IT TRANSFORMATION

IN BANK RESOLUTION

Fauzi Ichsan
Chief Executive Officer
Indonesia Deposit Insurance Coorporation (IDIC)

Moscow, May 2018

IDIC IS TRANSFORMING:
“INVESTMENT IN HR AND IT ARE KEY PILLARS”

• IDIC’s “lean business model” requires operating efficiency:

• IDIC staff of 253 – given 115 commercial banks and 1,780 rural banks

• Bureaucracy needs to be cut, business process needs simplification

• Organization needs new structure, IT system needs to be overhauled

• New Law on Prevention and Resolution of Financial Crisis – April 2016:

• IDIC’s new resolution powers: P&A and bridge banks

• Activation of Bank Restructuring Program under IDIC during economic crisis

• Central Bank no longer “lender of last resort”

• Manpower issues:
• Millennial staff: average age of 36, most without crisis experience

• Need to upgrade resolution and leadership skills – and manage business partners

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THE CORPORATE DIAGNOSTICS:
“BEFORE TRANSFORMING, GAPS WERE IDENTIFIED”

1. Vision & mission – Needed to be more global

2. Capabilities – Benchmark vs. other DICs in: research, early intervention, financial & legal
due-diligence, crisis management, bank restructuring, communication with stakeholders, etc.

3. Organization structure – The need for asset management unit, for IT under CEO, etc.

4. Right-sizing of units – To handle simultaneous failure of 1 SIB, 1 non-SIB, 5 rural banks

5. Governance – Refine crisis management protocol, MOUs with BI & FSA, committees, etc.

6. HR & management – Measurable KPI, HR blueprint, defining generalist & specialist roles

7. Key processes – Need to improve early warning signal, determination of resolution method,
bank resolution, liquidation and claim payment, project prioritization and monitoring

8. IT systems – The need for “forward-looking” IT blueprint (possible linkage with FSA & BI), IT
application for core functions, financial dashboard, integrated database, robust IT security, etc.

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THE IDIC INTERNAL PICTURE:
“WE IDENTIFIED GAPS – WHERE INFORMATION TECHNOLOGY MATTERS”

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THE INFORMATION TECHNOLOGY CHALLENGE
“WEAK IT LIMITS DIC CAPABILITIES”

• The need to integrate “IT pockets” among different directorates:

• Different directorates must eventually use same IT system for compatibility and integration

• Manual reconciliation and verification of deposits must be replaced with automation

• Manual internal data transfers must be gradually reduced

• Commercial banks have good IT but most rural banks remain manually operated

• Data preservation of large failing bank crucial – especially in crisis or multiple failures

• Shared banking database with FSA and BI crucial:

• Shared IT database on banks between IDIC, FSA and BI could enhance early warning and
consolidate reports from banks through single window instead of different regulators

• IDIC’s online access to BI data on banks’ liquidity positions will enhance early warning

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CHALLEGES GIVEN INDONESIA’S GEOGRAPHY:
“BANK RESOLUTION OVER-STRETCHES IDIC MANPOWER”

• Since its establishment in 2005, IDIC has liquidated 85 banks and rescued one systemic bank

• While IT in commercial banks is generally sound and integrated (among their branches), most
rural banks have limited IT – this makes resolution of failing rural banks challenging

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IDIC’S IT OBJECTIVE:
“TO MAKE IT A “VALUE-CREATING” PROVIDER OF SERVICES”

• The strategic plan is divided into two stages: 1) achieving “quick wins”, like business process
automation; and 2) ensuring data with agile processing and IT business collaboration

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IT ARCHITECTURE OBJECTIVE:
“BASED ON IDIC BUSINESS ARCHITECTURE”

• IT transformation requires new applcations, such as: online bidding system, inter-agency information
system, surveillance system, e-discovery, etc.
• Existing system needs improvements, such as: e-reporting, SAP for bank restructuring, forensic tool etc.

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BACKBONE OF IT ARCHITECTURE:
“IDENTIFIED AND COMPLETE DATA CLASSIFICATIONS”

• Data availability is crucial to ensure successful IT Transformation program

• Strong cooperation and collaboration with FSA and Bank Indonesia is required to establish strong data
applications to ensure fast deposit pay out (meet 7 days criteria) and other resolution options

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IDIC IT ROADMAP:
“PROCUREMENT AND EXECUTION THE BIGGEST CHALLENGE”

• Detailed IT road map 2017-22 is developed to ensure timely IT transformation

Quick Wins while Striving for Reliable Data with Agile Processing and
Operational Excellence IT-Business Collaboration
Initiatives Roadmap
Themes

“Phase 1: Enhancing The Foundation” “Phase 2: Business Process Enablement” “Phase 3: Technology Advancement”

2017 2018 2019 2020 2021 2022

Excellent Support Value Creating
IT Organization Service Provider
TA003 – Core Reconver TA015 – Master Data Management TA035 – Loan Management Sys.

TA011 – Development Business TA006 – Core – Bank Monitoring TA004 – Core Bank Resolution TA006 – Core Bank Monitoring
Intelligence
TA001 – E-Reporting TA024 – GRC TA033 – Facility Mgmt.
Main Strategic
Initiatives

TA041 – SAP BPC TA017 – Enterprise Content Management TA007 – Online Bidding Sys.

TA045 – SAP Treasury TT006 – Unified Communication TA034 – Emergency Notification

System
TA014 – Surveillance Sys. TA039 – E-Procurement

TT026 – Dealing Room TA009 – Asset Management Sys.

