Gambaran Umum i

BSR
Banking Supervision Report
2006

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

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

Strategic Values of Bank Indonesia:

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

ii Gambaran Umum
Table of Contents

Chapter 1 Overview

Chapter 2 Development of the Banking Sector

The Number of Banks and Bank Offices
The Growth of Commercial Banks and Bank Offices
The Performance of Banking
Commercial Banks Performance
Islamic Banks Performance
Rural Banks Performance
Chapter 3 Banking Policy and Regulation
Banking Policy
Strengthen the Banking Intermediary
Strengthen the Banking Structure
Strengthen the Banking Capital Structure
Enhance the Linkage Program
Establishment of the Rural Bank Joint Service Facility (Apex Bank)
Establishment of the Regional Loan Insurances Scheme
Strengthen the MSM Scale- Enterprise
Prepare the Implementation of Basel II
Improve the Compliance of the 25 Basel Core Principles
Accelerate the Banking Consolidation Program
Strengthen the Internal Banking Management
Improve the Banking Industry Infrastructure
Improve the Protection and Empower Bank Customers
Provide Bank Mediation
Implement Public Education in Banking
Islamic Banking Policy
Rural Banking Policy

Chapter 4 Banking Supervision

Commercial Banks
Islamic Banks
Rural Banks
Banking Investigation and Mediation
The Fit and Proper Test
Improve the Banking Sector Management Information System
The Credit Bureau
Bank Indonesia Credit Liquidity (KLBI) and Two Step Loan (TSL) Examination
Improve the Law Enforcement

Gambaran Umum iii

 Chapter 5 Banking Outlook and Policy Direction for 2007
Banking Outlook
Banking Policy Direction
Islamic Banking
Rural Bank

List of Appendices

1. Progress of Indonesian Banking Architecture: Realization and Target

2. List of Banking Regulation 2006

3. Banking Key Indicators as of September 2006

4. Banking Key Financial Ratio as of September 2006

List of Boxes
3.1 The Consultative Paper of Basel II
3.2 The Compliance of the 25 Basel Core Principles
3.3 Building the Capacityof of Rural Banks

4.1 Bank Supervisory Strategy

4.2 Reorganization : Enhancing the Effectiveness of Banking Supervision
4.3 Certification and Capacity Building for Bank Supervisors
4.4 Mediation of Customer and Bank Disputes
4.5 KLBI and TSLs Examination

iv Gambaran Umum
List of Tables and Figures

Table Figures
1.1 Banking Key Indicator 2003 - 2006 2.1 MSMEs Loans
2.2 Growth of MSMEs Loans
2.1 Growth of Total Banks and Bank Offices 2.3 Growth of Islamic Banks Deposits, Profit Sharing Rate
2.2 Number of Banks based on Ownership and Interest Rate
2.3 Share of Banks Ownership based on Total Assets
2.4 Share of Foreign Banks Ownership based on Total 4.1 Modus of Bank Fraud
Assets
2.5 Growth of Islamic Banks and Islamic Bank Offices
2.6 Growth of Rural Banks and Rural Bank Offices
2.7 Banking Key Indicator December 2005 - 2006
2.8 Growth of MSM Scale- Enterprise Loans
2.9 Growth of Islamic Banks Investment based on Type
2.10 Islamic Rural Banks Performance
2.11 Rural Banks Performance

4.1 Commercial Bank Risk Profiles

4.2 Commercial Bank Ratings
4.3 Commercial Banks KYC/AML Ratings
4.4 Commercial Banks Compliance of The Tier 1 Capital
4.5 Islamic Commercial Bank Risk Profiles and Ratings
4.6 Rural Banks Planned and Actual Examination
4.7 Rural Banks Licensing
4.8 Number of Banking Investigation
4.9 Number of Customer and Bank Dispute
4.10 Fit and Proper Test for Prospective Commercial
Banks Managers and Owners/Ultimate Shareholders
4.11 Fit and Proper Test of Rural Banks Managers and
Owners/Ultimate Shareholders

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vi Gambaran Umum
 FOREWORD

Let us offer our praise and thanksgiving to ALLAH SWT, God Almighty for the blessing of His compassion, protection
and grace that made possible of this 2006 Bank Supervision Report, which is fulfilled the obligations of Bank Indonesia
for transparency and accountability as the bank supervisory authority to all stakeholders and the public, has published.
Great challenges were faced by the banking system, especially in the first half of the year 2006 as a result of
unfavourable economic conditions. It has produced a slowing growth in banking intermediary function. Responding to
these developments, Bank Indonesia issued a series of policies in an effort to maintain banking system stability. In essence,
the policies adopted in 2006 followed from the policies set out in the Indonesian Banking Architecture (API) and were
designed to respond to the unfolding situation, particularly regarding the intermediary function. Taken as a whole, the
year 2006 saw considerable progress in the API programmes designed to reinforce the institutional foundations, financial
structures and operations of the banking industry.
The hard work of the banking system support by proactive policy response and buoyed also by improvement in
economic conditions, brought positive results. Total assets of commercial bank and Islamic bank was growth, CAR and
assets quality were improved, and ROA was stable. Also rural banks (BPR) showed positive growth, indicated by its assets
expansion and deposits growth. This is and indicator that banking confident still maintained.
Bank Indonesia requires rural banks to possess the following characteristics: operate offices in one province with a
limited scope of business; achieve optimum use of technology in their operations; and maintain indirect/restricted
participation in the payment system under the management of the Apex institution.
Looking forward, Bank Indonesia will face mounting challenges in its role in promoting the intermediary function
and safeguarding financial and banking stability. For 2007, Bank Indonesia has adopted policy actions to maintain the
enhancement of banking industry role in accelerating growth and real sector development
There is no diamond without a flaw. We welcome comments and suggestions for improvement of the Bank Supervision
Report so that in the future, we can respond more effectively to the needs of Bank Indonesia»s stakeholders. Not the least,
I express my gratitude to all units in the banking sector at Bank Indonesia for their contribution to this report. May God
Almighty bestow His grace and blessing upon us.

DEPUTY GOVERNOR

BANK INDONESIA

Muliaman D. Hadad

Gambaran Umum vii

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viii Gambaran Umum

 Banking Supervision Report

Chapter 1: Overview

Overview 1
Banking Supervision Report

2 Overview
 Banking Supervision Report

Chapter 1: Overview
The year 2006 represented a period of dynamic struggle for the Indonesian banking industry.
Despite the seriousness of challenges faced during the year, banks generally managed to sustain
positive levels of performance. Commercial banks and rural banks reported adequate levels of
profitability, liquidity and solvability. Likewise, the islamic banking industry again demonstrated
remarkable progress with robust expansion in financing and profitability. Despite this, the intermediary
function was hampered by adverse changes in economic conditions, especially in the second half
of 2006. This prompted banks to exercise greater caution in managing their risk portfolios, and in
response, banks shifted towards placing their funds in low-risk earning assets.
To address the situation, Bank Indonesia introduced new policies in the January and October
Banking Policy Packages (Pakjan 2006 and Pakto 2006), designed to encourage banks to expand
their intermediation activities, and embarked on cautious easing in the BI Rate. This was
complemented by further action to strengthen the foundations of Indonesia’s banking sector as
envisaged in the Indonesian Banking Architecture (API).
The improvement in economic conditions brought on by a series of policy actions and the risk
management put into place at banks has brought positive results. In the second half of 2006, bank
performance steadily improved. By Restructured of some major corporate debts helped to improve
the NPLs ratio Bank financing began to flow faster, enabling banks to demonstrate healthy
performance at end of year. Following from the results of 2006, Indonesia’s banks are predicted to
achieve even stronger performance in 2007. The continue of macroeconomic stability and prudential
regulations designed to stimulate a more active role for bank financing within prudent limits will be
the key factors.

The Indonesian banking system faced daunting
external challenges in 2006. Economic conditions,
especially in the first half of the year, continued to reflect
the impact of the fuel price hike and mounting interest
rates in the fourth quarter of 2005. These two factors
were the consequence of the fiscal and monetary policy
adjustments essential to mitigate the potential
macroeconomic instability during 2005, which resulted in
slow bank lending due to sluggish demand in the midst
of uncertainties. On one hand, weak consumption brought
about by declining purchasing power sapped demand for
bank financing, while rising costs for business pushed up
production costs. From all this, banks held the view that
the repayment capacity of debtors and prospective debtors
was in decline. On the other hand, efforts to improve the
investment climate and infrastructure were hindered by
various technical obstacles, which also held up the
disbursement of major loans. In response, banks adjusted
their portfolio management strategies, adopting a more
cautious stance.
Credit expansion declined while depositor funds
continued to rise. Credit expansion slowed to 14.1% (y-o-y),
with total bank lending reaching RpΩ832.9 trillion at end-
December 2006. The slower pace of bank lending
prompted a downward revision in the targeted credit
expansion in bank business plans for 2006. Despite this,

Overview 3
Banking Supervision Report
depositor funds held at banks continued to mount in excess
of credit expansion, with growth at Rp 159.1 trillion
(14.1%). The loan to deposit ratio reached 64.7%,
reflecting the surplus of accumulated funds that banks
were unable to channel into financing.
Banks leaned more towards caution, preferring to
channel funds into low-risk forms of credit. The banking
system adjusted strategy by focusing more on business
with manageable risks, including short-term loans with
modest ceilings. Credit to the trade sector recorded strong
growth, largely from robust demand in the retail trade
sub sector. On the other hand, banks were generally more
cautious in lending to manufacturing enterprises, with
lending growth down from the preceding year.
Economic growth momentum again received support
from proactive policy responses. With monetary policy aimed
consistently at achievement of the inflation target, inflation
was brought down from 17.03% in January to 6.60% at
end of year. Supporting this was the fiscal stimulus, which
included direct cash transfers to poor households, an
increase in the tax-free income allowance and accelerated
disbursement of budget expenditures. On the other hand,
despite the ongoing stagnation in investment growth,
improvement became evident in indicators for private
investment. Bank Indonesia then embarked on a cautious
easing in the BI Rate, with the rate lowered a cumulative
300 basis points to 9.75% at end of year. This rate reduction
led to a decline in domestic interest rates. Economic growth
improved during the year to 5.5%. At the same time, the
exchange rate maintained a stable trend but was also
managed flexibly to enable proactive management of
market risks by the banking sector.
Banking policy was again focused on structural
improvement of the banking system and promoting the
intermediary function within prudent limitations. The
policies adopted in 2006 followed from the policies set
out in the Indonesian Banking Architecture (API) and were
4 Overview
designed to respond to the unfolding situation, particularly
regarding the intermediary function. These policies were
placed within an integrated, systematic policy framework
in the January Banking Policy Package (Pakjan) and October
Banking Policy Package (Pakto), both released in 2006. In
addition, the Government and Bank Indonesia jointly issued
the Financial Sector Policy Package on 5 July 2006 with
the objective of developing Indonesia»s financial
infrastructure by ensuring greater access to corporate
financing and strengthening financial market structures.
Improvement in macroeconomic conditions and the
launching of the banking policy packages brought positive
results. The key factors of the healthy financial performance
is risk mitigation strategies pursued by banks Total
commercial bank assets, including those held by islamic
banks, mounted 15.2% to Rp 1,693 trillion. The CAR
reached 20.5%, up slightly from the end-2005 position.
Earning assets quality, particularly for loan assets, maintained
an improving trend reflected in lower NPLs. NPLs gross and
net, recorded at 8.3% and 4.8% at end-2005, eased to
7.0% and 3.6% at the end of 2006. Bank liquidity continued
to improve as indicated by the substantial rise in the ratio of
liquid instruments to non-core deposits to 147.3%.
Profitability was up with the ROA relatively stable at 2.6%
alongside a slight improvement in efficiency. The ratio of
operating expenses to operating income fell to 86.4% while
NII strengthened from Rp 6.2 trillion to Rp 7.7 trillion.
Expressed in another way, bank net earnings climbed from
an average of Rp 2.1 trillion per month (2005) to Rp 2.
trillion per month (2006). Improved profitability resulted in
internal growth of bank capital, which enabled the CAR to
climb from 19.5% to 20.5%.
The sharia banking system was marked by optimum
performance in the intermediary function. During the
second half of 2006, sharia banking regained momentum.
Financing extended by sharia banks at the end of 2006
was up by Rp 5.2 trillion (y-o-y), producing a rise in the
 Banking Supervision Report

Financing to Deposit Ratio (FDR) for sharia banks from
97.8% to 98.9%. During the same period, depositors
funds mounted by Rp 5.1trillion, indicating that sharia
banks were able to channel all funds mobilised from the
public. In other words, the intermediary function for these
banks was operating at an optimum level.
Rural banks again achieved positive performance. At
the end of December 2006, rural banks recorded total
assets of Rp 23 trillion, representing an increase of 13%
(y-o-y). Total loans and deposits were up in keeping with
positive trends. Depositor funds accumulated by rural
banks reached Rp 15.8 trillion, up 19.7%, while the
customer base expanded from 6 million to 6.6 million.
This demonstrates that rural banks still hold promise and
command increasing levels of public confidence. Lending
by rural banks reached Rp 16.9 trillion, an increase of
15.7%, with debtors totalling 2.5 million.
Performance of sound banking was reflected in.
During 2006, most banks were rated sound or fairly sound,
reflecting improved effectiveness in bank risk management.
Similarly, more prudent lending strategies supported by
efforts to strengthen good corporate governance within
banks brought positive results.
The supervision function at Bank Indonesia saw
continued improvement. The supervision methods
employed by Bank Indonesia were constantly revised and
updated. Using dedicated teams, supervisors were able to
obtain a comprehensive risk profile and decide on the
supervision strategy for the banks under their oversight
within a relatively short time. During the year,
improvements were made to the quality of risk-based
supervision. Bank supervision focused on the inherent risks
in major business lines, risk control systems and a forward-
looking approach. These risks cover the major business
lines of credit, treasury and investment, operations and
services, trade financing, funding and debt instruments,
in addition to IT systems and management information
systems (MIS) and human resources management.

Table 1.1.
Banking Key Indicator 2003 - 2006

Key Indicator Dec - 03 Dec - 04 Dec - 05 Dec - 06

Total Assets 1,196.2 1,272.3 1,469.83 1,693.52

Third Party Funds (Deposits) 888.6 963.1 1,127.94 1,287.0
Loans 477.19 595.1 730.2 832.9
Earning Assets 1,072.4 1,146.8 1,353.2 1,556.2
Net Interest Income 3.2 6.3 6.2 7.71
Loan to Deposit Ratio (%) 53.7 61.8 64.7 64.7
Return on Assets (%) 2.5 3.5 2.6 2.6
Non Performing Loans - Gross (%) 8.2 5.8 8.3 7.0
Non Performing Loans - net (%) 3.0 7.1 4.8 3.6
Capitals Adequency Ratio (%) 19.4 19.4 19.5 20.5
Loan to Earning Asset (%) 44.5 51.9 54.0 53.5
Net Interest Margin (%) 0.3 0.6 0.5 0.5
Liquid Asset to Total Asset (%) 15.1 14.9 15.8 22.0
Core Deposits to Total Asset (%) 0.5 0.5 0.5 0.5
Operating Cost to Operating Income (%) 88.8 76.7 87.7 86.4

Overview 5
6
Factors Driving Bank Performance in 2006

Overview
Banking Supervision Report

External Internal Policy Measures Bank Performance

• Oil Price Hike
• Rising Inflationary Pressures
• Rising Domestic Interest Rates
• Weakening Consumer
Purchasing Power
• Declining Production Rate
• Weakening Demand for Credit
• Declining Repayment Capacity
• Rising Risk Expectation
• Remaining Liquidity Surplus
• Extra Prudence
• Trend to shift towards less risky
assets
• Slowing credit growth
• Declining Investment Loans
Authority Level
• Easing banking regulation
within prudential corridor
• Bolstering Risk Based
Supervision
• Reorganization of Banking
Supervision in Bank
Indonesia
• Solvency, profitability, and
liquidity of banks were in good
shape
• Improved asset quality as
reflected in declining NPLs
• Intermediation,
notwithstanding, was slightly
abated

Strengthening banking industry

structure under auspices of IBA:
• Single Presence Policy
• Merger Incentives
• Improvement of GCG

Bank Level

• Improvement of Risk
Management
• Compliant to Prudential
Regulations

The fit and proper test is designed to promote the
creation of a sound banking system. This will come into
being through management and control by competent
officers of high integrity. The fit and proper test for
candidate managers and prospective controlling
shareholders serves as an initial selection involving an
evaluation of integrity, competence and/or financial
standing/reputation.
Bank Indonesia has and will continue to respond to
banking violations with law enforcement actions.
Nevertheless, Bank Indonesia does not have legal powers
to investigate cases of suspected banking violations. Bank
Indonesia»s mediation role became effective on 1 June 2006
and will be continued until the establishment of an
independent banking mediation institution by 31
December 2007.
In 2007, Bank Indonesia will pursue further policies for
strengthening the banking industry and promoting growth
in the real sector. Increased lending is needed for the real
sector especially for medium small and micro enterprises
(MSMEs) and non-MSMEs alongside availability of long-term
financing. This will enable banks, which represent the leading
intermediary institution, to place the formal sector and
especially MSMEs on a higher growth track amid various micro
structural risks. To this end, Bank Indonesia will: (1) play a
more active catalytic role in promoting the bank intermediary
Banking Supervision Report
process; (2) take action to strengthen cooperation and
coordination with the Government in the restructuring of
the banking industry, including revitalisation of the state-
owned bank role; (3) provide facilitation for the merger
process and promote the bank intermediary function; (4) issue
guidelines on foreign-owned banks to play a more optimum
role in the intermediation process and a special regulation
restricting the employment of expatriates in middle
management positions and requiring transfer of knowledge;
(5) play an active role in the deepening of financial markets;
(6) launch a programme to accelerate the growth of Islamic
banking in Indonesia; (7) review the regulatory framework
for rural banks in order to strengthen and expand their role
and contribution in support of the MSME sector throughout
Indonesia.
The outlook for the banking system is even stronger
performance in 2007. It was supported by the continuing
of macroeconomic stability and prudential regulations
which designed to stimulate a more active role for bank
financing within prudent limitations. In their plans, banks
envisage average 18% credit expansion. Strong lending
growth is predicted for the trade, construction,
transportation and telecommunications sectors and for
infrastructure development. Supporting this will be low
interest rates, a stable exchange rate and renewed growth
in domestic and global demand.
Overview 7
Banking Supervision Report

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8 Overview
 Banking Supervision Report

Chapter 2:
Development of the
Banking Sector

Development of the Banking Sector 9

 Banking Supervision Report

10 Development of the Banking Sector

 Banking Supervision Report

Chapter 2:
Development of the Banking Sector

The number of banks including Islamic banks reduced to 130 attributable to merger.
Nevertheless, the service coverage of banking industry has continued to increase owing to the
branch network expansion by 874 units in 2006. In addition, banks achieved remarkable progress
with improvement in various financial and operational indicators over the preceding year, albeit
intermediary function remained a daunting challenge. Adverse changes in macroeconomic
conditions, especially in the first half of 2006, put serious limitations on banks for expansion in
financing, with the exception of Islamic and rural banks. Demand for credit slackened in the face of
deteriorating purchasing power, while on the supply side, banks exercised greater prudence in
lending because of changes in risk expectations.

THE NUMBER OF BANKS AND BANK OFFICES

The Growth of Commercial Banks and Bank Offices1 Table 2.1
Growth of Total Banks and Bank Offices
The overall number of commercial banks and rural
banks declined as a result of mergers, but the public gained Position
Banks
2003 2004 2005 2006
more extensive access to banking services. In 2006, the
Commercial Banks
number of commercial banks fell from 131 to 130 following
Total Banks 138 133 131 130
the merger of PT Bank UFJ Indonesia with the Bank of Tokyo Total Bank Offices 7.730 7.939 8.236 9.110
State Owned Banks
Mitsubishi branch office in Jakarta. The merger took place Total Banks 5 5 5 5
after the merger in Japan between Bank of Tokyo Mitsubishi Total Bank Offices 2.072 2.112 2.171 2.548
Regional Development Banks
Ltd with UFJ Bank Ltd, with the new bank named Bank of Total Banks 26 26 26 26
Total Bank Offices 1.003 1.064 1.107 1.217
Tokyo-Mitsubishi UFJ. In Jakarta, Bank of Tokyo-Mitsubishi
Foreign Exchange Commercial Banks
UFJ operates as a branch office. Despite the slight reduction Total Banks 36 34 34 35
Total Bank Offices 3.829 3.947 4.113 4.395
in the total number of banks, bank services continued to
Non-Foreign Exchange Commercial Banks
improve with the expansion in bank branch office networks Total Banks 40 38 37 36
Total Bank Offices 700 688 709 759
to 874 offices in 2006. On the other hand, the breakdown Joint Venture Banks
of total banks by ownership in December 2006 was largely Total Banks 20 19 18 17
Total Bank Offices 57 59 64 77
unchanged (See Table 2.1 and 2.2). Foreign Owned Banks
Total Banks 11 11 11 11
1 Act number 7 of 1992 concerning banking as amended by Act number 10 of 1998 Total Bank Offices 69 69 72 114
categorises banks into commercial banks and rural banks. Both may conduct conven-
tional business and/or business based on islamic principles. Islamic banks include com- * Tidak termasuk kantor BRI Unit Desa
mercial banks, islamic rural banks and units based in (conventional) commercial banks
that conduct business based on Islamic principles.

Development of the Banking Sector 11

 Banking Supervision Report

Table 2.2
Islamic banks expanded their outreach through the
Number of Banks based on Ownership
opening of more offices and vigorous growth in provision
December December December
No. Banks 2004 2005 2006 of sharia banking services under by the office channelling
Nominal % Nominal % Nominal % policy. The public gained significantly increased access to
1 State Owned Banks 5 3,7 5 3,8 5 3,8
sharia banking services with the addition of 1 (one) Islamic
2 Foreign exchange
commercial banks 35 26,1 34 26,0 35 26,9 Banking Unit, opened at the East Kalimantan Regional
3 Non Foreign
exchange Development Bank, opening out of 40 units offices, and
commercial banks 38 28,4 37 28,2 36 27,7 Islamic Services at 456 conventional bank offices under
4 Regional
development banks 26 19,4 26 19,9 26 20,0 the office channelling scheme. Under the office channelling
5 Joint Venture banks 19 14,2 18 13,7 17 13,1 policy, Islamic service units based at conventional banks
6 Foreign owned
banks 11 8,2 11 8,4 11 8,5 may open services for accepting sharia deposits at
Total 134 100 131 100 130 100 conventional branch offices. The office channelling policy,

Foreign investment in Indonesian banks showed introduced in early 2006, resulted in considerable

upward trend. Divestiture of government holdings in some expansion in the coverage of Islamic banking services,

banks led to a change in the ownership map of the which were brought within easy reach of all levels of society

Indonesian banking system, with foreigners holding an in urban and rural areas throughout Indonesia.

increased stake in Indonesian-incorporated banks. This Geographical coverage by Islamic banking networks

trend indicated that Indonesia»s banking industry holds widened to more than 70 regencies and municipalities in

great attraction for foreign investment (Table 2.3 and 2.4) 31 provinces. The future holds enormous potential for

Table 2.3
Share of Banks Ownership based on Total Assets

December 2005 December 2006

Ownership
Total Total Assets Share Total Total Assets Share
State Owned bank 31 671 45,7% 31 940 55,5%
Local 63 215 14,6% 58 43 2,6%
Foreign 37 583 39,7% 41 710 41,9%
Industry 131 1.469 100,0% 130 1.693 100,0%
1) Termasuk Bank BUMN dan BPD
2) Termasuk kantor cabang bank asing, bank campuran dan bank akuisisi asing

Table 2.4
Share of Foreign Banks Ownership based on Total Assets

December 2005 December 2006

Share to Share Share to Share
Total Assets Total Assets
Total foreign to Total foreign to
(trillion Rp) (trillion Rp)
owned banks Industry owned banks Industry

Branch offices of foreign banks 11 141 24,1% 9,6% 11 156 22,0% 9,2%

Joint venture banks 17 59 10,1% 4,0% 17 64 9.1% 3,8%

Foreign Acquisitioned banks 9 383 65.7% 26,1% 13 490 69,0% 28,9%

* Jumlah bank campuran turun disebabkan akuisisi oleh investor lokal

12 Development of the Banking Sector

 Banking Supervision Report

expansion of Islamic banking to areas outside provincial
capitals.
The more extensive territorial coverage by Islamic
banks also means that more members of the public are
informed of the existence of Islamic banking. Similarly,
office network expansion had a positive effect on the
operation of the Islamic bank social function through more
extensive mobilisation and channelling of funds for
charitable purposes. In this way, more of the public are
becoming acquainted with the benefits of Islamic banks.
This, of course, will build a dynamic industry image and
generate multiplier effects for the growth of the Islamic
banking industry.
Islamic rural banks increased in number. Thirteen new
Islamic rural banks opened for business, including 4 former
conventional rural banks: BPRS Lantabur, BPRS Haji Miskin,
BPRS Artha Mas Abadi, BPRS Al Salaam Amal Salman, BPRS
PNM-BINAMA, BPRS Jabal Tsur, BPRS Dinar Ashri, BPRS Bumi
Rinjani Kepanjen, BPRS Bumi Rinjani Probolinggo, BPRS Dana
Hidayatullah, BPRS Kota Bekasi, BPRS Bumi Rinjani and BPRS
Arta Leksana. This brought the total number of Islamic rural
banks at end of year to 105 (Table 2.5).
In contrast, the numbers of conventional rural banks
diminished as a result of mergers and liquidation. Like before,
rural banks were concentrated in Java and Bali. At end-
December 2006, the total number of rural banks eased to
1,880 following the merger of 134 banks into 14 larger
entities and the liquidation of a further 6 banks. Of this
total, 1,327 were incorporated as limited liability companies
(70.6%), 504 as regional government enterprises (26.8%)
and 48 as cooperatives (2.6%). One rural bank is
incorporated as an MAI. Rural banks remain concentrated
in Java and Bali. These two islands are home to 1,451 rural
banks (77.2%), while the other 429 (22.8%) are based
outside Java and Bali. This can be explained by disparities in
population and levels of economic activity (Table 2.6).

