OJK Amends Credit Risk RWAs and Launches Roadmap for Banking Sector
OJK announced changes to the credit risk-weights for motor vehicle, housing, and healthcare sector loans from banks and financing companies. The regulator also launched the Indonesian Banking Development Roadmap for 2020-2025 as a reference for authorities, the banking industry, and other stakeholders. Both these developments are part of a response to encourage economic growth in these difficult times, through the financial services sector policy.
For motor vehicle loans of banks, credit risk-weight has been lowered from 100% to 50%. Banks that meet the risk profile criteria 1 and 2 are allowed to provide a down payment for motor vehicle loans of 0%. For credit provision to battery-based electric motorized vehicle manufacturers, the credit risk-weight has been lowered from 75% to 50%. Under the housing-backed credit policy with respect to banks, OJK has established that the applicable risk-weight is 35% for loans with down payment of up to 30%, 25% for down payment of 30% to 50%, and 20% for down payment of more than 50%. Furthermore, OJK stipulates that credit for the health sector will be subject to a risk-weight of 50%, which represents a reduction from the earlier risk-weight of 100%.
In the other update from OJK, Heru Kristiyana, the Executive Head of the OJK Banking Supervision, explained that the development roadmap for banking sector will serve as a guideline for the development of the banking industry ecosystem and future regulatory, supervisory, and licensing infrastructure. The roadmap addresses structural development of the sector in stages over a period of five years, in addition to the short-term development for optimizing the role of banks in accelerating the process of national economic recovery due to the impact of the COVID-19 pandemic. The direction of structural development is aimed to strengthen the national banking institutions for better resilience, higher competitiveness, and a more optimal contribution to the national economy. The roadmap constitutes of the four developmental pillars for the banking sector:
- Strengthening the structure and competitive advantage by increasing capital, accelerating consolidation and strengthening bank business groups; improving governance and efficiency; and encouraging product and service innovation.
- Accelerating digital transformation by strengthening IT governance and risk management, encouraging the use of IT game changers, forging technology collaborations, and implementing advanced digital banking.
- Strengthening the role of banking sector in the national economy by optimizing the role in economic financing, encouraging financial market deepening through multi-activity businesses, encouraging Islamic banking to become a catalyst for the Islamic economy, increasing financial access and literacy, and encouraging participation in sustainable financing.
- Strengthening regulation, supervision, and licensing via improved regulations by using a principle-based approach, available technology, and supervision of bank business groups (includes strengthening integrated supervision using technology).
Related Links (in Indonesian)
Keywords: Asia Pacific, Indonesia, Banking, COVID-19, Roadmap, Credit Risk, Risk Weighted Assets, LTV, Islamic Banking, Governance, Basel, Regulatory Capital, OJK
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