Indonesia: Financial Sector Assessment Program-Detailed Assessment of Observance-Basel Core Principles for Effective Banking Supervision

International Monetary Fund

No 2024/273, IMF Staff Country Reports from International Monetary Fund

Abstract: This paper presents a Detailed Assessment of Observance of the Basel Core Principles for Effective Banking Supervision for the Indonesia Financial Sector Assessment Program. The Financial Services Authority (OJK) achieves good baseline supervision; building supervisory capacity and enhancing the supervisory framework will contribute to achieving higher supervision standards. It is crucial for legislation to recognize the safety and soundness of banks and the banking sector as the OJK’s primary responsibility, given its broader mandates. The OJK is encouraged to continue to examine banks’ evolving business models to identify changing risk profiles early. There is further scope for the OJK to dedicate more attention to assessing a bank’s risk culture, model governance and stress testing. There is scope for more analysis of models, model governance, model validation, and the role of the independent risk management unit to verify and validate the results. Material enhancements are needed to effectively mitigate the risks associated with related party transactions and potential sources of concentration risk. While the OJK has broad powers for corrective measures, a portfolio view of noncompliance with regulations will help address early unsafe and unsound practices.

Keywords: IMF-World Bank Financial Sector Assessment Program; bank Indonesia rupiah securities; banking segment; staff team of the International Monetary Fund; bank rating; Credit risk; Financial sector stability; Anti-money laundering and combating the financing of terrorism (AML/CFT); Market risk; Bank supervision; Global (search for similar items in EconPapers)
Pages: 238
Date: 2024-08-13
New Economics Papers: this item is included in nep-sea
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