Table 2.5
Growth of Islamic Banks and Islamic Bank Offices

Keterangan 2002 2003 2004 2005 2006

Islamic Commercial Banks 2 2 3 3 3

Islamic Banking Units 6 8 15 19 20

Rural Islamic Banks 83 84 86 92 105

Total Islamic Bank Offices 127 299 401 504 531

Total Islamic Offices Channeling - - - - 456

Catatan : data di atas tidak termasuk gerai (45) dan layanan syariah (456)

Table 2.6
Growth of Rural Banks and Rural Bank Offices

Keterangan 2000 2001 2002 2003 2004 2005 2006

Head Offices 2.419 2.355 2.141 2.141 2.158 2.009 1.880

Branches 62 76 140 140 163 311 502

Cash Offices 1 1 466 1.018 1.186 790 791
Total 2.482 2.432 2.747 3.299 3.507 3.110 3.173

Development of the Banking Sector 13

 Banking Supervision Report

THE PERFORMANCE OF BANKING
Encouraging levels of commercial bank performance
were reflected in strong capital, improving quality of
earning assets, stable profitability and high liquidity.
However, intermediation remains a daunting challenge.
Commercial Banks Performance
Amid the array of external challenges of 2006,
commercial banks achieved positive results. Expansion in
business volume was reflected in aggregate 15.2% asset
growth to Rp 1,693 trillion. Capital was maintained at a
high level with the capital adequacy ratio (CAR) reaching
20.5% in 2006, up from 19.5% in 2005 as a result of
earnings growth. Earning assets quality improved,
especially for credit, following the successful debt
restructuring for major debtors at state banks. As a result,
NPLs fell from 8.3% (gross) and 4.8% (net) to 7.0% (gross)
and 3.6% (net) in 2006. Banks maintained high levels of
liquidity, with the ratio of liquid instruments to non-core
deposits at 147.3%. Efficiency was up, reflected in the
decline in ratio of operating expenses to operating income
to 86.4% at end-2006. While banks recorded increased
assets, higher efficiency kept ROA largely stable at 2.6%.
Net interest income (NII) climbed from Rp 6.2 trillion to Rp
7.7 trillion, contributing to the significant internal growth
in bank capital. Bank performance is detailed in Table 2.7.
Despite this, commercial banks were restrained in
their credit expansion, mainly due to adverse economic
conditions in the first half of 2006. During 2006, bank
lending expanded by Rp 102.7 trillion (14.1%), but this
was far below the 22.7% credit expansion recorded in
2005. Adverse macroeconomic conditions during the first
half of 2006 brought on by the fuel price hike in October
2005 bore down heavily on the banking system throughout
the first half and early in the second half of the year despite
a lifting in pressure from an upturn in economic conditions.
The change in macroeconomic conditions affected bank
strategy in the operation of the intermediary function and

Table 2.7
Banking Key Indicator December 2005 √ 2006

Dec 2006
Main Indicators
2005 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Total Assets (T Rp) 1,469.8 1,465.6 1,466.3 1,465.3 1,466.9 1,514.9 1,519.4 1,517.1 1,551.4 1,578.2 1,605.2 1,635.0 1,693.5
Third Party Funds (T Rp) 1,127.9 1,116.2 1,123.7 1,123.9 1,123.2 1,160.6 1,168.3 1,161.0 1,188.2 1,205.5 1,233.6 1,251.0 1,287.0
Credit (T Rp) 730.2 714.2 714.7 722.7 733.4 747.6 757.3 758.4 769.2 787.7 796.1 808.4 832.9
Earning Assets (T Rp) 1,353.2 1,354.5 1,346.1 1,346.6 1,360.6 1,400.5 1,406.0 1,400.8 1,432.6 1,458.4 1,475.0 1,510.5 1,556.2
Net Interest Income (T Rp) 6.2 6.9 5.6 6.8 6.5 7.2 7.6 6.5 7.4 6.2 7.2 7.4 7.7
Certificate of Bank Indonesia (T Rp) 54.3 79.1 88.7 97.9 113.3 142.4 139.8 139.6 152.3 150.7 136.6 176.5 179.0
FASBI (T Rp) 53.1 45.7 33.5 15.8 17.2 14.5 14.0 7.9 13.0 16.5 34.9 21.7 38.6
Government Bonds (T Rp) 289.6 245.6 248.6 246.2 245.2 245.0 245.7 243.6 242.3 246.6 247.7 245.1 243.9
LDR (%) 64.7 64.0 63.6 64.3 65.3 64.4 64.8 65.3 64.7 65.3 64.5 64.6 64.7
ROA (%) 2.6 2.4 2.5 2.6 2.4 2.6 2.5 2.5 2.6 2.6 2.6 2.6 2.6
NPLs Gross (%) 8.3 8.7 9.3 9.4 9.2 8.8 8.7 8.9 8.8 8.5 8.8 8.6 7.0
NPLs net (%) 4.8 5.1 5.7 5.6 5.6 5.1 5.1 5.2 5.0 4.9 4.9 4.8 3.6
CAR (%) 19.5 21.5 21.2 21.7 21.5 20.8 20.5 20.7 20.8 21.0 20.8 20.6 20.5
Credit/AP (%) 54.0 52.7 53.1 53.7 53.9 53.4 53.9 54.1 53.7 54.0 54.0 53.5 53.5
NIM (NII/AP) (%) 0.5 0.5 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.4 0.5 0.5 0.5
Liquid Assets/TA (%) 15.8 16.5 16.2 16.7 17.4 19.1 18.9 18.6 19.4 19.3 19.9 20.9 22.0
Core Deposits/TA (%) 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
BOPO (%) 87.7 93.3 95.3 92.2 92.2 90.5 83.2 83.2 83.3 88.8 88.6 87.5 86.4

14 Development of the Banking Sector

 Banking Supervision Report

management of potentially increased risks. This was the
underlying factor in the restraint applied to bank lending.
On the other hand, demand for credit slowed because of
high interest rates and declining purchasing power. Internal
factors also played in role. Banks responded to expectations
of high risks brought on by these economic conditions by
exercising greater caution in lending, preferring to allocate
their portfolios to low-risk earning assets such as SBIs.
Aside from these challenges, banks proved capable
of managing their risks. Subdued credit risk was reflected
in the decline in NPLs, as explained above. Similarly, market
risk from volatility in the exchange rate was also held within
manageable limits because of the very modest NOP for the
banking system (averaging 3%-5%) that enabled banks to
absorb exchange rate shocks. Concerning liquidity risk, bank
liquidity was stable at high levels. The overnight rate for
rupiah funds on the inter bank money market was relatively
low at about 5%, reflecting conditions of flush liquidity. In
addition, the steep 102% growth in SBIs and the FASBI
(represent one form of liquid instruments) over the end-
2005 position produced an increase in the ratio of liquid
instruments to non-core deposits from 105.7% to 141.8%.
At this level, the ratio reinforced confidence in the resilience
of the banking system to liquidity risk.
Amid slow pace intermediation, MSME loans again
represented an attractive market segment for the banking
system. In 2006, MSME loans accounted for about 52.9%
of total bank lending,2 up slightly from 51.2% in 2005
despite more modest growth. Credit expansion for MSMEs
during 2006 reached Rp 58.0 trillion, down from Rp 86.7
trillion in 2005. Nevertheless, the increased share of MSME
loans demonstrates that banks regard MSMEs as
creditworthy and commercially viable businesses. At 51.2%,
the majority of MSME loans were extended for productive
uses, with the remaining 48.8% allocated to consumption
credit. Credit for productive uses consisted of working capital
credit (43.3%) and investment credit (8.9%).
2 Credit excluding channelling.

Table 2.8
Growth of MSM Scale- Enterprise Loans

Position ( Triliun Rupiah ) Growth (%) Share (%)

Main Indicators
2004 2005 2006 2005 2006 2004 2005 2006
Type of use
Working Capital 118,7 151,5 180,9 27,6 19,4 41,9 40,9 42,3
Investment 28,9 33,7 38,2 16,6 13,6 10,2 9,1 8,9
Consumption 135,6 184,8 208,9 36,3 13,0 47,9 50,0 48,8
Total 283,2 370,0 428,0 30,0 15,7 100 100 100

Economic Sector
Agricultur 12,8 13,5 15,0 5,5 10,5 4,5 3,7 3,5
Mining 0,9 1,0 1,3 11,1 35 0,3 0,3 0,3
Industrial 26,7 32,7 36,9 22,5 12,8 9,4 8,8 8,6
Electricity, Water and gas 0,1 0,2 1,5 100,0 504,9 0,0 0,1 0,3
Construction 5,9 7,7 10,1 30,5 31,4 2,1 2,1 2,4
Trade 72,2 93,8 114,3 29,9 21,9 25,5 25,3 26,7
Transportation 6,0 6,5 6,6 8,3 1,9 2,1 1,8 1,5
Business Services 16,8 22,2 25,4 32,1 14,3 5,9 6,0 5,9
Social Services 4,3 5,3 6,0 23,3 13,8 1,5 1,4 1,4
Others 137,4 187,0 210,9 36,1 12,8 48,5 50,5 49,3
Total 283,2 370.0 428,0 30,6 15,7 100 100 100

Ratio of SMEs/total
Bank Credits 49,6 52,1 52,9

Development of the Banking Sector 15

 Banking Supervision Report
Disaggregated by ceiling, micro credit (up to Rp 50
million per loan) again accounted for the largest share.
Micro credit accounted for 42.5% of MSME lending,
followed by medium-scale credit at 30.4% and small-scale
credit at 27.1%. These positions were relatively unchanged
from 2005. Analysed by economic sector, the largest share
of MSME loan disbursements during the year under review
was allocated to trade and industry. This composition has
seen little change in recent years. Private domestic banks
were the most active in MSME lending with 41.7% of
total loan value, followed by state banks at 33.9% and
regional development banks at 12.3%.
MSME non-produktive
26% Non-MSME
48%
MSME produktive
26%
Graph 2.1
MSMEs Loan - 2006
Islamic Banks Performance
Alongside the acceleration of networks supported
by office chanelling policy, Islamic banking industry
suceeded in expanding its asset base.
During the course of 2006, industry share of Islamic
banking to total banking industry in Indonesia increased.
The growth of business volume Islamic banking industry
recorded Rp 5.8 trillion to 26.7 trillion at end of year. The
increased business volume widened the share of Islamic
banking assets to total banking assets in Indonesia from
1.4% at end-2005 to 1.6% at end-2006. Financing was
the dominant asset held by Islamic banks. Significant
16 Development of the Banking Sector
growth in financing during the period under review
expanded the share of financing to total assets from 75%
in 2005 to 79%, while other asset categories and especially
inter bank placements recorded decline. While Islamic
commercial banks were the main industry players, the share
of assets held by Islamic Banking Unit mounted from
18.2% in 2005 to 20.8% in 2006.
Albeit keener competition in fund raising, deposit
base of Islamic banks significantly expanded. Mobilisation
of depositor funds for Islamic banks during 2006 was
affected from the escalating competition for depositor
funds within the banking industry as a whole, and
especially by the growing attractiveness of investment
alternatives on the capital market. Prevailing conditions
of high interest rates eroded the attractiveness of Islamic
bank funding products compared to conventional banking
products. The effect of this bore down on growth in
depositor funds during the first half of 2006, which reached
only 5.5% (y-t-d). However, with interest rates in decline
during the second half of 2005, depositor funds held by
Islamic banks mounted by a significant 32.7%. Key to this
was the 80.8% increase in depositor funds held by Islamic
Banking Unit. This funding growth surpassed the 31.4%
growth achieved in 2005 (Graph 2.2), and thus widened
the share of Islamic bank deposit funds in the national
banking system from 1.4% to 1.6%.
60%
40% 32.5%
25.6%
20% MSMEs Loans 21.8% 23.1%
12.4%
Non MSMEs Loans
8.0%
0%
-20%
2000 2001 2002 2003 2004 2005 Nov-06
Graph 2.2
Growth of MSMEs Loans
 Banking Supervision Report

Percent Percent
Ijarah financing recorded the fastest growth area.
12 120
Analysed by type of agreement used, financing growth
10 100
was strongest in the ijarah category at 164.7% (Table 2.9).
8 80
In contrast, growth in mudharabah and musyarakah
6 60
financing based on profit sharing eased from 33% to
4 40
Deposits Rate 31.5%. Similarly, murabahah-based financing, while still
2 Rate DIM 20
% Third Party Fund (Right Axist) dominating financing portfolios, eased from 62.3% to
0 -
Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06
61.7%. The factor thought to have fuelled the rapid
Graph 2.3 Growth of Islamic Banks Deposits,
growth in ijarah financing (including ijarah muntahia
Profit Sharing Rate and Interest Rate
bittamlik) is the flexibility enjoyed by banks in setting the
Funds channelling by Islamic banks using various leasing rates payable by customers over different periods.
standard financing contracts (akad) operated at an optimum The flexibility is seen as extremely helpful to Islamic banks
level. Financing growth reached 34.2% (y-o-y), above the in maintaining the competitiveness of long-term financing
rate of funding growth in 2006 and also financing growth in products, such as financing of production machinery
the preceding year. Financing growth was especially strong purchases and property ownership.
at Islamic Banking Unit, which recorded 52% expansion (y- Like for commercial banks and Islamic Banking Unit,
o-y). Islamic commercial banks, however, recorded a more Islamic rural banks also showed improved performance.
modest 29.7% (y-o-y), despite vigorous efforts reflected in Business volume for Islamic rural banks expanded by Rp
the improvement in the FDR from 90.8% in 2005 to 93.6%. 0.3 trillion (49.8%) during 2006, which widened the
In other words, the intermediary function for these banks proportion of Islamic rural bank activity in the national
was operating at an optimum level. The efforts by Islamic rural bank industry to 3.8%. This achievement resulted
banks to maintain an optimum level of financing spread across mainly from Rp 0.2 trillion or 46% expansion in financing
different production sectors amidst the difficulties for funds from the previous year. Total depositor funds mobilised by
channelling by the banking system had a significant effect Islamic rural banks were up by Rp 0.18 trillion (49.9%)
on improvement in the bank intermediary function. With this indicating that all depositor funds accepted by these banks
expansion, the proportion of Islamic bank financing widened were duly channelled. In other words, the intermediary
from 2.2% in 2005 to 2.6% during the year under review. function was operating at an optimum level, particularly

Table 2.9
Growth of Islamic Banks Investment based on Type
Total (Million) Growth (%) Share (%)
Type of Financing
2005 2006 2005 2006 2005 2006

Musyarakah 1,898 2,335 49.4 23.0 12.5 11.4

Mudharabah 3,124 4,062 51.5 30.0 20.5 19.9
Murabahah 9,487 12,624 24.2 33.1 62.3 61.7
Istishna 282 337 (10.0) 19.6 1.8 1.6
Qard 125 250 26.2 100.6 0.8 1.2
Ijarah 316 836 201.8 164.7 2.1 4.1
Total 15,232 20,445 32.6 34.2 100.0 100.0

Development of the Banking Sector 17

 Banking Supervision Report

in local communities in which the primary market segments
are micro and small enterprises in both rural and urban
areas. Also reflecting this was the financing to deposit ratio,
which reached 120%.
To support expansion and capabilities in mitigating
risks, some Islamic rural banks increased their capital. The
capital addition was sourced from funds set aside from
earnings, additional paid up capital and increases in
authorised capital. As a result, industry-wide, Islamic rural
banks in 2006 recorded a 26.5% increase in paid up capital
over the preceding year. Additional paid up capital and
reserves set aside from profit also mounted by 160% and
80%.
Table 2.10
Islamic Rural Banks Performance
Indicator 2005 2006 ∆ 2006
Rural Banks Performance
Although rural banks account for a small proportion
of the banking industry and have declined in total numbers,
performance levels have consistently been positive. This is
borne out in the substantial growth achieved by rural banks
in total assets, depositor funds and lending, which has
fuelled profitability.
Total rural bank assets increased significantly in 2006
compared to preceding years. At the end of December
2006, rural bank assets were recorded at Rp 23 trillion,
having climbed 13% (y-o-y). This asset growth was the
product of increased loan disbursements drawing on the
broader funding base of depositor funds held at rural
banks. In addition, rural banks maintained stable growth
in depositor funds with a positive trend. Mobilisation of
depositor funds at the end of December 2006 reached Rp

Funds Distribution 15.8 trillion, an increase of 19.7% (y-o-y). Rural bank

a. Financing 436 636 46.0%
customers also increased from 6 million to 6.6 million by
b. Inter Bank placement 105 188 178.0%
Sources of Funds end of December 2006. This demonstrates that rural banks
a. Third Party Fund 353.6 530.1 49.9%
still hold market promise and command rising levels of
Saving Wadiah 49.1 72.1 47.0%
Saving Mudharabah 116.8 162.4 39.0% public confidence.
Time Deposit Mudharabah 187.7 295.7 57.5% Rural bank lending recorded further expansion by
b. Inter Bank Liabilities 37.7 97.4 158.4%
Capital Component the end of 2006, consistent with the growth in depositor
a. Paid in Capital 121.8 154.1 26.5% funds. Lending in December 2006 reached Rp 16.9 trillion,
b. Current Profit/Loss 17.1 22.3 30.3%
Financial Ratio an increase of 15.7% (y-o-y), with debtors totalling 2.5
a. FDR 123.3% 120.0%
million. The credit expansion boosted the LDR from 82%
b. NPF 10.9% 8.3%
c. ROA 2.8% 3.0% to 87.4%. Despite this, credit quality at rural banks
weakened, with the NPLs ratio up 1.7% at end-December
2006 to 9.7%. Reasons for loss of credit quality included
slow implementation of the debt restructuring programme
and the deteriorating business climate that impacted public
purchasing power, particularly in the wake of natural
disasters that devastated the livelihoods of rural bank
debtors, most of which are MSEs. During this period, ROA
and ROE eased by 0.8% and 6%.

18 Development of the Banking Sector

 Banking Supervision Report

Table 2.11
Rural Banks Performance in billion Rp
No Particular Accounts Dec Dec ∆ Dec 03 Dec ∆ Dec 04 Dec ∆ Dec 05 Dec ∆ Dec 06
in Balance Sheet 02 03 - Dec 02 04 - Dec 03 05**) - Dec 04 06**) - Dec 05
% % % %

1 Total Assets 9.080 12.635 39,2 16.707 32,2 20.393 22,06 23,045 13.00
2 Denominated Credit 6.683 8.985 34,4 12.149 35,2 14.654 20,62 16,948 15.65
Loans Account *) 1.825 1.993 9,2 2.167 8,7 2.478 14,35 2,471 (0.280
3 Third Party Fund 6.126 8.868 44,8 11.161 25,9 13.178 18,07 15,771 19.68
Third Party Fund Account *) 5.329 5.535 3,9 5.761 4,1 6.004 4,22 6.555 9.18
- Saving 2.002 2.617 30,7 3.301 26,1 3.757 13,81 4.581 21.93
Saving Account *) 4.891 5.046 3,2 5.439 7,8 5.672 4,28 6,190 9.13
- Time Deposit 4.124 6.251 51,6 7.860 25,7 9.421 19,86 11,190 18.78
Time Deposit Account*) 438 489 11,6 32 (34,2) 332 3,11 365 9.94
4 Current Year Profit/Loss 338 429 26,9 539 25,6 604 12,06 509 (15.73)
5 LDR 77,0% 74,5% 80,7% 82,0% 87.4%
6 NPLs Gross 8,7% 8,0% 7,6% 8,0% 9.7%
7 ROA 3,7% 3,4% 3,2% 3,0% 2.2%
8 ROE 24,7% 25,0% 25,4% 25,3% 19.3%
9 CAR 18,1% 16,9% 17,2% 19,3% 10,5%
10 BOPO 82,4% 81,01% 80,1% 81,4% 85,6%

*) Accounts are specified in thousands

**) Only covers Conventional BPR data

Development of the Banking Sector 19

 Banking Supervision Report

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20 Development of the Banking Sector

 Banking Supervision Report

Chapter 3:
Banking Policy and
Regulation

Banking Policy and Regulation 21

 Banking Supervision Report

22 Banking Policy and Regulation

 Banking Supervision Report

Chapter 3:
Banking Policy and Regulation

The pressures bearing down on the banking system from weakening economic activity that
exacerbated credit risk also necessitated various adjustments in the strengthening of the banking
industry. For this rationale, Bank Indonesia policy in 2006 sought to provide banks with greater
leeway in the intermediary function while strengthening the foundations of the banking system
in line with the direction laid down in the Indonesian Banking Architecture (IBA). The policy
actions in the Islamic banking industry pursued by Bank Indonesia is sought to reinforce the
industry growth. The rural bank supervision and regulatory policies are aimed at creating a
sound, strong, productive and trusted rural bank industry to serve the needs of MSEs and the
public in rural areas in order to support regional economic growth.

BANKING POLICY porchasing power and repayment capacity. Consequently,

All banking policies are laid down within the
framework of the IBA. Launched in 2004, IBA was fully
implemented in 2006 and is projected to fully completed
in 2013. IBA is a comprehensive, basic framework that
sets forth the direction, outline and working structures
for the banking industry. With vision to achieve of a sound,
strong, and efficient banking system for achieving financial
system stability in support of national economic growth;
accordingly, all banking policies issued by Bank Indonesia
in 2006 were established within the API policy framework.
The weakening economic activties drove upward risk
expectation by banks, and consequently, intermediation
was being hampered. Various pressures confronted by
banks attributable to weakening economic acivities
particularly in the first half of 2006 drove risk expecation
of banks up, trigerred by the raise in domestic interest
rates as repose of ascending inflation expectation following
the fuel price hike. As a result, banks were trending toward
short-term financing including consumer financing and
placed funds in financial instrumetns. On the other side,
demand for credits was hampered due to weakening
intermediation was impeded.
Banking policies in 2006 were aimed many intiatives
to stimulate intermediation within prudential corridor as
well as to bolster banking stucture. A Considering
intermediation has been major challenge for banks,
banking policies in 2006 were aimed to stimulate financing
within prudence as well as to bolster the stucture of
banking industry in an economic condition that was
experiencing bearish trend. The policy measures were
exercised with respect to prudential principles.
Strengthen the Banking Intermediary
Launching of the January Policy Package (Pakjan) and
October Policy Package (Pakto). Pakjan 2006 was aimed
at securing the bank role in the operation of the
intermediary function while strengthening the foundations
of the banking system under the faltering economic
conditions of the time. Pakjan 2006 consists of seven
regulations: (1) Amendment to Asset Quality Rating for
Commercial Banks; (2) Phased Introduction of Uniform
Classification for Earning Assets; (3) Amendment to

Banking Policy and Regulation 23

 Banking Supervision Report
Calculation of Risk-Weighted Assets for Small-Scale
Business Credit, Home Mortgages and Credit to Civil
Servants/Government Pensioners; (4) Application of
Consolidated Risk Management for Banks Exercising
Control over Subsidiaries; (5) Implementation of Good
Corporate Governance (GCG) for Commercial Banks; (6)
Banking Mediation; and (7) Conversion of Conventional
Commercial Bank Business to Commercial Banks
Conducting Business Based on Sharia principles and
Establishment of Bank Offices Conducting Business Based
on Sharia principles by Conventional Commercial Banks.
Pakto 2006, on the other hand, sought to enhance
bank intermediation by allowing banks greater leeway in
their lending activities within the limits of prudential
banking, in addition to further measures to promote
completion of the bank consolidation process by 2010.
Strenghten the Banking Structure
Strenghtrening of the banking structure policy is
within the IBA framework. The policy was consist of
strengthening the strucure of commercial bank capital and
enchancing the linkage program between commercial
bank, rural bank and Islamic bank.
Strengthen the Banking Capital Structure
Bank Indonesia urges commercial banks to comply
with the criteria of High Performing Bank. Capital is the
fundamental of the sound banking operations and the
key for evaluating the banking performance. The
opportunity will provided to the banks with tier 1 capital
above Rp 100 billion, if the following criteria are met:
(1) tier 1 capital greater than Rp 100 billion;
(2) rated sound overall (composite rating at least 2) with
the management factor rated good;
(3) capital adequacy ratio (CAR) of 10%; and
(4) Sound good governance.
24 Banking Policy and Regulation
Commercial Banks meeting the standards for High
Performing Banks will be given opportunity to become
Anchor Banks or acquire other banks
banks. The opportunity to
the high performing banks will provided if the following
criteria are met:
(1) minimum CAR of 12% and minimum tier 1 capital
ratio of 6%;
(2) minimum Return on Assets (ROA) of 1.5%;
(3) real credit expansion at a minimum of 22% per
annum or minimum 50% LDR and non-performing
loans ratio below 5% (net);
(4) is a publicly-listed company or plans to become listed
in the near future; and
(5) Has the resources and capacity to act as a
consolidating party while still meeting the criteria for
High Performing Bank.
Enhance the Linkage Program
The lingkage program is the action to enhance the
role of commecial banks, rural banks, and Islamic banks
in order to improve the function of banking intermediary
and also to support the Micro, Small and Medium
Enterprises programs.
The linkage program has brought remarkable results,
marked by the substantial number of collaborative
agreements concluded by banks with rural banks. More
agreements were signed as additional participants joined
the program during the year. In the first phase on 24 August
2005, 10 commercial banks signed agreements worth Rp
104 billion with 37 rural banks. This was followed by the
second phase on 26 January 2006, when 13 commercial
banks joined forces with 41 rural banks for Rp 199 billion in
lending and attended a workshop on the linkage program.
In the third phase on 20 September 2006, 14 commercial
banks concluded agreements with 117 rural banks for loan
funds of Rp 355 billion.«On 27 December 2006, Bank
Indonesia again provided facilitation for the signing of third

phase financing cooperation agreements between 14
commercial banks and 50 rural banks and Islamic rural banks
previously engaged in the linkage program during the
October-December 2006 period. The value of loan funds
extended under the new agreements was Rp 549 billion.
At the end of December 2006, total agreements worth
Rp.3.03 trillion with Rp.1.91 trillion outstanding.
The support of Bank Indonesia for promoting the
Linkage Program was provided as follows:
(1) Holding of Business Workshops to support Linkage
Program expansion, in which business and banks were
brought into contact with each other at workshops
in Jakarta and the regions.
(2) Building public understanding and improving access
for the public to Islamic banks and MSMEs.
(3) More equitable development of the MSME sector by
development of a generic model linkage program that
provides a framework for lending cooperation
between commercial banks and rural banks.
(4) Advancements in the operation of the Linkage
Program, including disclosure of rural/Islamic rural
bank performance to commercial banks, participation
in workshops and presentation of the Linkage
Program Award to the best performing commercial
banks in MSME sector development.
(5) Developing the roles of rural bank and Islamic bank
in promoting bank intermediation through
establishment of the Generic Model Linkage Program
for provision of working capital (executing) and loan
channelling from commercial banks to rural banks
and a joint financing model between commercial
banks and rural banks.
Establishment of the Rural Banks Joint Service
Facility for (APEX Bank)
The establishment of joint services facility for rural
banks in the form of the APEX Bank is expected to help
Banking Supervision Report
rural banks to operate more efficient according to improve
the availability of lower-cost credit, particularly for MSMEs.
Bank Indonesia provided the establishment of joint
services facility for rural banks in the form of the APEX
Bank. In a pilot project of 7 Indonesian provinces, have
established three models of APEX Banks for 5 areas. The
model is Apex Commercial Bank, Apex BPR and Apex BPR
Supported by PNM. Commercial bank acting as Apex Bank
was established in West Sumatra by its Regional Bank (BPD
Sumatra Barat) and West Java (Bank Mandiri). BPR acting
as Apex Bank was established in Jogjakarta, and BPR
supported by PNM was established in Central Java. Bank
Indonesia will provide further facilitation for the
establishment of APEX Banks in other provinces by inviting
participation from other commercial banks.
Establishment of the Regional Loan Insurance
Schemes
Bank Indonesia has established a loan insurance
scheme to strengthen bank confidence in lending with
the aim of securing improved access to bank credit for
MSMEs in the regions.
The loan insurance scheme brings together Bank
Indonesia as facilitator with PT Askrindo, regional
governments and Regional Development Banks (BPDs). A
series of Memorandum of Understanding (MOUs) have been
signed by PT Askrindo, Regional Development Banks and
regency/municipality governments in several provinces since
2004. On 26 January 2006, a further 5 (five) regencies/
municipalities in West Java, Central Java and East Java
provinces signed MoUs on the loan insurance scheme. Bank
Indonesia and PT Askrindo subsequently held information
dissemination sessions on the loan guarantee scheme in
South Kalimantan and Bali during the second quarter of
2006. Over time, this dissemination is envisaged for other
areas, eventually reaching all provinces in Indonesia.
Regarding the capacity of the existing loan guarantee
Banking Policy and Regulation 25
 Banking Supervision Report
institution (PT Askrindo), accelerated expansion of the loan
insurance programme was still constrained by limited capital.
Furthermore, full support of parliament and government in
passing the new Loan Insurance Law is seen as key to the
strengthening of the loan insurance programme.
Strengthen the Micro, Small and Medium Scale-
Enterprises (MSMEs)
In the Indonesian Banking Architecture programme
for reinforcing the structure of the national banking system
and promoting the bank intermediary function, MSME
development is prioritised through the linkage programme
for expanding the role for commercial banks, rural banks
and Islamic banks in this key area. Furthermore in the new
Bank Indonesia law, Act No. 23 of 1999 concerning Bank
Indonesia as amended by Act No. 3 of 2004, Bank
Indonesia»s role in MSME development is centred more
around facilitation, promotion, research and development,
surveys and development of innovations. This takes place
by: (1) provision of technical assistance; (2) institution
building; (3) establishing and improving bank credit policy;
and (4) strengthening cooperation with the Government
and other relevant agencies.
Bank Indonesia»s technical assistance includes
1
training, provision of information and also research.
During the year under review, Bank Indonesia organised
training sessions for MSME-related institutions on the
empowerment of these businesses.
A total of 132 training sessions were held for banks
and Business Development Service Providers (BDSPs), with
these sessions generating Rp 160.732 billion in new
lending
lending. The training sessions attracted broad participation,
with 2,535 bank officers and 1,736 BDSP party capons
attending. During this period, BDSPs brought 5,432 MSME
participants into contact with banks. In addition,
1 Bank Indonesia Regulation No.7/39/PBI/2005 concern Technical Assistance for Develop-
ing Micro, Small and Medium Enterprises.
26 Banking Policy and Regulation
information was disseminated at a total of 207
intermediation bazaars, seminars, talk shows, public
education sessions and many other activities for MSME
development throughout Indonesia. Intermediation
bazaars, designed to build communication between banks
and MSMEs, were held in numerous localities in almost all
Bank Indonesia Regional Office working areas.2
Various research activities were carried out to ensure
research based policy and strategies for MSME
development
development, focus on improving MSME access to bank
credit
credit. First, the Study on ≈Financing through Partnerships
between MSMEs and Medium/Large Enterprises∆ emerged
as a vital topic, given that the partnership programme is
one strategy for ensuring market certainty for MSMEs while
the large enterprises will benefit from raw materials
availability and product marketing. Second was the Study
on ≈Financing Schemes for Cluster Development.∆ The
cluster approach has gained strategic value in MSME
development, as the clusters strengthen the bargaining
position of MSMEs in regard to economic resources. Third
was the Basic Research on Regional Economic Potential
for Development of MSME Mainstay Commodities. This
research sought to identify the various investment
opportunities in the regions in order to provide information
on economic potential and particularly the mainstay
commodities of individual regions. Fourth was the research
on Export Oriented Commodities that examined export
commodity growth in individual regions. Fifth was the
Research on Small Enterprise Financing focused on
conversion from conventional financing to Islamic-based
financing for 17 commodities? Sixth was the Research on
Nucleus-Smallholder Conflicts aimed at identifying
problems and potential problems leading to tensions
between nucleus companies and smallholders and
recommending conflict resolution models? Seventh was
2 Based on Recapitulation of Technical Assistance for MSME Development, July-December
2006, from 36 out of a total of 38 Bank Indonesia Regional Offices.

