ARISTIANTO MUHARDI

120101181901380

INDIVIDUAL ASSIGNMENT
Based on FINANCIAL SERVICES AUTHORITY REGULATION NUMBER 4 /POJK.03/2016
CONCERNING ASSESSMENT OF COMMERCIAL BANK SOUNDNESS LEVEL
1. What is the severe aspect of bank soundness level in Indonesia?
2. What can be done to improve it?

ANSWER
1. Based on financial services authority regulation number 4/POJK.03/2016 concerning
assessment of commercial bank soundness level Bank is obliged to perform
individual assessment of Bank Soundness Level using the risk-based approach (Risk-
Based Bank Rating) with the assessment scope covering the following factors:
a. Risk Profile
Assessment of the risk profile factor as referred to a constitutes an
assessment of inherent risks and quality of the risk management
implementation in Bank operations that should be performed on 8 (eight)
risks, namely:
i. Credit Risk;
is the possibility of a loss resulting from a borrower's failure to
repay a loan or meet contractual obligations. Traditionally, it
refers to the risk that a lender may not receive the owed principal
and interest, which results in an interruption of cash flows and
increased costs for collection.
ii. Market Risk;
Market risk refers to the risk that an investment may face due to
fluctuations in the market. The risk is that the investment’s value
will decrease. Also known as systematic risk, the term may also
refer to a specific currency or commodity
iii. Liquidity Risk;
Liquidity risk is a financial risk that for a certain period of time a
given financial asset, security or commodity cannot be traded
quickly enough in the market without impacting the market price.
iv. Operational Risk;
Operational risk is "the risk of a change in value caused by the fact
that actual losses, incurred for inadequate or failed internal
processes, people and systems, or from external events (including
legal risk), differ from the expected losses"
v. Legal Risk;
Legal risk is the risk of financial or reputational loss that can result
from lack of awareness or misunderstanding of, ambiguity in, or
 reckless indifference to, the way law and regulation apply to your
business, its relationships, processes, products and services.
vi. Strategic Risk;
A possible source of loss that might arise from the pursuit of an
unsuccessful business plan. For example, strategic risk might arise
from making poor business decisions, from the substandard
execution of decisions, from inadequate resource allocation, or
from a failure to respond well to changes in the business
environment.
vii. Compliance Risk;
compliance risk management is related to the financial and
banking industry, which is heavily regulated by laws and
regulations.
viii. Reputation Risk
reputational risk refers to the potential for negative publicity,
public perception or uncontrollable events to have an adverse
impact on a company’s reputation, thereby affecting its revenue.
b. Good Corporate Governance (GCG)
Good corporate governance means that the processes of disclosure and
transparency are followed so as to provide regulators and shareholders as
well as the general public with precise and accurate information about
the financial, operational and other aspects of the company. governance
is a term that means many things and the bottom line for good corporate
governance is the dual aim of pursuing profits and doing so in a
transparent and accountable manner.
c. Profitability (earnings)
Profitability is ability of a company to use its resources to generate
revenues in excess of its expenses. In other words, this is a company’s
capability of generating profits from its operations. Assessment of the
profitability (earnings) factor as referred to in Article 6 letter c covers
assessment of Bank profitability (earnings) performance, profitability
(earnings) sources, and profitability (earnings) sustainability
d. Capital.
Assessment of the capital factor as referred to in Article 6 letter d covers
assessment of capital adequacy level and capital management.
And base from all of the 4 factors, I think that the severe aspect of bank soundness
level in Indonesia is the Risk profile and Good Corporate Governance, because there
are a lot of cases of commercial bank in Indonesia who fail to pass/meet the risk
profile from point i to point viii and also the transparency of precise and accurate
information about the financial, operational and other aspects of the company with
the government is not clear enough because there is some commercial bank who
unintentional and intentional cover up the bank information. This will impact to the
rating of the commercial bank soundness.
 Based on financial services authority regulation number 4/POJK.03/2016 concerning
assessment of commercial bank soundness level in order to improve the sever bank
soundness level (risk profile and good corporate governance) I think commercial
bank need to improve risk management and improve management performance,
they can improve the borrower screening, data management and financial analysis
for the risk management, and for the improvement for management performance
they can improving the integration of a bank’s information technology (IT) systems,
upgrading data reporting and improving compliance, and for the issue of the good
corporation governance the government need to put strict rule like for example the
total shut down or confiscation of the bank company if they find the data that the
bank provide is false so it can make all of the commercial bank not covering up their
true data, also the government and the company need to conduct good business
ethics counseling so that all members of the bank company in Indonesia have good
business ethics and do not harm the community and the country of Indonesia