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IFRS in Indonesia

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Sheldon Goh at Wolters Kluwer Financial Services
Nico Deprez at Wolters Kluwer Financial Services

Sheldon Goh and Nico Deprez from Wolters Kluwer Financial Services take a look at the IFRS environment in Indonesia, demonstrating the complexities of the Bank Indonesia requirements and point to their experience with Bank Rakyat Indonesia.
The global financial crisis has resulted in the need for greater transparency and accountability in the financial sector, which has inevitably spurred on a plethora of new regulatory requirements, including the new International Financial Reporting Standards (IFRS). In the simplest of descriptions, IFRS has been developed so that financial statements may be produced, read and understood by both local and international market players, and ultimately forms a critical element of our global economy.

The focus of this article looks at the adoption of the IFRS in Indonesia specifically. With a GDP growth of 6.4% in 2011, a rapidly growing Finance sector and an estimated number of 120 banks, Indonesia is strong becoming one of the fastest emerging economies in Asia. The rising wealth and pro-business environment in the region encourages firms to not only enter the market, but also thrive.With a vast and varied range of firms operating in Indonesia, it is also one of the best countries for financial services solution vendors to provide their services to customers. However with that said, there is also a host of various local regulatory and compliance requirements which firms must adhere to. The local requirements for firms in Indonesia are strict due to the move from principle based accounting to a more rule based accounting procedure.

The central bank, Bank Indonesia, like many of its counterparts,has set out to strengthen the soundness and resilience of the country’s financial system following the turbulence of the financial crisis. It has since published several guidelines conforming to the global accounting and risk management framework for IFRS but also Basel II & III. Banks in Indonesia have been swept with rapid changes and increasingly stringent regulations over the last three years in areas such as accounting standards and risk management.

The new IFRS requirements demand more data to be submitted at more frequent intervals, with more complicated calculations, therefore increasing the strain on financial institutions’ time and resource. Adoption of IFRS in Indonesia – and in fact in Asia overall – is unfamiliar territory for many firms in the region who would have only previously used prudential accounting.Therefore the transition is far more complex and changes to accounting standards are far greater conceptually in comparison to European firms, for example.

Whilst IFRS adoption is applicable on an international scale, each financial authority has its own local interpretations of the standards and Indonesia with PSAK 50/55 (the local interpretation of IAS 32/39) is no different. Therefore, firms and the solution they implement must cater for the localised requirements, such as the various methods for financial instruments, valuations, and different methods of calculation for both individual and collective impairments.

There are two key aspects to the Indonesian specific implementations which differ in comparison to global standard for IFRS. The first is related to incurred loss models for collective impairment in which a Roll Rate method is used. Despite the fact that this a proven method within economics, IFRS itself does not recognise this method as the standard approach, whereas the ‘Bank Indonesia published implementation guidelines’ do, making it a clear requirement.

The second differentiator is that the law in Indonesia prohibits having large trading portfolios which include derivatives. This is a direct result from fair value calculation- based on market prices – becoming impossible due to the absence of an active market within Indonesia. Furthermore, Indonesian authorities have published their own set of regulatory requirements covering most topics of IAS 32 and parts of IFRS 7.
IFRS compliant reporting can be achieved in various different ways. If the current source systems are not able to deliver data required to comply with the IFRS requirements, such as fair values of financial instruments, effective interest rate calculation, probability of default and loss given default, or amortised cost, then a solution is required which can compute the missing information.

Case Study: Bank Rakyat Indonesia
In 2012, Bank Rakyat Indonesia (BRI), one of the largest firms in the region with over 40 million retail customers, selected Wolters Kluwer Financial Services’ IFRS solution. The bank specialises in small scale and microfinance style borrowing and lending to its customers from its 8,000 branches and as of this year, is the second largest bank in Indonesia by asset.

BRI conducted a thorough evaluation of IFRS solutions available on the market in order to adhere to IFRS and PSAK 50, 55. The bank selected Wolters Kluwer Financial Services’ solution following the system’s strong benchmarking results.

