The Importance of Managing External Perception in Minimizing Systemic Risk

Transcription

1 The Importance of Managing External Perception in Minimizing Systemic Risk Rizal B. Prasetijo OJK-ADB, Nusa Dua, Bali July 13, 2017

2 We know that FX Rate Shock External Financial Market Corporates Banks Systemic Risk Interest Rate Shock 2

3 We also know that managing Macro fundamental External balance Fiscal balance Sustainable debts Micro fundamental Banking CAR Corporate gearing FX loans hedging ARE IMPORTANT 3

4 But Realizing peers /relative fundamental strength Managing perception among foreign companies, creditors, and portfolio investors ARE EQUALLY IMPORTANT 4

5 Beware, calm water could drown you Global volatility has dropped Pt Pt US FOMC est. are challenged % % Source: J.P. Morgan. Source: J.P. Morgan. 5

6 IDR volatility has also decreased USD/IDR 3-mth realized and implied volatilities Pt /10 1/11 1/12 1/13 1/14 1/15 1/16 1/17 3M Realized 3M Implied Source: Bloomberg. 6

7 IDR THB MYR SGD PHP TWD INR KRW PKR PEN CLP COP MXN BRL ILS HUF PLN TRY RUB ZAR NGN and is now of the lowest in EM USD/EM FX 3-mth realized volatility Pt Source: Bloomberg. 7

8 Our capital flow is dominated by portfolio flow Average CA, % of GDP Average FDI and portfolio flows, % of GDP Source: CEIC. Why do we have to watch our external balance? FDI Portfolio ID PK IN PH VN MY CO PE BR MX AR CL VE ZA EG TY PL NG SA RU HU IL 8

9 IN and because foreign ownership in our tradable public debts is relatively high KR TH Asia ex ID MY BR Latam CO MX PE IL RO TR EMEA HU RU PL ZA CZ Foreign ownership in tradable public debts % of total tradable public debts Source: Deutsche Bank. 9

10 Our FX reserves-to-import coverage is relatively strong FX reserves-to-import coverage ratio Month FX reserves is one of defence tools MY KR ID PH IN TH TW MX CL AR CO PE BR HU TR ZA PL NG IL RU Source: CEIC. 10

11 But our FX reserves-to-short term external liabilities is slightly below our peers FX reserves-to-short term external liabilities ratio % 2,100 1,800 1,500 1, MY ID IN TW PH KR TH AR CL MX CO BR PE TR ZA HU PL IL NG RU Source: CEIC. 11

12 as well as our FX reserves against IMF risk-weighted metrics FX reserves against IMF risk-weighted metrics* Pt MY ID IN TW PH KR TH AR MX CL CO BR PE TR ZA HU PL IL NG RU Source: CEIC, IMF * Reza Mogadham, Jonathan D. Ostry, Robert Sheehy, Assessing Reserve Adequacy, (IMF, 2011). 12

13 Our large corporate gearing ratio is relatively low Debt-to-equity X TW KR ID MY PH IN TH PE CL CO MX BR EG HU UA PL ZA CZ TR QA RU Source: J.P. Morgan. 13

14 But our corporates relatively rely on foreign creditors How did EMs raise their debts? Offshore loans to total loans (onshore + offshore loans) ratio Source: CEIC. PE EG CO TR BR ZA MX PL ID AR CL VE PK Offshore/(Onshore+Offshore loans), % IN NG VN SA PH HK HU MY RU IL TH KR QA CA to GDP, % TW 14

15 Good news is higher DSR can be used to reduce reliance on external financing Domestic saving ratio Sum of 4Q, % of GDP /94 3/96 3/98 3/00 3/02 3/04 3/06 3/08 3/10 3/12 3/14 3/16 Source: CEIC. 15

16 How do we avoid systemic risk from external financial market? 1 External Financial Market 1 FX Rate Shock Interest Rate Shock 2 3 Corporates 4 Banks 4 Systemic Risk 1 Fundamental Communication 2 Hedging 3 Tax: Cap on deductible interest charges 4 Management CAR 16

17 Rizal Bambang Prasetijo Rizal Bambang Prasetijo is the chairman of Trimegah Securities, the parent company of Trimegah Assets Management, one of the largest local fund management houses. He is also one of Bank Indonesia Institute faculty members. Before joining Trimegah Securities in February 2015, he was one of the member of the Indonesian Deposits Insurance Corporation (IDIC) Board Commissioner as well as the chairman of the IDIC Information Committee and the Risk Management Committee, where he was responsible for building and overseeing the implementation of the IDIC s banking industry Early Warning Signals (EWS), macroeconomic research, and IDIC s Enterprise Risk Management (ERM). His term ended in November Prior to his appointment by the President of Republic of Indonesia at IDIC in late 2012, Mr. Prasetijo spent 23 years in the investment banking industry. He has been working at Jardine Fleming, Chase Fleming, and J.P. Morgan Chase (JPM). Mr. Prasetijo was one of JPM Asia Pacific s Managing Directors (MD), responsible for managing the JPM Indonesia equity business ( ) and was JPM Indonesia s Country Manager ( ). Prior becoming a MD at JPM, Mr. Prasetijo spent 18 years ( ) of his professional career as an equity strategist and banking analyst, covering the Indonesian, Thai, and Philippines markets. He was consistently named as one of top five best Indonesian equity analysts as well as voted as the number one Indonesian equity analyst several times by the Institutional Investor survey for 15 consecutive years during the 1993 to 2008 period. Before turning himself as a sell side analyst, Mr. Prasetijo taught business mathematic and statistic at his almamater, the Faculty of Economy of University of Indonesia, where he obtained his undergraduate degree. Mr. Prasetijo is also one of the founders of Karya Salemba Empat ( a non-profit organization providing scholarship to the needy in a number of leading state universities. Since its humble inception in 1995, the foundation has provided scholarship to almost 13,000 university students, mainly from poor families. In his leisure time, Mr. Prasetijo is an audiophilist, cyclist, golfer, swimmer, and long distance runner. He has completed four out of six World Major Marathons and an Olympic distance triathlon race. 17