'Anchor banks' criteria announced

'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.