Liquidity is king. This liquidity plays an important role for a bank so we have to maintain a sufficient amount of liquid assets
Jakarta (Armfalcon.com) – Main Director of PT Bank Negara Indonesia (Persero) Tbk Royke Tumilaar reminded Indonesian banks to maintain liquidity in order to avoid failure as experienced by a number of global banks, including Silicon Valley Bank and Signature Bank.
“Liquidity is king. This liquidity plays an important role for a bank so we have to maintain a sufficient amount of liquid assets. This should be a lesson for all of us,” Royke said in a virtual LPPI discussion monitored in Jakarta, Thursday.
In a vulnerable market situation, continued Royke, the first thing that needs to be considered by banks is the condition of liquidity. Banks must be able to manage liquidity in terms of strategy and risk mitigation.
Royke explained that liquidity risk management needs to pay attention liquidity backstop or a strong and flexible liquidity buffer so that it can be executed in various conditions.
Then, banks also need to carry out Liquidity Contingency Plans (LCP) or emergency funding plans to deal with liquidity crisis conditions experienced by banks on a regular basis. As for anticipating market risk, banks need to be proactive in managing assets and liabilities.
In addition to anticipating risks, banks also need to prepare risk mitigation measures. For example, banking can set a strategy funding or raising funds by diversifying funding sources to mitigate liquidity risk.
Banking can also develop strategies pricing or price calculation, managing asset sales management (asset sales management), as well as asset placement management (asset placement management).
Then, to mitigate market risk, Royke recommended banks to optimize derivative transactions as a means of hedging investment assets. The flexibility of liquid assets can also be a risk mitigation strategy to deal with market risks.
Not only preparing for anticipation and mitigation measures, Royke appealed to banks to evaluate strategies.
One of them is to carry out strategic stimulation of various market and liquidity risk scenarios that may occur. This method can be an insight for banks to determine loss or tolerable loss.
Evaluation of other strategies can also be carried out by stimulating extreme events that have occurred in the past.
“We have to do good planning regarding the situation we might face in the future,” said Royke.
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Reporter: Imamatul Silfia
Editor: Citro Atmoko
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