No bank closures this year: BI<\/p>\n
or<\/p>\n
BI: no bank closures this year<\/p>\n
Berni K. Moestafa
\nThe Jakarta Post
\nJakarta<\/p>\n
Bank Indonesia assured reporters on Monday that no banks would be
\nclosed down by the end of the year, as all had met their minimum
\ncapital to asset ratio requirements.<\/p>\n
\"All banks have met the eight percent CAR level, according to
\nthe reports that we have received,\" Bank Indonesia Senior Deputy
\nGovernor Anwar Nasution told reporters during a seminar on
\nprivatization held by the business consultancy firm CastleAsia.<\/p>\n
Anwar was referring to the Capital Adequacy Ratio, which rates
\na bank's health by measuring its risk-weighted assets, foremost
\nloans, against its capital.<\/p>\n
The higher a bank's CAR level is, the more it can provide in
\ncapital to cover loans that are at risk of turning bad.<\/p>\n
Except for some banks that had been placed under the care of
\nthe Indonesian Bank Restructuring Agency (IBRA), others were
\nhealthy, Anwar added.<\/p>\n
As for next year, he said the central bank had yet to decide
\nwhether to hike the CAR requirement to 12 percent, which is an
\ninternational standard level.<\/p>\n
According to him, the CAR level should grow in line with the
\nexpansion of a bank's operation.<\/p>\n
Raising CAR levels requires banks to either inject more
\ncapital, or restructure non-performing loans to lower their risk.<\/p>\n
But raising CAR levels again would not be easy, because
\ncapital was scarce and loan restructuring was progressing slowly.<\/p>\n
Even banks with an eight percent CAR level are not out of the
\nwoods yet, as loans' risks can increase rapidly. Unless capital
\nis injected to offset the rise in risk, CAR level will drop.<\/p>\n
In July, the central bank said nine banks were at risk of
\nclosure this year because of their weak CAR level.<\/p>\n
Failure to comply with the minimum CAR requirement could lead
\nto either merger, or liquidation.<\/p>\n
However, banks are given up to six months to improve their CAR
\nlevels before either of the two steps are taken.<\/p>\n
But for the government closing banks could be a costly option.<\/p>\n
Its blanket guarantee scheme require the government to cover
\nthe banks' third party liabilities.<\/p>\n
That had been among the reasons why the government injected
\nfaltering banks with recapitalization bonds in the wake of the
\n1997 financial crisis.<\/p>\n
For now, five banks under IBRA are known to be at risk of
\nowning a CAR of below eight percent this year. To avoid their
\nliquidation, the government is hoping to merge the banks.<\/p>\n
Turning to non-performing loan (NPL), Anwar said this year's
\ntarget of five percent was not obligatory, though it might become
\nnext year.<\/p>\n
Non-performing loans are those in which debtors have missed
\ntheir interest and principle payments by more than 90 days.<\/p>\n
The NPL ratio then measures a bank's NPL against its total
\nloans.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/no-bank-closures-this-year-bi-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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