Indonesian banks told to increase capital next year

Anticipating impacts from the central bank's high benchmark rate policy and fluctuation of domestic and global economies, banks operating in the country were told to increase their capitals next year, a senior official at the Indonesian central bank said here on Wednesday. Mirza Adityaswara, a deputy governor at Indonesian central bank, Bank Indonesia (BI), said that the high benchmark rate may incite higher Non-Performing Loan (NPL) ratio and gives pressures to the banks' business margins. He said that such a situation had occurred in national banking industry between 2005 to 2008 where the central bank applied tight monetary and fiscal policies due to impact of global economy crisis that hit the country. "The most important thing is that banks should have adequate reserves to anticipate the swelling NPL," Mirza said on the sidelines of Mini Master Repo Agreement signing ceremony conducted by eight banks in the country here. The call to increase capital was also referred to trend in global banking roadmap that abides by Basel III, or the Third Basel Accord global voluntary standard on bank capital adequacy, he added. The accord commended banks to increase their capitals to anticipate upheavals in their businesses. Mirza added that the Capital Adequacy Ratio (CAR) in national banks was still strong at a range of 17 to 18 percent. BI retained its rate benchmark at 7.5 percent in the last few months to respond volatility in its currency's exchange rate level against U.S. dollars. Indonesia's benchmark rate was apparently the highest if compared to the ones applied in par countries in the region. Malaysia and the Philippines set their benchmark rate at 3 percent.