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OJK-ADB, Nusa Dua, Bali
July 13, 2017
The Importance of Managing External Perception in
Minimizing Systemic RiskRizal B. Prasetijo
We know that…
2
ExternalFinancialMarket
InterestRate Shock
FX RateShock
Corporates BanksSystemic
Risk
We also know that managing…
3
• Macro fundamental• External balance• Fiscal balance• Sustainable debts
• Banking CAR• Corporate gearing• FX loans hedging
• Micro fundamental
ARE IMPORTANT
But…
4
• Realizing peers’/relative fundamental strength• Managing perception among foreign companies,
creditors, and portfolio investors
ARE EQUALLY IMPORTANT
Beware, calm water could drown you
5
Global volatility has droppedPt Pt
Source: J.P. Morgan.
US FOMC est. are challenged% %
Source: J.P. Morgan.
IDR volatility has also decreased…
6
Source: Bloomberg.
USD/IDR 3-mth realized and implied volatilitiesPt
0
5
10
15
20
25
30
1/10 1/11 1/12 1/13 1/14 1/15 1/16 1/17
3M Realized 3M Implied
…and is now of the lowest in EM
7
Source: Bloomberg.
USD/EM FX 3-mth realized volatilityPt
0.0
5.0
10.0
15.0
20.0
25.0
IDR
THB
MYR
SGD
PH
P
TWD
INR
KR
W
PK
R
PEN CLP
CO
P
MX
N
BR
L
ILS
HU
F
PLN TR
Y
RU
B
ZAR
NG
N
Our capital flow is dominated by portfolio flow…
8
Source: CEIC.
Average CA, 2014-2016% of GDP
Average FDI and portfolio flows, 2014-2016% of GDP
-6
-3
0
3
6
-8
-4
0
4
8
ID PK IN PH VN MY CO PE BR MX AR CL VE ZA EG TY PL NG SA RU HU IL
FDIPortfolio
Why do we have to watchour external balance?
… and because foreign ownership in ourtradable public debts is relatively high
9
Source: Deutsche Bank.
Foreign ownership in tradable public debts% of total tradable public debts
0
10
20
30
40
50
IN KR
TH
Asi
a ex ID MY
BR
Lata
m CO
MX PE IL
RO TR
EMEA HU
RU PL
ZA CZ
Our FX reserves-to-import coverageis relatively strong
10
Source: CEIC.
FX reserves-to-import coverage ratioMonth
0
5
10
15
20
25
30
35
MY KR ID PH IN TH TW MX CL AR CO PE BR HU TR ZA PL NG IL RU
FX reserves is one ofdefence tools
But our FX reserves-to-short term external liabilities is slightly below our peers…
11
Source: CEIC.
FX reserves-to-short term external liabilities ratio%
0
300
600
900
1,200
1,500
1,800
2,100
MY ID IN TW PH KR TH AR CL MX CO BR PE TR ZA HU PL IL NG RU
…as well as our FX reserves againstIMF risk-weighted metrics
12
Source: CEIC, IMF* Reza Mogadham, Jonathan D. Ostry, Robert Sheehy, Assessing Reserve Adequacy, (IMF, 2011).
FX reserves against IMF risk-weighted metrics*Pt
0
100
200
300
400
500
600
700
800
900
MY ID IN TW PH KR TH AR MX CL CO BR PE TR ZA HU PL IL NG RU
Our large corporate gearing ratio is relatively low
13
Source: J.P. Morgan.
Debt-to-equityX
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
TW KR ID MY PH IN TH PE CL CO MX BR EG HU UA PL ZA CZ TR QA RU
But our corporates relatively relyon foreign creditors
14
How did EMs raise their debts?Offshore loans to total loans (onshore + offshore loans) ratio
Source: CEIC.
0
25
50
75
100
-10.0 -5.0 0.0 5.0 10.0 15.0 20.0
CA to GDP, %
Offshore/(On-shore+Offshoreloans), %
CO
ZA
ID
MX
AR
BR
PE PL
CL
EG
VE
PK
INNG
VN
RU
KR
MY
THPH
SA
HU
TW
QA
IL
HK
TR
Good news is higher DSR can be usedto reduce reliance on external financing
15
Domestic saving ratioSum of 4Q, % of GDP
Source: CEIC.
20.0
25.0
30.0
35.0
3/94 3/96 3/98 3/00 3/02 3/04 3/06 3/08 3/10 3/12 3/14 3/16
How do we avoid systemic riskfrom external financial market?
16
ExternalFinancialMarket
InterestRate Shock
FX RateShock
Corporates BanksSystemic
Risk
1
1
2
3
4
41 Fundamental
Communication
2 Hedging3 Tax: Cap on deductible
interest charges4 Management
CAR
Rizal Bambang Prasetijo
17
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 2014.
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 (2010-2012) and was JPM Indonesia’s Country Manager (2008-2010).
Prior becoming a MD at JPM, Mr. Prasetijo spent 18 years (1989-2008) 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 (www.karyasalemba4.org), 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.