The Macroprudential Intermediation Ratio (MIR) and Sharia Macroprudential Intermediation Ratio (Sharia MIR) are macroprudential instruments that aim to reduce the build-up of systemic risk through management of the bank intermediation function in accordance with the economic growth target and capacity, while maintaining prudential principles. These macroprudential policy instruments are countercyclical and can be adjusted to changes in economic and financial conditions. The Macroprudential Intermediation Ratio (MIR) is almost similar to loan to deposit ratio but with a broader coverage of financing component that includes securities held by banks and accommodate securities issued and loans received by banks into the funding component. Consequently, MIR can be more accurately reflect bank intermediation capabilities.
MIR and Sharia MIR are calculated based on the following formula:
The MIR/Sharia MIR Giro is the balance of Rupiah demand deposits that must be maintained at Bank Indonesia by Conventional Commercial Banks and Sharia Business Units, as well as Sharia Commercial Banks to fulfil the MIR/Sharia MIR as follows:
- If the MIR/Sharia MIR is within the target range, the MIR Giro is set at 0% (zero percent) of bank deposits denominated in Rupiah.
- If the MIR/Sharia MIR < the MIR target range:
MIR/Sharia MIR Giro = Lower Disincentive Parameter x (lower limit of MIR/Sharia MIR target - MIR/Sharia MIR) x bank deposits denominated in Rupiah
- If the MIR/Sharia MIR > the MIR target range:
MIR/Sharia MIR Giro = Upper Disincentive Parameter x (MIR/Sharia MIR – upper limit of MIR/Sharia MIR target) x bank deposits denominated in Rupiah
Notes:
a. Upper Disincentive Parameter
KPMM < 14%
|
0
|
KPMM ≥ 14%
|
0
|
b. Lower Disincentive Parameter
≥ 5%
|
- |
0 |
< 5%
|
KPMM up to 14% |
0
|
| |
14% < KPMM ≥ 19% |
0.1
|
| |
KPMM > 19%
|
0.15
|
Policy tightening by reducing the upper limit of the intermediation ratio or raising the upper disincentive parameter aims to prevent excessive risk-taking behaviour from excessive credit growth during an economic expansionary period. In contrast, accommodative policy by increasing the minimum intermediation ratio or raising the lower disincentive parameter aims to stimulate loan disbursements during an economic contractionary period.
Seeking to nurture lending/financing growth to support sustainable economic growth, while maintaining financial system stability, MIR/Sharia MIR policy is currently set in the 84-94% range, with disincentives in the form of mandatory MIR/Sharia Giro balances held by banks failing to meet the MIR/Sharia MIR target range.
Latest Regulations concerning
MIR/Sharia MIR
| Board of Governors Regulation (PADG) |
: |
Board of Governors Regulation (PADG) Number 21/22/PADG/2019 concerning the Macroprudential Intermediation Ratio and Macroprudential Liquidity Buffer for Conventional Commercial Banks, Sharia Commercial Banks and Sharia Business Units
Amendments:
- PADG Number 22/11/PADG/2020
- PADG Number 22/30/PADG/2020
- PADG Number 23/7/PADG/2021
- PADG Number 23/31/PADG/2021
- PADG Number 24/14/PADG/2022
- PADG Number 10 of 2023
- PADG Number 18 of 2023
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As a financial sector authority, Bank Indonesia maintains financial system stability, which includes disbursing funds through its function as lender of last resort (LoLR) in the form of short-term liquidity assistance (PLJP) to conventional commercial banks and sharia-compliant short-term liquidity assistance (PLJPS) to sharia commercial banks experiencing a liquidity mismatch.
In this case, a liquidity mismatch is defined as a short-term liquidity mismatch caused by a smaller inflow than outflow of funds, thereby preventing a commercial bank from meeting its reserve requirements. Bank Indonesia can disburse PLJP/PLJPS funds for up to 30 calendar days in each period, which can be extended for a maximum of 2 consecutive periods (up to a maximum of 90 calendar days overall).
