T

he central bank will soon bring in a rating agency to continuously assess and monitor the performance and financial health of the country's rural banks (Bank Perkreditan Rakyats BPRs).

This step is considered necessary to ensure supervision of almost two thousand BPRs spread across the archipelago, as well as to help provide an early warning mechanism to help detect potential financial problems in the huge rural banking system.

"The sooner we can introduce the agency, the better. We don't have a clear time frame yet. Basically, it will provide ratings on rural banks financial performance," Bank Indonesia's deputy governor Muliaman said on Tuesday.

BI data shows that as of the end of January, the number of BPRs in the country was 1,767 with total credit disbursed amounting to Rp 25.4 trillion (about US$2.1 billion).

Rural Banks Association (Asbanda) chairperson, Winny E. Hassan, welcomed the plan, saying it was essential to avoid more scams and scandals like the one involving Bank Tripanca in Lampung recently.

"We cannot generalize that all rural banks could be in the same position as Bank Tripanca, but the scandal gave us an early warning that we can take note of so as to avoid worse situations in the future," she said.

Bank Tripanca was a business subsidiary owned by the owner of Tripanca Group, Sugiarto Wiharjo (Alay). The group specialized in coffee commodity trading.

Business was looking bright for Alay and his businesses until the price of coffee dropped in mid-2008. The group acquired mounting debts with Rp 450 billion (US$37.5 million) owed to 70 coffee suppliers and another Rp 1.7 trillion ($141.7 million) owed to five local banks, such as Bank Mega and Bank Mandiri.

Like a virus, the liquidity problem within the group spread to Alay's Tripanca Bank. Alay then allegedly fled abroad last November and took with him around Rp 4 trillion ($333 million) of the customers deposits.

Alay then surrendered himself to the authorities last December, claiming that his disappearance abroad was because he was looking for medical help in Singapore.

Halim Alamsyah, BI's director for banking research and regulation, said that the rating agency would use risk management measurements in determining the ratings.

"The agency will use measurements such as financial *indicators*, good corporate governance and risk mitigation for its ratings on rural banks," said Halim.

In addition to strengthening BI supervision, Muliaman said the availability of a rating would make it easier for commercial banks to measure their confidence level before taking a decision to cooperate with rural banks to bolster the banking sector's intermediary role.

Muliaman pointed out as an example the BI-initiated partnership program called the linkage program.

This revolved around cooperation between commercial and rural banks aiming at increasing loan distribution capacity for micro, small and medium enterprises (MSMEs).

"The MSME sector still has a huge potential to grow. Currently, around 50 percent of bank loans are given to the sector," Muliaman said.

"Therefore, rural banks will play a vital role as partners to public banks in providing more loans to the sector," he added.