“As one of the largest banks in Indonesia we naturally have considerable volumes to process so finding a solution that is technically sound and could process these volumes quickly and efficiently was a key requirement for us. With the Wolters Kluwer Financial Services’ IFRS solution we can now successfully process more than seven million accounts in seven hours. We are very pleased with our decision to work with Wolters Kluwer Financial Services.”said Achmad Baiquni, Director of Bank Rakyat Indonesia.
BRI benefits from calculation and reporting functionalities to cover the amortized cost and fair value accounting, effective interest rate, impairment assessments (collective and individual), hedge accounting (cash flow, fair value and net investment in foreign currency), as well as hedge effectiveness testing models encompassing both the balance sheet and off-balance sheet positions. By combining both the economic view (IFRS standards) and the statutory view (local GAAP)the IFRS solution enables the bank to review and report the same balance sheet positions captured from its data.

A solution with a modular architecture allows a firm whom may already have addressed aspects of the IFRS requirements, but not entirely, to select add-ons in order to achieve a complete and comprehensive solution. Indonesian firms require an IFRS solution which is user-friendly, complete in coverage of financial instruments and optimized performance for processing huge data volume in an efficient and timely manner.

BRI saw true value in a complete range of services and not just a software platform, but also the provision of local expertise of the Indonesian market. The knowledge of Wolters Kluwer Financial Services’ experts proves invaluable to firms, who require simple and clear understanding of regulatory requirements in Indonesia, no matter whether they are new to the market, or an established player. Firms in Indonesia require a solution which is flexible enough to acclimate to the local adaptions through combining technology flexibility with sound local expertise.This is one key aspect of why firms in Indonesia have chosen the Wolters Kluwer Financial Services’ IFRS solution and consequently why it is recognised as the industry leader.

To find out more of Wolters Kluwer Financial Services’ leading IFRS solution, please visit our website

 

Banking

UKRSIBBANK, part of BNP Paribas Group, announces a strategic partnership with financial wellbeing startup Dreams, to enhance the digital user experience of its 2 million customers in Ukraine

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UKRSIBBANK, part of BNP Paribas Group, announces a strategic partnership with financial wellbeing startup Dreams, to enhance the digital user experience of its 2 million customers in Ukraine 1
  • The technology powering popular consumer app, Dreams – which has helped 460,000 users save over 440M EUR – will be made available to UKRSIBBANK’s users in Ukraine.
  • Through the integration of the Dreams platform within UKRSIBBANK’s own digital tools, customers of the bank can set and achieve money-saving goals, track and improve their financial lives.

Dreams (https://www.getdreams.com/en/b2b/), the Stockholm-born fintech empowering millennials to save and feel better about their money, today announces a strategic partnership with Ukrainian commercial bank UKRSIBBANK, a subsidiary of French international bank BNP Paribas Group.

This partnership follows the announcement earlier this year of Dreams’ first enterprise partnership with banking software provider Silverlake Symmetri, and the recent unveiling of a new department in Stockholm dedicated to the development of Dreams’ B2B partnerships. The announcement marks an expansion of the company’s business model as it consolidates its B2B offering and evolves its services as a provider of white label solutions for financial institutions.

Through the integration within UKRSIBBANK’s own digital tools of the Dreams Platform – which is rooted in scientific principles – customers can set and achieve money-saving goals through clever, automated saving features, in addition to nudges and saving hacks.

The Dreams Platform will be included as part of UKRSIBBANK’s digital banking offering for its 2 million+ customers, and is set to grant millions of potential consumers across Ukraine access to products which will help keep their finances on track and improve their financial lives.

The rise in digital self-help tools has long been anticipated by Dreams and forward-thinking financial institutions. The current global economic uncertainty brought about by the COVID-19 pandemic has also placed significant strains on people’s finances, and the demand for better personal finance tools has only accelerated. The partnership with Dreams is welcomed by UKRSIBBANK which is currently striving to equip its customers with the best possible banking solutions whilst helping them achieve a more sustainable lifestyle.

Dreams is firmly established as an authority in its industry, having launched its consumer-facing app in its native Sweden in 2016 and Norway in 2018 – where it has already achieved a 16% market share of all 20-39 year olds.

Henrik Rosvall, CEO and founder of Dreams, comments: “It’s a true honour to be partnering with UKRSIBBANK and BNP Paribas Group, and we’re incredibly excited to be introducing the Dreams solution to UKRSIBBANK’s customers and the wider Ukrainian market.