TA019 – Project Portfolio Mgmt. TA032 – E-Discovery

OT012 – Design Support & Project Supervision

OT008 – IT Operations with Managed Service 10

IT APPLICATION DEVELOPMENT, 2017-22:
“IT BLUEPRINT DESIGNED TO SUPPORT CORE FUNCTIONS OF IDIC”

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IDIC BUSINESS ARCHITECTURE:
“IT BLUEPRINT FOLLOWS NEW BUSINESS BLUEPRINTS”
• Focus ON: 1) deposit insurance 2) resolution 3) bank restructuring and 4) surveillance to meet needs
of clients (commercial banks, both Islamic and conventional) and stakeholders (MoF, BI, FSA, etc)
• IT and Information system play important roles in data management and bussiness analytics that
determines effectiveness of IDIC core functions
IT SUPPORT IN BANK RESOLUTION PROCESS:
“BACKBONE OF SPEED AND DELIVERY”
Intensive Bank
Preparation Preparation Liquidation
FSA classifies bank as FSA decides bank as “Failed
“BIS” FSA classifies Bank”
bank as “BSS”

Determine resolution
Due Diligence Potential Marketing assets & liab to method
(DD) bidder analysis potential P&A bidder
1 2 3
Resolution process
execution
BB 1 2 4 5 6
Identify assets process DD by
LCT calculation Update
& liab to be bidder
DD results End
transferred in candidates
P&A 1 Data preservation
2
2 Reconver system
Evaluate P&A
No 3 P&A system
Yes Bank bidder
End recovered?
4 Liquidation system
Propose resolution
method 5 Website
BIS: “Bank under Intensive Supervision” by FSA, where 8% < CAR < 12% (depending on 6 Payment channel
risk classification of bank) 13
BSS: “Bank under Special Supervision” by FSA, where 4% < CAR < 8%
Reconver: Reconciliation & verification of insured deposits
HIGHTLIGHT OF IT SUPPORT IN BANK RESOLUTION 1:
“PREPARATION STAGE”

Early data preservation and Data preservation system used for:

speeding up the claim - Due diligence process
processing - Liquidation process

Reconciliation & verification:

Data processing to identify
whether a deposit meets
insurance prerequisites.
Bank’s data IDIC’s data
Data preservation Results:
system
- Deposit by CIF
- Deposit by amount
- Deposit by interest rate
- Deposit linked to loan
- Others
Reconciliation and verification
(Reconver) System
Notes:
Already implemented

To be developed (implementation initiative of IT Blueprint 2017-22)

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HIGHTLIGHT OF IT SUPPORT IN BANK RESOLUTION 2:
“IT SYSTEM FOR P&A AND LIQUIDATION”
Easy access for depositors, creditors,
bidders, and liquidation team Web-based application that runs
through secure network and can be
1 accessed from all regions of Indonesia

Bank Acquirers P&A System

P&A
2 process 1 Data room for DD by bidders
Creditors 2 Assets transfered to bank acquirer
3
Liquidation System 3 Deposit status:
Customer - Insured/un-insured
Internet - Transfered/not transfered to bank
4 Liquidation IDIC acquirer
process
4 Receivership:
Liquidation Team - Update asset sales
IDIC Website
- Manage operational cost of the
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liquidation team
Marketing 5 Assets marketing accessed by
Public of assets public through website

Notes:

Already implemented
To be developed (implementation initiative of IT Blueprint 2017-22) 15
HIGHTLIGHT OF IT SUPPORT IN BANK RESOLUTION 3:
“IT SYSTEM FOR CLAIM PAYMENTS PROCESS (PAY-OUT)”

Web-based application that runs

Quick and easy through secure network and can be
payment process accessed from all regions of Indonesia

1 Depositors can access deposit

status through IDIC’s website:
IDIC Website - Insured/un-insured
Internet - Payment status
1
Deposits
status 2 Claim payment channel/interface:
IDIC
Depositors - Depositors are paid by paying agent
(bank)
- Interfaces run on secure connections
2 built between IDIC and paying agent
Secure (bank) that have payment access
network Claim Payment across Indonesia
Paying agent (bank) Channel/ Interface - IDIC provides claim payment data
for claim used by paying agent to settle for
claims of liquidated bank
- IDIC can monitor the payment status in
real time
Notes:
Already implemented
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LIQUIDATION PROCESS:
“IDIC USES EXTERNAL LIQUIDATION TEAM FOR EVERY BANK CLOSED”

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CONCLUSION:
“IT TRANSFORMATION A MUST – GIVEN EXTERNAL DEVELOPMENTS”

• Transforming institution must decide what it wants to be in 5-10 years time – and “work backward”
to design an action plan that will take them “from here to there”

• It must involve investment in people and IT, process simplification without sacrificing governance

• Because IDIC business model is a lean organization, supported by business partners (accounting
firms, law firms, asset appraisers, etc.), the role of IT is crucial

• The more integrated IDIC’s IT system with those of other regulators (FSA, BI, Ministry of Home
Affairs, etc.), the more effective the role of IT in bank resolution

• Always bear in mind: “the further we are from the last banking crisis, the closer we are to the next
– transformation must be implemented to better prepare us for the next crisis”

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Thank You

EQUITY TOWER LT. 20, 21, dan 39

SCBD LOT 9
JL. JEND. SUDIRMAN KAV. 52-53
JAKARTA 12190
www.lps.go.id