Managing Indonesian Banking Competition and Stability of Finance

Abstract

The increase in the number of commercial banks in Indonesia not only encourages the banking competitive, but also
improves the efficiency and health of banks. Basically, banking competition in Indonesia has existed since the Dutch East Indies
colonial era, however, the tensions and moral hazard dramatically grew by private banks from 1988 to 1994/1995. Additionally,
the financial liberation weakened the Indonesian banking industry. So, when the economic crisis of 1997-1998 hit Indonesia,
which had an impact on the fluctuation of global financial market, caused the Indonesian banks could not be able to survive. The
consolidation policy that began in 1997 has led to a decline in the number of Indonesian banks, ant its process continued until the
introduction of the Indonesian Banking Architecture Policy (IBAP) in 2004, as the basic framework of the banking system in
Indonesia to stabilize the financial system.