Bank Danamon bankruptcy petition 'not valid'

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on Friday that the bankruptcy petition filed by Bank IFI against the publicly-listed Bank Danamon at the Jakarta Commercial Court was not valid.

Sjahril said that according to the existing law, only the central bank had the right to file bankruptcy petitions against banks.

"According to the law, a bankruptcy petition against a bank can only be made by Bank Indonesia," Sjahril told reporters at Bank Indonesia headquarters.

He added that Bank Indonesia would not file a bankruptcy petition against Danamon because such a move could have a detrimental impact on the overall domestic banking environment.

"There are a lot of depositors' money in the bank. If a bank as large as Danamon is put into bankruptcy, there will be national scale consequences," Sjahril said.

Bank IFI filed a bankruptcy petition on Wednesday against Danamon at the Jakarta Commercial Court on grounds that the latter declined to pay some US$12 million in debt.

The move by Bank IFI prompted the Jakarta Stock Exchange on Wednesday to suspend transactions in the shares of Bank Danamon, but the suspension was lifted the following day after learning that the bankruptcy petition was not valid.

The debt to Bank IFI was originally created by Bank Nusa Nasional, which was acquired by Bank Danamon last year together with seven other banks as part of the government bank restructuring program.

The principal amount of the debt is around $4.6 million, but combined with interest rates, Bank IFI said that the debt totaled $12 million.

Danamon disputed the total debt figure claimed by Bank IFI. "The figure of the interest is much bigger than the figure of the principal," said Danamon lawyer Amir Syamsudin.

Amir said that his client had tried to seek an out of court settlement via several rounds of negotiations facilitated by Bank Indonesia. He said Danamon was ready to pay the $4.6 million in debt principal plus around $1.4 million "placement," but the offer was rejected by Bank IFI.

Amir warned that Danamon would fight back if the actions taken by Bank IFI caused damage to its reputation.

Interest rate

Elsewhere, Sjahril dismissed reports suggesting that several domestic banks had been badly affected by the central bank's high interest rate policy.

"Please let me know if there are banks which have been badly affected (by the interest rate policy). I don't think there are any," Sjahril said.

The benchmark interest rate of one-month Bank Indonesia SBI promissory notes increased again to 16.26 percent on Wednesday. The central bank has allowed the interest rate to continue to move upward in a bid to help curb inflation and defend the ailing rupiah.

Several banks have reportedly started to suffer financial bleeding again due to negative spread.

Negative spread occurred mainly because the rising SBI rate put upward pressure on the time deposit rate. On the other hand the banks could not readily lend money at a higher rate because of the high risk associated with the business activities.

Some bankers complained earlier that the rising SBI rate could cause their banks to suffer negative spread, which could lead to further deterioration in their capital adequacy ratio.

Sjahril declined to speculate whether the SBI rate would continue to increase from the current level.

"It will depend on the economy. If it improves, interest rates (may go down)," he said.

The government had earlier called on the independent central bank to lower the interest rate, but Bank Indonesia insisted that it would stick to its biased tight monetary policy until inflationary pressure subsided.

Bank Indonesia pointed out that year-on-year inflation rate during the past several months had reached around 10 percent level.(rei)