Anxious public seeks truth on safest banks

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)