Bank Indonesia in recent years has taken several steps to upgrade not only its investment performance but also its human resources and technology as it adapts to a rapidly changing asset-owner landscape.
Under Governor Perry Warjiyo, Bank Indonesia in 2020 launched a slew of transformation initiatives in reserves management, including the 2020-2025 Reserve Management Strategic Business Plan.
The goal was to transform reserves management while ensuring long-term stability of the central bank’s reserves.
“As reserve managers, our three main responsibilities revolve around how we maintain liquidity to serve and support our monetary operations, take care of our external liabilities such as payment of government debt and also other liabilities and, finally, preserve and grow our portfolio while handling market volatility,” Rahmatullah, head of the reserve management department at the Bank Indonesia, told AsianInvestor.
Over the past few years, the bank has made continuous progress in portfolio diversification, upskilling its employees and upgrading its front, middle and back office systems to enable faster order processing and settlement.
As part of efforts to improve risk-adjusted returns, the central bank has been gradually diversifying into wider non-sovereign asset classes while also ensuring there is an adequate “second line of defense” through broader international coordination with central banks and supranational institutions.
It has managed to do so while taking on limited risk levels.
The central bank has increased exposure to traditionally riskier assets such as mortgage-backed securities, corporate bonds, emerging market US dollar bonds and Islamic bonds, as well as reallocated some exposure to non-USD currencies to those offering better diversification.
It has also engaged in more active portfolio management to express its view on market conditions, via duration strategy, term structure and yield enhancement strategies.
“We endeavor to optimise all risk factors by searching for the best compensating securities. We find that relative value strategy is contributing to a positive outcome of returns,” said Rahmatullah.
The bank has been vigilant in assessing constantly changing market conditions and regularly assesses the portfolio’s currency and asset composition to decide if any instruments needs to be included or excluded.
“Our strategy has always been to beat our benchmarks, and we have managed to do that so far,” Rahmatullah said.
The bank has also emphasised upgrading the quality of its human resources through a variety of training programmes. Every employee of Bank Indonesia is expected to meet local and international standards on financial markets and investment management.
The Bank Indonesia Institute has several training modules and classes, which employees must enroll for every month.
In addition, Bank Indonesia’s counterparties and external portfolio mangers have helped with employee assignments to help bank staff gain deeper asset management knowledge, he added.
In 2022, the central bank had four employees who are FRM holders, four CFA holders and 29 with treasury dealer certifications, both at the basic and intermediate levels.
The bank has also been updating its treasury system, known as FOMOBO (front office, middle office, and back office) which helps with benchmark analysis scenarios, portfolio simulation as well as order management, accounting and settlements.
For all these reasons, it is only fitting the central bank is recognised for being forward thinking and embracing technology while ensuring its investment team stays on top of their game.
For the full list of the 2022 Institutional Excellence Awards winners, click here.