READINESS OF THE REGIONAL BANKS IN IMPLEMENTATION OF THE INDONESIAN BANKING ARCHITECTURE
Jessica Barus 1
Wahyu Widjayanti 2
Accounting Department, Faculty of Economic, Gunadarma University, South Jakarta, Indonesia
ABSTRACT
Indonesia's current banking situation is much influenced by launching of the Indonesian Banking Architecture in early 2004. However, still many things that need to be done to achieve goals outlined appropriate time limits set, in addition to improving regulations and condition of banks can be better achieved. This research was conducted to analyze the effect of that policy against commercial banks in the implementation of the API usage. Commercial banks that become object in this research is to regional development banking for which data were taken with using method of time series starting in 1997-2009.
Keyword; Indonesian Banking Architecture, Regional Development Banks, Regional Champion Banks
1. INTRODUCTION
1.1 BACKGROUND
Since Bank Indonesia issued a policy API (Indonesian Banking Architecture) in 2004, it became clearer that almost all banks in Indonesia have shown significant developments in terms of capital to increase the bank's performance. Indonesian Banking Architecture is a basic framework for the development of the Indonesian banking system that is comprehensive for the range of five to ten years ahead. The direction of policy development the banking industry in the future based on the vision of achieving a healthy banking system, strong and efficient financial system in order to create stability in order to help drive national economic growth, on the other hand, API programs can also increase the performance of banking operations through the application of standards Good Corporate Governance supported operational capability and manage the risks that are reliable, the availability of supporting infrastructure banks, domestic credit rating agencies and the development of credit guarantee schemes are insufficient, and increased customer confidence.
To achieve the vision of the API, Bank Indonesia has set several objectives, namely (1) Creating a healthy domestic banking structure that is able to fulfill the needs of society and promote sustainable national economic development, (2) Creating a system of bank regulation and supervision is effective and based on international standards, (3) Creating a strong banking industry and has a highly competitive and resilient in the face of risk, (4) Creating a good corporate governance in order to strengthen the internal condition of national banks, (5) To realize a complete infrastructure to support creation of a healthy banking industry and (6) Realizing the empowerment and protection of consumer banking services. That’s goals will be achieved through 6 (six) Pillar API’s with each other mutual support achievement of the vision above is a Healthy Banking Structure, Effective System Settings, System of Independent and Effective Supervision, Strong Banking Industry, Adequate Infrastructure Enhancement Consumer and consumer protection.
Furthermore, to implement the six pillars of Bank Indonesia will carry out some program activities within the period from 2004 to 2013, first; Courses strengthening the national banking structure, second; Increasing program to improve the quality of banking regulation, third; Program to improve the oversight function, fourth; Program to improve the quality of management and banking operations, fifth; programs and the latest development of banking infrastructure; Program to improve customer protection. Within 5 to 10 years, the implementation of these programs is expected to create consolidation of banking sector as a whole that leads to a more optimal banking structure in which there are: 2 to 3 banks that lead to international banks (international champions) with capacity and ability to operate in the international area and has a capital of over Rp 50 trillion, 3 to 5 national banks (national champions), which has a very broad scope of business and operating nationwide and has a capital of Rp10 trillion to Rp50 trillion, 30 to 50 specialist banks whose operations are focused on specific business segments in accordance with the capability and competence of each bank. These banks have a capital of Rp100 billion to Rp10 trillion, Rural Banks (BPR) and banks with limited business activities that have capital below 100 billion.
One type of bank that greatly encouraged in the implementation of the API is a regional Development Bank (BPD). BPD is one of the spearhead of supporting the regional economy. Therefore, in this era of financial sector liberalization, there is no other choice BPD to take the challenge and improve competitiveness in order to survive. BPD has its own advantages that are not owned by other banks, such as the local financial data and economic potential of the region is an "asset" valuable. So is the captive market of local government.
