Impact of G20 on High Cost of Funds and Legal Risk in Credit

Rescue

Khalimi

and Eri Eka Sukarini

Universitas 17 Agustus 1945 Jakarta, Indonesia

Universitas Wiralodra Indramayu, Indonesia

Keywords: G20, Cost of Funds, Credit Rescue, Legal Risk.

Abstract: Facing economic and monetary problems cannot be done alone for developing and developed countries, so

that the Group of 20 (G20) Presidency was formed. The G20 forum in building an agreement on economic

and monetary cooperation which held in November 2022 in Bali, will play a major role in realizing

interstate life and creating prosperity. Indonesia prepared various strategies to be aware of potential crises.

The increase in interest rates became a threat in the country. Based on the IMF's World Economic Outlook,

global economic growth is getting weaker. The type of research used is doctrinal/normative legal research.

This research is descriptive-analytic in nature by presenting a complete picture of the impact of the G20 on

the high cost of funds for bank loan interest and how the legal impact on credit rescue is. The type of data

used is secondary data. The data collection technique used is through literature study, for further analysis of

this matter by using non-statistical data analysis techniques with a qualitative approach. In conclusion, the

increase in loan interest rates due to the large cost of funds has an impact on high congestion, so that there is

a legal impact in efforts to save credit.

1 INTRODUCTION

The G20 launched a comprehensive program of

reforms to enhance the global resilience of the

financial system while maintaining its open and

integrated structure. We admit, the results of the

G20 are implemented and continue, but it is felt that

it is not optimal, including financial institutions that

are not yet strong, capital and liquidity standards

have not been measured properly. On the other hand,

the impact of the G20, especially in Indonesia,

shows that higher resilience has been achieved, as

evidenced by the well-running supply of credit to the

real economy. Growth in total credit and bank

lending has returned in all regions, albeit at a

different pace. Monetary policy has been very

accommodative and has contributed. Nonetheless,

financial authorities must remain vigilant to

maintain an open and integrated global financial

system. International bank lending, particularly by

European banks, has declined since the crisis and its

structure has shifted towards more stable regionally

funded loans. Financing through international debt

markets has continued to grow, and there is greater

use of global infrastructure for trading, clearing and

settlement. Nonetheless, the geographic risk of

market fragmentation remains and should be

monitored. Reduction of market liquidity in normal

times and reforms can result in financial stability

problems.

The existence of significant changes in various

financial activities, it turned out to be untenable. The

effect of the high cost of funds has resulted in banks

channeling their loans at high interest rates, which is

not conducive to debtors, especially the business

world. Continued support from G20 leaders is

needed to fully implement the agreements that have

been made. Global regulatory cooperation should be

strengthened by revising the legal framework to

facilitate cooperation, for example information

sharing on resolutions and removing legal barriers to

promote full and consistent application of standards

to support reducing the chances of multiple

regulations. Further support for the G20 presidency,

by issuing a regulation to provide easy access to

credit, reasonable interest charges, as well as

facilitating banks to obtain third party fund owners

with low cost of funds. In this way, banks are not

faced with the problem of bad loans due to high cost

of funds.

Khalimi, . and Sukarini, E.

Impact of G20 on High Cost of Funds and Legal Risk in Credit Rescue.

DOI: 10.5220/0011887500003582

In Proceedings of the 3rd International Seminar and Call for Paper (ISCP) UTA â

Z45 Jakarta (ISCP UTA’45 Jakarta 2022), pages 57-60

ISBN: 978-989-758-654-5; ISSN: 2828-853X

 2023 by SCITEPRESS – Science and Technology Publications, Lda. Under CC license (CC BY-NC-ND 4.0)

Nuryani's research (2022) conveys the results

that the higher the cost of funds and the amount of

credit disbursed, the lower the return on assets. Vice

versa, the lower the cost of funds and the amount of

credit disbursed, the lower the return on assets.

