Sustainable Finance in Indonesia

Indonesia Financial Services Authority Jakarta, 2015

About Indonesia Financial Services Authority (OJK)

• The Indonesia Financial Services Authority (IFSA) (Indonesian: Otoritas Jasa Keuangan/OJK) is a state agency and an independent institution in carrying out its duties and responsibilities established under Act No. 21 of 2011.

• OJK is aiming that the overall activities within the financial services sector are: Implemented in an organized, fair, transparent and accountable manner, Able to realize the financial system that grows in a sustainable and stable manner and Capable of protecting the interests of consumers and the society.

• OJK performs its regulatory and supervisory duties over: (a) financial services activities in the banking sector; (b) financial services activities in the capital market sector; and (c) financial services activities in the sectors of insurance, pension funds, financing institutions, and other financial services institutions.

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BANK INDONESIA

Payment System

Monetary Policy

Banking

GOVERNMENT OF INDONESIA

CAPITAL MARKET INSURANCE OTHER

FINANCIAL INSTITUTION

BANK INDONESIA

Macro Prudential

Payment System

Monetary Policy

OJK

BANKING CAPITAL MARKET INSURANCE OTHER FINANCIAL

INSTITUTION

.... - 2011 2012 - ....

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• Micro prudential • Integrated supervision • Market discipline • Customer protection

IN INDONESIAN BANKING SYSTEM THERE IS NO DEVELOPMENT BANK; FINANCIAL SERVICES IS CONDUCTED BY

COMMERCIAL BANK AND RURAL BANK ( BOTH CONVENTIONAL AND SHARIA/ISLAMIC BANK).

THE ROLE OF BANKING IS STILL DOMINANT REPRESENTING 69% OF NATIONAL FINANCIAL INDUSTRY

Indonesia Financial Market

Banking*InsuranceCapital MarketNon Bank Financial

69%

8%

16%

9%

FINANCIAL AND BANKING SYSTEM IN INDONESIA 3

NOTE: - *Indonesia Banking Statistics, April 2015

- Total assets in IDR: Banking 4581 T, Insurance 556 T, Capital Market 1083 T, Non bank FI 433 million T (Sources

OJK, August 2013).

118 commercial banks 1.642 rural banks

12 Islamic Commercial banks

22 Islamic Windows

162 Islamic Rural banks

INDONESIA AFTER 2008, TOWARD FINANCIAL SERVICES INDUSTRY MORE CONTRIBUTIVE, JUSTICE, AND STABLE

1. As member of G-20, OJK launched Roadmap to implement Basel III, 2013-2019

2. Alignment sustainable development into National MediumTerm Development Plan, 2009-2014, 2015-2019 (Priority sectors). OJK preparing Masterplan for Financial Services Industry

3. Commitment to Reduce GHG emission National Action Plan, 2011, reduce GHGE 26% in 2020. OJK launched Sustainable Finance Roadmap, 2015-2024

4. Established National Strategy on Financial Inclusion, in 2014 OJK launched Branchless Banking Policy “Laku Pandai”

5. OJK, starting to implement integrated supervision, 2013

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4

Development Sustainable Finance in Indonesia

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5

Green Index in Capital Market

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Objectives, Definition and Principles of Sustainable Finance in Indonesia

Objective of the Roadmap This roadmap sets forth the detailed work plan on the sustainable finance program (2015-2024) for the financial service. This roadmap on sustainable finance will constitute as part of the Master Plan for Indonesia’s Financial Service Sector (MPSJKI) which is scheduled to be published by 2015 and will serve as a reference for other stakeholders in the sustainable finance program.

Sustainable finance in Indonesia is defined as comprehensive support from the financial service industry to achieve sustainable development resulted from a harmonious relationship between economic, social and environmental interests. Sustainable finance comprised of the following dimensions: 1. Achieve industry, social and economic superiority in order to address the threats of global

warming and mitigate other environmental and social issues; 2. Aims to encourage the shifting of the target towards a competitive low carbon economy; 3. Strategically promoting environmentally friendly investment in various business/ economic

sectors; and 4. Supporting the principles of development in Indonesia as stated in the National Medium Term

Development Plan (RPJM), namely the 4P (pro-growth, pro-jobs, pro-poor, and pro-environment).

Principles of sustainable finance covers Risk Management Principle, Sustainable Priority Economic Sector Development Principle, Environmental and Social Governance and Reporting Principle, Capacity Enhancement and Collaborative Partnership Principle.

