BI changes rules on bank ratings<\/p>\n
JAKARTA (JP): Bank Indonesia, the central bank, has modified
\nbank rating rules to improve the soundness of the country's 139
\ncommercial banks.<\/p>\n
The new rules, issued on April 30, 1997, focus on capital,
\nassets quality, management, earning and liquidity -- better known
\nas CAMEL ratios -- as well as legal lending limits and net open
\nposition on foreign exchange.<\/p>\n
But the rules no longer list credit to small businesses or
\nexport credit as bank health indicators.<\/p>\n
The central bank also introduced a separate rule listing
\npenalties for banks that do not meet the minimum export credit
\nand small business credit requirements.<\/p>\n
The new rules on bank soundness, signed by Bank Indonesia's
\ndirectors Mansjurdin Nurdin and Heru Supraptomo, stipulate that
\nbanks that meet all the CAMEL requirements will be given 100
\npoints.<\/p>\n
The central bank rates a bank either sound, moderately sound,
\nless sound and unsound or unhealthy.<\/p>\n
But the regulation says a bank rated sound, moderately sound
\nor less sound can be downgraded into the unhealthy category if it
\nis found to have serious internal bickering, external
\nintervention, window dressing in its financial reports or
\nfinancial difficulties.<\/p>\n
A bank is classified sound if the central bank gives it 81
\npoints to 100 points. A bank is rated moderately sound if it
\ngets between 66 to 80, less sound 51 to 65 and unsound, or
\nunhealthy, at nil to 50 points.<\/p>\n
The overall weighting of a bank's soundness remains unchanged,
\nwith capital requirement accounting for 25 percent, asset quality
\n30 percent, management quality 25 percent, earnings 10 percent
\nand liquidity 10 percent.<\/p>\n
The central bank said the new rules require banks to have a
\ncapital adequacy ratio (CAR) of eight percent or they will be
\nclassified less sound.<\/p>\n
Banks were given 65 to 79 points in the past if they had a CAR
\nof between 6.5 percent and 7.9 percent. The new rules say a CAR
\nof 7.9 percent will be given only 65 points and rated less sound.<\/p>\n
Banks get 81 points for 8 percent CAR and another one point
\nfor every additional 0.1 CAR percentage point.<\/p>\n
The central bank said it also modified one of the two ratios
\nto rate asset quality with the focus now on the bad loans
\nallowance.<\/p>\n
It said management assessment indicators were reduced from 250
\nto 100 for foreign exchange banks and 85 for non-foreign exchange
\nbanks, switching the focus to general and risk management from
\ncapital, assets, earnings and liquidity.<\/p>\n
Risk management includes efforts to contain liquidity,
\nmarkets, credit, operational and legal risks, ownership and
\nmanagement risks.<\/p>\n
To rate earnings, the central bank looks at two earning
\nratios, the ratio of before-tax profits to revenue and
\noperational costs to operating income.<\/p>\n
It said it had also tightened liquidity ratios, including the
\ncall money obligation to current asset ratio of not more than 100
\npercent and credit to loan deposit ratio of not more than 115
\npercent to obtain full points.<\/p>\n
Besides CAMEL ratios, the central bank included legal lending
\nlimits and net open position on foreign exchange as bank
\nsoundness indicators.<\/p>\n
It said it would deduct five points to 10 points from banks
\nthat violated legal lending limits, and deduct up to five points
\nfrom banks that violated the net open position requirement. (rid)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-changes-rules-on-bank-ratings-1447893297",
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