BPD is one of the spearhead of economic growth in the region which has the advantage in identifying local needs. Regional Development Banks (BPD) are different from regular commercial banks. From the name obviously, BPD have an important role as agents of development with a focus in their respective regions. If there is BPD which has a big advantage, but comes from the money market, it is not a development bank which is expected (Boediono; 2010). BPD is one of the spearhead of supporting the regional economy. Therefore, in this era of financial sector liberalization, there is no other choice BPD to take the challenge and improve competitiveness in order to survive.
2. THEORYTICAL BACKGROUND
Impact of API against BPD should be viewed as a boost in equating capabilities in order to develop BPD parallel with economic development and progress of other national banks (Burhanuddin Abdullah, The Road to Stability, LPES, 2007, p.. 218). Almost all activities of the API will affect BPD. However, the direct impact of the obligations of the BPD is associated with (i) the strengthening of industrial structure and (ii) the internal condition of an individual bank. The process of consolidation and strengthening of the banking industry structure seems really focused on aspects of the capital. Meanwhile, to the banks of small and medium scale, such as BPD, API encourages banks are choosing specialized operations that focus on specific market segments. Capital for banks as companies in general to function as a buffer against possible losses. Besides capital also serves to maintain confidence in the banking system in performing its function as intermediary for funds received from customers. It is the task of bank supervisors that provides rules on capital. Regulatory Capital is the capital required by regulatory authorities to be prepared in order to cope with potential losses. To meet minimum capital requirements (or the solvency ratio), determined by 2 components namely:
o Weight of the risk of bank assets that is, all exposures that changed to bank assets
then each multiplied by the weight of exposure to regulatory risks by level
risk
then each multiplied by the weight of exposure to regulatory risks by level
risk
o The ratio of minimum (or limits) associated with regulatory capital with
risk weighting of assets:
risk weighting of assets:
• The total regulatory capital divided by total risk weighted assets should be more
greater or equal to 8%
greater or equal to 8%
• Tier 1 capital divided by total risk weighted assets must equal at least
with 4%
with 4%
The capital adequacy ratio, liquidity, and profitability is a benchmark that is often used in the measurement of bank performance. Ratio is a tool that is expressed in relative and absolute terms to describe certain relationships between the factors with each other than a financial report. Financial ratios are generally classified into 4 types of liquidity ratios or liquidity ratio, leverage ratio, the ratio of activity or activity ratio, and the ratio of profits or profitability ratio (Syafarudin Alwi, 1989, 95). Indicators commonly used to measure the performance of bank profitability is ROA (Return on Assets) is a ratio that indicates the overall capabilities of existing assets and are used to generate profit. CAR (Capital Adequacy Ratio) is the ratio of bank performance to measure the adequacy of capital held by banks to support risky assets, such loans. BOPO (Operating Cost to Operating Income) is the ratio between operating expenses and operating income. This ratio is used to measure the level of efficiency and ability of the bank in conducting its operations. NPL (non performing loans) is the rate of return on loans to bank depositors in other words, the NPL is the level of bad debts in the bank. NPL was determined by calculating Financing of Non Current Assets to Total Funding.
Until the year 2010, almost all banks BPD has reached the minimum capital requirement of 100 billion. That means banks BPD has reached the minimum capital requirement identified in the API. For the problem of capital, banks BPD do not have to worry anymore but in reality the success of a bank must be also seen from the good performance of the bank. And BPD own bank would not want to grow only to the extent of capital 100 billion but banks BPD also have a goal to become a bank to go public. Bank Indonesia (BI) to encourage regional development banks to conduct an IPO (initial public offering / IPO). With the IPO, the BPD is expected to get capital with ease.
Until the year 2010, almost all banks BPD has reached the minimum capital requirement of 100 billion. That means banks BPD has reached the minimum capital requirement identified in the API. For the problem of capital, banks BPD do not have to worry anymore but in reality the success of a bank must be also seen from the good performance of the bank. And BPD own bank would not want to grow only to the extent of capital 100 billion but banks BPD also have a goal to become a bank to go public. Bank Indonesia (BI) to encourage regional development banks to conduct an IPO (initial public offering / IPO). With the IPO, the BPD is expected to get capital with ease.
