B

ank Indonesia (BI) will introduce a new regulation to require banks to announce their complete financial records in order to provide customers with sufficient guidelines to choose the most trustworthy bank to manage their funds.

BI director of banking regulation and research Wimboh Santoso said that as of the first half of this year, banks would be required to announce their financial health to the public based on the central bank’s standards.

“The public will be able to see if there is something wrong with any specific bank. They will be able to justify their preference based on the banks’ health reports,” he told reporters at BI offices in Jakarta last week.

With the new BI regulation, the public will be able to obtain sufficient information about the overall health and performance of the country’s banks. With complete information, the customers will be able to make more informed choices about which banks they would trust with their funds.

According to Wimboh, the health, or transparency, reports would be announced every six months. “[The reports] will integrate financial balance sheets, risks and good corporate governance so that the health level will be more comprehensive and realistic.”

“Capitalization levels must also be disclosed,” he said, adding that the method of calculating banks’ capital adequacy ratio (CAR), Tier 1 (core capital) and Tier 2 (supplementary capital) would also be disclosed.

The bank health reports will be announced in newspapers and on bank websites, Wimboh said. “Disclosure is a must. We’re serious on this.”

As for technical matters, BI will provide a standard sheet for banks to comply with the health transparency regulation. Banks will fill in the sheet according to their own self-assessments every six months and submit their reports to the central bank.

“BI will be able to make corrections if there are errors in the sheet,” Wimboh said, adding that completed reports would be published for the public after the process.

“The health level can be used to track banks’ history and performance. If health levels slide, we expect quick action to fix that,” he said.

As the banking sector showed stellar performance last year with lending growth at 22.8 percent, Bank Indonesia expects banks to be prudent amid credit expansion and remain cautious to avoid systemic risks.

“Banks’ capitalization, liquidity and market risks are quite important for the public to understand. The public deserves to know the condition of the bank that manages their funds,” Wimboh said.

Other than stability, the public will also be able to monitor banks’ prime lending rates, starting from March 1, in hopes of providing healthy competition in the banking industry, which is expected to lower lending rates.

According to Wimboh, the prime lending rate is a benchmark, or base rate, given to banks’ prime customers who have zero risk.

“The regulation is expected to push banks to lower their lending rates. It also enables the central bank to compare one bank to the others. With a supervisory approach, the central bank could instruct inefficient banks to be more efficient and lower their costs, which in turn will lower lending rates,” he said.

With a record-low benchmark interest rate of 6.5 percent for over a year, the base lending rate has gradually slid and showed a lowering trend, Wimboh said.

Base lending rates for working capital loans slid from 15.2 percent in December 2008 to 13.69 percent in December 2009 and 13 percent in September 2010, BI data shows.

As for investment loans, base lending rates fell from 14.4 percent in December 2008 to 12.96 percent in December 2009 and 12.41 percent in September 2010.

Base lending rates for consumer loans increased from 16.4 percent in December 2008 to 16.42
percent in December 2009, but dropped to 14.75 percent in September 2010. (est)