BCA run indicates crisis of confidence<\/p>\n
Bank Central Asia (BCA) suffered a rush over the weekend
\nfollowing a rumor that its Singapore branch had been closed and
\nthat its founder and major shareholder, Liem Sioe Liong, had
\npassed away. Banking analyst Laksamana Sukardi looks into the
\nphenomenon.<\/p>\n
Question: The government has said it would not liquidate
\nanother bank following the liquidation of 16 insolvent banks
\nrecently and yet the public reaction was frantic when hearing
\nrumors about BCA. Why is that so?<\/p>\n
Answer: The recent collective closure of commercial banks
\nhas created a negative psychological impact on the public and has
\nconditioned depositors to panic easily, while the lawsuit filed
\nby shareholders of two of the liquidated banks (Bank Andromeda
\nand Bank Jakarta) has affected the reputation of the government.<\/p>\n
Q: Will there be any such rushes in the future?<\/p>\n
A: I think banks should prepare themselves to face possible
\nrushes in the future because there is still a big potential for
\ndepositors to lose their trust in our banks. Rushes can even
\noccur with healthy banks because depositors, who do not trust the
\nbanking industry, can no longer think soundly. Furthermore,
\nIndonesian commercial banks are very shaky because their funds
\nare mostly short-term in nature, while their loans are generally
\nlong-term. Such a poor liquidity structure makes banks very
\nsensitive toward any rumors. If depositors trusted their banks,
\nthey would save their money over the long-term and they,
\ntherefore, would not withdraw their deposits before long-term
\nmaturation dates for their savings came due.<\/p>\n
Q: What rumors might trigger depositors to run on their banks?<\/p>\n
A: Rumors on the soundness of banking operations and the health
\nconditions of banking shareholders like Mochtar Riady and Liem
\nSioe Liong will be more sensitive than those on the health of
\ngovernment officials other than President Soeharto. Political
\nturmoil will have no impact on the banking industry unless it is
\ncombined with a crisis in economic confidence.<\/p>\n
Q: What measures should commercial banks take if they are
\naffected by a rush?<\/p>\n
A: Not a single bank, however healthy it is, would be strong
\nenough to face a public rush because of their poor liquidity
\nstructure. Banks, therefore, should cooperate hand-in-hand and
\nhelp each other whenever a rush occurs.<\/p>\n
Q: How can the recurrence of such a rush be prevented in the
\nfuture?<\/p>\n
A: Each bank should announce its measures aimed at improving the
\nhealthiness of its operations, such as an increase in its
\ncapital, its plans to merge with another bank and the
\ndiversification of its shareholding. In short, banks should be
\nable to prove that they can be trusted. Banking is a business of
\ntrust.<\/p>\n
The government should also encourage banks to improve the
\nsoundness of their operation by issuing new structural
\nregulations requiring them to diversify their ownership so that
\nthe mechanisms of self-control and internal supervision can be
\nenforced, and to disclose their management to the public.<\/p>\n
The government should also require banks to increase their
\ncapital because the current minimum level (Rp 150 billion or
\nUS$43.4 million for a foreign exchange bank) is such a small
\namount that a single investor could easily become a majority
\nshareholder in a bank.<\/p>\n
Q: Given the fragile state of our banking system, what are the
\nprospects of competing with foreign banks in a free market as
\nrequired by the Asia-Pacific Economic Cooperation forum in the
\nnear future?<\/p>\n
A: I think we will not be able to compete against foreign rivals
\nunless our banks take immediate steps to improve the prudence of
\ntheir operations, while the government improves its image.<\/p>\n
The recent liquidation of the 16 insolvent banks actually
\nindicates the poor law enforcement by the government, not the
\nbankruptcy of their shareholders.<\/p>\n
In other countries, the bankruptcy of a bank usually coincides
\nwith the bankruptcy of its shareholders. In Indonesia, even
\nthough the 16 banks were declared bankrupt, their shareholders
\nwill remain rich. The shareholders of Bank Pacific, Bank
\nAndromeda, Bank Harapan Sentosa and Bank Jakarta, for example,
\nare still rich.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bca-run-indicates-crisis-of-confidence-1447893297",
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"sponsor": "Okusi Associates",
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