the Study on Business Incubators for MSME Development,
aimed at studying the presence of business incubators
expected to foster the emergence of new, resilient
entrepreneurs and serve as an effective instrument in
MSME development.
Technical assistance was also provided in other forms,
one of which was facilitation for organisation of the Bank
Intermediation Bazaars
Bazaars. In February 2006, Bank Indonesia
joined forces with the Indonesian Businesswomen»s Holding
Cooperative (INKOWAPI) to hold the ≈Pro-Cooperative,
Pro-MSE Banking Clinic.∆ The purpose of this activity was
to bring together MSME actors (Women»s Cooperatives),
banks and non-bank financial institutions (Knifes). At this
event, banks would provide information and consultation
to cooperatives and MSMEs on micro, small and medium-
scale credit products, including loan terms and conditions.
To strengthen policy and improve bank lending
regulations related to MSME development, Bank Indonesia
issued two Bank Indonesia Regulations related to national
disasters
disasters. Firstly was the regulation of Bank Indonesia No.
8/10/PBI/2006 dated 7 June 2006 concerning Special
Treatment for Bank Credit Following the Natural Disaster
in Yogyakarta and Nearby Areas in Central Java, and
secondly was No. 8/15/PBI/2006 date 7 June 2006
concerning Special Treatment for Bank Credit in Disaster-
Hit Areas in Indonesia. The two regulations specify that
quality of credit and other provision of funds to MSME
debtors is be based solely on promptness of repayment of
loan principal and/or interest.
In follow up to Bank Indonesia Regulation No. 8/10/
PBI/2006 dated 7 June 2006, an agreement was signed
by Bank Indonesia and the State Minister of Housing for
building coordination and synergy in the implementation
of the Credit for the Self-Help Construction/Repair
Programme for Low Cost Housing
Housing. In this collaborative
arrangement, the contribution of Bank Indonesia as
banking authority was to improve access to bank financing
Banking Supervision Report
for self-help construction/repair of low-cost homes and
also supervise the disbursement of these loans. To
accelerate the implementation of this cooperation, Bank
Indonesia signed an agreement with PT BTN on Allocation
of Bank Indonesia Liquidity Credit for Re lending and Ex-
Re lending to Credit for Self-Help Construction/Repair for
Low Cost Housing in Earthquake-Hit Areas of Yogyakarta
and Central Java. Related to the MOUs, a seminar was
also held on the theme of ≈One Small Contribution to the
Revival of MSMEs in Yogyakarta and Central Java∆,
attended by local government officials, academics, business
associations and banks.≈During the seminar, PT BRI, Bank
Mandiri and BNI signed and handed over loan agreements
to MSMEs worth a total of Rp 3.2 billion.
To promote access to banking services for maritime
and fisheries MSMEs, in January 2006 the Governor of
Bank Indonesia and the Minister of Maritime Affairs and
Fisheries signed a MOUs on Development of Maritime and
Fisheries Business Development Service Providers
Providers. The
objective of this agreement is to build the knowledge,
capacity and skills of the BDSPs, disseminate information
on financing schemes to improve access to banking services
and provide training on preparation of feasibility studies
and credit proposals. The provision of information by the
Ministry of Maritime Affairs and Fisheries on mainstay
commodities will be useful for the banking industry in their
risk management related to decisions concerning the credit
portfolio for the maritime and fisheries sector.
Prepare the Implementation of Basel II
Basel II has been adopted as a project at the initiative
of Bank Indonesia and will be phased in for all banks during
2008. It will commence with the least sophisticated
approaches, i.e. the Standardised Approach for credit risk
and the Basic Indicator Approach for operational risk.
Once all preconditions and requirements have been
met, banks that have completed the necessary preparations
Banking Policy and Regulation 27
 Banking Supervision Report
may change over to more advanced approaches, subject
to approval from the bank supervising authority. All pillars
of Basel II are expected to be fully implemented by 2010.
Bank Indonesia is working hard to provide the
required infrastructure and has prepared a road map to
prepare the way for implementation of Basel II as follows:
(1) Organizational preparations, HR, budgeting,
improvements to risk-based bank supervision and the
consolidation process and improvement and
development of databases.
(2) Completion of the gap analysis to ascertain bank
Box 3.1 The Consultative Paper Of Basel II
Bank Indonesia will launch Basel II for all
commercial banks in 2008. Implementation of Basel II
will be phased in, commencing with the least
sophisticated approaches of the Standardised Approach
for calculation of credit risk and market risk and the
Basic Indicator Approach for operational risk. Once
ready, banks may change over to more complex
approaches, subject to banking supervisor approval.
The full implementation of all pillars of Basel II is
envisaged for 2010.
The selection of these approaches naturally has
consequences for the formulation of policies and
regulations that must be adopted by Bank Indonesia.In
this regard, Bank Indonesia has published consultative
Credit Risk Market Risk
Claims Trading book
Risk mitigation techniques Trading book valuation
Rating agency Specific risks
Internal rating approach Equity risk
Option price risk
Internal models
28 Banking Policy and Regulation
compliance with the Basel II requirements.
(3) Completion of the first consultative paper (CP √ I),
which specifies various national discretions for credit
risk that need to be adapted to actual conditions in
the national banking system. In addition, some issues
in market risk, including matters concerning the
trading book, operational risks for the definition of
gross income and key aspects related to market
discipline are discussed in the CP.
(4) Revision of bank accounting standards based on IAS
rules (IAS 32 and IAS 39).
paper (CP √ I)document, which for the most part sets out
the various national discretions for credit risk that need
to be adapted to actual conditions in the national banking
system. In addition, some issues in market risk, including
matters concerning the trading book, operational risks
for the definition of gross income and key aspects related
to market discipline are discussed in the CP.
CP - I was published to elicit responses and
suggestions from stakeholders especially from banks.
Following this, in view of the highly comprehensive
content of Basel II, some CPs will be published at regular
intervals to address various regulatory
recommendations relevant to implementing Basel II in
Indonesia. Issues in the CP-I are described below.
Operational Risk Market Discipline
Definition of operational risk Scope of information
Basic Indicator Approach Policy on publication
Definition of gross income Validation of information
Other approaches Materiality
Confidentiality
Publications media
Compliance with
accounting standards
Frequency
Sanctions
 Banking Supervision Report

Improve the Compliance of the 25 Basel Core The improvement is as follows:

Principles
The Basel Committee in October 2006 published a new
document on the 25 BCPs setting out various improvements.
Following this, Bank Indonesia is now performing a new self
assessment applying the new criteria for the 25 BCPs. The
self assessment is slated for completion in mid-2007 and is
expected to provide the basis for future improvements in
bank supervision quality.
a. Addition of new criteria with greater emphasis on
application of consolidated bank supervision.
b. Some CPs in the previous document was combined
with other CPs to minimise overlapping.
c. Three new CPs on Interest Rate Risk, Liquidity Risk
and Operational Risk.
d. Changes to essential criteria (EC) in almost all CPs,
including the addition of new ECs, more descriptive
narration for each EC and upgrading of additional
criteria (ACs) to ECs.

Box 3.2 The Compliance of the 25 Basel Core Principles

As is widely known, the 25 Basel Core Principles
for Effective Banking Supervision (BCP) document has
become a reference for supervisory authorities around
the world, including Indonesia, in assessing the quality
of supervision in their individual banking industries. The
documents states a number of principles that include
the prerequisites for effective bank supervision, licensing
and structures, regulations and prudential requirements,
methods for continuous supervision, information needs,
formal powers of supervisors and cross border
regulation of banking.
Indonesia has undergone several assessments for
compliance with the 25 BCP. The latest assessment
was performed by Mr. Alan Ball (IMF Assessor) in
October 2005. The average score for overall BCP
compliance was 1.76. This represented an
improvement over the previous 2.32 score. A
disaggregating of CPs for each compliance level is
presented as follows:

Compliant Largely Compliant Materially Non-Compliant Non-Compliant

10 CPs 12 CPs. 2 CPs. 1 CPs

Core Principle 2003 May 2005 October 2005

1. Objectives, autonomy, powers 1 1 1

2. Permissible activities 1 1 1
3. Licensing criteria 2 2 2
4. Ownership 3 2 2
5. Investment criteria 2 2 2
6. Capital adequacy 2 2 2
7. Credit policies 3 1 1

Banking Policy and Regulation 29

 Banking Supervision Report

Core Principle 2003 May 2005 October 2005

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

Average 2.32 1.96 1.72

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

Accelerate the Banking Consolidation Program Strengthen the Internal Banking Management
Bank consolidation is one of the available alternatives Bank Internal management is the abilitiy of bank

for strengthening the banking industry in anticipation of manajemen to minimize risk and to implement Basel II.

global competition and future developments in the banking According with it, Bank Indonesia keep motivated banks

business. To accelerate the consolidation process, Bank in strengthening bank internal management through the

Indonesia has adopted the following incentive policies: implementation of GCG, and risk management

(1) Partial reimbursement of consultant fees incurred for certification programme continuously.

due diligence Bank Indonesia has issued a regulation on

(2) Simplified licensing for establishment of branch offices Implementation of Good Corporate Governance for

(3) Extended time for resolution of the exceeding Legal Commercial Banks
Banks. The regulation, which takes effect in

Lending Limit (LLL) 2007, requires the banking industry to comply with 5 (five)

(4) Simplified licensing for upgrading to foreign exchange fundamental principles: transparency, accountability,

bank responsibility, independence and fairness. This compliance

(5) Relaxation of the statutory reserve requirement. must cover at least the following:

30 Banking Policy and Regulation


(1) the tasks and responsibilities of the Board of
Commissioners and Board of Directors;
(2) membership and performance of tasks by committees
and units in charge of the bank internal control function;
(3) operation of the compliance, internal auditor and
external auditor functions;
(4) application of risk management, including the
internal control system;
(5) provision of funds to related parties and high value
provision of funds;
(6) the bank corporate plan; and
(7) Financial and non-financial transparency of the bank.
In addition, banks are also required to maintain public
transparency by reporting on the operation of good
corporate governance and their self-assessment of good
corporate governance as implemented by the bank. In
preparation for this self assessment and to assess bank
readiness for implementation of GCG principles, banks
have conducted a pre-self assessment. The interim results
of the pre-self assessment indicate that 97% of banks have
applied at least 50% of the GGC principles referred to in
the Bank Indonesia regulation.
Bank Indonesia has issued a regulation on Risk
Management Certification for Managers and Officers of
Commercial Banks. This regulation which will effective in
August 2010, become one of the administrative
requirements for the fit and proper test for managers and
executive officers of commercial banks. By introducing the
risk management certification programme for banks,
Indonesia became the first country to require banking
professionals to hold risk management certification.
Improve the Banking Industry Infrastructure
To assist in minimising bank credit risk, Bank
Indonesia set up the Credit Information Bureau (BIK) on
29 June 2006
2006. The BIK is responsible for collection and
storage of lending data from all institutional providers of
Banking Supervision Report
funds, i.e. commercial banks, rural banks, multi finance
companies and non-bank credit card operators. The
developing of BIK is to achieve standard of World Class
Credit Bureau.
Improve the Protection and Empower Bank
Costumer
To provide greater protection and empowerment for
bank customers, Bank Indonesia issued two new regulations
regulations.
First was the regulation on transparency of bank product
information and use of customer personal data. The second
regulation dealt with resolution of customer complaints,
specifying the mechanism for bank customer relations. This
was regarded necessary in view of the proliferation of
unresolved customer disputes with banks.
Provide Bank Mediation
Following the issuance of the regulation on Bank
Mediation in January 2006, Bank Indonesia began
assuming the function of mediation in the banking system.
Bank Indonesia will retain this function until the end of
2007 before passing it on to an Independent Bank
Mediator to be established by banking associations. This
institution is expected to facilitate simple, economical and
quick resolution of disputes between customers and banks.
Implement Public Education in Banking
Bank Indonesia in 2006 established the Forum of
Public Education for refining the strategy of public financial
education. The forum membership consists of Bank
Indonesia, bank representatives, non-government
organisations, academics and other agencies concerned
with formal and non-formal education. Its task is to
coordinate financial education for the public in order to
empower members of the public in their financial
transactions. Bank Indonesia also plans to issue a regulation
on Public Education in 2007.
Banking Policy and Regulation 31
 Banking Supervision Report
ISLAMIC BANKING POLICY
The policy actions in the Islamic banking industry
sought to reinforce the industry structure by strengthening
compliance with Sharia principles and prudential
regulations, improving operating efficiency and
competitiveness and enhancing system stability and its
benefits for the economy.
The development of the Islamic banking system
represent one part of the fulfilment of Bank Indonesia»s
functions mandated in Act Number 23 of 1999 concerning
Bank Indonesia as amended by Act Number 3 of 2004. To
promote the development of the Islamic banking industry
as required by this function, Bank Indonesia formulated a
development strategy in the form of a blue print formally
published in 2002. The Blue Print is based on key principles
that are believed to offer potential for a more optimum
role for the banking industry through the operation of the
Islamic banking system in support of national economic
development. The policies adopted in 2006, representing
the second phase in the implementation of the blue print,
are focused on reinforcing the structure of the Islamic
banking industry. These policies are also aimed at
anticipating challenges and developments at the national
and international level in order to sustain the growth
momentum of the Islamic banking industry.
One of the key steps in clarifying the position and
strategy for development of Islamic banking within the
national financial system involved the synchronisation of
development policy for Islamic banks in the blue print with
the Bank Indonesia strategic plan for development of the
banking and financial industry as set out in the Indonesian
Banking Architecture (API) and the Indonesian Financial
System Architecture (ASKI). The synchronisation included
the addition of strategic objectives and development
phases focused on promoting the integration of the Islamic
banking industry with other industries within the Islamic
financial system. The policy focus in the strategic objectives
32 Banking Policy and Regulation
for Islamic banking development was sharpened by adding
two areas of focus to the existing four in the development
scope, bringing the total to six. These areas are described
as follows: (1) compliance with Sharia principles, (2)
prudential regulations, (3) operating efficiency and
competitiveness, (4) system stability and benefit for the
economy,(5) improved professionalism and (6) optimum
social function for Islamic banks in facilitating the voluntary/
social aid sector through programmes for grassroots
economic empowerment.
Six policies launched by Bank Indonesia for
strengthening the Islamic banking industry.
1) Adoption of standard contractual terms (akad) and
strengthened cooperation and coordination with the
fatwa issuing institutions and other institutional
stakeholders for compliance with Sharia principles in
Islamic bank operations.
2) Amendments to regulations on earning asset quality
for Islamic commercial banks, good corporate
governance for Islamic banks and the rating system
for Islamic rural banks to uphold prudential principles
in Islamic banking operations.
3) Development of the Islamic financial market,
encompassing structures, instruments and contractual
terms in order to create a competitive and efficient
Islamic banking system and support the creation of an
efficient Islamic financial system. This will involve the
broad-based creation of Islamic monetary instruments
and financial instruments issued by the government
and private sector on the local and global market.
4) Launching of linkage pilot project for Islamic financial
institutions in order to create systemic stability and
deliver benefits to the general public. Implementation
of the linkage pilot project for Islamic financial
institutions with involvement from Islamic banks and
supporting institutions to assist in technical training,
management and spiritual guidance. The pilot project

is expected to become an example that can be
replicated across the Islamic banking system.
5) Implementation of a systematic, focused and
continuous education programme to build the
professional competence of bank staff and improve
the understanding of Islamic bank personnel and the
public on the operations of Islamic banks. The program
for HR quality improvement at Islamic rural banks will
be implemented under a Islamic Rural Bank certification
programme. The development of a textbook on Islamic
economics, commenced in 2004, attracted the
attention of IRTI-IDB, which brought the issue of
textbook completion to an international forum.
6) Conduct a study on the voluntary sector for
promoting the Islamic bank social function in
facilitating linkages between the voluntary sector and
empowerment of the people»s economy. There is
significant potential in Islamic funds from the
voluntary sector, i.e. zakat, infak, shadaqah and wakaf
in Indonesia»s majority Islamic community. However,
only a small proportion has been mobilised by zakat
fundraising institutions. Islamic banks, which have a
social responsibility function, are expected to play a
catalyst role between zakat-paying citizens, those
entitled to zakat assistance and the institutions
managing zakat funds.
RURAL BANKING POLICY
The rural bank supervision and regulatory policies
are aimed at creating a sound, strong, productive and
trusted rural bank industry to serve the needs of MSEs
and the public in rural areas in order to support regional
economic growth
The sustained, robust expansion of the rural bank
industry measured by total assets, mobilisation of depositor
funds and lending is an indication that rural banks are
expanding their outreach. It also reflects growing needs
Banking Supervision Report
among members of the public for rural bank services. This
growth is unstoppable, as it is operating according to
market forces and reflects an expanding role
commensurate with public needs.
For rural banks to keep expanding in line with their
original objective for establishment, i.e. as a bank serving
the needs of MSEs and rural communities, it is essential to
have guidelines that lay out the strategic direction for the
future expansion of rural banks to ensure that they retain
the specific characteristics that distinguish them from
commercial banks.
To achieve the rural bank vision and mission, Bank
Indonesia has formulated a policy framework and strategic
actions that set out a clear direction for future rural bank
policy for sustaining and enhancing the strategic role of
these banks. This policy framework is set out in the Blue
Print for Rural Banks.
The vision is to create a sound, strong, productive
and trusted rural bank industry to serve the needs of MSEs
and the public in rural areas in order to support regional
economic growth. The rural bank mission is to create
conducive conditions for enhancing rural bank
performance and services to MSEs and local communities,
with focus on rural areas.
In the future, regulation of rural banks will seek to
maintain their distinctive features, described as follows:
1. Local banks having offices within one province with
limited scope of business
Rural bank office networks will continue to be
restricted to a single province. This restriction is
intended to guide rural banks towards becoming a
pillar for local economic development with emphasis
on mobilisation and channelling of funds from local
communities.
Rural banks will retain their limited scope of business
as stipulated in the Banking Law. Despite these
restrictions, the scope of business is still relevant to
Banking Policy and Regulation 33
 Banking Supervision Report
the services required by MSEs, the primary customer
base for rural banks.
2. Focus on MSEs and the rural population
As rural banks steadily build their capacity as financial
service providers, their focus will continue to be MSEs
and rural communities. Underscoring this is the vast
potential market in this segment, hitherto untouched
by banking services. This emphasis is also consistent
with the spirit of the Banking Law.
3. Equitable distribution throughout Indonesia
Bank Indonesia will take active measures to promote
the establishment of rural banks outside Java and Bali
to meet the needs of MSEs and rural communities in
these more remote regions, which currently lack
access to banking services. Nevertheless, there is no
denying that the rural bank presence will follow the
principle of ≈banks follow the trade.∆ There will be a
need for regulatory support that can effectively
stimulate interest in establishing rural banks outside
Java and Bali in keeping with economic growth, as
well as to tighten the regulatory requirements for
establishment of new rural banks in Java and Bali.
4. Strong capital resources
Although rural banks are not encouraged to become
commercial banks, they will nevertheless be
encouraged to acquire the strong capital resources
necessary to mitigate risks, develop more competitive
services for MSEs, improve service outreach to MSEs
and achieve an economy of scale that will support
business sustainability.
5. Leverage technology to enhance customer services
The growth of the rural bank industry has been
influenced to a great extent by the development of
banking products; customer demand for easy,
convenient and secure services; and the need for
greater operating efficiency to support
competitiveness.
34 Banking Policy and Regulation
To promote more efficient management, rural banks
are encouraged to make optimum use of the vitally
needed technology in their operations for transactions
and reporting, internal control and faster services.
6. Permit indirect participation in clearing payment
systems
To keep pace with advancements in technology and
customer demands for quick, convenient and secure
transaction services, rural banks are expected to begin
participating in the payment system on an indirect or
restricted basis. This participation will be managed
by the Apex institution, an umbrella entity for rural
banks, once it is established.
Rural Banking Industry Policy and Strategy
The policy direction and strategy for a strengthened,
enhanced rural bank role in providing services to MSEs
and members of rural communities encompasses the
following:
1. Strengthen the Institutional building
To build the competitiveness and outreach of rural
banks to MSEs and rural communities, the rural bank
industry needs to undergo an institution building
process involving reinforcement of capital, service
coverage throughout Indonesia, opening of branch
offices and operation of the linkage programme for
collaboration with other financial institutions and
agencies. Efforts are also being pursued to promote
merger and consolidation among rural banks so that
rural banks have strong capital resources, more
integrated office networks and greater efficiency in
their operations.
2. Improve the regulatory quality
The regulatory framework is to be upgraded in line
with developments in the banking system and the
economy and with reference to international best
practices. This is expected to create a better climate

for the emergence of highly competitive rural banks.
In this regard, future regulation of rural banks will
consider stratification by total assets for the purposes
of supervision and expansion of services to the public.
3. Improve the effectiveness of supervisory system
One key element in a sound, robust and productive
rural bank industry that enjoys public trust is the
supervision system operated by Bank Indonesia. An
effective supervisory system is expected to detect
irregularities and violations at the earliest opportunity
and ensure compliance with the applicable regulations.
4. Improve the governance, and professional
management
The expectation for the future is that rural banks will
apply good governance principles under competent
management by personnel of high integrity. To this
end, it is necessary to work steadily to build the
qualifications and competence of human resources
in order to achieve a satisfactory quality standard in
Box 3.3 Building the Capacity of Rural Banks (BPR)
In order to establish sound, robust and productive
rural banks that are entrusted to serve MSEs and the
public, especially to support regional economic growth
in the villages, Bank Indonesia has undertaken several
activities as follows:
The BPR Apex Institution Pilot Project showed
positive results. Based on an evaluation of the pilot
project»s implementation in collaboration with DPD
Perbarindo in seven regions using three models from
December 2005 to July 2006, the following salient
points can be noted:
• There are currently five pilot project regions (West
Java, Central Java, DIY, Bali and West Sumatera)
in progress and/or with the potential to be
established.
Banking Supervision Report
rural bank management. Sound, professional rural
bank management will raise the credibility of these
banks in the eyes of the public.
5. Improve the effective support of rural banking
infrastructure
Effective supporting infrastructure is essential to the
expansion of the rural bank industry. This strategy
includes actions to put the umbrella institutions into
place, improve the effectiveness of professional
certification institution and strengthen cooperation
and coordination with various agencies in creating a
better climate for rural bank expansion.
6. Empower and protect the rural banks costumers
This development strategy is intended to encourage
rural banks to consider the public interest in their
operations by providing quality services and product
information. In this way, customers will have better
understanding of the products offered by rural banks
and their interests will be protected.
• Two pilot project regions (DKI Jakarta and East
Java) have not progressed satisfactorily due to a
lack of agreement between the Leader of
commercial banks and DPD Perbarindo regarding
rural bank member participation in the pilot
project.
• In 2007, the establishment of BPR Apex
Institutions will continue through technical
supervision and meetings with Apex adminis-
trators in seven regions and also through the
expansion of Apex implementation into other
regions.
The facilitation of various workshops has
expanded the role of BPR financing. A recent
Presidential Decree stated that funding will be made
Banking Policy and Regulation 35
 Banking Supervision Report
available for Indonesian Overseas Laborers (TKI) to be
placed in banks in six regions (Semarang, Medan,
Mataram, Surabaya, Cilacap and DKI), therefore, in
2006 TKI financing workshops have been held by rural
banks in coordination with Direktorat Pemberdayaan
Tenaga Kerja Luar Negeri (Depnakertrans), PD BPR
Bank Pasar Kulon Progo, which has extensive
experience in funding TKI overseas, and PJTKI .
Following the workshops in 2006, rural banks have
sponsored 2,365 TKI totaling Rp14.08 billion. BPR
financing workshops for the agricultural sector were
rd th
held on 23 and 24 September 2005 in East Java,
attended by representatives from 49 rural banks. Such
workshops will be expanded in 2007 to rural banks in
other regions. The workshops help develop the role
of BPR financing. For example, a rural bank that had
previously never extended credit to the agricultural
sector currently has 29% of its credit portfolio
extended to the agricultural sector (NPL 0%). In
addition, there are 17 rural banks that have
experienced a 2.03% rise, on average, in the value of
credit extended to the agricultural sector.
By the end of 2006, to certify the competence
of BPR Directors, 89 classes for BPR Director
Certification had been held with a total of 2,212
participants. Eight national Competence Tests have
also been held with 2,115 rural bank directors already
th
certified as competent. On 20 December 2006,
competence certificates for rural bank directors were
36 Banking Policy and Regulation
awarded by the director of DPBPR, in the presence of
the Chairman of Badan Nasional Sertifikasi Profesi.
By 31st December 2006 1,642 rural banks (87.3%)
could boast a certified director; however, 238 rural
banks (12.7%) remain without one.
A survey was conducted on the Linkage
Program for Commercial Banks and Rural Banks to
improve the effectiveness of Linkage Program
implementation. To evaluate and subsequently
improve the Linkage Program based on a generic
model, whilst simultaneously boosting the
effectiveness of the Linkage Program itself, a survey
was performed on all rural banks that have received
financing from commercial banks. The results
indicated the following key points:
• The Linkage Program has yielded positive results
in the development of rural banks and in terms
of increasing credits extended to MSE customers.
The most commonly used model is the
≈executing model.∆
• Some commercial banks still use rules and
regulations for credit extension that do not match
the generic model such as LHP, total collateral
that burdens the rural banks, as well as
regulations for frozen savings and credit diversion
should a customer»s collectability decline (for
channeling and the executing model).
• The lending rate offered by commercial banks
to rural banks remains relatively high.
 Banking Supervision Report

Chapter 4
Banking Supervision

Banking Supervision 37
 Banking Supervision Report

38 Banking Supervision
 Banking Supervision Report

Chapter 4
Banking Supervision

In the composite ratings for the banking industry in 2006, most banks were assessed as Sound
and Fairly Sound. This attests to improvements in bank supervision effectiveness, aimed at building
a sound, strong and efficient banking system in support of national economic growth. The
improvement is also as envisaged in the programmes launched in the Indonesian Banking Architecture
and the internal revamping of the bank supervision function at Bank Indonesia using the dedicated
team approach.