2.1 Policy Options
Related to the choice of policy statements, the IEI has studied several alternative policies that can be reached BPD according to the framework built API. Based on the study of IEI,
there are four policy alternatives that can be taken BPD.
First, consolidation among BPD in one island. This consolidation strategy is to establish a new entity that is a fusion of BPD in one island. Why in one island? It might indeed statements made by involving only two or three BPD alone. However, if done by the BPD in one island, the resulting value creation will be greater when compared solely between the two BPD alone. Moreover, when the two BPD are located in different islands are expected to be difficult to coordinate properly. After consolidation among BPD in an island is formed, the next step is to bank statements need to go public through an initial public offering (IPO). IPO steps necessary not just to meet the API, but is driven by the need for BPD itself to increase capital and improve management, especially the aspects of good corporate governance (GCG).
Second, is the merger between BPD in one island and followed the IPO. With this strategy, the BPD will have one on hold, while others merged into BPD are allowed to exist. Same with the first alternative, the merger between BPD in one of the island relative to provide greater added value than a merger between the two BPD alone. However, this merger policy alternatives are relatively more difficult to run. Barriers that may arise mainly will come from the stakeholders in the region. This considering, as a result of this merger, there will be a considered a superior BPD (which maintained a bank) and BPD are eliminated (since merged into the surviving BPD).
Second, is the merger between BPD in one island and followed the IPO. With this strategy, the BPD will have one on hold, while others merged into BPD are allowed to exist. Same with the first alternative, the merger between BPD in one of the island relative to provide greater added value than a merger between the two BPD alone. However, this merger policy alternatives are relatively more difficult to run. Barriers that may arise mainly will come from the stakeholders in the region. This considering, as a result of this merger, there will be a considered a superior BPD (which maintained a bank) and BPD are eliminated (since merged into the surviving BPD).
Third, the selected one of 26 BPD to become the parent company (holding company) and is followed by an IPO. Although quite ideal, but this policy will get a pretty difficult obstacles. Same with the second alternative, the stakeholders in the region is relatively less able to accept when a BPD is considered superior, while the other BPD as marginalized.
Fourth, the establishment of a new holding company that became an umbrella organization (umbrella organization) for the entire BPD in Indonesia. Once formed, this step is necessary to continue to go public with his holding company through its IPO.
Fourth, the establishment of a new holding company that became an umbrella organization (umbrella organization) for the entire BPD in Indonesia. Once formed, this step is necessary to continue to go public with his holding company through its IPO.
3. METHODOLOGY
This study using descriptive data and secondary data that describe how the bank's implementation of the API and the development of BPD during the last 5 years. The source of this data is secondary data is the data obtained from several document related to the theme being discussed, plus well data retrieval through the internet media and from some previous research. The object studied in this research is the capital during 2003 to 2010 which is owned by 26 banks in Indonesia contained BPD.
4. RESULTS AND DISCUSSIONS
Banking statistics show that over the last five years, from December 2005 to October 2010, total assets to total assets BPD national banks increased from 7.2% to 8.9%. The portion of third party funds (TPF), which entered the BPD increased from 7.6% to 9.4%. The share of loans increased from 6.5% to 8.5%. The decline actually occurs in the office of the BPD, from 13.4% to 10.4%. The growth of regional banks which continue to rise in the last five years, the contribution of BPD in national economic development and the creation of improved business climate seen since the API’s program.
Within the last 5 years, the share of BPD has increased. During December 2005 to October 2010, the share of total banking assets of BPD to Indonesia increased from 7.2% to 8.9%, while deposits also rose from 7.6% to 9.4% and 6.5% to 8 credits, 5%. The role of BPD can be enhanced and strengthened by more effective role of Bank Indonesia Office in each region. Strengthening of BPD along with local inflation monitoring programs and the development of regional clusters of potential economic synergy with each other is intended to advance the interests of the regional economy. Furthermore, the pillars of the Regional Champion BPD initiative described as follows.
