JAKARTA, Oct 13 — Indonesia’s most important banks will have to set aside more capital as a buffer against financial market volatility, according to a draft regulation.

The Financial Services Authority (OJK) is proposing that systemically important banks must set aside an additional “capital surcharge”, equivalent to 1-3.5 per cent of their risk-weighted assets, depending on how influential they are in Indonesia’s financial system.

Banks will be required to set aside the capital surcharge by December, based on their financial statements as of June, according to the draft regulation, which has been made public for consultation.

The new regulation would be part of stricter protocols that Southeast Asia’s largest economy is planning to strengthen the financial system.

The proposed law stipulates that regulators must make a list of more important banks that would receive different treatment from other banks if they face liquidity or solvency problems, according to a copy of the draft seen by Reuters.

It also details the steps the authorities must take under various scenarios in financial markets.

The proposal comes as Indonesia faces considerable market volatility and a cooling economy.

Its stock market is the worst performing in emerging Asia, having fallen 21 per cent this year before recovering some of its losses. The rupiah is down by nearly 9 per cent against the dollar so far this year, making it the second worst-performing currency in the region.

However, the authorities say the proposal, which the OJK, the Finance Ministry and the central bank have discussed for several years, is not a response to recent market ructions.

“This draft law is a priority to maintain stability in the financial system as a management protocol in case of a monetary crisis,” Bank Indonesia’s senior deputy governor Mirza Adityaswara told Reuters.

Indonesian banks seem financially sturdy, with average capital adequacy ratios reaching 20.5 per cent as of July, central bank data showed.

But they also faced pressures with credit growth slowing and non-performing loans rising. Several big banks have hiked provisions for bad loans, pushing first-half profits to the first decline in almost a decade.

Finance Minister Bambang Brodjonegoro said he hopes the draft law, which is currently being discussed by the government and parliament, will be passed this year.

The OJK aims to issue the regulation this year, said banking supervisor Nelson Tampubolon. — Reuters