The Countercyclical Capital Buffer (CCyB) is additional capital that functions as a buffer to anticipate losses caused by excessive credit growth with the potential to undermine financial system stability.
The risks are associated with procyclical lending in the banking industry, where banks tend to increase lending during an expansionary economic boom period and restrict lending during a contractionary economic bust period. Procyclicality in Indonesia necessitated CCyB implementation, as evidenced by the direct correlation between credit growth and economic growth.
The additional capital buffer that must be maintained by banks during an expansionary period may be used when the banks experience pressures during an economic contraction, thus maintaining continuity of the bank intermediation function. The CCyB is dynamic within a 0-2.5% range of risk-weighted assets (RWA) in the banking industry. Bank Indonesia, therefore, evaluates the CCyB level at least once every six months.
In general, Bank Indonesia will raise the CCyB during an economic boom and lower the level during an economic contraction. CCyB policy is linked to bank capital regulations issued by the Indonesian Financial Services Authority (OJK) and is expected to strengthen the resilience of the banking industry.
The latest CCyB provisions are regulated in accordance with PBI No. 17/22/PBI/2015 concerning the Countercyclical Capital Buffer.
