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Indonesia watchdog imposes extra capital surcharge on biggest banks

[JAKARTA] Indonesia's banking watchdog has instructed the biggest banks to set aside more capital this year in an effort to reduce risks to the financial sector.

The Financial Services Authority (OJK) said on its website it will rank systemically important banks (SIBs) based on their size, interconnectedness with the financial system, and the complexity of their business.

Under new regulations SIBs are required from January 1 to set aside "capital surcharges" of between 0.25 per cent and 0.625 per cent of risk-weighted assets, depending on how systemically important the institutions are.

The surcharge will gradually increase each year until 2019 when it reaches 1 percent to 2.5 per cent of the institution's risk-weighted assets.

The "capital surcharges" are in addition to capital adequacy regulations on the banks, which start at a minimum of 8 percent of risk-weighted assets.

The OJK may impose an additional 1 percent surcharge if a bank is found to be even more systemically important than OJK's current classification.

The regulation is part of Indonesia's move to fully adopt Basel III, a global regulatory framework for banks' capital adequacy norms, the OJK said.

Last week, the central bank introduced a new requirement for banks' to hold a countercyclical capital buffer.

The regulator has already identified banks that are systemically important, OJK banking regulator Mulya Siregar was quoted as saying by the Investor Daily on Tuesday, although he declined to identify them.

Indonesia's biggest banks by assets are Bank Mandiri, Bank Central Asia, Bank Rakyat Indonesia and Bank Negara Indonesia.