UNAIR NEWS – Based on data from Bank Indonesia (BI), the banking sector controls around 79 percent of the total assets of the entire financial industry. It makes a failure of the banking system will greatly impact the Indonesian economy.
Then, what are the most important macroprudential indicators in the stability of the financial system in Indonesia? This question underlies Fatin Fadhilah Hasib SE, M.Si. and the team to conduct a study.
Fatin said that Indonesia in measuring financial system stability used two indicators, microprudential and macroprudential. Macroprudential and microprudential policies issued by BI play an important role in maintaining Financial System Stability (SSK). In this study, researchers focused on macroprudential indicators.
The macroprudential indicators include economic growth, balance of payments, inflation rates, contagion effects, interest rates and exchange rates. Thus, it is necessary to see which are the most important macroprudential indicators (leading indicators) in measuring financial system stability from the perspective of financial and banking practitioners.
“After that, the government is expected to be able to know what are the main indicators of financial stability from the reality faced and get the right recommendations to be offered within the framework of financial system stability,” she said.
This study used interviews with banking experts or practitioners who are analyzed using the Analytic Network Process (ANP). From the interviews, the three most important indicators of financial system stability in macroprudential aspects were found, debt, balance of payments, and macroeconomics.
The first indicator is debt, in this case current debt (debt expected by the company to be paid within one year). Current debt has a strong relationship to maintaining financial system stability in Indonesia.
“Debt decision-making and repayment strategies must be regulated in such a way as not to disturb the stability of the financial system in Indonesia,” she stated.
The second indicator is the balance of payments. Foreign exchange reserves have two functions, to finance the imbalance of payments and to maintain economic stability. The first function is to maintain monetary stability, which means to maintain the exchange rate.
“Regarding the balance of payments, foreign exchange reserves are usually used to finance imports and foreign obligations,” she added.
The adequacy of foreign exchange reserves is determined by the magnitude of import requirements and the exchange rate system used. Therefore, the balance of export and import activities in Indonesia indirectly affects the stability of the Indonesian economy and financial system.
The third indicator is macroeconomics. Macroeconomics reflects overall economic conditions on a macro scale. Macroeconomic conditions indirectly affect financial system stability and vice versa.
Furthermore, Fatin revealed that this study would have a good impact on the government. Bank Indonesia, the Indonesian Deposit Insurance Corporation (LPS) and the Financial Services Authority as policy makers related to macroprudential indicators, can maintain financial system stability.
“By knowing which indicators or priority macroprudential factors affect Indonesia’s financial stability, hopefully, policy makers will be able to maintain inflation and provide economic stability,” she concluded. (*)
Author: Sandi Prabowo
Editor : Khefti Al Mawalia
Aam Slamet Rusydiana, Lina Nugraha Rani, Fatin Fadilah Hasib. 2019. Which Most Important Indicators of Financial System Stability: Macroprudential Perspective