Indonesia imposes new capital surcharge for top lenders

Banks must deal with surcharge of 1% to 3.5% of risk weighted assets.

Bloomberg reports that Indonesia has ordered its biggest banks to set aside additional capital in a bid to enhance their ability to withstand stress and massive market shocks. 

The Financial Services Authority, known as Otoritas Jasa Keuangan, imposed a tier-1 capital surcharge of between 1 to 3.5% of risk-weighted assets.

Banks have until 1 January 2019 to meet the additional requirement.

However, the move may run in conflict with the government’s combined efforts to halt lending decline. Credit growth in Indonesia has actually fallen steeply to single digits from more than 20% average in the decade before.

“Whilst we can understand the intention of Indonesian regulators to safeguard the system, they should also consider the impact this stricter capital rule might have on the lenders’ ability to extend loans at a time when the country needs lots of financing for its infrastructure development,” said Taye Shim, head of research at Mirae Asset Sekuritas Indonesia.

Here’s more from Bloomberg.