COMMERCIAL BANKS is a key factor enabling banks to strengthen their risk

In view of the mounting complexities in the
advancement of the banking system and the increasing
diversity of risks to banks, Bank Indonesia operates a system
of risk-based supervision. The overall outcome of bank
supervision is expressed in assessments that include rating,1
2
risk profile and designation of bank supervision status.
Based on the risk profile and rating, Bank Indonesia
determines the supervision strategy for the individual bank,
whether it should be placed under normal or intensive
supervision or special surveillance.
Commercial banks demonstrated adequate resilience
to risk. In 2006, Bank Indonesia carried out risk-based
supervision and examination for all banks, with some banks
even examined more than once. In the end-of-year
assessment, 82% of 130 commercial banks had a
moderate risk profile. Thirteen percent were found to have
a low risk profile, and for 5% the risk profile was high.
This shows that in aggregate terms, Indonesia»s banking
institutions possess adequate capacity to mitigate the
various risks that they face in the course of their business.
Nevertheless, improvement in quality of risk management
profile. Bank Indonesia instructed banks with high risk
profiles to submit action plans to deal with significant
problems at the banks, including targeted timeframes for
resolution. All of these banks submitted action plans and
so far Bank Indonesia has followed through with active
supervision.
Commercial banks were in sound condition. Each
quarter, Bank Indonesia conducted a rating of capital, asset
quality, management, earnings, liquidity and sensitivity to
market risk. In the results for December 2006, the majority
of banks were rated Sound (57%) and Fairly Sound (35%).
The banks rated Poor and Unsound were ordered by Bank
Indonesia to submit action plans detailing remedial actions
and proceed with these actions so that significant problems
would be resolved within specified deadlines.
Table 4.1.
Commercial Bank Risk Profiles December 2006
Risk Profile %
1. Low 13%
2. Moderate 82%
3. High 5%

1 Rating of banks is classified into 5 composite rating : PK-1 (Excellent), PK-2 (Sound),
Total 100%
PK-3 (Fairly Sound), PK-4 (Poor), and PK-5 (Unsound)
2 Risk profite of bank is classified into: low, moderate, and high Note: Including 3 Islamic commercial banks.

Banking Supervision 39
 Banking Supervision Report
Commercial banks generally maintained compliance
with prudential banking regulations
regulations. Bank Indonesia
monitored bank compliance with prudential regulations,
encompassing the legal lending limit (LLL), net open
position (NOP), capital adequacy ratio (CAR), rating and
non-performing loans. In 2006, no banks were found in
violation of the LLL, NOP and capital adequacy regulations.
This provides a strong basis for the Indonesian banking
industry to maintain resilience against potential instability.
However, aside from this compliance, some banks were
unable to keep their NPLs within the maximum 5% limit.
Bank Indonesia ordered these banks to implement action
plans to bring their NPLs to no more than 5% with progress
reports to be submitted each month.
Table 4.2
Commercial Bank Ratings December 2006
Composite Rating Persentage
1. Excellent 1%
2. Sound 57%
3. Fairly Sound 35%
4. Poor 6%
5. Unsound 1%
Total 100%
Note: Including 3 Islamic commercial banks.
No commercial banks were under special surveillance
surveillance.
At the end of 2006, none of Indonesia»s 130 banks,
including Islamic banks, were under special surveillance.
However, 16 banks (13%) were under intensive supervision
and the remaining 114 banks (87%) under normal
supervision. Measures were pursued to prevent further
deterioration in the condition of banks under intensive
supervision or placement of these banks under special
surveillance.
Improvements were noted in the implementation of
the Know Your Customer/Anti Money Laundering (KYC/
AML) regulations
regulations, which form part of the bank rating
rating. The
40 Banking Supervision
banking industry faces money laundering risk from illegal
inflows of proceeds of crime into the financial system. To
protect the reputation of the banking system and promote
compliance with the Anti-Money Laundering Law, the KYC/
AML rating is included as a management factor in the
overall commercial bank rating with the following scope:
active oversight by management; policy and procedures;
internal control and the internal audit function;
management information system; and human resources
and training. The rating scores range from 1 to 5, i.e.
excellent, sound, fairly sound, poor and unsound. Based
on examination of all commercial banks, the rating profile
for implementation of the KYC/AML regulations indicated
a reasonable level of compliance, with 73% of banks rated
1 until 3. During 2006, Bank Indonesia worked tirelessly
to persuade banks to strengthen their individual KYC
compliance and in so doing benefit from improved bank
rating.
Table 4.3
Commercial Banks KYC/AML Rating
December 2006
Bank Rating %
Rating 1 - Excellent 1
Rating 2 - Sound 13
Rating 3 - Fairly sound 59
Rating 4 - Unsound 27
Total Banks 100
Note: Including 3 Islamic commercial banks.
The Minimum Capital Requirement of Tier 1 for
Commercial Banks
So far, the banking system has not been seen as
playing an optimum role in providing the expected level
of support for economic growth. At the same time, banks
face mounting potential for risk from the growing diversity
and complexity of the banking business. This escalation in

risk must be countered by an increase in the bank capital
needed to cover potential losses. The need for increased
capital is also in line with the planned future launching of
the Basel II Accord, which prescribes bank capital adequacy
commensurate to the level of risk faced by each bank.
Bank Indonesia has established deadlines and
minimum requirements for tier 1 capital
capital. All commercial
banks are required to comply with the minimum tier 1
capital as of Rp 80 billion by 31 December 2007 and Rp
100 billion minimum by 31 December 2010. Thus on 1
January 2011, all commercial banks in operation will have
the minimum capital as of Rp 100 billion.
Commercial banks not meeting the required level of
tier 1 capital submitted action plans for compliance with
the required minimum. So far, 6 banks have paid up
additional capital
capital. Based on the action plans submitted to
Bank Indonesia, the measures to be taken by banks to
comply with the capital requirement are generally the
payment of additional capital by existing shareholders or
new investors, merger with another bank (or several
banks), issuance of new shares in a secondary offering on
the capital market and reliance on the internal growth of
the bank. In an evaluation of progress on action plans
submitted by banks, six banks had increased their paid up
capital in stages and from internal growth, bringing capital
to more than Rp 80 billion. The number of banks with tier
1 capital below Rp 100 billion as of end-2006 is presented
in Table 4.4.
Table 4.4
Commercial Bank Compliance with Tier 1 Capital
December 2006
Capital Number of Bank
Under Rp 80 billion 30
Rp 80 billion to Rp 100 billion 9
Total 39
Banking Supervision Report
Bank Indonesia actively encouraged commercial
banks to comply with the minimum tier 1 capital
requirement. This took place by:
1. Requesting banks to strengthen their tier 1 capital by
raising paid up capital from existing shareholders or
new investors (acquisition);
2. Evaluating action plans prepared by banks and their
progress in compliance with tier 1 capital;
3. Encouraging banks to conduct mergers.
Banks unable to meet the minimum tier 1 capital
requirement within the deadline will be designated as
limited scope banks. This restriction covers the following:
• May not conduct business as a foreign exchange
bank;
• Provision of funds per debtor and/or debtor group
limited to ceilings or loans outstanding of no more
than Rp 500 million;
• Maximum depositor funds mobilised by the bank
restricted to 10 (ten) times tier 1 capital; and
• Close the entire office network of the bank outside
the province of the bank head office.
In 2006, Bank Indonesia also monitored the
implementation of good corporate governance (GCG). It
is crucial that banks operate on a sound footing in order
to safeguard the interests and confidence of stakeholders.
In this regard, although new regulations will be introduced
in 2007, Bank Indonesia commenced the monitoring of
good corporate governance (GCG). All commercial banks
have been requested to undertake a GCG self-assessment
and submit this report to Bank Indonesia for evaluation.
Based on evaluation of these self-assessments, the majority
of commercial banks have met their targets for preparation
for GCG.
Banking Supervision 41
 Banking Supervision Report
Box 4.1 Bank Supervisory Strategy
Bank Indonesia conducts risk-based supervision
through on-site supervision and off-site supervision,
the latter using reports sent in by banks. Risk-based
supervision focuses on monitoring inherent risks in the
major business lines involving high risk, the risk-control
system and the forward looking aspect. These major
business lines include credit, treasury and investment,
operations and services, trade financing, funding and
debt instruments, technology and information systems
and human resources management. This supervision
is used to obtain a picture of the bank financial
condition that is ultimately reflected in the bank rating
and risk profile. The rating and risk profiles are then
used to determine and implement individual bank
supervision strategies. In addition, supervision is
conducted to monitor bank compliance and detect any
unsound practices that could endanger the survival of
the bank. The bank risk profile is then updated
quarterly or at more frequent intervals if the bank is
distressed or the risk profile analysis for the quarter
indicates the need for more frequent updating of the
risk profile. Examination will take place in the event of
any indications requiring Bank Indonesia to reassess
the bank risk profile and to instruct the bank to take
remedial actions, or if Bank Indonesia launches stricter
supervisory actions.
Bank supervision status is then grouped into three
levels as follows: a) Normal Supervision; b) Intensive
Supervision; and c) Special Surveillance. Designation of
Bank Under Intensive Supervision is based on the
following criteria: (i) bank rating is Poor (PK-4) or
42 Banking Supervision
Unsound (PK-5); (ii) there are some exceeding of the
Legal Lending Limit (LLL) and in the opinion of Bank
Indonesia the corrective actions proposed by the bank
are unacceptable or impossible to achieve; (iii) there
are fundamental problems with profitability; (iv) non-
performing loans (net) exceed 5% of total credit; and
the bank has actual and/or potential problems, based
on assessment of composite risk. Intensive supervision
takes place by asking the bank to take corrective actions
that may include the following: a) prepare action plans
and progress reports appropriate for the problems faced;
b) report specific information to Bank Indonesia
(including the daily liquidity report); c) increase the
frequency of updating and assessment of the business
plan with adjustments to the targets to be achieved;
and d) prevent the bank from engaging in equity
participation in other institutions. To assess progress in
actions taken by a bank under intensive supervision,
Bank Indonesia may conduct on-site examination and
monitor the actions taken by the bank to resolve its
problems. Bank Indonesia will then urge the bank to
complete work on its action plan for correction of its
problems so that its status may be restored to normal
supervision. Intensive supervision is a tightened process
of oversight of a bank with the objective of preventing
the bank from being placed under special surveillance.
A bank is placed under Special Surveillance if the CAR
falls below 8% and it has violated the statutory reserves
requirement. These preventive actions require a range
of timely corrective actions for bank soundness to be
restored as quickly as possible.
 Banking Supervision Report

RISK BASED SUPERVISION

BANK INDONESIA
B A N K Data / CAMELS RATING
Information
R I S K M A N A G E M E N T SYSTEM
INDIVIDUAL
Bank :
Risk Vission
-Report
SUPERVISORY
MISI Objectives QUARTERLY RISK RISK PROFILE STRATEGIES
Strategies - Meeting
Management
ASSESSMENT

Inherent Risk
MONITORING & CONTROLS

Risk Control
etc
Analysies KNOW

System
Data Evaluaties
YOUR
PROCESS Monitor Strategies
BANK
Implement Decisions
Communicate Eksternal :
-Report
- Organizational Framework - Meeting
- Operational Framework - Complaint
INFRASTRUCTURE - Analytical Framework
-Market DAILY
- Technological Framework
- Regulatory Compliance Analysis,etc ANALYSIS

BUSINESS / SUPPORTING ACTIVITIES

Eksternal Party
- Kantor Akuntan Publik SUPERVISORY ACTION
- Lembaga Pemeringkat
- Otoritas Lain
- Pemerintah
- Masyarakat
- dll
SUPERVISORY ENFORCEMENT /
EXAMINATION PLAN
RECOMMENDATION

Preliminary Risk Assessment

Audit Working Plan

Examination

REPORT

TO ENHANCE RISK MANAGEMENT PROCESS OF THE BANKS

O B J E C T I V E S

Box 4.2 Reorganization: Enhancing the Effectiveness of Banking Supervision

Bank Indonesia is constantly working to improve Bank Indonesia in order to build effective
bank supervision. To this end, on 1 March 2006, Bank coordination and consistent implementation of
Indonesia merged the Directorate of Bank Examination bank supervision policies.
with the Directorate of Bank Supervision. Previously, 2. Consistency among units in the operation of
there had been two Directorates of Bank Examination supervision. Under this principle, the organisation
and two Directorates of Bank Supervision, which Bank should be able to create lines of control and
Indonesia then merged into three Directorates: coordination enabling consistency in the operation
Directorates of Bank Supervision 1, 2 and 3. Under of bank supervision, even for banks under
this structure, a supervision team has full responsibility different supervision units.
for all bank supervision functions, including off-site 3. Effective operation of risk-based supervision (RBS)
supervision and on-site examination. This approach and consolidated supervision. Under this principle,
was taken because it was seen as the most appropriate the supervision organisation is structured to
for support for risk-based supervision (RBS). The support the effective operation of RBS as the main
reorganisation was based on the following principles: approach used in the bank supervision function,
1. Establishing a single point of accountability in the while also supporting consolidated supervision
operation of the bank supervision function at aimed at enabling bank supervisors to look at bank

Banking Supervision 43
 Banking Supervision Report

problems not only from the standpoint of a single
entity, but also within the context of ties to the
business conglomerate of which the bank is a
part. The RBS approach itself demands an in-
depth, comprehensive understanding of the
conditions and problems which is faced by the
bank and is followed by a supervisory cycle of
actions, all of which must be carried out quickly
and accurately. The use of dedicated teams will
improve coordination between lines of supervision
while enabling faster information flows and earlier
detection of bank problems.
Organisational improvements were also made to
Islamic bank supervision. The Islamic banking
supervision team was divided into two as follows: (i)
Bank Supervision Team 1, responsible for supervision
and examination of Islamic commercial banks and
some Islamic divisions; and (ii) Bank Supervision Team
2, responsible for supervision and examination of
Islamic rural banks and some Islamic divisions. To
anticipate the brisk growth in Islamic banking in both
numbers of banks and bank offices, additional
supervision personnel were hired in 2006, while
existing personnel were rotated.

Box 4.3 Certification and Capacity Building for Bank Supervisors

A robust supervision system requires highly

Level Jumlah Peserta (Realisasi)
competent bank supervisors to operate effectively in
Foundation
the face of the ongoing rapid expansion in the banking
a. Grade 1 340
industry. For this reason, the Bank Supervisor b. Grade 2 96
Certification Programme, mandatory for all bank
Internediate
supervisors at the Bank Indonesia Head Office and a. Grade 3 233
Regional Offices, has been held since mid-2004. The b. Grade 4 98

certification programme is organised on an ongoing Advanced

basis year by year to equip bank supervisors with a. Grade 5 51

knowledge and skills in bank supervision. The training b. Grade 6 49

programme is organised into stages ranging from Master

foundation to master level. Special training sessions a. Grade 7 93

were also held for participants selected on the basis of Total 960

their competence in certain fields for training as bank

supervisors with specialist expertise. During 2006, the
certification training was attended by 960 supervisors
of commercial banks, Islamic banks and rural banks.

Box Box 4.3 Certification

4.3 Certification and and Capacity
Capacity Building
Building for Bank
for Bank Supervisors
Supervisors

44 Banking Supervision
 Banking Supervision Report

ISLAMIC BANKS at the beginning of the year. The overall results from
The Islamic banking system saw the launching of risk- examination of Islamic banks show that the Islamic
based supervision
supervision. The various initiatives pursued in 2006 banking industry is in good form, as evident from the
for the development of risk-based supervision were average level of non-performing financing (NPF) at below
followed by risk profile assessment, functioning as an 5% and the healthy operation of the intermediary function
accurate, timely and comprehensive supplementary as indicated by the outcome from implementing the
indicator for the quality of Islamic banking activities. Other regulations on earning assets quality rating and the
tasks in 2006 include the development of the Islamic bank financing to deposit ratio.
rating system, information systems and the applications Further efforts were pursued to build the
necessary for long-term improvement in the quality of competency of Sharia Supervisory Boards (DPS). In regard
analysis by Islamic bank supervisors. to oversight of the operation of Sharia Principles, Sharia
Supervisory Boards have a vital role as partner of Bank
Table 4.5.
Islamic Commercial Banks Risk Profiles and Rating Indonesia in the integrated supervision of Islamic banks.
December 2006
Given the importance of these Boards in ensuring
Rating % Risk Profil % compliance with Sharia Principles in bank operations,
further efforts were pursued to strengthen their
Sound 100% 1. Low 0%
competence, among others by adopting requirements for
Fairly Sound 0% 2. Moderat 100%
appointment as member of a Sharia Supervisory Board.
Poor 0% 3. High 0%
This regulation covers the requirement for Sharia
Unsound 0%
Supervisory Board candidates to take the fit and proper
Total 100% Total 100%
test, which covers key areas of knowledge and experience
in Islamic legal affairs and banking and/or finance in
Measured by rating and risk profile, Islamic banks
general. To strengthen the role of Sharia Supervisory
performed remarkably well. Rating of Islamic banks
Boards in oversight of compliance with Islamic laws, the
continued to apply the 4 (four) categories of Sound, Fairly
Boards are required to submit semi-annual reports on
Sound, Poor and Unsound. Following the introduction of
oversight of Islamic legal compliance to Bank Indonesia
risk-based supervision, Islamic banks also perform a regular
and the National Islamic Council.
assessment of their risk profile. In the results for supervision
conducted in 2006, all Islamic commercial banks were rated
RURAL BANKS
Sound with a moderate risk profile. This shows that the
Efforts to improve effectiveness in rural bank
Islamic banking system is capable of operating on a sound
supervision was intensified in 2006
2006. To achieve this
footing in compliance with prudential regulations.
objective and improve the effectiveness of rural bank
From the results obtained from examination, the
supervision, actions included the launching of a nation-
Islamic banking system is in strong shape
shape. During 2006,
wide Rural Bank Supervision Information System, design
general examination and special examinations were
of rural bank online reporting and formulation of an
conducted for all Islamic commercial banks, Islamic Banking
examination strategy based on potential risk. The rural
Units and Islamic rural banks according to the plan adopted
bank monthly reports submitted to Bank Indonesia online

Banking Supervision 45
 Banking Supervision Report

are expected to provide timely, accurate and truthful a) Fraudulent lending to related parties and non-related
information on the financial and business condition of rural parties to circumvent the Legal Lending Limit.
banks and in so doing support the supervision system. b) Internal disputes within management and between
Bank Indonesia worked constantly to improve the management and owners with possible impact on
quality of supervision by organising certification for bank bank operations.
supervisors and non-certified training to improve the c) Reporting to Bank Indonesia marred by inaccuracies.
knowledge and skills of rural bank supervisors and d) Cases of bank-within-bank practices for the personal
examiners. In addition, manuals were developed for rural gain of the rural bank management and/or owners.
bank supervisors on Guidelines for Focused Rural Bank
Table 4.6
Supervision, Rural Bank Case Studies and Guidelines for
Rural Banks Plan and Actual Examination
Feasibility Study Assessment for Establishment of Rural
Description 2005 2006
Banks.
From the results of supervision, in overall terms the General Examination
- Planned 2.054 1.965
rural bank industry showed positive trends
trends, but still faces - Conducted 2.069 1.952
some hurdles explained as follows: Special Examination
- Planned 211 158
a) Inadequate human resources capacity at the
- Conducted 593 402
managerial and technical levels, resulting in high
overhead costs for rural bank operations, poor credit In these cases of banks involved in unsound banking
analysis and consequently high NPLs ratios, persistent practices, corrective actions were taken
taken. These banks were
errors in bookkeeping and reporting and lack of requested to take the necessary actions to resolve their
product innovation for building market share. problems and/or faced imposition of sanctions. Most of
b) Rural banks do not fully conduct their business on the problem rural banks were classified under special
the basis of good governance principles supported surveillance. Nevertheless, it was possible to resolve the
by adequate systems and procedures, resulting in problems through acquisition and/or payment of additional
weak control in the management of rural bank capital by the owners to achieve the minimum 4% CAR
business operations and inefficiency. and minimum 3% cash ratio. In addition, Bank Indonesia
c) Continued interference from owners in rural bank ordered the replacement of managers and/or owners
operations in ways detrimental to the bank. proven responsible for the problem condition of these rural
Findings from examinations conducted at rural banks banks. Further actions were pursued in cases of
indicate that unsound banking practices persist
persist. During irregularities suspected of involving criminal acts.
2006, Bank Indonesia conducted examinations for 1,952
rural banks. The examination consisted of regular general
examination conducted once each year, while special
examination would depend on the nature of problems
faced by the individual rural bank. Examinations uncovered,
among others, the following unsound practices:

46 Banking Supervision
 Banking Supervision Report

Table 4.7
Rural Banks Licensing 2006

Issuance of Approvals in Principle Issuance of Operating Licences Revocation of Operating Licences

Region No. of Rural Bank Region No. of Rural Bank Region No. of Rural Bank
Jakarta 1 Jakarta 1 West Java 4
West Java 4 West Java 1 DI Yogyakarta 1
Central Java 3 Central Java 5 Central Java 1
East Java 2 East Java 2
Sumatera 10 Sumatera 7
Sulawesi 4 Sulawesi 2
Kalimantan 2 Kalimantan 4
Nusa Tenggara 2 Nusa Tenggara 1
Total 28 Total 23 Total 6

During 2006, Bank Indonesia issued licenses and
approvals in principle for new rural banks and for mergers
and revoked operating licences for some rural banks
banks.
Approvals in principle were issued for 23 rural banks while
134 rural banks were approved for merger into 14 larger
entities. Bank Indonesia also revoked the operating licences
of 6 rural banks (see Table 4.7).
In most cases, rural banks continue to face difficulties
in their provision of services to MSEs
MSEs. These issues include
the following:
a. The lack of strong capital support for the funding
held by rural banks and the constraints in mobilizing
depositor funds has limited the ability of these banks
to expand and achieve a desired economy of scale in
their operations.
b. Rural banks have inadequately trained human
resources in both managerial and operational
positions, and as a result, overhead costs are high.
c. The concentration of rural banks on Java and Bali
has produced wide disparities in rural bank services
to MSEs throughout Indonesia.
d. Because of the lack of supporting infrastructure for
the rural bank industry, such as an institution capable
of providing liquidity support to rural banks facing
liquidity mismatch, rural banks are compelled to
maintain large reserves of cash and are therefore
unable to put their funds to optimum use.
e. A substantial portion of total rural bank credit is
extended for consumptive purposes (39%), although
most credit (72%) is micro credit with ceilings below
Rp 50 million. For the future, rural banks will be
guided towards a stronger focus on financing for
productive sectors, most importantly the informal
sector and micro enterprises in rural areas.
In response to the current condition of rural banks,
Bank Indonesia provided technical assistance and took
measures for improvement in the quality and capacity of
rural bank personnel
personnel. To build properly qualified human
resources possessing high integrity and adequate
competence for upholding good corporate governance
in rural banks, Bank Indonesia provided rural banks with
ongoing technical assistance. In addition, Bank Indonesia
implemented certification and training programmes for
continual improvement in the quality and capabilities of
rural bank personnel. Bank Indonesia also conducted the
fit and proper test for individuals deemed to exercise
major influence in the control and management of rural
banks.

Banking Supervision 47
 Banking Supervision Report

BANKING INVESTIGATION AND MEDIATION

As in previous years, during 2006 Bank Indonesia bringing the cumulative total to 320 such cases since 1999.

conducted special investigations or forensic examinations Ninety-six cases in Indonesia»s regions during 2006 were

in cases of suspected banking crimes, mediated in civil delegated to the local Bank Indonesia Regional Offices

disputes between customers and banks and performed under the mechanism of the Joint Decree for Cooperation

analysis and enhancement of banking investigations and on Enforcement against Banking Crimes and Internal

mediation. Circular Letter concerning Guidelines for Implementation

Bank Indonesia pursued various actions for resolution of Cooperation in Enforcement against Banking Crimes at
of cases involving suspected banking crimes. Bank the Regional Level.

Indonesia recorded 163 incoming cases during 2006, The most popular modus operandi of banking crimes

bringing the cumulative number of incoming cases since involved credit

credit. Banking crimes varied in complexity,

1999 to 671. Nineteen cases of suspected banking depending on the scope of business of the bank itself.

violations involving elements of crime were handed over/ According to data for 1999-2006, the modus operandi of

reported to law enforcement investigators in 2006, 30% of banking crimes involved credit operations.

Table 4.8
Number of Banking Investigation
Commercial Banks Rural Banks NON BANK TOTAL
Description No. of No. of No. of No. of No. of No. of
Cases Banks
Cases Banks Cases Banks Cases Banks
1. Cases reported for investigation 60 42 100 44 3 2 163 88
2. Investigation completed 43 33 91 39 1 1 135 73
2.1 Cases handed over to law enforcement
investigators 10 6 9 3 0 0 19 9
2.2 Cases recommended to Bank Indonesia
Regional Offices for further action **) 13 7 82 36 1 1 96 44
2.3 Cases not taken forward **) 20 20 0 0 0 0 20 20
3. Cases still under investigation 17 9 9 5 2 1 28 15

*) Including cases in the regions reported/handed over by BI Regional Offices under the Joint Decree for Cooperation in Regions and
cases reported by PPATK.
**) Reasons for closing case files on investigations:
- Case involved no element of crime, or
- Already handled by law enforcement authorities, or
- Involved the competency of another agency (e.g., taxation), or
- Expiration of statute of limitations or other reason satisfying criteria for becoming legally void.

