Bank closures to 'pave' future path
Bank closures to 'pave' future path
The Indonesian government announced Saturday what the nation
saw as the largest number of banks liquidated at one time. In the
following discourse, economist Kwik Kian Gie talks about the
impact of the bold measure and the fate of the remaining banks.
Question: How do you feel about the liquidation of the 16
banks?
Answer: Excellent. I and many of my analyst colleagues
have sounded an alarm for 10 years on the urgent need to cleanse
our banking industry of bad banks. Now that it has finally
started in a concrete manner I feel grateful.
Q: What do you mean? Is this only the beginning?
A: That's right. Based on the information I have, the number of
bad banks is quite large, much larger than 16. Other banks will
eventually get the liquidation axe if they cannot make drastic
improvements.
Q: But Minister/State Secretary Moerdiono stated on Nov. 1 that
the liquidation of the 16 banks was final in the sense that there
would no longer be other banks closed. Why do you foresee some
other banks being liquidated?
A: Moerdiono had to make that kind of statement, which I think
was very wise. Without such assurance, other solvent banks might
be hit by a run on them. Moerdiono's statement should at least
calm the general public that no other banks will be closed soon.
I am confident that at least within a year or two new banks will
no longer be forced into liquidation. Therefore, people should
not panic and withdraw their savings from the remaining banks.
But after one year, people should make a reassessment.
Q: Don't you think it's better to close down all bad banks at the
same time to assure people that the other banks will remain for a
long period of time?
A: I and the banks' association prefer a bold, drastic measure
once and for all. The problem, though, is that funds needed to
bail out small depositors will be very large. A better way might
be to close insolvent banks annually, with a full government
guarantee for small depositors. But to garner public support for
the use of taxpayers' money for such a bailout, the government
must punish those responsible (management and shareholders) for
the bad banks. Bad debtors should also be penalized to discourage
borrowers from abusing loans.
Q: The bulk of bad credit is actually owned by state banks. Why
have these banks remained untouched?
A: It's only a matter of time. The government's reform package
announced Oct. 31 stated that "the privatization of state
companies will continue and this measure includes state banks
after their merger process is completed". My analysis is that the
problem will be solved through a massive writeoff, merger and
privatization (public listing) to raise fresh funds from the
stock exchanges.