Anxious public seeks truth on safest banks
A crisis of confidence is rattling many following the recent closure of 16 private banks and last week's massive rumor-sparked rush on Bank Central Asia (BCA), the country's largest private bank. Depositors' top priority today is not interest rates or tempting incentives, but whether the bank will still be in business tomorrow. The Jakarta Post reporters Ida Indawati Khouw, IGGP Bayu Ismoyo, Johannes Simbolon, K. Basrie, Lukman Natanegara, Primastuti Handayani, Sugianto Tandra, Sylvia Gratia M.N. and Yogita Tahil Ramani tap the issue. Related stories on Page 9.
JAKARTA (JP): Flower trader Dadang pointed to gleaming, multistoried Bank Harapan Sentosa (BHS) on Jl. Gajah Mada, Central Jakarta.
"Did anyone think that a bank with such impressive headquarters and with so many branches could be closed down by the government?"
The 43-year-old had Rp 850,000 (US$246) deposited in BHS, one of the banks liquidated on Nov. 1.
"How could lower-class people like me know about the men behind the institution and the bank's financial problems?"
Dadang, like so many people dazed by the tumultuous events of the past few months, is now nervy about where to put his money.
In a bitter lesson in the importance of choosing substance over style when it comes to finances, uncertainty remains over Rp 11.7 trillion of depositors' funds in the liquidated banks.
Public anxiety culminated last week in the rush on BCA. Fueled by unfounded rumors of the death of bank founder Soedono Salim, customers withdrew billions of rupiah in a matter of hours.
Adding fuel to the fire of apprehension is the recent statement by Bambang Trihatmodjo, a shareholder in Andromeda Bank, one of the liquidated banks.
President Soeharto's second eldest son said 90 percent of all the banks here had violated the legal lending limit, one of the government's stipulations in the bank closures.
"I bet that there's not a single businessman here who knows where to put his money," said oil company executive Wimin Berlim.
"Many say that state or foreign banks are safer. But, still they say it with hesitation. It seems that we're facing a crisis of confidence."
Electing to save in banks overseas, he said, would only worsen the monetary woes. "Of course, we do not want to do that for the sake of our country's future, right?"
Banking analyst Laksamana Sukardi agrees that the powder keg of confusion and worry is exacerbating people's efforts to make the right banking choices.
"At present, people cannot think rationally. Instead, they are swayed by groundless rumors," said the former managing director of Lippo Bank.
There are reports of big transfers of accounts from private banks to state and foreign institutions.
Dadang Surachman, spokesman for Bank Negara Indonesia (BNI), acknowledged the state bank had acquired many new depositors following the recent liquidation.
Trend
Ekky Syachrudin, a member of the House of Representatives' Commission VIII for state budget affairs, said: "The trend persisted for some time until state banks recently lowered their interest rates on savings, which means the banks are very liquid now."
Beleaguered private banks are battling a calamitous reversal of fortune.
During the past decade, and particularly since the Pakto 1988 banking regulation, people scrambled to put their money in private banks, enticed by high interest rates and a range of attractive incentives.
The issuance of the October 1988 regulation -- which permitted any party to set up a bank with minimum paid-up capital of Rp 10 billion -- opened the floodgates for risk-taking entrepreneurs.
The number of private banks soared past 200.
Unfortunately, among their ranks were unscrupulous businesspeople. They recklessly used depositors' funds for intra- group lending to strengthen their business empires.
Six of 90 banks founded after the regulation came into effect were among those liquidated.
Most of the rest, plus several older institutions, are believed to be in dire financial straits.
Mergers are considered their best options to remain afloat.
According to Kontan economic newsweekly, the government will issue a regulation dividing banks into three groups based on owners' paid-up capital: more than Rp 1 trillion, between Rp 1 trillion and Rp 300 billion, and less than Rp 300 billion.
Only seven state and five private banks fall into the first group from the current roster of 221 banks (see table on Page 9).
The grouping system would also curtail lending limits on the banks.
Questions remain on whether the regulation will be enough to restore public confidence.
For the time being, people may be best served by their own judgment. Analysts say the measure of healthy banks can be made through considering financial reports, shareholders and type of management.
This is still not a surefire method of detecting the good from the bad, especially with the seemingly wealthy backers of some banks believed to be in trouble.
In descending order of priority, people now prefer to save at banks with good reputations, in convenient locations and with attractive incentives.
Some are adopting additional safeguards, keeping different currency accounts at several banks.
"I now know that safety is better than high interest rates," said Lisma, the owner of hundreds of rental houses in South Jakarta.
"So I believe that saving money at two or three banks, state and top private banks, is a wise step."
A security guard in West Jakarta advised: "Beware of banks which offer you high interest rates and lots of hefty prizes and promises. They are definitely in financial trouble."
Legislator Ekky warns that building people's confidence is essential to the overall health of the banking sector.
"Without their confidence, the banking system will collapse in the end, since it is from the people the banks get their fund," he says.
It will take more than soothing words and promising economic indicators to assuage people like Dadang burned by the bank liquidation.
He may be able to recoup his funds, but he has also learned the hard way that respectable appearances really can be deceptive. (team)