48 Banking Supervision
 Banking Supervision Report

Others 30% Credit (loan swaps, pass through; risk sharing; paper/shell companies;
13% fictitious debtors, loans for fictitious purposes; guarantee/endorsement
of securities; trade finance; circumvention of LLL).
Credit
30% 17% Funding (drawdown of BLBI for related parties; use of bank funds for
Records not Kept
11% relatives of bank commissioners; conversion of interbank liabilities to third
party liabilities chargeable to BLBI).
17% Fraudulent reporting, bookkeeping and records
Fraudulent Reporting, 13% Other Fraud (violation of CDOs; takeover of assets; funds transfers;
Bookkeeping and taxation; unlicensed funds mobilisation; capital; forex transactions; failure
Records
17% Funding
to submit reports; abuse of authority; cyberfraud; bank-within-bank
17% practices; commissions for personal gain.
Fictitious Documents &
Expenses, Cost Markups Embezzlement 11% Records not kept
7% 5%
7% Fictitious documents and expenses, cost markups
Graph 4.1
5% Embezzlement (use of funds/embezzling from the bank)
Modus Bank Fraud

In addition, Bank Indonesia performed the function
of mediation in civil disputes between customers and banks
banks.
The number of disputes brought by customers to DIMP at
Bank Indonesia during 2006 was relatively few, totalling
58 cases, with Bank Indonesia Regulation No. 8/5/PBI/2006
coming into force only on 1 June 2006. Data on these
disputes is presented in Table 4.9.
Most of the disputes brought to mediation were
related to the payment system, channelling of funds and
mobilisation of funds
funds. Some complaints involved products
provided jointly by banks and other institutions, such as
mutual funds. Of the 58 disputes brought for mediation,
16 were settled by agreement between the parties
involved, either during pre-mediation (before the parties
sign the agreement to mediate) or during the mediation
process (after signing the agreement to mediate). Three
disputes could not be handled by mediation because of
failure to meet the criteria for eligible cases as stipulated
in Article 8 of Bank Indonesia Regulation No. 8/5/PBI/2006
concerning Banking Mediation.

Table 4.9
Number of Customer and Bank Dispute

Commercial Banks Rural banks TOTAL

Description No. of No. of No. of No. of No. of
Banks
Disputes Banks Disputes Banks Disputes

1. Disputes Received 57 22 1 1 58 23
2. Disputes Resolved through Mediation 18 13 1 1 19 14
3. Disputes Received and still in Process 39 18 0 0 39 18

Banking Supervision 49
 Banking Supervision Report
Box 4.4 Mediation in Customer Civil Disputes with Banks
Actions by banks to resolve customer complaints
are not always to the customer»s satisfaction.
Dissatisfaction may arise when a bank fails to settle a
customer»s claim, whether in part or in full. This
dissatisfaction in turn can potentially lead to customer
disputes with banks which if not promptly resolved and
allowed to drag out could damage the bank reputation,
erode public confidence in banking institutions and
disadvantage customers.
Resolution of customer disputes with banks may
be pursued through negotiation, conciliation,
mediation or arbitration. However, dispute resolution
through arbitration or the judicial system is not a
convenient option for small-scale customers and micro
and small enterprises, given the considerable time and
expense involved. For this reason, there needs to be
simple, affordable and quick resolution of customer
disputes with banks involving low-income customers
and small and micro enterprises by means of banking
mediation to safeguard and uphold the rights of these
customers.
In view of the importance of banking mediation
to resolution of customer disputes with banks, banking
associations need to move quickly to establish an
independent banking mediation agency. However, it
is not possible for the independent banking mediation
agency to be set up within a short period, even in spite
of the urgent need. For this reason, bank mediation
will for the time being be provided by Bank Indonesia.
This arrangement is consistent with Bank Indonesia
50 Banking Supervision
Regulation No. 8/5/PBI/2006 dated 30 January 2006
concerning Banking Mediation, which came into force
on 1 June 2006. Mediation by Bank Indonesia will
continue until the establishment of an independent
banking mediation agency, targeted for no later than
31 December 2007.
As stipulated in the Bank Indonesia Regulation,
customer disputes with banks arising from failure by
the bank to settle customer financial claims may be
brought to banking mediation for resolution in cases
involving claims up to a limit of Rp 500 million. The
requirements that must be met are:
1) The application for mediation must be made in
writing to Bank Indonesia, attn: Directorate of
Banking Investigation and Mediation, enclosing
supporting documents;
2) The customer has previously approached the bank
to resolve the dispute;
3) The dispute is not before or has never been
adjudicated by an arbitration institution or court,
or there is no agreement facilitated by any other
mediation institution;
4) The dispute comes under civil law;
5) The dispute has never been handled in banking
mediation facilitated by Bank Indonesia;
6) Application for dispute resolution shall be
submitted no later than 60 (sixty) working days
after the date of the complaint resolution letter
from the bank to the customer.
 Banking Supervision Report

THE FIT AND PROPER TEST
The fit and proper test is conducted to ensure that
banks are owned, managed and controlled by competent
parties of high integrity and not exploited for personal
gain or the benefit of business groups. The fit and proper
test is a requirement for licensing of a new bank and for
any change in the management and/or ultimate
shareholders of a bank. The process for the fit and proper
test for candidate managers and ultimate shareholders is
divided into two stages: administrative checks and the
interview stage.
Measured cumulatively, more than 2000 persons
have taken the fit and proper test. From the launching of
the test until 2006, testing was held for a total of 2,096
candidate managers and ultimate shareholders with 1,768
awarded a passing grade. Of these, 1,050 were bank
directors, 655 were commissioners/supervisory directors
and 63 represented ultimate shareholders.
During 2006, 222 persons were invited to take the
fit and proper test. Of this total, 219 persons took the test
at the interview stage. The interviewees consisted of 110
bank directors, 32 compliance directors, 70 commissioners/
supervisory directors and 7 ultimate shareholders.
Candidates for promotion to higher positions were not
required to attend interviews. In these cases, regulations
require only administrative checks to be made. The test
was successfully completed by 89 directors, 23 compliance
directors, 57 commissioners/supervisory directors and
ultimate 7 shareholders. Not passing the test were 21
directors, 9 compliance directors and 15 commissioners/
supervisory directors.
In the case of rural banks, 1,472 persons took the
fit and proper test during 2006
2006. This number consisted of
1,122 new entries and 350 persons holding existing
positions. Only about 74% of the new entries passed the
test, while those holding existing positions were even less
successful with a pass rate of 70%. In most cases when
controlling shareholders and managers failed the test, the
reasons lay in failure to satisfy the administrative,
competency and/or integrity requirements established by
Bank Indonesia or the listing of these parties in the Failed
Candidates List or Bad Debt List. A breakdown of persons
taking the fit and proper test during 2006 is presented as
follows: (Table 4.11)

Table 4.10
Fit and Proper Test for Prospective Commercial Banks Managers and Owners/Ultimate Shareholders

Persons Passed Failed Persons Persons

Passed Failed Passed Failed
Test 1) 2) Test Test
2005 2006 Cumulative until 2006
Board of Directors: 231 176 55 143 113 30 1283 1050 233
a. Directors 190 145 45 111 89 21 1000 840 160
b. Compliance Directors 41 31 10 32 23 9 283 210 73

Commissioners/
Supervisory Directors 133 113 20 72 57 15 745 655 90
Ultimate
Shareholders 17 14 3 7 7 0 68 63 5

Total 381 303 78 222 174 45 2096 1768 328

Banking Supervision 51
 Banking Supervision Report

Table 4.11
The Fit and Proper Test for Rural Banks Managers and Ultimate Shareholders

2006
2005
Description QI Q II Q III Q IV Total
T P F T P F T P F T P F T P F P L TL
New Entry
Ultimate
Shareholders 157 129 28 22 21 1 28 25 3 29 27 2 24 23 1 103 96 7
Commissioners 505 378 127 105 85 20 11 76 35 132 96 27 120 96 24 459 353 106
Directors 575 375 200 122 90 32 143 93 50 131 89 42 164 113 51 560 385 175
Total 1,237 882 355 249 196 53 282 194 88 283 212 71 308 232 76 1,122 834 288
Existing
Ultimate
Shareholders 14 10 4 4 3 1 5 4 1 9 7 2 12 10 2 30 24 6
Commissioners 142 107 35 23 14 9 40 31 9 32 26 6 35 17 18 130 88 42
Directors 146 118 28 67 52 15 50 32 18 27 17 10 46 33 13 190 134 56
Jumlah 302 235 67 94 69 25 95 67 28 68 50 18 93 60 33 350 246 104

Notes: T : Persons Tested P : Passed

F : Failed

IMPROVE THE BANKING SECTOR MANAGEMENT
INFORMATION SYSTEM (SIM-SPBI)
The SIM-SPBI is an integrated information system
supporting Bank Indonesia»s functions in bank supervision,
examination and regulation. The SIM-SPBI also functions
as an integrated information database in support of more
effective banking supervision, examination, research,
regulation and development. Over time, the SIM-SPBI has
developed to include several sub-systems.
The Bank Supervision Management Information
System (SIMWAS) has undergone continuous development
to improve the effectiveness of supervision
supervision. Launched in
May 2002, SIMWAS has been steadily expanded with the
aim of enhancing capacity to provide information in
support of tasks in banking supervision, research,
regulation and development. SIMWAS successfully
operates in providing complete, accurate and timely
information on the condition of individual banks. As of
end-2006, the available modules in the SIMWAS
application were grouped into the following broad
categories: (1) Key Bank Data; (2) Financial Data; (3) Bank
Rating; (4) CAMELS & RBS; (5) Regular Reports; (6) Non-
Regular Reports; (7) Early Warning System (EWS); (8)
Supervisor Analysis; (9) Research; (10) Indonesian Banking
Information; and (11) the Fit and Proper Test (FPT).
The development of the Bank Investigation
Information System (SIBADI) is aimed at strengthening the
effectiveness of investigation into banking crimes. The
SIBADI is designed to automate the administration of
investigation into banking crimes, covering the gathering
and presentation of data and information. It is also
intended as an integrated information database enabling
information to be retrieved at any time in support of
investigation of banking crimes and mediation in customer
disputes with banks involving sums of up to Rp 500 million.
The SIBADI supports monitoring of progress in investigation
of suspected criminal acts by a bank after receiving reports
of irregularities (from a bank supervision unit or the public),

52 Banking Supervision

investigation schedules, actions taken and the final
outcome of the investigation. As appropriate to the nature
of its functions and activities, the SIBADI application is
divided into two modules: Investigation and Mediation.
The purpose of the Investigation Module is to improve
administration and facilitate monitoring of tasks in the
investigation of banking crimes. The Mediation Module
stores information on outcomes of mediation in customer
disputes with banks, efforts pursued for mediation and
mediation outcomes in which the two parties reach
agreement, which represents an extension of the Bank
Indonesia tasks and functions in mediation between
customers and banks.
Developing information systems and applications of
bank supervisory To improve the efficiency and
effectiveness of supervision, an information system was
launched in 2006 to support supervision activities. The new
system, the online Islamic Rural Bank Monthly Report
Management application, complements the Islamic
Commercial Bank Report application developed in the
preceding year. To support the supervision of Islamic
commercial banks, development work began on the
SIMWAS SYARIAH application in 2006 as part of a phased
effort. In the initial stage, development commenced on
the bank rating and risk profile module expected to serve
as the forerunner of the fully-fledged SIMWAS SYARIAH.
The SIMWAS SYARIAH application is scheduled for
launching in 2007, and will become a system application
in its own right.
Bank Indonesia also developed the Data Mart for
Key Bank Data.
Data The Data Mart for Key Bank Data
application is currently available, with launching to take
place in 2007. The system provides information pertaining
to the establishment and operating networks, ownership
and management, operations and supervision strategy
applied for any particular bank. The Data Mart application
is intended to 1) ensure optimum availability of information
Banking Supervision Report
for bank supervision purposes, 2) improve the speed,
accuracy and completeness to satisfy user needs for
information; 3) facilitate and expedite the performance of
tasks by users; 4) provide faster search capabilities for
information on the condition of individual banks and/or
data on bank management/owners.
THE CREDIT BUREAU
To minimise credit risk in the banking system, Bank
Indonesia established the Credit Bureau (BIK) on 29 June
2006. This action is also a fulfilment of the fifth pillar of
the Indonesian Banking Architecture (API) for establishment
of the necessary infrastructure for a sound banking
industry. The Credit Bureau is responsible for collection
and storage of lending data from all institutional providers
of funds, i.e. commercial banks, rural banks, multi finance
companies and non-bank credit card operators. This data
is then processed, exchanged and distributed by the Credit
Bureau in the form of debtor information.
A key objective in development of the management
information system is to provide rapid access
access. Initially, this
information system operated manually, using card updates,
and was later automated using web and extranet
technology enabling members to access the information
online and in real time. Furthermore, the system, which
could originally be accessed only for individual Bank
Indonesia Regional Office areas, now offers nationwide
access.
The scope of lending data has also been expanded
expanded.
Formerly, the system was restricted to lending data for
loans of at least Rp 50 million, but has since been expanded
to cover all loans extended by banks irrespective of amount.
In a further expansion, data for the Debtor Information
System is no longer sent in only by commercial banks, but
also by rural banks and finance companies.
The debtor information system contains a feature
for issuing each debtor an identification number
number. The scope
Banking Supervision 53
 Banking Supervision Report
of debtor information includes debtor identity, owners and
management (in the case of business entities), provision
of funds received by debtors, collateral, guarantors and
loan classification. The scope of reported data is not
restricted to credit, but covers all types of provision of funds
and other claims. To ensure unique identity within the
system, an identification number is issued for each debtor
(Debtor Identification Number/DIN). The debtor
information can be used by reporting banks to assist in
credit risk management, expedite financing (provision of
funds) processes and ascertain debtor quality.
The Credit Bureau is envisaged as benefiting both
creditors and debtors
debtors. Among the expected benefits are:
1) for creditors, the system can enable faster processes for
analysis and lending decisions, assist in mitigating risk of
problem loans and also reduce creditor dependence on
conventional collateral by enabling creditors to assess the
borrowing reputation of prospective debtors; and 2) for
debtors, reduces the time needed to obtain credit
approvals, while debtors with good track records will
benefit from broad access to other lenders.
Product development is aimed at achieving the
standard of a world class credit bureau
bureau. The vision for Bank
Indonesia in the development of the Credit Bureau is to
establish a trusted credit information centre conforming
to international standards. The products to be developed
in the effort to become a world class credit bureau are:
a. credit reports presenting information on the negative
and positive aspects of individual debtors,
b. consumer reports in which credit reports can also be
accessed by individual debtors, and
c. other value added services, such as: credit scoring,
comprising a rating of creditworthiness for individual
debtors, e-alert serving as an early warning system
for changes in debtor files, credit risk management
and consultancy services.
54 Banking Supervision
The data made available by the Credit Bureau is not
only used by banks and financial institutions in Indonesia,
but also by Bank Indonesia in support of the bank
supervision function
function. From the perspective of Bank
Indonesia as regulatory authority, the comprehensive
information on credit quality, type and distribution
accumulated by the Credit Bureau is enormously useful in
monitoring the actions taken by the financial industry to
mitigate credit risk. In addition, through functional
enhancement of existing features, the information can be
aggregated as needed. This enables excessive credit
concentration or financing saturating in a particular
business sector or region to be avoided. Within this context,
it is possible to proceed immediately with policy measures
for strengthening the intermediary function and promoting
more equitable distribution of credit, most importantly for
ensuring greater access to prospective borrowers and
especially MSMEs, which represent the largest potential
credit market at this time. Furthermore, with this
information accessible by the public, members of the public
intending to borrow from financial institutions will exercise
greater watchfulness, caution and discipline in all their
decisions on use of their borrowings.
BANK INDONESIA LIQUIDITY CREDIT (KLBI) AND
TWO-STEP LOANS (TSLS) EXAMINATION
Weaknesses persist in the supervision of banks and
coordinating SOEs in the management of KLBI and TSLs.
From 2004 to 2006, Bank Indonesia conducted
examinations of the management of KLBI and TSLs at 2
coordinating SOEs, Bank Tabungan Negara and PT
Permodalan Nasional Madani (Persero), and 7 channelling
banks: Bank Mandiri, BRI, BNI, Bank Bukopin, Bank Jabar,
Bank Jatim and Bank Jateng. Almost all of the examinations
produced the following findings:
• Discrepancies between data and recording;
• Irregularities in interest calculations; and

• Banks did not report early repayment by debtors to
Bank Indonesia.
This indicated continued weaknesses in bank and
coordinating SOE management supervision of the
management of KLBI/TSL funds and the need for remedial
actions. The background to the examination of KLBI and
TSLs is presented in Box 4.5.
IMPROVE THE LAW ENFORCEMENT
To improve law enforcement in the banking system,
Bank Indonesia is continually engaged in collaboration with
other authorities in the following areas:
a. Action Against Banking Crimes
Collaboration in tackling banking crimes is set out in
the Joint Decree of the Attorney-General, National
Box 4.5 KLBI and TSLs Examination
The disbursement of Bank Indonesia Liquidity
Credit (KLBI) through the banking system began with
the launching of the BIMAS/INMAS programmes for
rice intensification in 1965. Later, this funding was
expanded with the introduction of the KIK/KMPK
scheme for small-scale investment and working capital
credit in 1973, the farmer credit scheme (KUT) in 1985,
the village cooperative credit scheme (KKUD) and the
credit for primary cooperative members scheme (KKPA)
in 1990 and lastly the SME credit scheme (KPKM) in
1998. In addition, Bank Indonesia acting on behalf of
the government arranged the channelling of Two Step
Loans (TSLs) from international lenders, such as KfW,
Bank Exim Japan and the World Bank. This lending
was extended in support of selected government
programmes insufficiently funded at the time. At end-
December 2006, the outstanding balances of KLBI and
TSLs managed by banks and coordinating SOEs were:
Banking Supervision Report
Chief of Police and the Governor of Bank Indonesia
dated 6 November 1997 and renewed on 20
December 2004, including its implementing
regulations.
b. Enforcement of the Anti-Money Laundering Law
Collaboration in enforcement of the Anti-Money
Laundering Law is set out in the Memorandum of
Understanding between Bank Indonesia and the
Financial Transaction Reporting and Analysis Centre
(PPATK) dated 5 February 2003.
c. Eradication of Corruption
Collaboration in eradication of corruption is set out
in the Memorandum of Understanding between Bank
Indonesia and the Anti-Corruption Commission (KPK)
dated 8 December 2006.
KLBI dan TSL Disbursed Loans
Existing KLBI in the banking system Rp 9.562.238.552.979,51
KLBI managed by coordinating SOEs Rp 2.416.609.722.567,25
TSLs in the banking system Rp 1.162.962.020.879,41
Following the promulgation of Act No. 23 of 1999
concerning Bank Indonesia as amended by Act No. 3
of 2004, Bank Indonesia no longer channels KLBI and
the management of existing KLBI was transferred to
coordinating SOEs appointed by the government. These
SOEs were Bank Rakyat Indonesia (BRI), PT. Bank
Tabungan Negara (BTN) and PT. Permodalan Nasional
Madani (PNM). Although management was transferred,
Bank Indonesia retained the right of claim to the KLBI,
meaning that the credit risk was still carried by Bank
Indonesia.
Bank Indonesia conducts the supervision and
examination of KLBI management by banks and
Banking Supervision 55
 Banking Supervision Report
coordinating SOEs in order to secure its assets in the
form of these claim rights to KLBI and under its
responsibility for management of TSLs, as stipulated in
Bank Indonesia Regulation No. 5/20/PBI/2003 dated
17 September 2003 concerning Transfer of KLBI
Management for Programme Credit. This examination
is focused on compliance and data integrity. The
56 Banking Supervision
supervision of KLBI and TSL management by banks and
coordinating SOEs covers the processes of application,
approval, disbursement to debtors, routine reporting
and repayment of loan principal and interest until the
loans are repaid in full. If necessary, Bank Indonesia
may conduct on the spot examinations with priority
for schemes with loan balance still outstanding.
 Banking Supervision Report

Chapter 5:
Banking Outlook and
Policy Direction for 2007

Banking Outlook and Policy Direction for 2007 57

 Banking Supervision Report

58 Banking Outlook and Policy Direction for 2007

 Banking Supervision Report

Chapter 5:
Banking Outlook and Policy Direction for 2007

Indonesian banks are expected achieve higher levels of performance in 2007 as economic
conditions improve. More robust expansion is predicted for bank financing extended through
credit. Banks are set to achieve stronger financial performance, supported by an upward trend
in earning assets quality. In the wake of developments in 2006, Bank Indonesia is pursuing an
eight-track policy for strengthening the banking industry while promoting growth and
development in the real sector. Islamic banking policy will maintain its present course for
reinforcing the industry structure in keeping with the policies outlined in the Islamic Banking
Blue Print. Alongside this, Bank Indonesia will issue new guidelines on the role and functions
of rural banks to reinforce their contribution to the MSME sector.

BANKING OUTLOOK
In view of the progress achieved in the banking
system in 2006, bank financing is predicted to expand in
line with improving economic conditions and support from
a series of proactive policies
policies. Credit expansion in 2007 is
forecasted to reach about 18%, fuelled by rising
consumption and production. In its eight-track banking
policy, Bank Indonesia is seeking to provide all banks with
added room for expansion of their financing operations
within the limits established by prudential regulations. The
banking system is not expected to encounter difficulty in
seeking funding sources. The principal funding source, like
before, will be depositor funds. These funds are predicted
to keep mounting in 2007, albeit less vigorously than in
2006 due to the downward movement in deposit rates.
Growth in bank lending will also benefit from the
expected decline in bank NPLs. The ongoing debt
restructuring programme and the amendment of
Government Regulation No. 14 of 2005 concerning Write-
Off of State/Regional Government Claims in Government
Regulation No. 33 of 2006 will create a level playing field for
state-owned and private banks in the resolution of problem
loans. This will assist state-owned banks in restructuring
problem loans and supports the outlook for further reduction
in NPLs gross across the banking system. The reduction in
NPLs involves mainly corporate debt in the industry sector.
NPLs gross are therefore predicted to fall to below the 7%
mark and in the first few months of 2007, NPLs net
measured for individual banks were already below 5%.
Stronger credit expansion is predicted for almost all
industry sectors. Consistent with the forecast for increased
private consumption, the trade sector is predicted to remain
a primary target for bank lending. Credit in this sector is
driven mainly by loans for the retail trade. Following a
period of thin expansion in 2006, there is opportunity for
the industry sector to take the lead in lending growth. In
the mining sector, the outlook is for sustained high demand
for mining commodities which will drive expansion and in
turn stimulate demand for credit. Property lending is
expected to chart higher growth, with home mortgages
firmly established as the product of choice at most banks.
Assuming the absence of further obstacles and delays,
some major banks will be more involved in financing of
infrastructure, such as bridges and toll roads, rather than
home mortgages. Lending to other sectors, such as
telecommunications, will follow the trend in business

Banking Outlook and Policy Direction for 2007 59

 Banking Supervision Report
expansion in those sectors.
These developments augur for sustained levels of
bank profitability with a slightly improving trend. The main
source of bank earnings, like before, will be loan interest
income, while interest income from SBIs is predicted to
decline. Expansion in bank financing is not expected to
moderate bank capital, which is forecasted to remain at a
stable, high level.
BANKING POLICY DIRECTION
In regard to the banking outlook, Bank Indonesia»s policy
direction and strategy for the banking system in 2007
encapsulated in the eight policy items is described as
follows:
First
First, Bank Indonesia will play a more active catalytic
role in promoting the bank intermediary process. To do
this, Bank Indonesia will position itself as a resource centre
for information, studies and databases on the economy
and industry at both the national and regional levels,
disaggregated by sector. These resources will be available
for all parties, including banks, MSMEs, regional
governments and the Central Government. In further
actions, Bank Indonesia will move quickly to revitalise the
role and functions of Bank Indonesia Regional Offices in
the regions.
Second
Second, Bank Indonesia will strengthen co-operation
and co-ordination with the Government in bank industry
restructuring focused on revitalisation of the role for state-
owned banks. Bank Indonesia strongly supports the policy
actions taken by the Government to strengthen current
levels of performance at state-owned banks.
Third
Third, Bank Indonesia will further its efforts to
facilitate mergers based on the principle of honest
brokering with neutrality, fairness, reasonableness and best
practice to ensure a more directed and focused
matchmaking process.
Fourth, Bank Indonesia will facilitate the smooth
60 Banking Outlook and Policy Direction for 2007
operation of the bank intermediary function. In the near
future, while some policies will be issued to amend the
content of certain Bank Indonesia Regulations, others will
simply serve as written clarification of the interpretation
of some of the past regulations. Among these are:
1. Regulations on Loan Collectibility Assessment
Procedure. So far, assessment of earning asset quality
for assets valued more than Rp 500 million must be
based on 3 (three) criteria: prompt repayment,
business prospects and debtor financial condition,
subject to the following:
a. Earning assets of up to Rp 5 trillion may be
assessed solely on the criteria of prompt
repayment.
b. Exceptions to assessment by the three criteria
will also apply to financing for Government-
guaranteed debtors/projects that meet the
requirements set out in Bank Indonesia
Regulation No. 7/2/PBI/2005 concerning Asset
Quality Rating for Commercial Banks.
c. Bank Indonesia will give greater emphasis to
bank risk management capacity in lending and
loan assessment, rather than to fulfilment of
various secondary qualifications.
2. Amendment of various prudential regulations,
including the following:
a. The existing Rp 500 million limit on earning
assets subject to uniform classification will be
raised to Rp 5 billion and/or uniform classification
will be deemed sufficient if applied to the bank»s
50 largest debtors. Collateral eligible for
deduction from Allowance for Asset Losses will
be expanded to include machinery, warehouse
receipts and other items.
b. Renewed definition of the 30% Legal Lending Limit
(LLL) not only for SOEs operating in infrastructure,
but also in other development sectors.

