 314.558 258.344 38.663 477 297.484 34.387 21.366 134.663 190.416 92.005
61 PT BANK DJASA ARTA 302.926 161.499 67.206 5.397 2.177 236.279 34.652 58.777 172.568 265.997 33.478
62 PT BANK SRI PARTHA 293.676 167.851 16.096 1.010 184.957 5.639 138.778 79.866 224.283 46.368
63 PT BANK INDOMONEX 278.135 206.003 41.128 1.193 358 248.682 22.305 42.971 179.354 244.630 25.198
64 PT BANK MITRANIAGA 243.231 156.954 62.756 5.154 224.864 11.940 16.611 186.903 215.454 26.084
65 PT BANK FAMA INTERNASIONAL 236.412 184.817 28.270 1.345 214.432 15.344 13.019 172.161 200.524 31.560
66 PT BANK MAYORA 200.960 62.327 106.287 15.007 7.969 191.590 35.954 27.451 115.428 178.833 20.200
67 PT BANK ARTOS INDONESIA 188.954 122.469 38.169 233 530 161.401 36.608 23.546 94.892 155.046 25.927
68 PT ANGLOMAS INTERNASIONAL BANK 182.841 84.769 34.960 7.501 1.546 128.776 31.563 30.972 93.726 156.261 22.736
69 PT BANK INA PERDANA 181.209 102.496 55.571 1.673 12 159.752 33.509 29.280 91.393 154.182 -1.658
70 PT BANK BINTANG MANUNGGAL 161.953 114.057 33.943 2.440 1.302 151.742 17.754 12.163 98.254 128.171 27.317
71 PT BANK SINAR HARAPAN BALI 159.146 107.462 23.500 5.377 136.339 2.564 83.280 31.269 117.113 23.945
72 PT BANK HARMONI INTERNATIONAL 145.014 97.294 22.354 913 1.840 122.401 15.591 53.451 50.995 120.037 22.234
73 PT BANK BISNIS INTERNASIONAL 141.053 83.986 32.415 451 1.325 118.177 20.330 14.316 75.130 109.776 28.407
74 PT LIMAN INTERNATIONAL BANK 134.592 45.264 65.336 54 131 110.785 19.022 21.534 26.669 67.225 61.931
75 PT BANK HARFA 124.916 69.882 27.442 199 100 97.623 9.941 17.605 58.611 86.157 25.754
76 PT BANK ROYAL INDONESIA 68.020 4.880 20.714 36.181 10 61.785 39.459 4.357 2.839 46.655 20.068
77 PT BANK PURBA DANARTA 63.408 10.506 46.080 2.715 59.301 5.217 11.104 26.002 42.323 20.034
78 PT ALFINDO SEJAHTERA BANK 49.596 8.834 35.790 267 44.891 9.941 2.766 22.673 35.380 11.797
79 PT BANK SWAGUNA 22.029 13.274 227 66 630 14.197 1.980 2.410 14.461 18.851 2.237
REGIONAL DEVELOPMENT BANK
80 PT BPD JAWA BARAT 12.179.500 8.371.867 1.450.918 1.004.062 77.239 10.904.086 3.577.663 1.481.037 5.193.308 10.252.008 1.222.064

Appendices 66
 (Million of Rp)
EARNING ASSETS DEPOSITS

TOTAL COMMIT- EQUITY

No BANKS L O A N S SECURITIES INTER-BANK OTHER
MENT AND DEMAND SAVING TIME
ASSETS AND PLACEMENT INVESTMENT CLAIMS TOTAL TOTAL
CONTIGENCY DEPOSIT ACCOUNT DEPOSIT
BIS

