Agency sets individual bank deposit guarantee at Rp100m

Fitri Wulandari, The Jakarta Post, Jakarta

The planned deposit guarantee agency may only guarantee individual bank deposits of not more than Rp 100 million (about US$11,628 at present rates), a senior finance ministry official said here on Monday.

Firdaus Djaelani, who heads a team assigned to set up the agency, said that the main mission of the agency was to protect the money belonging to small depositors.

He said that around 90 percent of depositors in the country's banks had individual deposit sizes of not more than Rp 100 million.

"We haven't come up with the fixed limit for the bank guarantee. But in our research, Rp 100 million covers 90 percent of all bank depositors," Firdaus told reporters.

"Our concern is to protect small depositors who probably have only Rp 100,000 or Rp 1 million (in individual deposit accounts). And the guarantee should cover as many of them as possible," he added.

Firdaus said small depositors often lacked access to information about their bank's performance. Consequently, when their bank collapses, it is too late for them to withdraw their money.

According to Firdaus, his team had completed the final draft of the bill on the agency -- expected to be established by 2004.

The agency will be set up as part of government plans to gradually phase out the existing -- and costly -- blanket guarantee for bank deposits and other bank liabilities.

The blanket guarantee scheme was first introduced in 1998 to help revive confidence in the ailing banking sector.

Under the scheme, the government covers all of a bank's obligations should the bank be shut down, including their third party liabilities.

But the scheme has been criticized by bankers who think that it does not allow market forces to function properly by natural checks and balances on weaker banks. Further, it has created a huge amount of liability for the debt-ridden government.

The government has so far collected around Rp 3 trillion in cash from the fees paid by banks participating in the blanket guarantee scheme. This money will be transferred to the deposit guarantee agency.

The government, which will have to announce six months in advance before it terminates the existing blanket guarantee scheme, has planned to first eliminate guarantees on off-balance accounts of banks such as commercial papers issued by banks, direct loans, letter of credit, and other derivative transactions. It would be followed by individual bank deposits worth over Rp 5 billion, and inter-bank loans. And finally, on third party funds below Rp 5 billion.

Initially, the government planned to apply phase one and two in January and August 2003 respectively. But it has been postponed due to strong protests from the banking industry.