A well-designed system to protect Indonesia's banking sector from potentially devastating incidents is as important as establishing the proposed financial services authority (OJK), according to the Foreign Bank Association of Indonesia (FBAI).
"I think we should also be aware that we need to ensure we have not just the right structure, but the right system in place, such as high quality people," Simon Morris, FBAI's chairman and CEO of Standard Chartered Bank Indonesia, said in an interview Tuesday.
"The most important aspect is to ensure a number of factors are considered, not just the structure of the body you use, but the system that is set in place," he added.
As an English citizen, Morris said he could see the benefits of the OJK as the UK had implemented a similar setup called the Financial Services Authority (FSA).
But the recent global financial crisis demonstrated that even a country with an FSA could still be significantly damaged by international downturns.
"I think that with the recent events, even in my own country in the UK, we have sort of said the FSA could have done better," he said.
On the other hand, the US, whose financial sector is supervised by the central bank only, also failed to detect or react in time to the recent financial crisis.
The government, in cooperation with the central bank, is finalizing the bill on an OJK and hopes to submit it soon to the House of Representatives.
The aim is to have established the body before Dec. 31, 2010, as mandated by the law on Bank Indonesia (BI).
"What's important is the government and BI have the same aim, which is to build an effective financial system," Finance Minister Sri Mulyani Indrawati said on the weekend.
Article 34 of the 2004 law on BI stipulates that the supervision of banks - currently the domain of BI - must be carried out by an independent financial services authority, which will be established under the law.
The presence of such a body should mean reduced workloads for the BI, leaving it to fully concentrate on its main prerogative as a monetary authority: Stabilizing consumer prices and currencies.
But a lack of skilled staff in finance and economic sectors means OJK will absorb employees from BI, the Finance Ministry's Capital Market and the Financial Institutions Supervisory Agency (Bapepam-LK), which currently supervises and regulates non-bank financial institutions such as insurance and security firms.
So far, Indonesia's banking sector remains sturdy overall amid waves of the global liquidity crisis.
Indeed, two small lenders - Bank Century and Bank IFI - have collapsed, but the regulators reacted quickly to prevent any systemic threat to the whole banking sector.
"We have seen in Indonesia that since the crisis started we have been affected, but in a relatively small way," said Morris.
"Countries like Indonesia have emerged stronger, from the banking perspective, since the *1997-1998* Asian crisis.
"There has been a lot of hard work done since that time by successive governments to actually establish a robust banking system," he said.
The rate of gross non-perfoming loans (NPLs) in April stood at 4.6 percent, still below BI's maximum tolerance of 5 percent.
Banks posted Rp 52.5 trillion (US$5.14 billion) in profits between January and April, with a net interest margin (NIM) of Rp 44.2 trillion.
