Bank Indonesia issues Regulation on Countercyclical Buffer - Bank Sentral Republik Indonesia
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October 22, 2020

No. 17/97/DKom

Bank Indonesia issued a regulation requiring banks to form additional capital during economic boom periods. The additional capital will be used as a countercyclical buffer to anticipate losses incurred from excessive credit/financing growth, which shall be met by banks concurrently with other capital buffers pursuant to prevailing capital adequacy requirements, namely the Capital Conservation Buffer as well as specific requirements applicable to systemically important banks (SIB), such as the Capital Surcharge that aim to enhance bank capacity to absorb losses. The accumulated capital buffers shall be used to absorb losses during economic bust periods.

A countercyclical buffer is a macroprudential policy instrument designed to protect banks from excessive risk-taking behaviour in the form of excessive lending during an economic boom, which could potentially exacerbate systemic risk. The additional capital build-up by banks during an expansionary phase shall subsequently be used to mitigate downside pressures during a contractionary phase in order to maintain the intermediation function. The magnitude of the countercyclical buffer is dynamic, ranging from 0% to 2.5% of risk-weighted assets. Bank Indonesia will evaluate the size of the countercyclical buffer no less than once every six months.

Initially, Bank Indonesia has set the countercyclical buffer at 0% for banks, effective from 1st January 2016, considering the ongoing domestic economic moderation, as reflected by significantly slower credit growth. The policy is an inseparable part bank capital regulations promulgated by the Financial Services Authority (OJK) that are expected to strengthen banking industry resilience. Consequently, bank capital resilience to potential risk of losses will be enhanced when confronting incidences of financial and economic crises as well as preventing a financial sector crisis from spilling over into the real economy.

The Countercyclical Buffer requirements are contained within Bank Indonesia Regulation (PBI) No. 17/22/PBI/2015 concerning the Mandatory Formation of a Countercyclical Buffer, dated 28th December 2015.

Jakarta, 31st December 2015
Communication Department

Arbonas Hutabarat
Deputy Director

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