81 PT. BPD JAWA TIMUR 8.444.048 3.504.395 821.524 1.869.965 297.374 6.493.258 3.934.206 1.472.314 1.562.874 6.969.394 721.256
82 PT. BPD DKI 7.025.374 2.142.289 3.496.634 680.971 927 147.460 6.468.281 2.063.745 849.785 1.809.271 4.722.801 631.645
83 PT BANK PEMBANGUNAN DAERAH JAWA TENGAH 6.222.361 3.809.456 395.170 1.078.362 2.497 54.867 5.340.352 1.855.168 1.227.475 1.683.771 4.766.414 937.295
84 PT BANK PEMBANGUNAN DAERAH RIAU 4.157.981 997.754 2.080.111 680.946 1.092 73.974 3.833.877 2.764.136 709.203 238.692 3.712.031 310.966
85 PT. BPD SUMATERA UTARA 3.559.120 1.419.949 1.288.932 149.977 750 41.031 2.900.639 1.442.685 690.926 710.830 2.844.441 660.785
86 BPD SUMATERA BARAT 3.145.263 1.926.102 220.497 736.273 250 17.802 2.900.924 940.099 656.403 594.492 2.190.994 278.666
87 BPD KALIMANTAN TIMUR 3.112.290 1.563.397 968.855 183.880 1.035 71 35.388 2.752.626 1.356.490 599.032 448.673 2.404.195 407.166
88 PT. BANK BPD ACEH 3.080.705 1.034.433 1.198.745 397.196 110 24.352 2.654.836 1.696.020 582.842 456.201 2.735.063 220.488
89 BANK PEMBANGUNAN DAERAH BALI 2.951.167 2.178.049 302.997 179.094 635 9.468 2.670.243 690.737 966.608 491.067 2.148.412 417.843
90 PT. BPD PAPUA 2.498.718 856.898 50.000 664.959 32.778 1.604.635 1.667.846 369.123 100.972 2.137.941 280.163
91 BPD SULAWESI SELATAN 2.255.260 935.391 450.573 503.231 65 831 1.890.091 1.002.619 187.580 333.847 1.524.046 291.700
92 PT BPD SUMATERA SELATAN 2.144.898 1.521.952 40.000 58.649 1.250 960 74.896 1.697.707 962.818 382.833 276.002 1.621.653 245.489
93 BPD YOGYAKARTA 1.509.235 746.426 489.254 73.656 130 3.255 1.312.721 531.876 479.278 300.003 1.311.157 122.261
94 PT. BPD KALIMANTAN BARAT 1.295.345 637.038 93.609 78.180 147 15.648 824.622 483.207 463.402 170.228 1.116.837 137.801
95 PD BPD KALIMANTAN SELATAN 1.056.957 460.842 76.920 114.124 545 8.994 661.425 462.410 223.037 188.824 874.271 140.802
96 PT. BPD BANK KALIMANTAN TENGAH 1.054.375 296.092 433.521 184.731 500 18.854 933.698 657.148 210.136 38.810 906.094 83.818
97 PT. BPD NUSA TENGGARA TIMUR 1.005.129 641.878 80.000 176.941 44.076 942.895 596.516 175.937 103.172 875.625 87.658
98 PT. BPD NUSA TENGGARA BARAT 926.841 620.108 7.962 130.024 860 21.734 780.688 332.478 177.696 96.277 606.451 167.384
99 PT. BANK LAMPUNG 874.250 611.884 172.971 477 8.144 793.476 480.302 87.860 108.035 676.197 84.441
100 PT. BPD SULAWESI UTARA 862.809 495.055 59.983 196.531 6.831 758.400 163.672 200.938 308.760 673.370 122.645
101 PT. BPD MALUKU 771.839 310.480 114.317 192.055 616.852 336.628 149.728 113.538 599.894 79.059
102 BPD JAMBI 618.361 305.072 201.624 63 6.038 512.797 234.041 75.374 166.216 475.631 113.429
103 BPD SULAWESI TENGGARA 404.144 196.624 20.000 136.325 300 13.662 366.911 226.376 66.472 29.690 322.538 48.012
104 PT. BANK PEMBANGUNAN DAERAH BENGKULU 394.523 258.214 55.461 80 623 314.378 204.579 64.204 75.968 344.751 30.378
105 PT. BPD SULAWESI TENGAH 245.449 104.510 12.000 87.690 8.119 212.319 168.764 26.646 24.978 220.388 18.923
JOINT VENTURE BANK
106 PT BANK UFJ INDONESIA 6.848.151 5.864.158 466.799 181.405 71.925 187.493 1.016.786 7.788.566 1.715.254 2.106 1.826.193 3.543.553 1.068.702
107 PT BANK SUMITOMO MITSUI INDONESIA 5.388.695 3.259.633 1.096.946 989.459 330 72.700 463.617 5.882.685 1.619.303 0 1.552.976 3.172.279 1.126.704

Appendices 67
 (Millions of Rp)
EARNING ASSETS DEPOSITS

TOTAL COMMIT-
No BANKS L O A N S SECURITIES INTER-BANK OTHER EQUITY
ASSETS MENT AND DEMAND SAVING TIME
AND PLACEMENT INVESTMENT CLAIMS TOTAL TOTAL
CONTIGENCY DEPOSIT ACCOUNT DEPOSIT
BIS