• The first pillar, a strong institutional resistance, BPD is committed to improving capital, improving efficiency in order to achieve an adequate level of profitability is supported so as to provide loans with competitive interest rates to the public.
• The second pillar, in its role as an Agent of Regional Development, BPD targeting a larger share of credit for productive sectors and improve the function of intermediation, especially SMEs through cooperation with RB either through a linkage program and become APEX bank.
• The second pillar, in its role as an Agent of Regional Development, BPD targeting a larger share of credit for productive sectors and improve the function of intermediation, especially SMEs through cooperation with RB either through a linkage program and become APEX bank.
• The third pillar, as a form of increased capacity to serve the needs of the community, the BPD will have a program of standardization and improvement of the quality of human resources that supported the expansion of branch network to support the realization of an inclusive financial system (financial inclusion) by improving the widest access to the local community through the creation of products and services that are increasingly varied and excellent. To monitor the implementation of this program, the BI form a working group (working group) consisting of BI, Asbanda, and BPD. Hopefully with this program, local economic development can be facilitated and Islamic business units of each BPD also can play a role in improving living standards.
Here is a table showing the bank's Consolidated Financial Data Regional Development Banks throughout Indonesia from December 2005 until June 2010 (in millions rupiah)
| No | | 31 Des 2005 | 31 Des 2006 | 31 Des 2007 | 31 Des 2008 | 31 Des 2009 | Juni 2010 |
| 1 | Total assets | 105,577,230 | 158,426,662 | 168,590,933 | 183,804,080 | 200,458,073 | 242,383,175 |
| 2 | Loans extended | 44,944,473 | 55,968,545 | 71,921,666 | 96,444,271 | 120,484,924 | 130,639,490 |
| 3 | Current accounts | 50,681,632 | 74,737,221 | 69,338,772 | 70,768,350 | 65,767,676 | 92,976,122 |
| 4 | Savings | 17,111,770 | 25,009,280 | 33,210,061 | 37,495,270 | 42,988,848 | 36,916,180 |
| 5 | Deposit | 17,441,376 | 29,474,403 | 31,816,786 | 35,006,807 | 45,754,732 | 67,831,919 |
| 6 | Third party funds | 85,294,880 | 129,225,488 | 134,367,107 | 143,275,849 | 154,511,256 | 197,724,221 |
| 7 | Paid in capital | 5,842,620 | 7,141,511 | 8,983,027 | 11,580,022 | 12,036,904 | 12,036,904 |
Figure 1
Based on the above table (Figure 1), it can be concluded that all regional development banks in Indonesia showed excellent improvement in banking operations. Financial performance achieved by the end of June 2010 showed an increase when compared with the achievements of December 2005. Can be seen from the table above, it is clear that from 2005 until 2010 there is an increase in assets, the amount of loans, deposits, deposits, and paid-up capital. But not so for demand deposits, and savings are slightly decreased. That means, the API is very influential both on the performance of banks that look increasingly towards the actual goal of the Indonesian economy. Referring to the progress shown by the bank BPD, BPD is worthy banks serve as the motor of national economic development in accordance with their role as agents of development with a focus on each and every province.
The following is a statistical analysis using t table.
| no | Paired samples test T-Test | Sig. |
| 1 | Y-1 – Y1 | -4.644 |
| 2 | Y-1 – Y2 | -5.281 |
| 3 | Y-1 – Y3 | -5.359 |
| 4 | Y-1 – Y4 | -5.041 |
| 5 | Y-1 – Y5 | -5.344 |
| 6 | Y-1 – Y6 | -5.037 |
Note: Y-1 = core capital in 2003 ; Y1 = year 2004….; Y6 = year 2010
The following is a statistical analysis using t table
based on the results of statistical tests, we can conclude that the sigma value obtained by using a table t is less than 0.05 in order to be accepted that each of the regional development banks have increased both in terms of capital and company performance.
based on the results of statistical tests, we can conclude that the sigma value obtained by using a table t is less than 0.05 in order to be accepted that each of the regional development banks have increased both in terms of capital and company performance.
