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BI supervision of banks comes under fire
Following the Bank Century trouble, the central bank is under pressure to improve its supervision amid the global financial downturn to prevent troubled banks from disrupting the country’s financial sector, legislators warn
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Following the Bank Century trouble, the central bank is under pressure to improve its supervision amid the global financial downturn to prevent troubled banks from disrupting the country’s financial sector, legislators warn.
“Global crises impact Indonesia. Bank Indonesia needs to restructure its banking supervision, which is its weakest point,” Dradjad H. Wibowo, a member of the House of Representatives’ Commission XI, which oversees financial affairs, said Wednesday.
Last week, the National Police detained Robert Tantular, a key shareholder in ailing Century, for allegedly asking the lender’s management to breach existing bank regulations. That request led to the mess the bank is currently embroiled in.
The government, via the Deposit Insurance Corporation (LPS), then took over the lender and injected Rp 2.5 trillion (US$208.6 million) to keep it afloat, after the bank’s capital adequacy ratio (CAR) plunged to negative 2.3 percent in early November, from about 18 percent in September.
A bank’s CAR determines how healthy it is financially.
Century was formed in late 2004 through the merger of Bank CIC, Bank Danpac and Bank Pikko.
“Before the merger, I insisted CIC be liquidated, considering its poor track record. But BI gave it room to breathe, resulting in the mess,” Dradjad said.
He said BI, with its exemplary human resources, should take a strict line on banks and enforce heavy sanctions to prevent such incidents from happening again.
“If it continues, people may think Erick (Jazier Ardiansjah) is a hero rather than a rumormonger, because what he said turned out to be true.”
Erick, a Bahana Securities trader, was recently arrested for spreading an email about a deposit run on five banks — Bank Panin, Bank Bukopin, Bank Artha Graha, Bank Victoria and Century.
Fellow Commission XI member Rizal Djalil said BI should record each bank’s ownership structure and money distribution, to gain a clearer picture of the banking sector condition.
The legislators were speaking at a hearing with the Finance Ministry and BI on the issuance of three regulations in lieu of the law on the LPS, BI and the financial system safety net (JPSK).
The government needs House approval for the regulations within three months of their issuance last October, to give them proper legal standing.
The regulations are seen as crucial in preventing a crisis in Indonesia’s financial sector, by allowing the government and BI to take immediate action against a possible crisis that could cause systemic threats to the financial sector, Finance Minister Sri Mulyani Indrawati said.
“The JPSK is about (preventing) a systemic threat to the banking system. Without the JPSK, BI may be doubtful of providing a short-term financing facility or an emergency financing facility,” she said.
However, several legislators raised concerns that the regulation could be misused, saying it would grant BI greater authority and hence create a possible repeat of the BI liquidity support abuses from the 1997-1998 crisis.
