Financial Institution

Banking sector controlled about 80% of Indonesia’s financial system in 2003. The remaining 20% was shared by insurance, pension funds, capital market, and mutual funds.

Strengthening the Banking Sector.

Recent development shows that efforts to strengthen banking sector have taken place. First, consolidation among banks will occur in foreseeable future. Second, Bank Indonesia has put superior risk management practice as its high priority agenda. Advanced risk management will lead to better credit quality. Yet, two major challenges must be overcome: scarce supply of professional risk managers and inexistence of credit bureau. Last, major banks have shift focus to serve UMKM. Undeniably, the segment offers vast opportunities, in terms of market size, growth and profitability, and has shown resilience during the crisis. This will improve the banks’ overall portfolio, risk, and financial performance.

Boosting the Non-Banking Financial Institutions.

Indonesia’s non-banking financial institutions, on the other hand, are still small. In developed countries, these institutions play important role in mobilizing long-term domestic resources needed for development and growth of a country. Foundations to grow strong non-banking financial institutions are still lacking. Apart from regulations, improvement must be made in management practices and supply of top-quality professionals.