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All Journal Eduvest - Journal of Universal Studies
Gregorius Ivan Baskara
Universitas Indonesia
Aerospace Engineering Computer Science & IT Health Professions Neuroscience Social Sciences

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Implementation of Straight Term, Weighted Average, and Term Weighted Matched-Maturity Fund Transfer Pricing (FTP) on Indonesian Bank Gregorius Ivan Baskara; Ruslan Prijadi
Eduvest - Journal of Universal Studies Vol. 3 No. 7 (2023): Journal Eduvest - Journal of Universal Studies
Publisher : Green Publisher Indonesia

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.59188/eduvest.v3i7.846

Abstract

Transfer pricing in the banking industry has a huge impact on maintaining risks and strategic decision-making for preserving competitive advantage in the market. As a best practice, the bank owns an Asset & Liabilities Management (ALM) function assigned to control internal pricing, named Fund Transfer Pricing (FTP), to regulate the inter-division fund pricing between the Funding Division and the Lending Division. While the FTP implementation provisions of a bank are not regulated due to management’s appetite, the FTP calculation methods are definitively established based on several research studies. The most sophisticated method is named Match-Maturity, by reason of matching every banking product’s tenor to the yield curve and calculating them by the repayment behavior. This paper aims to study the significance of the Match-Maturity FTP (MM-FTP) method on a bank in Indonesia which currently apply the Multiple-Pool FTP (MP-FTP) method. To achieve the set objective, the study performed the FTP calculation of identical banking products including samples and all population utilizing MP-FTP and MM-FTP. The result shows 10 out of 11 groups of product and segment experienced over-charged or over-credited employing MP-FTP, which lead to inaccurate evaluation of balance sheet management and performance measurement.
Co-Authors Ruslan Prijadi