Yuliana's research, Dwi Ari Pertiwi (2020) said that

the loan interest rate variable had a significant

positive effect on the profitability variable. While

the variable number of customers has a significant

negative effect on the profitability variable. In

relation to the G20, the research results of Ratna

Kartika Dewi (2014) stated that in overcoming the

US and European Union financial crises, developed

countries were highly committed to priority agendas,

while developing countries did not show high

compliance like developed countries.

1.1 Cost of Funds and Credit

The definition presented by the Financial Services

Authority (OJK), the cost of funds is a certain

number of costs that must be incurred by banks or

financial institutions, because they have used money

sourced from other parties, such as customers or

banks. The factors that affect the cost of funds are

the interest rate paid, the composition of the

portfolio of sources of funds, provisions regarding

the reserve requirement, service costs to obtain

funds (service cost), interest tax and years of

efficiency.

There are many definitions of the cost of funds,

among them according to Rivai (2007:669) is the

interest paid by the bank on the funds successfully

collected by the bank from various sources. Fees that

must be paid by a financial institution or bank for

the use of money that comes from other parties

(customers and or banks). The cost of funds in a

bank is the basis for determining loan interest rates

after calculating the expected profit including

administrative costs and other costs (cost of funds).

The cost of bank funds is a cost that must be paid by

the bank for each fund that has been successfully

collected from various sources, before being

deducted by the minimum mandatory liquidity

(requrement) that the bank must always maintain. In

contrast to the opinion of Taswan (2010: 188), the

cost of funds is a direct cost incurred to obtain every

rupiah, the funds raised include non-operational

funds (unloanable funds), such as reserve

requirements to meet Bank Indonesia regulations.

The effect of the cost of funds for loans that have an

inverse correlation also becomes parallel because the

higher the cost of funds and the amount of credit

disbursed, the lower the return on assets. Vice versa,

the lower the cost of funds and the amount of credit

disbursed, the lower the return on assets.

The cost of funds became the initial trigger factor

for the movement of credit performance which was

monitored from several aspects, both in terms of

credit quality, list of non-performing loans, as well

as ratios to measure the health of banks. Sources of

bank funds that are lent to the public in the form of

credit are not from the bank's own funds because

bank capital is also limited, but are public funds

stored in banks. Banks try to compete to attract

funds to collect public funds so that they are willing

to save their funds with various lotteries or attractive

facilities. Maintaining customer trust is the bank's

obligation because customer deposits are a source of

profit, customer is a king. The role of the Asset

Liquidity Committee (ALCO) team is very

important in managing and anticipating liquidity

between funds lent in the form of credit and funds

originating from the public (Sutarno 2004:3).

Regarding third party funds, Veitzal Rivai

(2007:413) defines funds as funds obtained from the

community, in the sense of the community as

individuals, companies, governments, households,

cooperatives, foundations and others both in rupiah

and foreign currencies. foreign. According to

Muljono (2006:153), third party funds are funds

collected from the community will be used for

funding the real sector through lending. These third

party funds are collected by the bank through a

variety of fund products offered to the general

public, who put their trust in the bank concerned to

save their money and then withdraw it at maturity in

return for interest and capital gains from the bank.

Loans granted due to expensive sources of funds

affect the amount of interest charged to customers.

For commercial banks, of course, before channeling

public funds, they must have sufficient sources of

funds in their operations so that credit can be given

properly in order to obtain the expected income.

Retnadi (2006:105) states, the ability to channel

credit for the bank is strongly influenced by the

ability of the bank to collect public funds (Third

Party Funds) to the fullest. Funds collected from the

public (Third Party Funds) are the largest and most

reliable source of funds by banks (Dendawijaya,

2005). The bank's activity after collecting funds

from the wider community is to redistribute these

funds to people who need them, in the form of loans

or better known as credit. So that from the

distribution of credit, the bank will get a profit

which is income for the bank. This is also in

accordance with the theory put forward by Kasmir

(2011: 43) which suggests that funds from the public

ISCP UTA’45 Jakarta 2022 - International Seminar and Call for Paper Universitas 17 Agustus 1945 Jakarta

