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em>The Deposit Insurance Corporation (LPS) '€” which was established in 2005 '€” currently oversees more than Rp 3.62 quadrillion (US$297.67 billion) in deposits, generated from more than 140.5 million accounts across Indonesia. However, with only around Rp 43 trillion in funds available for its operations, the agency may not be able to cope with a situation where a medium-sized bank collapses and needs assistance. New LPS executive chairman Kartika '€œTiko'€ Wirjoatmodjo talked with The Jakarta Post'€™s Tassia Sipahutar about the challenges faced by the LPS and its functions. The following are excerpts from the interview.

Question: What are your concerns about the LPS?

Answer: At the moment, the LPS still relies on historical ratios to analyze individual banks, meaning that the ratios were produced in the past. If we continue to do that, we will not be able to determine a bank'€™s future course, whether or not its current state will improve or deteriorate instead.

So we need to strengthen LPS'€™ capability to enable it to detect banking risks earlier than we do now. We are now working to develop tools that will allow us to estimate some future ratios, such as a bank'€™s future liquidity, its future capacity to provide more capital, its future NPL [nonperforming loans] trend and its competitiveness.

We are looking to sign a memorandum of understanding [MoU] with the OJK [the Financial Services Authority] this year, so that we can obtain rights to examine banks, which we think possess the risks of failure.

With that, I expect us to be able to give astute input during the meetings of the FKSSK [the Financial Sector Stability Coordination Forum, consisting of Bank Indonesia, OJK, LPS and Finance Ministry].

I think that the decision to rescue a bank must not solely be based on its systemic nature. If the rescued bank continues to pose trouble in the future, it means that we only extended the problem.

How far are you on the MoU with the OJK?

We have reached a pretty detailed stage in discussing its protocol, but it will need some more time because the banking supervision was recently transferred from Bank Indonesia to the OJK.

Hopefully, we will be able to extract data from primary sources to help us do our job, but here'€™s what most people don'€™t know: The LPS has two job functions, as a deposit insurance body and as an asset management company. People are not familiar with the second function, through which we create liquidation teams and recover the assets of liquidated banks.

We need to enhance our asset management capability. It'€™s not that we expect a big bank to fail, but if it happens, we need to be ready.

How do you enhance the asset management function?

It is actually mandated by the LPS Law, but personally, I will try to discuss this with the FKSSK, including about crisis management protocol. We don'€™t have a financial system safety net [JPSK] law as of now, so each body, from BI [Bank Indonesia] to LPS, carries out its own duties separately from the others.

How does the forum envision your asset management function? Is it something permanent or subject to changes? Is it true that the LPS must handle failed banks?

If the function is permanent and part of LPS'€™ final stage that they expect, I need to build my institution better internally. What if a crisis occurs and it brings down one to two big banks? We are not fully equipped yet to carry out the asset management function.

Frankly speaking, we were not ready to manage Bank Mutiara [formerly known as Bank Century], but with the lessons learned, we know that we must prepare the personnel and infrastructure.

I would like to have this function separated from our deposit insurance function. It'€™s awkward to be a regulator, but at the same time, we are also the proxy of a bank'€™s shareholders, as in the case of Mutiara recently. BI conducted banking supervision and it reproved Mutiara the LPS as the shareholder. It'€™s a little bit awkward.

Do you want the asset management function to be carried out by a subsidiary?

I don'€™t know yet because this is an institution, not a corporation. First, I have to study what happens overseas, but the basic concept is similar to that of an asset management company.

We actually have mini asset management companies within the LPS at the moment. They are called liquidation teams and are used to handle small banks only, whose assets are in the dozens of billions of rupiah.

Would you wait until after the elections to hold the discussion with the FKSSK?

The FKSSK has begun to be active with its meetings again recently. We are going to test the water first. I don'€™t know yet the view of [BI governor] Pak Agus Martowardojo, [Finance Minister] Pak Chatib Basri and [OJK chairman] Pak Muliaman Hadad.

If they opt to revive the talks on the JPSK Law, I will surely ask for the asset management function to be included in the talks. Probably we will also review the LPS Law to determine its relevance to the current situation.