108 PT BANK MIZUHO INDONESIA 5.283.438 2.549.977 1.640.865 397.868 532.120 1.194.066 6.314.896 2.319.466 5.650 1.271.538 3.596.654 767.803
109 PT BANK DBS INDONESIA 4.203.836 2.949.785 761.252 106.482 228.398 300.864 4.346.781 865.246 9.625 2.117.845 2.992.716 452.313
110 PT BANK RESONA PERDANIA 3.644.256 2.424.649 871.231 169.825 38.217 209.681 364.657 4.078.260 898.854 1.706 915.458 1.816.018 720.859
111 PT BANK UOB INDONESIA 3.017.584 1.315.991 1.249.511 226.430 1.938 136.800 249.659 3.180.329 647.959 50.243 1.318.497 2.016.699 501.562
112 PT ANZ PANIN BANK 2.877.122 1.709.389 511.286 420.797 107.828 725.932 3.475.232 546.942 0 1.358.621 1.905.563 642.941
113 PT BANK CHINATRUST INDONESIA 2.825.802 2.005.279 340.918 69.383 153.455 327.419 2.896.454 520.798 56.687 1.158.339 1.735.824 586.472
114 PT RABOBANK INTERNATIONAL INDONESIA 2.516.190 2.007.345 277.291 263.011 111.883 97.981 252.487 3.009.998 553.464 0 766.323 1.319.787 297.434
115 PT BANK WOORI INDONESIA 2.307.598 824.721 870.755 559.742 32.750 174.070 2.462.038 581.112 96.261 231.364 908.737 580.405
116 PT BANK COMMONWEALTH 2.270.731 78.456 1.239.477 838.669 64 2.921 46.441 2.206.028 227.288 90.499 1.645.470 1.963.257 152.069
117 PT KOREA EXCHANGE BANK DANAMON 1.971.662 1.148.927 702.399 116.508 16.136 258.013 2.241.983 579.858 0 143.787 723.645 463.555
118 PT BANK OCBC-INDONESIA 1.557.834 582.878 864.060 67.702 31.312 101.566 1.647.518 177.617 1.255 653.785 832.657 378.213
119 PT BANK FINCONESIA 989.313 870.076 26.060 128.987 27.239 115.003 1.167.365 42.038 0 506.936 548.974 197.986
120 PT BANK BNP INDONESIA 621.339 492.596 231.663 73.292 12.724 489.863 1.300.138 60.776 0 246.101 306.877 173.650
121 PT BANK MULTICOR 430.519 150.690 173.348 69.765 6.462 400.265 76.397 16.130 203.803 296.330 132.907
122 PT BANK MAYBANK INDOCORP 329.657 104.633 214.432 41.799 1.240 17.553 1.243 380.900 57.802 0 114.306 172.108 127.807
123 PT INTER PACIFIC BANK 254.374 124.201 169.069 15.644 14.749 5.972 329.635 604 0 25.869 26.473 114.692
124 PT. BANK CAPITAL INDONESIA 13.180 11.856 509 12.365 0 0 0 0 13.103
FOREIGN BRANCH BANK
125 CITIBANK N.A. 23.814.025 11.899.396 1.833.147 8.823.161 1.500 208.231 1.906.911 24.672.346 6.689.342 1.869.087 10.922.508 19.480.937 2.564.578
126 DEUTSCHE BANK AG. 19.422.063 2.867.231 10.111.670 5.333.914 24.692 118.960 1.073.391 19.529.858 2.706.484 0 10.850.392 13.556.876 1.197.313
127 ABN AMRO BANK 16.556.744 4.437.347 5.581.664 4.639.250 105.519 98.318 547.208 15.409.306 5.510.575 467.436 6.050.336 12.028.347 961.618
128 THE HONGKONG & SHANGHAI B.C. 16.252.035 7.715.205 2.958.082 4.506.222 23.621 572.699 2.665.402 18.441.231 6.762.908 0 6.414.580 13.177.488 257.318
129 STANDARD CHARTERED BANK 13.893.774 5.353.588 4.122.157 2.351.634 1.371.798 1.453.880 14.653.057 3.330.750 726.012 5.112.688 9.169.450 218.180
130 THE BANK OF TOKYO-MITSUBISHI LTD. 8.071.763 6.226.781 1.188.722 229.196 143.817 1.008.504 8.797.020 3.182.489 0 2.353.353 5.535.842 1.641.457
131 AMERICAN EXPRESS BANK 2.297.379 1.553.468 12.754 301.696 8.097 84.610 1.960.625 699.041 31.696 1.144.477 1.875.214 81.099
132 JP. MORGAN CHASE BANK 1.893.794 670.499 536.875 478.895 40.797 134.370 1.861.436 397.721 0 892.728 1.290.449 18.308
133 THE BANGKOK BANK COMP. LTD 1.030.581 583.041 465.477 4.220 57.240 160.427 1.270.405 242.293 0 225.773 468.066 155.203
134 BANK OF CHINA 552.387 11.921 139.004 396.207 219 15.244 562.595 61.035 5.189 32.896 99.120 -12.369
135 BANK OF AMERICA. N.A 299.230 3.178 73.236 182.976 1.033 260.423 143.246 0 55.905 199.151 7.241

Appendices 68
Appendix 3
Key Financial Ratios (Percent)
Operational Cost
No BANK CAR NPL EAA/EA1) EEAA/RA2) ROA to Operational LDR
Income

