BASEL III Pilar and Internal Capital Adequacy Assessment Process (ICAAP) : Implementing ICAAP in Indonesian Banking Sector

Abstract

The Basel III policy essentially aims to improve banks' ability to absorb potential risks to improve the health and durability of banks through capital adequacy factors. The Internal Capital Adequacy Assessment Process (ICAAP) approach is also used to assess capital adequacy where the ICAAP approach conducts supervision from the Board of Commissioners and Board of Directors to assess capital adequacy. This research aims to analyze how implemented from Basel III and ICAAP to assess capital adequacy in banking in Indonesia, this research is also supported by several underlying theories such as Agency theory and Signaling theory, with problem management and profitability as indicators in factors that affect capital adequacy. The results of this study explained that profitability has a positive effect on the level of capital adequacy but the problem is not an effect on capital adequacy.