c. Renewed definition and elucidation of provisions
on the meaning of related parties for the purpose
of the LLL in joint financing of several companies
(including banks) for the same project. In
essence, joint financing will not be categorised
as related party financing insofar as there are
no ties of control.
d. Reiteration that problem debtors will remain
eligible for credit as long as their problem loans
occurred for reasons outside the debtor»s control,
subject to a comprehensive analysis of feasibility.
Fifth
Fifth, Bank Indonesia will issue guidelines requiring
foreign-owned banks to play a more optimum role in the
intermediation process and a special regulation restricting
the employment of expatriates in middle management
positions and requiring transfer of knowledge. Expatriates
will be limited to 2 (two) at levels below the board of
directors, except for areas of work that cannot yet be filled
by domestic employees. In these specific areas, foreign
banks will be given 3 (three) years to complete the transfer
of knowledge.
Sixth
Sixth, Bank Indonesia will take on a proactive role in
financial market deepening. The limited availability of
financial products with diversified maturities, risks and
markets (primary and secondary) to support trading activity
has led to a concentration of portfolio placements in the
markets for SBIs, government securities and stocks. The
current liquidity overhang calls for a broader range of outlets
as an indirect means of promoting intermediation. Among
others, Bank Indonesia will promote the market for longer
tenor SBIs and enhance the operation of monetary policy in
support of this objective. In addition, BI will consider actions
to promote universal banking while maintaining close
attention to the bank consolidation process. The actions
described above will be formulated in greater detail in the
planned amendment to the Banking Law.
Banking Supervision Report
Seventh
Seventh, Bank Indonesia will launch a programme
to accelerate the growth of Islamic banking in Indonesia.
This programme will be three-fold: a more intensive
programme to educate and familiarise the public with
Islamic banking; efforts to enrich the products and services
on offer and expand the available Islamic banking outlets
in order to provide greater outreach and assist in the
deepening of the national financial market; and provision
of support and an active role in sourcing foreign investment
funds through Islamic financial instruments.
Eighth
Eighth, Bank Indonesia will review the regulatory
framework for rural banks in order to strengthen and
expand their role and contribution in support of the MSME
sector throughout Indonesia. This policy will be pursued
through the operation of a more focused linkage
programme for empowerment of rural communities and
support for resolution of various local-specific micro
distortions on the market for goods resulting from lack of
broad-based economic participation at the grass roots.
Islamic Banking
The Islamic banking industry will be guided towards
building a more robust industry structure as envisaged in
the policy direction outlined in the Blue Print of Islamic
Banking Development in Indonesia
Indonesia. On a strategic level,
the current growth momentum in the Islamic banking
industry, which is running strong, needs to be maintained
to bring greater benefits to users of banking services and
respond to the challenge for strengthening the bank
intermediary function in helping to resolve the nation»s
economic problems. Within this framework, the policy and
strategy for Islamic banking development in 2007 will focus
on more rapid expansion of capacity for provision of Islamic
banking services on both the supply side and demand side.
In this way, Islamic banks are expected to achieve the
targeted 5% share of total domestic banking volume by
the end of 2008.
Banking Outlook and Policy Direction for 2007 61
 Banking Supervision Report
On the supply side
side, Islamic banking policy will be
directed towards institutional strengthening and efficiency
improvements in order to improve competitiveness and
mitigate the various economic shocks that may arise, as
elaborated in the four key policies.
First is improvement in the quality of Islamic bank
personnel through technical assistance programmes to
build knowledge and professionalism in application of
Sharia principles, risk management, project feasibility
assessment and application of service excellence and good
corporate governance. The improved knowledge and
professionalism is expected to boost the quality of Islamic
asset management and banking services, and in so doing
strengthen public confidence in making use of Islamic
banking. This can also work indirectly to strengthen the
overall bank intermediary function through the Islamic
banking role.
Second
Second, provide facilitation for expansion of the Islamic
banking network by promoting collaboration with other
institutions and the office channelling programme. This
policy seeks to ensure a more personal approach to
customers. The physical presence of these banks plays a
vital role, because the majority of Indonesians effectively
lack access to electronic financial services. This policy is
expected to enable access to Islamic banking products and
services through the branch office networks of conventional
banks and even other institutions operating with greater
geographical coverage. In a further move to maximise the
benefits of the office channelling programme, Bank
Indonesia will assess possibilities for expanding the scope
of services offered through office channelling.
Third
Third, promote diversification of Islamic banking
products in an effort to build the Islamic bank role as a
provider of alternative solutions to public needs for various
retail and corporate transactions. Product diversification is
essential to build real and effective demand for Islamic
banking services, and therefore ties in with other efforts
62 Banking Outlook and Policy Direction for 2007
to accelerate realisation of the vast potential for Islamic
banking in mobilisation of depositor funds.
Fourth, promote inflows of foreign investment funds
into the Islamic banking industry and the real sector
through the use of Islamic financial instruments. This is
seen necessary because the scaling up of Islamic banking
will require strong capital backing to finance asset
expansion and build the capacity of Islamic banks to
mitigate risks from expansion and other risks from changes
in economic conditions. Larger inflows of investment funds
are necessary to support the development of a more
efficient Islamic financial market capable of contributing
more to the development of the real sector.
On the demand side
side, Islamic banking policy will focus
on building an expanded role for Islamic banking in society
and in so doing build a more significant role for Islamic
banks in promoting the bank intermediary function and
systemic stability. This focus is set out in four key policies.
First is intensified public education about Islamic
banking, targeting diversified groups in society. Public
education will no longer focus only on academics and
Islamic clerics, but will be expanded to business groupings
and industry associations. Public education will involve a
larger media role, particularly for the electronic media with
its broad outreach. Added to this will be active participation
by local governments and community leaders, including
Ulama, academics, economists and celebrities. The public
education and awareness programme is expected to
stimulate interest among bank customers in making greater
use of Islamic banking services. It is also envisaged as
bringing about a paradigm shift in society regarding the
relationship between customers, banks and the economy
that will make Islamic banking services a need in its own
right.
Second is the scaling up of the linkage programme
to build stronger synergy between Islamic banks and the
business sector, with focus on micro, small and medium

scale enterprises. In specific terms, the Islamic bank linkage
programme is aimed at building the viability of customer
businesses while mitigating adverse selection and
minimising the potential for credit rationing in the financing
process. This can be achieved by the creation of binding
factors through ongoing technical and spiritual support.
Third
Third, promote Islamic bank participation in the
development of the voluntary sector, which has strategic
potential for use in poverty alleviation programmes and
improvement of the nation»s socio-economic structures.
As agents of intermediation, Islamic banks are expected
to function as a catalyst for mobilisation and management
of voluntary funds (zakat, shadaqah, infaq and wakaf) by
the amil zakat charitable institutions in order to support
more optimum levels of microeconomic empowerment and
poverty alleviation. This in turn will build public awareness
of the benefits of Islamic banks.
Fourth, support efforts to provide Islamic banks
greater opportunity to manage government funds and to
participate in financing schemes for various government
projects. This will help Islamic banking expand its share
within the national banking industry.
Even so, these polices for accelerated growth in
Islamic banking in order to expand the role of Islamic
banking in the national economy will be more effective
with regulatory support providing legal certainty for
investment in Islamic instruments. For this reason, Bank
Indonesia is pressing for the faster completion and passing
of the draft laws on Islamic Banking, Taxation and Islamic
Government Securities. These laws, when they come into
force, will not only provide legal certainly but also
strengthen the competitiveness of Islamic banking products
and Islamic financial market instruments, currently
hampered by imposition of multiple taxes. In a further move
to promote efficiency and competitiveness in the Islamic
banking industry, Bank Indonesia will amend and clarify
regulations on risk management and Islamic bank rating,
Banking Supervision Report
asset quality rating and contractual terms (akad) for funds
mobilisation and funds disbursement within the limits of
prudential banking and Sharia principles. These measures
are expected to support an even more robust outlook for
the Islamic banking industry.
Rural Bank
Rural bank policy will be focused on restoring the
rural bank function of provision of services to MSMEs and
low-income customers, particularly those engaged in the
informal sector and living in remote rural areas
areas. In the
future, regulation of rural banks will seek to maintain their
distinctive features, described as follows:
1. Local banks operating offices in a single province with
limited scope of business
The purpose of this is for rural banks to serve as a
pillar for local economic development with emphasis
on funds mobilisation and lending within local
communities. Rural banks will retain their limited
scope of business as stipulated in the Banking Law.
Despite these restrictions, the scope of business is
still relevant to the services required by MSEs, the
primary customer base for rural banks.
2. Focus on MSEs and rural communities
As rural banks steadily build their capacity as financial
service providers, their focus will continually be
directed towards MSEs and rural communities.
Underscoring this is the vast potential market in this
segment, hitherto untouched by banking services. This
emphasis is also consistent with the Banking Law.
3. Distributed evenly throughout Indonesia
Bank Indonesia will take active measures to promote
the establishment of rural banks outside Java and Bali
to meet the needs of MSEs and rural communities in
these regions not presently covered by banking
services. Nevertheless, there is no denying that the
rural bank presence will follow the principle of ≈banks
Banking Outlook and Policy Direction for 2007 63
 Banking Supervision Report
follow the trade.∆ There will be a need for regulatory
support that can effectively stimulate interest in
establishing rural banks outside Java and Bali in
keeping with economic growth, as well as to tighten
the regulatory requirements for establishment of new
rural banks in Java and Bali.
4. Strong capital
While rural banks are not envisaged as developing
into commercial banks, they will nevertheless be
encouraged to acquire the high levels of capital
essential to mitigating risks, developing more
competitive services for MSEs, improving service
coverage for MSEs and achieving an economy of scale
that will assure their continuity of business.
5. Use of technology to achieve optimum service levels
for customers.
Growth in the rural bank industry will be strongly
influenced by the development of banking products;
64 Banking Outlook and Policy Direction for 2007
customer demand for easy, convenient, quick and
secure services; and the need for greater operating
efficiency to support competitiveness.-To promote
more efficient management, rural banks are
encouraged to make optimum use of the vitally
needed technology in their operations for recording
of transactions and reporting needs, internal control
and reduction in service times.
6. Indirect participation in clearing payment systems
To keep pace with advancements in technology and
customer demands for easy, convenient, quick and
secure transaction services to support their business
activities, rural banks are expected to begin
participating in the payment system on an indirect or
restricted basis. This participation will be managed
by Apex institutions, which once established with
serve as umbrella entities for rural banks.
 Banking Supervision Report

Appendix

Appendix – Progress of Indonesian Banking Architecture: Realization and Target 65

 Banking Supervision Report

66 Appendix – Progress of Indonesian Banking Architecture: Realization and Target

 Banking Supervision Report

Apendix 1
Progress of Indonesian Banking Architecture: Realization and Target
No. PILAR/PROGRAM REALIZATION 2006 TARGET 2007

1 STRUCTURAL REINFORCEMENT OF THE NATIONAL BANKING SYSTEM

1.1 Strengthening of - The issuance of Bank Indonesia Regulation - Mapping the commercial bank capital
bank capitalization No.8/17/PBI/2006 dated 5 October 2006 requirement
concerning Incentives for Bank - The issuance of Bank Indonesia Regulation
Consolidation (Pakto 2006). concerning High Performing Bank
- Improved the criteria of High Performing - The issuance of Bank Indonesia external and
Bank with regard to the current internal circular letter concerning incentives
development of the economy and banking for bank consolidation
industry condition.
- Evaluating due diligence of commercial bank
which plan to do merge and acquisition.
- Preparing regulation to support merge and
acquisition.
1.2 Reinforce the - Implement the knowledge sharing of - Strengthen of the Generic Model Linkage
competitiveness and linkage program Program
institutional struc- - Improved the Generic Model Linkage • The total amount of commercial bank
tures of rural banks Program. lending to rural bank as of Rp1 trillion;
and Islamic rural
- Facilitate the establishment of rural bank • The total number of rural bank accepted
banks
joint services facility (APEX Bank). As a loan;
pilot project, Apex Bank for rural bank in • The total number of rural bank managers
DKI, Jabar and Jatim is implemented by joints the knowledge sharing of linkage
BRI, Mandiri and Bukopin. program.
- Facilitate the M o U of step IV financing - Facilitate establishment of joint services
between 14 commercial banks and 200 facilities of APEX Bank.
BPR at amount Rp549 million, the total
- Establish the website of rural bank financial
amount of Linkage Program in 2006 is
transparency to improve the commercial
Rp1, 2 trillion.
bank lending to rural bank in linkage
- Monitoring of 3 scheme of APEX pilot program.
project (between commercial bank and
- Facilitate establishment of joint services
rural bank, rural bank and rural bank, and
facilities for rural bank and Islamic rural
PNM and rural bank) which implemented
banks (including the APEX Bank)
in 7
- Set up the website of rural bank financial
transparency to improve the commercial
bank lending to rural bank in linkage
program
- The issuance of Bank Indonesia Regulation
No. 8/26/PBI/2006 dated 8 November
2006 concerning Rural Banks to reinforce
the institutional structures of rural banks,
relaxed the requirements concerning
capital and feasibility studies for opening

Appendix – Progress of Indonesian Banking Architecture: Realization and Target 67

 Banking Supervision Report

No. PILAR/PROGRAM REALIZATION 2006 TARGET 2007

of branch offices with due consideration

for prudential banking principles
1.3 Improve access to - Sign a Memorandum of Understanding - Implement and monitor the deposit
SMME credit and (MoU) regarding the Deposit Insurance insurance scheme for provinces and
financing Scheme between 5 (five) regencies/cities regencies that have signed MoU.
in West Java, Central Java and East Java - Four sessions to be held in terms of Deposit
with Askrindo on 26th January 2006. Insurance Scheme socialization.
- Educate the public in South Borneo and Bali - Sign of MoU for the Deposit Insurance
in collaboration with PT Askrindo. Over time Scheme between 10 regencies/cities with
it is expected that public education Askrindo.
concerning the Deposit Insurance Scheme
will be offered by Bank Indonesia in all
provinces of Indonesia
- Implementation of the MoU for the Deposit
Insurance Scheme in regencies/cities in
North Sulawesi, Riau, North Sumatera, East
Borneo, Maluku & Bengkulu.
- Sign MoU regarding the Deposit Insurance
Scheme between regencies/cities in Maluku,
South Sumatera, North Sumatera, Bali and
East Borneo with Askrindo on 26th July 2006
(earlier than planned).
- Make recommendations for capacity
building of the Deposit Insurance
Corporation (through capitalization) to
guarantee deposits, particularly to MSMEs.
Support from rural banks and the
government (Ministry Of Finance) is required
to compile the rules and regulations for
deposit guarantees.

2 IMPROVED QUALITY OF BANKING REGULATION

2.1 Formalize syndication - Sign MoU with government universities in - Review the possible establishment of
process in formula- North Sumatera, West Sumatera, South Research Institutes for Regional Banking
tion of banking Sulawesi and East Java to establish the (Lembaga Riset Perbankan Daerah) in
policy Research Institute for Regional Banking additional provinces.
(Lembaga Riset Perbankan Daerah) (LRPD). - Eight research projects concerning oversight
- The results of eight LRPD research projects to be conducted by four LRPD (University
were presented in each region in November of North Sumatera in Medan, University of
2006 and on 21 st December 2006 at a Andalas in Padang, University of Brawijaya
national seminar held in Jakarta. in Malang and University of Hasanuddin in
- A meeting was held by the Bank Expert Makassar).
Panel to direct policy. - Four seminars to disseminate LRPD research
results to be held.
- One expert panel meeting to be held to
discuss policy direction.

68 Appendix – Progress of Indonesian Banking Architecture: Realization and Target

 Banking Supervision Report

No. PILAR/PROGRAM REALIZATION 2006 TARGET 2007

2.2 Phasing-in of - Core principles were refined with technical - Reassessment of the Bank Oversight Master
international best assistance from International Monetary Plan and core principle amendments are
practices Fund (IMF). scheduled to be completed in 2007.
- Promulgate Internal SE regarding Risk-based
Supervision for Islamic banks.
- Monitor discussions concerning draft acts
for Islamic banks and subsequently ratifying
the new regulations.
- Compilation of Bank Indonesia Regulations
(PBI) and external circulars regarding the
soundness of Islamic rural banks.

3 IMPROVEMENT OF SUPERVISORY FUNCTIONS

3.1 Strengthen coordina- - Sign SKB KSSK with Ministry of Finance - Improve Accounting Guide of Indonesian
tion with other and related institutions. Islamic Banks (PAPSI) with IAI.
supervisory agencies - Guidelines for oversight of Islamic banks (in
collaboration with the National Islamic
Body).
3.2 Reorganize the - Issuing and socializing internal circular No - Supervise the oversight work unit
banking sector at 8/10/Intern regarding the Directorate of reorganization.
Bank Indonesia Bank Supervision. - Training IT specialist HRD on model
- Oversight work unit reorganization on 1 st validation.
March 2006. - PDG improvement in relation with MSME
- Establishment of KPS. research and development from the Credit
- Training of market risk specialist (Validator Bureau to the Directorate of Rural Bank
Model). Supervision (DSDM).

- Issuing and socializing circular No 8/28/

Intern on Bank Oversight Document
Management Application (AMDP).
- Progress review of bank oversight task
force with DpG Bank Supervisory Section in
May and June 2006.
- RBS workshop on dedicated team
organization structure with keynote
speakers from the Federal Reserve and
HKMA.
- Identify technical constraints in preparation
for the evaluation of bank oversight task
force consolidation in 2007.
3.3 Improve the - Certification of bank supervisors and - Certification of bank supervisors and
Supporting auditors for the foundation and intermedi- auditors for foundation, intermediate and
Infrastructure for ate levels (coordinated by FG Banking advanced levels (coordinated by FG Banking
Bank Supervision School). School).
- Trained Market Risk (Basel II) specialists. - Implementation of other necessary training
- Trained of IT specialist in September 2006. (coordinated by FG Banking School).

Appendix – Progress of Indonesian Banking Architecture: Realization and Target 69

 Banking Supervision Report
No. PILAR/PROGRAM REALIZATION 2006
- CISA for IT specialist in December 2006.
- Improved application of BPR monthly
report presentation method.
Set up blueprint for - Discussions of the banking sector»s IT
the banking sector IT blueprint, compiled by DPIP with internal
system and external parties (Academics of ITB, IPB,
Al-Azhar University, Bandung).
3.4 Improve - Issue SOP on Bank Oversight Work Force.
implementation of - Online Islamic bank supervision system will
the risk-based be implemented at the beginning of 2008
supervision. following the completion of Islamic bank
TKS.
3.5 Strengthen - Online Islamic bank supervision system will
effectiveness of be implemented at the beginning of 2008
enforcement following the completion of Islamic bank
TKS.
4 IMPROVEMENT IN QUALITY OF BANK MANAGEMENT AND OPERATIONS
4.1 Strengthen Good - Issue PBI 8/14/PBI/2006 as an amendment
Corporate to PBI 8/4/PBI/2006 regarding Good
Governance (GCG) Corporate Governance for Commercial
Banks.
- Final draft of GCG external circular
regarding GCG reporting and self-
assessment, as well as external circular on
GCG for commercial bank staff.
- Bank GCG self-assessments.
- Current Bank Indonesia regulation
governing GCG for Islamic banks still
follows the regulation for commercial
banks. Currently, an external circular for
GCG is being compiled by DPbS and
Directorate of Banking Research and
Regulation.
70 Appendix – Progress of Indonesian Banking Architecture: Realization and Target
TARGET 2007
- Bank oversight system improvement
(coordinated by supervisory FG).
- Train Islamic bank supervisors (KP/KBI).
- Improve the guidelines for the reporting
methods used by Islamic commercial banks
(LBUS) and Islamic rural banks.
- Pembahasan lanjutan konsep blue print IT -
Follow up discussions on IT blueprint concept
with regards to :
a. Reorganization of bank oversight work
unit.
b. Integration of the information system
(UKMI) must refer to the BI Management
Information System Blueprint (UKMI).
c. Also refer to the Blueprint for Bank
Supervision System.
- A review of the Banking Sector SIP Blueprint
(DPIP).
- Risk-based online supervision system for
Islamic commercial banks (in collaboration
with DTI and DPIP).
- Issue Bank Indonesia regulations to assess
the health level of Islamic commercial banks.
- Issue and socialize circulars regarding GCG
for bank staff.
- Issue and socialize circulars regarding GCG
implementation and self-assessment reports.
- Socialization of amendments to prevailing
regulations regarding GCG.
- Establishment of a GCG forum
- Ratify new regulations concerning GCG for
Islamic banks.
 Banking Supervision Report

No. PILAR/PROGRAM REALIZATION 2006 TARGET 2007

4.2 MImprove quality of - Supervise the implementation of the level 1 - Continue the regular program of Risk-
bank risk (5 phases) and level 2 (2 phases) risk- Management Certification for commercial
management management certification test. bank staff.
- Issue PBI 8/9/2006 as an amendment to PBI - Complete the design, curriculum and
7/25/2005. material for level 4 risk-management
- Finalize design, curriculum and material for certification for the regular program.
level 3 Risk-Management Regular Certifica- - Issue Bank Indonesia SE for Risk-
tion Program. Management Certification for commercial
- Professional Certification for rural bank bank staff.
directors. - Continue the certification program for rural
- Complete the certification module for bank directors (DPBPR).
Islamic bank staff. - Implement the certification program for the
- Delay the issuance of external circulars on staff (Board of Directors and Commissioners)
risk-based management for Islamic banks, of Islamic rural banks.
awaiting the completion of the TKS - Issue an external circular on risk
program for Islamic banks (2005-2007). management for Islamic commercial banks.
4.3 Improve bank - Blueprint discussions remain internal. - MoU on the use of joint banking services
operating capabilities and the implementation of a joint education
and training program.
- Issue Bank Indonesia regulation for
collaboration between Islamic banks and
other parties (to expand the network).

5 DEVELOPMENT OF BANKING INFRASTRUCTURE

5.1 Development of the - Establishment of the Credit Information - Expansion of the Credit Information Bureau
Credit Bureau Bureau (BIK) on 29th June 2009 using the (DPIP).
DPIP budget.
- SID for Islamic rural banks on 1st March
2006; SID for LKBB reporting on 1st June
2006; Infrastructure provision on 28th June
2006, improving application performance
(through version upgrading) on 30th
November 2006; and TOR compilation on
1st December 2006.
5.2 Improve credit rating Implementation and regulation performed Implementation and regulation performed
agency by Bapepam. by Bapepam.
5.3 Strengthen roles of - Implementation of Islamic financial
institutions instruments (collaboration between DPbS
responsible for fatwa and DPM).
and of Islamic - Collaborate on hosting annual meeting
arbitration boards as (ijtima sanawi) of Indonesia-wide Islamic
part of the drive to Oversight Board (DPS).
build Islamic bank
- Operational assistance for National Islamic
compliance to Islamic
Board (DSN) and National Islamic Arbitration
principles.
Board.

Appendix – Progress of Indonesian Banking Architecture: Realization and Target 71

 Banking Supervision Report

No. PILAR/PROGRAM REALIZATION 2006 TARGET 2007

6 IMPROVEMENT OF CONSUMER PROTECTION

6.1 Prepare standards for - Drafting internal circular on customer - Monitoring the implementation of Bank
customer complaint complaint resolution. Indonesia regulations on customer
mechanism - Monitoring quarterly customer complaint complaint resolution.
report. - Issuing internal circular regarding customer
complaint resolution.
6.2 Establish - Issue PBI No 8/5/PBI/2006 regarding bank - Socializing Bank Mediation regulations and
independent mediation (Pakjan 2006). circulars.
mediation agency - Issue external circular No 8/14 regarding - Preparing to establish the Bank Mediation
bank mediation and internal circular No 8/ Institution.
23 regarding bank mediation. - Improving the bank mediation function of
Bank Indonesia.
6.3 Prepare regulations - Monitor of Bank Indonesia Regulations - Monitor Bank Indonesia regulations
on transparency of concerning Product Information Transpar- concerning product information
product information ency and the use of customer»s private transparency and the use of customers»
data private data.
- Draft Internal circular regarding Informa- - Issue internal circular on bank product
tion transparency of bank products and information transparency and the use of
the use of customers» private data. customers» private data.
- Amend Bank Indonesia regulations
regarding agreements for standards and
Islamic bank financing.
- Improving Islamic banks» product codes.
6.4 Promote Consumer - Conduct baseline survey of consumer - Survey education methods and the
Education education. effectiveness of bank product information
- Establish strategy to implement consumer transparency.
education. - Issue Bank Indonesia regulations concerning
- Draft Bank Indonesia regulations consumer education.
concerning consumer education. - Implement an education strategy.
- Implement a consumer education program
for Islamic banks.

72 Appendix – Progress of Indonesian Banking Architecture: Realization and Target

 Banking Supervision Report

Appendix 2

List of Banking Regulations 2006

COMMERCIAL BANKS
The January and October 2006 Banking Policy To operate sustainable, banks must manage credit

Packages (Pakjan and Pakto) were launched with the exposures at appropriate levels to minimise potential

purpose of safeguarding the bank role in the operation of for losses. In principle, rating of earning assets used

the intermediary function while strengthening the to finance one debtor or one project, whether

foundations of the banking system under the faltering provided by one or more banks, must follow the

economic conditions of the time. uniform classification approach in which the lowest

1. Bank Indonesia Regulation (PBI) No. 8/1/PBI/2006 level of asset quality is assigned to all such assets.

dated 3 January 2006 concerning the Emergency However, in view of the economic slowdown and to

Financing Facility for Commercial Banks. safeguard the banking role in the intermediary

It is possible that banks will experience liquidity function, the implementation of uniform classification

difficulties to the extent of endangering their survival calls for a transitional phase. This regulation provides

and generating systemic impact with potential for a for the phasing in of uniform classification for earning

crisis endangering financial system stability. The assets extended by more than one bank to finance

Emergency Financing Facility (EFF) is a financing line one debtor or project. The phased implementation is

extended by Bank Indonesia to systemically important based on debtor classification and/or limit of earning

problem banks experiencing liquidity difficulties, but assets extended to the debtor.

still complying with the level of solvability prescribed 3. Bank Indonesia Regulation (PBI) No. 8/4/PBI/2006

by Bank Indonesia. The decision to extend the facility dated 30 January 2006 concerning Implementation

is adopted in a meeting between the Minister of of Good Corporate Governance for Commercial

Finance and the Governor of Bank Indonesia and the Banks.

facility is funded at the expense of the government. Good corporate governance is a system requiring

This regulation essentially stipulates the criteria and bank to be managed according to the principles of

requirements for requesting the Emergency Financing transparency, accountability, responsibility,

Facility from Bank Indonesia. independence and fairness. Bank Indonesia adopted

2. Bank Indonesia Regulation (PBI) No. 8/2/PBI/2006 the regulation on implementation of good corporate

dated 30 January 2006 concerning Amendment to governance to assist the domestic banking system in

Bank Indonesia Regulation (PBI) No. 7/2/PBI/2005 dealing with increasingly complex risks, protect the

concerning Asset Quality Rating for Commercial interests of stakeholders, improve legal and regulatory

Banks. compliance and raise the prevailing level of ethics in

Appendix – List of Banking Regulations 2006 73

 Banking Supervision Report
the banking industry. These measures are aimed at
the internal strengthening of the domestic banking
industry as envisaged in the Indonesian Banking
Architecture (API).
4. Bank Indonesia Regulation (PBI) No. 8/5/PBI/2006
dated 30 January 2006 concerning Bank Mediation.
Complaint resolution by banks frequently leads to
disputes with bank customers, and this has created
the need for an independent mediation institution
organised by banking associations. The independent
mediation institution will offer a simple, economical
and quick alternative for resolving disputes between
customers and banks in line with international best
practices and the applicable laws and regulations.
Pending the establishment of the mediation
institution, Bank Indonesia has issued a regulation
on the interim role in mediation performed by Bank
Indonesia. In this regard, Bank Indonesia will not
provide any recommendations or take any decisions
in the resolution of disputes between customers and
banks. The focus of dispute resolution will be on
claims against banks by retail customers and micro
and small-scale enterprises up to a maximum limit of
Rp 500,000,000.00 (five hundred million rupiah).
5. Bank Indonesia Regulation (PBI) No. 8/6/PBI/2006
dated 30 January 2006 concerning Application of
Consolidated Risk Management for Banks Exercising
Control over Subsidiaries.
Bank risk exposures may arise directly in the course
of business and indirectly from business conducted
by subsidiaries. For this reason, banks are required to
implement consolidated risk management with regard
to subsidiaries. Like with the scope of the CAR and
LLL prudential regulations that apply to individual
banks and to bank subsidiaries on a consolidated
basis, this regulation requires banks to calculate risk
weighted assets for risk exposures of their subsidiaries,
74 Appendix – List of Banking Regulations 2006
asset quality rating and formation of allowance for
earning asset losses for all assets of bank subsidiaries
in order to ensure the survival of the bank.
6. Bank Indonesia Regulation (PBI) No. 8/13/PBI/2006
dated 5 October 2006 concerning Amendment to
Bank Indonesia Regulation (PBI) No. 7/3/PBI/2005
concerning the Legal Lending Limit for Commercial
Banks.
Bank Indonesia introduced changes to some
regulations on the LLL in a move to strengthen the
bank intermediary function in the domestic economy.
The changes were also made in view of the generally
sound quality of bank risk management, achieved
among others by the requirement to implement risk
management and good corporate governance. These
changes, which are seen as supportive of national
economic development as it concerns provision of
bank funds to state owned enterprises, cover the
following: redefinition of related parties; scope of the
LLL for related parties; reaffirmation of the rules on
debtor grouping by family ties; and expansion of
economic sectors.
7. Bank Indonesia Regulation (PBI) No. 8/14/PBI/2006
dated 5 October 2006 concerning Amendment to
Bank Indonesia Regulation (PBI) No. 8/4/PBI/2006
concerning Implementation of Good Corporate
Governance.
To achieve a proportionate response to the dynamics
taking place in the banking system, it became
necessary to enhance good corporate governance in
order to reinforce the condition of the banking
industry. The changes made by Bank Indonesia to the
operation of good corporate governance encompass
the role of the board of commissioners and board of
directors and the check and balance role of
independent parties with respect to related parties
connected with the controlling shareholders.