STATE-OWNED BANK
1 PT BANK MANDIRI (PERSERO) Tbk 26.56 7.49 4.91 135.61 3.59 63.41 49.77
2 PT BANK NEGARA INDONESIA (PERSERO),Tbk 18.48 6.12 5.66 165.18 2.43 78.69 50.49
3 PT BANK RAKYAT INDONESIA (PERSERO) Tbk. 19.65 5.75 5.71 223.1 5.81 67.44 74.31
4 PT BANK TABUNGAN NEGARA (PERSERO) Tbk. 17.18 4.81 2.51 245.98 2.08 81.75 65.14
5 PT BANK EKSPOR INDONESIA (PERSERO) 218.38 0 1.91 238.77 5.01 58.12 0
PRIVATE NATIONAL FOREX BANK
6 PT BANK CENTRAL ASIA Tbk. 25.84 0.67 0.92 180.3 3.2 65.79 28.5
7 PT BANK DANAMON INDONESIA Tbk 31.87 5.53 4.2 194.28 4.47 59.8 71.93
8 PT BANK INTERNASIONAL INDONESIA Tbk 21.53 7.72 2.56 107.17 2.38 79.68 42.08
9 PT BANK PERMATA Tbk (prev. PT. BANK BALI ) 12 6.6 4.1 203 2.3 85.3 52
10 PT LIPPO BANK, Tbk 18.84 10.5 4.67 142.32 1.2 85.38 22.15
11 PT BANK NIAGA, Tbk 11.01 4.98 2.75 166.11 3.04 74.58 84.36
12 PT PAN INDONESIA BANK, Tbk 39.55 6.9 7.14 143.55 4.23 66.93 71.01
13 PT BANK MEGA, Tbk 13.34 1.85 0.66 100.02 3.25 72.41 48.21
14 PT BANK NISP, Tbk 14.37 1.34 1.22 113.18 2.4 77.6 78.98
15 PT BANK BUANA INDONESIA Tbk. 23.28 1.43 1.04 136.73 2.67 75.18 54.63
16 PT BANK BUKOPIN 17.11 2.68 2.54 124.41 2.08 82.69 98.37
17 PT BANK EKONOMI RAHARJA 11.34 0.86 1.44 211.04 1.52 83.61 44.85
18 PT BANK ARTHA GRAHA 11.05 4.8 2.04 127.1 0.98 94.34 78.3
19 PT BANK CENTURY Tbk.(BANK CIC-6.12.2004) 16.76 1.42 1.28 131.31 0.45 98.86 26.32
20 PT.BANK SYARIAH MANDIRI, Tbk 10.86 1.92 1.71 100.98 2.37 83.4 99.07
21 PT BANK MUAMALAT INDONESIA 13.11 2.21 1.45 98.17 2.26 84.53 110.19
22 PT BANK HAGA 8.84 1.49 1.45 100 1.05 87.79 44.31
23 PT BANK BUMIPUTERA INDONESIA 10.01 4.56 1.77 105.85 1.43 89.62 95.89
24 PT BANK MESTIKA DHARMA 23.66 2.4 3.05 244.19 7.79 51.38 89.07
25 PT BANK MAYAPADA INTERNATIONAL 16.08 2.37 2.39 189.92 2.25 82.55 69.22
26 PT. BANK NUSANTARA PARAHYANGAN TBK. 12.9 0.61 2.45 342 1.63 86.11 49.45
27 PT BANK MASPION INDONESIA 12.4 0.79 0.92 101.88 1.78 83.62 67.46
28 PT BANK BUMI ARTA 34.42 2.72 1.17 200.14 2.29 79.16 29.51
1 Earning Asset Allowance to Earning Asset
2 Existing Earning Asset Allowance to Required Allowanced
Appendices 69
 (Percent)
Operational Cost
No BANK CAR NPL EAA/EA1) EEAA/RA2) ROA to Operational LDR
Income

29 PT BANK KESAWAN, Tbk 14.32 2.11 1.03 135.38 1.37 89.43 46.25
30 PT BANK PIKKO (MERG.CENTURY 6.12.2004) -19.93 7.91 2.4 255.6 -32.14 539.89 26.12
31 PT BANK ARTA NIAGA KENCANA 20.6 3.15 1.51 100 1.19 89.98 79.65
32 PT BANK IFI 32.3 3.97 0.92 101.09 0.27 102.27 61.13
33 PT BANK GANESHA 17.62 1.65 2.82 278.99 1.3 89.44 67.39
34 PT BANK HAGAKITA 11.3 1.94 2.33 100 1.74 86.02 87.72
35 PT BANK SWADESI, Tbk 25.61 1.45 3.56 216.3 2.55 74.59 62.97
36 PT BANK ANTAR DAERAH 16.05 2.82 1.95 123.34 1.77 85.33 75.34
37 PT. BANK HALIM INDONESIA 68.19 1.15 2.44 318.99 2.44 77.24 74.42
38 PT BANK SHINTA INDONESIA 69.78 10.42 6.23 256.27 0.92 91.41 32.77
39 PT BANK METRO EKSPRESS 74.31 1.93 2.31 207.51 4.26 61.06 55.3
40 PT BANK WINDU KENTJANA 12.68 1.51 1.82 157.29 1.03 129.97 54.1
PRIVATE NATIONAL NON-FOREX BANK
41 PT BANK TABUNGAN PENSIUNAN NASIONAL 19.04 3.24 4.24 140.98 8.55 65.05 95.85
42 PT BANK AGRONIAGA Tbk. 16 4 2 134 2 83 98
43 PT BANK VICTORIA INTERNATIONAL 14.46 5.65 3.75 388.3 1.09 92.85 44.11
44 PT GLOBAL INTL BANK (closed 13.1.2005) 44.84 2.05 1.48 100 1.22 89.71 74.09
45 PT BANK JASA JAKARTA 16.93 0.56 4.08 519.16 3.66 69.21 78.71
46 PT BANK EKSEKUTIF INTERNASIONAL, Tbk. 15.83 7.88 3.28 94.79 2.57 85.03 84.59
47 PT BANK YUDHA BHAKTI 15.79 2.94 2.3 161.98 4.28 74.17 59.02
48 PT BANK HARDA INTERNASIONAL 11.67 2.18 1.08 105.22 1.57 87.16 67.31
49 PT BANK DANPAC (MERG.CENTURY 6.12.04) 27.15 0.87 1.07 121.05 2.79 84.4 60.16
50 PT BANK INDEX SELINDO 10.83 2.5 1.82 147.43 1.38 90.58 60.38
51 PT BANK PERSYARIKATAN INDONESIA 8.82 23.29 6.82 100.46 -13.18 205.92 103.37
52 PT BANK UIB 16.5 3.69 2.87 100 2.2 84.48 81.53
53 PT DIPO INTERNATIONAL BANK 13.86 2.6 1.9 112.79 5.35 63.84 91.51
54 PT BANK HIMPUNAN SAUDARA 1906 11.84 0.43 2.12 124.87 4.69 75.7 92.75
55 PT BANK AKITA 13.22 3.59 1.1 100.47 3.81 76.92 94.52
56 PT BANK SYARIAH MEGA INDONESIA 19.82 1.07 3.01 107 2.8 70.51 91.4
57 PT CENTRATAMA NASIONAL BANK 12.29 1.08 1 100.11 4.5 73.72 92.43