Latest Regulations concerning PLJP
| Board of Governors Regulation (PADG) |
: |
Board of Governors Regulation (PADG) Number 21 of 2023 concerning the Implementation Regulations of Short-Term Liquidity Assistance for Conventional Commercial Banks |
Latest Regulations concerning PLJPS
| Board of Governors Regulation (PADG) |
: |
Board of Governors Regulation (PADG) Number 1 of 2024 concerning the Implementation Regulations of Sharia Compliant Short-Term Liquidity Assistance for Sharia Commercial Banks |
The Net Open Position instrument aims to control currency risk and overcome excessive currency mismatch, thereby maintaining liquidity resilience in the banking industry. NOP instrument limits the gap between the assets and liabilities denominated in a foreign currency held by a bank, thus reducing the risks attributable to exchange rate volatility. In addition, NOP regulations foster greater prudence in the banking industry in terms of transacting in foreign currencies, while also avoiding speculative transactions.
NOP in Rupiah is calculated based on the following formula:
NOP* = |(∆ foreign currency assets and liabilities on the balance sheet) + (∆ foreign currency claims and liabilities in the administrative account)|
This policy requires banks to manage and maintain an overall NOP at the end of the business day up to a
maximum of 20% of capital (based on the closing rate). With this regulation, the potential losses that could arise from exchange rate movements are expected to be absorbed by bank capital, thus avoiding a major impact on banking activity.
NOP was first regulated in 1989 with the aim of creating a healthy banking climate. The latest NOP regulations began with the promulgation of Bank Indonesia Regulation (PBI) No. 5/13/PBI/2003 concerning the Net Open Position of Commercial Banks in 2003, which has since been amended 4 (four) times in 2004, 2005, 2010 and 2015.
Latest Regulations concerning Net Open Position (NOP)
In its capacity as a financial intermediary institution, a bank utilises foreign debt and other bank liabilities in a foreign currency as a source of short-term foreign funding that can be used to optimise lending/financing activity. The Bank Foreign Funding Ratio (RPLN) is an innovative countercyclical macroprudential policy instrument to strengthen short-term foreign funding for banks in accordance with economic needs. RPLN regulates the maximum ratio of a bank's short-term liabilities to its capital. In terms of RPLN, short-term liabilities consist of short-term foreign debt, short-term debt securities in a foreign currency, and/or short-term risk participation transaction.
There are two salient features of RPLN policy as follows:
- Countercyclical: The RPLN ratio is dynamic through the determination of the countercyclical parameter that is evaluated periodically based on the financial cycle and aggregate growth of external debt in the banking industry.
- Risk-based approach: The application of a countercyclical parameter considers external risks and financial system stability, including the application of prudential principles that cover capital capacity, credit risk and market risk.
With this mechanism, RPLN is expected to optimise the management of foreign funding in the banking industry without increasing risk factors in Indonesia's banking system.
RPLN is the ratio of short-term liabilities to capital calculated on a daily basis.
RPLN formula:
Bank Indonesia has set the RPLN ratio at a maximum of 30%, accompanied by an increase or decrease in the percentage of the countercyclical parameter. The countercyclical parameter is a percentage that can increase or decrease the RPLN ratio by positive 5%, 0% or negative 5%. Currently, the countercyclical parameter is set at 0%, with the RPLN ratio, therefore, remaining at 30%.
In addition, banks with short-term liabilities must apply prudential principles in the form of fulfilling the following indicators set by Bank Indonesia:
- capital capacity by fulfilling the Minimum Capital Adequacy Requirement in accordance with the risk profile of the bank,
- credit risk by maintaining the gross NPL/NPF ratio below the 5% threshold, and
- market risk by maintaining a net foreign exchange position in accordance with bank Indonesia regulations concerning the net open position (NOP).
Latest Regulations concerning RPLN
| Board of Governors Regulation (PADG) | : | Board of Governors Regulation (PADG) Number 7 of 2024 concerning the Implementation Regulations for the Bank Foreign Funding Ratio
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