Green banking initiativeENHANCING BANKING ROLE to support sustainabledevelopment

Global issues

Policy background

1. Financial crisis2. Energy Crisis3. Food Crisis4. Poverty5. Global warming/climate

change

Real sector

1. Export growth2. Energy security3. Food security4. Global warming/climate change5. Infrastructure6. Governance

National issues

2

ASEANECONOMIC

Monetary sector

1. Interest rate2. Bank finance focus on trading,

manufacturing and consumption,3. Bank finance less concern on

environmental issues Credit , legaland reputational risk (Environmentalact)

4. climate change initiative needfinancing support from banking

Threat to:• Sustainable

development• National

competitiveness

ECONOMICCOMMUNITY

2015, 2020

BANKS’ LOANTREND BY SECTOR

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2008

2009

2010

2011

2012

3

Among the 9 existing sector, the largest portion of the credit is tofinance trade, manufacturing and others (consumption),this indicatesthat the role of banks in lending activities in the upstream sector andthe infrastructure that provides a higher multiplier effect for theeconomy is still needs to be improved.

CONSUMPTION

BI, Dec’2012

BOTTOM LINE: SHIFTING of development paradigm 4

OLD PARADIGM (Greedy Economy)

- High economic growth but sacrifice naturalresources and social responsibility

- Heavy debt economy public and private

NEW PARADIGM (Green Economy)

- Balance of 3 P (People-Profit-Planet)- Balance of 3 P (People-Profit-Planet)

- Economic participation (profit/loss sharing)

Central Bank Strategy option

TOP

DO

WN

BO

TTOM

UP

BEYOND COMPLIANCE

INCENTIVES/beyond

compliance

G

ov

ern

me

nt

Sup

po

rt

P

ote

ntia

lInte

rna

tion

alSu

pp

ort

B

an

king

asso

cia

tion

Inv

olv

em

en

t

TOP

DO

WN

BO

TTOM

UP

COMPLIANCE

LEGALENFORCEMENT

Banking readiness

Industrial maturity

Go

ve

rnm

en

tSu

pp

ort

Po

ten

tialIn

tern

atio

na

lSup

po

rt

Ba

nkin

ga

ssoc

iatio

nIn

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nt

Green Banking

• The role of bank as a financial intermediary is still verylarge and has potential important role to changeeconomic development becomes more green andresponsible.

• Elements of green banking:

• Compliance and enhancing banking risk management on

6

• Compliance and enhancing banking risk management onenvironmental issue

• Beyod compliance with increasing banks’ portfolio ongreen financing e.g. Renewable energy, energyeficiency, organic agriculture, green building, eco-tourism, eco-label products.

Bank Indonesia Policy related to Green Financing 7

• BI Mission: To achieve and maintain rupiah stability bymaintaining monetary stability and financial stability forsupporting sustainable economic development

• Sustainable economic development : pro growth, pro job, propoor, pro environment.

• Bank Indonesia regulations:

1. Bank should consider environment protection in assessingasset quality (PBI No. 14/15/PBI/2012)

Productiveloan

SME

Environmentaspect in

asset quality

2. Bank should increase productive loans and access loan forSME PBI (No.14/26/PBI/2012 and PBI No.14/22/PBI/2012)

• Green Lending Model, 2013

GREEN BANKING POLICY IMPLEMENTATION 8

MOU Bank Indonesia – Ministry of Environment

Capacity Building for banks and bank supervisor

Development Green Lending Model

Actively in coordination forum with ministries, greenbanking working group, international org/initiatives

Preparing Green Banking Regulation

Bazaar Intermediation Green Financing*

Green Banking Information Hub*

Green Banking Awards*

* Not implement yet

KEY ISSUES FOR GREEN BANKING POLICY

• Latest green finance research (BI-DIE Germany) 2013

• Green Finance is regarded as a promising businessarea

• Need for regulation to have equal of playing field ingreen financing

Need for capacity building and public awareness• Need for capacity building and public awareness

• Need for government incentives (e.g. taxes, soft loanand credit guarantee scheme)

• Steps by steps green banking implementation

• Handover green banking regulation from BI to OJK(Indonesia Financial Supervisory Authority)

• Continue to enhance bank capacity on environmental riskmanagement and increase green financing portfolio.

EDI SETIJAWAN, SE.MDMDeputy DirectorHead of Indonesia Banking Architecture

DISCLAIMER NOTE: The information contained in this ppt presentation is presented author view and do not constitute officialdocument or views of Bank Indonesia. Any review, retransmission, dissemination, copying or other use of, or taking any action inreliance upon the information contained in this presentation by persons or entities must have permission from author. Thank you

Head of Indonesia Banking ArchitectureDivision-Banking Research GroupBanking Research and RegulationDepartmentBank IndonesiaJl.MH Thamrin No.2 Jakarta10350, IndonesiaPhone +62 29817280Email e_setijawan@bi.go.idhttp://www.bi.go.id

PBI 14/15/2012 assessing bank asset quality (article 10,11)

1.Business growth;2.Market competition;

1. Profitability;

1. The timely payment ofprincipal and interest;

2. Availability andaccuracy of thedebtor's financial

ASSET /LOAN QUALITY

1. BUSINESS PROSPECT2. FINANCIAL

PERFORMANCE3. PAYMENT ABILITY

11

2.Market competition;3.Management quality

and human resources;4.Group support;5.Efforts to protect

environment

1. Profitability;2. Capital

structure;3. Cash flow;4. Sensitivity to

market risk

debtor's financialinformation;

3. Completeness of loandocumentation;

4. Compliance to creditagreement;

5. Suitability of the use offunds,

6. Fairness source ofpayment obligations.

Consideration in the determination of credit quality include the significance andmateriality of any assessment factors and components, as well as the relevance of

the assessment and the components of the debtor.