8. Bank Indonesia Regulation (PBI) No. 8/15/PBI/2006
dated 5 October 2006 concerning Special Treatment
for Bank Credit in Disaster-Hit Areas in Indonesia.
Indonesia has been hit by multiple natural disasters
that have struck in various parts of the nation. In most
cases, these disasters have significantly impacted the
local economy. In support of economic recovery in
the disaster-hit areas, Bank Indonesia has amended
the requirements for quality rating of credit and/or
other provision of funds by banks in the disaster-hit
areas for debtors with loan ceilings up to Rp 5 billion.
In these areas, asset quality rating shall be based solely
on prompt repayment of principal and/or interest for
a period of 3 years after the disaster.
9. Bank Indonesia Regulation (PBI) No. 8/16/PBI/2006
dated 5 October 2006 concerning the Single Presence
Policy in the Indonesian Banking System.
Bank Indonesia embarked on an ownership
restructuring of the banking system by introducing
the single presence policy for Indonesian banks. This
policy is designed to accelerate bank consolidation
and improve the effectiveness of consolidated bank
supervision. The essence of the single presence policy
is that any one party may only become controlling
shareholder at one commercial bank in Indonesia.
Anyone who acts as controlling shareholder at more
than one bank is required to choose from three
options: transfer their shares to other parties, arrange
merger/consolidation for the banks under their control
or establish a bank holding company.
10. Bank Indonesia Regulation (PBI) No. 8/17/PBI/2006
dated 5 October 2006 concerning Incentives for Bank
Consolidation.
A comprehensive, all-round approach is essential for
accelerating the bank consolidation process. Bank
Indonesia has therefore adopted a policy of offering
incentives to banks interested in merger or
Banking Supervision Report
consolidation as follows: simplified procedure for
approval to operate as foreign exchange bank;
temporary relaxation of the statutory reserve
requirement; extension of deadline for resolution of
the exceeding of the LLL arising in consequence to
merger; simplified procedures for licensing of bank
branch offices; and partial reimbursement of
consultant fees for due diligence.
Other commercial bank regulations for strength-
ening the banking system.
11. Bank Indonesia Regulation (PBI) No. 8/9/PBI/2006
dated 29 May 2006 concerning Amendment to Bank
Indonesia Regulation (PBI) No. 7/25/PBI/2005
concerning Risk Management Certification for
Managers and Officers of Commercial Banks.
Professional certification institutions have been
assigned the task of holding risk management
certification programmes for executive officers in
order to build the knowledge and skills of bank
managers in the area of risk management. The
changes made in this regulation concern the
operation of the executive programme for managers
and officers of commercial banks to meet the need
for improved competency and expertise in risk
management.
12. Bank Indonesia Regulation No. 8/10/PBI/2006 dated
7 June 2006 concerning Special Treatment for Bank
Credit Following the Natural Disaster in Yogyakarta
and Nearby Areas in Central Java.
The natural disaster that struck Yogyakarta and nearby
areas in Central Java Province resulted in significant
disruption to the economy in the region. This
regulation extends special treatment for classification
of credit quality extended by commercial banks within
a certain ceiling and for restructured debt in order to
promote economic recovery in the disaster-hit areas.
Appendix – List of Banking Regulations 2006 75
 Banking Supervision Report
13. Bank Indonesia Regulation (PBI) No. 8/12/PBI/2006
dated 10 July 2006 concerning Commercial Bank
Periodic Reports.
Effective decision making in adoption of monetary
policy requires accurate, complete and timely
information and data on banks. In addition, the rapid
advancement in the financial industry also calls for
more complete provision of information. To this end,
Bank Indonesia revamped the system for report
delivery and procedures for preparation of some
existing reports and the commercial bank periodic
report. Among others, banks and Islamic divisions are
required to prepare and deliver commercial bank
periodic reports to Bank Indonesia online.
ISLAMIC BANKING
1. Bank Indonesia Regulation (PBI) No. 8/3/PBI/2006
dated 30 January 2006 concerning Conversion of
Conventional Commercial Bank Business to
Commercial Banks Conducting Business Based on
Islamic Principles and Establishment of Bank Offices
Conducting Business Based on Islamic Principles by
Conventional Commercial Banks.
These policy adjustments represent an effort to
promote expansion in Islamic bank service coverage
at low cost in response to rising public demand for
Islamic banking services. The regulation provides for
the opportunity for office channelling, in which
conventional banks with Islamic divisions and Islamic
branch offices may provide Islamic banking services
on behalf of Islamic branch offices.
2. Bank Indonesia Regulation (PBI) No. 8/21/PBI/2006
dated 5 October 2006 concerning Asset Quality for
Commercial Banks Conducting Business Based on
Islamic Principles.
76 Appendix – List of Banking Regulations 2006
This policy change was made to obtain a more
comprehensive picture of asset quality at Islamic
commercial banks and to promote profit sharing
based financing within the boundaries of prudential
regulations. The changes in the regulation cover the
definition of financing, loan classification and
calculation of the ratio of actual revenues to revenue
projection.
3. Bank Indonesia Regulation (PBI) No. 8/22/PBI/2006
dated 5 October 2006 concerning Amendment to
Bank Indonesia Regulation No. 6/21/PBI/2004
concerning the Minimum Capital Adequacy
Requirement for Rural Banks Based on Islamic
Principles.
To obtain a more accurate picture of the capital
adequacy of Islamic Rural Banks, funds for paid up
capital previously recognised as tier 2 capitals are now
incorporated into tier 1 capital. Adjustments were also
made to risk weightings for provision of funds to MSEs
and civil servants/pensioners and for home mortgages.
4. Bank Indonesia Regulation (PBI) No. 8/23/PBI/2006
dated 5 October 2006 concerning Amendment to
Bank Indonesia Regulation No. 6/21/PBI/2004
concerning Statutory Reserves in Rupiah and Foreign
Currencies for Commercial Banks Conducting
Business Based on Islamic Principles.
The purpose of this regulation is to maintain safe levels
of liquidity in the Islamic banking system and reaffirm
the requirement to maintain statutory reserves and
additional statutory reserves. To this end, changes
were made to the calculation of the ratio of rupiah
financing to rupiah depositor funds, the key factor in
determining statutory reserves. The ratio now
compares financing in rupiah with depositor funds in
rupiah at the end of the reporting period 2 (two)
reporting periods previously.

5. Bank Indonesia Regulation (PBI) No. 8/24/PBI/2006
dated 5 October 2006 concerning Asset Quality for
Rural Banks Based on Islamic Principles.
This regulation was issued to anticipate the growing
complexity of the business conducted by Islamic rural
banks and obtain a more comprehensive picture of
their earning assets quality. Changes in the regulation
apply to loan classification ratings for mudharabah
and musyarakah financing and allowance for earning
asset losses from murabahah, salam and istishna
financing.
6. Bank Indonesia Regulation (PBI) No. 8/25/PBI/2006
dated 5 October 2006 concerning Amendment to
Bank Indonesia Regulation No. 6/17/PBI/2004
concerning Rural Banks Based on Islamic Principles.
The purpose of this regulation is to promote expansion
in Islamic rural bank office networks through
streamlined procedures for approval of office opening
and encourage management by independent board
members. This in turn will foster the growth of a
sound and efficient Islamic banking system while
maintaining adequate levels of capital to ensure the
operational sustainability of Islamic rural banks. The
changes relate to capital requirements for opening
of Islamic rural bank branch offices and competence
of management/board of directors at Islamic rural
banks.
7. Bank Indonesia Regulation (PBI) No. 8/7/PBI/2006
dated 27 February 2006 concerning Amendment to
Bank Indonesia Regulation No. 7/13/PBI/2005
concerning the Minimum Capital Adequacy
Requirement for Commercial Banks Based on Islamic
Principles.
The changes set out in this regulation are aimed at
promoting the Islamic banking role in stimulating
activity in the real sector by focusing funds channelling
activities on the small enterprise sector and civil
Banking Supervision Report
servants/pensioners. In the regulation, the risk
weighting for fund disbursements to small-scale
enterprises is lowered to 85% and for fund
disbursements to civil servants/pensioners to 50%.
RURAL BANKS
1. Bank Indonesia Regulation (PBI) No. 8/18/PBI/2006
dated 5 October 2006 concerning the Minimum
Capital Adequacy Requirement for Rural Banks.
This regulation was issued to bring the calculation of
rural bank capital into line with best practices for bank
capital, among others by: addition of some
accounting items to tier 1 capital, change in allowance
for earning asset losses eligible for inclusion as tier 2
capital and special allowance for earning asset losses
to be offset against outstanding earning assets in the
calculation of risk weighted assets. The regulation also
prohibits rural banks from paying out dividends on
profit if the CAR falls below the regulatory minimum,
provides for payment of rural bank capital in the form
of fixed assets and stipulates lower risk weighting for
credit to boost rural bank credit expansion in the
MSME sector.
2. Bank Indonesia Regulation (PBI) No. 8/19/PBI/2006
dated 5 October 2006 concerning Earning Asset
Quality and Formation of Allowance for Earning Asset
Losses.
This regulation updates the existing provisions on
quality rating of earning assets to ensure that the
calculation of rural bank capital adequacy properly
reflects the risks carried by the bank. The regulation
prescribes improvements in the criteria for
assessment of earning asset quality and quality of
inter bank placements. It also introduces new
provisions for debt restructuring and takeover of
collateral, and permits rural banks to extend credit
with a grace period.
Appendix – List of Banking Regulations 2006 77
 Banking Supervision Report
3. Bank Indonesia Regulation (PBI) No. 8/20/PBI/2006
dated 5 October 2006 concerning Financial
Transparency of Rural Banks.
This regulation was issued to strengthen the financial
transparency of rural banks towards the public. In
this, Bank Indonesia responds to the needs of
commercial banks in support of the linkage program
with rural banks for MSE financing. The regulation
prescribes an increased frequency of published
financial statements in addition to the annual report
and expands the scope of information to include
key financial ratios and other information of
importance.
4. Bank Indonesia Regulation (PBI) No. 8/26/PBI/2006
dated 8 November 2006 concerning Rural Banks.
To reinforce the institutional structures of rural banks,
78 Appendix – List of Banking Regulations 2006
changes were made to existing regulations by
tightening the requirements for bank capital and
competency of members and candidates for the
board of directors. In a further move to promote
the intermediary function for rural banks, Bank
Indonesia relaxed the requirements concerning
capital and feasibility studies for opening of branch
offices with due consideration for prudential banking
principles. The relaxation of existing regulations
relates to the CAR, restrictions on outdoor cash
operations using ATM machines, requirements for
members/candidates for the board of directors,
sanctions on rural banks falling short of the required
paid up capital and requirement for moving office
to an area appropriate to the level achieved in paid
up capital.
Appendix 3
Banking Key Indicators as of September 2006 (in million Rp)
PRODUCTIVE ASSETS DEPOSITS

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

STATE-OWNED BANKS
1 008 PT BANK MANDIRI (PERSERO) Tbk 242,612,663 100,852,650 102,061,159 14,141,188 2,202,329 6,050,051 15,784,062 241,091,439 41,116,267 46,571,503 99,112,376 186,800,146 24,370,989
2 009 PT BANK NEGARA INDONESIA (PERSERO),Tbk 156,698,353 60,262,029 52,155,187 19,567,437 1,957,181 3,848,862 8,783,842 146,574,538 36,393,009 34,203,107 54,783,686 125,379,802 13,127,444
3 002 PT BANK RAKYAT INDONESIA (PERSERO) Tbk. 140,457,247 86,691,193 32,991,037 8,324,702 71,132 527,570 3,647,342 132,252,976 20,689,153 51,819,870 39,658,037 112,167,060 15,375,904
4 200 PT BANK TABUNGAN NEGARA (PERSERO) Tbk. 31,392,268 17,343,980 11,426,028 194,178 94,979 902,602 29,961,767 1,319,272 5,387,185 13,999,424 20,705,881 1,636,830
5 003 PT BANK EKSPOR INDONESIA (PERSERO) 8,651,457 3,907,628 1,491,001 3,005,084 210,086 1,170,471 9,784,270 46,454 599,007 645,461 3,934,508
FOREX NATIONAL PRIVATE COMMERCIAL BANKS
6 014 PT BANK CENTRAL ASIA Tbk. 163,262,807 53,694,881 73,543,814 8,477,265 417,682 2,292,189 2,540,689 140,966,520 31,976,729 65,638,704 42,532,829 140,148,262 17,642,804
7 011 PT BANK DANAMON INDONESIA Tbk 74,896,314 38,991,588 20,317,941 6,946,328 699,360 2,134,617 69,089,834 4,485,161 8,848,987 36,692,685 50,026,833 8,871,996
8 016 PT BANK INTERNASIONAL INDONESIA Tbk 45,678,040 21,343,573 14,003,927 4,500,964 492,212 618,740 983,866 41,943,282 8,933,003 4,853,452 21,062,513 34,848,968 5,123,089
9 022 PT BANK NIAGA, Tbk 42,402,738 30,939,908 6,160,663 776,818 322,334 684,672 1,167,110 40,051,505 5,514,931 4,952,385 24,371,988 34,839,304 4,622,101
10 013 PT BANK PERMATA Tbk (d/h PT. BANK BALI ) 36,438,965 22,086,514 7,047,829 1,779,821 107,152 220,677 582,014 31,824,007 5,958,291 5,543,330 17,308,720 28,810,341 3,553,924
11 019 PT PAN INDONESIA BANK, Tbk 33,949,824 17,797,157 7,201,025 5,191,780 334,170 523,926 589,926 31,637,984 4,976,380 4,749,812 13,110,187 22,836,379 6,369,547
12 026 PT LIPPO BANK, Tbk 30,343,504 10,892,337 10,861,815 2,447,453 3,464 92,399 549,518 24,846,986 8,250,888 8,778,028 8,445,306 25,474,222 3,208,618
13 426 PT BANK MEGA, Tbk 26,559,058 10,450,906 11,750,656 436,097 31 150,763 373,815 23,162,268 3,039,118 2,677,056 17,336,327 23,052,501 1,938,476
14 441 PT BANK BUKOPIN 26,340,036 14,991,480 7,108,835 1,263,037 5,550 213,898 768,525 24,351,325 7,332,044 1,688,600 12,354,004 21,374,648 1,698,724
15 028 PT BANK NISP, Tbk 22,405,758 14,152,608 4,001,491 1,199,302 56,994 441,032 1,170,923 21,022,350 2,391,797 3,573,894 11,205,013 17,170,704 2,345,288
16 023 PT BANK UOB BUANA, Tbk. 16,844,832 10,241,487 3,382,178 1,536,228 88 33,288 223,030 15,416,299 3,239,492 4,009,612 5,131,884 12,380,988 3,182,268
17 087 PT BANK EKONOMI RAHARJA 14,126,414 5,583,352 5,851,491 1,008,280 65,315 343,170 12,851,608 2,257,310 3,476,396 7,158,562 12,892,268 898,128
18 095 PT BANK CENTURY Tbk.(BANK CIC-6.12.2004) 13,020,564 2,071,470 2,622,783 4,234,373 1,035,968 80,888 10,045,482 581,415 537,635 8,638,464 9,757,514 633,545
19 037 PT BANK ARTHA GRAHA INTERNASIONAL TBK 10,428,216 6,990,065 1,492,635 316,344 13,027 16,824 548,881 9,377,776 784,096 580,466 6,775,638 8,140,200 545,949
20 485 PT BANK BUMIPUTERA INDONESIA 4,842,114 3,757,000 265,259 114,294 20,073 64,198 4,220,824 577,311 461,475 3,032,589 4,071,375 515,777
21 089 PT BANK HAGA 3,897,716 2,070,891 1,104,767 49,086 11,794 654,184 3,890,722 696,927 542,531 2,171,302 3,410,760 286,206
22 151 PT BANK MESTIKA DHARMA 3,609,916 2,703,841 418,610 143,450 55,238 3,321,139 341,651 1,356,976 1,053,616 2,752,243 769,380
23 097 PT BANK MAYAPADA INTERNATIONAL 3,515,516 2,482,806 60,019 93,019 34,202 12,394 2,682,440 224,113 163,831 2,421,574 2,809,518 360,056

Appendix - Banking Key Indicator as of September 2006 79

 (in million Rp)
PRODUCTIVE ASSETS DEPOSITS

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

24 145 PT. BANK NUSANTARA PARAHYANGAN TBK. 3,129,245 1,542,560 905,969 353,183 5,451 28,339 2,835,502 425,046 270,450 2,012,326 2,707,822 265,654
25 494 PT BANK AGRONIAGA Tbk. 2,907,374 2,057,012 434,310 77,949 20 80,342 4,417 2,654,050 298,042 57,124 1,954,810 2,309,976 256,821
26 167 PT BANK KESAWAN, Tbk 1,807,520 795,913 795,913 163,623 327,877 1,159,959 1,651,459 125,660
27 157 PT BANK MASPION INDONESIA 1,738,320 1,057,309 392,336 30,807 63 12,892 1,493,407 194,657 418,061 935,016 1,547,734 163,061
28 076 PT BANK BUMI ARTA 1,625,659 595,001 683,104 40,529 1,610 4,504 266,984 1,591,732 293,518 285,953 620,109 1,199,580 351,422
29 020 PT BANK ARTA NIAGA KENCANA 1,253,310 780,415 300,064 26,943 146 199,965 1,307,533 124,413 197,433 779,013 1,100,859 131,158
30 153 PT. BANK SINARMAS 1,060,492 455,067 170,921 250,859 94,324 10,282 981,453 213,369 21,265 603,546 838,180 109,862
31 159 PT BANK HAGAKITA 1,049,936 765,930 94,322 28,431 1,829 11,898 902,410 197,838 120,914 552,152 870,904 121,185
32 161 PT BANK GANESHA 1,020,529 704,162 57,560 135,835 10,352 104,397 1,012,306 118,617 56,391 726,928 901,936 94,024
33 146 PT BANK SWADESI, Tbk 958,222 438,642 349,227 61,399 131,699 980,967 63,695 63,074 700,699 827,468 114,018
34 088 PT BANK ANTAR DAERAH 633,679 379,426 105,952 72,761 6 23,803 581,948 84,779 161,045 283,905 529,729 62,374
35 162 PT BANK WINDU KENTJANA 573,904 307,383 117,125 38,458 1,013 463,979 64,483 121,597 333,863 519,943 47,420
36 093 PT BANK IFI 483,481 263,968 112,606 6,397 336 383,307 13,618 10,697 279,247 303,562 24,694
37 164 PT. BANK HALIM INDONESIA 461,696 272,058 110,940 40,897 2,391 19,916 446,202 42,979 48,698 218,790 310,467 110,757
38 152 PT BANK METRO EKSPRESS 334,614 185,330 108,243 22,020 63 3,740 319,396 43,210 47,885 82,244 173,339 154,280
NON-FOREX NATIONAL PRIVATE COMMERCIAL BANKS
39 213 PT BANK TABUNGAN PENSIUNAN NASIONAL 5,521,504 4,317,076 594,363 34,471 22 1,000 4,946,932 30,168 521,382 3,905,087 4,456,637 829,146
40 472 PT BANK JASA JAKARTA 2,330,317 1,584,659 569,256 901 346,092 2,500,908 165,972 147,287 1,618,936 1,932,195 279,515
41 566 PT BANK VICTORIA INTERNATIONAL 2,060,844 864,418 971,489 50,404 100,921 1,987,232 60,759 98,577 1,496,248 1,655,584 293,961
42 490 PT BANK YUDHA BHAKTI 1,833,490 816,864 485,484 287,103 10 8,125 1,597,586 65,421 48,999 1,516,572 1,630,992 150,480
43 558 PT BANK EKSEKUTIF INTERNASIONAL, Tbk. 1,408,694 904,613 35,693 1,145 250 941,701 12,677 95,343 1,123,526 1,231,546 136,137
44 567 PT BANK HARDA INTERNASIONAL 1,209,883 800,943 212,323 1,296 3,867 1,018,429 277,346 83,311 718,499 1,079,156 86,974
45 212 PT BANK HIMPUNAN SAUDARA 1906, Tbk 948,590 708,017 86,758 55,505 387 913 851,580 89,181 96,262 630,711 816,154 90,675
46 555 PT BANK INDEX SELINDO 937,880 461,344 348,694 14,325 1,400 825,763 108,607 152,493 575,732 836,832 88,295
47 525 PT BANK AKITA 734,345 554,962 99,763 87 3,269 658,081 70,720 20,601 527,941 619,262 89,113
48 523 PT DIPO INTERNATIONAL BANK 652,333 465,204 106,428 19,556 89,472 680,660 182,648 19,275 338,008 539,931 99,230
49 536 PT BANK UIB 621,575 433,725 104,719 4,075 13,629 556,148 51,311 32,027 442,081 525,419 84,639
50 521 PT BANK PERSYARIKATAN INDONESIA 614,213 184,885 28,467 211,446 419 425,217 9,222 26,196 238,236 273,654 149,484

Appendix - Banking Key Indicator as of September 2006 80

 (in million Rp)
PRODUCTIVE ASSETS DEPOSITS

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

51 559 PT CENTRATAMA NASIONAL BANK 529,180 351,579 77,327 4,476 4,302 437,684 32,627 91,576 312,131 436,334 72,344
52 520 PT PRIMA MASTER BANK 517,094 385,524 46,304 23,287 2,217 457,332 43,666 35,918 355,047 434,631 61,125
53 535 PT BANK KESEJAHTERAAN EKONOMI 441,233 386,630 34,759 1,007 158 422,554 5,464 28,468 246,697 280,629 132,880
54 548 PT BANK MULTI ARTA SENTOSA (MAS) 424,129 362,468 21,910 9,723 1,815 395,916 15,734 33,719 324,907 374,360 43,226
55 513 PT BANK INA PERDANA 401,635 334,854 30,964 6,882 221 372,921 28,970 44,920 256,649 330,539 39,655
56 553 PT BANK MAYORA 319,016 117,794 161,348 20 20,217 299,379 39,940 19,598 203,368 262,906 50,763
57 422 PT BANK DJASA ARTA 314,826 176,070 74,905 7,321 5,955 264,251 30,347 44,376 201,967 276,690 29,875
58 498 PT BANK INDOMONEX 302,097 180,769 81,037 779 615 263,200 20,648 31,038 214,175 265,861 26,413
59 562 PT BANK FAMA INTERNASIONAL 288,353 211,550 42,148 1,050 254,748 19,251 13,160 208,164 240,575 42,650
60 491 PT BANK MITRANIAGA 280,116 164,344 75,575 506 704 241,129 14,718 16,194 222,286 253,198 24,975
61 466 PT BANK SRI PARTHA 273,245 147,993 15,933 163,926 3,176 133,271 76,701 213,148 44,634
62 484 PT BANK BINTANG MANUNGGAL 242,786 174,917 35,978 15,712 651 227,258 15,707 9,140 174,877 199,724 32,565
63 531 PT ANGLOMAS INTERNASIONAL BANK 226,489 177,119 29,677 85 1,035 207,916 20,375 29,163 142,495 192,033 30,062
64 542 PT BANK ARTOS INDONESIA 213,403 145,486 39,005 211 184,702 22,080 16,670 136,586 175,336 25,522
65 517 PT BANK HARFA 205,738 124,882 30,096 43 24,978 179,999 8,271 9,314 155,873 173,458 24,298
66 501 PT BANK ROYAL INDONESIA 173,014 32,804 24,780 98,073 5 155,662 115,536 9,750 18,375 143,661 24,660
67 564 PT BANK SINAR HARAPAN BALI 171,548 127,997 17,016 1,457 146,470 2,960 81,000 50,299 134,259 24,315
68 526 PT LIMAN INTERNATIONAL BANK 167,949 68,053 59,095 8,061 17,788 152,997 15,967 22,979 44,832 83,778 74,699
69 166 PT BANK HARMONI INTERNATIONAL 160,628 101,038 25,833 7,144 1,322 135,337 12,039 39,246 77,542 128,827 27,885
70 459 PT BANK BISNIS INTERNASIONAL 114,672 58,404 29,315 923 300 88,942 10,573 7,206 65,299 83,078 29,629
71 547 PT BANK PURBA DANARTA 70,829 12,174 50,891 1,140 64,205 8,380 8,618 30,187 47,185 22,714
72 405 PT BANK SWAGUNA 70,402 46,835 640 66 231 47,772 1,988 2,028 21,176 25,192 22,171
73 503 PT ALFINDO SEJAHTERA BANK 20,188 8,422 8,077 212 16,711 1,349 2,592 4,139 8,080 11,746
RURAL DEVELOPMENT BANKS (BPD)
74 110 PT BPD JAWA BARAT 20,126,417 11,368,252 2,797,963 3,670,758 341 162,599 17,999,913 6,607,473 1,878,753 7,373,814 15,860,040 1,802,150
75 114 PT. BPD JAWA TIMUR 14,897,032 4,642,160 6,776,483 240,176 243,124 11,901,943 7,750,341 2,207,285 2,948,466 12,906,092 1,200,310
76 119 PT BANK PEMBANGUNAN DAERAH RIAU 12,121,690 2,259,857 7,772,241 504,686 1,447 118,492 10,656,723 8,652,469 939,831 1,640,123 11,232,423 594,664
77 113 PT BANK PEMBANGUNAN DAERAH JAWA TENGAH 10,723,638 5,748,341 1,184,417 2,187,430 2,668 165,803 9,288,659 4,088,563 1,696,378 3,650,008 9,434,949 932,194

