Indonesia: Financial Sector Assessment Program-Technical Note on Stress Testing and Systemic Risk Analysis

FINANCIALSECTOR ASSESSMENT PROGRAM TECHNICAL NOTE ONSTRESS TESTING ANDSYSTEMIC RISK ANALYSIS ThisTechnical Note onStress Testing and Systemic Risk Analysisfor theIndonesiaFSAPwas prepared by a staff team of the International Monetary Fund as backgrounddocumentation for the periodic consultation with the member country. It is based on theinformation available at the time it was completed onFebruary 5, 2025. Copies of this report are available to the public from International Monetary Fund•Publication ServicesPO Box 92780•Washington, D.C. 20090Telephone: (202) 623-7430•Fax: (202) 623-7201E-mail:publications@imf.org Web:http://www.imf.orgPrice: $18.00per printed copy International Monetary FundWashington, D.C. INDONESIA FINANCIAL SECTOR ASSESSMENT PROGRAM TECHNICAL NOTE STRESS TESTING AND SYSTEMIC RISK ANALYSIS ThisMethodologyNoteisprepared by IMF staff inthe context of the Financial Sector AssessmentProgram in Indonesia. It contains technical analysisand detailed information underpinning the FSAP’sfindings and recommendations. Further informationon the FSAP can be found athttp://www.imf.org/external/np/fsap/fssa.aspx Prepared By Monetary and Capital MarketsDepartment CONTENTS Glossary __________________________________________________________________________________________5 INTRODUCTION ________________________________________________________________________________11 SOLVENCY STRESS TEST OF THE BANKING SECTOR _________________________________________23 A. Introduction __________________________________________________________________________________23B. Banking Sector Characteristics and Vulnerabilities by Risk Categories ________________________24C. Macroeconomic Scenarios and Growth at Risk________________________________________________28D. Scenario-Based Solvency Stress Test__________________________________________________________32E. Recommendations ____________________________________________________________________________46 BANKS LIQUIDITY RISK ANALYSIS ____________________________________________________________47 A. Introduction __________________________________________________________________________________47B. Cashflow-Based Liquidity Stress Test__________________________________________________________48C. NSFR-Based Liquidity Stress Test _____________________________________________________________54D. Sensitivity Analysis____________________________________________________________________________57E. Recommendations ____________________________________________________________________________61 A. Introduction __________________________________________________________________________________62B. Methodology _________________________________________________________________________________62C. Domestic Interbank Contagion and Interconnectedness Analysis _____________________________64D. Cross-Border Interbank Contagion and Interconnectedness Analysis _________________________66E. Recommendations ____________________________________________________________________________67 CORPORATE RISK ANALYSIS __________________________________________________________________68 A. Descriptive Analysis___________________________________________________________________________69B. Stress Test ____________________________________________________________________________________70 A. Introduction __________________________________________________________________________________72B. Static Analysis: Financial System Interconnectedness _________________________________________73C. Methodology _________________________________________________________________________________77D. Results________________________________________________________________________________________80E. Recommendations ____________________________________________________________________________81 SYSTEMWIDE FX LIQUIDITY ANALYSIS _______________________________________________________81 FIGURES 1. Financial Sector Structure _____________________________________________________________________12 2. Banking Sector Characteristics ________________________________________________________________133. Main Themes of the Systemic Risk Analysis ___________________________________________________154. Bank Risk Indicator by Groups ________________________________________________________________165. Sovereign-Bank Nexus ________________________________________________________________________196. Corporate Sector Developments ______________________________________________________________217. Overview of the Systemic Risk Analysis _______________________________________________________238. Bank Credit Risks______________________________________________________________________________259. Banking Sector—Asset Composition and Quality _____________________________________________2610. Banking Sector—Sovereign Exposure ________________________________________________________2711. Banking Sector—Interest Rate Risks __________________