1 Earning Asset Allowance to Earning Asset

2 Existing Earning Asset Allowance to Required Allowanced

Appendices 70
 (Percent)
Operational Cost
No BANK CAR NPL EAA/EA1) EEAA/RA2) ROA to Operational LDR
Income

58 PT PRIMA MASTER BANK 11.48 0.45 1.44 149.87 1.19 90.42 88.07
59 PT BANK MULTI ARTA SENTOSA (MAS) 22.01 1.43 1.41 169.41 2.65 74.67 77.07
60 PT BANK KESEJAHTERAAN EKONOMI 32.43 3.27 3.35 107.05 6.95 58.89 135.57
61 PT BANK DJASA ARTA 12.55 4.98 2.88 132.1 2.35 83.11 58.32
62 PT BANK SRI PARTHA 17.68 0.46 1.31 64.96 1.29 92.72 74.84
63 PT BANK INDOMONEX 11.67 1.23 1.91 130.45 1.78 83.26 84.21
64 PT BANK MITRANIAGA 16.42 1.98 1.03 104.25 3.32 77.85 72.85
65 PT BANK FAMA INTERNASIONAL 15.04 2.67 2.73 155.42 2.65 80.61 92.17
66 PT BANK MAYORA 19.32 0.9 2.05 311.18 0.82 94.25 34.85
67 PT BANK ARTOS INDONESIA 19.31 1.96 0.77 100 1.37 93.32 78.99
68 PT ANGLOMAS INTERNASIONAL BANK 15 2 1 112 3 77 89
69 PT BANK INA PERDANA 20.97 5.57 1.02 113.88 3.16 76.73 66.48
70 PT BANK BINTANG MANUNGGAL 22.05 0.65 2.22 129.25 3.37 78.2 88.17
71 PT BANK SINAR HARAPAN BALI 18.23 1.45 1.63 127.71 5.31 75.44 91.76
72 PT BANK HARMONI INTERNATIONAL 17.17 2.3 2.19 113.05 3.07 81.26 81.05
73 PT BANK BISNIS INTERNASIONAL 34.93 0.96 1.06 138.25 1.42 91.43 76.51
74 PT LIMAN INTERNATIONAL BANK 88.82 0 0.85 188.4 3.54 73.66 67.33
75 PT BANK HARFA 30.87 2.43 1.63 154.1 -1.24 105.27 81.11
76 PT BANK ROYAL INDONESIA 132.01 1.24 1.07 139.75 0.18 98.52 10.46
77 PT BANK PURBA DANARTA 178.85 4.77 3.11 479.36 1.09 82.04 24.82
78 PT ALFINDO SEJAHTERA BANK 84.13 0 4.71 1839.13 -0.21 103.43 24.97
79 PT BANK SWAGUNA 10.61 20.27 3.96 60 -2.77 118 70.74
REGIONAL DEVELOPMENT BANK
80 PT BPD JAWA BARAT 15.1 0.41 1.21 115.07 4.09 72.88 81.66
81 PT. BPD JAWA TIMUR 16.53 1.46 1.8 139.49 4.47 66.71 50.28
82 PT. BPD DKI 18.85 4.43 1.58 138.36 4.64 66.91 45.36
83 PT BANK PEMBANGUNAN DAERAH JAWA TENGAH 19.75 1.28 1..53 110.39 5.83 62.7 79.92
84 PT BANK PEMBANGUNAN DAERAH RIAU 25.02 6.4 1.46 87.1 2 77.84 26.88
85 PT. BPD SUMATERA UTARA 30.98 4.14 0.88 112.15 5.99 61.43 49.31
86 BPD SUMATERA BARAT 14.46 4.37 3.08 118.14 4.57 67.49 87.85

