MICROPRUDENTIAL ASPECT BEYOND RULE OF THUMB IN RURAL BANK INDUSTRY IN INDONESIA

Objective: This research aims to examine the microprudential aspects beyond traditional rule of thumb measures in the regulation of Rural Banks in Indonesia, particularly focusing on the implications of recent regulatory changes that have prompted Rural Bank mergers. Theoretical Framework: This research utilizes a framework that incorporates financial ratios as critical indicators of bank performance and health. It considers the influence of regulatory frameworks—especially those outlined in POJK regulations—on the operational effectiveness and stability of Rural Banks. Related to the forced corporate action, reason that administrative reform may not have increased merger activity as expected is that larger, combined activities are likely to be more readily able to absorb the significant costs of complying with administrative reform than smaller Rural Bank. Method: This research methodology used is a qualitative descriptive method. In conducting this study, researchers used primary data and secondary data. Primary data obtained from the results practitioners' perspective of interviews (in-depth interviews) with experts and practitioners, who have an understanding of the issues discussed in Rural Bank Industry so that we can presumably determine the real current situation using a Qualitative Descriptive method with a Phenomenology study approach. While secondary data was complemented by data collected from literature studies, from the Financial Service Authority (OJK) official website, Several Rural Bank Performance Report and Financial Report during 2019 - 2023, scientific articles, books, information from the mass media and other relevant sources of information. Result and Discussion: This study highlights that reliance solely on the rule of thumb can be misleading in assessing bank health. It shows that a detailed analysis of various financial ratios—such as capital adequacy, asset quality, earnings, and liquidity—provides a more comprehensive understanding of a bank's performance and risks associated with mergers. The banking industry those had time to familiarize itself with the subject and to put legislation into concrete action. Other findings indicate that the enforcement of regulations aimed at increasing capital adequacy and reducing systemic risk has led to forced mergers among Rural Banks. Research Implication: The study underscores the importance of integrating microprudential regulations into the operational frameworks of Rural Banks.