Bank ratings needed to protect depositors

JAKARTA (JP): An economist called yesterday for the introduction of bank rating agencies to help consumers assess the health of the country's banks.

The president of the Indonesian Business Data Center, Christianto Wibisono, said bank ratings would enable the public to make more informed choices, and would push banks to improve themselves.

"The public would know which local banks are healthy and which ones are not, and this would prevent depositors from moving their funds from local banks to foreign banks," Christianto said.

He said bank ratings would show consumers that investing in some banks would be risky, so that depositors would leave banks with lower ratings and pick more sound ones.

It would encourage some banks to strengthen themselves, and might push smaller banks to consolidate and merge, he said.

He said the number of banks in the country should be at least half the existing 221 banks, which include state-owned, private and foreign banks.

Christianto said Indonesia currently only had a rating agency, PT Pefindo, which focuses most of its activities on commercial paper and bond issuers.

He said bank rating agencies must be independent of business group owners, to prevent possible conflicts of interest.

Affiliation with an established foreign institution would also help build such an agency's credibility, he said.

Christianto also called for the establishment of a banking depositors insurance, to guarantee that depositors would get back their entire account balance should their banks close.

Depositors must be insured by a consortium involving the government and private firms, he said.

Insurance

Many countries provide insurance for bank depositors to protect consumers from losing their money deposited in banks that file for bankruptcy.

U.S. banks and other financial institutions are required to insure their depositors under the Federal Deposit Insurance Corporation, which guarantees to reimburse deposits in case of the institution's collapse.

Christianto said the U.S. government established the insurance at a time when many of its financial institutions were tumbling.

Separately, the Econit Advisory Group urged the government yesterday to increase the capital requirement for private banks to fortify the banking sector.

Econit director Laksamana Sukardi said the existing capital requirement for banks to operate was still much lower than those of other countries.

"The government must raise the minimum capital requirement to between Rp 700 billion and Rp 1 trillion," Laksamana said.

According to the existing capital requirement, a bank would have to increase its paid-up capital to at least Rp 150 billion if it wanted to upgrade its status to a foreign exchange bank.

Banks which already operate as foreign exchange banks, according to the existing capital requirement, are allowed to gradually increase their paid-up capital to Rp 50 billion by September of this year, to Rp 100 billion by September, 1999 and to Rp 150 billion by September, 2001.

Previously, the capital requirement was Rp 10 billion for non- foreign exchange banks and Rp 15 billion for foreign exchange banks.

Laksamana said increasing the capital requirement would help domestic banks compete with foreign banks, many of which would enter the country in the upcoming years, and would force smaller banks to merge.

However, the government must equally impose the requirement on foreign banks operating in the country, he said.

According to bank financial records as of March 31, many foreign exchange banks still could not meet the minimum capital requirement of Rp 50 billion, including several branches of foreign banks. (das)