collected in banks play a very important role as a

source of funds that can affect the ability of banks to

provide credit to the public. By increasing the ability

to channel credit, the bank's income will also

increase. In relation to credit distribution, bank

income is income derived from interest income,

administration fee income, fees and commission

income and other income as a result of bank

transactions. From the results of this credit loan, the

bank can generate income which is called operating

income. In addition to operating income, the bank

also obtains non-operating income from activities

outside the bank's main business, such as income

from the sale of fixed assets. BI as the monetary

authority stipulates provisions for standardizing the

ability to generate income. A healthy bank is the

ability of a bank to carry out normal banking

operations and be able to fulfill all its obligations

properly in ways that are in accordance with

applicable banking regulations (Kasmir 2008:41).

This is also related to the efficiency and ability of

banks to carry out operational activities, with cost

efficiency, the income obtained by the bank will be

even greater (Dendawijaya, 2005: 120).

The imposition of large interest will also have an

impact on the ability of the debtor to repay his

credit. For banks as creditors, credit interest will be

the main source of income from their invested

productive assets, other than in the form of interbank

assets, but for debtors, high interest payments, even

though as a consequence of the credit agreement, are

worthless expenses if they are not accompanied by

principal payments. The end of the problem, the

debtor's principal balance does not decrease, the

bank's income from interest factors contributes to

generating profits, but the health of the bank on

credit quality becomes unhealthy. If this happens,

the bank will try to save credit in various ways,

either through rescheduling, reconditioning or

restructuring. Efforts to save credit in the midst of

deteriorating global economic conditions are

meaningless as the result of the Russo-Ukrainian

war also has a negative impact, especially on

Indonesian banks. Geopolitical tensions have

resulted in increased prices for energy, food, and

fertilizers. As a result, inflation in a number of

countries has soared. To anticipate this, several

banks have tightened credit by increasing interest

rates due to the difficulty of obtaining third party

funds. On the other hand, this can also slow down

economic growth. In fact, some countries are in

danger of falling into a recession.

The global economic situation is becoming more

challenging and it is no exaggeration to say that the

world is in danger. Legal risks in credit rescue

include repeated credit rescues so that credit quality

performance looks good and even credit

capitalization in the sense of pooling arrears of

interest with loan principal into new loan principal.

This strategy was carried out because of the

openness of tolerance as a result of over-machting to

face a critical economic crisis, as happened in the

case of the Bank Indonesia Liquidity Assistance

(BLBI) in 1998. Taking advantage of the crisis

momentum with procedures or processes that

violated the provisions of the Financial Services

Authority in carrying out rescue operations. credit, is

a banking crime.

2 CONCLUSION

Based on the results of research and discussion, it

can be stated conclusion as follows:

1. Third party funds have a positive influence on

lending, but have the potential for problems if

the cost of funds is high so that loan interest is

also high;

2. Credit rescue carried out by banks is not in

accordance with procedures and taking

advantage of crisis situations for credit quality

performance to be healthy, is not a reason not

to be categorized as a banking crime.

3 SUGGESTIONS

1. Even though the bank is in a state of lack of

liquidity for credit expansion, the cost of

funds must be calculated carefully because it

has an impact on the amount of interest

charged to debtors.

2. Credit rescue in any situation must be in

accordance with procedures so as not to

appear as the use of crisis time as an excuse

that results in bank losses (moral hazard)

leading to banking crimes.

REFERENCES

Dendawijaya, L. 2005. Manajemen Perbankan. Jakarta :

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Kasmir. 2010. Manajemen Perbankan, Jakarta: PT. Raja

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Kasmir. 2011. Dasar-dasar Perbankan.Jakarta: PT. Raja

Grafindo Persada.

Impact of G20 on High Cost of Funds and Legal Risk in Credit Rescue

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Sutarno. 2004. Aspek-aspek Hukum Perkreditan pada

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Taswan. 2006. Manajemen Perbankan. Upps tim Ykpn

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ISCP UTA’45 Jakarta 2022 - International Seminar and Call for Paper Universitas 17 Agustus 1945 Jakarta