'Anchor banks' criteria announced

Urip Hudiono, The Jakarta Post, Jakarta

Stepping up its efforts to improve the country's banking industry through the Indonesian Banking Architecture (API), the central bank announced on Thursday its criteria for the so-called "anchor banks", which will act as the country's main consolidating banks.

In reference to the API, Bank Indonesia (BI) will also require all banks in the country to have a minimum capital of Rp 80 billion (US$8.2 million) by 2007 and at least Rp 100 billion by 2010, at which time the API will come into full effect.

BI deputy governor for banking affairs Siti C. Fadjrijah said in a press conference on Thursday that those eligible to be anchor banks, according to the API, will in principle have to be sound performing banks.

They are banks that in the past three years have continuously recorded a core capital of over Rp 100 billion and a capital adequacy rate (CAR) of 10 percent.

"The banks should also have a second-grade financial health rating as stipulated in related BI regulations, as well as a good corporate governance (GCG) rating from rating agencies to be appointed by BI's GCG committee," she said. "These criteria will be reviewed every year in relation to BI's supervision towards the country's banks."

Furthermore, Siti said, anchor bank candidates should also perform better than those of sound performing banks, including having a CAR of up to 12 percent and a core capital ratio of 6 percent.

Anchor bank candidates should also have the potential to expand their business and profitability, as indicated in a minimum return on asset (ROA) of 1.5 percent.

The banks should also prove their intermediation function of channeling loans into the real sector, as indicated by having an annual credit growth record of at least 22 percent -- or a minimum loan-to-deposit ratio (LDR) -- and a net non-performing loan (NPL) ratio below 5 percent.

"The banks must have to be already publicly listed, or have plans to be publicly listed in the near future," she said.

Siti declined to mention which banks in the country were already eligible to become anchor banks according to the criteria, but said that several already fit the requirements.

BI launched the API in 2004, expecting to be able to consolidate and streamline the Indonesia's 132 banks. Under the API, BI expects there will only be up to five international banks and 10 national banks.

Concerning banks which fail to fulfill BI's minimum capital requirement of Rp 80 billion by 2007, Siti said they would be given a grace period of one year before being given sanctions, which include being prohibited to act as foreign exchange banks and having nationwide branch offices, as well as limiting their credit to only Rp 500 million and their third-party liabilities to 10 times of their core capital.

"BI will issue the regulations regarding core capital requirements on Friday," she said.