B

ank Indonesia (BI) is considering imposing a deadline for banks placed under surveillance and
may close them if they show no financial improvement after a specific time, the central bank’s chief says.

“We may give a time limit of only one year for a bank being under intensive surveillance,” acting Bank Indonesia (BI) governor Darmin Nasution said Wednesday on the sidelines of his selection process as the central bank’s governor at the Commission XI of the House of Representatives overseeing finance and banking.

The central bank, he said, had not previously imposed a time limit for a bank under an intensive
supervision. As the result, many troubled banks stayed under an intensive surveillance for several years, he added.

“They had never been restructured under special surveillance, but their condition had also never been improved. We have to impose such a time limit of only one year for those troubled banks to be restructured under an intensive supervision,” Darmin said, adding that the time limit could be expanded by one year if it is needed.

“If they still fail to improve their performance, the troubled banks can be placed under special surveillance for three to six months,” he said. Those troubled banks, he said, should be closed if they still could not fulfill their obligations under special surveillance.

Andi Rahmat, a member of the House from the Prosperous Justice Party (PKS) faction, agreed that tightened supervision should be imposed on the troubled banks.

“It will give a certainty especially to the banking sector that will accelerate efforts in improving Indonesian banks,” he told The Jakarta Post.

He said troubled banks might not need special surveillance if their failures were merely related to a mismatch in their funding. However, he said, special surveillance is a must if the troubled banks under intensive surveillance cannot fulfill their obligations.

Darmin further said that the central bank had seen a need to improve its sensitivity in determining the status of bank supervision processes. “We hope that in the future no more troubled banks will stay in the ‘grey-area’ for a long period because of ineffective supervisory actions,” he said.

With tightened supervision, bank owners and management will only have two choices: first, improving the performance of their banks, and second, accepting the condition if finally their banks should
be closed.

“It would be important to create a clear-cut approach — a healthy bank is white and an unhealthy bank is black,” Darmin said.

He said that if a bank was getting closer to an unhealthy condition an effort should be quickly taken, such as inviting new investors to inject fresh money.

However, a measured restructuring process should also be taken in a certain time limit to improve the performance of the banks. (ebf)