4.1 REGIONAL CHAMPION BANKS
Bank Regional Champion, there are three pillars of the regional champion will be carried, which has a strong institutional resistance so that they can operate efficiently, have the ability as an agent of development in order to support local economic development, and ability to serve the needs of the community. The process is projected to be BRC took four years, starting from late 2010 until 2014. At the end of 2014, some BPD has become the regional champion. To become a BRC, BPD must face four challenges and obstacles. Among them there is no adequate space in the API for BPD to be a development bank in the strict sense, the problem of capital,
regulations do not allow for shareholders to issue the guarantee, and BPD difficulty involved in infrastructure projects due to regulatory issues.
| No | Name of Bank | Capital growth |
| 1 | Regional Bank Of East Southeast Island | 1220% |
| 2 | Regional Bank Of Aceh | 1069% |
| 3 | Regional Bank Of Bengkulu | 864% |
| 4 | Regional Bank Of Central Sulawesi | 830% |
| 5 | Regional Bank Of Southeast Sulawesi | 821% |
| 6 | Regional Bank Of East Kalimantan | 734% |
| 7 | Regional Bank Of Papua | 592% |
| 8 | Regional Bank Of Central kalimantan | 560% |
| 9 | Regional Bank Of West Java and Banten | 502% |
| 10 | Regional Bank Of South Sumatera and Bangka Belitung | 481% |
Figure 2. Top Ten Capital Growth
From the table above the authors compile 10 banks that have capital growth in the core of the most rapidly from year to year. From these studies can be concluded that bank of Eastsouth Island has the highest fund and South Sumatera and Bangka Belitung has the smallest core capital development.
Figure 3. Core Capital between less than 100 billions and more than 100 billions.
Based research using time series method, the authors divide that 26 regional bank in Indonesia into 2 categories, there is the bank which is had total capital that less and more than 100 billion. We concluded it is clear that’s since API regulation implemented 2004 at the core of any capital gain have increased till more than 100 billion.
5. CONCLUSION
Regional Development Bank's financial performance reflects differences
and even look better. So for the future role of BPD will make greater the Indonesian banking to the expected support from party government. Regional Development Banks (BPD), is one of the bank who pushed in implementing API rules, why? Because BPD is the spearhead of national economic growth. This was due to the characteristics of BPD are not owned by other banks, who knew the local financial data in order to explore the local economic growth.
In Indonesia alone, there were 26 BPD, and from observation that has been done in getting that overall Bank capital increased significantly from year to year. Therefore it is quite difficult if BPD did holding company for several banks, with its own specifications. According to the author there are other ways to implement BPD regulation by a merger between banks of each region, that can get 5 (five) BPD bank formations, which increasingly allows each and every province in the united system of each region.
and even look better. So for the future role of BPD will make greater the Indonesian banking to the expected support from party government. Regional Development Banks (BPD), is one of the bank who pushed in implementing API rules, why? Because BPD is the spearhead of national economic growth. This was due to the characteristics of BPD are not owned by other banks, who knew the local financial data in order to explore the local economic growth.
In Indonesia alone, there were 26 BPD, and from observation that has been done in getting that overall Bank capital increased significantly from year to year. Therefore it is quite difficult if BPD did holding company for several banks, with its own specifications. According to the author there are other ways to implement BPD regulation by a merger between banks of each region, that can get 5 (five) BPD bank formations, which increasingly allows each and every province in the united system of each region.
6. REFERENCES
Harada, K. and T. Ito. “Rebuilding the Indonesian Banking Sector-Economic Analysis of Bank Consolidation and Efficiency”. JBICI Reveiew No.12. http://www.jbic.go.jp/en/research/report/jbic-review/pdf/report12_2.pdf
Mari Pangestu. “The Indonesian Bank Crisis and Restructuring: Lessons and Implications for Other Developing Countries” G-24 Discussion Paper Series. No.23, November 2003. United Nation and Center For International Development Harvard University. http://www.G24.Org/Panges2.Pdf
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