Deposit insurance premiums to be risk-based<\/p>\n
Dadan Wijaksana, The Jakarta Post, Jakarta<\/p>\n
As the deliberations for a draft law on a deposit insurance
\nscheme continued, the government stated on Monday that the
\npremiums for national banks would eventually be designed using a
\nrisk-based approach.<\/p>\n
That means the healthier the bank, with lower risks, the lower
\nthe premium the bank would have to pay, Minister of Finance
\nBoediono explained.<\/p>\n
"Ideally, the premium rate should be risk-based, determined by
\neach bank's health," Boediono told the legislators at the House
\nof Representatives Commission IX on financial affairs.<\/p>\n
But of course, he went on, the implementation would be
\ngradual.<\/p>\n
Director General of Financial Institutions of the ministry
\nDarmin Nasution added, "When the scheme kicks off, the premium
\nrate will be flat at 0.1 percent (of the banks' third party
\nfunds) for about one or two years, but afterwards it will vary,
\ndepending on the banks' financial health."<\/p>\n
Darmin, head of a government team that formulated the bill,
\nsaid also that since the rate margin between the lowest and the
\nhighest could not exceed 0.5 percent, the premium would then
\nhover in a range of 0.1 percent to 0.6 percent.<\/p>\n
Under the current blanket guarantee program, which provides
\ngovernment guarantees on deposits and savings at national banks,
\nthe Indonesian Bank Restructuring Agency (IBRA) sets the premium
\nrate at 0.25 percent of the bank's third party liabilities, which
\nmanages to rake in about Rp 2 trillion (some US$235 million)
\nannually.<\/p>\n
The draft law, submitted to the House in November last year,
\nwas meant to serve as the legal basis for the establishment of a
\ndeposit insurance scheme to replace the existing blanket
\nguarantee program, which the government plans to phase out within
\nsix months after the bill becomes a law.<\/p>\n
The phasing out of the program will take one year until it
\nonly covers small depositors with deposits of under Rp 100
\nmillion.<\/p>\n
"(Over Rp 100 million) is when the deposit insurance scheme
\nwould kick in," Darmin said.<\/p>\n
Currently, the blanket guarantee program, which was launched
\nin the aftermath of the late 1990s banking crisis, covers all
\ndeposits and almost all other claims on banks, including those
\nresulting from interbank transactions. This means that when the
\ngovernment closes down a bank, it must guarantee all of the
\nbank's obligations, which can be very costly.<\/p>\n
With the lengthy phasing out period, the insurance scheme will
\nmost likely remain effective at least for another 18 months.<\/p>\n
To replace the role of IBRA in implementing the blanket
\nguarantee program, a special unit under the Ministry of Finance
\nis to be established before IBRA's mandate expires on Feb. 27.<\/p>\n
The unit, to be called the banking guarantee implementation
\nunit (UP3), would operate on a temporary basis -- pending the
\nestablishment of the deposit insurance scheme.<\/p>\n
Firdaus Zaelani, in charge of setting up the new unit, said
\nthat all preparations were nearing completion. "It still needs
\nsome final touches, but not much, the unit will be ready when the
\ntime comes," Firdaus promised.<\/p>\n
He added that the unit would likely employ 30 people.<\/p>\n
The deposit insurance forms part of the government's grand
\ndesign in the formulation of the financial safety net, in a bid
\nto protect and preserve a sound financial system, to prevent
\nanother banking crisis.<\/p>\n
The other key components include the function of lender-of-
\nlast-resort and the establishment of the Financial Services
\nAuthorities Institution (LOJK).<\/p>",
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