BI to adopt risk-based bank supervision<\/p>\n
JAKARTA (JP): Bank Indonesia will gradually shift its banking
\nsupervision system from the current compliance-based mechanism to
\ninclude the internationally practiced risk-based system starting
\nnext year, according to a senior official at the central bank.<\/p>\n
Bank Indonesia director for banking supervision Djoko Sarwono
\nsaid that the new measure would strengthen the central bank's
\nbanking supervision system, which has been widely criticized for
\nbeing too weak.<\/p>\n
\"We are determined to gradually implement the new supervision
\nsystem next year,\" Djoko told a press gathering last week.<\/p>\n
\"This is very different. It's a change in paradigm,\" he added.<\/p>\n
He explained that the compliance-based supervision system was
\nonly aimed at ensuring banks comply with Bank Indonesia
\nprudential regulations including legal lending limit, minimum
\nreserves requirement, and net open position limit.<\/p>\n
He said that the new risk-based system would force banks to
\nalso calculate and manage the various risks they are facing.<\/p>\n
\"We'll not abandon the compliance system. Banks must still
\nmeet the Bank Indonesia prudential requirements. But in addition,
\nthe banks must also be able to identify their own risks,\" Djoko
\nsaid.<\/p>\n
He said that the central bank supervision would only focus on
\nthe huge risks particularly the lending risk and market risk.<\/p>\n
\"Bank Indonesia officials will check whether the banks have
\nmanaged their risks,\" he said.<\/p>\n
Indonesia's banking sector had been badly hit by the Asian
\nfinancial crisis that started in the middle of 1997. More than 66
\ndomestic banks, out of more than 200 banks, had been shut down by
\nthe banking authority since the crisis started.<\/p>\n
Many have said that the weak supervision of Bank Indonesia
\npartly contributed to the banking crisis by allowing banks to
\nfreely lend a huge amount of their money including that borrowed
\noverseas to risky businesses particularly those affiliated to the
\nbanks.<\/p>\n
The banking crisis has caused the taxpayers dearly as the
\ngovernment had to issue around Rp 650 trillion (US$68 billion)
\nworth of bonds to restructure and recapitalize the banking
\nsector. The cost of the recapitalization alone totaled more than
\nRp 430 trillion.<\/p>\n
The state budget must cover the interest rate of the bonds,
\nwhich in 2001 will amount to around Rp 53.5 trillion.<\/p>\n
The weak supervision of Bank Indonesia had also been blamed
\nfor the massive abuse of government bank liquidity support
\nfacility injected into troubled banks between 1997 and 1999
\nduring the height of the financial crisis.<\/p>\n
The Rp 144.5 trillion emergency loan was supposed to only be
\nused to reimburse depositors money during the massive bank run at
\nthe time, but many banks had misused the facility including for
\nfinancing currency speculation and lending to affiliated
\ncompanies.<\/p>\n
Some Rp 80 trillion of the loan had been abused by the
\nrecipient banks.<\/p>\n
Bank Indonesia had reached an agreement with the government to
\ncover around Rp 24.5 trillion of the misused loan.<\/p>\n
Elsewhere, Djoko said that the country's banking sector had
\nthree main agenda in the near future.<\/p>\n
He said that the first was that banks must have a minimum
\ncapital adequacy ratio (CAR) of 8 percent and non-performing
\nloans (NPLs) of below 5 percent.<\/p>\n
He said that banks which failed to meet the target would be
\nput under special surveillance status for 3-6 months and if they
\nremained unable to meet the requirements after that period, the
\nbanks would be liquidated.<\/p>\n
The recapitalization program has only lifted the CAR level to
\njust above 4 percent. The average NPL level of domestic banks was
\naround 27.9 percent at the end of September.<\/p>\n
Djoko said that the second agenda was to transfer the banking
\nsupervision authority from the central bank to a new institution
\nthat would also supervise other finance-related businesses
\nexcluding the stock market by 2002.<\/p>\n
He said that it was still uncertain whether the government and
\nthe central bank could meet the deadline.<\/p>\n
He said that third agenda was to end the government blanket
\nguarantee system, to be replaced with an insurance deposit
\nscheme.<\/p>\n
He said that the first concept of the insurance deposit scheme
\nwas expected to be completed in January, 2001.<\/p>\n
The government launch the blanket guarantee system in early
\n1998 in a bid to maintain confidence in the banking sector.
\nUnder the system the government would guarantee all of the
\nobligations of banks which had closed down.<\/p>\n
Government sources, however, said that there has been
\nconsideration to end the costly blanket guarantee program before
\nthe 2004 deadline. (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bi-to-adopt-risk-based-bank-supervision-1447893297",
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