Ailing Bank Asiatic, BDB shut down<\/p>\n
Dadan Wijaksana, The Jakarta Post, Jakarta<\/p>\n
The central bank closed on Thursday two small-sized commercial
\nbanks, Bank Dagang Bali (BDB) and Bank Asiatic, due to worsening
\nfinancial conditions caused by illegal transactions involving Rp
\n1.2 trillion (US$ 139 million) in loans.<\/p>\n
Bank Indonesia senior deputy governor Anwar Nasution said the
\nbanks, owned by two families related by marriage, had been
\nconsistently mismanaged and were in violation of existing
\nregulations, which had caused unrescuable liquidity problems.<\/p>\n
\"The banks had been receiving guidance and assistance from
\nBank Indonesia for about six months but they failed to make any
\nprogress,\" Anwar said.<\/p>\n
Despite the closures, the central bank called on the banking
\nsector and the public not to panic, as all deposits and funds in
\nthe banking system were guaranteed by the government under the
\nblanket guarantee program.<\/p>\n
Anwar said the problems came after BDB placed funds at Asiatic
\nin the form of interbank loans and Negotiable Certificates of
\nDeposit (NCD).<\/p>\n
These were later used as loan collateral by the son of a BDB
\nowner, who is married to a daughter of an Bank Asiatic owner.<\/p>\n
When the loans turned sour, the banks were forced to provide a
\nhuge amount of previsionary funds -- a move which severely
\ndeteriorated their financial balances.<\/p>\n
\"The amount of loans (provided to the son of BDB's owner)
\nexceeded the legal lending limit (LLL) allowed by the banking
\nlaw,\" Anwar, adding that the troubled loans in BDB were worth Rp
\n1.2 trillion, or 70 percent of the bank's Rp 1.7 trillion worth
\nof assets.<\/p>\n
Under existing banking regulations, a bank is allowed to lend
\na maximum of 10 percent of its lending exposure to an affiliated
\ncompany.<\/p>\n
The central bank said in a press release it had notified the
\nNational Police about the issue and asked them to issue a travel
\nban on the related parties -- including the owners of the two
\nbanks and their families.<\/p>\n
Efforts to seize personal assets of the owners were also
\nunderway, it said. BDB is owned by I Gusti Made Oka, while Tong
\nMuk Keung owns the Asiatic.<\/p>\n
The closure of the banks was intended to create a sound and
\nhealthy banking system, the statement said.<\/p>\n
Still, the cost is likely to be high as it could mean the
\ngovernment covers up to Rp 2.39 trillion worth of deposits in the
\ntwo banks, under the blanket guarantee program.<\/p>\n
BDB is a Denpasar, Bali-based lender which has 31 branches and
\nis staffed by 632 employees. Asiatic employs around 150 staff and
\nhas 16 branches.<\/p>",
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"sponsor": "Okusi Associates",
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