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Sustainable Finance Institution

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Sustainable Finance Framework

DEVELOPMENT & CLIMATE CHANGE

Law No. 32 of 2009 concerning Conservation and Management

of the Environment

Indonesian commitment for climate change

National Action Plan for the Reduction of Green

House Gas Emission (RAN – GRK)

1. Sectors Contribution towards the Targeted GHG emissions reduction

2. Financing needs for GHG emissions reduction

Long Term Development Plan (RPJPM)

1. Green Economy 2. Priority Economic Sectors 3. Financing needs for economic

development Compliance

environmental economic

instruments

Competitive

Contribution to Climate Change

Road Map

Readiness of Financial

Services Industry

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Contribution to Financial System Stability

1. Better risk management

2. Long term vision

1. Product development & innovation

2. Increase corporate value

Contribution to economic development

Resilience

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Sustainable Finance Roadmap

Basis for Implementation of SF:

1. Policy on SF Principles

2. Policy on Increase on SF portfolio

3. Policy on SF supervision

Incentives: 1. Prudential incentives

2. Information Hub

3. SF Award

4. Policy on SF reporting

Incentives in collaboration with Government:

1. Fiscal incentives

2. Non-Fiscal incentives

Strengthening Resiliency:

Strengthening of risk management and

corporate governance in environmental and

social aspects

2015 2016 2017-2018 2019-2024

2015-2019 : Campaign, Environmental Analyst Trainings, Development of Green Products, Green Bond, Green Index, and Green Insurances, FSIs access to Global Public Funds, Coordination on SF policy

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Website : http://www.ojk.go.id/keuangan-berkelanjutan

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Increase supply of sustainable financing to strengthen

competitiveness of Indonesian financial service industry

Increase oversight and coordination of sustainable finance

implementation

Increase demand of environmentally friendly financing

products

Through the strengthening of risk management, corporate governance in environmental and social aspects, as well as the acceleration of the implementation of the Environmental Law

Through public awareness and education on green investment and green financing

Through provision of incentives to FSI to increase green products portfolio, encourage innovation, increase competency, information sharing and increase access to global public fund

Strategic Goals and Activities to Implement Sustainable Finance

Strategic Goals Strategic Activities

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© 2015

OJK Survey on Sustainable Financing, 2015

FSIs* Financing/Loan (Billion) Dec 2014

Bank IDR 33,565.02 (1,66% of total Conventional bank loan porfolio and 1,97% of total Shariah bank financing porfolio)

Financing Institution IDR 954.60

Pension Fund IDR 736.00

Total IDR 35,255.62

*32 FSIs includes: 27 Bank, 2 special purpose Finance institution, 3 Pension Funds.

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© 2015

The Implementation Plan of 2015 Sustainable Finance Roadmap

1. Sustainable Finance regulation preparation. 2. Sustainable Financing guidelines for renewable energy (2014) and energy

conservation (2015) 3. Research preparation on green bonds and green index, green insurance. 4. Awareness program for financial services industry practitioners which includes:

Seminar, Workshop & FGD 5. Capacity building : + 400 banker (risk manager, business manager) 6. Joint research on Challenges, Incentives and Disincentives in the Implementation

of Sustainable Finance in Indonesia 7. Preparation for the establishment of an Information hub 8. Establishment of jury for Sustainable Finance Award 9. Sustainable Finance Coordination forum

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© 2015

The Way Forwar d

1. The roadmap is just the begining, the implementation phase will define the result

2. Inovation and coordination will play a significant role 3. Create sinergy may open up new opportunity

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Thank You

Thank You

1.Bank Indonesia Regulation No. 14/15/2012 (Asset Quality Assessment for Commercial Banks)

1.Business growth potential; 2.Market conditions and debtor position

within competition; 3.Management quality and labor problems; 4.Supports from group/affiliations; and 5.Business performed by the debtor in the

context of environmental preservation efforts (for debtors who are obliged to conduct environmental management efforts according to the applied laws)

1.Profitability; 2.Capital Structure; 3.Cash Flow; and 4.Sensitivity to The

Market Risks.

1.Prompt payment of debt and its interests;

2.The availability and the accuracy of debtors’ financial information;

3.Completeness of loan documentations;

4.Obedience to the credit agreement; 5.The suitability of the use of funds;

and 6.The fairness source of liability

payment

Credit Quality Assessment

1. BUSINESS PROSPECTS 2. DEBTOR PERFORMANCE 3. ABILITY TO PAY

The credit quality assessment considers the significance and the materiality of every assessment factors and components; as well as the relevance of the assessment and components of the debtor

Banking Regulation on Assest Quality

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Indonesia General Figures

• The Republic of Indonesia is the world’s largest

archipelagic nation, consisting of over 17,508 islands

stretching 5,120 km from east to west equal from

London to New york, and 1,760 km from north to south

equal from Beirut to Dubai.

• Population +251 million (July 2013 est) of which about

more 85% are Muslims. 66,9% productive age

population. the world’s 4th most populated country

after China, India and US.

• GDP PPP $1.237 trillion, 16th rank in the World (2012 )

• G-20 member

• Top 4 Prospective Host Economies for 2013-2015, after

China, USA and India (WIR 2015)

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Baa3

Baa2

Ba2

Ba1

Ba3

B1

B2

B3

Caa

Ca

BB

BB+

B+

BB-

B

B-

CCC+

CCC

CCC-

SD

BBB-

BBB

S&P & Fitch

Moody’s

Inve

stm

ent

Gra

de

N

on

Inve

stm

ent G

rad

e

Moody’s upgrade to Baa3 as of January 18, 2012

S&P affirmed at BB+ & revised rating outlook as of May, 2013

Fitch affirmed at BBB- as of November 15, 2013

= S&P = Moody’s = Fitch

Sovereign Rating History

Asian financial crisis

Data : BPS 2015