F

inancial conglomerates have adequate capital as they prepare for an upcoming regulation to soon be introduced by the Financial Services Authority (OJK), a top official says.

The OJK'€™s deputy commissioner for banking supervision, Irwan Lubis, said the agency had found that the 50 financial conglomerates under its supervision had sufficient capital ratios in accordance with the proposed policy.

However, he said, the OJK would require an entity in a conglomerate to add more capital if it found the ratio inadequate according to the upcoming regulation.

'€œIf all entities in a conglomeration meet the required levels, then they will have no issue in terms of capital,'€ Irwan said in Jakarta recently.

Irwan said the new regulation would require each entity in a financial conglomerate to meet a certain percentage or ratio on capital adequacy in order to be calculated in terms of group consolidation.

For instance, he said, the OJK would deem a financial conglomerate had adequate capital if its bank and insurance company had higher capital adequacy ratios (CARs) and risk-based capital (RBC), respectively, than the levels required by the regulation.

The OJK is awaiting the Law and Human Rights Ministry'€™s approval of the regulation, which will be called '€œintegrated minimum capital requirement for financial conglomerates'€.

The OJK felt the need to improve the supervision of financial conglomerates, which had grown rapidly in recent years, with banks, finance firms and other types of business groups boosting expansion in the financial industry.

It aims to enhance the monitoring of financial conglomerates as their business risks have the potential to have a huge impact on the overall financial system.

The new rule will focus on the finances, risk management and corporate governance practices of conglomerates, including their subsidiaries.

The financial regulator initially planned to issue the regulation in the third quarter of 2015 and fully implement the capital regulation in 2016, giving conglomerates until the end of last year to adjust.

At least 50 financial conglomerates control almost 80 percent of the market, equal to Rp 5.1 quadrillion (US$366.6 billion) in total assets in the country'€™s financial industry.

The supervisory body has identified 50 financial conglomerates existing in various forms. Fourteen conglomerates are vertically structured groups, while 29 others are horizontally structured and the remaining seven are mixed.

Bank Indonesia (BI) senior researcher Linda Maulidina said the central bank was ready to help the OJK improve the supervision of financial conglomerates, but it had limited access to delve more into the business groups.

She said the central bank had limited access, for instance, for tracking overseas funding used by a business group.

'€œI hope financial conglomerates can be more transparent, so that regulators will be able to capture clearly the business types in the groups, whether they have upstream or downstream value chains,'€ she said.

PermataBank president director Roy A. Arfandy said Permata, owned by British lender and diversified conglomerate Astra International, understood the OJK'€™s requirement that a main entity in a financial conglomeration should conduct integrated monitoring of its subsidiaries.

'€œThe main entity will assess the risk profiles of each subsidiary in its conglomeration and issue recommendations for follow-up,'€ he said, adding that most banks that had financial conglomeration met the requirements of the upcoming policy.