“Dreams and UKRSIBBANK can now lead the charge, with BNP Paribas Group’s corporate strategy having shifted in recent years to focus on guiding customers towards responsible consumption and sustainable personal finance management. I’m confident that our mission of helping millennials save more and feel better about their money makes us the ideal partners.

“Our financial wellbeing platform – which is built upon behavioural science and personal finance management principles – will provide the perfect tool for UKRSIBBANK to help its customers make better financial choices and become more sustainable in the way they handle their finances. This partnership will also help UKRSIBBANK safeguard the loyalty of its customers and futureproof its digital banking offering against a growing number of challenger banks and fintechs.”

Konstantin Lezhnin, Head of Retail at UKRSIBBANK BNP Paribas Group, comments: “I believe that banks have a role to improve their customers’ lives. Planning and saving for important life events improves our quality of life by reducing stress levels, and we wish to make our customers feel more confident and in-control of their lives.

“UKRSIBBANK has always applied innovative ways to assist our customers in financial planning, so we are very happy to now be working with Dreams, the best European player in behavioural savings. They have an extremely solid track record in Sweden and Norway based on scientific research, so we are confident that this partnership will work positively for our customers in Ukraine. This also demonstrates our strategy to cooperate with startups and innovative companies that seek ways to expand their operations.”

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Banking

Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society

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Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society 2
  • More SMEs are satisfied (38%) than dissatisfied (13%) with their COVID-19 banking support
  • Decline in SMEs using personal current accounts for business banking as more seek access to the Government-backed lending scheme
  • Fewer SMEs believe nearby branches are important when choosing a bank or building society
  • 15% of SMEs use mobile or online banking more often than before the COVID-19 pandemic
  • When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account

Three times as many SMEs have been satisfied than dissatisfied with the COVID-19 support available from their bank or building society, according to YouGov research commissioned by the Current Account Switch Service.

Overall, four in ten SMEs (38%) were satisfied with the support they received from their business current account provider since the pandemic began. This contrasts with one in ten SMEs (13%) who were dissatisfied.  In general, more than half of SMEs (55%) are satisfied with their current business bank account, compared to 8% who are dissatisfied. However, inertia remains a problem as half of SMEs (50%) said they would not look to switch business accounts even if they were dissatisfied with their current bank or building society.

When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account. Advanced digital features (35%), good interest rates (34%), and a personal connection through a relationship manager (33%) also mattered.

The SME banking research was conducted both in February and in September 2020. It also reveals that since the start of the pandemic, the proportion of SMEs using business current accounts has increased from 69% in February to 74% in September as firms are required to have a business account to receive access to the Government-backed lending schemes.

However, one in five SMEs (20%) still use a personal current account for their business banking needs, despite the risk that tax liabilities get confused, and calculations are made incorrectly. These businesses are also missing out on a range of business-only banking benefits such as integrated accounting software or invoicing tools offered by different providers.

In addition, the research shows the importance of branches to SMEs has declined over the seven months. When asked in February, more than a fifth of SMEs (22%) said the availability of nearby bank branches was important when selecting their bank or building society, compared to 17% in September.  However, the Post Office could be fulfilling the role of branches in some areas.

The declining importance of nearby branches was most noticeable in the North East region where 35% of SMEs believed branches were important in February, falling to 18% in September. The importance of nearby branches also varies between industries. One in ten IT companies (11%) said nearby branches were an important factor compared to nearly three in ten (29%) leisure and hospitality businesses.

While branches are less important, digital banking use has increased for some SMEs. Several firms have started to use online banking for the first time as 15% of SMEs say they use mobile or online banking more often than before the social distancing measures were introduced.

Maha El Dimachki, Chief Payments Officer of Pay.UK, owner and operator of the Current Account Switch Service, said: “Across the country, banks and building societies have been working hard in difficult circumstances to meet customer needs. Thanks to that work, small and medium-sized enterprises are more likely to say they are satisfied than dissatisfied with the support they received from their business account provider since the pandemic started. But lockdown has changed small business behaviour dramatically, in a way that points to significant changes to their banking needs both now and in future.

