OJK to establish supervisory unit for conglomerate

GIANYAR. The Financial Services Authority (OJK) is to issue three sets of regulations on financial conglomerations, including the establishment of a new department to supervise conglomerates, which are deemed as having a potentially huge impact on the country’s wider financial system. 

The division will be set up in the near future after the issuance of two out of three sets of regulations regarding financial conglomerates currently being prepared by the OJK, including on good corporate governance and on risk management.

Endang Kussulanjari Tri Subari, an OJK deputy commissioner for banking supervision, said that the new department, which will fall under the remit of the banking supervision executive, will engage in integrated supervision of financial conglomerates in the sectors of banking, insurance, financing and the capital market. The supervision will not be separated, she added.

“The new unit will have at least 100 members consisting of the head [of the division], senior supervisors and staff, under the assumption that there are 31 financial conglomerates. The number may rise or fall in the future; we don’t know yet. As an initial step, because of human resources limitations, [the agency] will employ around 30 to 50 people,” Endang said.

The unit will gather data and information regarding financial conglomerates, as well as assess the risks associated with them. The conglomerates will be rated from 1 to 5 based on their risk profile and current situation. The division will then carry out planning, supervision, examination and monitoring.

“Because the unit is responsible for determining risk profiles, it will be staffed by experts from the banking, capital market and non-bank financial institution supervision [sectors]. They will map financial conglomerates together, whereas at the moment, [sector supervision] lacks coherence,” Endang explained.

The OJK has identified 31 financial conglomerations in Indonesia that control 70 percent assets in the financial sector, including Mandiri Group, BNI Group, BRI Group, Mega Group, Bukopin Group, Sinar Mas Group, CIMB Niaga Group and Panin Group.

Of the 31 conglomerates, 10 have vertical mechanisms, in which the controlling shareholder owns banks, insurers, non-bank financial firms or securities houses. Meanwhile, 13 conglomerates fall into the horizontal category, in which controlling shareholders own stakes in financial firms. The other eight conglomerates fall into the mixed category, according to the OJK.

“Given the excessively risky behavior, there is a high risk of adverse selection and moral hazard,” Endang said.

In the first quarter of this year, the total assets of Indonesia’s financial sector reached Rp 5,300 trillion (US$435 billion), according to OJK data. The country’s financial institutions include 120 commercial banks, 139 insurance firms, 199 financing companies and 20,328 investment managers. There are 505 publicly listed companies.