Financial Services Authority, Jakarta, May 23, 2016: The Financial Services Authority (OJK) in partnership with the Association of Regional Development Banks (Asbanda) and the Ministry of Home Affairs held a seminar on the theme of "Transforming BPDs to Enhance Regional Economic Development" on Monday (May 23), in Jakarta. The seminar's goal was to raise BPD management's awareness on BPD Transformation Program implementation and encourage them to commit to it. The event also wanted to boost BPD stakeholders' support for the same program.

Financial Services Authority Chief Executive of Banking Supervision Nelson Tampubolon in his opening remarks shared updates on the banking industry. He revealed that credit and third-party funds indicated slowdown trends that were in line with the economic growth. As of March 2016, banks' credit and third-party funds only grew 8.71 percent and 6.44 percent year on year (yoy), respectively, lower compared to their growth in the previous year that reached 11.28 percent and 16.04 percent (yoy). This was followed by profit's negative growth of -2.29 percent yoy for the same period. However, banks' capital adequacy ratio (CAR) remained stable at around 22 percent whereas their gross NPL ratio rose to 2.83 percent from 2.40 percent earlier.

"We believe the BPD group has achieved satisfactory growth. Until end of March 2016, BPDs' total assets had been up 6.48 percent yoy to IDR 531.30 trillion. For the same period, third-party funds had climbed 5.27 percent to IDR 432.44 trillion, while the amount of credit distributed soared 8.12 percent yoy to IDR 328.19 trillion," Nelson said.

Regional development banks' (BPD) bottom line was reported to have enjoyed positive growth of 7.91 percent yoy and their CAR ratio reached 20.61 percent. The banks' gross NPL ratio as of March 2016 was relatively stable at 3.89 percent, from 3.83 percent previously. Nevertheless, BPDs have only made small contribution to local economy. This is reflected by the amount of productive credit they have distributed, which just worth 30 percent of the total credit channeled. Thus, their performance and role should be increased in order to make them in line with the banks' mission as agents of development.  

As reported earlier, the President of the Republic of Indonesia Joko Widodo launched—on May 26, 2015, to be exact—the Regional Development Banks Transformation Program at the State Palace. Chairmen and President Directors of BPDs all over Indonesia and Governors—representatives of BPDs' shareholders—and Speakers of Local House of Representatives attended the event and signed a collective commitment to implement and support the Transformation Program.

"In line with this seminar's theme, we would like to share once again that the vision and goal of the Regional Development Banks Transformation Program are to transform BPDs into highly competitive and strong banks, which contribute significantly to the growth and equality of sustainable local economy," Nelson added. 

The vision is to be achieved through the program implementation's road map, which consists of three phases: (i) Foundation Building, (ii) Growth Acceleration, and, (iii) Market Leadership.

The program is a strategic initiative designed not only to raise the BPD group's performance, resilience and competitiveness, but also to create significant impact on local economic development and boost national banking industry's resilience. Therefore, the OJK has been highly supportive of the program's implementation, which is evident, among others, through its cooperation with the Ministry of Home Affairs for the purpose of BPDs' development.

The OJK and the Asbanda have also partnered with international institutions, including Sparkassenstiftung fur International Kooperation (Savings Banks Foundation for International Cooperation) and the World Bank, to provide technical assistance for the BPDs Transformation Program. "We are hoping for support from related agencies, especially international institutions such as ADB, GIZ and SECO, to make the program successful," Nelson concluded.

Regional development banks (BPD) need to learn a lot from other domestic and international agencies that have successfully transformed themselves and developed their business. For example, the success of German's Savings Bank (Sparkassen) was due to the support from, among others, professional and strong associations. Thus, the German bank should be considered as one of the best models for developing those banks through BPDs Strategic Group, a platform for developing strategies and synergy among BPDs in the future.