“It’s encouraging to see many small businesses are generally satisfied with their business bank accounts. However, even when businesses are unhappy with their bank, some don’t consider switching as an option, despite the many benefits available. We’ll continue to raise awareness of the benefits of switching among small businesses to help them get the most from their bank account.”

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Banking

The Next Evolution in Banking

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The Next Evolution in Banking 3

By Young Pham, Chief Strategy Officer at CI&T

Everything we know about banking is about to change. A new industry around the sharing of financial data is primed to give birth to a host of new consumer services, all thanks to Application Programming Interface (API) technology. Already known for being the safest place for money, there are opportunities for banks to expand that relationship to other aspects of the customer relationship. Banks will no longer simply be just a place to deposit and withdraw your cash, but a one-stop-shop for a range of data-sensitive services.

The passing of GDPR and the Payment Services Directive (PSD2) were the first steps in this process of banks modernising how they handled their customer data. However, incumbent institutions have so far not engaged enthusiastically. Rather, it was only after growing pressure from fintech challengers and government regulation that they were forced to open up and share their data. This should not be treated as a regulatory challenge, but rather a way to grasp the unique opportunities that banks have to reposition themselves as the most trusted resource for their customers.

Expanding offerings

It is hard to overestimate the breadth of possibilities arising from open banking, should banks choose to take advantage of this evolution. While the public rarely holds bankers in high regard, it still puts a high level of trust in banking institutions. People are more willing to hand over their sensitive data than they would be to almost any other private entity. Furthermore, banks have a unique perspective into their customers’ behaviours, needs and desires. Spending habits, income streams and risk appetites are just a few examples of the data that no other institution can tap in to.

There is certainly appetite to expand offerings. In our recent study of business banking customers, over 68% of respondents indicated that they were open to their financial institution providing digital non-banking services.  This includes services such as tax support, managing payroll, or invoicing to help them with their day-to-day businesses.

More banks should consider how open banking can maximise their digital capabilities and create a greater range of services for customers to enjoy. Such offerings could be tailored according to each bank and their particular customer audience. For instance, banks could offer everyday services for most users, such as insurance for individuals or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high net worth individuals to meet their specific needs, such as art appraisal and investment management.

The idea that a firm can expand its offering into new verticals is hardly new. Many of the world’s largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and cloud services. They are able to do this thanks to the vast quantities of data they have gathered, which provide invaluable insights into consumer behaviour and demand. Banks are in prime position to follow the example of these top tier tech companies thanks to their monopoly on key financial data.

Disruptors vs incumbents

The business model described above is already being adopted by numerous challenger banks. These firms have led the innovative charge thus far, thanks largely to their agility afforded by their smaller size. Indeed, some fintech banks already provide a range of non-banking services to their customers. Revolut, for instance, offers users several types of travel insurance as well as access to airport lounges as part of its premium service for a monthly subscription.

These offerings are not a sign that the challenger banks are about to topple the large incumbents. Rather, these disruptors have always flagged the gaps in the market that larger institutions have been too slow to fill. It is now up to the established banks to learn from their example.

While challenger banks may have a first-mover advantage for these services, the incumbents have two key advantages: capital and credibility. Firstly, the top banks have enough cash to fund this overhaul of their business models. While the challengers have been able to afford to do so in recent years, they lack the reserves to tide them over during economic downturns such as the current pandemic.

Secondly, even though challenger banks are perceived as more convenient and are less vilified than traditional banks, the public still trusts the latter. Many of these large banks can point to their extended histories and long-term investment success – accolades young challengers simply cannot match. In short, people don’t have to like their bank to trust them with their cash and their data. These two advantages strongly suggest that large banks are better positioned to take advantage of the open banking business model in the long term, despite being slower to adopt and adapt.

What’s next?

All this opportunity is within reach. We already have the technical capabilities for data sharing, and the regulatory framework is not insurmountable. Rather, the key for this evolution of the sector lies in banks’ appetite for risk and willingness to reinvent their business model.

Banks need to take a leap of faith and leave behind the business paradigm to which they’ve become accustomed. They should embrace transparency, run towards regulation and take advantage of opportunities to invest in these areas or collaborate with outside technology firms. Only then will banks be able to make the most of their data assets, creating value for the customer and further strengthening the relationship.

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