Bank depositors to get better protection

Bank depositors to get better protection

JAKARTA (JP): The regulation on bank liquidations now being
drafted by the government will give stronger protection to
depositors, according to a senior official of Bank Indonesia, the
central bank.

Heru Soepraptomo, Bank Indonesia's managing director for legal
issues and supervision, said here Thursday that under the planned
regulation, depositors will receive priority in getting their
money back if their banks are liquidated.

It means that depositors will receive first priority in the
return of their funds should a bank be faced with liquidation
proceedings, he explained.

According to the existing regulation, the first priority is
placed on the government's claims such as taxes, followed by the
funds owned by the central bank and other creditor agencies.
Depositors are placed in the lowest rank, implying that they will
get their money back only if the bank has repaid all its
financial obligations to those institutions.

The liquidation process, currently regulated by the country's
Commercial Code, has been widely debated. The part of the process
related to the lack of the protection given to the
depositors.

"Depositors who, in fact, own most of a bank's funds should
now receive better protection," Heru told journalists after
addressing a seminar on merger and acquisition in the country's
banking industry.

In his address, he said that liquidation in the banking
industry should be avoided, because it will not only cause a
problem to depositors but also to other banks.

He said that mergers with other banks could become a better
alternative in dealing with a financial problem, and that the
central bank has issued a number of incentives to facilitate such
deals.

Indonesia, which houses around 240 commercial banks and over
6,750 secondary banks, has been "over-banked", he said. He added
that in such a tight market, small banks generally face
difficulties in competing with bigger ones. (hen)