Under the Indonesian Banking Architecture (API) program, commercial banks and regional development banks are required to have a minimum capital of Rp 100 billion by the end of this year.

“The Rp 100 million will still be effective. But if banks can’t reach it, they will have two options: become rural banks or be liquidated,” Halim Alamsyah, BI director of banking research and regulation, said last week.

“The supervisor [BI] can also take supervisory actions to limit their business activities,” he said.

The planned rules are expected to strengthen the banking sector.  Banks with less than Rp 100 billion capital tend to be owned by families or small groups, which do not apply good risk management, said acting BI Governor Darmin Nasution.

“The fact is that banks owned by individuals or families often find themselves in difficulties. In this case we will take a close look at them. If needed we may enforce that they hand over their ownership rather than facing risks,” he said.

In the past decade BI liquidated two banks — Unibank in 2001 and Bank Global in 2004 — after the owners did not settle their liabilities.

In 2008 BI asked the government’s help to save Bank Century (now named Bank Mutiara) on fear its failure might cause a systemic threat to the banking system, to later discover it had been robbed by its owners Robert Tantular and others.

Halim said BI would also create new criteria for the sizing of banks — small, medium and large — which would allow them to have more room to expand based on their size.

“For example, in operational risks, bigger banks will have more space to access more incentives, for example, opening branches will be easier,” he said.

This is in line with BI’s theme this year: Arranging and Strengthening Indonesian Banking to Embrace Global Economic Recovery. BI has four main policy guidelines backed by incentives and disincentives.

To provide banks more liquidity, BI will introduce “dynamic reserve requirement rules”, which will determine a bank’s cash reserve ratio stored at BI based on its loan-to-deposit ratio (LDR).

BI also plans to work with the Capital Market and Financial Institutions Supervisory Agency to regulate short-term commercial papers which provide sources of funding.

Details will be drafted within one or two months, said BI Deputy Governor Muliaman D. Hadad.

Agus Martowardojo, chairman of the State Banks Association, said BI should discuss these plans with the banks.

“I think BI needs to give signals on how banks that are active should be given incentives, and there should be disincentives for banks that are less active. I agree, but how to formulate those need long discussions,” he said.

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