TEMPO.CO, Jakarta - Serious challenges await the new commissioners of the Financial Services Authority (OJK) who were selected last week by the Finance Commission of the House of Representatives (DPR). Wimboh Santoso is the chairman, and the members are Nurhaida, Riswinandi, Heru Kristiyana, Hoesen, Ahmad Hidayat and Tirta Segara. As well as improving the OJK's oversight of the finance industry, they should also seek innovations to strengthen the sector.

We hope that the seven commissioners will work well in their 2017-2022 term of office. They have passed two strict selection stages, including a fit-and-proper test at the DPR. Wimboh and his colleagues were approved by the selection committee, which asked for the views of the Corruption Eradication Commission and the Center for the Reporting and Analysis of Financial Transactions. They have good track records and are independent.

The OJK has been fairly successful in taking over the finance industry oversight role from the Capital Markets and Financial Institutions Oversight Agency and Bank Indonesia. In the last five years, it has formed a properly working institution, integrated the oversight system and built an institutional culture. Fortunately, there have been no serious problems in the national finance industry. In fact, according to OJK data, the contribution of the financial services industry to national economic growth increased from 0.25 percent in 2011 to 0.35 percent in 2016.

However, there are a few problems deserving serious attention in the future. Among them is the oversight system for capital markets and the non-banking finance industry. Oversight of non-banking institutions is not as good as that for the banks. There are still investment products that are not controlled and that have the potential to cause problems for the public. As well as systemic problems, one reason for weak oversight is the imbalance in the competence of banking oversight officers-who are ex-employees of Bank Indonesia and other banks-and their non-banking colleagues.

The OJK also needs to be creative in developing non-banking financial businesses. The banking sector is in good shape. From Rp4,263 trillion in 2011, bank assets rose to Rp6,730 trillion in 2016. The capital adequacy ratio increased from 17.34 percent in 2012 to 22.69 percent in 2016. The non-banking sector has also enjoyed rapid growth of 63.44 percent from 2012-2016. But the value needs to be increased further. As of last year, debts of finance companies and outstanding loans from loan companies stood at Rp387.50 trillion and Rp143.89 trillion respectively.

This does not mean that the bank sector is completely in the clear. Although they are still below the five percent safety level, problem loans continue to rise, from 1.85 percent in 2012 to 2.93 percent in 2016. The OJK must pay serious attention to this negative trend of non-performing loans.

The new OJK commissioners also need to need to draw up proper protocols for dealing with crises. With the passing of the Prevention and Mitigation of Financial System Crises Law in March, the OJK has a strong legal basis. It needs to immediately draw up implementing regulations, while improving the synergy between Bank Indonesia and the Finance Ministry. Also important is immediate identification of those banks having systemic risks, and applying crisis prevention procedures.

The OJK must press the government and the DPR to urgently revise laws on the Bank Indonesia, OJK, Credit Institutions, the Capital Markets and the Insurance so they are in line with the Prevention and Mitigation of Financial System Crises Law. This safety valve must be in place soon to protect the stability of the finance sector.

Read the full story in this week’s edition of Tempo English Magazine