Indonesia’s Financial Sector: Resilient Amid Global Uncertainty

Amidst the global economic uncertainties and escalating geopolitical tensions, Indonesia’s financial sector remains robust, according to the recent report from the Financial Services Authority (OJK). The OJK Commissioner Board is optimistic about the financial sector’s ability to mitigate risks, attributing this resilience to strong capitalization, adequate liquidity, and a well-managed risk profile.

Mahendra Siregar, Chairman of the OJK Commissioner Board, expressed gratitude for the stability of the national financial sector, citing strong capitalization, adequate liquidity, and a well-managed risk profile. “The OJK Commissioner Board remains optimistic that the financial sector can mitigate risks amid the increasing global uncertainty, both from the higher-for-longer global interest rates and the escalation of geopolitical tension,” said Siregar on Monday (30/10/2023).

As the global economic landscape evolves, the divergence in global economic performance continues. In the United States, third-quarter economic growth increased by 4.9%, with improvements in the labor market and persistent high inflation pressure. This led to a sell-off in the U.S. bond market in line with expectations of higher and longer interest rates and increased supply from U.S. financial authorities to finance the deficit.

In Europe, economic performance is predicted to remain stagflationary, while China’s economic recovery has not met expectations. Concerns about the global economic recovery are heightened due to the ongoing pandemic-related economic challenges.

The OJK, as the financial services authority overseeing integrated supervision and regulations in the financial services industry, covers capital markets, banking, and the non-banking financial sector.

In the context of the capital market, the OJK report stated that the Indonesian stock market weakened by 2.61% month-to-date (mtd) to 6,758.79 as of October 27, 2023, with an outflow of funds amounting to Rp6.37 trillion mtd. This trend aligns with the global capital market developments.

Sector-wise performance in the Indonesia Stock Exchange (IDX) in October 2023 indicates that infrastructure and healthcare sectors continued to strengthen. Year-to-date (ytd), the IDX recorded a slight decline of 1.34%, with non-residents posting a net sell of Rp11.61 trillion.

In terms of transaction liquidity, the average value of stock market transactions in October 2023 decreased to Rp10.32 trillion mtd and Rp10.47 trillion ytd. In line with global movements, government bond markets (SBN) as of October 26, 2023, recorded a foreign investor outflow of Rp13.63 trillion mtd, resulting in an average SBN yield increase of 40.86 bps mtd across all tenors.

Ytd, SBN yields increased by an average of 25.48 bps across all tenors, with non-residents recording a net buy of Rp47.19 trillion ytd.

In the bond market, the Indonesian Bond Index (ICBI) weakened by 1.38% mtd as of October 27, 2023. However, it still showed a ytd gain of 4.45% to 360.12.

For corporate bonds, non-resident investors recorded an outflow of Rp842.83 billion mtd, with a ytd outflow of Rp1.67 trillion.

In the investment management industry, the Asset Under Management (AUM) for investment management as of October 25, 2023, was Rp824.24 trillion (down 0.40% ytd), with Net Asset Value (NAV) of mutual funds recorded at Rp499.54 trillion, or a 1.33% decrease mtd.

However, Mutual Fund investors still recorded a net subscription of Rp5.18 trillion mtd. Ytd, NAV increased by 1.05%, with a net subscription of Rp13.12 trillion. OJK also reported that fund raising in the capital market is still high, amounting to Rp204.14 trillion, with 68 new issuers recorded until October 27, 2023.

This fundraising has already met the 2023 target. Meanwhile, there are still 97 offerings in the public offering pipeline with an estimated indicative value of Rp54.48 trillion, including plans for Initial Public Offerings (IPOs) by 65 new companies.

As for fundraising in Securities Crowdfunding (SCF), which is an alternative funding for SMEs, until October 27, 2023, there are 16 providers that have obtained permission from the OJK, with 467 issuers, 164,210 investors, and a total funds collected of Rp1.01 trillion.

How about carbon trading? Since its launch on September 26, 2023, until October 27, 2023, 24 service users have obtained permits with a total volume of 464,843 tCO2e (tons of CO2 equivalent) and a total value of Rp29.45 billion. The breakdown shows 31.78% in the regular market, 5.48% in the negotiation market, and 62.74% in the auction market.

Looking ahead, the potential of the carbon market remains significant, considering there are 3,180 registrants recorded in the National Climate Change Control System (SRN PPI), and there is a high potential for carbon units offered.

The hope is that the financial services industry’s performance continues to shine and remains resilient to shocks amid the still uncertain global economic developments.