1 Earning Asset Allowance to Earning Asset

2 Existing Earning Asset Allowance to Required Allowanced

Appendices 71
 (Percent)
Operational Cost
No BANK CAR NPL EAA/EA1) EEAA/RA2) ROA to Operational LDR
Income

87 BPD KALIMANTAN TIMUR 22.32 4.13 2 101.45 6.28 59.84 63.52

88 PT. BANK BPD ACEH 18.92 2.18 1.32 119.48 2.9 73.53 37.82
89 BANK PEMBANGUNAN DAERAH BALI 16.72 0.8 1.4 118.37 7.35 57.76 101.38
90 PT. BPD PAPUA 23.96 3.07 2.05 98.32 5.21 66.9 40.08
91 BPD SULAWESI SELATAN 27.67 2.66 2.02 112.14 7.01 51.63 60.6
92 PT BPD SUMATERA SELATAN 14.71 3.58 1.5 99.99 2.01 85.82 93.77
93 BPD YOGYAKARTA 16.39 1.18 1.17 112.77 4.19 73.26 56.93
94 PT. BPD KALIMANTAN BARAT 20.29 1.19 1.86 149.4 3.51 73.53 57.04
95 PD BPD KALIMANTAN SELATAN 24.07 2.46 1.17 99.86 5.27 65.73 52.95
96 PT. BPD BANK KALIMANTAN TENGAH 18.54 5.58 1.92 105.49 1.71 78.45 32.68
97 PT. BPD NUSA TENGGARA TIMUR 13.49 0.39 1.22 101.06 4.62 64.53 73.31
98 PT. BPD NUSA TENGGARA BARAT 20.11 2.89 2.02 99.27 6.72 71.25 102.25
99 PT. BANK LAMPUNG 14.53 2.4 2.66 122.46 5.25 66.48 90.23
100 PT. BPD SULAWESI UTARA 16.73 2.66 2.61 112.79 7.74 65 73.52
101 PT. BPD MALUKU 25.49 2.83 2.28 100 1.17 89.6 51.76
102 BPD JAMBI 33.63 1.63 1.55 100 5.84 55.35 64.14
103 BPD SULAWESI TENGGARA 24.01 6.65 3.31 141.32 8 54.68 60.96
104 PT. BANK PEMBANGUNAN DAERAH BENGKULU 9.51 3.23 2.4 108.44 4.09 72.25 74.9
105 PT. BPD SULAWESI TENGAH 14.39 4.86 2.43 104.31 1.75 82.58 47.42
JOINT VENTURE BANK
106 PT BANK UFJ INDONESIA 16.57 4.14 3.53 176.28 1.99 73.68 165.49
107 PT BANK SUMITOMO MITSUI INDONESIA 48.95 4.6 6.24 100 1.87 66.86 102.87
108 PT BANK MIZUHO INDONESIA 20.87 0.77 2.53 100 2.45 61.95 70.9
109 PT BANK DBS INDONESIA 14.32 0.42 1.48 131.36 2.84 57.25 0
110 PT BANK RESONA PERDANIA 23.44 10.24 6.74 128.08 1.13 84.43 132.73
111 PT BANK UOB INDONESIA 47.52 10.65 3.21 102.45 2.03 74.03 65.25
112 PT ANZ PANIN BANK 21.77 7 4.78 2.61 6.12 67.94 89.71
113 PT BANK CHINATRUST INDONESIA 20.81 4.82 2.12 100 3.13 64.68 115.52
114 PT RABOBANK INTERNATIONAL INDONESIA 22.47 11.87 11.92 100.46 2.32 71.9 152.1
115 PT BANK WOORI INDONESIA 57.47 6.57 2.83 110.08 5.62 59.13 90.11

1 Earning Asset Allowance to Earning Asset

2 Existing Earning Asset Allowance to Required Allowanced

Appendices 72
 (Percent)

Operational Cost
No BANK CAR NPL EAA/EA1) EEAA/RA2) ROA to Operational LDR
Income

116 PT BANK COMMONWEALTH 47.58 0 0.44 100.06 0.32 96.2 3.78

117 PT KOREA EXCHANGE BANK DANAMON 47.12 12.33 3.61 115.91 4.33 45.93 158.77
118 PT BANK OCBC-INDONESIA 116.01 11.71 3.37 109.77 2.44 68.56 70
119 PT BANK FINCONESIA 26.48 4.32 9.21 153.66 1.36 90.76 158.49
120 PT BANK BNP INDONESIA 39.07 42.86 16.79 116.58 2.67 117.64 160.52
121 PT BANK MULTICOR 62.13 0 1.15 133.94 8.5 55.75 50.85
122 PT BANK MAYBANK INDOCORP 247.01 35.33 15.09 158.29 2.34 60.56 57.3
123 PT INTER PACIFIC BANK 185.28 43.4 26.31 334.78 14.58 99.78 469.16
124 PT. BANK CAPITAL INDONESIA 2017.08 0 1.43 3477.41 -35.97 400.54 0
FOREIGN BRANCH BANK
125 CITIBANK N.A. 15.3 0 3.92 127.55 5.68 57.41 61.08
126 DEUTSCHE BANK AG. 21.21 1.75 3.16 103.44 8.26 39.87 21.15
127 ABN AMRO BANK 20.09 17.18 4.87 125.41 4.85 79.53 36.89
128 THE HONGKONG & SHANGHAI B.C. 12 2 4 169 4 59 59
129 STANDARD CHARTERED BANK 9.9 2.4 2.7 115.9 4.8 57.1 58.4
130 THE BANK OF TOKYO-MITSUBISHI LTD. 19.12 1.53 1.56 101.14 3.34 53.96 112.48
131 AMERICAN EXPRESS BANK 23.26 1.03 1.89 157.63 0.64 96.21 82.84
132 JP. MORGAN CHASE BANK 34.96 7.81 4.61 107.06 8.59 26.73 51.96
133 THE BANGKOK BANK COMP. LTD 53.35 18.66 9.75 108.35 4.94 43.96 124.56
134 BANK OF CHINA 217.84 0 1.07 100.22 -0.01 94.81 12.03
135 BANK OF AMERICA, N.A 110 0 1 115 0 96 1