Appendix - Banking Key Indicator as of September 2006 81

 (in million Rp)
PRODUCTIVE ASSETS DEPOSITS

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

78 124 BPD KALIMANTAN TIMUR 10,714,187 1,956,492 6,879,691 314,498 3,275 244,384 9,398,340 4,791,425 764,253 3,972,510 9,528,188 658,079
79 111 PT. BPD DKI 9,814,764 3,678,272 3,700,840 1,083,239 927 6,186 305,951 8,775,415 2,829,258 1,134,596 4,284,541 8,248,395 726,324
80 116 PT. BANK BPD ACEH 9,713,760 1,963,710 5,661,585 670,454 130 162,053 8,457,932 4,674,096 888,726 3,218,657 8,781,479 573,464
81 117 PT. BPD SUMATERA UTARA 7,628,028 2,772,887 3,399,609 355,734 750 190,026 6,719,006 4,249,793 1,054,135 1,314,228 6,618,156 850,094
82 120 PT BPD SUMATERA SELATAN 6,417,538 2,021,019 2,046,609 1,475,792 1,250 1,006 366,961 5,912,637 3,639,809 705,972 1,429,093 5,774,874 347,458
83 132 PT. BPD PAPUA 5,608,014 1,188,656 2,976,207 571,975 20,407 4,757,245 4,152,840 689,247 152,696 4,994,783 457,114
84 118 BPD SUMATERA BARAT 5,296,507 2,855,152 1,198,410 759,312 250 21,692 4,834,816 2,144,382 745,640 1,383,323 4,273,345 505,150
85 126 PT BPD SULAWESI SELATAN 4,062,055 1,924,230 948,774 601,000 66 2,795 3,476,865 2,378,682 321,867 649,692 3,350,241 528,727
86 129 PT. BANK PEMBANGUNAN DAERAH BALI 4,013,256 2,693,387 904,126 24,456 635 18,353 3,640,957 1,145,573 1,068,451 1,011,395 3,225,419 601,865
87 123 PT. BPD KALIMANTAN BARAT 3,206,911 944,414 1,275,975 507,642 175 40,052 2,768,258 2,018,970 604,449 285,285 2,908,704 166,329
88 122 PD BPD KALIMANTAN SELATAN 2,885,539 825,123 1,433,102 160,035 739 61,750 2,480,749 1,928,289 312,191 374,129 2,614,609 232,729
89 130 PT. BPD NUSA TENGGARA TIMUR 2,352,668 1,325,768 350,080 401,308 69 99,491 2,176,716 1,321,153 272,267 421,099 2,014,519 269,682
90 125 PT BANK PEMBANGUNAN KALTENG 2,341,668 507,022 1,188,483 262,093 515 68,457 2,026,570 1,757,328 278,603 84,672 2,120,603 176,135
91 112 BPD YOGYAKARTA 2,292,588 1,132,107 764,573 114,501 130 10,090 2,021,401 911,608 628,429 492,443 2,032,480 181,035
92 121 PT. BANK LAMPUNG 2,042,344 1,106,363 5,522 104,434 499 48,766 1,265,584 1,100,213 148,050 445,741 1,694,004 121,876
93 127 PT. BPD SULAWESI UTARA 1,833,093 848,204 503,298 275,279 47,943 1,674,724 392,729 357,994 652,655 1,403,378 159,429
94 128 PT. BPD NUSA TENGGARA BARAT 1,821,252 1,170,970 117,656 81,957 1,051 54,435 1,426,069 765,887 257,674 218,644 1,242,205 210,167
95 131 PT. BPD MALUKU 1,675,404 559,310 88,033 262,064 58,330 967,737 997,374 235,888 261,807 1,495,069 86,065
96 133 PT. BANK PEMBANGUNAN DAERAH BENGKULU 1,267,752 540,099 14,756 203,828 80 3,966 762,729 891,912 117,228 122,306 1,131,446 104,017
97 115 PD. BANK PEMBANGUNAN DAERAH JAMBI 1,161,366 432,446 442,424 90 17,983 892,943 705,523 89,024 215,758 1,010,305 117,042
98 135 BPD SULAWESI TENGGARA 1,038,965 341,895 110,000 477,648 20,485 950,028 753,336 104,739 36,595 894,670 116,982
99 134 PT. BPD SULAWESI TENGAH 833,497 202,852 234,097 299,294 22,651 758,894 699,056 32,689 21,802 753,547 48,479
JOINT-VENTURE BANKS
100 046 PT BANK DBS INDONESIA 11,821,293 7,081,648 3,134,621 600,356 431,137 659,343 11,907,105 1,107,364 41,619 5,172,599 6,321,582 1,572,942
101 048 PT BANK MIZUHO INDONESIA 7,679,608 4,949,545 558,929 956,677 967,637 1,799,209 9,231,997 2,534,523 2,782 1,655,343 4,192,648 1,467,163
102 045 PT BANK SUMITOMO MITSUI INDONESIA 5,925,323 4,322,712 662,160 518,914 142,185 727,044 6,373,015 1,921,821 1,610,943 3,532,764 1,438,417
103 950 PT BANK COMMONWEALTH 4,745,571 1,436,504 918,904 1,958,286 64 5,422 11,120 4,330,300 388,957 414,139 3,346,447 4,149,543 299,825
104 061 PT ANZ PANIN BANK 4,549,680 2,766,221 94,607 1,388,974 66,754 1,035,518 5,352,074 527,494 2,723,298 3,250,792 893,056

Appendix - Banking Key Indicator as of September 2006 82

 (in million Rp)
PRODUCTIVE ASSETS DEPOSITS

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

105 047 PT BANK RESONA PERDANIA 4,498,911 3,105,435 694,957 400,980 34,308 197,771 417,430 4,850,881 1,224,542 1,267 1,589,548 2,815,357 960,405
106 058 PT BANK UOB INDONESIA 4,367,591 2,525,036 1,388,673 274,271 1,938 94,569 434,464 4,718,951 629,747 35,105 1,576,800 2,241,652 1,174,318
107 949 PT BANK CHINATRUST INDONESIA 3,814,460 2,876,006 495,825 161,143 152,130 358,590 4,043,694 543,216 322,721 1,688,720 2,554,657 888,400
108 060 PT RABOBANK INTERNATIONAL INDONESIA 3,169,417 3,001,125 319,529 36,734 19,474 44,992 324,092 3,745,946 182,806 815,807 998,613 260,445
109 068 PT BANK WOORI INDONESIA 2,354,406 1,057,458 798,969 318,479 120,866 286,285 2,582,057 359,945 44,378 365,372 769,695 668,905
110 948 PT BANK OCBC-INDONESIA 1,954,332 1,104,657 694,598 61,898 68,876 126,141 2,056,170 248,360 106 655,679 904,145 430,113
111 059 PT BANK KEB INDONESIA 1,888,525 1,099,549 708,977 43,014 14,189 288,406 2,154,135 553,308 265,933 819,241 669,087
112 057 PT BANK BNP INDONESIA 1,436,659 1,214,250 55,883 158,889 20,733 487,964 1,937,719 113,670 363,344 477,014 259,936
113 945 PT BANK FINCONESIA 1,057,477 781,906 164,298 120,061 44,103 299,791 1,410,159 45,864 514,554 560,418 223,574
114 036 PT BANK MULTICOR 678,072 328,351 140,981 141,788 4,529 126,533 742,182 159,793 18,806 334,849 513,448 150,886
115 947 PT BANK MAYBANK INDOCORP 331,882 101,634 179,083 38,585 66,234 385,536 44,242 189 35,511 79,942 185,370
116 054 PT. BANK CAPITAL INDONESIA 260,625 46,092 135,511 33,923 3,539 219,065 5,890 1,556 115,542 122,988 73,974
FOREIGN BANKS
117 031 CITIBANK N.A. 34,257,835 20,281,358 5,068,388 6,393,237 631,231 1,923,619 34,297,833 8,372,583 1,949,220 15,421,079 25,742,882 3,790,743
118 041 THE HONGKONG & SHANGHAI B.C. 27,115,508 11,856,407 5,324,993 6,836,967 1,500 1,368,619 9,564,235 34,952,721 7,965,208 12,599,556 20,564,764 136,569
119 067 DEUTSCHE BANK AG. 22,737,783 4,575,373 8,971,311 7,962,512 21,893 87,873 754,314 22,373,276 2,179,943 6,838,069 9,018,012 1,943,978
120 050 STANDARD CHARTERED BANK 22,384,399 8,198,853 5,190,230 6,674,730 1,055,347 2,949,194 24,068,354 4,001,993 774,087 6,058,751 10,834,831 224,118
121 042 THE BANK OF TOKYO-MITSUBISHI LTD. 19,117,487 12,567,270 3,460,234 2,328,510 359,708 1,921,607 20,637,329 4,803,705 4,304,441 9,108,146 3,436,437
122 052 ABN AMRO BANK 15,970,637 9,264,812 4,186,470 1,464,816 854 193,883 749,122 15,859,957 4,448,876 463,556 6,019,074 10,931,506 996,083
123 032 JP. MORGAN CHASE BANK 4,558,197 1,021,694 2,114,806 999,075 65,160 152,642 4,353,377 480,590 1,012,080 1,492,670 83,850
124 030 AMERICAN EXPRESS BANK 2,708,239 1,310,084 619,407 590,358 172 15,329 2,535,350 251,271 36,975 1,702,981 1,991,227 13,501
125 040 THE BANGKOK BANK COMP. LTD 1,887,659 1,660,231 166,269 54,055 48,387 232,725 2,161,667 317,649 409,985 727,634 209,573
126 069 BANK OF CHINA 723,107 239 384,698 324,661 453,028 1,162,626 229,544 3,431 24,843 257,818 (1,131)
127 033 BANK OF AMERICA, N.A 437,599 16,465 81,151 294,688 383 65,036 457,723 295,940 44,527 340,467 3,797
SHARIA BANKS
128 451 PT.BANK SYARIAH MANDIRI, Tbk 8,903,521 474 630,149 5,045,514 4,399 158,651 5,839,187 1,746,000 2,278,354 3,545,238 7,569,592 673,352
129 147 PT BANK MUAMALAT INDONESIA 8,070,740 217,878 629,000 2,753,335 6,677 168,753 3,775,643 570,006 2,045,819 3,738,784 6,354,609 810,529
130 506 PT BANK SYARIAH MEGA INDONESIA 1,803,577 12,983 1,293 193,426 250 207,952 18,587 451,939 1,097,165 1,567,691 136,002

Appendix - Banking Key Indicator as of September 2006 83

Appendix 4
Banking Key Financial Ratio as of September 2006 (Percent)
PPAP ttoo Compliance
NO NO. ID BANK NAME
ME CAR NPL ROA BOPO LDR
BANK ve Assets
Produktive
Produkti PPAP

STATE-OWNED BANKS
1 008 PT BANK MANDIRI (PERSERO) Tbk 25.45 26.03 6.63 102.37 0.96 91.63 53.54
2 009 PT BANK NEGARA INDONESIA (PERSERO),Tbk 17.57 16.58 3.31 136.92 1.81 84.38 48.55
3 002 PT BANK RAKYAT INDONESIA (PERSERO) Tbk. 19.77 4.79 4.69 168.96 4.56 73.78 77.29
4 200 PT BANK TABUNGAN NEGARA (PERSERO) Tbk. 18.17 5.2 2.1 180.55 1.91 86.56 83.76
5 003 PT BANK EKSPOR INDONESIA (PERSERO) 87.94 0.83 1.57 172.75 4.77 55.8 605.4
FOREX NATIONAL PRIVATE COMMERCIAL BANKS
6 014 PT BANK CENTRAL ASIA Tbk. 23.99 1.57 1.33 141.6 3.84 69.1 38.31
7 011 PT BANK DANAMON INDONESIA Tbk 22.86 3.5 2.08 108.01 2.27 81.27 77.8
8 016 PT BANK INTERNASIONAL INDONESIA Tbk 23.59 4.78 1.7 113.41 1.52 89.47 61.43
9 022 PT BANK NIAGA, Tbk 17.63 3.64 1.95 114.23 2.34 83.82 88.81
10 013 PT BANK PERMATA Tbk (d/h PT. BANK BALI ) 12.8 6.5 3.2 137.5 1.2 91.5 76.7
11 019 PT PAN INDONESIA BANK, Tbk 34.74 7.79 4.74 107.34 2.55 80.52 77.93
12 026 PT LIPPO BANK, Tbk 20.8 1.98 2.08 162.69 2.76 76.82 42.76
13 426 PT BANK MEGA, Tbk 17 1.73 0.71 100.01 0.81 93.48 45.34
14 441 PT BANK BUKOPIN 14.93 3.95 1.16 101.08 1.96 85.67 69.45
15 028 PT BANK NISP, Tbk 18.33 3.31 1.13 100.03 1.54 87.71 81.94
16 023 PT BANK UOB BUANA, Tbk. 30.12 4.26 1.56 110.48 3.61 74.25 82.72
17 087 PT BANK EKONOMI RAHARJA 13.81 2.2 0.91 129.09 1.63 86.35 43.31
18 095 PT BANK CENTURY Tbk.(BANK CIC-6.12.2004) 12.34 7.22 0.76 100.01 0.33 93.66 21.1
19 037 PT BANK ARTHA GRAHA INTERNASIONAL TBK 10.9 6.32 1.94 83.15 0.42 96.89 85.84
20 485 PT BANK BUMIPUTERA INDONESIA 14.57 5.87 1.78 116.57 0.21 99.07 92.28
21 089 PT BANK HAGA 12.75 2.43 0.79 100 2.79 79.72 60.52
22 151 PT BANK MESTIKA DHARMA 23.64 3.83 2.29 253.59 6.87 58.3 98.24
23 097 PT BANK MAYAPADA INTERNATIONAL 13.67 4.08 1.69 102.93 1.16 91.64 86.64
24 145 PT. BANK NUSANTARA PARAHYANGAN TBK. 16.7 1.31 1.48 197 1.05 89.25 56.97

Appendix - Banking Key Financial Ratio as of September 2006 84

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

25 494 PT BANK AGRONIAGA Tbk. 16 5 1 104 1 97 83

26 167 PT BANK KESAWAN, Tbk 10.88 5.09 0.92 119.21 0.43 99.03 66.33
27 157 PT BANK MASPION INDONESIA 14.63 2.15 0.88 100.11 0.93 93.53 68.28
28 076 PT BANK BUMI ARTA 40.56 2.44 0.84 100 2.77 79.08 49.54
29 020 PT BANK ARTA NIAGA KENCANA 20.5 2.42 0.7 124.95 1.17 92.25 70.89
30 153 PT. BANK SINARMAS 27.66 1.69 2.03 134.57 1.27 88.36 54.29
31 159 PT BANK HAGAKITA 14.35 3.26 1.83 100 0.65 96.08 87.95
32 161 PT BANK GANESHA 16.77 2.16 0.8 101.09 -0.3 101.77 78.07
33 146 PT BANK SWADESI, Tbk 25.64 2.74 2.05 153.44 1.28 91.12 53.01
34 088 PT BANK ANTAR DAERAH 16.34 3.27 1.08 110.47 1.45 89.79 69.46
35 162 PT BANK WINDU KENTJANA 15.26 1.04 0.78 100 0.2 98.62 59.12
36 093 PT BANK IFI 11.74 28.46 2.16 119.78 -9.19 224.18 86.96
37 164 PT. BANK HALIM INDONESIA 60.08 2.12 2.14 195.26 2.95 79.16 87.06
38 152 PT BANK METRO EKSPRESS 64.71 4.35 3.72 161.59 3.59 74.58 106.92
NON-FOREX NATIONAL PRIVATE COMMERCIAL BANKS
39 213 PT BANK TABUNGAN PENSIUNAN NASIONAL 32.01 2.5 3.03 105.11 3.51 83.05 96.87
40 472 PT BANK JASA JAKARTA 24.09 1.03 1.39 135.83 2.51 84.85 82.01
41 566 PT BANK VICTORIA INTERNATIONAL 30.38 6.71 3.33 198.99 1.43 89.49 51.46
42 490 PT BANK YUDHA BHAKTI 16.2 6.89 1.33 100.03 0.76 95.12 50.09
43 558 PT BANK EKSEKUTIF INTERNASIONAL, Tbk. 9.76 5.26 2.53 100.46 -0.85 108.49 73.44
44 567 PT BANK HARDA INTERNASIONAL 13.99 4.28 1.32 102.61 0.12 98.33 74.22
45 212 PT BANK HIMPUNAN SAUDARA 1906, Tbk 13.32 1.54 1.69 106.53 1.83 93.5 86.75
46 555 PT BANK INDEX SELINDO 17.64 1.87 1.26 117.27 1.18 91.67 55.13
47 525 PT BANK AKITA 17.97 3.19 0.74 100.06 1.5 94.61 89.62
48 523 PT DIPO INTERNATIONAL BANK 19.43 3.91 1.5 121.79 2.87 81.19 86.3
49 536 PT BANK UIB 18.99 2.88 1.22 100 0.43 97.25 82.55
50 521 PT BANK PERSYARIKATAN INDONESIA 12.25 56.7 6.68 104.25 -1.05 202.91 54.91
51 559 PT CENTRATAMA NASIONAL BANK 18.31 4.78 0.31 105.64 1.56 92.82 80.58
52 520 PT PRIMA MASTER BANK 18.71 1.31 0.81 123.58 0.85 93.47 88.07

Appendix - Banking Key Financial Ratio as of September 2006 85

 (Percent)

PPAP ttoo Compliance

NO NO. ID BANK NAME
ME CAR NPL ROA BOPO LDR
BANK Produkti ve Assets
Produktive PPAP

53 535 PT BANK KESEJAHTERAAN EKONOMI 34.03 2.13 2.33 100.43 4.51 74.73 137.77
54 548 PT BANK MULTI ARTA SENTOSA (MAS) 16.34 0.97 1.41 127.12 1.91 87.12 96.82
55 513 PT BANK INA PERDANA 14.09 1.95 1.9 104.53 0.62 96.16 101.31
56 553 PT BANK MAYORA 31.26 3.51 1.89 198.67 0.46 99.16 44.8
57 422 PT BANK DJASA ARTA 13.21 8.95 2.01 100.54 -1.03 109.22 62.46
58 498 PT BANK INDOMONEX 13.08 4.12 1.03 0.59 96.65 67.99
59 562 PT BANK FAMA INTERNASIONAL 18.53 4.56 0.79 106.63 1.32 92.48 87.94
60 491 PT BANK MITRANIAGA 18.58 2.56 0.52 84 0.1 100 64.91
61 466 PT BANK SRI PARTHA 22.91 9.28 1.53 120.26 -0.14 103.79 69.43
62 484 PT BANK BINTANG MANUNGGAL 17.8 1.82 1.7 111.47 0.95 93.93 87.58
63 531 PT ANGLOMAS INTERNASIONAL BANK 16.08 12.61 0.97 111.03 1.03 94.25 92.23
64 542 PT BANK ARTOS INDONESIA 18.64 3.66 1.29 101.49 0.02 100.68 82.98
65 517 PT BANK HARFA 16.95 3.4 0.61 133.79 -2.57 117.69 72
66 501 PT BANK ROYAL INDONESIA 42.14 0.02 0.87 102.08 0.17 91.37 22.83
67 564 PT BANK SINAR HARAPAN BALI 19.55 1.84 2.2 124.3 2.02 89.1 95.34
68 526 PT LIMAN INTERNATIONAL BANK 76.17 5.59 1.91 257.51 11 66.08 81.23
69 166 PT BANK HARMONI INTERNATIONAL 24.21 0.33 1.14 145.32 1.82 87.7 78.43
70 459 PT BANK BISNIS INTERNASIONAL 42 1 151 1 100 70
71 547 PT BANK PURBA DANARTA 203.47 5.38 2.9 332.99 3.65 71.33 25.8
72 405 PT BANK SWAGUNA 10362 778 690 8195 -70 10328 9905
73 503 PT ALFINDO SEJAHTERA BANK 113.65 0.57 100 -2.53 119.64 104.23
RURAL DEVELOPMENT BANKS (BPD)
74 110 PT BPD JAWA BARAT 15.69 0.51 1.29 112.09 3.04 76.71 71.67
75 114 PT. BPD JAWA TIMUR 34.23 0.96 1.27 182.17 4.68 65.67 35.97
76 119 PT BANK PEMBANGUNAN DAERAH RIAU 27.99 2.91 0.79 100.05 4.49 60.89 20.12
77 113 PT BANK PEMBANGUNAN DAERAH JAWA TENGAH 17.11 0.74 1.21 105.61 3.96 71.97 60.91
78 124 BPD KALIMANTAN TIMUR 25.93 2.94 0.5 102 3.75 66.73 20.53
79 111 PT. BPD DKI 16.33 4.9 2.28 109.25 1.89 85.61 44.59
80 116 PT. BANK BPD ACEH 28.69 1.75 0.66 117.95 4.31 61.21 22.36

Appendix - Banking Key Financial Ratio as of September 2006 86

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

81 117 PT. BPD SUMATERA UTARA 35.33 3.37 1.82 163.33 2.71 81.47 41.9
82 120 PT BPD SUMATERA SELATAN 17.33 3.49 2.01 157.13 1.43 87.17 34.99
83 132 PT. BPD PAPUA 46.16 2.1 0.86 100.96 4 68.34 23.8
84 118 BPD SUMATERA BARAT 22.8 4.28 2.26 99.98 3.35 76.39 66.77
85 126 PT BPD SULAWESI SELATAN 23.53 2.48 2.01 4.49 55.68 57.44
86 129 PT. BANK PEMBANGUNAN DAERAH BALI 20.77 1.68 1.76 103.61 5.47 63.04 83.51
87 123 PT. BPD KALIMANTAN BARAT 20.01 1.38 1.03 113.69 3.34 73.81 32.47
88 122 PD BPD KALIMANTAN SELATAN 21.35 3.29 0.92 101.53 3.65 74.65 31.88
89 130 PT. BPD NUSA TENGGARA TIMUR 16.88 0.72 1.39 97.7 5.01 63.63 65.81
90 125 PT BANK PEMBANGUNAN KALTENG 36.64 4.03 1.54 117.05 4.4 64.98 23.91
91 112 BPD YOGYAKARTA 15.03 2.04 1.65 110.11 3.31 76.38 55.7
92 121 PT. BANK LAMPUNG 19.9 1.31 2.3 135.52 2.66 79.38 61.21
93 127 PT. BPD SULAWESI UTARA 13.87 1.08 1.44 127.71 6.59 67.37 60.44
94 128 PT. BPD NUSA TENGGARA BARAT 15.37 1.47 2.1 104.63 4.56 76.7 94.27
95 131 PT. BPD MALUKU 21.12 4.48 3.3 100 1 90.39 37.41
96 133 PT. BANK PEMBANGUNAN DAERAH BENGKULU 23.58 2.73 1.73 84.74 3.25 68.72
97 115 PD. BANK PEMBANGUNAN DAERAH JAMBI 38.79 0.87 1.37 105.61 3.54 72.93 42.8
98 135 BPD SULAWESI TENGGARA 29.73 3.91 1.79 99.44 7.91 50.02 38.21
99 134 PT. BPD SULAWESI TENGAH 24.79 13.57 2.01 109.33 2.41 74.39 26.92
JOINT-VENTURE BANKS
100 046 PT BANK DBS INDONESIA 22.72 1.67 0.89 150.84 1.53 89.66 112.02
101 048 PT BANK MIZUHO INDONESIA 26.66 0.68 2.03 140.07 3.84 56.86 118.05
102 045 PT BANK SUMITOMO MITSUI INDONESIA 48.86 2.08 1.28 100 5.91 37.38 122.27
103 950 PT BANK COMMONWEALTH 17.35 0.3 0.84 100.43 0.01 100.81 34.62
104 061 PT ANZ PANIN BANK 18.6 5.38 2.85 102.54 4.57 77.92 85.09
105 047 PT BANK RESONA PERDANIA 23.64 7.45 5.81 157.46 2.94 71.25 110.3
106 058 PT BANK UOB INDONESIA 54.1 3.5 2.6 105.1 4.9 57.9 112.6
107 949 PT BANK CHINATRUST INDONESIA 22.87 2.39 2.46 175.93 8.06 49.8 112.58
108 060 PT RABOBANK INTERNATIONAL INDONESIA 13.22 14 3.59 105.77 -7.16 166.05 300.53

Appendix - Banking Key Financial Ratio as of September 2006 87

 (Percent)

PPAP ttoo Compliance

NO NO. ID BANK NAME
ME CAR NPL ROA BOPO LDR
BANK Produkti ve Assets
Produktive PPAP

109 068 PT BANK WOORI INDONESIA 65.1 0.56 1.21 137.57 7.05 34.96 136.08
110 948 PT BANK OCBC-INDONESIA 64.62 6.06 3 122.12 1.78 81.39 122.18
111 059 PT BANK KEB INDONESIA 60.11 2.24 2.62 9.07 25.32 134.22
112 057 PT BANK BNP INDONESIA 23.8 8.2 5.28 119.38 4.1 92.81 254.55
113 945 PT BANK FINCONESIA 34.04 15.58 7.14 156.44 1.54 84.43 139.52
114 036 PT BANK MULTICOR 37.85 4.44 3.63 181.31 1.62 87.44 63.95
115 947 PT BANK MAYBANK INDOCORP 122.93 6.71 2.08 101.15 5.15 67.15 127.13
116 054 PT. BANK CAPITAL INDONESIA 58.38 0.81 155.64 3.18 78.57 37.48
FOREIGN BANKS
117 031 CITIBANK N.A. 24.57 5.11 4.59 119.83 5.03 71.58 78.78
118 041 THE HONGKONG & SHANGHAI B.C. 17.11 4 2 131 2 64 58
119 067 DEUTSCHE BANK AG. 57.68 9.75 2.38 106.66 8.18 49.72 50.74
120 050 STANDARD CHARTERED BANK 20.37 5.32 2.65 108.43 4.51 71.06 75.67
121 042 THE BANK OF TOKYO-MITSUBISHI LTD. 33.38 2.08 1.28 100 4.42 53.72 137.98
122 052 ABN AMRO BANK 14.66 2.56 2.15 100.01 2.62 82.12 84.75
123 032 JP. MORGAN CHASE BANK 61.62 0 0.51 100.96 7.78 49.05 68.45
124 030 AMERICAN EXPRESS BANK 61.52 0.55 222.21 -1.6 110.77 65.79
125 040 THE BANGKOK BANK COMP. LTD 36.3 4.69 6.17 189.44 2.46 53.59 228.17
126 069 BANK OF CHINA 70.07 0.97 100.39 2.5 63.78 0.09
127 033 BANK OF AMERICA, N.A 76 1 121 5 67 5
SHARIA BANKS
128 451 PT.BANK SYARIAH MANDIRI, Tbk 11.98 6.8 2.76 104.14 0.95 91.55 95.43
129 147 PT BANK MUAMALAT INDONESIA 14.65 4.43 1.7 94.92 2.36 82.69 87.29
130 506 PT BANK SYARIAH MEGA INDONESIA 9.1 0.95 1.52 100.5 3.45 82.63 *)

*) Data Publikasi Tidak tersedia

Appendix - Banking Key Financial Ratio as of September 2006 88