1 Earning Asset Allowance to Earning Asset

2 Existing Earning Asset Allowance to Required Allowanced

Appendices 73
Appendix 4
Organization Chart of Bank Indonesia’s Banking Sector
Board of Governor
Governor
Senior Deputy Governor
Deputy Governor
DIRECTORATE OF BANKING DIRECTORATE OF BANK LICENSING
RESEARCH AND REGULATION
AND BANKING INFORMATION (DPIP)
(DPNP)
Nelson Tampubolon
Tel. 381 7726 Fax. 231 0993 Tel. 381 7905 Fax. 386 6029
Financial System
Stability Bureau (BSSK)
Banking Research
and Regulation
Bureau (BPPB)
Information and
Documentation Division
(IDPnP)
DIRECTORATE OF BANK DIRECTORATE OF BANK
SUPERVISION 1 ( DPwB1 ) SUPERVISION 2 ( DPwB2)
Ny. Siti Ch. Fadjrijah S. Anton Tarihoran
Tel. 381 7372 Fax. 386 4971 Tel. 381 7074 Fax. 350 1976
Bank Liquidation Bank Supervision
Team (BDL) Division 11 (PwB11)
Banking Data Bank Supervision
Division (DtB) Division 12 (PwB12)
Bank Supervision
Bank Licensing
Division 13 (PwB13)
Division (Prz)
Information and
Bank Supervision
Administration Division
Division 14 (PwB14)
(IAdmP)
Bank Supervision
Division 15 (PwB15)
Bank Supervision
Division 16 (PwB16)
Information and
Documentation of Bank
Supervision 1 (IDWB1)
DIRECTORATE OF BANK DIRECTORATE OF BANK DIRECTORATE OF RURAL BANK DIRECTORATE OF ISLAMIC SPECIAL UNIT FOR BANKING
SUPERVISION
EXAMINATION 1 (DPmB1) EXAMINATION 2 (DPmB2) BANKING (DPbS) INVESTIGATION (UKIP)
(DPBPR)
Ahdi Jumhari L Yang Ahmad Rizal Aris Anwari Irman Djaja Dalimi Harisman Bachri Ansjori
Tel.381 7300 Fax.231 1436 Tel.381 8675 Fax.3501 902 Tel.381 8733 Fax.231 1177 Tel.381 7774 Fax.350 1990 Tel. 381 7726 Fax. 231 0993
Bank Supervision Bank Examination Islamic Banking Research Banking Investigation
Bank Examination
Bank Supervision Teams and Development Team Teams 1
Division 21 (PwB21) Teams Teams
Information and Information and Rural Bank Deposits
Bank Supervision Islamic Bank Banking Investigation
Documentation of Bank Documentation of Bank Insurance and Liquidation
Division 22 (PwB22) Regulation Team Teams 2
Examination 1 (IDMB1) Examination 2 (IDMB2) Team
Rural Bank Licensing, Islamic Banking
Bank Supervision Banking Investigation
Research and Regulation
Division 23 (PwB23) Supervision Teams Teams 3
Division (P3BPR)
Information and Licensing, Information and
Bank Supervision Banking Investigation
Documentation of Rural Administration Division
Division 24 (PwB24) Teams 4
Bank Supervision (IDBPR) (PIA)
Bank Supervision
STR Team
Division 25 (PwB25)
Information and
Bank Supervision
Documentation Division of
Division 26 (PwB26)
Banking Investigation
(IDIP)
Information and
Documentation of Bank
Supervision 2 (IDWB2)
Appendices 74
Appendix 5
List of Acronyms
Accounting and Auditing Organization for Islamic and
Financial Institutions (AAOIFI)
Association of Sharia Banks (ASB)
Bank Indonesia Branch Office (BIBO)
Bank Indonesia Regulation (BIR)
Bank Indonesia Sertificate (BIS)
Bank Performance Report (BPeR)
Banking Sector Management Information System (BSMIS)
Banks Under Intensive Supervision (BIS)
Banks Under Special Supervision (BSS)
Black-Listed Persons (BLP)
Capital, Asset, Management, Earning, Liquidity and
Sensitivity to Market Risk (CAMELS)
Capital Adequacy Ratio (CAR)
Capital Restoration Plan (CRP)
Cease and Desist Order (CDO)
Collective Decree (CD)
Commercial Sharia Banks (CSB)
Debtor Information System (DIS)
Emergency Liquidity Assistance (ELA)
Examination Management Information System (EMIS)
Examination Report (ER)
Financial Safety Nets (FSN)
Financial Stability Review (FSR)
Food and Agriculture Organization (FAO)
Frozen Business Activities Bank (FBAB)
Frozen Operation Banks (FOB)
Government Guarantee Program Unit (GGPU)
Individual Supervision Strategy (ISS)
Indonesian Accountants Association (IAA)
Indonesian Bank Restructuring Agency (IBRA)
Asosiasi Bank Syariah Indonesia (ASBISINDO)
Kantor Bank Indonesia (KBI)
Peraturan Bank Indonesia (PBI)
Sertifikat Bank Indonesia (SBI)
Sistem Informasi Manajemen Sektor Perbankan
Pengawasan Bank Indonesia (SIMSPBI)
Bank Dalam Pengawasan Intensif (BDPI)
Bank Dalam Pengawasan Khusus (BDPK)
Daftar Orang Tercela (DOT)
Surat Keputusan Bersama (SKB)
Bank Umum Syariah (BUS)
Sistem Informasi Debitur (SID)
Fasilitas Pembiayaan Darurat (FPD)
Sistem Informasi Manajemen Pemeriksaan (SIMERIK)
Laporan Hasil Pemeriksaan (LHP)
Jaring Pengaman Sistem Keuangan (JPSK)
Kajian Stabilitas Keuangan (KSK)
Bank Beku Kegiatan Usaha (BBKU)
Bank Beku Operasi (BBO)
Unit Pelaksana Program Penjaminan (UP3)
Ikatan Akuntan Indonesia (IAI)
Badan Penyehatan Perbankan Nasional (BPPN)
Appendices 75
Indonesian Banking Architecture (IBA) Arsitektur Perbankan Indonesia (API)
Indonesian Debt Restructuring Agency (INDRA)
Indonesian Deposit Insurance Company (IDIC) Lembaga Penjamin Simpanan (LPS)
Indonesian Rural Bank Assosiations (IRBAs) Asosiasi -asosiasi BPR (Perbarindo, Perbamida dan
Asbisindo)
Information System for Banks Under Investigation (ISBI) Sistem Informasi Bank Dalam Investigasi (SIBADI)
Institute for Development of Economics and Finance
(INDEF)
Interbank Money Market (IMM) Pasar Uang Antar Bank (PUAB)
International Islamic Financial Market (IIFM)
Islamic Financial Services Board (IFSB)
Jakarta Initiative Task Force (JITF)
Legal Lending Limit (LLL) Batas Maksimum Pemberian Kredit (BMPK)
Loan to Deposit Ratio (LDR)
Mandatory Supervisory Actions (MSA)
Minimum Capital Requirement (MCR) Kewajiban Penyediaan Modal Minimum (KPMM)
Minimum Statutory Reserve (MSR) Giro Wajib Minimum (GWM)
Money Laundering Crime (MLC) Tindak Pidana Pencucian Uang (TPPU)
National Sharia Arbitrage Body (NSAB) Badan Arbitrasi Syariah Nasional (Basyarnas)
Negotiable Certificate Deposit (NCD) Sertifikat Deposito
Net Interest income (NII)
Net Open Position (NOP) Posisi Devisa Netto (PDN)
Non Performing Loans (NPL)
Non-Performing Financing (NPF)
On-site Supervisory Presence Team (OSP)
People’s Representatives Assembly (PRA) Dewan Perwakilan Rakyat (DPR)
Professional Certification Program for Rural Banks (CERTIF)
PT Perusahaan Nasional Madani (PNM Ltd) PT PNM
Regional Development Bank (RDB)) Bank Pembangunan Daerah (BPD)
Return on Assets (ROA)
Rural Bank in Liquidation (RBL) Bank Perkreditan Rakyat dalam Likuidasi (BPRDL)
Sharia Business Units (SBU) Unit Usaha Syariah (UUS)
Sharia Economic Communication Centre (SECC) Pusat Komunikasi Ekonomi Syariah (PKES)
Sharia National Council (SNC) Dewan Syariah Nasional (DSN)
Sharia Supervisory Council (SSC) Dewan Pengawas Syariah
Small and Medium Enterprises (SMEs) Usaha Mikro Kecil dan Menengah (UMKM)
Special Investigation Unit (SIU)

76 Appendices
Standard Financial Accountancy Statement (SFAS)
Supervision Management Information System (SMLS)
The Financing to Deposit Ratio (FDR)
Training of Trainers (ToT)
Wadiah Sertificate of Bank Indonesia (WSBI)
Pernyataan Standard Akuntansi Keuangan (PSAK)
Sistem Informasi Manajemen Pengawasan (SIMWAS)
Sertifikat Wadiah Bank Indonesia (SWBI)
Appendices 77